Judge: Stanford, ex-execs must pay own legal fees

AP News
Posted: Oct 13, 2010 7:35 PM
Judge: Stanford, ex-execs must pay own legal fees

Jailed Texas financier R. Allen Stanford and two former executives charged in a massive Ponzi scheme will be unable to rely on an insurance policy to cover mounting legal bills, a federal judge ruled Wednesday.

Lloyd's of London has balked at funding the defense of the three men on charges that they bilked investors out of $7 billion, saying the policy doesn't cover money laundering charges.

Conspiracy to commit money laundering is one of the many counts Stanford, Gilbert Lopez and Mark Kuhrt face in a federal indictment.

As of late last month, the insurer had paid more than $11.2 million in defense of the men in criminal and civil cases, with more than $8.2 million going to Stanford. The men say they can't pay their own legal bills because their assets have been confiscated.

Ruling in favor of Lloyd's, U.S. District Judge Nancy Atlas said that the insurer had proved the substantial likelihood that "Stanford knowingly committed acts of money laundering..."

The policy's money laundering exclusion also applies to Kuhrt and Lopez, Atlas said.

The policy's definition of money laundering is much broader than the definition found in the federal law that prosecutors have charged the three men with in the criminal case.

Atlas warned that her findings applied only to the insurance case. Atlas did not address whether Stanford, Kuhrt or Lopez engaged in criminal conduct as defined by the policy.

She said the findings are not intended for use in the criminal and civil cases. Atlas also made her ruling based on a preponderance of the evidence, which is a lower standard of proof than beyond a reasonable doubt, which is used in criminal cases.

Bob Bennett, Stanford's attorney, said he was disappointed but not surprised.

"We didn't present a full case," Bennett said. "Both sides will be able to do that in the criminal case."

Stanford does not plan to appeal the ruling and will continue preparing for trial, Bennett said. Stanford's trial, being handled by another Houston federal judge, is set to begin Jan. 24. The others will be tried after that.

Besides money laundering, Stanford and his one-time colleagues face charges of wire and mail fraud.

Jack Zimmermann, Lopez's attorney, said it seemed unfair his client had to be "involved in this kind of proceeding before the criminal trial. These kinds of things are usually done after the trial." Zimmermann said he was limited in what he could say because of a gag order issued by the judge in the criminal case.

Zimmermann said he was still deciding whether to appeal the ruling.

An attorney for Kuhrt did not immediately return a call seeking comment.

Attorneys for Lloyd's declined to comment. They have said that they intend to seek reimbursement for money that had been paid by the insurer.

Stanford and the former executives are accused of orchestrating a colossal pyramid scheme by advising clients from 113 countries to invest more than $7 billion in certificates of deposit at the Stanford International Bank on the Caribbean island of Antigua, promising huge returns. Stanford's businesses were headquartered in Houston.

However, Stanford's attorneys say that the once flamboyant billionaire ran a legitimate business and didn't misuse bank funds to pay for a lavish lifestyle, as prosecutors allege.

Attorneys for Kuhrt and Lopez said their clients were not aware of any bank fraud and informed others about concerns they had with the bank's operations.

Atlas concluded, from a four-day hearing that took place in August, that Stanford was aware that his bank's certificates of deposit were being marketed on false information about the bank's financial health and that he inflated the value of real estate holdings to make the business appear profitable.

Atlas also ruled Kuhrt and Lopez should have known, or suspected, that investment reports from the bank were fabricated, that CDs were being sold under false pretenses and that Stanford was reporting bogus assets and investment revenues to bring in new business and avoid a wave of CD redemptions.

Stanford, Kuhrt and Lopez all blame James Davis, Stanford's former chief financial officer, who pleaded guilty in the case and is cooperating with prosecutors.

A third indicted executive, Laura Pendergest-Holt, who had also been fighting for payment of her legal bills, settled her case with the insurer.

Stanford has been in jail since he was indicted in June 2009. The other executives are free on bond.