Overview: all eyes on Allen Stanford's CFO

It should come as no surprise that in the case of Allen Stanford’s allegedly
fraudulent investment scheme, the investigation has also focused on his chief
financial officer James Davis at Stanford International Bank.

Davis was named in the charges but has so far chosen to keep quiet, refusing
to cooperate with investigators.

Stanford and the sec

On 17 February, US financial enforcer the Securities and Exchange Commission
announced it was charging Allen Stanford, billionaire banker and cricketing
impresario, with an alleged investment fraud running to around $8bn (£5.7bn). A
statement made by the SEC’s director of enforcement Linda Chatman, said:
‘Stanford and the close circle of family and friends with whom he runs his
businesses perpetrated a massive fraud based on false promises and fabricated
historical return data to prey on investors.’

The charges named Stanford, Davis and Laura Pendergest-Holt, Stanford’s chief
investment officer (it’s worth noting that the business was started during the
Great Depression by Stanford’s grandfather Lodis who opened an insurance
company).

But Davis, a college room mate of Stanford’s and from rural Missippi, has
decided that he will not, as yet, cooperate with the SEC and its investigation.
On 27 February, he invoked the Fifth Amendment of the US constitution, which
allows him to remain silent to avoid incriminating himself.

In prepared statements, Davis said he would not be commenting on how
investors were found or how their money was invested. Nor was he willing to talk
about his own assets or anything he did that might be related to Stanford
business.

Last week Allen Stanford followed suit and said he wouldn’t be talking
either.

Papers filed by the SEC at court last week alleged that Stanford’s chief
compliance officer threatened to report her own concerns unless SIB stopped
taking deposits. This warning was sent to Stanford and Davis.

The SEC also sought to permanently freeze the assets of Stanford, Davis and
Pendergest-Holt.

Speaking up

Historically, CFO’s have figured heavily in major corporate scandals over the
past decade.

Andrew Fastow, former CFO of Enron, famously refused to testify before a
panel of US congressmen. A couple of years later and he pleaded guilty to
charges of fraud, money laundering and conspiracy and became the main
prosecution witness in the pursuit of Enron CEO Jeffrey Skilling and chairman
Ken Lay. He is due out of prison in 2011.

Scott Sullivan, CFO at WorldCom and architect of its byzantine accounting
schemes, also declared himself guilty, took a reduced sentence ­ five years ­
and testified against CEO Bernie Ebbers.

But these events should not be seen as predicters of the future for the fate
of Davis at SIB. Only Pendergest-Holt faces criminal charges and those are for
obstruction, not fraud. The SEC will have to prove its case against the others
through the civil courts. And, while the charges have been pored over in the
media, they remain unproven in a court. All eyes will be on the hearing when it
happens.