April 9 (Bloomberg) — Stanford Group Co. Chief Financial Officer James M. Davis, accused by federal regulators of helping his boss, R. Allen Stanford, run a multibillion dollar Ponzi scheme, will enter plea negotiations with prosecutors.

Davis was sued by the U.S. Securities and Exchange Commission along with Stanford. Davis will negotiate to resolve potential criminal and civil liability related to a suspected $8 billion Ponzi scheme, his attorney said.

“We anticipate beginning those conversations as early as next week,� David Finn, Davis’s lawyer, said today in a phone interview. “Things are accelerating rapidly. We are starting to shift gears and starting to look forward for a resolution.�

The SEC sued Stanford, Davis, Chief Investment Officer Laura Pendergest-Holt and three affiliated companies, accusing them of running a “massive ongoing fraud’’ selling certificates of deposit through Antigua-based Stanford International Bank.

Davis, 60, began cooperating with federal investigators March 25, Finn said. Until now, discussions focused exclusively on helping to locate Stanford assets around the world, including roughly $105 million in Stanford-linked London bank accounts frozen last week by a U.K. High Court order.

“We’ve not had plea negotiations to this point, but we’re making plans to start going down that road,’’ Finn said today. “Thus far virtually all of the time that we’ve spent with the SEC and DOJ investigators has focused on locating assets and helping them understand what did and did not happen.�

‘Most Pressing’

Neither Stanford nor Davis has been charged with a crime. Finn said insuring that talks resolve any potential criminal charges Davis faces would “obviously be the most pressing concern.�

“We’d love to wrap it all up at once,� Finn said. “Our priority will be on the criminal front. The tail won’t be wagging the dog, and the SEC case would be the tail in this situation�

Stanford, 59, said April 6in an interview with ABC News that he might be criminally indicted within the next two weeks. Dick DeGuerin, the Houston lawyer Stanford hopes to hire if he can access court-frozen funds, has denied Stanford did anything wrong.

Pendergest-Holt was charged with criminal obstruction of the investigation and released on $300,000 bail. Her lawyer said she is innocent. Pendergest-Holt agreed to extend the government’s deadline to formally indict her until April 28.

Ian McCaleb, spokesman for the Justice Department, declined to comment on the investigation.

The SEC case is SEC v. Stanford International Bank, 09- 00298, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

Last Updated: April 9, 2009 14:37 EDT

COMPREHENSIVE REFORM STILL CRITICALLY NEEDED TO PROTECT
ATTORNEY-CLIENT PRIVILEGE AND EMPLOYEE LEGAL RIGHTS
In response to growing concerns raised by Congressional leaders, former Justice Department officials, and many in the legal and business communities, the Department of Justice replaced the 2006 “McNulty Memorandum� in August 2008 with new corporate charging guidelines that direct U.S. Attorneys and Assistant U.S. Attorneys not to coerce companies and other organizations to waive their attorney-client
privilege or work product protections, or to pressure their individual employees to waive their own legal and constitutional rights during investigations in return for cooperation credit. The Securities and Exchange Commission subsequently issued a new Enforcement Manual in October 2008 that provides additional guidance on its privilege waiver policy outlined in the 2001 “Seaboard Report.� Though helpful,
the SEC’s new language still contains numerous loopholes and does not provide adequate protection for the privilege and employee legal rights.

In November 2007, the House overwhelmingly approved comprehensive legislation known as the “Attorney-Client Privilege Protection Act� (H.R. 3013). Many of the bill’s reforms were later adopted by the Justice Department in its new corporate charging guidelines. But unlike the limited scope of the DOJ policy, the reforms in the House bill—sponsored by Representatives John Conyers (D-MI), Bobby Scott (D-VA), and Lamar Smith (R-TX)—would apply to all federal agencies. A Senate companion bill, S.
3217, sponsored by Senators Arlen Specter (R-PA), (Vice President-elect) Joseph Biden (D-DE) and 12 other Senators from both parties, was also introduced in the 110th Congress but failed to receive a vote.

