Jurors hear conflicting descriptions of Stanford's business

R. Allen Stanford's trial began this week in Houston. R. Allen Stanford's trial began this week in Houston. Photo: Pat Sullivan Photo: Pat Sullivan Image 1 of / 1 Caption Close Jurors hear conflicting descriptions of Stanford's business 1 / 1 Back to Gallery

R. Allen Stanford built his financial empire on lies to investors reinforced with fraudulent arithmetic, a federal prosecutor told jurors Tuesday as the government began presenting its case against the Mexia native, accused of running a $7 billion swindle.

"He told them lie after lie after lie," Assistant U.S. Attorney Gregg Costa said. "He stole from them so he could live the lavish lifestyle of a billionaire."

A lawyer for Stanford countered that his client ran a legitimate if complex operation aimed at sophisticated investors.

Costa summarized the government's case with the aid of PowerPoint slides that highlighted lines from promotional material given prospective investors and included flow charts illustrating where prosecutors allege investors' money went.

Costa outlined how Stanford - listed by Forbes in 2008 as having net worth of $2 billion - operated through Houston-based Stanford Financial Group and its subsidiary, Stanford International Bank in the Caribbean island nation of Antigua. The bank sold certificates of deposit that promised much higher rates of return than CDs issued by U.S. banks.

Costa said prosecutors will prove that Stanford lied to investors on two fronts: that their investment was safe and that their money would be handled by experienced managers who would pick conservative investments from around the globe.

The truth was that Stanford used the money for risky investments in his own businesses, Costa said.

"He treated depositors' savings like his own piggy bank," Costa said.

A simple case?

During his 41-minute opening statement, Costa emphasized that the case was a simple one about a scheme that cleaned out thousands of investors around the world.

Costa said Stanford's scheme was based on fraudulent "elementary arithmetic" that would have been discovered if not for Stanford's manipulation of the truth and the corruption of those from the outside whose job it was to check the bank's numbers.

For 20 years, the Stanford financial empire operated through lying, theft and bribery, Costa said.

He said Stanford's scheme also co-opted an outside auditor, hand-picked by Stanford to examine his business ledger, and Leroy King, an Antiguan banking regulator.

The auditor received $3 million in bribes over time, Costa said, and King enjoyed perks including Super Bowl tickets and rides on Stanford's private jets. Both continually gave the operation a clean bill of health - and Stanford used those endorsements in promotional material.

King, one of four other defendants charged in a separate indictment, is fighting extradition from Antigua. The other three, Stanford company executives, are free on bail. The company's chief financial officer pleaded guilty and is expected to testify in the trials.

A 14-count indictment accuses Stanford of offenses including mail fraud, wire fraud, obstruction of a Securities and Exchange Commission investigation and conspiracy.

When SEC investigators confronted Stanford about numbers that didn't add up, he told investors the SEC inquiries were part of a routine examination, prosecutors allege.

The burden of proof

Stanford has been in federal custody since his arrest in 2009. U.S. District Judge David Hittner, who is presiding in the trial, ordered him held with bail after ruling that his wealth and international connections made him a flight risk.

In his 35-minute opening statement Tuesday, defense attorney Robert Scardino introduced the defense team and offered a primer on "beyond a reasonable doubt" - the burden of proof for conviction in a criminal case.

He said he would show that everything Stanford did was legitimate. "For 22 years he paid every penny that was promised," Scardino said.

Stanford, wearing a gray suit, white shirt and no tie, watched with a pensive expression as his lawyer told jurors the government's case relied on demonizing the company's promotional materials, which Scardino said were comparable to those of other financial services firms.

Scardino said Stanford's investment products were aimed at sophisticated clients making at least $200,000 a year. "Mr. Costa wants you to believe this is a simple case with simple arithmetic," Scardino said. "The evidence will show it's anything but simple."

He also noted a distinction between the CDs Stanford sold and securities, such as common stocks. Owners of bank CDs aren't entitled to specific information about how their money is invested, Scardino said, whereas such information must be provided to securities investors.

terri.langford@chron.com