Secret Trial Transcript - Whos Who Worldwide Crushed Illegally - The 50 million dollar swindle 7629

2 - - - - - - - - - - - - - - X
4 v. : U.S. Courthouse
5 Uniondale, New York BRUCE W. GORDON, WHO'S WHO
10 Defendants. :March 12, 1998
11 - - - - - - - - - - - - - - X 9:30 o'clock a.m.





17 For the Government: ZACHARY W. CARTER United States Attorney

18 One Pierrepont Plaza Brooklyn, New York 11201
20 Assistant U.S. Attorneys

21 For the Defendants: NORMAN TRABULUS, ESQ.
22 For Bruce W. Gordon
170 Old Country Road, Suite 600
23 Mineola, New York 11501
For Who's Who, Sterling
25 332 Willis Avenue
Mineola, New York 11501


2 For Tara Garboski
6800 Jericho Turnpike
3 Syosset, New York 11791

For Oral Frank Osman
5 3000 Marcus Avenue
Lake Success, New York 11042
7 For Laura Weitz
319 Broadway
8 New York, New York 10007

For Annette Haley
10 400 South Oyster Bay Road
Hicksville, New York 11801
12 For Scott Michaelson
225 Broadway
13 New York, New York 10007

For Steve Rubin
15 150 Nassau Street
New York, New York 10038
17 For Martin Reffsin 215 Hilton Avenue
18 Hempstead, New York 11551

Court Reporter: Owen M. Wicker, RPR
20 United States District Court
Two Uniondale Avenue
21 Uniondale, New York 11553
(516) 292-6963

23 Proceedings recorded by mechanical stenography, transcript
produced by computer-assisted transcription.


1 (Case called.)

2 THE COURT: All right. Getting back to the mail

3 fraud counts, according to my recollection I have

4 dismissed Count 2, Counts 39, 40 and 47.

5 At issue is the motion by defendant Osman to

6 dismiss certain counts because he was not employed at that

7 time.

8 Now, --

9 MS. SCOTT: Your Honor, would you like me to

10 start?

11 THE COURT: Yes.

12 MS. SCOTT: Your Honor, this issue is really

13 relevant to two defendants, Mr. Osman and Mr. Rubin, but

14 I'm just going to start general with the law I'll be

15 relying on. The question is whether they withdraw from

16 the scheme by leaving the company and this circuit has not

17 spoken clearly on what needs to be shown to establish a

18 withdrawal from a mail fraud conspiracy. There is one

19 case that mentions it and I'll describe it later on but --

20 THE COURT: We're not talking about a conspiracy.

21 MS. SCOTT: I'm sorry. I'm sorry, I misspoke.

22 There is one case that speaks about withdrawal from a mail

23 fraud scheme but that is a very inexplicit case and it
24 came down a long, long time ago and doesn't say anything
25 about what needs to be shown. So I'll be relying on the


1 most part on two decisions, one from the Seventh and one

2 from the Eighth Circuit.

3 Now, the Seventh Circuit case is United States v.

4 Read, and the number is cited at 658 F.2d 1225. Now, in

5 that case the Seventh Circuit went so far as to say that

6 withdrawal could not be a defense to a mail fraud charge

7 and the Court reasons that in that particular case the

8 defendant had directed an inventory inflation scheme which

9 gave rise to false statements and mailings containing

10 those false statements and the Court likened the

11 defendant's activity to like setting a bomb with a timed

12 fuse and leaving it somewhere and when the bomb went off

13 the defendant was responsible for the explosion, even

14 though the defendant wasn't there placing the bomb down at

15 the time that it goes off.

16 Basically the reasoning was that the defendant

17 had set this whole procedure in motion and even though he

18 left the company thereafter he was responsibl e for the

19 mailings that resulted in what he had set in place and the

20 mailings that contained these false representation.

21 Now, the parallels with this case, the parallels

22 with Mr. Osman, he was the supervisor for several years at

23 this company. He was responsible for training salespeople
24 and in doing that job he was showing salespeople how to
25 present the information contained in the pitches in a


1 manner that was most likely to generate sales. Now, he

2 left at a particular point and sales not only followed

3 from the training that he had given but also continued

4 obviously after he left. And these sales were all -- and

5 their attendant mailings were foreseeable. They were

6 mailings that resulted from sales that resulted from the

7 representation that contained in the pitches and the sales

8 techniques that salespeople learned like from Mr. Osman.

9 Now, Mr. Osman of course left the company and his

10 own words uttered after he left created an inference not

11 only that these completed deals and the mails attendant to

12 them were foreseeable but that he had seen them.

13 I'm referring to the tape-recording Government's

14 Exhibit 1379 and 1379-A is the transcript, and I'm turning

15 in particular to page 12 of that transcript where

16 Mr. Osman really takes credit for the success of this

17 company. He says, for instance, about halfway down the

18 page "I was very much a part of that place. You know, I

19 created that place for all intents and purposes." And then

20 he says a little further down, "you know my personality,

21 my being there, my interviewing the people, my training

22 the people, I'm an excellent trainer too, by the way. I

23 mean, I trained the people."
24 Now, this was after he left that Mr. Osman said
25 this about his role in the company. He admits that his


1 role was integral to the company's success.

2 We would hope for a finding of course like that

3 in Reed that withdrawal cannot be a defense under the

4 circumstances to charge as a mail fraud, however, if Your

5 Honor finds that it can be a defense, then we would submit

6 that it should at least go to the jury rather than being

7 dismissed by Your Honor before the jury gets a chance to

8 consider it.

9 I'm going to give you another case which is

10 United States v. Cohen, that's from the Eighth Circuit.

11 The cite is 516 F.2d 1358, and that case, in that case

12 they did submit the question to the jury. In that case

13 the defendant was the head of a company and he dreamed up

14 the scheme to defraud. He then, after putting it all in

15 place, left to serve a prison term and after he had served

16 a prison term he returned to the company and resumed his

17 prior responsibilities.

18 And just looking at that case, on page 1364 of

19 that case the Court says "while incarceration may

20 constitute evidence of withdrawal from a conspiracy, it is

21 hardly conclusive and merely creates a question for the

22 jury."

23 THE COURT: Was that a conspiracy case?
24 MS. SCOTT: In this section of the case, Your
25 Honor, they are considering this as a defense to the mail


1 fraud scheme.

2 Just double-checking to make sure there isn't a

3 charge of conspiracy in it (perusing.)

4 The only description I can see of the charges is

5 that the man was convicted of mail fraud.

6 THE COURT: What was Mr. Cohen's position with

7 the company?

8 MS. SCOTT: He was the head of it.

9 THE COURT: What was Mr. Read's position?

10 MR. NELSON: Your Honor, he was one of the

11 principal shareholders and creators of the company.

12 MS. SCOTT: That's probably right, Your Honor. I

13 just have to find out what took place in the case

14 (perusing.)

15 It says on page 1228 "Ralph Read was president of

16 Cenco, and a member of the board of directors".

17 Now, just going back to Cohen, Your Honor, where

18 the Court found that the defendant's incarceration raised

19 the issue of withdrawal but left it as a jury question. I

20 would liken it to this situation where Mr. Osman was

21 fired, didn't leave the company voluntarily. He admits

22 again in Government's Exhibit 1379, the tape, that he was

23 fir ed and paid a severance and again his actions after
24 that do not indicate a repudiation of this participation.
25 In fact, he tries to take credit for the success of the


1 company and after that he tries to go back to Who's Who

2 Worldwide after trying to join another Who's Who in the

3 interim.

4 Now, for these reasons, Your Honor, we submit

5 that we should have at the very least the opportunity to

6 argue for the jury that this is not the kind of

7 repudiation of the scheme that is needed to establish that

8 he withdrew from it. At the very least the jury should be

9 permitted to consider that he is responsible for the

10 mailings that resulted from his supervisory activity while

11 he was at the company.

12 One other case I would like to refer you to, Your

13 Honor, is that Second Ci rcuit case, it doesn't say a whole

14 lot, it's from 1937. It's United States v. Dubrin. The

15 cite is 93 F.2d 499. In that case the Court said that

16 evidence of the defendant's severing of relations with the

17 company created a jury issue concerning withdrawal where

18 the defense was that in that case the defendant's

19 withdrawal took him outside of the statutory limitation

20 period.

21 THE COURT: Was that a mail fraud case?

22 MS. SCOTT: Yes, it was. I have a copy here. I

23 have copies of all three of those cases. Would you like
24 me to hand them up, Your Honor?
25 THE COURT: Yes.


1 All right. Does that conclude your

2 presentation?

3 MR. WHITE: Yes, it does.

4 THE COURT: Anybody else?

5 MR. NELSON: Yes, Your Honor, if I might be

6 heard.

7 Ms . Scott, as I indicated yesterday on the

8 record, provided me with the citations or copies of the

9 decision and I had an opportunity to review them. First I

10 would like to clarify from a factual standpoint,

11 Mr. Osman's status in the company at the time he left, he

12 had been employed there for less than a year and was a

13 group leader which in essence is a trainer for a period of

14 ten months before he left the company, not there for a

15 number of years training a plethora of people.

16 The second thing, I would bring out the fact as

17 the Court is well aware that the statement made by

18 Mr. Osman in the transcript 1379 is a statement made by

19 him when he's obviously puffing during the course of what

20 he believes to be a job interview and he's attempting to

21 take credit for his role in the company while he's present

22 there. That's from a factual standpoint .

23 Your Honor, I first would like to turn to the
24 Cohen decision which the government has relied upon and
25 point out there is a create difference between the


1 position of Mr. Cohen and my clients. Mr. Cohen had

2 created the company there, he had created the scheme as

3 well. Mr. Cohen was then sentenced to a period of

4 incarceration for an unrelated offense, a tax offense for

5 that matter and placed the son in charge of the business

6 to run the business while he was incarcerated. He then

7 came back to the business after he finished his period of

8 incarceration and took back over from his son in the

9 business. That would be the functional equivalent, I

10 would submit, Your Honor, if Mr. Gordon had his son

11 working in the business, he went away for a period of time

12 for th e tax charges claimed in this case and took back

13 over the business in the exact same position.

14 I would submit this is a completely different

15 type of situation. We're not speaking about one large

16 ongoing mail fraud which was created by my client, and

17 specifically Cohen states at page 1364, and I'll start

18 reading there, Your Honor. "A jury might well have

19 concluded that the appellant," that being Mr. Cohen, "in

20 establishing an ongoing mail fraud scheme throughout the

21 United States, in actually preparing the forms of letters,

22 applications and sales pitch used in the scheme and in

23 addition having selected most of the employees himself,
24 including his son, would have reasonably foreseen, if not
25 planned, that his son and the employees would continue the


1 operation i n his absence as they did."

2 Continuing two paragraphs down on the same page,

3 1364. "Once the appellant contrived the scheme to defraud

4 and set it in motion he was engaged in a continuous

5 offense as causing the mails to be used in furtherance

6 thereof, an offense which is not mitigated by his mere

7 absence."

8 Your Honor, I would submit that the situation as

9 it relates to Mr. Osman is completely nonanalogous. This

10 is not somebody who created the scheme, he didn't write

11 the scripts, he didn't prepare the presentations, he never

12 even sought solicitation letters and he came to work in

13 the company some three years after it first came into

14 existence and was in fact terminated by the person who

15 allegedly created the scheme.

16 THE COURT: Excuse me for a minute.

17 (Short recess taken.)

18 THE COURT: You may proceed, Mr. Nelson.

19 MR. NELSON: I would submit the position of

20 Mr. Cohen is not at all analogous to that of Mr. Osman and

21 one of the questions inquired of the Court by the

22 government a moment ago is what was the position of

23 Mr. Cohen vis-a-vis the business and obviously I submit
24 that is a very significant factor.
25 Likewise in Read the actual individual upon which


1 the Court was addressing was not Mr. Read but it was an

2 individual by the name of Ronald Spiegel. Mr. Spiegel,

3 it's spelled out on page 1228 of the decision, was

4 "vice-president of Cenco, C-E-N-C-O, and president of CMH

5 Corporation," and on page 1229 of the decision it goes on

6 to indicate that Mr. Spiegel was instrumental in advising

7 literally all of the employees of the corporation to alter

8 cards which were subsequently p laced into the mail.

9 He then claimed at a later point in time that

10 some of those cards mailed subsequent to his leaving the

11 company, he should not be held accountable for those

12 cards.

13 I would submit, Your Honor, once again given the

14 fact he was instrumental in designing and implementing the

15 scheme, it is quite a bit different than the situation we

16 have here and indeed if we read the Court's decision in

17 Read at page 1240 it states and this is significant

18 because it discusses the issue of them being treated as an

19 aider and abettor for the substantive offense. "As an

20 aider and abettor, Spiegel need not agree to the scheme."

21 THE COURT: What page is that?

22 MR. NELSON: This is on page 1240 of the

23 decision, Your Honor. It is in the first paragraph under
24 note 22. It's the last sentence in that first paragraph
25 where I'm starting to read from.


1 "As an aider and abettor, Spiegel not need agree

2 to the scheme. He need only associate himself with the

3 criminal venture and participate in it."

4 It then cites a case United States v. Bec. The

5 evidence here overwhelmingly showed Spiegel's association

6 and participation in the mail and securities fraud. He

7 directed the inventory inflation scheme which largely

8 contributed to the false statements contained in the

9 mailings and disclosure statements. The mailings and

10 sales were an inevitable consequence of his actions.

11 Spiegel could properly be found to be jointly responsible

12 for setting the scheme in motion and thus causing the

13 mailings by third-parties.

14 I would submit, Your Honor, that the situation

15 which took place here is very, very different than that of

16 Mr. Spiegel and one of the reasons why I only sought to

17 dismiss those counts which were well beyond the period of

18 time that Mr. Osman had already left the corporation was

19 in order to demonstrate that any people that could have

20 trained with respect to specific mailings that might have

21 been from lead cards that he trained them for, were

22 already over.

23 If you look at the first set of charges, what I
24 purposefully did not move to dismiss, Counts, I believe, 4
25 and 5 which are November 27th or 28, 1992, because it's


1 conceivable that he trained or instructed people where

2 there were mailings that took place in October or November

3 where subsequently during say a one or two-month period of

4 time there might have been discussions that took place and

5 it would have been part of a "scheme" as it related to

6 that group of mailings that took place. I believe he

7 could only be held accountable substantively for those

8 that are only reasonably foreseeable to him when he's

9 actually there working in the corporation in that

10 capacity, not ones for which he's completely terminated

11 his relationship with the corporation during that period

12 of time.

13 In fact, there are two cases which are much more

14 analogous, Your Honor, and they were cited in Read and I

15 have the opportunity, since the government gave me a

16 chance to look them up last evening which I think are a

17 lot more on point as they relate to the status of

18 Mr. Osman.

19 The first one is Blue v. United States found at

20 138 F.2d 351, it is a Sixth Circuit decision. Reading

21 from page 362 of the decision, the Court states "the mail

22 fraud statute is harsh. Participation in a scheme

23 completely outside the cognizance of federal law becomes
24 ipso facto a federal crime if the mails are subsequently
25 used in its furtherance, even though such use be


1 incidental and without the consent, knowledge or intent of

2 the participants charged. The use of the mails carries

3 back to the scheme and binds both together in criminal

4 liability. The participation in the scheme cannot be said

5 to link with the use of the mails, if such participation

6 had ceased before the mails were used."

7 "To hold that a former participant who had ended

8 his association with the scheme long before the mails were

9 used is an aider or abettor, is causing use of the mails

10 in furtherance of the scheme would be to novel a

11 construction of an already sufficiently extended

12 application of criminal law."

13 I would likewise -- I would note, Your Honor, in

14 this particular instance Mr. Blue is in a situation

15 somewhat analogous to Mr. Osman. He was an employee in

16 the business, there were a number of mailings that took

17 place and was not to be held accountable in this decision

18 for subsequent mailings after he left unless they were

19 reasonably foreseeable to him.

20 A second decision which points in the same

21 direction, is Glazerman v. United States, found at 421

22 F.2d 547, and this is a Tenth Circuit decision, and I'm

23 reading now from page 551 of the decision. It states,
24 Your Honor. Since, however, an individual cannot be held
25 criminally liable for substantive offenses committed by


1 members of the conspiracy before the individual had joined

2 or after he had withdrawn from the conspiracy. We have

3 examined the record to determine whether each appellate

4 was a member of the conspiracy at the time of the

5 substantive offenses charged in the indictment. The

6 record discloses that the substantive offenses occurred on

7 dates beginning with September 6, 1965 and ending with

8 January 21, 1967. Glazerman clearly was involved in the

9 conspiracy at all times during that period.

10 However, with regard to Parella, uncontroverted

11 evidence is that he started with Oklahoma Brentwood in

12 mid-June 1966 and quit in the third week of September

13 1966. Consequently he is criminally liable only on

14 substantive Counts 8 and 9 which are dated September 6th

15 and 20, 1966 respectively and on the conspiracy count.

16 I would submit, Your Honor, this decision

17 likewis e points to where an employee, and there are

18 numerous mailings that take place occur, in a mail fraud

19 case, certainly as it relates to the -- as it relates to

20 the conspiracy counts. There's one overachieving scheme

21 and certainly as it relates to that he could either be

22 held accountable for that unless withdrawal is proven or

23 can be held accountable if he comes back in and agrees and
24 adopts what takes place.
25 However, as it relates to the substantive counts,


1 I submit, for somebody who is not the creator of the

2 scheme itself, he cannot be held accountable for acts that

3 occur when he's not in the employ of the business as an

4 aider and abettor.

