Stanford Found in Contempt on Insurance, Not Punished by Judge

c.2009 Bloomberg News

Dec. 17 (Bloomberg) -- R. Allen Stanford, who is facing civil and criminal allegations he led a $7 billion fraud scheme, was found in contempt of court by a U.S. judge in Dallas.

Stanford and his civil and criminal case co-defendant Laura Pendergest-Holt have been battling Lloyd's of London underwriters in federal courts in Dallas and Houston as they try to force Lloyds to pay their defense lawyers thorough Stanford's directors' and officers' insurance policies.

The policies, which cover the duo and other Stanford Financial Group of Cos. executives, are said to be worth as much as $95 million.

U.S. District Judge David Godbey in September barred the filing of any lawsuits over the policies in any court other than his in Dallas after the Stanford Group Co. executives tried to enforce their coverage rights in a U.K. court. The executives violated that civil court order by asking the judge overseeing the criminal case in Houston to order Lloyd's to fund their defense.

"Though the court finds defendants and their attorneys in contempt of its Sept. 28 order, it declines to impose sanctions," Godbey said yesterday in a six-page ruling.

The judge is presiding over the U.S. Securities and Exchange Commission lawsuit filed against Stanford, two associates and three of his businesses in February.

Houston Request

Pendergest-Holt and Stanford last month asked U.S. District Judge David Hittner in Houston to enjoin Lloyd's from rejecting coverage after the underwriters' attorneys told Hittner that Stanford Chief Financial Officer James M. Davis had admitted there was criminal activity at the company when he entered a guilty plea in August.

Godbey yesterday said he would have given the Stanford executives permission to file before Hittner if they had asked him before they filed.

"The court declines to coerce defendants into compliance with its order because it finds it appropriate for Judge Hittner to decide whether underwriters must pay defense fees in the criminal proceeding," Godbey said.

"We're glad Judge Godbey recognized Judge Hittner is in a unique position to determine this matter, and we're confident with our position" for today, when Hittner will hear arguments on the coverage debate at a hearing in Houston federal court, Stanford's criminal defense lawyer Kent Schaffer said in a phone interview.

'Very Serious Matter'

"I think this ruling shows Godbey recognizes the criminal case is a very serious matter and that it hasn't been moving along" because of Lloyd's refusal to pay defense lawyers, he said.

"If Lloyd's didn't want to honor these policies, they shouldn't have written them," Schaffer said. "It is well- settled that the admissions of one defendant don't bind another. The fact Jim Davis may be guilty has no implication for Allen Stanford or the other defendants."

Pendergest-Holt lawyers Dan Cogdell and Chris Flood didn't reply to requests seeking comment yesterday.

Neel Lane, one of the Akin Gump lawyers representing Lloyd's, declined to comment, citing the firm's policy to not discuss pending litigation.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).

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