While the new Justice Department policy is a welcome and important improvement over its previous policy outlined in the McNulty Memorandum, a comprehensive solution to the ever-widening problem of government-coerced waiver is still critically needed. Therefore, the Coalition strongly supports the adoption of a Presidential Executive Order to all federal agencies requiring them to adopt effective DOJ-type reforms or the enactment of comprehensive federal legislation like the Attorney-Client
Privilege Protection Act (ACPPA) for the following reasons:

• The new DOJ policy, standing alone, does not provide a comprehensive solution to the problem of government-coerced waiver. Under the Justice Department’s new policy, companies will be required to provide all relevant facts to government investigators in order to receive full cooperation credit, but they cannot be asked or required to waive their attorney-client privilege or work product protections. In addition, where DOJ is the only investigating agency, the policy specifically bars prosecutors from pressuring companies, as a condition for receiving cooperation credit, not to pay their employees’attorneys fees or to take other unfair actions to undermine their employees’ rights and ability to mount a legal defense. Although these reforms are promising and constitute a significant improvement over DOJ’s previous policy, the new policy is limited to just the Department’s prosecutors and does not alter the
harmful waiver policies adopted by the SEC, the EPA, HUD, and many other agencies.

• The new SEC Enforcement Manual also contains many loopholes and fails to solve the governmentcoerced waiver problem. Although Section 4.3 of the SEC Manual states that agency staff should not directly ask companies to waive the attorney-client privilege or work product, it permits the staff to demand waiver if approved by a supervisor. The SEC Manual also pressures companies to “voluntarily� waive the privilege—and to take punitive actions against employees who decline to waive their legal rights—in return for full cooperation credit. Thus, the new Manual cannot be viewed as a substantialdeparture from past SEC policies and practices that have led to widespread government-coerced waiver.

• Government-coerced waiver has become a multi-agency problem that requires a multi-agency solution. In addition to the SEC, many other federal agencies have adopted policies that erode the attorney-client privilege, the work product doctrine, and employee legal rights. For example, the EPA’s “Audit Policy,� like the Justice Department’s previous McNulty Memorandum, authorizes agency officials to pressure companies to waive their attorney-client privilege and work product protections
during investigations. In addition, HUD and the Treasury Department’s Office of Foreign Asset Control(OFAC) have adopted policies that threaten to erode not only the attorney-client privilege and the work product doctrine, but also employees’ Sixth Amendment right to counsel and Fifth Amendment right against self-incrimination. As more and more federal agencies adopt similar waiver policies, broad
administrative or legislative reform is still needed to protect these fundamental rights and reverse the “culture of waiver.�

• A Presidential Executive Order applying reforms like the Justice Department’s recent reforms to all federal agencies—or new comprehensive legislation like ACPPA—would protect fundamental attorney-client privilege, work product, and employee constitutional rights during investigations. By applying the new DOJ reforms to the SEC, HUD, the EPA, and all other federal agencies, a Presidential executive order should prevent the agencies from pressuring companies to waive their attorney-client privilege and work product protections in order to receive full cooperation credit during investigations. Such an order also would help protect employees’ Sixth Amendment right to counsel and Fifth Amendment right against self-incrimination by preventing federal prosecutors from pressuring companies not to pay employees’ legal fees during investigations, to fire employees for not waiving their rights, or to take other punitive measures against the employees before their guilt has been established under law. Enactment of comprehensive legislation like S. 3217 and H.R. 3013 would offer similar benefits to a Presidential order, with the added advantage of making these critical reforms permanent and enforceable in a court of law.

• A Presidential executive order or comprehensive legislation would both strike the proper balance between effective law enforcement and the preservation of essential attorney-client privilege, work product and employee legal protections. Adoption of the Presidential order—or passage of legislation like the ACPPA—would prevent all agencies from forcing companies and employees to waive their fundamental legal rights while preserving the ability of prosecutors and other agency officials to obtain the important, non-privileged factual materials they need to punish wrongdoers and enforce the law.

 

By Laurel Brubaker Calkins

April 4 (Bloomberg) — Stanford Group Co.’s finance chief, James M. Davis, is helping investigators track European assets that might help repay victims of the suspected $8 billion Ponzi scheme involving Texas billionaire R. Allen Stanford.

“Jim Davis’s focus in the last week has been on European institutions and especially institutions in Switzerland,� Davis’s lawyer, David Finn, said yesterday in a phone interview. “Jim Davis is helping them follow the money trail, because it’s going to lead straight to Allen Stanford’s doorstep.�

Finn said he didn’t know how much money Davis has helped investigators locate so far.

The U.S. Securities and Exchange Commission sued Stanford, Davis and Chief Investment Officer Laura Pendergest-Holt, along with three Stanford companies, on Feb. 17 for allegedly running a “massive, ongoing fraud� through the sale of high-yield certificates of deposit by Antiguan-based Stanford International Bank.

