Free Transcript - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 1 of 241

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 v.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Action No. 04-cr-103-REB UNITED STATES OF AMERICA, Plaintiff,

NORMAN SCHMIDT, GEORGE ALAN WEED, CHARLES LEWIS, MICHAEL D. SMITH, Defendants. _______________________________________________________________ REPORTER'S TRANSCRIPT TRIAL TO JURY - VOLUME XXI _______________________________________________________________ Proceedings before the HONORABLE ROBERT E. BLACKBURN, Judge, United States District Court for the District of Colorado, commencing at 8:20 a.m., on the 3rd day of May, 2007, in Courtroom A701, Alfred A. Arraj United States Courthouse, 901 19th Street, Denver, Colorado. APPEARANCES WYATT B. ANGELO, MATTHEW KIRSCH, Assistant United States Attorneys, 1225 Seventeenth Street, #700, Denver, Colorado, appearing for the Government. Suzanne M. Claar, Official Reporter 901 19th St. Denver, Colorado, 80294-3589 (303)825-8874 PROCEEDINGS REPORTED BY MECHANICAL STENOGRAPHY TRANSCRIPTION PRODUCED BY COMPUTER

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 2 of 241

4278

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

APPEARANCES (Continued) PETER R. BORNSTEIN, 1600 Broadway, #2350, Denver, Colorado, THOMAS J. HAMMOND, 1544 Race Street, Denver, Colorado, appearing with Defendant Schmidt. THOMAS E. GOODREID, 1801 Broadway, #1100, Denver, Colorado, appearing with Defendant Weed. RONALD GAINOR, 6414 Fairways Drive, Longmont, Colorado, appearing with Defendant Lewis. DECLAN J. O'DONNELL, 777 Fifth Street, Castle Rock, Colorado, RICHARD N. STUCKEY, 2150 West 29th Avenue, #500, Denver, Colorado, appearing with Defendant Smith.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 3 of 241

4279

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 morning. MR. SMITH: THE COURT:

P R O C E E D I N G S (Proceedings resumed at 8:20 a.m.) THE COURT: Very well. Thank you, and please be seated. Mr. Schmidt, good morning. Good morning, sir.

MR. SCHMIDT: THE COURT: MR. WEED: THE COURT: MR. LEWIS: THE COURT:

Mr. Weed, good morning. Good morning, your Honor. Mr. Lewis, good morning. Good morning, your Honor. Mr. Smith, leaning to the left, good

Good morning. Counsel, good morning. Good morning, your Honor.

MR. GOODREID: THE COURT:

Ladies and gentlemen generally, good

morning, and deputy marshals, good morning. If we are prepared to proceed continuing outside the presence and hearing of the jury importantly, we should and shall, and therefore the government may make its response. MR. ANGELO: THE COURT: MR. ANGELO: THE COURT: MR. ANGELO: Thank you, your Honor. Mr. Angelo. May it please the court. Thank you. Your Honor, I think we would like to first

address the issue of the single versus multiple conspiracies.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 4 of 241

4280

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

It seems to be a commonality in all the discussions yesterday. I want to refer the court to a case that's fairly recent 1999 case called U.S. v. Eads out of the Tenth Circuit, which is 191 F.3d at 1206. Basically states the requirements of proving a

single conspiracy, and that is that it's generally sufficient that a person knowingly participates with a core conspirator in achieving a common objective with knowledge of the larger venture. That being the parameters of a single conspiracy, your Honor, then I would note that there are some specific facts which are important for us to advance before the court concerning the single conspiracy theory. The argument based or at least advanced by the defense really relies on the use of multiple entities which are referred to during the course of trial as the Reserve Foundation Trust, Reserve Foundation, Smitty's Investments, Capital Holdings, Monarch Capital Holdings, Rocky Mountain Sports Promotions and High Track Team. It's the government's belief and positions that the changes in the names of entities used for the purpose of advancing the fraud is more akin to a chameleon changing color than it is to multiple conspiracies. The commonalities between those entities and their interrelationships are legion, and I would suggest to the court the totality of the evidence in this case strongly suggests that

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 5 of 241

4281

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

they are essentially one scheme. When one takes a look at some of the more I think important facts that have been adduced in the record, the court can see the interrelationship between those. For instance, with respect to the relationship between Smitty's -- or excuse me -- Reserve Foundation and Smitty's Investments, the court may recall that Dr. Rademacher talked about the fact that he was told that there was a relationship between Smitty's and the Reserve Foundation Trust. Mr. Hyland testified at Exhibit 146 the court has before it a direction from Leon Harte directing that $50,000 of the money parked at SunState FX be remitted to Smitty's. Mr. Bienstock, the head of the Federal Recovery Group, talked about the fact that payments made by Norman Schmidt to the Federal Recovery Group for remission to the victims -- the Reserve Foundation Trust were in fact and did in fact come from Smitty's Investments. The documents that Warren Peterson had that were admitted into evidence as Exhibit No. 202 refers to the Smitty's master contract with the Reserve Foundation Trust as part and parcel of the contract documents. That's also found at the

