Accountant: Stanford's bank properly audited

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Posted: Feb 23, 2012 8:42 PM
Accountant: Stanford's bank properly audited

There was nothing "extravagant" about millions that were paid to the outside auditor of jailed Texas tycoon R. Allen Stanford's Caribbean bank, an accountant told jurors Thursday at the financier's fraud trial.

Prosecutors allege the bank was at the center of a Ponzi scheme that took billions from investors. But Morris Hollander, a forensic accountant hired by Stanford's defense team, testified that his review of financial statements and other documents seemed to show the bank was being properly audited by the businessman's outside auditor, C.A.S. Hewlett, and the bank was adhering to international accounting rules.

When questioned by a prosecutor, however, Hollander said he had not seen any of the bank's actual accounting books and records. He said his conclusions were based only on his review of prepared annual reports and other documents that authorities allege were fabricated by Stanford.

Stanford is accused by prosecutors of orchestrating a 20-year scheme that bilked more than $7 billion from investors through the sale of certificates of deposit from his bank on the Caribbean island nation of Antigua. They also allege Stanford, whose financial empire was headquartered in Houston, lied to depositors by telling them their funds were being safely invested but instead spent it on his businesses and his lavish lifestyle.

Prosecutors allege Stanford bribed Hewlett, who was based in Antigua, with more than $4.6 million from a secret Swiss bank account over a 10-year period, to help him hide the massive fraud. Defense attorneys say the money was payment for auditing services.

"Are these amounts (the $4.6 million) extravagant ... if you were auditing the bank?" Ali Fazel, one of Stanford's attorneys asked.

"In my view they are not extravagant," Hollander said.

Prosecutors have also alleged Stanford used up to $2 billion from deposits as personal loans and investors were not made aware of the loans.

Hollander said based on international accounting standards, the loans did not need to be reported to investors because they were actually investments in Stanford's businesses, which included two airlines and a company that maintained his fleet of private jets.

Prosecutor Andrew Warren said that from 2003 to 2008, Stanford's various companies lost $711 million.

"Would people have bought the CDs if they had known the size of loans to Mr. Stanford?" Warren asked.

Stanford's attorneys have said he was trying to consolidate his businesses to pay back investors when authorities seized his companies. Hollander said his review of prepared reports showed the proposed consolidation indicated Stanford's various companies had a total value of $8.59 billion by the end of 2008. Prosecutors allege nearly all of that money was already gone by that point and the proposed consolidation was just a way to hide the fraud.

"Does consolidation allow you to create billions of dollars out of thin air?" Warren asked.

"Not consolidation by itself," Hollander said.

Hollander spent much of his time going over the bank's reports and explaining financial terms to jurors, sometimes in painstaking detail.

That prompted federal prosecutor Gregg Costa to say during a jury break that the testimony was moving at a "glacial pace" and to suggest the defense team was delaying the trial _ in its fifth week _ so it could have more time to prepare for when Stanford takes the stand.

Fazel replied that "assumes Stanford will testify."

Defense attorneys said at the start of the trial the financier would testify. After testimony ended Thursday, Fazel told U.S. District Judge David Hittner a final decision hasn't been made.

Since Stanford began his defense last week, witnesses have said the financier was not a hands-on boss and that his chief financial officer, James M. Davis, handled the day-to-day operations of his businesses. Stanford's attorneys have accused Davis, the prosecution's star witness, of being behind the alleged fraud. Defense witnesses have also testified that many of Stanford's business ventures were profitable and depositors were informed there was risk with their investments.

Stanford is on trial for 14 counts, including mail and wire fraud, and could be sentenced to more than 20 years in prison if convicted. Once considered among the U.S.'s wealthiest people with an estimated net worth of more than $2 billion, he has been jailed without bond since being indicted in 2009.

Testimony was to resume Friday.

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Follow Juan A. Lozano at http://www.twitter.com/juanlozano70