5 Thank you, Your Honor.

6 MS. SCOTT: Your Honor, I have a couple of

7 responses to this.

8 Of course Mr. Osman was not the head of the

9 company and not the original creator of it, but he was in

10 a position where he had a similar effect if not an

11 equivalent effect. He did in fact instruct people and in

12 addition to instructing them on how to make sales and

13 ensuring in that way that more sales would take place, he

14 also did contribute to the way that the company operated.

15 This I take, again, from his own admissions on

16 tape, Government's Exhibit 1379 which was approximately a

17 year after he left he made these statements on January 20,

18 1993. He says there on page 18 for one thing that he

19 actually put together the objection sheet which contains

20 four to five rebuttals that are integral to the sales

21 pitch. These are the responses to questions "how was I

22 nominated? How old is this company? Can you make sure

23 that the people don't contact me by phone or th at I can
24 contact people under certain circumstances if I want to
25 network with them." These are questions that were so


1 important to customers and material to their decision that

2 is they were actually embodied in a response document that

3 was created by the company to allay any fears they may

4 have that might prevent them from making the purchase.

5 Mr. Osman admits to having created this document.

6 Now, also on page 13 of the same transcript,

7 Mr. Osman says that he brainwashed people who served as

8 salespeople at the company. He brainwashed them into

9 believing --

10 THE COURT: What document are you referring to?

11 MS. SCOTT: This is the transcript 1379.

12 THE COURT: Transcript of our trial?

13 MS. SCOTT: No, I'm sorry, the transcript of his

14 taped conversation with Mr. West.

15 MR. NELSON: This would be Government's Exhibit

16 1379, a transcript of a meeting between my client and

17 Mr. West on January 20, 1993.

18 MR. TRABULUS: Your Honor, may I be excused to go

19 to the washroom while this proceeds? It doesn't pertain

20 to my client.

21 THE COURT: Yes.

22 Was this an interview with Mr. Martin?

23 MS. SCOTT: It was Mr. Martin interviewing with
24 Mr. West. Mr. West was posing as an employer who wanted
25 to open a new Who's Who, and they met in a hotel room.


1 Mr. West was asking Mr. Osman questions about Who's Who

2 Worldwide. Mr. Osman believed that he was applying for a

3 job with Mr. West's Who's Who.

4 THE COURT: When you say -- what page is this

5 that you say?

6 MS. SCOTT: Your Honor, are you looking at

7 13 79-A?

8 THE COURT: I'm looking at 1379.

9 MS. SCOTT: The transcript is 1379-A on the first

10 page. It should say 1379-A.

11 THE COURT: Mine says 1379, and then it goes into

12 a long dialogue.

13 MS. SCOTT: Okay. Does the first page have a

14 date of January 20, 1993?

15 THE COURT: Yes.

16 MS. SCOTT: All right. I'll just direct your

17 attention first to page 12 and it's about halfway down the

18 page. Mr. Martin's paragraph that starts "you bet. You

19 bet."

20 THE COURT: I have one you bet.

21 Oh, yes, I see it. Okay.

22 MS. SCOTT: Now at end of that paragraph.

23 THE COURT: I see. I underlined it. It went in
24 as a matter of fact. It says "you know I created that
25 place for intents and purposes."


1 Now, what place is he referring to?

2 MS . SCOTT: He's referring to Who's Who

3 Worldwide.

4 THE COURT: Where do you see that?

5 MS. SCOTT: It's a discussion, Your Honor, about

6 the dealings at Who's Who Worldwide. It takes place in a

7 larger context. The conversation has been going on for

8 quite some time about practices there.

9 Just at the top of that page, Mr. West says "now

10 when he, when he terminated your relationship, did he pay

11 you all the money that he owed you?" And Martin says,

12 "well, I was on a -- he gave me a severance pay."

13 Further down, "I think he knows I did a good job

14 but I just don't think he can deal with it on an emotional

15 level."

16 Let's see.

17 If Your Honor is not convinced --

18 THE COURT: Just hold it a minute, please.

19 Okay, you say "I created that place." That's it.

20 MS. SCOTT: Yes. And further down he says, "you

21 know my pers onality, my being there, my interviewing the

22 people people, my training the people. I'm an excellent

23 trainer too, by the way. I mean, I trained the people."
24 Now, in addition, on page 18 there's a large
25 paragraph in the middle of the page that begins


1 "occasionally, you know."

2 Do you see that, Your Honor?


4 MS. SCOTT: Now, in that paragraph he says "you

5 know we had an objection format that I put together with

6 four or five rebuttals."


8 MS. SCOTT: So, so far what he has admitted to

9 was not only training a large number of salespeople in his

10 position as a supervisor but also with creating one of the

11 most substantial parts of the sales pitch.

12 THE COURT: Also said he created the place.

13 MS. SCOTT: That's correc t.

14 THE COURT: Do you believe a reasonable jury

15 could ever find that he created the place?

16 MS. SCOTT: Your Honor, a reasonably jury could

17 find that he had a role in shaping the place.

18 THE COURT: I didn't ask you that. I asked you

19 whether a reasonable jury could ever find that Mr. Osman

20 created the place.

21 MS. SCOTT: Your Honor, I don't know. It would

22 depend --

23 THE COURT: Well, I'm telling you now. As a
24 matter of law, he didn't create the place. He was a
25 middle level manager, that's what he was, notwithstanding


1 his puffed talk looking for a job. That's what he was.

2 MS. SCOTT: Your Honor, if I could just direct

3 your attention to some other places in this transcript

4 where it states his role in shaping the company. I'm not

5 taking th e position that he has created it, but in shaping

6 it.

7 He states on page 13 that he would brainwash the

8 salespeople. Now this is in the middle of page 13, the

9 paragraph that against "okay, 10 percent of the action."

10 THE COURT: I see it.

11 MS. SCOTT: At the bottom of that paragraph he

12 says, "what I tried to do really was try to brainwash them

13 into believing that they are associate directors and once

14 they assume that identity it's remarkable, magic happens,"

15 meaning the company sells, the company makes money.

16 THE COURT: What is wrong with brainwashing

17 people to believe that they were associate directors so

18 they can sell things? Where does that come into being a

19 criminal intent?

20 MS. SCOTT: Your Honor, what that comes into is

21 teaching people how to make sales based on the information

22 contained in the pitches which is th e information that we

23 contend is false. That is the criminal activity in the
24 case.
25 THE COURT: Okay. Anything else?


1 MS. SCOTT: Your Honor, in addition to just other

2 points in this conversation where he states that he has

3 continued contact with people at the company and is aware

4 what they're doing in terms of how much money they are

5 making, the sales they are generating and payments that

6 are due to them from B balances that he knows are coming

7 due at a particular time, and I can give you the page

8 cites for those if Your Honor is interested.

9 There's also another theory which is Pinkerton,

10 United States v. Pinkerton which holds that a member of a

11 conspiracy is responsible for all the substantive crimes

12 committed in furtherance of that conspiracy as a

13 participant and member of that conspiracy.

14 THE COURT: Are we talking about mail fraud or

15 conspiracy?

16 MS. SCOTT: We're talking about conspiracy, Your

17 Honor, but the mail fraud is the substantive part of this

18 conspiracy, it's the substantive counts, the substantive

19 crimes that are alleged to have been the result of this

20 conspiracy. And I can cite you to United States v.

21 Gallerani, 68 F.3d. 611, that's a Second Circuit 1995

22 case.

23 Now, the paragraph on page 620 of that decision
24 reads "once a conspiracy has been established, the
25 criminal liability of its members extends to all acts of


1 wrongdoing occurring during the course of and in

2 furtherance of the conspiracy. A Pinkerton instruction

3 allows a jury to find a defendant guilty on a substantive

4 count without specific evidence that he committed the act

5 charged if it is clear that the offense had been

6 committed, that it had been committed in the furtherance

7 of an unlawful conspiracy and that the defendant was a

8 member of that conspiracy."

9 THE COURT: Anything else?

10 MS. SCOTT: Not, with respect to Mr. Osman, Your

11 Honor --

12 MR. DUNN: Your Honor, I don't know if you want

13 to decide Mr. Osman. She mentioned Mr. Rubin.

14 THE COURT: No, I can't do three things at the

15 same time. You can obviously, but I can't.

16 MR. DUNN: But she mentioned Mr. Rubin's name.

17 THE COURT: We'll get to Mr. Rubin, fear not.

18 MR. DUNN: I know that, Your Honor.

19 THE COURT: Now, we have a conspiracy withdrawing

20 from a conspiracy which is a very well known doctrine in

21 criminal law, and now we put that into mail fraud. We put

22 it i nto mail fraud with Mr. Read and with Mr. Spiegel. In

23 addition, we have Pinkerton, another theory.
24 Well, I just want to take a look at one thing,
25 the Pinkerton case, and I'll be right back.


1 (Short recess taken.)

2 THE COURT: Are you saying that the Pinkerton

3 theory permits criminal liability to the defendant in the

4 position of Mr. Osman when he was not a member of the

5 conspiracy at the time the substantive crime was

6 committed?

7 MS. SCOTT: Your Honor, it would require a

8 showing that he had withdrawn from the conspiracy to

9 show --

10 THE COURT: I didn't ask you that.

11 MS. SCOTT: Well, if he was not a member of it,

12 no, of course not.

13 THE COURT: Well, isn't that an element of the

14 Pinkerton case that he has to be a member of the

15 c onspiracy at the time the substantive crime was

16 committed?

17 MS. SCOTT: Yes, that's correct.

18 THE COURT: Well, how could he be a member of the

19 conspiracy when he was discharged from the company?

20 MS. SCOTT: If he had not withdrawn from the

21 conspiracy, Your Honor, he would still be a member of it.

22 THE COURT: Okay. I get it. I wonder how late

23 you stayed up to get to that one.
24 MS. SCOTT: Don't ask.
25 THE COURT: All right.


1 Despite the very sophisticated and intellectual

2 discourse by the prosecutor, I do not believe that the

3 defendant Osman -- that any reasonable, rational jury

4 could find that the defendant Osman had not withdrawn from

5 any conspiracy when he was terminated, gone, discharged.

6 As far as United States v. Read, Spiegel was a

7 p rincipal stockholder, a creator, a director, a president

8 of the company. He set up the scheme. In no way could a

9 rational jury believe that Mr. Osman created the scheme,

10 notwithstanding what was said on the tape. All the

11 evidence defies that. Nor was he the head of the company

12 as was Mr. Cohen.

13 Osman didn't create this scheme, he was a middle

14 management employee who went along with Mr. Gordon and did

15 what Mr. Gordon told him to do. He not only didn't

16 establish the scheme, he didn't prepare the letters, he

17 didn't prepare the sheets, whatever they call those

18 sheets. There's no continuous offense here. His

19 liability terminated when he left the company and

20 commenced again when he came back.

21 The Court holds that he withdrew from any scheme

22 as a matter of law at the time he left the company,

23 namely, no reasonable jury could find otherwise. He was
24 not a principal, a creator, a director, a president, an
25 officer. He was an employee. A higher level than a


1 salesperson, but an employee, and I'm not prepared to

2 extend Read and Cohen to a middle level, nonowner,

3 noncreative employee.

4 As far as Pinkerton is concerned, in my view it

5 doesn't apply to impose substantive mail fraud liability

6 on Mr. Osman because he was not a member of the conspiracy

7 as a matter of law at the time the crime was committed.

8 So Pinkerton does not apply.

9 Accordingly, I'm going to dismiss -- let's see,

10 what counts do we have -- as against the defendant Osman.

11 MR. NELSON: Your Honor, my request is that

12 related Counts 6 through 52, I would note for the record,

13 Your Honor, and it would be toward actual determination

14 that Count 5 relates to a mailing on November 18, 1992.

15 Count 4 relates to a mailing on November 28, 1992, and

16 Count 3 relates to a mailing on November 27, 1992.

17 While the record is not completely clear, the

18 record appears to indicate that based upon the testimony

19 of Mr. Osman -- that being the transcript testimony in

20 1379 -- and the statements of Wendi Springer, Debra

21 Benjamin and Alan Saffer, that he left sometime during

22 November 1994. It isn't clear as to the specific date.

23 THE COURT: November 1994?
24 MR. NELSON: 2. I apologize, November of 1992.
25 THE COURT: What counts -- according to my record


1 you move to dismiss as against defendant Osman Counts 6 to

2 52.

3 MR. NELSON: That's correct, Your Honor.

4 THE COURT: Are any of those counts, Ms. Scott,

5 counts where he was employed at the time?

6 MS. SCOTT: Your Honor, our evidence shows that

7 he was just there in November of '92, but we don't have

8 anything more precise than that.

9 THE COURT: Well, that includes -- that includes

10 the defendant didn't move to dismiss any counts in

11 November of 1992.

12 MS. SCOTT: I think that's correct.

13 THE COURT: And would it go to including Count

14 52, November of 1994, that's November 3, 1994, when did he

15 return to work?

16 MR. NELSON: Your Honor, the evidence appears to

17 indicate that he returned sometime around Thanksgiving of

18 1994, which would be the latter part of 1994.

19 THE COURT: So you are not moving to dismiss 53.

20 MR. NELSON: I would move to dismiss 53 because

21 Thanksgiving is right around that time. The evidence is

22 close there.

23 THE COURT: Well, what is th e evidence,
24 Ms. Scott?
25 MS. SCOTT: Our evidence, Your Honor, is that he


1 came back sometime in November of '94. We're not more

2 specific than that. We're not sure where Mr. Nelson gets

3 Thanksgiving.

4 THE COURT: Where in the record does it say when

5 he returned?

6 Does anybody have that?

7 MS. SCOTT: I don't know what he's referring to.

8 THE COURT: Is there any evidence when Mr. Osman

9 returned to work? Are there any work records? Are there

10 any employment records in evidence or anything like that?

11 MS. SCOTT: Not in evidence, Your Honor.

12 THE COURT: Was there any testimony about when he

13 returned to work?

14 MR. NELSON: Your Honor, the only testimony, I

15 was careful in asking the questions on cross-examination,

16 was in late November of 19 94.

17 THE COURT: Show me the transcript.

18 MR. NELSON: Judge, I need some time. I'll give

19 it to you later today and maybe we can reserve on that one

20 count.

21 THE COURT: All right. I'll dismiss counts, as

22 against the defendant Osman, Counts 6 through 52, and I'm

23 going to reserve on 53.
24 MR. NELSON: Yes, Your Honor.
25 THE COURT: All right. Now, let's get to the


1 defendant Rubin.

2 What about that, Ms. Scott?

3 MS. SCOTT: Your Honor, in light of your ruling

4 regarding Mr. Osman, I'm just going to now be more precise

5 about when we believe Mr. Rubin left the company.

6 We know he was there as of the time of Count 55

7 which is March 17, 1995 because he's the salesman who

8 performs that transaction. I will show Your Honor the

9 document.

10 Government's Exhibit 55-C is the order form for

11 customer Douglas Huffman, and it indicates that Mr. Waldon

12 was the salesperson who performed this sale. That took

13 place on March 14, 1995. The invoice is dated March 14th

14 -- I'm sorry, March 17th.

15 THE COURT: Well, let's start from the beginning

16 with Mr. Rubin. He moves to dismiss Counts 3 to 41. Now,

17 based upon my ruling, was he employed during that period

18 of time?

19 MS. SCOTT: No, not before Count 41.

20 THE COURT: So I'm dismissing as to the defendant

21 Rubin Counts 3 through 41.

22 Now, he also moved to dismiss Counts 55 and 56.

23 You say 55 he was on the order sheet.
24 MS. SCOTT: That's correct.
25 THE COURT: So that's denied.


1 How about 56?

2 MS. SCOTT: He's not on that order sheet, Your

3 Honor. We don't have anything to show that he was there

4 at that time.

5 THE COURT: What is the testimony?

6 MS. SCOTT: Wait, I'm sorry.

7 (Counsel confer.)

8 MS. SCOTT: All right. Your Honor, the testimony

9 was at the time he was arrested, which was March 30th, he

10 was not working at the company. He stated to Joe Jordan,

11 Agent Jordan, that he had been at company approximately a

12 year starting in March of '94. We're looking to see if

13 there is anything more specific than that.

14 THE COURT: Is there any other testimony

15 involving when --

16 MS. SCOTT: That's what we're looking for, Your

17 Honor. There's nothing more specific about when he left.

18 THE COURT: Mr. Dunn, do you have anything?

19 MR. DUNN: There is nothing in the record, Your

20 Honor, that would reflect a date.

21 THE COURT: When was he arrested?

22 MR . DUNN: He was arrested on March 30th in front

23 of his house.
24 THE COURT: 30th or 31st?
25 MR. DUNN: 30th, I believe.


1 THE COURT: And what was the testimony as to when

2 he said he left?

3 MR. DUNN: No one, there is nothing in that.

4 Nothing in the state, nothing from Liz Sautter to

5 Mr. Jordan that said when in March he left.

6 THE COURT: Was there a statement made to Special

7 Agent Jordan that he had left a week before? That was not

8 in the evidence?

9 MR. DUNN: I'll have to look at the statement,

10 Your Honor.

11 MS. SCOTT: No, Your Honor, there's nothing

12 saying that he left a week earlier than that. There's

13 nothing indicating that. There's just a statement. The

14 testimony of Agent Jordan is that he indicated that he

15 worked at Who's Who ab out a year.

