Legal News

Alarm Bells for Allen? Stanford Financial?s No. 2 to Cooperate With the Feds

By Ashby Jones

Could this be an uh-oh moment for R. Allen Stanford? The lawyer for James Davis, the No. 2 executive at Stanford Financial Group, has said that Davis has decided to is cooperate in federal criminal and civil fraud investigations of the business group. Click here for the WSJ story.

“We are fully cooperating with the federal investigations, ” said David Finn, Davis’s lawyer. (For all those with a little time on their hands, check out Finn’s quite elaborate Web site. Looking for a little primer on expunctions in Texas? Click here. Want to peruse his “library of motions?” Click here.)

So far, Stanford has declined to cooperate in the pending SEC case against him — asserting his Fifth Amendment right against self-incrimination. Stanford and Davis, college roommates at Baylor University (Go Bears!), 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. Click here, here and here for previous LB posts on the case involving Stanford, the cricket-loving Texan.

Stanford has not been criminally charged. But after the lawsuit was filed, Stanford’s companies were placed in receivership and have ceased operations. 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, though that theoretically could change if Davis provides federal authorities with good evidence against Stanford. All three individuals, Davis, Stanford and Pendergest-Holt are subjects of a federal criminal investigation into Stanford’s financial empire, according to people familiar with the matter.

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.

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. Stanford couldn’t be reached for comment.

Full post as published by Law Blog - WSJ.com on March 24, 2009 (boomark / email).