The SEC suit claims Stanford skimmed $1.6 billion in personal loans from his companies. Finn said Davis earned a total of $4 million to $5 million after-taxes during 10 years as Stanford’s second-highest ranking officer.

“So when the government finds out where the money went, and whose pocket or pockets it went into, the difference between Davis and Stanford will become crystal clear,� Finn said.

Stanford Denial

Dick DeGuerin, a lawyer who has agreed to defend Stanford if the financier can access funds frozen by the court, has denied the company was a Ponzi scheme.

U.S. District Judge David Godbey in Dallas placed Stanford’s corporate and personal assets under the control of receiver Ralph Janvey, who is trying to locate and liquidate assets for the benefit of depositors. In a court filing, Stanford accused Janvey of “wasting� his assets.

“The receiver is wasting the assets of the Stanford entities and of R. Allen Stanford, rather than preserving them,� Stanford said in the filing he mailed to Godbey. The document isn’t publicly available. DeGuerin’s office provided a copy of the filing to Bloomberg News yesterday.

Stanford, 59, and Davis, 60, haven’t been criminally charged. Pendergest-Holt, 35, who was charged with criminally obstructing the investigation, has said through her lawyer that she is innocent.

Finn said a plea deal hasn’t been discussed during the “many, many hours� that Davis has been cooperating with investigators, beginning March 25.

“We’ve not spent one single second� negotiating a plea, Finn said. “When all the assets have been found that can be found, then we may turn to negotiations on the SEC and criminal fronts,� he said.

Kevin Callahan, an SEC spokesman, declined to comment in an e-mail.

The case is Securities and Exchange Commission v. Stanford International Bank Ltd., 3:09-cv-00298-N, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

Last Updated: April 4, 2009 00:01 EDT

“We are fully cooperating with federal investigators. It’s a massive investigation that will take some time to resolve. We are ready, willing and able to answer questions truthfully and provide whatever assistance we can.â€? Attorney David Finn, who represents Stanford finance chief James M. Davis.

NPR.org, March 24, 2009 · The chief financial officer of the troubled companies owned by Texas billionaire R. Allen Stanford has promised full cooperation with federal investigators looking into an alleged $8 billion investment fraud, the man’s attorney said Tuesday.

Finance chief James M. Davis’ decision to work with investigators comes nearly two weeks after a court filing indicated he would assert his Fifth Amendment right against self-incrimination. Court documents said Davis would not “testify, provide an accounting or produce any documents” related to the Securities and Exchange Commission’s civil case, which accuses him and Stanford of running a Ponzi scheme.

Dallas attorney David Finn, who recently began representing Davis, said he could not comment on his client’s previous stance.

“We are fully cooperating with federal investigators,” Finn said. “It’s a massive investigation that will take some time to resolve. We are ready, willing and able to answer questions truthfully and provide whatever assistance we can.”

Finn said there will be “a time and a place” to address allegations of Davis’ involvement in what the government has alleged is an investment fraud centered on certificates of deposits sold at Antigua-based Stanford International Bank.

Davis was not promised leniency, Finn said. He is cooperating with both the SEC and the Department of Justice’s fraud unit, which has begun a criminal investigation.

“Nothing has been promised and nothing has been asked for,” Finn said. “It’s premature to be discussing or contemplating any sort of negotiations along those lines.”

An SEC spokesman and a Justice Department spokesman declined to comment. In a criminal complaint filed against Laura Pendergest-Holt, the chief investment officer of the Stanford Financial Group, the FBI revealed it has been investigating Stanford’s companies since June.

Only Pendergest-Holt has been charged with a crime — obstructing the SEC’s investigation. Her attorney did not immediately respond to a request for comment.

Davis’ cooperation could help the government advance its case against Stanford, who has no attorney listed in connection with the investigation. Chuck Meadows, a Dallas attorney who represented Stanford at a hearing earlier this month, has withdrawn from the case.

About 85 percent of the 32,000 Stanford accounts that were frozen after a federal judge placed Stanford’s assets under control of a receiver have been released to investors. The remaining accounts are mostly CDs or bank accounts at Stanford International Bank in Antigua.

Although the names of some investors have been publicly reported, the receiver has agreed to keep their identities confidential. That’s a victory for those wishing for privacy, said Steve Malouf, a Dallas attorney who represents hundreds of South American investors, mostly from Ecuador and Venezuela.

