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Friday, February 24, 2012

Accountant: Stanford's bank properly audited

Thursday, February 23, 2012

There was nothing "extravagant" about millions that were paid to the outside
auditor of jailed Texas tycoon R. Allen Stanford's Caribbean bank, an
accountant told jurors Thursday at the financier's fraud trial.

Prosecutors allege the bank was at the centre of a Ponzi scheme that took
billions from investors. But Morris Hollander, a forensic accountant hired
by Stanford's defense team, testified that his review of financial
statements and other documents seemed to show the bank was being properly
audited by the businessman's outside auditor, C.A.S. Hewlett, and the bank
was adhering to international accounting rules.

When questioned by a prosecutor, however, Hollander said he had not seen any
of the bank's actual accounting books and records. He said his conclusions
were based only on his review of prepared annual reports and other documents
that authorities allege were fabricated by Stanford.

Stanford is accused by prosecutors of orchestrating a 20-year scheme that
bilked more than $7 billion from investors through the sale of certificates
of deposit from his bank on the Caribbean island nation of Antigua. They
also allege Stanford, whose financial empire was headquartered in Houston,
lied to depositors by telling them their funds were being safely invested
but instead spent it on his businesses and his lavish lifestyle.

Prosecutors allege Stanford bribed Hewlett, who was based in Antigua, with
more than $4.6 million from a secret Swiss bank account over a 10-year
period, to help him hide the massive fraud. Defense attorneys say the money
was payment for auditing services.

"Are these amounts (the $4.6 million) extravagant ... if you were auditing
the bank?" Ali Fazel, one of Stanford's attorneys asked.

"In my view they are not extravagant," Hollander said.

Prosecutors have also alleged Stanford used up to $2 billion from deposits
as personal loans and investors were not made aware of the loans.

Hollander said based on international accounting standards, the loans did
not need to be reported to investors because they were actually investments
in Stanford's businesses, which included two airlines and a company that
maintained his fleet of private jets.

Prosecutor Andrew Warren said that from 2003 to 2008, Stanford's various
companies lost $711 million.

"Would people have bought the CDs if they had known the size of loans to Mr.
Stanford?" Warren asked.

Stanford's attorneys have said he was trying to consolidate his businesses
to pay back investors when authorities seized his companies. Hollander said
his review of prepared reports showed the proposed consolidation indicated
Stanford's various companies had a total value of $8.59 billion by the end
of 2008. Prosecutors allege nearly all of that money was already gone by
that point and the proposed consolidation was just a way to hide the fraud.

"Does consolidation allow you to create billions of dollars out of thin
air?" Warren asked.

"Not consolidation by itself," Hollander said.

Hollander spent much of his time going over the bank's reports and
explaining financial terms to jurors, sometimes in painstaking detail.

That prompted federal prosecutor Gregg Costa to say during a jury break that
the testimony was moving at a "glacial pace" and to suggest the defense team
was delaying the trial _ in its fifth week _ so it could have more time to
prepare for when Stanford takes the stand.

Fazel replied that "assumes Stanford will testify."

Defense attorneys said at the start of the trial the financier would
testify. After testimony ended Thursday, Fazel told U.S. District Judge
David Hittner a final decision hasn't been made.

Since Stanford began his defense last week, witnesses have said the
financier was not a hands-on boss and that his chief financial officer,
James M. Davis, handled the day-to-day operations of his businesses.
Stanford's attorneys have accused Davis, the prosecution's star witness, of
being behind the alleged fraud. Defense witnesses have also testified that
many of Stanford's business ventures were profitable and depositors were
informed there was risk with their investments.

Testimony was to resume Friday.


  1. Hollander was totally eviscerated by Warren (Prosecution). He'll be a laughingstock in the accounting profession from now on.


  2. It came out in questioning that CAS Hewlett erased all the SIB audit hard drives. Why wasn't she charged with obstruction of justice and jailed?