Stanford Used Fake Accounting to Back Bank, Witness Says

(Reuters) -- Allen Stanford used fake accounting to prop up his offshore bank in its waning days, as withdrawal requests from investors poured in, Stanford's former top deputy said on Monday.

Faced with a worrying number of withdrawals in 2008, Stanford came up with a plan to make a $600 million capital infusion into the bank, said James Davis, Stanford's former chief financial officer and the government's top witness.

Stanford is on trial in federal court in Houston, charged with bilking his investors in a $7 billion Ponzi scheme run from his bank in Antigua. Prosecutors allege that Stanford, who has pleaded not guilty, sold fraudulent certificates of deposit and used the proceeds to buy jets, luxury homes and Caribbean real estate.

In the spring of 2008, Stanford's accountants inflated the value of about 1,500 undeveloped acres in Antigua that Stanford had bought for $64 million. The accountants planned to flip the property through a series of transfers to put the real estate back on the bank's books with a value of more then $3.2 billion, Davis told the court.

"No actual cash or assets were going into the bank?" William Stellmach, a federal prosecutor, asked Davis. "No, sir," Davis replied.

The transaction was meant to fill a hole left by Stanford's profligate spending, which became apparent as investors took their money out of the bank, Davis said.

But, by the end of December, 2008, Stanford International Bank had only $88 million in cash, far less than the $1 billion it claimed to hold, according to documents Stellmach showed to jurors. The U.S. Securities and Exchange Commission seized Stanford's businesses and assets in February 2009.

Davis, 63, said stress related to keeping the scheme going eventually took a toll on his health, causing him both physical and mental problems.

"The fraud that I was participating in was killing me," Davis told the jury.

(Reporting By Anna Driver; Editing by Eddie Evans and Tim Dobbyn)