Thursday, August 27, 2009

Stanford CFO Pleads Guilty

As expected, Stanford Financial Group's CFO, James Davis, pleaded guilty today to fraud and conspiracy, admitting that "he and others had knowingly bilked Stanford investors for nearly two decades." (via WSJ) Mr. Davis's plea agreement included something curious:
In Mr. Davis's signed plea agreement, federal prosecutors allege that Mr. Stanford performed a "'blood oath' brotherhood ceremony" with a Caribbean banking regulator. The oath sealed an agreement that the regulator, Leroy King, would accept cash bribes and in return ensure that the Antigua Financial Services Regulatory Commission wouldn't "kill the business.
Although we already knew that Leroy King has been accused of accepting bribes to keep Stanford's alleged fraud alive, a "'blood oath' brotherhood ceremony" seems like a pretty extreme way to formalize an agreement to defraud others. It seems like most schemes to conceal a fraud have "good" intentions--something like, "If we don't fudge these numbers, we may have to lay off workers; besides, next quarter will be better and nobody will know," as opposed to an overt, "Let's work together to defraud these people." Framing the scheme with "good" intentions makes it easier for participants to rationalize the fraud. However, assuming this story is true, Stanford, King, Davis, and whoever else knew about his ceremony didn't seem to have any problems rationalizing their overt decision to defraud others...

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