United States v. James M. Davis

CLOSED CRIMINAL DIVISION CASES

United States v. James M. Davis
Court Docket Number: H 09- 335

This case is assigned to the Honorable David Hittner, United States District Court Judge for the Southern District Texas, United States Courthouse, 515 Rusk Avenue, Houston, Texas. Arraignment was held on July 13, 2009 before Magistrate Judge Calvin Botley, who released Davis on a $500,000 bond, with a $5,000 cash deposit.

On January 22, 2013 James M. Davis, the former chief financial officer of Stanford International Bank (SIB) and Houston-based Stanford Financial Group, was sentenced to five years in prison for his role in helping Robert Allen Stanford perpetrate a fraud scheme involving SIB, and for conspiring to obstruct a U.S. Securities and Exchange Commission (SEC) investigation into SIB. The court also sentenced Davis to serve three years of supervised release and imposed a personal money judgment of $1 billion, which is an ongoing obligation for Davis to pay back criminal proceeds. The sentence follows Davis’ guilty plea to a three count information, charging him with one count of conspiracy to commit wire, mail and securities fraud, one count of mail fraud and one count of conspiracy to obstruct a Securities and Exchange Commission (SEC) investigation. During the sentencing proceeding, Judge Hittner noted that Davis began cooperating with the government in early 2009, shortly after SIB’s collapse. Judge Hittner also noted that over the following three years, Davis provided substantial assistance to the authorities in the investigation and prosecution of others, including testifying at Stanford’s trial; testifying during the trial of Gilbert T. Lopez Jr. and Mark J. Kuhrt, Stanford’s former chief accounting officer and global controller, respectively; and preparing to testify against Laura Pendergest-Holt, Stanford’s chief investment officer. The press release can be seen at: http://www.justice.gov/opa/pr/2013/January/13-crm-092.html.

As part of his 2009 guilty plea, Davis admitted that he and his co-conspirators defrauded investors who purchased approximately $7 billion in certificates of deposit (CDs) administered by SIBL, an offshore bank located on the island of Antigua. Davis further admitted that he and his co-conspirators misused and misappropriated most of those investor assets, including by diverting more than $1.6 billion into undisclosed personal loans to a co-conspirator, while misrepresenting to investors SIBL’s financial condition, its investment strategy and the extent of its regulatory oversight by Antiguan authorities. Davis and his co-conspirators began in 1990 to make false entries into the general ledgers of SIBL relating to revenues and revenue balances. Despite this false reporting, Davis and his co-conspirators promoted SIBL’s investments as being “well managed, safe and secure” and touted in SIBL’s annual reports false year-by-year percentage and dollar increases in the purported value of SIBL’s earnings, revenue and assets.

Davis further admitted in the plea documents that he and his co-conspirators used bogus revenue numbers for each year to generate the desired "Return on Investment" that was reported to investors. These "reverse engineered" numbers were developed using a secret instruction sheet that Davis admitted was provided to employees in SFG’s accounting group with instructions on to how to make changes to the spreadsheets to generate the false adjusted revenue figures.

Davis also admitted in the plea documents that in order to effectuate the scheme, misrepresentations were made to investors about who managed SIBL’s entire non-cash portfolio of assets. Specifically, Davis admitted that 80 percent of SIBL’s portfolio, internally referred to as “Tier III,” was not managed by global money managers, as was represented to investors, but was actually made up of illiquid investments. These included at least $2 billion in personal loans to a co-conspirator, which were disguised as investments, and overvalued real and personal property, including interests in real estate that SIBL had acquired in 2008 for approximately $65 million, but was ultimately valued on SIBL’s books at $3.2 billion. Davis admitted that none of these facts were disclosed to investors.

According to the plea documents, Davis admitted that he and his co-conspirators promoted the sale of SIBL CDs by representing to SIBL CD investors that SIBL’s operations and financial condition were being scrutinized by Antigua’s bank regulator, the Financial Services Regulatory Commission (FSRC). Davis also admitted that he knew these statements to be false, because he and his co-conspirators had funneled bribe payments to a bank regulator, who is also an accused co-conspirator, in order to ensure that Antiguan regulators would not properly examine the financial statements of SIBL.

Davis also admitted in the plea documents that in order to effectuate the scheme, misrepresentations were made to investors about who managed SIBL’s entire non-cash portfolio of assets. Specifically, Davis admitted that 80 percent of SIBL’s portfolio, internally referred to as “Tier III,” was not managed by global money managers, as was represented to investors, but was actually made up of illiquid investments. These included at least $2 billion in personal loans to a co-conspirator, which were disguised as investments, and overvalued real and personal property, including interests in real estate that SIBL had acquired in 2008 for approximately $65 million, but was ultimately valued on SIBL’s books at $3.2 billion. Davis admitted that none of these facts were disclosed to investors.

Also according to the plea documents, from 2005 through February of 2009, Davis admitted that he and his co-conspirators made a number of misrepresentations to the SEC in order to impair and impede the SEC’s investigation.

Order Regarding Sentencing Procedure

Victim Impact Statement Form

Order to Cancel

Order for Presentence Investigation and Sentencing Date

Order Continuing Davis Rearraignment

Order

Davis Plea Agreement

Information