Ex-worker says Stanford lavishly spent on projects

HOUSTON – A former employee for Texas tycoon R. Allen Stanford testified Tuesday that the financier lavishly spent tens of millions of dollars to develop property and businesses on the Caribbean island nation of Antigua, one time replacing the hardwood floors at his bank because they weren't the right color.

Arnold Knoche, who worked 16 years in Stanford's real estate development company, testified Tuesday at the financier's fraud trial that his former boss spared no expense on such projects as a private airport hangar, cricket grounds, an athletic club, two airlines and a dock facility for his boat.

Prosecutors allege Stanford masterminded a fraud in which he bilked investors out of more than $7 billion in a massive Ponzi scheme centered on the sales of certificates of deposit from his bank in Antigua. Authorities allege he used depositors' money to fund his businesses, many of which failed, as well as his lavish billionaire lifestyle.

Stanford's attorneys contend the financier was a savvy businessman whose financial empire was legitimate. They have suggested James Davis, the ex-chief financial officer for the financier's company, is the real culprit behind the financial fraud. Davis has pleaded guilty in the case and is expected to be called by prosecutors this week.

Knoche said Stanford was partial to granite and marble finishes and that one time the financier replaced the hardwood floors in his bank in Antigua because he thought "they were too light a shade." Stanford had wanted all of his buildings in Antigua to have the same color hardwood floors, he said.

"He was very upset. He said, 'This shouldn't have happened,'" Knoche said.

Knoche, who eventually became president of Stanford's real estate development company, said he grew concerned about where the money came from for these construction projects, which were very expensive because they were built quickly and most of the materials for them had to be brought from outside the island.

Knoche said he stopped asking Stanford about the source of the money because he "refused to provide information."

"It seemed there had to be some limit to how much money he had," he said.

But when questioned by Robert Scardino, one of Stanford's attorneys, Knoche said any concerns he had about the source of Stanford's funding did not prompt him to quit. Knoche said he left Stanford's company in 2003 because he was traveling too much for work.

"What he built there improved the island considerably?" Scardino asked.

"Yes," Knoche responded.

In a video shown to jurors, Stanford could be seen talking to staffers about how he was willing to "spend millions and millions of dollars" to develop Antigua so he could create an environment that would "literally blow away" potential investors his company flew on corporate jets to the island nation.

"We are growing our business with high net worth people and high net worth people are not easily impressed," Stanford said in the video. Prosecutors did not say when the video was taken.

Stanford is on trial for 14 counts, including mail and wire fraud, and faces up to 20 years in prison if convicted. He was once considered one of the United States' wealthiest people, with an estimated net worth of more than $2 billion. He's been jailed without bond since being indicted in 2009.

Testimony was to resume on Wednesday.