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Net Net: Promoting innovation and managing change

Taking the Stand Is Stanford's Only Chance

Linda R. Sittenfeld, CNBC Senior Producer
R. Allen Stanford

Robert Allen Stanford stands accused of a crime we now know all too well: the Ponzi scheme. He once stood at the helm of a financial empire with operations in 140 countries. He was called Sir Allen, knighted by the government of Antigua.

He owned private jets, two airlines, yachts, a cricket team and mansions. But federal prosecutors say he used $7 billion in depositor accounts as his own "personal piggy bank". In late 2008, when too many investors sought redemptions, the alleged scheme was exposed, and Stanford was arrested. In prison he suffered a head injury in a fight with another inmate; he claims to have amnesia. He was addicted to prescription drugs. He has hepatitis. He is indigent.

More than a dozen lawyers have been hired and fired by Stanford, but the trial is finally under way. Stanford is expected to testify in his own defense.

Kent Schaffer is a criminal defense attorney with Bires, Schaffer & Deborde in Houston, TX. His clients have ranged from Enron executives to celebrities, athletes and politicians. He represented Stanford for about 6 months.

LRS: How did you come to be hired and fired as Stanford's lawyer ?

Schaffer: The Court appointed me when Lloyds of London refused to pay legal fees to his first lawyer, then they said they would pay, and Stanford kept me on. We struck up a pretty good relationship. So I became retained rather than appointed. After 4 months or so we had a difference of opinion about the case. He felt my co-counsel and I were not subservient enough. Then he hired a civil lawyer. Then Lloyds decided again they weren't paying, so he got fired too.

LRS: How would you describe him ? Is he competent to assist in his defense ?

Schaffer: He has difficulty with his lawyers. He ran an empire with thousands of people who took orders. Trial lawyers don't take orders. They know better than the client. When the lawyers fail to follow orders he gets frustrated. The honeymoon's over. The relationship becomes contentious.

It's hard for me to say if he's competent. I haven't seen him in a year. But even if he's competent, after you lock someone up for a couple of years, it skews your perspective. Sleep habits are bad. He's in a very difficult position.

LRS: Should he testify ?

Schaffer: I don't see how he could win the case if he doesn't testify. He's going to have a number of people coming in saying things were done wrong - money was misappropriated, lies were told, etc. If your defense is you didn't know about all these things, it's hard to sell that defense without hearing from the defendant.

On the other hand, a lot of people are pointing the finger at him. If he doesn’t testify, even though the jury is not supposed to take that into consideration, they do. Why didn't he know what (partner) James Davis was doing ? Why didn't he know what his brokers were doing ?

LRS: This case has been compared to an organized crime case with old pals conspiring to cheat people out of their money. Is that just prosecutorial hype ?

Schaffer: Because of government hype, people believe he was involved in a Ponzi scheme. Those are buzz words now. But in a Ponzi scheme you pay off old investors with the money of new investors. That didn't happen here. It's important to show what money was used, and what it was used for. Maybe Stanford's firm didn't put investors' money in the most safe and secure investments. But how can you pay 12% or 15% on a CD without taking a lot of risk ? All the disclosures, all the contracts said you can lose part or all of your money.

When you put your money offshore, there's going to be risk. But a lot of people got their money. Up until the Feds shut them down, everybody got their money back.

People have to take a little more responsibility for what they do. Whether this was a Ponzi scheme or not, these investors knew it was risky. They're happy to take the big return. But when they lose their money they blame the government; they blame him; they blame everybody but themselves.

I wouldn't invest even a dollar offshore, but that's just me.

LRS: Ponzi scheme... the crime of the moment ?

Schaffer: Ponzi schemes have been around since the early 1900s. It's really mail fraud or wire fraud. The medium used makes it a federal offense. There's no specific charge known as a Ponzi scheme, even now. These crimes are mail fraud or wire fraud.

LRS: Does he have any chance of acquittal ?

Schaffer: His chances are very slim. He's already been convicted in the court of public opinion. When you hear about Ponzi schemes, after Madoff, people are going to be angry and upset. It's an uphill battle. It's going to be a tough case for the defense, in part because of the financial and political climate, and because Stanford has been vilified by the press. The revolving door of lawyers doesn't help.

I can't think of any acquittals in cases like this in the past few years.

He doesn't have much to lose by testifying

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