Shirley Lehr Exhibit, which is 1003. Documents pertaining to Smitty's -- or excuse me -- the Reserve Foundation Trust were found in Norman Schmidt's condominium at the time of the execution of the search warrants.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 6 of 241

4282

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

The transition from Smitty's to Capital Holdings is even clearer and more profound. We have letters and

correspondence to persons who were investors in Smitty's program that said we are changing to Capital Holdings. We have seen yesterday evidence of the relationship between Monarch Capital Holdings and Capital Holdings. For

instance, Norm Schmidt refers to Monarch Capital Holdings as the investment arm of Capital Holdings, and in fact, your Honor, when one takes a look at that tape and contrasts it with the testimony of the persons who invested in both Reserve Foundation Trust, Smitty's, and also Capital Holdings, the representations concerning the nature of the investment, the protections afforded the investment, and the inducements to that investment, are almost identical. When one takes a look at Rocky Mountain Sports Promotions the court is reminded that the two contracts that we will talk a little bit about later with respect to Cliff Seigneur and Darren McGee start off as Smitty's Investments contracts, and then at some point there is a transition, unknown and unappreciated by those particular victims, as to why from the Smitty's to, first of all, Rocky Mountain Sports Promotions, and then to a new entity called High Track Team with various legal assignments of rights of the parties between those entities. The overall similarities and methodologies between

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 7 of 241

4283

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

those investment entities and the methods of soliciting those entities are also legion, your Honor. We take a look at the

returns that are promised which are extravagant, the fact that there is safety. More often than not, there is an insurance

representation, representations of successful trading, use of monthly statements to comfort and make investors feel as if in fact they are making the kind of money and returns promised, and also the similar and constant use of monies unrelated to representations made to investors. Talking now and addressing first Mr. Smith's arguments concerning the fact -- concerning his Motion for Judgment of Acquittal as to Counts 1, 5 through 9, Counts 16 and 17, 23 through 29 and 35 through 39. He first bases his argument on

the fact that he did not know that trades were never made, and that on that basis, he should be acquitted by court order. Your Honor, the facts in this case are certainly circumstantial as any facts concerning state of mind. Very

rarely does one have a statement by defendant stating an important fact like that in a particular case. However, I think it's also important to note that the only allegation concerning something similar to that contained in the indictment was found at paragraph 16G of the securities fraud counts. And the allegation is specifically this; that

investor funds were not used were traded in the manner represented.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 8 of 241

4284

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

We have not advanced and do not advance the fact that there was no trading here. indictment. That is not part and parcel of the

It's the use of the investor funds for purposes

unrelated to the representations. Moreover, your Honor, I think the court can infer, and so can the jury, circumstantially that Mr. Smith did know that this was a fraud and a scheme from a number of different pieces of evidence in the record. The first of which is the e-mail that the court has before it, and I don't recall the exhibit number, but Agent Lee testified to its similarity to the agenda for the Redstone Castle meeting, concerning concerns about the SEC. There is Mrs. Veik's testimony that pointed out the fact that she recognized that monies were coming to investors or were coming out of the same accounts into which their funds were deposited, something that she noticed, and certainly one can infer that Mr. Smith noticed that as well. We have before us evidence of the active concealment of the fact of Mr. Lewis's conviction from Mr. Smith's investors. We have the conversation between Mr. Smith and Mr. Lewis at the time that Mr. Wommack received his SEC subpoena where it was overheard by Mrs. Veik, that, and this is a statement by Mr. Lewis to Mr. Smith over the telephone, it will ruin everything. That shows knowledge about the existence of a

scheme and a common design between the two.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 9 of 241

4285

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mr. Lewis has made essentially the same argument, and we would have essentially the same response. There are

indications in the record circumstantially other than those cited just now concerning Mr. Lewis's knowledge of how this worked, and therefore the jury may infer fairly that he knew that this was a fraud. It was argued by Mr. Stuckey yesterday that the knowingly element has been omitted from the mail fraud and wire fraud. Your Honor, the allegations in the indictment are in

fact track and do track the language of the two respective mail fraud and wire fraud statutes. The court obviously is going to supplement that with another culpability instruction as part of its charge to the jury. With respect to Counts 23 through 29 of the securities fraud, Mr. Smith argues that his association with the interstate nexus was attenuated and remote. We take issue with that, your

Honor, and I would note to the court that, for instance, at Count 23, which is the investment by Mr. Dellapenna, Mr. Smith is the person who in fact first traveled to Sacramento to talk with the agents of Val Bough, and to represent the program to those agents. He traveled to Sacramento more than once. The

statements from or to investors who had invested through the Northwest Group were in fact mailed to those investors from the

