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Stanford CFO pleads guilty

James M. Davis, center, former chief financial officer of now-defunct Stanford Financial Group, with his attorney, David Finn, leaves the federal courthouse in Houston on Thursday after pleading guilty to three counts in the investment fraud.

Associated Press

James M. Davis, center, former chief financial officer of now-defunct Stanford Financial Group, with his attorney, David Finn, leaves the federal courthouse in Houston on Thursday after pleading guilty to three counts in the investment fraud.

HOUSTON — The former finance chief for jailed Texas financier R. Allen Stanford said his boss created a business empire where "blood oaths" were taken to secure loyalty, bribes were paid from a secret Swiss bank account and investor profits were more fiction than financial genius.

New details about how Stanford, through his Houston-based Stanford Financial Group, allegedly bilked investors out of $7 billion were made public Thursday after James M. Davis, his former chief financial officer, became the first person to plead guilty in the case.

Davis pleaded guilty in Houston federal court to three counts: conspiracy to commit mail, wire and securities fraud; mail fraud; and conspiracy to obstruct a Securities and Exchange Commission investigation.

Davis, 60, made only a brief statement after his hearing.

"I did wrong. I'm sorry. I apologize. I take responsibility for my actions," he told reporters outside the courthouse.

But Davis' 23-page plea agreement provided new details of how Stanford's business began; how he, Stanford and others manufactured profits; and how panic set in as they tried to hold off federal investigators who were closing in on their scheme.

Asked why Davis defrauded investors for years, David Finn, his attorney, said it was greed.

To protect his scheme, Stanford paid more than $200,000 in bribes, as well as $8,000 for two tickets to the Super Bowl in Houston in 2004, to Leroy King, the former chief executive officer of Antigua's Financial Services Regulatory Commission. Stanford was a business icon in the Caribbean island nation.

Davis said Stanford secured King's loyalty in a most unusual way. "Sometime in 2003, Stanford performed a 'blood oath' brotherhood ceremony with King and another employee of the FSRC. … This brotherhood oath was undertaken in order to extract an agreement from both King and the other FSRC employee that they, in exchange for regular cash bribe payments, would ensure that the Antiguan bank regulators would not 'kill the business' of the bank," according to Davis' plea agreement.

Stanford had Davis get the bribe money from a secret Swiss bank account that was funded by investors' money. The account was also used to make bribes to the bank's outside auditor.

When the SEC began investigating Stanford's bank and contacted King by letter in 2005 and 2006 about its probe, Stanford and others in his company helped King write false and misleading response letters.

Stanford hospitalized

On Thursday, R. Allen Stanford, accused of orchestrating a $7 billion investment Ponzi scheme, was taken from the privately run prison where he is being held outside Houston to a local hospital with an irregular heartbeat and high pulse. Stanford had been set to appear in court for a hearing on whether he can get a new attorney. U.S. marshals spokesman Alfredo Perez said Stanford was undergoing tests at the hospital but declined to give more details.

Stanford CFO pleads guilty 08/27/09 [Last modified: Thursday, August 27, 2009 8:44pm]
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