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Magistrate sets bond for Stanford, delays release

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JUAN A. LOZANO | June 25, 2009 09:31 PM EST | AP

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HOUSTON — A federal magistrate judge set bond at $500,000 Thursday for Texas billionaire R. Allen Stanford but delayed her order until Friday to give prosecutors time to appeal her decision. Stanford pleaded not guilty Thursday to charges he swindled investors out of $7 billion as part of a massive investment scam.

Two family members and a friend agreed to pay the bond, which includes $100,000 in cash, set by U.S. Magistrate Judge Frances Stacy.

At Stanford's bond hearing, prosecutor Paul Pelletier argued Stanford should be held without bond because he might have access to billions of dollars in unaccounted investor funds and secret bank accounts.

Pelletier also said Stanford, who faces a potential life sentence if convicted, has prided himself on secrecy, has experience bribing officials, hid from authorities that he had a passport to the Caribbean island of Antigua, where his bank was based, and has an international network of wealthy acquaintances who would help him.

One of these acquaintances, Robert Jones, testified at the hearing that he recently agreed to give Stanford $36,000 to pay his lease on a Houston apartment for a year after only knowing him a few months.

"There are no conditions that will guarantee this defendant's appearance in court," Pelletier said. "This case demands pretrial detention."

Dick DeGuerin, Stanford's attorney, told Stacy his client did not defraud investors and just wants to clear his name. DeGuerin said Stanford even tried to surrender to federal authorities in the months before his indictment was handed down last week. Authorities couldn't take him into custody until charges were filed.

"He could have fled in the several months this was developing, very easily," DeGuerin said.

DeGuerin asked for a reasonable bond amount, saying his client has no money because authorities have seized all of his assets, including his underwear and socks.

After Stacy granted Stanford's bond, Pelletier said prosecutors would appeal her ruling by Friday.

Stanford entered his plea during his arraignment earlier in the day in federal court. The financier was indicted on charges that his international banking empire was really just a colossal Ponzi scheme.

Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt, three executives with the now defunct Houston-based Stanford Financial Group who were indicted along with their former boss, also entered not guilty pleas.

The billionaire and the executives are accused of orchestrating a massive fraud by misusing most of the $7 billion they advised clients to invest in certificates of deposit from the Stanford International Bank in Antigua.

During the detention hearing, Pelletier said investigators found a secret Swiss account Stanford controlled that was drained of more than $100 million in December.

Jeffrey Ferguson, a forensic examiner hired to review the records of Stanford Financial Group and its affiliated bank, testified nearly $1.2 billion of the $7 billion Stanford and his co-defendants are accused of bilking from investors can't be accounted for.

DeGuerin said the missing $1.2 billion was not taken by Stanford and he objected to Pelletier characterizing the Swiss account as secret, saying it was known to Stanford's employees and was used to pay investors who asked for their money back when the bank's problems became public.

"It's just wrong and it's designed to prejudice potential jurors who will hear this case," DeGuerin said.

After DeGuerin objections, Pelletier referred to it as the "unsecret bank account."

DeGuerin argued in court documents that Stanford is not a flight risk and highlighted his charity efforts, including his work with a foundation for single mothers in Antigua, strong ties to his children and amicable relationships with the mothers of his kids as examples of his strong character.

Stanford's elderly father James and at least 10 other family members and friends were at the nearly daylong detention hearing. Stanford was quiet for most of the hearing but at one point did joke with Stacy about the orange prison clothing he wore.

Stanford has been in federal custody since he was arrested in Virginia on June 18. He was returned to Texas on Tuesday and is being held in the Montgomery County Jail in Conroe, just north of Houston. He was taken to the courthouse in leg irons and handcuffs. The handcuffs were left on during his detention hearing.

Each of the most serious counts that Stanford faces carry prison terms of up to 20 years. But prosecutors say sentencing guidelines could increase his total sentence to life in prison.

Also indicted is Leroy King, the former chief executive officer of Antigua's Financial Services Regulatory Commission. He was taken into custody by island authorities and will now face extradition proceedings, according to a government official who spoke on condition of anonymity because she was not authorized to discuss the case. King is accused of accepting more than $100,000 in bribes to turn a blind eye to irregularities.

Stanford and his co-defendants are charged with wire fraud, mail fraud, conspiracy to commit mail, wire and securities fraud and conspiracy to commit money laundering.

Stanford, Pendergest-Holt and King are also charged with conspiring to obstruct a Securities and Exchange Commission investigation and obstruction of an SEC investigation.

The indictment charged Stanford and the others with falsely claiming to have grown $1.2 billion in assets in 2001 to roughly $8.5 billion by the end of 2008. The operation had roughly 30,000 investors, officials said.

Investigators say even as Stanford claimed healthy returns for those investors, he was secretly diverting more than $1.6 billion in personal loans to himself.

The indictment also says Stanford and the other executives misrepresented the Antigua island bank's financial condition, its investment strategy and how it was regulated.

James M. Davis, 60, Stanford Financial Group's chief financial officer, faces similar charges in a criminal information. He is due in court July 1. Davis has been cooperating with federal investigators.

A separate indictment in Florida accused another Stanford worker, Bruce Perraud, of destroying records important to the investigation.

The SEC filed a lawsuit in February accusing Stanford and his top executives of committing crimes similar to those in the indictment.

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Associated Press reporter Anika Kentish in St. John's, Antigua, contributed to this report.