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 10 of 241

4286

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Northwest Group. The court may recall that Mr. Smith traveled to meet Wendy Delaney in Chicago for the purposes of again representing the investment that she made. Mr. Smith also put on seminars, according to Greg Hector, at the Capital Holdings offices in Denver, Colorado, as well as traveling to the Redstone Castle with his whole staff for the purposes of having a meeting with Mr. Smith, which Ms. Goulet described. The interstate wires, of course, that were transmitted to the Northwest Group are obviously part and parcel of interstate commerce. It is also interesting that he would make that argument when Mr. Smith has in fact recruited a network of agents -- of insurance agents throughout the United States for the purposes of marketing this particular program. Those agents included not

only Val Bough, who had some 80 agents working for him, but also Robert Wommack who testified in this courtroom. Mr. Smith argues in Counts 35 through 39, the money laundering counts, that he didn't know the money was coming and therefore cannot be held accountable for it. Your Honor, it

begs, I suppose, the question as to why a person would, first of all, not expect to be receiving earnings in some form or fashion that they were claiming, and particularly the court has before it the earnings of the Northwest Group, and specifically Asset

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 11 of 241

4287

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Holdings, the trust controlled by Mr. Smith. to him of those earnings is always expected.

Obviously payment

Mr. O'Donnell has argued separately that the investment contracts at issue here are not a security, citing that the Edwards case, I believe it was, concerning the telephones. Because there is a fixed rate of return. And therefore the

expectations of the investors -- or the expectations of the investors are not in profits but in a constant rate of return. I note for the court that that rate of return fluctuates based upon the whim and caprice of the particular defendants in this particular case. reduced for, quote, insurance costs. It is not static. They are

And more specifically and

to the point, your Honor, the contracts themselves do not call for a fixed rate of return. They in fact say a percentage or

best efforts which in fact creates an expectation of profit. Now, addressing the other points that Mr. Lewis made yesterday, specifically with reference to the Counts 7, 8, and 9. Mr. Lewis argues that because those counts occurred after

the date of his arrest, that -- and because he was in custody at that time, that he cannot be held accountable. This is a summer rerun of a motion that was decided by this court much earlier during the course of this case, and I note to the court specifically that with respect to the proceedings as they exist at this time with respect to Motion for Judgment of Acquittal, there is no evidence in the record

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 12 of 241

4288

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

that Mr. Lewis was in custody before this jury, so they cannot draw that inference. Mr. Lewis argues that with respect to Counts 17 and 29 that there was no evidence that Mr. Lewis was directly involved. The issue then becomes whether there is sufficient evidence for a jury to find under a Pinkerton theory that Mr. Lewis may be held accountable for those specific counts. I note to the court that Mr. Lewis has been associated with the Smitty's Investment program, the Capital Holdings investment program, and the Monarch Capital Holdings investment program as we saw in the tape yesterday. Mr. Lewis, I would say -- suggest to the court, it is foreseeable to Mr. Lewis. That changes in the name of the The fact

investment program are certainly foreseeable to him.

that they are almost identical in nature, although there are some variations certainly by way of evolution of the scheme, that it is no less foreseeable to him that once in fact an investment entity being used by these gentlemen to perpetrate this fraud is discovered and the association of that entity with the fraud, that the names change. That's the historical pattern

that these particular gentlemen have followed since 1999. Mr. Gainor argues that in Count 36, the $20,000 check to Miloka, that Mr. Lewis is not associated with that check because it's signed by Mark Perreault. I would note to the court, your Honor, that we have

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 13 of 241

4289

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

evidence in the record that Mr. Lewis controls the Miloka account. We also have evidence in the record that Mr. Lewis

pays the bills of Capital Holdings for rent and office equipment and furnishings and supplies out of the Miloka account. More specifically, your Honor, the account is named after his three children. How he can claim he has no

association to that count is a puzzlement to the government. Mr. Weed argues that he has no connection with Counts 42 through 45 of the money laundering counts which are checks in fact to Compliance Holding. I would note to the court that, first of all, Mr. Weed, according to the evidence before this court, is the incorporator of Compliance Holdings. There is a certified copy. I believe

it's 2010 -- or 12010 shows. More specifically and to the point, Mr. Weed has said to Agent Bratcher at the time of his interview on March the 7th of 2003, that he received loans for the purposes of invigorating Compliance Holding, as well as a check to Austin Coal. Of

course Mr. Weed is associated with those payments by his own admission. Again, your Honor, Mr. Weed argues that with respect to Counts 7 through 9, the events which occur after getting the Seigneur contracts, et cetera, the search is on the 7th of March of 2003, that he has no association with that. I point out to the court that with respect to both

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 14 of 241

4290

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mr. Seigneur and with respect to Mr. McGee, they were originally investors in Smitty's Investments, and they may be transitional because Smitty's Investments had to stop using the name of Smitty's Investments because of the execution of the search warrant. But all the contract documents were for Smitty's

