HOUSTON, CMC – Lawyers for three former Stanford Financial Group executives say their clients should not be forced to testify at an insurance coverage trial about their roles in an alleged US$7 billion fraud before a criminal trial can be held.

Former Chief Investment Officer Laura Pendergest-Holt and two former top accounting officers at Stanford’s financial services firm said in a court filing that Lloyd’s of London is trying to “place the civil cart before the criminal horse’’ in their lawsuit against the underwriters.

The executives sued Lloyd’s for denying them access to legal defense funds under Stanford’s US$100 million directors and officers’ liability policies.

Attorney Lee Shidlofsky said that the attempt by Lloyd’s to force the executives to testify and provide written answers to justify their activities forces them into “a constitutional Hobson’s choice” over their right against self-incrimination.

He said that anything the executives say under oath in the insurance case could be used against them in the criminal case but if they invoke their Fifth Amendment right not to testify, the judge in the insurance case can legally infer that they’re guilty and may rule against their insurance claim, which they say is their only source of funds to pay defense lawyers.

Allan Stanford, Pendergest-Holt, former Chief Accounting Officer Gilbert Lopez and former global controller Mark Kuhrt were indicted in June 2009 on charges they swindled investors through a scheme built on allegedly bogus certificates of deposit issued by the Antigua-based Stanford International Bank (SIB).

The executives have denied any wrongdoing. A separate trial of Stanford is scheduled for January. The other three executives will face a jury after Stanford’s trial.

All four defendants sued Lloyd’s in November, after the underwriters denied their claims. The insurance-coverage case is set for trial in August before U.S. District Judge Nancy Atlas in Houston.

Shidlofsky said the insurance dispute shouldn’t be decided until after the criminal trial, when the Lloyd’s policies give the underwriters the right to sue for reimbursement of any funds spent defending guilty individuals.

But Lloyd’s lawyers have said in court filings that the dispute must be resolved before underwriters spend hundreds of millions of dollars defending the executives. They claim the underwriters won’t be able to recover those funds after a conviction, when the defendants’ assets may be seized in criminal forfeiture.

All personal and corporate assets of Stanford and the other executives were seized and placed under the control of the receiver when they were sued in February 2009 on parallel civil- fraud claims by the U.S. Securities and Exchange Commission.