Stanford's memory impaired, witnesses say

R. Allen Stanford arrives at federal court for a hearing before U.S. District Judge Nancy Atlas in Houston August 24, 2010.

HOUSTON (Reuters) - Financier Allen Stanford is suffering from brain injury and memory loss, witnesses said on Wednesday at a hearing on whether the accused swindler can stand trial.

Stanford is accused of defrauding his investors with a $7 billion Ponzi scheme. His lawyers argue he is not competent to go to trial because a jailhouse fight has left him with severe memory loss.

"Mr. Stanford is not competent to stand trial today," said forensic psychologist Victor Scarano, one of three doctors who testified for the defense on Wednesday.

On Tuesday, a prison psychologist testified that Stanford was competent.

The hearing goes into a third day on Thursday. Judge David Hittner, who must decide whether Stanford's trial on fraud charges can go ahead as scheduled on January 23, said he would make a quick decision. Stanford has pleaded not guilty to the charges.

Stanford, 61, sat quietly at the defense table during Wednesday's proceedings. Hittner allowed his handcuffs to be removed so he could take notes to communicate with his lawyers.

While Scarano testified that Stanford would be unable to analyze documents in a fraud trial, Assistant U.S. Attorney Gregg Costa noted that Stanford had been able to file a lawsuit against the government during the time doctors said he was incompetent.

Stanford "fooled investors for 20 years. Why couldn't he fool a few doctors," Costa said.

Stanford once owned luxury homes in the Caribbean, Houston and Miami. He was arrested in June 2009 and has been indicted on charges of fraud, conspiracy and money laundering stemming from the alleged Ponzi scheme. A Ponzi scheme is a fraud in which existing investors are paid with the deposits of newer ones.

On Tuesday, prison psychologist Robert Cochrane, testifying for the government, said Stanford was competent to stand trial. Cochrane said it would be "incredibly rare" for a person to suffer memory loss that would prevent him from recalling key events from his life before the 2009 fight.

The case is U.S. v. Stanford, U.S. District Court, Southern District of Texas. No. 09-00342.

(Reporting by Eileen O'Grady; editing by Eddie Evans, Phil Berlowitz)