Investments, and what they ended up with was just a new contract that came to them as somewhat of -- something of a surprise. Mr. Weed's association with Smitty's Investments by way of the testimony in this case is legion. He was, in fact, the

architect of the person who created insurance documents, one of which was a forgery, specifically the Timothy Wicker insurance certificate that was testified to by Mr. Wicker was the creation of Mr. Weed himself. With respect to the Carol Hall count concerning that matter, I again note to the court that the use of a different name, particularly with a person who has been involved with this fraud since 1999, is clearly foreseeable by Mr. Weed. Mr. Schmidt argues that the overt act alleged in 6B of the indictment -- second superseding indictment, excuse me, your Honor, which was the $50,000 check to Orvalee Farris is not supported by the evidence in this case. I note to the court that that check was identified by Mary Ann Gough who had said that Orvalee Farris provided her a copy of that check as proof of her investment. It was also identified by way of signature by Susan

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 15 of 241

4291

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Veik who said that the signature line on the check was Norman Schmidt's signature. And later by Larry Seastrom from the bank

himself who said that the account was closed on the date the check was signed by Mr. Schmidt. That is in fact sufficient

evidence, your Honor, for the purposes of the court's review at this juncture. Mr. Bornstein also argues that the security fraud counts are insufficient as alleged in the indictment. His

motion is based upon -- and argument is based upon what appears to be a double jeopardy type of approach, which means that because the investors in those particular counts are not named in the count specifically, that somehow or another the jury cannot make the linkage, or more specifically that this court or, excuse me, the government would have the option of charging these counts additionally at a later time because of lack of that specificity. Your Honor, the court has reviewed the sufficiency of this indictment on more than one occasion in this particular court and has found that sufficient. Moreover, each and every one of those security fraud counts has in fact been linked to a specific investor in this particular case. The fact that it's their payments which are in fact the specific information contained in the count together with their name, if in fact their name was part and parcel of the game

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 16 of 241

4292

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

itself, then there is sufficient specificity, your Honor, and there is no risk of double jeopardy. One of the comments I would make to the court is that the count with respect to Heavens Haven, and I don't recall that right now, is the one that was the -- there was a linkage with that deposit by Mrs. Veik who recognized the deposit by the mortgage company that gave the proceeds of the second mortgage to Mr. Jones -- I guess that's correct -- for the purposes of investing in Capital Holdings. She identified from her own

investor file the fact that that payment was credited to the Heavens Haven account at Capital Holdings. On Count 18, Mr. Bornstein argues that Mr. Schmidt's relationship to Mary Ann Gough is insufficient for the jury to find him appropriately guilty of that count, and therefore should be dismissed at this stage. Certainly there is Pinkerton

responsibility with respect to Mr. Schmidt concerning the actions of Mr. Harte. They were partners. They were partners

in everything that they did. The court should note that during the course of the testimony of Jerry Landsman, the people who talked about the insurance with him, or lack thereof, and the problems created by the misrepresentations concerning the insurance were in fact Norman Schmidt and Leon Harte. Mr. Schmidt may not have had any specific contact with Ms. Gough, but he is the architect of this particular drop, and

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 17 of 241

4293

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

I note to the court that that starts in April of 1999, at which time Roy Christian testified that he traveled to Kansas City for the purpose of investing -- not investing but investigating for his friend a proposed investment. And who is there but Leon

Harte and Norman Schmidt posing as an investor who is successfully receiving proceeds of this investment. I would suggest to the court that the requirement for foreseeability under Pinkerton has clearly been met here when in fact Mr. Schmidt is part and parcel of the Reserve Foundation Trust, he is part and parcel of the three options entities corporations which in fact are used to siphon off the proceeds of the investors' funds. Mr. Schmidt goes on then to argue that Count 19 there is no interstate nexus with respect to Mr. Rademacher. Your

Honor, Mr. Rademacher testified that he received his monthly statements by virtue of the fax, and the government would suggest to the court that telephone and fax are clearly instrumentalities of interstate commerce as they are defined. And there is a case that is fairly recent with respect to that subtle distinction that's found at U.S. v. -- I think that's Patton. five o'clock. My handwriting is a little weak this morning at But it's found at 451 F.3d 615 at page 622, which

talks about interstate nexus with respect to body armor, and holds that the use of the instrumentality with intrastate does not change the nature of that.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 18 of 241

4294

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

I would also note to the court that the court has before it evidence in the form of testimony and the banking records found at Exhibit 9020, which is the bank records of Bank One into which Mr. Rademacher's check was deposited. That that

bank is engaged in the interstate wire transfer process, according to the testimony of Ms. Silletto-Russo from the Federal Reserve. It's argued, your Honor, as well that in Count 20 that there is no basis for that count to be submitted. I note to the

court that there is in fact evidence that Shirley Lehr, who is the investor reflected in Count 20, was in fact an investor as testified to by Mrs. Veik. Her client file is a matter of

record and is an exhibit in this particular case and has her investment contract and the memoranda of payments with respect to her payment into the investment program. Government's Exhibit No. 1003. It's also argued that with respect to Counts 21 and 22, that there is no interstate nexus. I would note to the court -Let me just That's found at

and that's I believe that's Ms. Markham. double-check for a minute, your Honor.