16 THE COURT: When did he start?

17 MR. DUNN: It said March 1st in the statement and

18 all the other testimony from Saffer and everyone else is

19 that he just started in March of '94. Didn't give an

20 exact date.

21 THE COURT: Well, the government has to prove

22 beyond a reasonable doubt that in my view he was an

23 employee working at that time and I think they failed to
24 do it, so I'm going to dismiss 56 as well.
25 I'm dismissing Counts 3 through 41 and 56 with


1 respect to the defendant Rubin.

2 What is the next motion?

3 MR. NELSON: Your Honor, I believe on the issue

4 of participation in the conspiracy, Mr. Schoer last made

5 an application for Ms. Garboski and I would similarly like

6 to make an application on behalf of Mr. Osman and that

7 would relate both to the Count 1, conspiracy to commit

8 mail fraud and the substantive counts of mail fraud which

9 remain.

10 Specifically, I would direct my argument towards

11 the second element of mail fraud which is an intent to

12 defraud. I would submit that the Court ruled yesterday

13 rather emphatically that the government had proven at

14 least for purposes of Rule 29 a scheme existed.

15 I would submit that as it relates to Mr. Osman,

16 evidence is lacking to demonstrate that he was a

17 participant in that scheme with an intent to defraud. And

18 I'll segregate my argument into two distinct areas because

19 he worked for the two companies at two different points in

20 time. Between '91 and '92 while he was employed as a

21 middle level manager the government only demonstrated that

22 in any way that he intended to defraud anybody would be

23 the transcript ma de during the recording of his job
24 interviewer with Mr. West in the hotel room in the
25 Marriott on January 20, 1993, which is Government's


1 Exhibit 1379. There has been no other evidence elicited

2 during the course of the trial that would go to tend to

3 prove his intent to defraud.

4 I would submit, Your Honor, certain portions of

5 that transcript directly negate an intent to defraud on

6 his part, and I would submit that the most significant

7 aspect of that is the portion of the transcript.

8 If I'm given just one moment here, Your Honor

9 (perusing.)

10 There's a portion in the transcript where

11 Mr. West inquires of my client with respect to the

12 presentations that are used and -- bear with me for a

13 second. On page 6 of the transcript starting with the

14 first imputation to Mr. Martin, there's a statement made

15 by Mr. Martin "for the first week or two at least, I like

16 to see which direction these deals are going so in case

17 someone is writing wooden deals I'll know about it in a

18 hurry, for sometimes it is hardly real, just to be over

19 somebody's shoulder the whole day." Mr. West replies

20 "sure." And Mr. Martin goes on to say, "even though, oh,

21 I make it a point, you know, you can't say anything, that

22 you can't deviate from the presentation, because, number

23 one, the presentation basically works, and number two, the
24 postal authorities and all those other bad guys out there
25 might be listening so it behooves you to stay within the


1 framework of the presentation. That way nobody gets

2 hurt."

3 If you recall, Your Honor, during t he course of

4 my cross-examination of Mr. West, I had him acknowledge

5 the fact that obviously if somebody is requiring somebody

6 to stick to the pitch and if he was requiring somebody to

7 stick to the pitch partially because he knows this is a

8 highly regulated industry and the postal authorities might

9 be listening in to what has been said that might be that

10 that person has a subjective belief what he's telling him

11 to do is truthful and honest and he's not committing any

12 form of a crime. He's stating here, and the only evidence

13 the government has is that he's telling them to stick to a

14 presentation he believes is honest. The government must

15 prove that he had knowledge and that he intended to

16 defraud somebody in the actions he was taking. I would

17 submit, Your Honor, that this directly negates such a

18 finding.

19 Now, I know the governm ent is going to point in

20 the same transcript to the portion where Mr. West asks

21 what is there that was wrong with the presentation, what

22 was wrong with the company, which is found on page 9 of

23 the transcript. And the one statement made by Mr. Martin
24 that bears upon that is where he states "I suspect the
25 major flaw was telling people they were recommended by


1 other members."

2 And I would submit, Your Honor, that in light of

3 the fact that the evidence has demonstrated that he never

4 saw the actual solicitation letters that were sent out, so

5 we never saw the word "nominate" in there, that the only

6 time he ever saw the word nominate would have been in some

7 of the same presentations that he was training people to

8 use and that he's reflecting here that the one problem he

9 finds, the "major flaw" is that people, that people are

10 not recommended by other members, that that in and of

11 itself would not rise to the level of an intent to

12 defraud.

13 I would further submit, Your Honor, that the very

14 last statement made by Mr. Martin in this transcript which

15 is found on page 23 which is "I enjoyed the concept. See

16 that's what I like about Who's Who Worldwide. I like the

17 concept. I think it's sound, I think it's viable, I think

18 it is highly profitable if utilized properly" goes

19 directly to the good faith defense which is included in

20 the intent to defraud charge, that being if somebody

21 reasonably believes that the product is a real product,

22 that the product is being delivered, that the product has

23 value and it is of value to a particular person, then that
24 directly negates any intent to defraud. And it appe ars
25 from the context of this transcript which is really the


1 government's only evidence as to his first period of

2 employment in the company that there is a real lack of

3 proof of intent to defraud on the part of Mr. Martin.

4 Turning to the second portion of his employment

5 in the company, I would submit even if the Court were to

6 find that there is sufficient proof to demonstrate an

7 intent to defraud based upon the statements made in this

8 transcript when he returns to the company, the testimony

9 of Alan Saffer, Debra Benjamin, Wendi Springer and a

10 number of other individuals clearly demonstrated that

11 Mr. Martin had knowledge when he returned to the company

12 that the "major flaw" that being the fact that nominations

13 were not being made by other members were in fact taking

14 place at the time that he returned to the company. There

15 is clearly, the record clearly demonstrates that a

16 nomination procedure existed, nomination cards were being

17 sent out, he had seen the Tribute magazine with those

18 nomination cards, he had discussed it with Debra Benjamin

19 and was satisfied and happy with the fact that this in

20 fact was occurring. So his one problem, the one "major

21 flaw" that he saw in this company when he returned was

22 such that it was negated. The minor major flaws he saw,

23 the fact that there wasn't a CD ROM in place and the fact
24 there wasn't a credit card likewise had been resolved at
25 the time he returned to the company.


1 Now, in order for the government to prove that he

2 participated in a conspiracy upon his return to the

3 compan y, they would have to prove that he returned to the

4 company and agreed implicitly or explicitly in continuing

5 to participate in a scheme and design to defraud. Well,

6 if he believed when he returned to the company that the

7 problems which previously existed had been resolved, how

8 can the government demonstrate that he agreed to return to

9 a scheme which was intending to defraud, on the one hand,

10 and on the secondhand, how can they demonstrate his intent

11 to defraud.

12 That's the basis of my argument, Your Honor.

13 MR. WHITE: Your Honor, I think the starting

14 point is for our discussion on this point about

15 participation in the conspiracy by the individual

16 defendants, is I think the Second Circuit case in

17 Casamento, which says once you've established the

18 conspiracy, the evidence linking an individual defendant

19 to it need not be overwhelm ing.

20 Now, again, all of Mr. Nelson's arguments are

21 very nice and I'm sure I'll hear them again in summation

22 but that's exactly where they should be directed.

23 THE COURT: I agree. I thought I was hearing a
24 summation there. However, he's certainly not prevented
25 from using the same arguments on summation.


1 MR. WHITE: If Your Honor needs me --

2 MR. NELSON: I've been working on it, Judge.


4 MR. WHITE: I mean, I don't want to waste time.

5 I know we have a lot of other things to do.

6 THE COURT: I think there's sufficient proof of

7 intent to defraud in the mail fraud counts and

8 participation by the defendant Osman in the conspiracy,

9 notwithstanding the new procedure of bringing in the

10 nomination ballots, Mr. Saffer testified that

11 notwithstanding these ballots, only 2 percent members came

12 in through these nomination ballots. I think he said

13 that. I'm going to deny your motion, Mr. Nelson.

14 MR. NELSON: Thank you.

15 MR. JENKS: Judge, I'm going to move to dismiss

16 on behalf of Sterling Who's Who.

17 THE COURT: Just let me get it down. I have to

18 get each one down.

19 Now, you're moving on.

20 MR. JENKS: Behalf of Sterling Who's Who.

21 THE COURT: What are you moving to dismiss?

22 MR. JENKS: The substance active counts, Count 2

23 -- well, 2 has already been dismissed, Count 3 through
24 Count 41.
25 Sterling, I think the evidence was, if it even is


1 in the record as to when it was created, was created in

2 August of 1993, and did not really actively start doing

3 business until March of 1994.

4 As you can see the first substantive count is

5 Count 42 involving Sterling Who's Who for a solicitation

6 letter of March 7, 1994. Sterling wasn't up and running

7 and doing business until March of 1994. So I would move

8 to dismiss Counts 3 through 41 concerning Sterling.

9 In addition --

10 THE COURT: Just one minute now.

11 MR. JENKS: Just on the mere fact that the baby

12 wasn't even created until August of 1993.

13 THE COURT: Well, 39 and 40 are dismissed anyway,

14 right?

15 MR. JENKS: Yes, 39, 40 and 2, at least including

16 those.

17 THE COURT: Okay.

18 MR. JENKS: Then I will move to dismiss the

19 counts that don't involve Sterling, Counts 42 through 56

20 which are the Who's Who Worldwide counts. You took

21 everyone -- using the same logic you applied taking

22 everyone out of the Sterling counts --

23 THE COURT : Which are these counts?
24 MR. JENKS: These are all the counts from 42
25 through 56.


1 THE COURT: Which ones?

2 MR. JENKS: I'll name them out loud. 43, 44, 45,

3 46, 47 have already been dismissed. 48, 51, 53, 55 and

4 56. And I used the same analysis that you had applied in

5 taking all the defendants out of the Sterling counts which

6 were Counts 42, 49, 50, 52 and 54. So those counts that I

7 just named I would move to dismiss those counts as well,

8 Judge, involving Sterling Who's Who.

9 THE COURT: When you say you move to dismiss, you

10 are moving to dismiss the counts starting with 43?

11 MR. JENKS: 43, 44, 45, 46, and 47 have already

12 been dismissed. 48, 51, 53, 55 and 56.

13 THE COURT: Any objection or any argument on

14 that?

15 MR. JENKS: I want just the f our counts in

16 against Sterling, Your Honor.

17 THE COURT: Just one minute now. Just hold it a

18 second. You know, I have to do something with these and

19 record them later on. You just talk and that's it and I

20 have to do something with them, so relax, will you.

21 MR. JENKS: Okay.

22 THE COURT: All right. What about the first set

23 where Sterling was not involved?
24 MR. WHITE: Your Honor, I think that that is
25 going to take us revisiting Pinkerton and the conspiracy


1 cases to see if by Sterling joining a conspiracy when it

2 did, whether it adopted what had taken place before. I'm

3 not sure that it does or doesn't. I just don't know. I

4 have to confess.

5 THE COURT: All right. I'm going to dismiss the

6 counts as to Sterling, 43, 44, 45, 46, 48, 51, 53, 55 and

7 56.

8 MR. WHITE: I was addressing the first batch.

9 THE COURT: Which first batch?

10 MR. JENKS: He's addressing before the company

11 was even created.

12 MR. WHITE: 3 to 41.

13 MR. JENKS: That's the first thing I asked for.

14 THE COURT: Then I'll withdraw my decision until

15 I hear from you. Then I may do the same decision, but I'm

16 withdrawing it for the time being.

17 MR. JENKS: The counts you just dismissed now

18 were properly dismissed. He's talking about 3 through 41.

19 THE COURT: He said he didn't argue these counts

20 yet, so I'm giving him a chance to do it.

21 MR. WHITE: Not yet.

22 THE COURT: I'm withdrawing my decision

23 dismissing 43 through 46 at the present time.
24 Go ahead, Mr. White.
25 MR. WHITE: Now, to address that second batch, I


1 guess I'm not sure what Mr. Jenks' argument is --

2 THE COURT: What about Counts 3 through 41 before

3 Sterling was in business? Are you objecting to that?

4 MR. WHITE: Am I objecting to the dismissal of

5 it?


7 MR. WHITE: Yes. What I would ask is that we

8 have some time to figure out if under the law when you

9 join a conspiracy, if they are libel for what took place

10 beforehand.

11 THE COURT: All right. Dismissed.

12 MR. WHITE: I guess Your Honor did that research

13 already.

14 THE COURT: You can tell me anytime before the

15 jury is discharged, I told you about five times anyway.

16 I'll not wait any longer. This is the third day of these

17 motions.

18 Counts 3 to 41 as to the defendant Sterling,

19 dismissed.

20 Now, let's get to 43 through 46.

21 MR. WHITE: On that, Your Honor, I guess I'm n ot

22 sure what Mr. Jenks' theory is.

23 MR. JENKS: Well --
24 THE COURT: His theory is that these counts did
25 not involve Sterling Who's Who but they were mail frauds


1 by Who's Who Worldwide.

2 Isn't that your theory?

3 MR. JENKS: That's exactly it. It's two

4 different companies, two different sets of documents and

5 so forth.

6 MR. WHITE: Your Honor, I think this is different

7 than your earlier ruling about the Worldwide employees not

8 being what the employees of Sterling are doing. It's

9 because Sterling as a corporate entity has a much closer

10 identification with Who's Who Worldwide.

11 You remember the chart from the tax part of the

12 case where Who's Who Worldwide is essentially funding

13 Sterling, the other ones are giving them millions of

14 do llars to start up the business. We know Mr. Gordon is

15 in charge of both, money is going back and forth. So they

16 are essentially identical, alteregos with Mr. Gordon, so

17 I'm not sure that the same theory can apply as we applied

18 before.

19 THE COURT: Is that your argument?

20 MR. WHITE: I see it didn't get a receptive

21 audience. Yes.

22 THE COURT: Okay. Motion to dismiss as to

23 Sterling Counts 43, 43, 44, 45, 46, 48, 51, 53, 55 and 56
24 granted.
25 MR. WHITE: Wait, Your Honor, I left something


1 out.

2 THE COURT: All right. I'll withdraw my decision

3 a second time.

4 MR. WHITE: Okay, sorry about that.

5 Let me just go back to it one more time. On this

6 we can use the Pinkerton theory because here Sterling is a

7 member of the conspiracy during th is time. So if other

8 co-conspirators are carrying out substantive offenses,

9 then Sterling could be liable for them, not just on the

10 mail fraud theory but if they are a member of the

11 conspiracy under Pinkerton they are liable for the

12 substantive offenses.

13 THE COURT: Have you concluded?

14 MR. WHITE: Yes.

15 THE COURT: There are two separate companies.

16 The corporate law is that they are each separate. I don't

17 find that you have sufficiently proved an alterego beyond

18 a reasonable doubt or even by a preponderance of the

19 evidence sufficient to get involved in this kind of

20 thing. Two separate companies, two separate books, two

21 profits each made, two sets of employees, and I deny, I do

22 not apply Pinkerton as a matter of law. I'm dismissing

23 the counts for the third time.
24 MR. WHITE: Your Honor, it's not clear. If it

25 was something that was incorrect about my application


1 about Pinkerton because it seems to me it doesn't matter

2 whether the corporation is a corporation or individual.

3 THE COURT: I'm distinguishing Pinkerton, if you

4 want to call it that, to exclude Sterling which is a

5 corporation with its own separate employees, own separate

6 officers, physical officers, books, and everything else,

7 and, yes, I am not going along with Pinkerton with respect

8 to that.

9 MR. WHITE: All right.

10 MR. JENKS: Your Honor, to be clear there are

11 five substantive counts then against Sterling.

12 THE COURT: So Sterling is in on what counts?

13 MR. JENKS: 42.

14 THE COURT: Wait a minute. Count 42.

15 MR. JENKS: 49, 50, 52 and 54. And Count 1.

16 THE COURT: Well, Count 1 we're not talking

17 about.

18 MR. JENKS: Right, yes.

19 THE COURT: And I may be doing the government the

20 greatest favor in the world by this ruling, they don't

21 understand that yet, but they might. Can you imagine

22 trying this case again because of that?

23 What's the next motion?
24 MR. LEE: Judge, if you will allow me to make my
25 argument from here.


1 THE COURT: Wherever you're comfortable,

2 Mr. Lee.

3 MR. LEE: I thought you would say that, Judge.

4 Judge, I know you have denied the motions of

5 Mr. Schoer, Mr. Trabulus and Mr. Nelson with regard to the

6 defendants they represent. I think that Your Honor should

7 start by making a very large distinction between my client

8 who was a salesperson at Who's Who and other defendants

9 and perhaps what their proximity or the ir privity to

10 knowledge is. I think that is an important distinction.

11 I think in the case of Ms. Weitz as a salesperson

12 it is especially important to remind Your Honor that the

13 essence of the Rule 29 motion is insufficiency of evidence

14 upon which a jury could actually base, a reasonable jury,

15 following the law which I submit in this case is not that

16 simple. I don't think it's simple and I think that Your

17 Honor should give that great consideration also, giving

18 this case to a jury to decide the issues when I think the

19 facts are compelling and require Your Honor to dismiss

20 pursuant to Rule 29.

21 Now, it is clear to me that Your Honor has

22 decided as far as the mail fraud statute is concerned that

23 a scheme has been at least established sufficiently to go
24 to the jury. My arguments really go to the insufficiency
25 of the evidence a s to the second element of a knowing and


1 a willing participation by Ms. Weitz with the requisite

2 intent to further the scheme or to further the objectives

3 of the conspiracy. I might interchange them at times.

