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Securities Law

First Person Arrested in Stanford Probe; Affidavit Tells of Attorney Prayer

Posted Feb 27, 2009 7:45 AM CDT
By Debra Cassens Weiss

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The FBI has made its first arrest in a probe of wrongdoing at Stanford Financial Group.

Laura Pendergest-Holt, the company’s top investment officer, was charged with obstruction of justice, according to stories in the Wall Street Journal (sub. req.), the New York Times and Reuters. She is accused of misleading the Securities and Exchange Commission in its investigation of a corporate bank in Antigua.

Pendergest-Holt was also named in the SEC’s civil complaint against the company’s namesake, R. Allen Stanford, that alleges the Texas billionaire defrauded investors in bank certificates of deposit out of $8 billion by promising improbable returns.

Pendergest-Holt’s lawyer, Dan Cogdell, told the New York Times the arrest was unfair because his client was cooperating with authorities.

An FBI affidavit (PDF posted by the Wall Street Journal) filed in connection with the arrest says Stanford officials met to review the bank’s investments earlier this month in preparation for SEC testimony. The meetings revealed investment information that “unnerved” three people who are now cooperating witnesses, the affidavit says.

A lawyer identified in the affidavit as Attorney A participated in the meetings but later quit after learning of the bank’s shaky asset base, according to the Reuters account.

The affidavit says that after one meeting, Attorney A walked up to one employee who was upset at the information being revealed and suggested they pray together. Attorney A told another employee after a meeting that “the party is over.” Both the employees are now among the cooperating witnesses.

Previous reports have identified one lawyer who quit during the probe: Thomas Sjoblom of Proskauer Rose. He disavowed everything he had told authorities about the Antigua bank under a provision of the Sarbanes-Oxley Act allowing for “noisy withdrawals.” The law says any lawyer practicing before the SEC may reveal confidential client information to investigators if the lawyer believes it will prevent a legal violation or help rectify losses suffered by investors.

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