Stanford Asks Judge for Access to Funds to Defend Himself

By Andrew M. Harris and Laurel Brubaker Calkins

July 7 (Bloomberg) -- R. Allen Stanford, who the U.S. accuses of leading a $7 billion securities fraud, told a federal judge the criminal case against him should be thrown out if he doesn’t get access to money to pay his lawyers.

Stanford, in papers filed yesterday with U.S. District Judge David Hittner in Houston, said a court-ordered freeze on his assets prevents him from mounting a defense to a lawsuit filed by the U.S. Securities and Exchange Commission as well as in the criminal case filed last month. The SEC sued Stanford in a different federal court in February.

“Throughout the duration of this case, the government has repeatedly sought to deprive Mr. Stanford of his ability to obtain any funds to defend himself,” attorneys for the financier said in the 18-page submission.

The asset freeze was imposed by U.S. District Judge David Godbey in Dallas at the request of the SEC when the agency sued Stanford, two associates and three of businesses, accusing them of being part of a “massive” fraud centered on the sale of certificates of deposit through Antigua-based Stanford International Bank Ltd.

Stanford was indicted for fraud on June 18 together with Stanford Group Co. Chief Investment Officer Laura Pendergest- Holt. The company’s chief financial officer, James M. Davis, was charged separately that day with conspiring to aid the others.

Pendergest-Holt and Stanford have pleaded not guilty to the criminal charges. Davis is to be arraigned on July 13. His lawyer, David Finn, has said Davis is cooperating with the civil and criminal investigations and will plead guilty at a later date.

Bail Fight

Stanford, held at a jail in Conroe, Texas, has been fighting in court to be released on bail.

The issue of paying Stanford’s lawyers came to a head at a June 29 hearing in Hittner’s court on whether the financier should be held without bail until trial.

“I haven’t been paid a penny,” Stanford’s criminal- defense lawyer, Dick DeGuerin, told Hittner. ‘For expenses, legal fees, accounting fees, anything, zip.”

Hittner offered to “help get the attention of the powers that be, at least to get resolution on that point, because you’ve got to start cranking up a defense.”

In April, Stanford had asked Godbey for permission to pay attorneys from funds frozen by that judge’s February court order. Davis and Pendergest-Holt also have filed papers arguing that the court-imposed freeze was impairing their ability to defend themselves.

The SEC and Ralph Janvey, the receiver appointed by Godbey, opposed the release of frozen assets.

Request Denied

Godbey, in a July 1 ruling, denied Stanford’s request for access to his funds to pay lawyers’ fees, saying the financier hadn’t complied with an earlier order to provide an accounting of his personal assets.

In refusing to produce the financial statement, Stanford invoked his U.S. constitutional right not to incriminate himself.

His lawyers argue that he is now being asked to waive that right or his right to counsel.

Janvey, who is charged with marshalling assets to repay investors, also has laid claim to directors’ and officers’ insurance proceeds according to separate filings with Godbey by Pendergest-Holt and Stanford. The defendants each said they need those policy proceeds to help finance their defense.

Former SEC lawyer Jacob Frenkel said it’s unusual for a defendant to ask a federal judge to intervene in actions taken by another federal judge. It’s equally uncommon for a receiver to claim the proceeds from a defendant’s legal insurance policy in an effort to keep someone from defending himself, he said.

‘New Ground’

“This case is treading new ground in a lot of areas,” Frenkel, now in practice with Shulman Rogers in Maryland, said in a phone interview. “I don’t think we can rule out some of these issues potentially being resolved by the U.S. Supreme Court.”

Nancy Sims, a spokeswoman for the receiver, declined to comment on Stanford’s court filing. Kevin Callahan, an SEC spokesman, also declined to comment.

The criminal case is U.S. v. Stanford, H-09-342, U.S. District Court, Southern District of Texas (Houston). The civil case is SEC v. Stanford International Bank, 3:09-cv-00298-N, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporters on this story: Andrew M. Harris in Chicago at aharris16@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.