4 I'm really talking about the scheme right now.

5 I think Your Honor has stated that the essence of

6 the scheme was to appeal to the egos of the customer and

7 that the material false statements by which this fraud was

8 perpetrated really which has been defined by the actual

9 testimony from the members, is the nomination, is the

10 mailing lists. I think the government by its own

11 witnesses has seriously whittled down their own case and

12 the representations which are material in this case. It's

13 really just the mailing lists and the nominations, I

14 believe.

15 I subm it, Your Honor, that Your Honor has to do a

16 very close examination, analysis of the very little

17 evidence that has been offered as to Ms. Weitz, in

18 particular.

19 But before I allude to that evidence, I submit

20 that any testimony from the members is only probative, and

21 I think the government in its letter justifying the

22 validity of the Michael Maxes' allocution, I think the

23 validity of the membership application only goes to the
24 materiality actually and only as to the bargain here. The
25 testimony of any members really has very little probative


1 value as to the intent by Ms. Weitz to further this scheme

2 to be a participant in it, a knowing and willing

3 participant or to further the objectives of any

4 conspiracy.

5 We know she was not privy based on the

6 government's own witness, Mr. Saffer, that she had no

7 knowledge of the content of a very important part of the

8 alleged scheme and that is this, the solicitation letter.

9 She is not aware of its contents. Mr. Saffer himself

10 stated he was not aware of the contents of it. Therefore,

11 I think that that is probative of her lack of intent that

12 she does not know that that is at least possibly in the

13 mind of the member something that is essential as far as

14 what is inducing them to enter into this bargain. That is

15 why when Your Honor looks closely at the tapes of

16 Ms. Weitz, she gives nomination short shrift.

17 She speaks to it almost or responds to it almost

18 as if there was a collateral matter and if Your Honor is

19 mindful of it, the tapes, only three tapes out of this

20 entire five-year conspiracy alleged by the government was

21 thousands and thousan ds of interviews, there are only

22 three tapes of Ms. Weitz and they are not true tapes in

23 the sense they are being conducted by Mr. West and he's
24 the one who broaches the topic of nominations.
25 In response as evidence of her intent that she


1 intends to speak to what Your Honor has decided is the

2 material inducement in these bargains, the fact that

3 nomination has occurred, the fact that there are mailing

4 lists, the subject is first broached by Mr. West and there

5 is very little content, response by Ms. Weitz, that

6 evidences the lack of evidence to furtherance into the

7 scheme by nomination, and as far as the issue of the

8 mailing list, that is also something that is brought up by

9 Mr. West, a government informant. And, again, the

10 indicia, the evidence of her participation i n this scheme

11 or to assist the fraudulent objectives does not exist

12 because, if anything, she just passes over the mailing

13 list issue or responds affirmatively and although

14 Mr. Saffer has been there for five years and I think

15 Mr. Saffer and the three tapes with the CI are really the

16 only evidence that exist in this case against Ms. Weitz as

17 far as her intent to participate in the scheme.

18 The CI tapes are suspect, they lack evidence, I

19 submit, of an intent on her part.

20 Mr. Saffer stated he had no knowledge of how

21 mailing lists work and very significantly, I think in

22 Ms. Scott's argument here today when she was responding to

23 Mr. Nelson's points, she stated that objection sheets are
24 very important in terms of guiding the salespeople how to
25 respond to objections by salespeople. But I would point


1 Your Honor to the fact that there was not one objection

2 sheet that indicates a response to how to answer a

3 customer's question about mailing lists and the reason

4 that is is that mailing lists were never discussed with

5 the salespeople at -- at Who's Who in general. It was

6 never a topic that was relevant or material to the

7 bargain.

8 Mr. Saffer himself, I believe, testified, I'm

9 pretty clear on this, that mailing lists hardly ever came

10 up in his discussions with salespeople in all the years

11 that he was there. Clearly these are what Your Honor in

12 your own words has said as far as Ms. Weitz are concerned,

13 collateral matters to the bargain. She in her mind, to

14 her these were collateral. In her mind what she spoke to

15 as far as the value of the product she was selling to the

16 customer is exac tly what were contained in her tapes and

17 that is the networking capability of CD ROM, the benefits

18 and the value of being in Tribute magazine.

19 If Your Honor examines it, the only evidence

20 against Mr. Weitz which were the three tapes it will

21 evince on her part not a criminal attempt to further the

22 scheme by appeal to these peoples' egos, it evinces a

23 belief on her part that the value of the product was in
24 the networking ability, was in the Tribute, and that's
25 what she stressed, that's what the main content of her


1 tapes are and that's what she spoke to. That's what she

2 brought the conversation around to all the time, even in

3 the face of Mr. West's attempts to try to induce her to

4 speak to things which she considered collateral.

5 I think there's additional evidence that her

6 intent was not to perpetrate a fraud and to appeal to

7 these peoples' egos because the testimony of government

8 witnesses, Ms. Benjamin, Ms. Colletti, Ms. Springer and I

9 forget the other one, Ms. Konopka, they testified by name

10 specifically, they specifically named Ms. Weitz as a

11 person who evinced a belief contrary to the fraudulent

12 intent, a belief that the Tribute magazine was valuable.

13 She said in particular Ms. Weitz would reject

14 people if she did not think they were qualified. In

15 particular, Ms. Weitz would recommend people to Tribute.

16 This is completely inconsistent to intent. So not only is

17 there an insufficiency of evidence, there's evidence

18 arising out of the government's own witnesses showing a

19 contrary criminal intention or an intention to defraud.

20 I just think of the history in this case, I think

21 the case has changed in many ways favorable to the defense

22 since Your Honor originally decided to vacate the civil

23 forfeiture. I think the case has been whittled down to
24 just a very slim, a very few material falsities which may
25 have gone to the bargain and then here my client does not


1 speak to those falsities, she speaks to something

2 completely different than what the government is claiming

3 is the fraudulent inducement to these sales.

4 So I think that the interests of justice actually

5 compel Your Honor to not let this case go to the jury, to

6 let them hear what I think will be complex summations, to

7 follow what I submit, and I have great respect for the

8 jury and I have great respect for Your Honor's ability to

9 clarify the legal issues to the jury, but the purpose at

10 least par tially is to avoid an unjust verdict, to not put

11 it in the hands of a jury because the assumption is that a

12 reasonable jury, a rational jury following the law

13 accurately will reach the right decision and I'm saying

14 Your Honor now has the basis to dismiss as to Ms. Weitz

15 now and not allow an unjust verdict to occur. And I'm

16 asking Your Honor to dismiss it or in the alternative to

17 at least reserve your decision.

18 THE COURT: Anybody want to argue on that point

19 as far as the defendant Laura Weitz?

20 MR. WHITE: Yes, Your Honor. I mean, if Your

21 Honor wants to hear argument.

22 THE COURT: Well, yes, I do.

23 MR. WHITE: Okay.
24 MR. TRABULUS: Your Honor, again, may I be
25 excused? I need to make another call.



2 MR. WHITE: Your Hono r, I believe we have to

3 start with the premise there was no secret among the

4 employees of the company what was going on there. Aside

5 from Mr. Gordon, Ms. Weitz, the defendant was there the

6 longest, she was there before Mr. Saffer was, the

7 testimony was.

8 You would have to, I think a reasonable jury

9 could conclude from the evidence they heard that you would

10 have to be deaf, dumb and blind not to be there over ten

11 years as a salesperson and not know the specific elements

12 of these misrepresentations, that it wasn't really

13 selective, there weren't nominations, membership didn't

14 just become available through attribution and all the

15 related things about that. Mr. Saffer testified there was

16 frequently talk from Mr. Gordon about how much the cards

17 cost, that they were very expensive, implying that he was

18 obtaining them from mailing list s.

19 You heard on several tapes from Mr. Zerring,

20 Frank Martin talks about the massive mailings going out

21 and that is talking to new sales employees, not ones that

22 have been there for five years. There were several tapes

23 where they specifically talked about cards, the lead cards
24 versus the nomination ballots, and this is a quote from
25 Mr. Saffer from Government's Exhibit 1393 which was a


1 tape. He talks about -- there's one type of card

2 "distinguished people who are actually nominated versus

3 the person who received the invitation to be included."

4 Again, he's telling that to new salespeople.

5 Mr. Zerring who was the one that recorded that worked

6 there for less than two months. There are not making any

7 secrets where they get these cards and where these people

8 are coming from and with respect, I think we also have to

9 keep in mind that we have a pretty good idea what the

10 defendants are saying because we have the scripts that

11 they used. So we know what we're saying.

12 There's three tapes as Mr. Lee mentioned with

13 Ms. Weitz, Government's Exhibits 1324, 1327 and 1350, they

14 contain the whole variety of misrepresentations we are

15 talking about. What the acceptance rate was, whether the

16 particular person was nominated, what the means of

17 selection are, whether or not the Hong Kong and Vietnam

18 seminar took place.

19 Mr. Lee said that Ms. Weitz didn't think that the

20 mailing list issue and the nomination issue was material.

21 Well, if that's the case in Exhibit 1350, Government's

22 Exhibit, when he asked, did my name come from a mailing

23 list? Why didn't she say yeah, sure, that's the way we
24 get 98 percent of the names, but let me tell you about how
25 great this organization is otherwise. She didn't say,


1 also with respect to Ms. Weitz, as we were to all the

2 other defendants, there are at least two or three customer

3 witnesses who came in and testified who based on the

4 paperwork, the internal company documents you can link to

5 the defendant and in this case Ms. Weitz dealt with Lester

6 Wheeler, Terry Swinney, and David Ray, all of which came

7 in and testified and they all testified they were

8 nominated and they were told grandiose things about the

9 selection process.

10 So I think it's pretty clear that Ms. Weitz, like

11 all the salespeople, had to have known what was going on.

12 Mr. Lee can make his arguments in summation but there are

13 certainly enough for a reasonable jury to conclude that

14 she did.

15 MR. LEE: Just very briefly, responding to just a

16 couple points. For the government to rely on CI tapes of

17 Mr. West where he broaches this checklist of questions

18 which in effect is making out the elements or the facets

19 of the government's case as it goes along asking these

20 questions, does not demonstrate, doesn't have that much

21 probative value as to my client's intent because it is

22 three tapes with a government agent trying to bring up

23 those topics whereas there are thousands of conversations
24 I assume by Ms. Weitz where that subject did not come up.
25 We know that because Mr. Saffer said many of these issues


1 did not come up. And we also know those subjects did not

2 come up because when the members who are being attributed

3 to M s. Weitz testified, they only testified basically as

4 to what Your Honor recalls were the two main themes in

5 their testimony, that is, nomination and actually it was

6 this B balance. The B balance is a none issue because it

7 is not a falsity and in my client's, Ms. Weitz's three

8 tapes she describes the B balances, that's not the issue.

9 So it's nomination from the members is what they say was

10 something that was material, but it's unclear whether or

11 not the reference or the representation as a nomination

12 was mainly from the letter or Ms. Weitz and it also

13 doesn't really demonstrate from a member whose testifying

14 about something that occurred perhaps two, three years

15 ago, just how much was discussed by Ms. Weitz about it

16 such that it would demonstrate her intention. It's very

17 weak in proving her intention. I think it is probative as

18 to material ity, but it is very weak as to intention. The

19 only proof of her intention is the tapes themselves. And

20 if you look at them closely they really don't evince an

21 intent to further the theme of this scheme. It actually

22 does a disservice to what the essence of the scheme is as

23 Your Honor has stated because she doesn't even taught the
24 nomination, she doesn't even taught the exclusivity. She
25 says yes or no when West says, wasn't I nominated, yes.


1 And then she goes on to demonstrate what was to her the

2 essence of the deal, what is of value here. She talks

3 about networking. To this day she believes networking was

4 a value aspect of this registry. There is no evidence of

5 intent. Of this gigantic case, there are three tapes that

6 are ambiguous and that's why Rule 29 says insufficiency.

7 THE COURT: Yes. Okay.

8 Well, there is evidence of intent to defraud on

9 the part of Laura Weitz and it is substantially, perhaps

10 only, I don't know, from the tapes which I've taken a

11 cursory look through them. If in this close case there is

12 mail fraud as a result of a scheme or artifice to defraud

13 by false representations to obtain money or property in

14 that they deceived the members into believing they were

15 exclusive, they were nominated, they were selected, there

16 was something special about their membership, then it

17 follows from there that Laura Weitz, there's enough

18 evidence to go to the jury on Laura Weitz.

19 Just looking through it myself, on the peripheral

20 issue of the seminars which is not the main -- you're

21 right about that, Mr. Lee, that's not the main thrust of

22 the case, but it's the totality of the evidence.

2 3 Government's Exhibit 1324-A.
24 "Question: Have you ever -- this is with Laura
25 Weitz:


1 "Question: Have you ever run seminars up there?

2 "Answer: Yeah, last year, we were in Hong Kong

3 and Vietnam.

4 "Question: Really?

5 "Answer: Yes.

6 "Question: I see. Was it well attended?

7 "Answer: Yes, that was dynamite."

8 Government's Exhibit 1327-A.

9 "Question: Well, for every, say, a hundred

10 people who apply, how many are accepted, do you think?

11 "Answer: All right, what I'm told is that about

12 only 7 percent of those candidates who apply are

13 accepted."

14 And this is by no means a comprehensive look. I

15 just briefly went through the tape-recordings.

16 Government's Exhibit 1350-A, this is by Laura

17 Weitz: "Before a membership is granted a nd just for your

18 own edification, last year, only about 14 percent of those

19 applying were accepted."

20 Further on, "Laura: The reason, frankly, for the

21 anonymity, as I said before, only 14 percent get

22 accepted."

23 I think there's enough evidence under the theory
24 that the government has put forth and which I have
25 accepted to go to the jury as to the defendant Laura Weitz


1 as far as intent to defraud and participation in the

2 conspiracy, and your motion is denied.

3 We'll take a ten-minute recess.

4 (Recess taken.)

5 THE COURT: All right. Let's proceed.

6 Next.

7 MR. GEDULDIG: Judge, I believe I'm next. I

8 don't want to unburden the record unduly. The Court has

9 indicated its position certainly with regard to

10 Ms. Weitz. My client is not i n a position that is very

11 dissimilar from Ms. Weitz. I would like to make a couple

12 comments. One has to do with the customer, Ms. Pincham

13 from Yelm, Washington. I think her testimony which was

14 striking because of its difference from all the other

15 customers who testified. She claimed that she had been

16 promised a number of things that no other customer claimed

17 to have been promised, the free trip to New York, she was

18 going to be put up in a hotel, go to a dinner in New York

19 and things of that sort.

20 I think that it's clear from the testimony of all

21 the customers and from all the tapes that were played and

22 from the training sessions that were provided for

23 salespeople, that those kinds of promises were absolutely
24 categorically never made to any customer. I'm certainly
25 not saying that Ms. Pincham was lying but she was clearly


1 mistaken and had a misperception of the conversation when

2 she was spoken to by Who's Who Worldwide. I bring up

3 Ms. Pincham because according to records by the government

4 she was supposed to have been contacted by my client and I

5 don't know if Mr. White contends that my client actually

6 made those kinds of promises, but I think it is very clear

7 from the two tapes that have come in against my client

8 that she was speaking on and from all the other evidence

9 in this case, that those kinds of promises were simply not

10 made to any customer in this case.

11 The other thing I would like to comment on is the

12 conferences or seminars. There's been constant talk about

13 the fact that some of the salespeople made references to

14 the holding of the seminar in Vietnam and Hong Kong or the

15 s eminar in Hilton Head. There was testimony from, and I

16 believe it was either Ms. Colletti or Ms. Konopka, I

17 forget offhand, but they talk about the fact that those

18 conferences and seminars were referred to in the magazine,

19 Tribute magazine, and there was some notification of the

20 holding of at least the Hilton Head seminar and there was

21 never notification in the magazine that any of these

22 conferences or seminars had not been held.

23 There was testimony that the salespeople got the
24 magazine, that some of the salespeople, and I think as I
25 remember it, Ms. Benjamin commented that the salespeople


1 in this courtroom often came to her with recommendations

2 of people who should be profiled, but there was testimony

3 that to nobody's recollection was there ever a sales

4 meetin g or a memo or notice sent around advising the

5 salespeople that conferences which had been advertised in

6 the magazine had not been held. The fact that some of the

7 salespeople may have said on the phone that if a

8 conference was held in Vietnam or Hilton Head didn't mean

9 that they were lying and those weren't held. All they

10 knew that the conferences had been planned and never had

11 been told they had been cancelled in any way.

12 The other comment I would like to make, Judge, I

13 don't think there has been enough said regarding the

14 atmosphere -- and I'm talking now specifically about the

15 salespeople -- regarding the atmosphere in which they took

16 the sales pitches and spoke the sales pitches on the

17 telephone.

18 There was a phrase used, I think, of "brain

19 washing," and I believe the salespeople could fairly be

20 characterized as having been brainwashed. They were told

21 over and over and over again that the sales pitch was

22 accurate, honest, truthful. They were told over and over

23 and over again to follow the sales pitch verbatim. If you
24 do that you will not be stretching the truth, you will not
25 be lying. They were told constantly over and over again


1 if they deviated, even in a small respect from the sales

2 pitch, they would be fired, and the testimony is that

3 salespeople who deviated were in fact fired.

