Prosecutors are asking a federal judge to rule that financier Allen Stanford has regained competence and can stand trial over an alleged $7.2 billion Ponzi scheme.

Stanford, who was indicted in 2009 on 21 counts including securities fraud and money laundering, had been found by a U.S. judge early this year to be of diminished mental capacity and unable to assist in his own defense. But in November, the Bureau of Prisons Federal Medical Center in Butner, North Carolina, concluded that he is now competent to stand trial, according to court filings.

United States District Judge David Hittner is scheduled to hear arguments on Stanford's competency at a hearing December 20 in Houston. Stanford's lawyers are asking the court to rule that he remains incompetent.

The medical center evaluated Stanford for eight months and concluded that he does not suffer from a mental illness which would interfere with his ability to understand the nature and consequences of the proceedings against him or to assist properly in his defense, the prosecutors' proposed order to the court said, quoting from the medical center's report. The full report was filed under seal.

After Stanford was ruled incompetent in January of this year, medications he was prescribed after being severely beaten by a fellow inmate in September 2009 were reduced after medical experts said the medications were over-prescribed and hindering his cognitive function. Though the reduction was successful in improving his cognitive function, the government's court filings said, Stanford is now claiming to have complete memory loss of all events prior to the assault.

The government argued that Stanford is faking the amnesia and that, on several occasions, including a May 2010 court hearing in a related civil case, he has demonstrated he remembers events prior to the assault. Neurological testing also showed no basis for memory loss, the filing said, and that the type of amnesia claimed by Stanford is a rare phenomenon.

In a proposed order submitted to the court, however, Stanford's attorneys said that he suffered a traumatic brain injury due to the assault and that the cocktail of medications administered by the Federal Department of Corrections exacerbated the condition. Stanford's mental condition has not so improved as to permit the proceedings to go forward, the proposed order said. Doctors retained by the defense concluded that Stanford is still incompetent to stand trial.

Stanford's attorney, Ali Fazel of Austin, Texas, was not immediately available for comment.

The case in U.S. District Court, Southern District of Texas is United States v. Robert Allen Stanford, 09-cr-342.

(Reporting by Erin Geiger Smith; Editing by Phil Berlowitz)