The No. 2 executive at Stanford Financial Group is now cooperating in federal criminal and civil fraud investigations of the firm.
The turnabout by James M. Davis, a director and chief financial officer of Stanford Financial, is a potential breakthrough for prosecutors pursuing an alleged $8-billion Ponzi scheme run by Texas financier R. Allen Stanford.
Until now, both Davis and Stanford had asserted their Fifth Amendment right against self-incrimination, the Securities and Exchange Commission said earlier this month.
In addition, Davis had “refused to provide documents and information accounting for the bank’s multi-billion dollar investment portfolio,” according to the SEC lawsuit.
But David Finn, a Dallas attorney and former prosecutor who now represents Davis, told the Journal “we are fully cooperating with the federal investigations.”
Finn said that Davis has not been promised any sort of leniency for his cooperation.
Davis has known Stanford since the two were college roommates at Baylor University, and is likely to know much about the company’s workings.
Stanford, Davis and a third executive, Laura Pendergest-Holt, were named last month in an SEC civil lawsuit in Dallas that accuses them of engineering “a massive Ponzi scheme” that misappropriated billions of dollars of investor funds.
After the lawsuit was filed, Stanford’s companies were placed in receivership and ceased operations.
Pendergest-Holt is currently the only Stanford employee who has been charged with a crime. She was arrested Feb. 27, and charged with obstruction of justice. She has denied any wrongdoing.
The criminal investigation is being overseen by Paul Pelletier, principal deputy chief of the Justice Department’s fraud section in Washington.
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