4 There's clear testimony, this is not of any kind

5 of proof of criminal intent but certainly Mr. Gordon could

6 only be characterized as a very difficult boss. He

7 apparently could fly into a rage, he was abusive, he was

8 intimidating. I think there was some testimony to the

9 fact that he was on occasion insultin g and did not provide

10 salespeople with the dignity that they were deserving, and

11 under that atmosphere these salespeople were following a

12 pitch that they believed to be truthful.

13 I'm now going back to the point that Mr. Lee ably

14 made before that there was simply a lack of intent here.

15 There was a compartmentalization of the company, the

16 salespeople were absolutely forbidden from going into the

17 administration offices to know what was in the

18 solicitation letters, to know about mailing lists under

19 fear of being fired. So to say these people said the

20 things that they said on the telephone or that they made

21 misrepresentations knowingly and with the intent to

22 defraud people is simply not so. I think that there has

23 to be some consideration given for the circumstances and
24 the atmosphere that existed in that company when these
25 pe ople, the salespeople spoke on the phone.


1 I submit to you, Judge, as I said, Ms. Haley, my

2 client is not in a situation, very dissimilar from

3 Ms. Weitz, Mr. Michaelson or Mr. Rubin, but I submit to

4 you, Judge, that the circumstances surrounding their

5 employment clearly indicates that they did not have any

6 sort of criminal intent and because of the way the company

7 was run they did not participate in a conspiracy.

8 That's all I have to say, Judge. Thank you.

9 THE COURT: Well, a cursory view of the

10 tape-recordings indicates evidence of intent and

11 participation sufficient to go to the jury, in my

12 opinion.

13 Government's Exhibit 1361-A.

14 "Question: Okay. How was I selected?

15 "Annette: Oh, you were nominated by an

16 established member."

17 Further on.

18 "Question: Okay. So I wasn't picked from a

19 mailing list.

20 "Annette: No, no mail. I would say about 7

21 percent of candidates applying are even offered a

22 membership."

23 Government's Exhibit 1325-A.
24 "Question: No, my question is how much does the
25 people get rejected, a third?


1 "Annette: I would say we accept 5 percent."

2 I think under the theory of the government which

3 I have accepted, I think there's evidence sufficient to go

4 to the jury with respect to the defendant Annette Haley.

5 Your motion is denied.

6 Next.

7 MR. NEVILLE: Your Honor, with respect to Scott

8 Michaelson. I join in every else's motion, another

9 salesperson. I would like to point out to the Court the

10 evidence brought out by I believe Mr. Nelson, the tape

11 that was played where Mr. Gordon stated to the salespeople

12 one out of six people are accepted and that that was the

13 truth, and this also dovetails with Mr. Geduldig's

14 statement to Your Honor about how Mr. Gordon ran his

15 company and how the salespeople followed what they were

16 told. If not under duress, certainly under heavy

17 intimidation.

18 Furthermore, as far as the Reed Elsevier

19 litigation, I believe the evidence has shown that that

20 litigation was known to the people in the company and it

21 was resolved in a way where the people were told that they

22 had to distinguish Who's Who from any other Who's Who

23 directories, and change if there were some change made in
24 the letter that went out. And how could a salesperson,
25 especially a salesperson like Scott Michaelson, like any

7 694

1 one of the other salespeople think there was something

2 wrong when the entire, the entire matter, the entire

3 procedure. The entire business was brought to light,

4 sunlight was allowed to shine in, so to speak, at the

5 civil trial and the results were that we have to make it

6 clear that we are not affiliated with any other Who's Who.

7 A layperson could only believe that everything

8 was okay except for the fact there was apparently some

9 confusion as to the two entities, Reed Elsevier's and

10 Who's Who.

11 Furthermore, as to Scott Michaelson in the one

12 tape which I think is very telling with Mr. West, Scott

13 Michaelson essentially was pushing Mr. West back, so to

14 speak, from getting a membership or a full membership.

15 Scott Michaelson told him, that man who called under the

16 guise of being a salon owner, Mr. Grimaldi, that he

17 wouldn't benefit from the networking. I applaud you, I

18 respect your job, but I don't believe you would benefit

19 from the networking.

20 So Scott showed a good faith intent to be

21 straight, if you will, to be honest, to be square with

22 this person who was calling on the behest of the

23 government and essentially trying to get Scott to say
24 things that would be incriminating.
25 Thank you.


1 THE COURT: The witness Saffer, I forget his

2 first name, testified that 98 percent of the applications

3 were accepted, even when the nomination ballots were in

4 vogue, only 2 percent of the members were gotten from the

5 nomination ballots and there is substantial evidence that

6 the companies used mailing lists to get their names, to

7 send out their letters. And Scott Michaelson te stified in

8 Government's Exhibit 1360-A.

9 "Question: Who nominated me?

10 "Scott Michaelson: Oh, in my level, I wouldn't

11 know, you know. However, I can tell you that -- you know,

12 some of our individuals again are nominated by one or more

13 of the established members which is a privilege of

14 membership or by our editors, but we won't accept any

15 outside applications whatsoever."

16 All of these things are meant to induce the

17 member to believe that he is something special, that this

18 is a prestige membership.

19 Government's Exhibit 1308-A.

20 "Scott Michaelson: So we don't -- we get about

21 6,000 requests each month for inclusion. We only accept

22 about 1,000 new members, but just because your card is

23 back doesn't mean that you're automatically in the
24 database.
25 "Question: In other words, I'm not on some kind


1 of a mailing list somewhere or something?

2 "Scott Michaelson: Not that I know of, no,

3 because we have to reject more people than we actually

4 accept."

5 And it goes on in a similar vein.

6 Government's Exhibit 1326-A.

7 "Question: I'm not on some kind of a dumb

8 mailing list somewhere.

9 "Scott Michaelson: No, we don't have anything

10 like that that I know of. Everything that is done, of

11 course we have ballots and everything that we work on and

12 our quarterly magazine that comes out, the Tribute, has

13 our ballots in there as well."

14 There is evidence under the government's theory

15 of intent to defraud, participation in the conspiracy by

16 being an active salesperson. This is on the firing line

17 of the conspiracy.

18 Your motion is denied.

19 MR. DUNN: Your Honor, if I may on behalf of

20 Steve Rubin, I would join in all the defendants' motions

21 pursuant to Rule 29 and particularly motions of the

22 salespeople. I would just submit in adopting Mr. Rubin's

23 position that evidence is lacking to establish intent to
24 defraud.
25 I submit that based on the testimony of


1 Ms. Springer, Ms. Benjamin, Mr. Saffer, that Mr. Rubin

2 acted in good faith and that is a complete defense and I

3 submit the government has failed to show some of that, in

4 particular at page 3225, Ms. Springer said that Mr. Rubin

5 was very enthusiastic, he took his job seriously.

6 Ms. Benjamin, at page 4157 said he had a 100

7 percent belief in Who's Who Worldwide.

8 At page 6001, Mr. Saffer said that Mr. Rubin

9 totally believed of the product at Who's Who Worldwide 100

10 percent, that's the impression that he had.

11 I would note that Ms. Springer complained that

12 Mr. Rubin took his job so seriously that he wrote too much

13 down, much too much down on the order cards and I submit

14 to the Court that reflects Mr. Rubin's desire to find out

15 if people were truly qualified, whether there was a list,

16 a mailing list or mailings or however those names were

17 obtained.

18 Linwood Schultz, one of the customers, testified

19 that he had a conversation with Mr. Rubin for 30 minutes.

20 Mr. Ihlenfeldt testified that his conversations

21 as a CI varied from ten minutes to at most 18. I submit

22 to the Court that that 30 minutes and more on some

23 occasions showed Mr. Rubin's desire to find out that
24 people were indeed qualified, whether there was any kind
25 of list or not.


1 I'm aware in his tapes it talks about the same

2 thing that you just mentioned in reference to

3 Mr. Michaelson with the nominations, but I submit that

4 based on this man's theory seriousness and handling of the

5 job, his time that he spent on the phone with people, and

6 I think that's even reflected in the two tapes presented

7 through Mr. West, I submit to the Court that Mr. Rubin was

8 acting in good faith.

9 I would also note that he came to work there

10 after the Reed decision in February of '94 when the

11 company was making many, many improvements and steps

12 towards doing things the way it should be done, that over

13 that period of time there were more and more nomination

14 ballots and I think that all points to good faith on

15 behalf of Mr. Rubin, Your Honor.

16 THE COURT: What do you say about Mr. Rubi n,

17 Mr. White?

18 MR. WHITE: The only thing I would say, Your

19 Honor, on its face he made a post-arrest statement where

20 he admitted he lied to Agent Jordan where Agent Jordan

21 testified about where Mr. Rubin admitted he lied about all

22 the key things we are working there. How long he worked

23 there, the Hilton had taken place, he told customers they
24 were nominated when he knew they weren't and that their
25 names had come from a mailing list. If the jury believes


1 that, he's a participant. End of case.

2 THE COURT: I agree with that. That motion is

3 denied, Mr. Dunn.

4 Next.

5 MR. WALLENSTEIN: Judge, I think we're done with

6 the mail fraud.


8 MR. WALLENSTEIN: With respect to the tax part of

9 the case and the obstruction part o f the case, Mr. Reffsin
10 is charged in seven counts, 58, 60, 61 and 66 through 69.

11 THE COURT: 58 --

12 MR. WALLENSTEIN: 58 is the obstruction of

13 justice count.

14 THE COURT: What are the numbers again?

15 MR. WALLENSTEIN: 58, 60, 61 and 66 through 69

16 inclusive.

17 The last four counts are the assisting and filing

18 of false returns. Count 61 is the tax evasion count,

19 Count 60 is the conspiracy to impede the Internal Revenue

20 Service and Count 58 is the obstruction count.

21 With respect to Count 58, the basis of the

22 obstruction of justice count as it pertains to Mr. Reffsin
23 because there were two and Count 59 only applies to
24 Mr. Gordon. As to that count the submission of the
25 alleged false logs to the bankruptcy court. I suggest,


1 Your Honor, there is absolutely no evidence that

2 Mr. Reffsin had any corrupt intent whatsoever, even if you

3 believe, and I don't think you can, but even if you

4 believe Maria Gaspar's testimony that Mr. Reffsin
5 instructed her to falsify the logs, there is no indication

6 that Mr. Reffsin had any corrupt intent and that is a

7 necessary element of the obstruction count.

8 Clearly the government has proven that there was

9 a bankruptcy proceeding pending and that he had knowledge

10 that there was a bankruptcy proceeding pending and that it

11 was a federal proceeding. We're not contesting any of

12 those elements obviously, but the question of corrupt

13 intent is the third element of the obstruction of justice

14 count and that is the key here.

15 First of all, there is no indication that

16 Mr. Reffsin would in any way benefit from it and while

17 recognizing that that is not necessarily an element, it is

18 some indication that he had no intent. Furthermore, the

19 bankruptcy court, in the bankruptcy court, the proof is

20 tenuous at best that the logs were actually used. There

21 was some statements from Mr. Skalka that they were

22 submitted to Reed's attorneys but the determination

23 apparently was from everyone because Reed took the
24 position having read the logs that the logs backed up
25 Reed's position that these properties were used only for


1 personal use. The allegations that they were submitted to

2 impede the bankruptcy court were that they were submitted

3 for the purpose of establishing a business use of the

4 penthouse and the condominium when they were in fact

5 personal assets in order to mislead Reed Elsevier in the

6 bankruptcy proceeding.

7 That's not the case. They were not only not

8 mislead, they took the opposite position. They took the

9 position that the logs backed up their position that these

10 properties were for personal use and therefore should be

11 available to the creditors.

12 I think that Mr. Reffsin's intent is not proof at

13 all with respect to that and I think that in order for

14 this count to go to the jury with respect to Mr. Reffsin,

15 you would have to find, I think, that Maria Gaspar is

16 believable beyond a reasonable doubt and I think the

17 opposite is true. She could not attribute any particular

18 statements to Mr. Reffsin when they allegedly were

19 travelling in the car. She claimed that Mr. Reffsin
20 allegedly gave her names that he could not have possibly

21 known according to the other testimony in the case because

22 he was not an employee. He was not at Who's Who on a

23 day-to-day basis. He was there at best, from all of the
24 testimony in the case, once a month or thereabouts in
25 order no do the booking, in order to do the bank records


1 and reconciliations. Very often it wasn't him, it was

2 other people from his firm who did it. He was at the

3 offices of Who's Who on an occasionally basis but he was

4 clearly not an employee.

5 So with respect to the obstruction count, Count

6 58, I suggest there is insufficient evidence to go to the

7 jury and I would move under Rule 29 for judgment of

8 acquittal on that count.

9 THE COURT: What about that?

10 MR. TRABULUS: Your Honor, I had previously in my

11 initial statement moved with respect to all counts against

12 Mr. Gordon. This count is against Mr. Gordon. I would

13 join in the comme nts of Mr. Wallenstein and I just want to

14 highlight the fact that the evidence is that there was no

15 use made by Who's Who Worldwide or Mr. Gordon or the

16 bankrupt company of these logs. I mean, they were

17 submitted, they were handed over to the other side, but

18 Mr. Gordon's company did not utilize these logs in the

19 bankruptcy court, they were not introduced in evidence as

20 far as we could tell, there was no evidence they were and

21 apparently the only use made of them for it believing they

22 supported its position was Reed Elsevier.

23 THE COURT: What about that, Mr. White? Were the
24 bankruptcy logs used, submitted to the Court?
25 MR. WHITE: Mr. Skalka testified on page 912 of


1 the trial transcript that the logs were used in the

2 subsequent hearing. Whether or not they were used though

3 I don't think is the issue. The question is whether or

4 not there was an endeavor to obstruct justice, not whether

5 it was successful.

6 I start with United States v. Ruggiero, 934 F.2d

7 440 (2nd Cir. 1991). It says that materiality is not an

8 element of an obstruction of justice charge and that

9 obstruction of justice "requires only proof of an

10 endeavor, irrespective of its success and makes that act a

11 crime if the endeavor is a corrupt one."

12 According to Mr. Reffsin's statement as a result

13 Mr. Skalka's testimony, Mr. Gordon and Mr. Reffsin were

14 present in court when the Judge ordered Who's Who

15 Worldwide to keep these logs. They walk out and -- I'm

16 sorry, they know that this is a Court Order to keep these

17 logs. And yet the testimony is if you believe Maria

18 Gaspar which the jury is entitled to do, she was told by

19 the both of them to create these phony documents for the

20 purpose of giving them to the other side. I think you

21 have to look at the context of this to see why they are

22 obstructing justice.

23 They have previously told -- they set things up
24 in such a way so that Mr. Gordon's financial affairs are
25 arranged in such a manner that his company is paying for


1 all of his personal expenses, providing him with a car,

2 providing him with several homes, and they've had -- they

3 are concealing that fact from the IRS. If you are

4 concealing that from the IRS you can't go blabbing all

5 over town about what you are doing, but the bankruptcy

6 proceeding threatens to in effect upset the apple cart.

7 Now, Reed is bringing the motion for the

8 appointment of a trustee, removing him as head of t he

9 company and Reed is suggesting that that trustee if

10 appointed should then sue Mr. Gordon to get back the money

11 that has been spent on his personal expenses. So -- and

12 Mr. Skalka's testimony was that the stipulation and order

13 to keep these logs was to resolve that very issue, Reed's

14 pending motion for the appointment of a trustee. That's

15 at page 881 of the transcript.

16 He testified at page 884 and 885 that Reed's

17 position was there was no business purpose for the

18 condominium and the company's position was that there was,

19 and that the agreement was to keep the logs so that they

20 would prove that they were really using it for a business

21 purpose.

22 Now, the fact that Reed later says it supports

23 its purpose, what Mr. Skalka said I believe was that Reed
24 said well, this is even insufficient, not that, oh, it
25 supports our position. In fact, there are bogus meetings


1 on that. Ms. Colletti, Konopka, Benjamin and Gaspar

2 attended. They never attended the meetings. Some of the

3 meetings Mr. Gordon is listed on there, he was in

4 California.

5 So the bottom line is if you believe Maria Gaspar

6 and Mr. Skalka and the documents in evidence, there's

7 sufficient proof of corrupt intent on both parts.

8 THE COURT: The Court agrees Maria Gaspar

9 testified that she was told to make up the logs, I

10 believe, by both defendants. Certainly the defendant

11 Reffsin said "make them up." The witnesses who testified

12 offered evidence that they never were present at these

13 meetings and that the logs were false. Why an accountant

14 would be responsible is because accountants sometimes try

15 to help their client s. In this case the evidence shows

16 that the accountant tried to help his client, if you

17 believe Maria Gaspar, and I don't think her testimony was

18 outrageous or unconscionable as a matter of law, no way.

19 As a matter of fact, I put a note next to her testimony as

20 I sometimes do "dynamite witness." So I don't think her

21 testimony was unbelievable as a matter of law, no way.

22 MR. WALLENSTEIN: You will forgive me if I

23 disagree.
24 THE COURT: Okay. That's just my note, that's
25 all.


1 MR. TRABULUS: I disagree too.

2 THE COURT: Very good.

3 And my note means nothing. It just helps me

4 remember who the witnesses were, just for moments like

5 this. So if the jury believes her testimony, then both

6 defendants could be found guilty of corruptly endeavoring

7 to influence the due administration of justice in the

8 bankruptcy proceeding. And they certainly also could be,

9 I think there's an aiding and abetting count there also in

10 that one, is there?

11 MR. WHITE: Yes, there is.

12 THE COURT: So either way. Those motions are

13 denied by both Gordon and Reffsin.