Count 21 is the wire transfer of Ms. Markham to the Smitty's account at Wells Fargo. Your Honor, Ms. Markham's wire

transfer goes through the same interstate wire transfer process that Ms. Silletto-Russo talked about with respect to the three centers that are outside the state of Colorado through which all

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 19 of 241

4295

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

federal wire transfers go. Mr. Hector as well, your Honor, the court may recall, one of his investments was by wire transfer. As well as use of

the fax machines, I would note to the court as well that the use of mails is evident, at least with respect to both of those two investors for the purposes of sending their statements, and the use of fax machines as argued before. Count 23 it's argued that Mr. Dellapenna only dealt with Mr. Bough and never met with Mr. Schmidt, and therefore he can't be held accountable for that particular securities fraud count. That is in contrast to the evidence and testimony of

Mr. Dellapenna who said that not only had he had a conference call with Mr. Schmidt when he first called the agents of Val Bough to talk about the investment program, but also traveled to Sacramento at least twice for the purposes of meeting with Mr. Bough's agents and encouraging them to go ahead and market this program. The court will also recall that Mr. Dellapenna was invited to Las Vegas by Mr. Schmidt for the purposes of going to the NASCAR races but also talking about the investment program. As I mentioned before, Count 24 is the count that was argued that there is no nexus to a specific investor. Your

Honor, that particular count involves the Main Street mortgage company deposit on behalf of Michael Jones, Heavens Haven. again was testified to by Mr. Jones, as well as Exhibit 401 That

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 20 of 241

4296

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

being identified by Mrs. Veik. On Count 27, Mr. Schmidt argues that Mr. Schmidt cannot be an aider and abettor of Mr. Smith's marketing of the investment to Carol Hendrikson. Mr. Schmidt in fact set the

wheels in motion that created the client base of the whole Northwest Group. And in fact, Mr. Smith created a franchise in

Spokane, Washington, for the purposes of marketing this investment. And how he can claim that he doesn't have any

responsibility for Mr. Smith's actions is completely controverted by the evidence. It's argued that Count 28, which is the February 19th, 2003, interstate travel by Mr. Schmidt and Mr. Lewis, there is no specificity. I suggest to the court that Exhibits 520A and B And

are pretty darn specific about that particular count. nothing more need to be said about it.

It's argued that at Count 29, which is the Cliff Seigneur investment, that Mr. Schmidt had essentially no participation in that particular investment. Honor. Excuse me, your

Let me just check my notes here briefly. And I also think it was argued as a collateral matter

with respect to that particular account, your Honor, that this in fact is not an investment contract. correctly. I would note to the court that Mr. Feigin's opinion with respect to that matter included the fact that he had If I read my notes

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 21 of 241

4297

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

reviewed those contracts for High Track Team and Rocky Mountain Sports Promotions, and had found them to be investment contracts. I would also note for the court in this particular case that Mr. Schmidt was one of the people who went to Mr. Seigneur's house in Paonia not less than two times for the purposes of marketing this investment and replacing the check Mr. Seigneur had originally made out to Smitty's Investments because in fact it was no longer negotiable after the execution of the search warrants on March 7th. Mr. Schmidt argues that Counts 30 and 31 that there is no concealment. Your Honor, I note to the court that with

respect to those particular counts, they are related essentially to the Redstone Castle purchase. And the evidence in this

particular record suggests, both from Mr. Brudwick and from the documents related to the options corporations, that the only purpose for creating those corporations was to take title to the Redstone Castle. It essentially changed the nature of those

funds to a path being held by a party completely different than the Reserve Foundation into which those funds had been deposited by investors, and obviously concealed the source of those particular funds by virtue of doing so. Of course it is the government's position at this point there is sufficient evidence in the record for that matter to go to the jury.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 22 of 241

4298

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mr. Schmidt also argues that, with respect to Count 33 in the 1957 counts, that he has no association with the March 23rd check to Marion Pettee in the amount of $20,000. Besides the clear and evident background of Mr. Schmidt and Mr. Harte's participation in the Reserve Foundation Trust dating back to 1999, your Honor, this check written on the Reserve Foundation Trust account, and for which investor monies were used, was used to essentially pay costs of developing a product, according to Ms. Pettee, called the Back Buddy. And during the

course of the examination, Ms. Pettee talked about the fact that Mr. Schmidt, as well as Mr. Harte, were involved in this development because Mr. Schmidt was the person out trying to solicit other manufacturers to do the metal parts for that particular product. And Counts 35 and 44, Mr. Schmidt has adopted the arguments of Michael Smith, which I don't think Mr. Smith argued on Count 44, but I could be wrong. your Honor. Let me just double-check,

