HOUSTON (Bloomberg) — Allen Stanford didn't lead a Ponzi scheme that fleeced investors of $7 billion, a former federal prosecutor who reviewed evidence against him told a US judge in Houston.

Securities lawyer Christopher Bebel reported his conclusions on the fourth day of trial in a case brought by the indicted financier to force Lloyd's of London underwriters to pay for his criminal defence lawyers.

"I haven't seen any evidence that links Mr. Stanford to any particular criminal act and establishes a knowing intention" to break any laws, said Bebel, testifying on Friday on Stanford's behalf.

Stanford is suing the London-based underwriters to gain access to $100 million in liability insurance coverage. His assets and those of three co-defendants in his criminal case were frozen by a February 2009 court order when the US Securities and Exchange Commission filed a lawsuit accusing the financier of leading a $7 billion fraud scheme.

The Stanford Financial Group Cos. executives were indicted in June 2009 by a US grand jury in Houston. Each has denied all wrongdoing. Stanford is scheduled to stand trial alone in January.

He and his co-defendants face 21 criminal charges that they swindled investors through the sale of bogus certificates of deposit issued by Antigua-based Stanford International Bank Ltd.

Lloyd's lawyers contend the insurer doesn't have to pay for the defence of Stanford and his co-defendants. The sale of the bank CDs through the use of misleading information voids the coverage because of an exclusion for money laundering, the lawyers said.

The insurers have cited for proof of wrongdoing the August 2009 guilty plea of Stanford Group Cos. chief financial officer James Davis, who said he helped perpetrate the alleged scheme. He faces as long as 30 years in prison when he's sentenced.

Bebel, who previously prosecuted white-collar crimes at the US Attorney's office in Minneapolis, told US District Judge Nancy Atlas that he found no incriminating evidence against Stanford in reviewing materials presented in the insurance case.

He said the indictment against Stanford and his colleagues "mischaracterises" his enterprises as a Ponzi scheme, which is defined as using money from new investors to pay off earlier investors.

"It's ridiculous," Bebel testified. "There were legitimate, ongoing business operations, and that right there is inconsistent with a Ponzi scheme."

Bebel also testified that he reviewed documents in which Stanford, in late 2008, contemplated rolling more than 100 related businesses under his control into a single corporate entity that would have had assets worth $9 billion to $11 billion and a $2 billion profit.

"That $2 billion in profits could've been used right there to wipe away" the $1.7 billion borrowed from investor assets at the Stanford bank to fund the financier's other business ventures, loans for which he later assumed personal responsibility, Bebel said.

Lawyers for Lloyd's of London and a forensic accountant they hired to examine Stanford's books have said the bank's failure to publicly disclose the $1.7 billion in loans to Stanford is proof of fraud.

Lloyd's attorneys said Stanford engaged in numerous illegal activities, including falsely touting the bank's performance to employees and investors and failing to correct false statements his top officers made to the same groups.

"No matter how distant the lawyers say Sir Allen was," Lloyd's lawyer Barry Chasnoff told Atlas in closing arguments on Friday, "at the very least he was aiding and abetting the commission of acts that were designed to obtain criminal property."