14 Next.

15 MR. WALLENSTEIN: Judge, do you want us to take

16 the counts in order because 59 doesn't apply to Reffsin.

17 THE COURT: Whatever you want.

18 MR. TRABULUS: Your Honor, I'll speak to 59

19 because it is also an obstruction count and the same law

20 will apply.

21 THE COURT: Go ahead.

22 MR. TRABULUS: Your Honor, with regard to that

23 one, simply point out, I would, this one is based upon
24 supposed false and misleading testimony concerning the
25 ownership of Who's Who Worldwide and other corporations


1 controlled by Bruce Gordon. And just to get to the quick

2 of it, there's no evidence that the ownership in any way

3 effected anything in the way the bankruptcy proceeding was

4 decided or that there was any reason to think that it

5 was.

6 Mr. Ackerman testified that the ownership was the

7 least important thing and in this particular bankruptcy it

8 had no play, nothing to do with it, whether Mr. Gordon

9 owned it, whether the Grossmans owned it or whatever. So

10 even for the sake of argument, and I'm not conceding it,

11 if you would agree that false, evasive and misleading

12 testimony was given and the petition contained false

13 information concerning the ownership, there's no natural

14 tendency to obstruct justice and, frankly, there are in

15 the record other reasons, if it was false and leading that

16 somebody might have done it. I think Ms. Gaspar only for

17 this purpose, I'll concede she was a dynamite witness.

18 THE COURT: Watch yourself, Mr. Trabulus.

19 MR. WALLENSTEIN: I do not join in that.

20 THE COURT: I thought there was a breach in the

21 wall there for a minute.

22 MR. TRABULUS: This was a matter she would have

23 no reason to appreciate the significance of it or reason
24 to falsify her testimony. She acknowledged on
25 cross-examination it had been explained to her by Liz


1 Sautter that a reason for the Grossmans having the

2 ownership, whether you consider that real ownership or

3 not, I'll leave that aside of the company, was for the

4 purposes of getting the merchant accounts with the credit

5 card companies. So whether or not assuming only for the

6 sake of a rgument that this was false and misleading, that

7 they had that ownership, the purpose of that had nothing

8 to do with the bankruptcy and there is nothing to suggest

9 it was. It would be just consistent with something that

10 might have been done with regard to getting the merchant

11 credit card accounts. It did not effect the outcome, no

12 naturally tendency to effect it, had nothing to do with

13 it, whether false or true or not, it would have no

14 tendency to effect the bankruptcy proceeding.

15 THE COURT: What about that, even if it was

16 false, would it obstruct the bankruptcy proceeding?

17 MR. WHITE: It would.

18 THE COURT: How would it do that?

19 MR. WHITE: Mr. Trabulus is trying to import a

20 materiality requirement into the obstruction statute that

21 is not there. In any event, Mr. Skalka testified that the

22 issue of ownership was relevant in a b ankruptcy

23 proceeding. He testified that on page 895. Again, if the
24 jury believes it then that's sufficient --
25 THE COURT: Why was it relevant?


1 MR. WHITE: He said that owners are liable for

2 certain obligations in bankruptcy. In addition, there's

3 two documents in evidence, Government's Exhibit 629-A and

4 630 which are -- 629-A is the redacted memorandum of

5 Reed's motion for a trustee. 630 is Mr. Gordon's

6 affidavit. Both of those mentions a ground for the

7 appointment of a trustee loan to Mr. Gordon and the

8 Grossmans as the ground for the trustee, Reed's motion

9 requesting a trustee.

10 Exhibit 637 are interrogatories that were sent

11 during the course of the bankruptcy proceeding, again

12 inquiring about monies that the Grossmans received and

13 what role th ey had in the company.

14 Exhibit 641 is a letter that Mr. Ackerman himself

15 wrote laying out loans to the Grossmans and what their

16 ownership position was.

17 THE COURT: Why was the ownership material?

18 Loans had nothing to do with ownership, do they?

19 MR. WHITE: They do, Your Honor, because as

20 Mr. Skalka said there are different rules that apply to

21 insiders in bankruptcy and that the whole thrust, the

22 whole of the bankruptcy proceedings in whether or not a

23 trustee should be appointed had to do with whether
24 Mr. Gordon and relatives of his who were involved in the
25 company were improperly siphoning off money. So


1 determining -- not so much Mr. Gordon's role which was

2 clear but what the Grossmans role was was an important

3 factor.

4 For example, the Gro ssmans testified about how

5 they received this $400,000 salary at the end of 1992,

6 that Dr. Grossman then sent back. That, according to

7 Mr. Skalka and these documents, was a big issue. They

8 wanted to know why were you sending them $400,000.

9 Mr. Gordon's explanation which Dr. and Mrs. Grossman said

10 was false, was, oh, well, I talked to them on a daily,

11 sometimes weekly basis about the business. He had to come

12 up with a reason why they were getting this money and so

13 he falsified both their role and their ownership.

14 MR. TRABULUS: Your Honor, if I may respond.

15 Firstly, with regard to Mr. Skalka's testimony,

16 if I recall it clear, and I think I do recall it clear,

17 his testimony was given with regard to bankruptcy

18 proceedings in general and the potential in a bankruptcy

19 proceeding for ownership to be in issue. He did not

20 testify that in this particular case it made a

21 difference. The fact of the matter is that Mr. Gordon

22 acknowledged in the bankruptcy proceeding that he

23 controlled the corporation. He was an insider, the
24 Grossmans were also insiders. Whether he opened 100 or 25
25 percent, the difference is immaterial. They were listed


1 as insiders. The exact facts of ownership, whether it be

2 25 or 100 percent entered into nothing here. There is

3 nothing to indicate that they entered into anything or it

4 would have expected that they entered into anything.

5 The Grossmans were involved in the company,

6 Mr. Gordon was involved in the company and his control in

7 the company was unequivocally disclosed by him. Indeed in

8 the same testimony where he said the Grossmans owned it

9 but for all practical purposes I d o. And it had no

10 tendency to obstruct, Your Honor.

11 MR. WHITE: If I may respond.

12 He had every reason to think that it was

13 relevant. For one, the bankruptcy petition asked in

14 numerous places to specify the ownership and the precise

15 break down, they want person by person, who is the owner,

16 what is their interest.

17 THE COURT: So what difference did it make?

18 MR. WHITE: Well, Mr. Gordon doesn't think they

19 are asking for no reason, that is the subject of repeated

20 questions to determine what precisely -- if we were

21 talking about we had to show it was material to the

22 proceeding, that is something different. All he has to

23 know it will have some tendency to obstruct the
24 proceeding.
25 THE COURT: It certainly would be interesting for


1 the Bankruptcy Judge to know when somebody testifies that

2 they are an owner of the company insofar as owning stock

3 and not just controlling the company. Wouldn't that be

4 one of the things that a judge could consider when

5 determining the credibility of a witness?

6 MR. WHITE: I agree with that, Your Honor. I

7 mean, I think all of those things are things that -- this

8 would be a different case I think if there is a

9 materiality requirement but there isn't.

10 THE COURT: Well, it's sufficient to satisfy this

11 element, Mr. Trabulus, if the jury finds that the

12 defendant Gordon acted in a way which produced or was

13 capable of producing an effect that prevented justice from

14 being duly administered. That's one of the definitions of

15 corruptly endeavoring.

16 No, I think there's enough in the case and I'm

17 denying your motion.

18 Next.

19 MR. WALLENSTEIN: Judge, with respect to Count

20 60. Count 60 is the conspiracy to impede the Internal

21 Revenue Service.

22 In the first place, this indictment in effect

23 charges multiple conspiracies in this count because the
24 count of obstruction of justice, which is charged as a
25 substantive count but not as a conspiracy count, is


1 contained within Count 60 as well. There are specifically

2 four overt acts charged which relate to the production of

3 the logs in the bankruptcy proceeding which have nothing

4 whatever to do with the IRS conspiracy. They do have to

5 do, of course, with the obstruction count and count 58,

6 but they are irrelevant to this conspiracy. They don't

7 believe in it.

8 I think that the indictment, this particular

9 count, is therefore misleading in tha t regard, Your

10 Honor.

11 There are, in addition, in paragraph 53 on page

12 27, the government alleges that part of the conspiracy to

13 impede the Internal Revenue Service is the submission of

14 the false logs in the bankruptcy court. I don't, frankly,

15 see the connection.

16 MR. WHITE: May I?

17 Are you finished?

18 MR. WALLENSTEIN: With that particular point.

19 THE COURT: Why don't you conclude your

20 presentation, Mr. Wallenstein.

21 MR. WALLENSTEIN: Fine. There is no proof,

22 number one, that Mr. Reffsin conspired with Mr. Gordon. I

23 realize that circumstantially you can reach that
24 conclusion but there is no direct proof of Mr. Reffsin's
25 intent and he has to share Mr. Gordon's intent to impede


1 the IRS. Mr. Gordon has three and-a-half million motive s

2 to impede the IRS because that is the amount of money they

3 charge that he owed the IRS and that he tried to evade the

4 payment of. But Mr. Reffsin doesn't have any. There is

5 no indication that he even got paid for his services in

6 preparing the returns that went along with all of this

7 alleged conspiracy.

8 And in fact, he's owed some $37,000 from the

9 bankruptcy court or from the bankruptcy proceeding where

10 he was the court appointed accountant for Who's Who as

11 debtor in possession.

12 There is no basis on which to assert that

13 Mr. Reffsin shared in Mr. Gordon's understandable desire

14 not to pay the IRS three and-a-half million dollars or

15 that he would receive any type of benefit from doing so.

16 Obviously there's a downside to his assisting Mr. Gordon

17 in an improper fashion, and he's here. That's proof of

18 that.

19 Bu t there's no upside to it, Your Honor. There's

20 no indication that anywhere along the line Mr. Gordon

21 said, you know, you helped me beat the IRS out of three

22 and-a-half million and I'll give you 100 or $200,000.

23 There's none of that.
24 All Mr. Reffsin did and all the proof shows is
25 that Mr. Reffsin acted as any other accountant would have


1 acted and Mr. Rosenblatt's testimony as the government's

2 expert backs that up, I think.

3 The gravamen of this conspiracy, and this goes

4 also to the further counts, the assisting of the filing of

5 the false returns and the evasion counts as well, the

6 basis of it all is that Mr. Gordon concealed his income

7 from the Internal Revenue Service by talking the loans and

8 by causing the corporations to pay his personal expense.

9 Clearl y there is no proof whatsoever that

10 Mr. Reffsin had anything to do with causing the

11 corporations to pay any kind of expenses or to do anything

12 else. There's no proof that he was an officer of the

13 corporation, a director, shareholder, or even an employee

14 of the corporation. He had nothing whatever to do with

15 the corporate side of it and the proof in fact is to the

16 contrary. The proof is that Maria Gaspar was the

17 bookkeeper for a period of time and that prior to that Liz

18 Sautter acted in that capacity and was as the

19 administrator handled the books.

20 The proof is that the only signatory on the

21 corporate accounts was Mr. Gordon, and there was some

22 testimony that the Grossmans had signatory powers. But

23 clearly on a day-to-day basis the testimony is any check
24 had to be approved and signed by Bruce Gordon. Marty
25 Reffsin had noth ing whatsoever to do with that and all an


1 accountant can do is come in after the facts, look at the

2 books and say, what does this mean, why did you use this

3 money, we'll put it in this account.

4 Mr. Rosenblatt, the government's expert,

5 testified that there was nothing improper whatsoever about

6 using a loan and exchange account and there was nothing

7 improper, per se, about a corporation, especially a

8 privately held corporation, loaning money to a shareholder

9 and that the test was did he intend to pay it back.

10 That's borne out -- the case on the subject is Crowley v.

11 The Commissioner of Internal Revenue, found at 962 F.2d

12 1077, a First Circuit case in 1992. And it talks about

13 shareholder distributions, but basically it says that a

14 distribution is a loan and not a const ructive dividend if

15 there is an intent to repay.

16 In order for the government in this case to

17 establish that the monies which were paid for Mr. Gordon's

18 personal expenses were income rather than loans, they have

19 to prove that he had no intent to repay, and more

20 importantly, even if he had no intent to repay it, they

21 have to prove that Mr. Reffsin knew that. And they can't

22 do that because the proof is that there were repayments

23 made.
24 The proof is that Mr. Reffsin in preparing the
25 tax returns for 1991 and 1992 picked up income at that


1 point in time, some $50,000, I believe, for the 1992

2 return, which had been paid for Mr. Gordon's personal

3 expenses and he forced Mr. Gordon at that point to pick it

4 up as income, although no money changed hands at that

5 point. That becomes a repayment of the loan.

6 In addition, there's a big point here about the

7 money that was paid to the Grossmans in December of 1992,

8 the $400,000 that went to Joyce and Richard Grossman in

9 December of 1992, and $235,000 of which comes back to

10 Bruce Gordon in 1993 and is used to reduce his loan

11 balance, that is a repayment, that is a substantial

12 repayment.

13 By Mr. Rosenblatt's testimony where he outlines

14 the factors to be employed in determining whether

15 something is a loan or income, all of which he clearly

16 admits are subjective and vary from taxpayer to taxpayer,

17 vary from examiner to examiner and even with one examiner

18 from case to case.

19 They are all subjective factors, Your Honor.

20 They are all to be applied on a case-by-case basis and it

21 is all in the examiner's head and Mr. Rosenblatt doesn't

22 pick any of this up until two or three or four years after

23 the fact. What you have to look at is what was the
24 situation at that point in time when the entries were
25 made. And I submit, Your Honor, without belaboring the


1 point too much, and I haven't already, that there is no

2 indication that these were anything but loans to the

3 shareholder which were being repaid which were intended to

4 be repaid.

5 There was a schedule of repayment which would

6 probably have been met but for the bankruptcy and the raid

7 which put the companies out of business. There was

8 obviously no way to tell either of those events at the

9 point in time when the entries were made in the books.

10 Because they were loans own their face, looking at them on

11 their face and in fact I believe Mr. Peters and

12 Mr. Gagliardi accepted them for that point in time. There

13 is no indication that Mr. Reffsin had any other knowledge

14 or believed they were anything but loans. As a result

15 there is not sufficient evidence to take this to the jury

16 on a conspiracy to impede the IRS.

17 I believe that argument would apply as well to

18 the evasion counts and to the assisting of the filing of

19 the false returns. When we get to them I'll have a couple

20 other things to say but I'll restrain myself at that

21 point.

22 MR. TRABULUS: Your Honor, I would join in that

23 argument. And I would also point out that with regard to
24 the residences, these were areas that I think
25 Mr. Rosenblatt himself testified were gray areas. In


1 terms of the one that Mr. Gordon lived in which was 200

2 Hummingbird, lived in for a period of time, he paid rent

3 and a portion of the premises were used for business

4 purposes and I don't think the government has really

5 proved otherwise. Whether or not there is some kind of

6 imputed income there, I don't think you have any basis for

7 finding beyond a reasonable doubt as to an intentional

8 evasion or conspiracy with regard to that.

9 With regard to Sterling, the evidence is not at

10 all clear as to how frequently he was there. The

11 suggestion indeed is it was not particularly frequently.

12 I think Mr. Rosenblatt said if he was there three or four

13 times a month or six times a month, that would be a gray

14 area.

15 Mr. Gordon, the testimony is by -- we had that

16 witness, Mr. Pierre, who was there who worked in Sterling

17 during the summer of 1994 who said Mr. Gordon was there

18 once every week or once every two weeks.

19 We had Mrs. Benjamin that Mr. Gordon would

20 sometimes go into the city and come back to Long Island

21 the same day. There is nothing to indicate that

22 Mr. Gordon stayed overnight at the penthouse on anything

23 more than that sporadic basis. That would not constitute
24 income to him, particularly when that was really for the
25 purpose to accommodate Sterling's needs that he be there


1 with a --

2 MR. WALLENSTEIN: May I say one thing before

3 Mr. White speaks. I don't think that in the absence of

4 direct proof of a conspiratorial conversation between

5 Mr. Gordon and Mr. Reffsin which is lacking, there is no

6 such proof, in the absent of that direct proof, I don't

7 believe that you will impute Mr. Gordon's knowledge and

8 Mr. Gordon's intent through Mr. Reffsin , and for that

9 reason the two are entirely separate. I don't believe

10 there is any proof of a conspiracy to begin with, but

11 there is certainly no proof that Mr. Reffsin shared

12 Mr. Gordon's knowledge of everything or Mr. Gordon's

13 intent with respect to the payments of the loans, and

14 whether they were loans or income.

15 MR. TRABULUS: And, Your Honor, even assuming for

16 of the sake of argument that Mr. Gordon had such an

17 intent, if Mr. Reffsin did not, Mr. Gordon could not

18 conspire with him, Your Honor.

19 THE COURT: No question about that.

20 MR. TRABULUS: Thank you.

21 MR. WALLENSTEIN: I even agree with that.

22 MR. WHITE: Your Honor --

23 THE COURT: As they say, you need two to tango;
24 is that right?
25 MR. WHITE: That's true.


1 THE COU RT: At least.

2 MR. WHITE: Let me address the points in the

3 order I think they were raised.