Mr. Smith was not in fact charged in Count 44 of

the indictment as it exists today. But with respect to those -- the Count 35, your Honor, which is the $24,000 wire transfer from the Smitty's account at Wells Fargo to the Asset Holdings bank account at US Bank certainly Mr. Smith -- Mr. Schmidt, excuse me -- controls the accounts. That's the testimony in the record from Ms. Veik, and

certainly that's what the financial records would seem to

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 23 of 241

4299

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

indicate. And how he can now dissociate himself from that count with that amount of evidence in the record is a puzzlement again to the government. He makes the same argument with respect to, I think, Count 44, which is the clearing of the check in the amount of $65,000 to Concrete Building Systems, which essentially is George Beros's corporation. Your Honor, with respect to that particular check, Mr. Schmidt again is the architect of the relationship with Mr. Beros. He is in fact the person who is controlling the

funds of the Smitty's account again, and so he cannot dissociate himself from those money laundering counts. With respect to Count 45, which was incorporated into Mr. Schmidt's argument, he is not charged in Count 45 of the indictment. With respect to Count 46, he indicates that he is not responsible for the withdrawal of $13,500 from the Rocky Mountain Sports Promotions, LLC, account at Commercial Federal Bank. Mr. Hoffman's testimony is fairly clear, your Honor, that Norm and Jan Schmidt came to him for the purposes of opening that particular account. They are in fact the

architects of the use of that account to funnel investor monies into, and it's also represented to Mr. Hoffman that the purpose

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 24 of 241

4300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

for that particular Rocky Mountain Sports Promotion account was to advance the promotional products for Mr. Schmidt's NASCAR team. Honor. He also argues that with respect to the wire fraud counts -- I am sorry -- it's mail and wire fraud counts, your Honor, that the "knowingly" is left out. I would note that we Mr. Schmidt cannot walk away from that count either, your

again track the language of the statute with respect to both the mail fraud and wire fraud counts in this particular indictment. He then goes on to argue that the letter to Tom Sindelar, which is the subject matter of Count 4 of the indictment, is unrelated to the scheme, and has no relationship to the perpetration of the fraud. Your Honor, that letter was sent for the purposes of getting a securities regulator in Nebraska off his back so that he could continue to market this program to people like Carol Hall and Abhirjun Dutta, who eventually invested in November or December of 2002. The use of that letter was to allay any concern that Mr. Sindelar might have that Smitty's Investments was continuing to operate in the state of Nebraska. We suggest to the court

that there is a clear nexus between the use of that letter in trying to cover up the activities of the investment program and trying to avoid regulator scrutiny. He argues that he has no association with the letters

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 25 of 241

4301

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

sent by Alan Weed to Greg Hector as alleged in Count 5 of the indictment on August the 24th of 2002. If memory serves

correctly, your Honor, that letter contains the insurance certificates and a representation concerning insurance coverages which are an integral part to this whole process and certainly have been a component of this particular scheme since day one, and Mr. Schmidt is clearly the person who has the association with Alan Weed. And in that letter, it notes -- that Mr. Weed

notes in the letter that and acknowledges Mr. Hector's investment in the Smitty's or Capital Holdings program at that point. The only way that Mr. Weed could be aware of that is some form of communication by those who are running that particular program, and in this particular case the architect of that particular program, and the person who is in fact the acknowledged head of that program, according to the investment or investment history, I think, that Mr. Beros identified for Monarch Capital Holdings which talks about his association with Capital Holdings and Smitty's is Norman Schmidt. It's alleged that in Count 10 that Mr. Schmidt's participation in the conference call with Boyd Brown concerning insurance in November, I believe, of 1999, was so marginal that he in fact should be acquitted of that particular count. There

is an assumption there that Mr. Schmidt somehow or another had no purpose in making that phone call, which is counter

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 26 of 241

4302

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

intuitive.

In other words, there was no purpose by Mr. Harte to I suggest, your Honor, that

having him on that phone call.

phone call was made for the purposes of allaying the concerns of Mr. Brown concerning the lack of the insurance documentation that he was promised, and that in effect is a consistent pattern throughout the course of this particular fraud, which is to allay investors' concerns by some form of communication, whether it be by letter, some representation concerning the insurance, i.e. insurance certificates, or talking to them, and then if necessary, getting them out of the program in order to make sure that regulators and/or law enforcement agencies do not in fact come down on them. The court may note that Mr. Brown testified that he had in fact started to talk to the authorities about this -- his particular concerns. And so Mr. Schmidt's participation in this

that phone call was necessary to protect the conspiracy in this particular case. They allege -- or excuse me -- Mr. Bornstein alleges that Count 15 is unrelated to Mr. Schmidt. Count 15, your