“We all want the same thing,” Malouf said. “We want the receiver to collect as much as he can and return it to the account holders with as little deductions as possible.”

Finance chief James M. Davis’ decision to work with investigators comes nearly two weeks after a court filing indicated he would assert his Fifth Amendment right against self-incrimination. Court documents said Davis would not “testify, provide an accounting or produce any documents” related to the Securities and Exchange Commission’s civil case, which accuses him and Stanford of running a Ponzi scheme.

Dallas attorney David Finn, who recently began representing Davis, said he could not comment on his client’s previous stance.

“We are fully cooperating with federal investigators,” Finn said. “It’s a massive investigation that will take some time to resolve. We are ready, willing and able to answer questions truthfully and provide whatever assistance we can.”

Finn said there will be “a time and a place” to address allegations of Davis’ involvement in what the government has alleged is an investment fraud centered on certificates of deposits sold at Antigua-based Stanford International Bank.

Davis was not promised leniency, Finn said. He is cooperating with both the SEC and the Department of Justice’s fraud unit, which has begun a criminal investigation.

“Nothing has been promised and nothing has been asked for,” Finn said. “It’s premature to be discussing or contemplating any sort of negotiations along those lines.”

An SEC spokesman and a Justice Department spokesman declined to comment. In a criminal complaint filed against Laura Pendergest-Holt, the chief investment officer of the Stanford Financial Group, the FBI revealed it has been investigating Stanford’s companies since June.

Only Pendergest-Holt has been charged with a crime — obstructing the SEC’s investigation. Her attorney did not immediately respond to a request for comment.

Davis’ cooperation could help the government advance its case against Stanford, who has no attorney listed in connection with the investigation. Chuck Meadows, a Dallas attorney who represented Stanford at a hearing earlier this month, has withdrawn from the case.

About 85 percent of the 32,000 Stanford accounts that were frozen after a federal judge placed Stanford’s assets under control of a receiver have been released to investors. The remaining accounts are mostly CDs or bank accounts at Stanford International Bank in Antigua.

Although the names of some investors have been publicly reported, the receiver has agreed to keep their identities confidential. That’s a victory for those wishing for privacy, said Steve Malouf, a Dallas attorney who represents hundreds of South American investors, mostly from Ecuador and Venezuela.

“We all want the same thing,” Malouf said. “We want the receiver to collect as much as he can and return it to the account holders with as little deductions as possible.”

The development could advance the inquiries, which haven’t been able to secure information from Texas financier R. Allen Stanford, say people familiar with the matter. The Securities and Exchange Commission said earlier this month that Mr. Stanford had asserted his Fifth Amendment right against self-incrimination in its civil case against him.

 R. Allen Stanford
“We are fully cooperating with the federal investigations, ” said David Finn, a Dallas attorney for Mr. Davis, and a former federal prosecutor.

Mr. Stanford and Mr. Davis, college roommates at Baylor University, were named last month in an SEC civil lawsuit in Dallas that accuses them of engineering “a massive Ponzi scheme” that misappropriated billions of dollars of investor funds.

After the lawsuit was filed, Mr. Stanford’s companies were placed in receivership and have ceased operations, Mr. Davis was CFO of Stanford Financial.

A third Stanford Financial executive, Laura Pendergest-Holt, also was named in the suit and faces a separate criminal complaint accusing her of obstruction of justice.

No other criminal charges have been filed in the Stanford matter. But, even if Mr. Davis provides federal authorities with evidence against Mr. Stanford — whom Mr. Finn said “has hurt a lot of good people” — Mr. Davis still faces his own legal problems.

Mr. Davis, Mr. Stanford and Ms. Pendergest-Holt are subjects of a federal criminal investigation into Mr. Stanford’s financial empire, according to people familiar with the matter.

A Justice Department spokesman declined to comment. The criminal investigation is being overseen by Paul Pelletier, principal deputy chief of the agency’s fraud section in Washington.

Mr. Stanford couldn’t be reached for comment. Through an attorney, Ms. Pendergest-Holt, Stanford Financial’s chief investment officer, has denied any wrongdoing.

Mr. Davis’s cooperation in the federal and civil probes marks a switch. According to the SEC lawsuit, he “refused to provide documents and information accounting for the bank’s multi-billion dollar investment portfolio.” He later also asserted his Fifth Amendment rights.

Mr. Davis served as a director and chief financial officer of both Stanford Financial and Stanford International Bank, based in Antigua.

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