‘Blood Oath’ Sealed Stanford Deal, Court Is ToldBy CLIFFORD KRAUSS
New York Times
Sep. 02, 2009
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HOUSTON — R. Allen Stanford’s relationship with the chief regulator of his Antigua bank was closer than most.
At a meeting in 2003, they became blood brothers, cutting their wrists and mixing their blood in a “brotherhood ceremony” that Mr. Stanford’s chief financial officer said promoted an elaborate scheme to hide a multibillion-dollar fraud from American and other regulators.
The assertion that the two took a “blood oath” was laid out in a plea agreement signed by the officer, James M. Davis, and filed Thursday. After the pact, Leroy King, Antigua’s chief banking supervisor, called Mr. Stanford “Big Brother.” He received Super Bowl tickets, valued at thousands of dollars, for himself and his girlfriend. And he accepted regular bribe payments from a secret Swiss bank account that Mr. Davis said he was told to handle by Mr. Stanford.
The unusual twist to the case, in which Mr. Stanford is accused of operating a multibillion-dollar Ponzi scheme, was disclosed by Mr. Davis as he pleaded guilty on Thursday to fraud and conspiracy in Federal District Court in Houston. Mr. Davis, who oversaw the movement of vast sums of money at Stanford International Bank, also said in a plea agreement that Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988, when Mr. Stanford ran an offshore bank on the Caribbean island of Montserrat.
“I did wrong. I’m sorry. I apologize. And I take responsibility for my actions,” Mr. Davis said after the hearing.
Mr. Stanford was also supposed to appear in court on Thursday, but he was hospitalized in the morning after his pulse rate soared, his lawyer said.
While he has repeatedly denied accusations that he ran a Ponzi scheme involving certificates of deposit issued by Stanford International Bank, he has also insisted that if anything illegal did happen, it must have been Mr. Davis’s fault.
Mr. Davis, who had been a friend of Mr. Stanford’s since they were roommates at Baylor University in Waco, Tex., started his own church in Mississippi and led prayers before bank business meetings. His lawyer, David Finn, said Mr. Davis was now working on a family farm in Michigan doing manual labor for $10 an hour as an expression of penance. He now faces up to 30 years in prison.
“He had a very heavy heart,” Mr. Finn said. “He was very contrite, and not all of my clients are.”
The plea agreement and a court presentation on Thursday by prosecutors repeated many facts that were outlined in June in an indictment of Mr. Stanford, several Stanford aides and Mr. King. Mr. Stanford and others are accused of defrauding 30,000 investors of $7 billion, filing false reports to regulators and investors, diverting more than $1.6 billion into undisclosed personal loans to Mr. Stanford, and conspiring to obstruct an investigation by the Securities and Exchange Commission.
But the plea agreement offered an assortment of new details, particularly about the relationship between Mr. Stanford and Mr. King, who ran Antigua’s Financial Services Regulatory Commission for much of the last decade. He has been arrested in Antigua and is awaiting extradition to the United States.
Shortly after their 2003 blood-brother ceremony, which also included a second, unnamed Antiguan regulator, Mr. Stanford complained that two Antiguan regulators who worked for Mr. King were “becoming aggressive and suspicious in their examination” of the Stanford bank on the island, the plea agreement said. Both employees “soon thereafter were reassigned or replaced,” Mr. Davis said in the plea agreement.
To show appreciation for Mr. King’s services, Mr. Stanford paid $8,000 for tickets to the 2004 Super Bowl game in Houston so the regulator could take his girlfriend to the event. The next year, in June, Mr. King showed Mr. Stanford a confidential letter he had received from the S.E.C. seeking information about the Stanford bank’s certificates of deposit investment portfolio, stating that the agency had evidence to suggest the bank was engaged in a “possible Ponzi scheme.” Mr. Stanford and an unnamed aide then drafted “a false and misleading response” to the S.E.C., according to the plea agreement.
In September 2006, Mr. King tipped Mr. Stanford off to another letter from the S.E.C. Mr. Stanford, Mr. Davis and others proposed various responses designed to mislead the American regulators, which Mr. King was expected to transmit back to the S.E.C.
Mr. King also helped mislead regulators of the Eastern Caribbean Central Bank when they began raising questions about Mr. Stanford’s bank, the plea agreement said. He faxed a proposed response to the Caribbean regulators to an unnamed lawyer working for Mr. Stanford. In it, Mr. King joked in a handwritten note: “Please do not bill me (laugh), Thanks a million, Lee.” The note was taken as an oblique reference to bribes already paid, according to the agreement.
Mr. King, who holds American and Antiguan passports, is reviewing legal documents and has not yet publicly responded to the charges against him, according to Attorney General Justin Simon of Antigua and Barbuda. In an interview in February, just after Mr. Stanford’s offices in Houston were raided by federal authorities, Mr. King said, “I am absolutely sure that my banking system is clean.”
Mr. Simon said in an interview that he had become aware of the blood-brotherhood ceremony from his own sources. “It is believable,” he said. “As far as how many people are involved, we are still investigating.”
By the middle of 2008, the agreement asserts, Mr. Stanford, Mr. Davis and others were scrambling “desperately” to hide the details of their fraud by inflating the value of their assets on the books with “bogus real estate.” The conspirators “designed a real estate transaction wherein they would falsely inflate and convert an approximate $65 million real estate transaction in Antigua into a purported $3.2 billion dollar asset,” according to the agreement. But by January the S.E.C. was moving in fast, and when Mr. Davis met with Mr. King, “King appeared very stressed” and wondered if they could still hide their secrets. Mr. Davis tried to reassure him.
In an interview in April, Mr. Stanford said he gave Mr. Davis broad responsibilities to oversee investments. “If bad things were happening, he never brought them to my attention,” Mr. Stanford said. “He did his job and I stayed out of his hair.”
Mr. Finn acknowledged after Thursday’s plea hearing that Mr. Stanford would attempt to discredit his client during a future trial. “The only way he walks is if he can convince a jury that my client is the mastermind,” he said. “Allen Stanford uses people. Did my client allow himself to be used? Absolutely.”
Mr. Finn said it would be strange for his client to have run a fraudulent scheme to pay for Mr. Stanford’s lavish lifestyle when he was getting paid relatively little for his efforts. He said Mr. Davis had earned between $5 million and $6 million after taxes over the last decade, and was now virtually penniless.
Mr. Stanford’s lawyer, Dick DeGuerin, has asked for court permission to quit the case because his client can not assure that he will be paid. Mr. Stanford was supposed to appear in court for a hearing on whether he could retain a new legal team. Mr. Stanford has asked to be represented by two other lawyers, but they also have said they need assurances that they will be paid.
Mr. Stanford’s assets and his companies’ assets have been frozen.