Honor, is the wire fraud count involving Cynthia Lange, who was the former caretaker of the Redstone Castle. Ms. Lange, the

court may recall, talked to Mr. Schmidt at the Redstone Castle while she worked there and after it had been purchased by both Mr. Schmidt and Mr. Harte. Ms. Lange testified before this court that Mr. Schmidt

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 27 of 241

4303

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

made a specific representation to her, that representation being you will never have to work again. Mr. Schmidt cannot walk away

from that count of the indictment, your Honor. Your Honor, I hopefully have covered all the points that were made yesterday. My notes were written fairly quickly,

but if the court has any other questions, I can try to address those for it. THE COURT: I do. Please direct your attention to what

was charged originally in the Second Superseding Indictment as Count 35, and which has subsequently been renumbered and is now enumerated and known as Count 34 in which the defendant in the table is Peter A.W. Moss. Could you comment on the viability

vel non of that count of the document. MR. ANGELO: I can, your Honor. Mr. Hyland's testimony

in this particular case is clear that Leon Harte and Peter Moss came to him sometime in the spring of 2000 for the purpose of investing monies and the currency trading program in a company called SunState FX, and in fact Mr. Hyland testified that a $6 million wire transfer was received by SunState FX for the purposes of investing in Euros. The court may also recall that that wire transfer came out of the account of the Reserve Foundation Trust, and the account was opened in the name of the Reserve Foundation Trust according to the investment documents. THE COURT: Will the government be asking that the jury

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 28 of 241

4304

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

return a verdict against Mr. Moss? MR. ANGELO: THE COURT: No, your Honor. And then how will the verdict forms

vis-a-vis renumbered Count 34 be structured? MR. ANGELO: We would intend to omit those from the Mr. Moss is obviously still at large

verdict forms, your Honor.

and we would not be asking for submitting instructions with respect to that particular count. THE COURT: Therefore, should it be excluded by the

court in its re-reading of the indictment to the jury? MR. ANGELO: THE COURT: the jury? MR. ANGELO: We agree, your Honor. And I think Yes, your Honor. At the commencement of its final charge to

Mr. Kirsch has reminded me it should be the same for renumbered 32, your Honor. THE COURT: MR. ANGELO: THE COURT: questions. Thank you. Yes. Beyond that, I have no specific or discrete

Thank you. Thank you, your Honor. Very well. Reply, limited to three minutes On behalf first of

MR. ANGELO: THE COURT:

per any defendant who proposes reply. Mr. Smith by Mr. O'Donnell. MR. O'DONNELL:

Thank you, Judge.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 29 of 241

4305

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

First, sort of a technical matter.

Mr. Angelo quoted

me as saying that I didn't think these were securities, and I cited a case to that effect. the record there. I just want to technically correct

The Edwards case that he is referring to was That is what that case said.

the Eleventh Circuit case in 2002.

But I also mentioned that in 2004 the Edwards case was in the Supreme Court of the United States, and it was reversed for the reasons that I stated, and that it was a security. That was

remanded through the Eleventh Circuit down to the District Court, which in short order reevaluated the case and found that it was a Ponzi scheme and did not make a decision at all regarding whether or not the underlying substantial telephone business would be something to salvage. The $300 million 10,000

people being a Ponzi scheme, and then of course that went into what happened in Louisiana with the salesman issue. If I may, your Honor, then I have one substantive matter which will be within my three minutes, and that is at least with regard to Mike Smith and perhaps others in this case, the only expert that really ever appeared in this case so far has been Mr. Phil Feigin who works for Rothgerber, Johnson & Lyons, and before that spent twenty years as head of State Department of Securities in Illinois and in Colorado. And while he was under oath here, he acknowledged that his letter had been written in over a year ago in May 26th of '05, and I asked him if he still had the same opinion after

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 30 of 241

4306

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

working on this case and helping draft the indictment, and et cetera, et cetera, and whether he still had the conclusion on materiality that, quote, that is undoubtedly why if all these facts were well concealed, quote, each and every one of them, end quote. And the facts that he made reference to at page 31, and then continuing on page 32, is the convictions of Schmidt, at least, and perhaps Lewis. These were a camouflage. Three

states issued cease-and-desist orders against them, and free access to investor funds, and that these -- the promoters spent those funds freely. Payments to prior investors and for personal expenses, quote, it's a Ponzi scheme. Prior investors asked for their No such market, no such

money back if they were not paid.

notes, and even if there were, there was no trading. THE COURT: Fifteen seconds, counsel. And that, your Honor, is their expert

MR. O'DONNELL:

opinions of why that is undoubtedly why all these facts were concealed, each and every one of them. MR. STUCKEY: Your Honor, on behalf of Mr. Smith could

I have fifteen seconds? THE COURT: You may, Mr. Stuckey. I appreciate it very much, your Honor.

