Stanford, Execs Deny Key Role in Alleged Fraud Cited by Lloyd’s

August 30, 2010

Lawyers for Texas financier Allen Stanford and two accounting executives who worked for him sought to distance their clients Friday from the alleged financial wrongdoing insurer Lloyd’s of London cites as a reason to void a policy covering their defense fees.

“Mr. Stanford was not really a hands-on guy,” Robert Bennett, Stanford’s attorney, said during closing arguments after four days of hearings in federal court. “Mr. Stanford was not at the center of anything illegal or wrong.”

The nondisclosure of a nearly $2 billion unsecured loan to Stanford, misrepresentations to investors and phony accounting are all grounds to stop paying claims under a directors and officers policy, the British insurer said.

Stanford, accounting executives Mark Kuhrt and Gilbert Lopez and Chief Investment Officer Laura Holt have sued Lloyd’s of London over payment of the fees. But that policy has a money laundering exclusion, so Lloyd’s must prove to U.S. District Judge Nancy Atlas in Houston that the plaintiffs committed that act.

Holt struck a deal with the insurer before the start of the hearings last Tuesday. She and the three other plaintiffs in this case are accused of participating in an alleged $7 billion Ponzi scheme centered around fraudulent certificates of deposit (CDs) issued by Stanford’s offshore bank in Antigua.

“It is clear that the money collected for the CDs was criminal property as defined by the policy,” said Barry Chasnoff, an attorney for Lloyd’s. “There was no evidence offered to the contrary.”


Lawyers for Stanford and the accounting executives have placed a lot of the blame on James Davis, the former chief financial officer of Stanford International Bank Ltd. (SIB) who pleaded guilty last August to three felony counts related to the scheme.

Davis had the final sign-off on numerous financial documents from SIB, the institution the government claims is at the center of the alleged scheme, lawyers and witnesses said.

“I believe that Mr. Kuhrt and Mr. Lopez were middle-level accounting managers and it was Mr. Davis’ responsibility to deal with the auditors on these issues,” Alan Westheimer, an accountant hired by Kuhrt and Lopez as an expert witness, testified.

Stanford also relied on Davis — his former No. 2 man at the company and former classmate from Baylor University — as well as on the professional advice of accountants and lawyers, Bennett told the hearing.

Still, Atlas told the hearing it was clear to her that Lopez and Kuhrt “were close to the top,” and were close to Davis.

She said she had a suspicion that Lloyd’s would not be fronting legal fees to the men after the hearings.

Lloyd’s has advanced as much at $6 million to pay for Stanford’s attorneys, many of whom have left the case or been fired by their client.

Stanford, who is 60 and is in jail awaiting a January trial, faces one count of conspiracy to commit money laundering as part of a 21-count June 2009 indictment.

The hearings were seen as a preview of Stanford’s criminal case. Many people involved in the case, including Stanford and Lopez, invoked their Fifth Amendment right and did not testify, so much evidence centered on documents that are part of the government’s civil and criminal case.

The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd’s of London and Arch Specialty Insurance Co, U.S. District Court, Southern District of Texas, No. 09-3712.

(Reporting by Anna Driver, editing by Matthew Lewis)

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