4 First, with respect to whether or not the

5 substantive offenses of obstruction are really part of

6 this tax conspiracy. As I explained before the whole

7 artifice that is in place here Mr. Gordon is having the

8 company pay for his expenses, he has a motive for his back

9 taxes. That includes the condos, the cars, personal

10 expenses. The reason that the obstruction, the logs and

11 the ownership, the false statements about the ownerships

12 are part of the tax conspiracy is because they can't have

13 a trustee appointed in the bankruptcy proceeding. As I

14 said before it will upset the apple cart then the way they

15 would be arranging Mr. Gordon's financial affairs would be

16 upset. Also you are hiding it from the IRS, can't go

17 around telling anybody what you're d oing which is why they

18 need to keep this a secret.

19 THE COURT: Just hold it a minute.

20 MR. WHITE: With respect to Mr. Reffsin's intent,

21 there's numerous examples of falsehoods and concealments

22 that he participated in. Mr. Gagliardi deals with

23 Mr. Reffsin, asks him after the offer and compromise is
24 submitted, provide the following things to me, including
25 statements for all accounts on which Mr. Gordon is the


1 signatory. Mr. Reffsin knows it exists, he's doing the

2 books for all of those corporations, but he doesn't give

3 it to him. The verification of all the monthly payments

4 that Mr. Gordon makes, if not by his personal check.

5 Mr. Reffsin knows those too.

6 He told Agent Jordan when he would interview him,

7 look at the personal expenses, record them in the loa n

8 account to Agent Jordan, he knows it exists, didn't give

9 them to Mr. Gagliardi, that is a knowingly concealment.

10 Mr. Reffsin lied in his deposition about when the

11 notes for some of the loans between companies were

12 created. Mr. Wallenstein said there was no proof that

13 these weren't really loans. Well, the test is is there an

14 intent to repay at the time they were taken out?

15 Mr. Ackerman testified he had a meeting before he

16 wrote the letter submitted in the bankruptcy proceedings.

17 He had a meeting with Mr. Gordon and Mr. Reffsin where

18 they essentially told him, no, he never intended to pay it

19 back because the company was going to owe him even more

20 than that and according to Mr. Ackerman's letter and his

21 testimony, Mr. Reffsin was the one who was going to

22 calculate exactly how much extra Mr. Reffsin was owed.

23 With respect to this alleged repayment,
24 Mr. Wallenstein made reference to there was a repayment
25 schedule. There's a lot of documents in this case but


1 there's no repayment schedule. That's not in evidence.

2 There is no such thing.

3 With respect to the alleged Dr. Grossman

4 repayment. Even if it was a repayment, subsequent to

5 that, Mr. Reffsin was involved submitting an offer and

6 compromise and the 433's that contained it thereafter,

7 Mr. Wallenstein's whole theory Dr. Grossman loaned this to

8 Mr. Gordon and Mr. Gordon used it to make a repayment.

9 You would expect Dr. Grossman's alleged loan to Mr. Gordon

10 would appear on some of the financial statements that

11 Mr. Reffsin submits. They don't.

12 With respect to whether or not these are real

13 loans. Mr. Reffsin told the government, told Agent Jordan

14 that he had concerns and he went to Mr. Gordon about them

15 and Mr. Gordon doesn't say Marty, don't worry about them,

16 I'll pay them back, all Mr. Gordon says is I'll take care

17 of that when it becomes a problem and that apparently is

18 satisfactory to Mr. Reffsin.

19 With respect to the condominium, irrespective of

20 what -- focusing on Mr. Reffsin, Mr. Reffsin told Agent

21 Jordan he thought the explanation was used for business

22 uses was "bullshit." You can't get much better than that

23 in terms of intent.
24 Finally, he also -- Maria Gaspar testified that
25 she spoke to Mr. Reffsin about, well, why are we recording


1 his personal expenses as loans and Gaspar said what

2 Mr. Reffsin said in substance we have to record it that

3 way because if he takes it any other way it would be

4 income to him, so it has to be recorded as a loan clearly

5 that was indicating that he knows that this is income and

6 we're just labeling it as a loan which is precisely what

7 Mr. Ackerman says.

8 So I don't think there is any doubt that Mr. --

9 That there is clear evidence of Mr. Reffsin's intent, and

10 he conspired with Mr. Gordon. All you have to look at is

11 if they are acting in concert, if they have a tacit

12 understanding. All of those documents in the tax case

13 clearly suggest a tacit understanding at a minimum.

14 MR. TRABULUS: Your Honor, just to add in on the

15 last point. Ms. Gaspar also testified that Mr. Reffsin
16 told her that Mr. Gordon intended to repay the loans, so

17 they are real loans according to that. You can make a

18 choice as between different types of financial

19 transactions and that's basically what she said was done

20 and it was to be a loan and a real one.

21 THE COURT: I think there is sufficient evidence

22 to go to the jury on the conspiracy to impede the Internal

23 Revenue Service as against both defendants. As far as
24 there not being any benefit to Mr. Reffsin, there doesn't
25 have to be proof of any benefit. The obvious benefit is


1 that he's the accountant and this man is his client.

2 There is virtually -- the government has proved that there

3 really is no intent to repay here which is the key

4 element. In addition to that, there are no notes, there

5 is no collateral, there is not any kind of indication of a

6 loan, even though of course Mr. Gordon runs the company,

7 so you might say there isn't, but there is no -- there is

8 no monthly, weekly repayments, except in a very small

9 amount, as I recall.

10 The company was paying Mr. Gordon's personal

11 obligations, almost all of them, notwithstanding him owing

12 three and-a-half million dollars in taxes. He lived an

13 extravagant life-style. Witness after witness testified

14 as to the type of expenses that the company was paying for

15 Mr. Gordon and which there's, in my opinion, enough

16 evidence to go to the jury of no intent to repay. But

17 that's using it like salary or dividends. I think there's

18 clearly enough evidence to go to this jury on obstruction,

19 on impeding or obstructing the Internal Revenue Service

20 and I deny your motion.

21 We'll recess now until 1:30.

22 How much more do you think we'll have to go

23 here?
24 MR. WALLENSTEIN: Judge, I have only about 15
25 minutes or so with respect to the remaining counts.


1 THE COURT: All right.

2 MR. TRABULUS: Your Honor, with respect to the

3 other tax issues, I'm basically going to say the arguments

4 are the same that I had just made now and I'm not going to

5 go into a lot on it because based on what Your Honor

6 determined --

7 THE COURT: Then I would deny the motion.

8 MR. TRABULUS: That's what would happen.

9 MR. WALLENSTEIN: Then I would move under 29

10 under Count 61 and 66 through 69 on behalf of Mr. Reffsin
11 and based upon Your Honor's ruling just now --

12 THE COURT: I would deny those motions.

13 MR. WALLENSTEIN: I understand.

14 MR. TRABULUS: And on reliance on that I

15 previously moved with regard to other counts, I will not

16 have further arguments on those. I will have argument on

17 the money laundering because there is a question of law

18 which is novel and which needs to be addressed.

19 THE COURT: Then we'll come back at 1:30 and

20 discuss that one.

21 MR. WALLENSTEIN: I would just have my 15 minutes

22 then.

23 MR. SCHOER: Is there anything else that will be
24 done? Are the other defendants needed?
25 THE COURT: No, I have no objection to them


1 leaving if they want to leave and consent that we discuss

2 the law with regard to the defendants Gordon and Reffsin
3 and the tax matters at 1:30 in their absence.

4 Does every defendant want to do that?

5 MR. WALLENSTEIN: Judge, I think Mr. Reffsin is

6 finished since you've denied my motion to the money

7 laundering count, and remaining counts of the indictment

8 apply only to Mr. Gordon.

9 THE COURT: That's true.

10 Does Mr. Reffsin want to be excused?

11 MR. WALLENSTEIN: I believe he does.

12 THE COURT: I've denied all of his motions

13 anyway.


15 THE COURT: We'll reconvene at 9:30 on Monday for

16 the trial. Do you have any idea how long this will be at

17 this point?

18 MR. SCHOER: That's one of the things I'm hopeful

19 you will be able to discuss now, all of us later.

20 THE COURT: I'll reconvene at 1:35 to go over the

21 money laundering count. I've denied all the other motions

22 except where I've otherwise ruled. By the way, I reserve

23 decision on the perjury Count 57, correct?
24 MR. TRABULUS: Right.
25 THE COURT: I'll leave it that way.


1 MR. WHITE: Before all the other defense

2 attorneys go I think Your Honor said that the defense

3 would tell us who their witnesses will be on Mo nday and

4 Tuesday. I want to make sure that I know that before we

5 go.

6 MR. TRABULUS: I can give you some witnesses, but

7 unfortunately I can't tell you who would be here on Monday

8 and Tuesday and there may be some discussion with the

9 other defendants as to whose witnesses will go first. I

10 will give a list of witnesses now.

11 Twila Liggett, L-I-G-G-E-T-T, David Post,

12 P-O-S-T, Sandra Barnes.

13 MR. WHITE: That's another issue we have to

14 discuss, Your Honor.

15 MR. TRABULUS: Alan Mendelson, the trustee in

16 bankruptcy of Who's Who Worldwide.

17 MR. WHITE: I think we'll have to discuss that as

18 well.

19 MR. TRABULUS: And I may call Mr. Pagano very

20 briefly.

21 MR. WHITE: Probably have to discuss that too.

22 MR. WALLENSTEIN: Judge, I have two witnesses

23 lined up for Monday morning. I intend to call John Hall,

24 H-A-L-L.
25 THE COURT: Not spelled like the movie actor Jon


1 Hall, that's J-O-N, H-A-L-L? Do you know who he is?

2 MR. WHITE: This is with an H. No, Judge.

3 THE COURT: He was in a picture called Hurricane

4 with Dorothy Lamore in 1938.

5 MR. WALLENSTEIN: A bit before my time.

6 THE COURT: A bit before all of your time, I'm

7 sure.

8 MR. WALLENSTEIN: Perhaps cumulatively.

9 THE COURT: What?

10 MR. WALLENSTEIN: And I also have a witness by

11 the name of Vincent Razzino, R-A-Z-Z-I-N-O.

12 THE COURT: Okay.

13 MR. WHITE: There's a couple issues about these.

14 THE COURT: Well, as far as the witnesses you say

15 there are issues about, I think that we better discuss

16 this at 1:40 when we come back to lunch.

17 MR. WHITE: I'm just concerned, can we have that

18 discussion without the other defendants? That was my

19 concern.

20 THE COURT: Well, we'll discuss two witnesses at

21 1:40. I think maybe you better be back.

22 MR. WHITE: There's was an issue with respect to

23 Mr. Hall, I think.
24 THE COURT: I think everybody ought to be back at
25 1:40 and we'll try to do it as soon as possible.


1 MR. WHITE: Fine.

2 MR. DUNN: Your Honor, I just have one more

3 request. My client didn't complete that personal

4 situation that he had yesterday afternoon and he's

5 requesting again that he be excused this afternoon and not

6 come back at 1:40, if it's okay with the Court.

7 Is that right?

8 DEFENDANT RUBIN: It's that urgent, sir, or else

9 I would be here.

10 THE COURT: He's excused at his consent and at

11 his request.

12 (Luncheon recess taken.)













1 A F T E R N O O N S E S S I O N

2 MR. TRABULUS: Your Honor, I think we should

3 renumber. Co-counsel suggested reasons for renumbering, I

4 will change my position. It will eliminate the

5 possibility of the jury drawing inferences on speculating

6 on things that I would rather not have them.

7 THE COURT: The speculation can cut both ways,

8 but whatever you want. It doesn't matter.

9 MR. WHITE: I was thinking logistical as opposed

10 to legal reason. For all of those mail fraud counts there

11 is not a column for the defendant since all of them are

12 named in the counts so it would be difficult to add a

13 column listing just which defendants this count applied

14 to.

15 THE COURT: What are you talking about?

16 MR. WHITE: I'm saying -- you are talking about

17 the verdict sheet?

18 THE COURT: I'm talking about the indictment.

19 MR. WHITE: Right.

20 THE COURT: And the verdict sheet will say Count

21 1, the names. Count 2, the names.

22 MR. WHITE: What I'm saying, Your Honor, if you

23 look on pages 15 through -- 14 through 18 of the
24 indictment, since all the defendants as originally drafted
25 are named in all of the counts, there's not a column as


1 there sometimes is in cases.

2 THE COURT: As to which defendant. That's all

3 right. The verdict sheet will clear that up.

4 MR. WHITE: All right.

5 THE COURT: And I'll tell them about that charge.

6 MR. SCHOER: Do you intend to give them this new

7 indictment and the government will prepare a new

8 indictment.

9 THE COURT: I would like the government to do it,

10 but do you want to do it or do you want me to do it?

11 MR. WHITE: I'll do whatever you want. If Your

12 Honor wants to tinker with it, I can give you the existing

13 indictment on a disk.

14 THE COURT: Give it to me on a disk?

15 MR. WHITE: I mean, your law clerk or a secretary

16 so it would save a lot of typing that way.

17 THE COURT: All right. Give me the desk then.

18 MR. WHITE: Otherwise if I did it and you had

19 changes, we'd have to go back and forth.

20 THE COURT: I'll do it and present it to

21 everybody.

22 MR. SCHOER: My question is, if you will have the

23 jury have that indictment it will be misleading because
24 the way it reads is that it will have all the defendants
25 with respect to that list of counts in the list of


1 substantive counts. So I think it would make sense as

2 Mr. White just suggested to add that column as to which

3 defendants are charged in which substantive counts because

4 if you look at the indictment there's an introductory

5 paragraph or paragraphs, I don't remember, with respect to

6 the scheme to defraud and then there's a list of

7 mailings. We have different defendants on different

8 mailings at this point and it is not going to flow and if

9 the jury will get it, it will be confusing to them.

10 THE COURT: Yes.

11 MR. TRABULUS: You're right.

12 THE COURT: It is. It is. That will be

13 difficult because how can you put all of those names in a

14 column and fit it in? You would have to make this into

15 ten pages instead of what it is.

16 MR. TRABULUS: You could have a lead into each

17 count concerning the defendants, just list them or just

18 list the name.

19 THE COURT: But where will you do it, that's the

20 point. Not in the contents of this present indictment.

21 I think that it's going to have to be done

22 because it says all the names, the following mail matter,

23 and it doesn't distinguish. So therefore it would be
24 misleading. I think what you will have to do is to say
25 "received from the mails the following mail matter with


1 regard to the defendants named for each count." And then

2 you should put the names in on the side.

3 MR. WHITE: Add another column for the

4 defendants.

5 THE COURT: Yes. You may have to elongate your

6 material, you know, take more space.

7 MR. WHITE: Rig ht.

8 THE COURT: Okay. I think you will have to take

9 care of that first.

10 MR. WHITE: I'll take a first crack at it?

11 THE COURT: Yes, take the first crack at it.

12 All right. That's what we'll do. We'll

13 eliminate the other counts and then set forth the names of

14 the defendants on the column.

15 MR. JENKS: Judge, could I call your chambers

16 tomorrow and leave a couple of cases? Other judges are

17 looking for me to start trials all over the place.

18 THE COURT: Sure.

19 MR. JENKS: I'll just give you the names of a

20 couple cases and judges.

21 THE COURT: With their telephone numbers.

22 MR. JENKS: And if need be you can call.

23 THE COURT: Well, you tell me if you want me to
24 call.
25 MR. JENKS: Well, I'm going there tomorrow and I


1 would like to know what your intentions are for next

2 Friday. Will we work next Friday? I have a couple

3 federal sentences on.

4 THE COURT: If the case will go to the jury,

5 which now I don't know whether it is or not, then you will

6 work Friday.

7 MR. JENKS: All right.

8 THE COURT: They will deliberate, for example, on

9 Friday if they started deliberations.

10 MR. GEDULDIG: Would they be deliberating on

11 weekends as well?

12 THE COURT: Maybe. Maybe. Probably.

13 MR. WALLENSTEIN: I take that as a yes.

14 THE COURT: Almost a yes. Once they get going I

15 want to go through.

16 MR. JENKS: Certainly all day Saturday and

17 Sunday.

18 THE COURT: Yes, maybe part of Sunday. Okay.

19 All right.

20 Let's get to the money laundering.

21 MR. TRABULUS: Your Honor, I misspoke before but

22 the money laundering count is 73 and I was l ooking at the

23 paragraph.
24 THE COURT: It will not be 73 anymore.
25 MR. TRABULUS: But it begins on page 37 of the


1 indictment.

2 Your Honor, in making this argument I will not

3 repeat the arguments I had originally made on the

4 arguments on duplicity grounds or any of that, although I

5 still want to preserve that.

6 What you've got here with this money laundering

7 count has two theories to it and I'm assuming for the

8 purposes of our discussion based upon Your Honor's ruling

9 earlier that mail fraud is made out.

10 One of the bases is this was supposedly done with

11 knowledge that the transactions were disguised in whole or

12 in part to conceal the nature, source, ownership and

13 control of the proceeds of mail fraud.

14 And the other is that it was intended to engage

15 in conduct instituting a violation of Section 7201 and

16 7206 of the Internal Revenue Code.

17 I'll deal with the conceal and disguise one

18 first.

19 Your Honor, what this really is, they are simply

20 prosecuting Mr. Gordon for spending or causing to be spent

21 the proceeds of what they say is a mail fraud. There is

22 no evidence that the transfer to PVI or the utilization of

23 the money from PVI to the Manhasset condominium was in any
24 way, shape or form designed to conceal or disguise the
25 nature, location, source, ownership or control of the


1 proceeds. There was never any attempt made to conceal.

2 This was all done through bank transfers, that the money

3 that was used by PVI to furnish and improve the

4 condominium came originally from Who's Who Worldwide or

5 that Who's Who Worldwide's money came from its sales

6 activities.

