Criminal case is high-stakes battle for Stanford

NEW YORK (Reuters) - For months, Texas tycoon Allen Stanford has vowed to fight accusations his financial empire was a vast fraud. But the stakes have gotten much higher now that he has been hit with criminal charges that could land him in prison for life if he is convicted.

The financier proclaimed his innocence through his lawyer again Friday, after being indicted on charges of fraud, conspiracy and obstruction. Prosecutors say he ran a $7 billion swindle at Stanford Financial Group that bilked investors throughout the United States and Latin America. [nN19424154]

Stanford, who already faces civil fraud charges, is confident a jury will find him not guilty of any crime, his lawyer said. A trial could be at least a year away, given the complexities of big business fraud cases, legal experts say.

The key to the government's case could be help from one of Stanford's chief lieutenants and former college roommate, ex-Chief Financial Officer James Davis.

Davis was charged with conspiracy Friday in a separate legal document typically used when a defendant has decided to plead guilty.

Davis' lawyer, who did not immediately respond to phone messages from Reuters seeking comment, has said previously that his client was cooperating with investigators probing the Stanford affair and expected to enter plea negotiations with federal prosecutors. [nN09299860]

Legal experts say that when a senior executive agrees to admit guilt and works with the government in bringing a case against his or her boss, the results can be devastating.

"Realistically with a CFO cooperating, that is not good news for Allen Stanford," said Robert McGahan, a partner at law firm Goodwin Procter LLP in Los Angeles and a former federal prosecutor. He is not involved in the Stanford case.

STAR TRIAL WITNESSES

The criminal indictment unsealed Friday contends that Davis regularly consulted with Stanford on the company's financial status and made decisions on revenue and asset numbers to report to investors at Stanford's direction.

People charged in criminal cases involving multiple defendants sometimes agree to plead guilty and testify against others in hopes of getting a lighter sentence.

After the massive WorldCom fraud earlier this decade, former CFO Scott Sullivan pleaded guilty and was the government's star witness at ex-Chief Executive Bernard Ebbers' trial. They got strikingly different prison terms: Ebbers was convicted and sentenced to 25 years; Sullivan got five.

The strategy has its risks for prosecutors, experts say.

"Most likely Stanford's lawyer and the lawyers for the others will probably try to demonstrate it was Davis who is responsible, who devised and carried out the alleged fraudulent activities unbeknownst to the others," said New York criminal defense lawyer Bradley Simon, who is not involved in the case. "It's possible that strategy could be persuasive."

Also named as defendants are Stanford Financial's former chief investment officer, two other executives and the top financial regulator in Antigua.

Since accusations of wrongdoing first began swirling around Stanford earlier this year, the financier has vehemently professed his innocence in a string of media interviews.

He told Reuters in April that the U.S. Securities and Exchange Commission had "disemboweled" his business and that he had depended on subordinates to oversee his Houston-based company's investment portfolio.

Stanford even went so far as to try to turn himself in to authorities in Houston that month in anticipation he would be charged criminally. But he was turned away because there was no warrant for his arrest.

Defense lawyers usually advise against trying a case in the media due to concerns a client could say something incriminating or damaging to their cause.

However, sometimes high-profile defendants give pre-trial interviews anyway, such as the late Kenneth Lay of Enron Corp who was interviewed on "60 Minutes" before his 2006 trial, though that was several years after Enron collapsed. Lay was convicted, but died before he could be sentenced.

Now that Stanford faces criminal charges that carry up to 250 years in prison if he is found guilty, McGahan said the best advice is for him to stop discussing the case outside of court. For now, Stanford remains in federal custody following an initial court appearance in Virginia Friday.

"I would imagine his lawyer would tell him to be quiet," McGahan said. "Everything he says is a potential admission or an inconsistent statement."

(Reporting by Martha Graybow; Editing by Tim Dobbyn)