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Saturday, September 5, 2009

Stanford exec faces heat from mentor's plea deal

James Davis and Laura Pendergest-Holt became friends after they met at church when she was a teenager in a small town. He mentored her and helped get her a job that paid $1 million a year. Now his evidence could put her behind bars for a long time.

Pendergest-Holt, who was chief investment officer in alleged swindler Allen Stanford's financial group, is a target for prosecutors in the $7 billion fraud case.

Davis, Stanford Financial Group's former chief financial officer, has been cooperating with the government for six months. On August 27, he pleaded guilty to fraud, conspiracy and obstruction of justice, and he signed a plea deal with prosecutors that puts Pendergest-Holt in a very tight spot.

Pendergest-Holt has pleaded not guilty to 21 felony counts of fraud, conspiracy and obstruction. Her criminal defense lawyer said previously that she will fight the charges at trial. The 36-year-old faces the possibility of life in prison -- a maximum penalty of 375 years -- if convicted on the charges.

Few female executives have ever faced such a litany of charges in a white-collar case.

"Typically what happens in a federal criminal action is the first people who cooperate get the best deal," Ken Springer, a former FBI agent and president of consulting firm Corporate Resolutions Inc.

Pendergest-Holt would have to have a very good defense to justify battling the charges in a post-Bernard Madoff era where juries and judges will likely take a harsher view of white-collar criminals, Springer and others said.

"If she had come around four months ago when she first got arrested, that would have been the time to cooperate because she could have delivered Davis," Springer said.

Pendergest-Holt is free on a $300,000 bond. Her criminal defense lawyer did not respond to requests for comment.

DEVIL IN DETAILS

The plea agreement with Davis details Pendergest-Holt's alleged involvement in a scam where Stanford clients were said to be duped into believing their investments were safe.

Instead, U.S. prosecutors said the funds were put into an illiquid pool of real estate and private equity investments, a fact they say Pendergest-Holt sought to hide from investors and research analysts who worked for her.

From 2005 through at least February 2009, Stanford, Pendergest-Holt and Davis attended investor conferences "where they would falsely tout the assets and earnings" of the offshore bank's assets and earnings, the plea deal said.

She is also accused of lying to investigators from the U.S. Securities and Exchange Commission. At the direction of Davis, Pendergest-Holt falsely told the SEC that she did not know about the offshore bank's alleged bogus assets, the plea agreement said.

Pendergest-Holt was also named to the offshore bank's investment committee in 2005, and "held herself out to investors" and others as managing the bank's entire investment portfolio, according to the June 18 indictment.

Davis' plea agreement contains an unusual amount of new information about the government's case that may signal the prosecutors' next move, said Gurbir Grewal, an attorney at Howrey LLP and former federal prosecutor.

"I think what they are trying to do is encourage a plea or have people come in and cut a deal," Grewal said.

The government has Stanford in their sights and will be eager to line up people to testify against him, so any new information from Pendergest-Holt, if she decided to cooperate, will likely be welcomed.

"If she has another piece of this case that Davis doesn't have, it might help," Corporate Solutions' Springer, said, adding that she could already be helping the government.

At first, after civil fraud charges were filed in February, Pendergest-Holt cooperated with the SEC.

But several days later, she was suddenly arrested in the lobby of Stanford Financial Group's Houston headquarters and stopped her cooperation, her lawyer said in court hearings.

BALDWYN CONNECTION

Davis, 60, and Pendergest-Holt met in a church in Baldwyn, Mississippi. At the time she was a teenager, but the pair remained close and years later Davis and Stanford hired her out of graduate school in 1997 as a research analyst.

Pendergest-Holt zoomed through the ranks at Stanford Financial Group and last held the job of chief investment officer, a job that paid her about $1 million per year in salary and bonus.

Davis was her direct supervisor, so his cooperation with the government sets up an uncomfortable showdown between the two small-town neighbors.

"It puts her in a difficult position to move forward," Howrey's Grewal said. "Here you have a mentor that is going to be requested to provide additional details about her conduct."

David Finn, Davis' attorney, said after a court hearing in July that his client agreed to cooperate because he felt very guilty. The attorney added that Davis was driven by greed.

"He had a heavy heart the very first time I met him," Finn told reporters outside federal court in Houston. "Ultimately he knew he did wrong," he said, adding that the evidence in the case was "overwhelming."

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