7 There was never any --

8 THE COURT: I didn't get that. There is no

9 evidence that the money that was used came from Who's Who

10 Worldwide?

11 MR. TRABULUS: No, to the contrary, it did, but

12 there was nothing to conceal that. In other words, the

13 fact that the transfer was made to PVI was not any kind of

14 concealment. These were bank records, it was disclosed in

15 bankruptcy. Every opportunity that they had or would have

16 had to do something to conceal it, they didn't do it and

17 every opportunity when they were called upon to disclose

18 it, they did. And there's absolutely no concealment.

19 There is simply a transfer.

20 It isn't a situation where they are transferring

21 it, for example, from a company controlled by Mr. Gordon

22 to one that ostensibly is not. There 's never any

23 indication anywhere that anybody was ever lead to believe
24 whoever controlled PVI wasn't the same as who controlled
25 Who's Who Worldwide. It simply, what we simply have is an


1 utilization of a different entity to buy a condominium

2 with proceeds that are indisputably coming from Who's Who

3 Worldwide. The control and ownership of a company is the

4 same. I mean, there is nothing in this case to suggest

5 that that was done where it was designed to conceal and

6 disguise.

7 The only evidence as to any purpose of it was

8 that you want to have a separate company to hold the real

9 estate for a variety of different reasons.

10 The transfers were all done through banks, there

11 wasn't a situation where cash was taken out of the bank

12 and then put in some other place or used to make the

13 purchases. Everything they are talking about is something

14 that is done -- which is recorded, it is just not there,

15 Your Honor. It's just a question of taking, you know,

16 using the money from Who's Who Worldwide to buy a

17 condominium utilizing another corporation which is there

18 is no effort to conceal the fact that that money came from

19 Who's Who Worldwide or ultimately Who's Who Worldwide's

20 sales. No efforts to conceal the same control group,

21 whoever was in control of -- it would be Mr. Gordon,

22 whoever was in control of Who's Who Worldwide also

23 controlled PVI. There is just nothing to suggest that.
24 Let me go on to the next, to the tax part. This
25 is actually from a legal point of view a little more


1 interesting.

2 I'm going to assume fo r the purposes of

3 discussion that the government has made out sufficient to

4 survive, as Your Honor has ruled, a judgment of acquittal

5 motion, violations of 7201 tax evasion and 7206. The

6 financial transactions here lack a sufficient nexus to any

7 such violation that they've made out to fall within the

8 statute. I think the money laundering statute is designed

9 to cover a situation where you are either trying to

10 conceal the proceeds of illegal activity or the fact that

11 they came from illegal activity or their association with

12 the people who engaged in illegal activity, or else in

13 this tax aspect of it, to avoid paying taxes on the

14 proceeds of illegal activity. You can have a situation

15 where somebody does money laundering so they don't have to

16 pay the taxes that are owed on the acquisition of funds

17 through illegal activities, such as somebody w ho is in a

18 narcotics transaction and owe income tax on the money they

19 receive and may engage in money laundering so as to avoid

20 having to do that.

21 In this case the funds that were used to improve,

22 maintain and furnish the Manhasset condominium and

23 purchase it, those were funds received by Who's Who
24 Worldwide and they paid their taxes, there is no dispute
25 about that. There is no claim that Who's Who Worldwide in


1 any way, shape or form either failed to engage in or filed

2 any false returns. What they are saying is that the money

3 on which taxes had already been paid was then transferred

4 to another entity. That other entity bought a condominium

5 and then Mr. Gordon lived in the condominium and failed to

6 report the rental value of that, I mean, the part of the

7 rental value of that condominium as income. I think

8 that's what they are saying. That is too far removed from

9 the transfer.

10 THE COURT: This is the proceeds of the mail

11 fraud, I believe they said.

12 MR. TRABULUS: The money that went into the

13 purchase of the condominium they are saying was the

14 purpose of mail fraud and for the purposes of this

15 discussion I'll say, yeah, they've proven that or we can

16 assume that for a Rule 29 purpose. You have to either be

17 concealing that, concealing the nature, location, source,

18 ownership and control of that, and they are concealing

19 it. There is a transfer but there is no concealment that

20 it came from Who's Who Worldwide or Mr. Gordon was still

21 in control of it. So that's that.

22 And with regard to the tax aspect of it, they

23 have to show that it was intent to engage in conduct
24 cons tituting a violation of Section 7201 and 7206 of the
25 Internal Revenue Code.


1 THE COURT: I thought they were solely relying on

2 concealing or disguising the nature or the control of

3 proceeds of a specified unlawful activity.

4 MR. TRABULUS: No, they are not. They are having

5 alternatives, and I have cited that as a ground for

6 duplicities. The government came up with a case called

7 U.S. v. Henley which would be inconsistent with that and

8 you can, under a single count, allege alternative theories

9 of intent. All I would insist is that a unanimity

10 instruction be submitted, but they are relying on both

11 theories, intent to engage in conduct constituting a

12 violation of 7201 or 7206 or conceal or disguise, yet, I

13 don't think there is anything here with regard to those

14 two or anything to conceal or disguise.

15 On their theory, anytime you transfer it to

16 something else that you control and then spend it, you've

17 committed money laundering. There's absolutely nothing

18 about these transfers that indicates concealment,

19 ownership, disguise. It was all disclosed at every

20 opportunity they had to disclose it. That was in the

21 bankruptcy.

22 THE COURT: Well, is that true? Are you

23 proceeding on both legs of that element?
24 MR. WHITE: I am, Your Honor. Yes, we are is the
25 answer.


1 THE COURT: How do you get to this tax element,

2 tax violation?

3 MR. WHITE: Because one of the things that

4 Mr. Gordon is charged with in Count 61 is a violation of

5 text 7201 which is evasion of payment of that prior tax

6 liability that he had . And the evidence has been that he

7 took a number of steps, including this conspiracy with

8 Mr. Reffsin, in order to evade the payment of that tax.

9 Not the tax in the current year, to evade the payment of

10 the tax obligation for the prior year.

11 One of the elements of that scheme was, as I said

12 this morning, to avoid having anything in his name, to set

13 up his finances in such a way that one of his many

14 corporations would control the property that he controlled

15 and pay his expenses. So rather than purchase the

16 property himself, he sets up another corporation,

17 Publishing Ventures, which does absolutely no business, it

18 simply exists on paper, it buys this condominium. Then

19 the money is transferred from Who's Who Worldwide to

20 Publishing Ventures for all the other expenses of the

21 property.

22 Now, Mr. Trabulus said there is no evidenc e of

23 concealment but there's lots of evidence of concealment.
24 First of all, the jury could conclude, for example, that,
25 well, why is there a reason to create this dummy


1 corporation to hold this property?

2 Secondly, there is concealment because on the 433

3 forms that are sent, that Mr. Gordon and Mr. Reffsin
4 submit to the IRS, it asks to disclose what assets you

5 have, whether you own any securities. He doesn't disclose

6 the fact they own any property, that he owns any shares in

7 Who's Who Worldwide or Publishing Ventures, or any of the

8 other corporations.

9 Following that up, after they submit the offer

10 and compromise, Mr. Gagliardi requests that he get checks

11 and statements of all the accounts on which Mr. Gordon is

12 a signatory. He doesn't get Publishing Ventu res checks,

13 Who's Who Worldwide checks. So Mr. Gordon is concealing

14 his ownership of these corporations, number one, and by

15 extension, the ownership of the condominium.

16 MR. TRABULUS: Your Honor --

17 MR. WHITE: I'm not finished.

18 The other way that you can show concealment is

19 Mr. Gordon has to make it appear that he doesn't control

20 this property because if he does Mr. Gagliardi or the IRS

21 might start asking questions. So what does he do? He has

22 a dummy corporation own it and he writes rent checks to

23 that dummy corporation. But if you look, and we had a
24 chart for the jury, you see that Mr. Gordon is just taking
25 the money from another one of his corporations, going into


1 his account and then he's paying the so-called "rent" to

2 Publishing Ventures. In fac t, some of the transfers were

3 on exactly the same day, 12,000 comes in and 12,000 goes

4 right back out. Certainly that is evidence of concealment

5 that the jury can consider.

6 Finally, when they submit the offer and

7 compromise in the summer of '93, they have the wrong

8 address on it. According to Mr. Reffsin, Mr. Gordon lived

9 there, began moving in in April of '93, started paying

10 rent in February of '93, but in August of '93 when they

11 submit the offer and compromise they have the address that

12 he hasn't lived there for nine months.

13 Mr. Gagliardi testified that he actually went out

14 to that property, that the old one was listed twice to see

15 what it looked like to make an assessment whether

16 Mr. Gordon was living lavishly or not, so that's evidence

17 of concealment.

18 With respect to -- all of that relates, I think,

19 Your Honor, to both of those prongs, the tax offense as

20 well as concealing the ownership or control of the

21 proceeds. He's doing the same thing that has the dual

22 purpose. He's concealing it from the IRS and that is

23 constituting the evasion of payment of a tax which is a
24 violation of 7201.
25 MR. TRABULUS: Your Honor -- are you done?


1 MR. WHITE: Yes.

2 MR. TRABULUS: Your Honor, if I may respond.

3 Talk about the tax aspect first. I think, Your

4 Honor, a fair reading of the mail fraud statute is such

5 that the tax violation that it contemplates has to either

6 be with respect to the funds that are being used to make

7 the transaction or the transaction itself. Now, the fund,

8 taxes were paid on those funds by Who's Who Worldwide and

9 the transaction, the loan to PVI itself did not cre ate any

10 kind of tax obligation on the part of anything. There's

11 really no tax crime that comes, that either has occurred

12 previously which this is serving to facilitate or conceal,

13 or any tax obligation that is created by the loan to PVI

14 and the furnishing of the condominium. Whether they say a

15 tax crime came afterwards without regard to the

16 condominium itself it was furnished, the fact that

17 Mr. Gordon they say should have reported a portion of the

18 value of living there as income and pay taxes on it.

19 That's too removed from this. It's not part of the same

20 transaction. It comes after the fact.

21 This doesn't relate to the money or the

22 transaction itself.

23 Let's go -- let me continue on to concealment.
24 You know Mr. White said that the form, that the
25 forms 433A didn't reveal assets that Mr. Gordon had and


1 for the purposes of this discussion I will assume that.

2 But, again, how does a transaction relate to that? How

3 does that further that? How does that add -- conceal

4 something? If it doesn't disclose it when he owns Who's

5 Who Worldwide or a portion of Who's Who Worldwide, it

6 makes no difference that it also doesn't disclose it when

7 he owns PVI. The transfer between the two of them does

8 nothing to facilitate any concealment that occurred. The

9 relationship of that money from PVI to Who's Who Worldwide

10 is not concealed, it's done in a manner which allows it to

11 be traced through bank records, there is no concealment.

12 THE COURT: But the government says they created

13 PVI to put this money into and buy the condominium and

14 shield it from the IRS who he owes 3 and-a-half million to

15 and a lso to hide or use the proceeds of mail fraud.

16 MR. TRABULUS: We're talking about the

17 concealment.

18 THE COURT: Yes.

19 MR. TRABULUS: How that does that, how does the

20 fact that it's transferred to PVI tend to conceal it? The

21 government just hadn't shown it. I mean, it doesn't have

22 any natural tendency to do it. The books and records of

23 Who's Who Worldwide to the extent the IRS might ever wish
24 to audit them, I mean, they clearly show the transfer to
25 PVI. I mean, it doesn't -- it's not a situation where


1 money -- where any misrepresentation is made or money is

2 ostensibly taken out for one purpose, taken out in cash,

3 surreptitiously used, it's all there. And in the

4 bankruptcy proceeding there is a disclosure. I mean, the

5 way it is done just has no tendency to conceal.

6 MR. WHITE: Your Honor, I'll tell you the

7 tendency to conceal. First of all, Mr. Trabulus is making

8 it sound like there necessarily has to be a separate

9 corporation otherwise it doesn't conceal it.

10 Mr. Gordon concealed his control of lots of

11 corporations but the way he concealed it is this. In the

12 summer of '93 when he was submitting the offer and

13 compromise he has to tell the IRS where he's living,

14 okay. Eventually he tells them it is 200 Hummingbird

15 Road, this condominium, and he knows he has to be showing

16 that he's writing rent checks because they'll ask him

17 where are you leaving, Mr. Gordon. He's writing checks to

18 Publishing Ventures, Inc. Mr. Gagliardi sees those

19 because those are the only checks given to him. If those

20 checks say Who's Who Worldwide, Mr. Gagliardi will say

21 wait a minute, you are writing checks t o this company that

22 you worked for for your rent, why is that? He will start

23 asking questions. The company you work for is giving you
24 a condominium but you told me you don't have an ownership
25 interest, what's the story? That's why there is


1 concealment.

2 THE COURT: Okay.

3 Looking at the law, one of the most recent cases

4 is United States v. Goodwin, which is 130 1 F.3d, 132, (2d

5 Cir. 1997), which says that money laundering is a

6 quintessential economic activity. Indeed it is difficult

7 to imagine a more obviously commercial activity than

8 engaging in financial transactions involving the profits

9 of unlawful activity. This is particularly so where the

10 intent of the transaction is to conceal the source of

11 those profits or to promote the unlawful activity and

12 thereby yield even greater economic rewards.

13 Furthermore, money laundering is not only a

14 commercial activity but it substantially effects

15 interstate commerce.

16 There was one case that talks about setting up

17 companies that apparently were legitimate and that's

18 United States v. Lida, L-I-D-A. I think --

19 MS. SCOTT: Are you talking about United States

20 v. Kinzler.

21 THE COURT: Kinzler. Where did I get Lida?

22 Well, there's a wrong title on one of the

23 places. United States v. Kinzler, 55 F.3d 70 (2d Cir.
24 1995). The setting up of sham companies by Mr. Lido,
25 L-I-D-O, to obtain merchant accounts from credit card


1 companies was prohibited by the statute. In order to

2 circumvent credit card company policies against issuing

3 merchant accounts to esc ort services Mr. Lido had set up

4 20 apparently legitimate companies. However, he argued

5 that his conduct did not fall within the meaning of the

6 statute because he never concealed his role or identity in

7 setting up the businesses or setting up the charge slips

8 for reimbursement.

9 The Court held -- this was a scheme concealing

10 the source of the funds. Now, I just have a blurb, I

11 don't have the entire case here. But to me this count is

12 a stretch, I really do, and that's because we generally

13 figure we think of money laundering with narcotics

14 transactions. We openly, widely view illegal operations

15 where it is cash that is received.

16 I'm reminded of the case where the defendants

17 came into the Mercedes auto dealership with shopping bags

18 full of cash and they look at the first car they like, I

19 want that Mercedes, 102,000, here it is, an d think turn

20 over two shopping bags. And the testimony was that it

21 took six hours to count the money. And when the dealer

22 got finished counting the money his hands and his

23 associates' hands were black. They didn't think that this
24 was strange to receive this cash, of course they were
25 given immunity when they testified. But that's what we


1 associate money laundering in. But it's a stretch, I

2 think.

3 Looking at the elements, I think the government

4 made out a case. The defendant knowingly conducted or

5 attempted to conduct a financial transaction knew that the

6 property involved were the proceeds of some unlawful

7 activity, that the property involved in the transaction

8 must in fact represent the proceeds of specified unlawful

9 activity. I thought it was mail fraud what the claim was;

10 is that right?

11 MR. TRABULUS: That is right. They are claiming

12 mail fraud. That's the theory of that.

13 THE COURT: And what I had figured that the

14 defendant engaged in the transaction knowing that the

15 transaction was designed in whole or in part to conceal or

16 disguise the nature, the location, the source, the

17 ownership or the control of the proceeds of the specified

18 unlawful activity, but now the government tells me that

19 they are going by both prongs of this, namely, that they

20 acted with the intent to engage in conduct constituting a

21 violation of the Internal Revenue Code. What is it,

22 7201?

23 MR. WHITE: Yes, Your Honor.
24 MR. TRABULUS: And 06. Or 06.
25 MR. WHITE: Right.


1 THE COURT: Or 06.

2 It's a close case but I'll reserve decision on

3 this motion.

4 Anything else?

5 MR. TRABULUS: Nothing else, Your Honor.

6 THE COURT: All right. I think, I didn't tell

7 the other lawyers to come early, so I don't think there's

8 anything to discuss before we start with the defendants,

9 or continue the defendants' case on Monday at 9:30.

10 Is there anything outstanding that I have to talk

11 to anybody about, Mr. White?

12 MR. WHITE: I don't think so.

13 THE COURT: Okay. We'll see you 9:30.

14 MR. WHITE: I would add one thing.

15 Your Honor, we have a couple other cases. If you

16 will reserve decision on this one, this money laundering,

17 the Kinzler case. Well, you have that citation already.

18 There's also United States v. Maher, 108 F.3d.

19 THE COURT: 108.

20 MR. WHITE: 108 F.3d. 1513, that's the (2d Cir.

21 1997), which discusses that it was C ongress' intention for

22 the money laundering statute to have a very broad reach.

23 THE COURT: Well, couldn't have a broader reach
24 than this case.
25 MR. WHITE: Well, that's why I'm giving you this


1 citation, Your Honor.

2 I'm sorry, the specific page is 1527, it looks

3 like.

4 THE COURT: Okay. We'll see you Monday at 9:30.

5 MR. TRABULUS: Thank you, Your Honor.

6 (Proceedings adjourned.)



















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