MR. STUCKEY:

Might I say I was somewhat surprised that Mr. Angelo stated that the case was not based on the fact that Michael

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 31 of 241

4307

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Smith didn't know these trades were made, it was based on the fact that monies were used for different purposes. Paragraph 2A of the indictment starts by saying that the conspiracy was based on falsely saying that trades of a high yield were made. That's incorporated in paragraph 8 of the mail

fraud count, which is further incorporated down in the other counts. I suggest that paragraph 4DI talks about Mr. Schmidt having a special relationship to persons enabling him to make the trades. I suggest their case is based on the fact that Michael Smith knew that trades were being made, and that their proof does not show that. THE COURT: Thank you. You are welcome. Reply, if any, on behalf

of Mr. Lewis by Mr. Gainor. MR. GAINOR: arguments. THE COURT: Mr. Goodreid. MR. GOODREID: THE COURT: Yes. Thank you, your Honor. Reply on behalf of Mr. Weed by Your Honor, we will stand on our original

You are welcome. Your Honor, I am going to limit my

MR. GOODREID:

remarks to Mr. Weed's Motion for Judgment of Acquittal on Counts 42 and 45. Just to be clear, I think Mr. Angelo, for the record,

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 32 of 241

4308

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

had mistakenly said we were seeking dismissal of 42 through 45. It's just those two counts. Mr. Angelo mentioned that Special Agent Bratcher testified that Mr. Weed told him during an interview that he had received loans from Mr. Schmidt. I don't recall that, your My

Honor, but I will take government counsel at his word.

client indeed says it does reflect that Special Agent Bratcher did say that. However, it doesn't make any difference. I look at the

language of the statute, and again focusing on the definition of monetary transaction, it talks about withdrawal transfer, blah blah, blah, but it says of funds or a monetary instrument. These counts as specified in the indictment talk about two specific monetary instruments, check 1621, Count 42, and check No. 1008 in Count 45, and again as the record reflects, based upon the checks I submitted to the court yesterday, the government has no evidence that either Mr. Weed or Compliance Holding Company either attempted or aided and abetted the deposit or withdrawal, transfer, exchange of those monetary instruments charged in the indictment. And therefore, your Honor, again I renew my Motion for Judgment of Acquittal on those two counts. THE COURT: by Mr. Bornstein. MR. BORNSTEIN: Thank you, your Honor. Thank you. Thank you.

Reply on behalf of Mr. Schmidt

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 33 of 241

4309

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT:

You are welcome. Your Honor, I said yesterday that I was

MR. BORNSTEIN:

going to address the Pinkerton issue, and I went home last night and realized I had not addressed the Pinkerton issue so I will use my reply time to address the Pinkerton issue. Going back to the original Pinkerton case, Justice Douglas decided it or wrote that opinion, and in that opinion it was a case that involved whether the conspiracy plus overt acts merged with the substantive counts, and that case stood for the proposition that there was no merger, and in the course of that case it talked about the partnership concept of conspiracy. Now, as that has now emerged, and to the prosecution's theory, we have a pleading problem. And the pleading problem is

that we assert that if the government is pleading, in addition to an aiding and abetting theory, that there is a vicarious liability theory for holding Mr. Schmidt liable, that must be pled. And we are also going to say that if the court lets that go to the jury on that theory, that there has to be a -not a general verdict, but a special verdict on vicarious liability for any such theories that the government is alleging that were not in the pleading. And then I will make one other comment which is, as I listened to the government's argument about multiple conspiracies or multiple schemes to defraud, there is a kind of

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 34 of 241

4310

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

a simplicity in it that is misleading, and that I would consider that Ma Barker and her kids went out and robbed a whole lot of banks, and Bonnie and Clyde went out and robbed a whole lot of banks. Now, to say that the fact that every time they went out on a robbery of a bank meant that they made some sort of agreement that they would rob a number of banks, and therefore it's all part of one conspiracy, it just wasn't the facts of the case. But the way the government now approaches this, because their witness from the Federal Reserve said that all high-yield programs have these eight, ten, twelve, fifteen commonalities, that therefore they are all the same, and that if you make an agreement to engage in one, you are making an agreement to engage in an unlimited or whatever number that the government then holds you to is to take a concept of agreement in conspiracy and reduce it to some kind of a simplistic talisman that just is not legally supportable in our assertion or our argument. Thank you. Thank you all, counsel. The court exercises its discretion,

THE COURT:

Well, well argued.

however, under Rule 29(b) and will take the matter under advisement. practicable. Now, as concerns our schedule this morning, let me You will have the benefit of my ruling as soon as

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 35 of 241

4311

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

inquire of co-counsel on behalf of Mr. Smith. prepared to proceed at or about 9:30 a.m.? MR. STUCKEY: THE COURT: or about 9:30 a.m. Yes, your Honor.

Will you be

Very well.

Then we are in recess until at

(Recess at 9:15 a.m., until 9:35 a.m.) THE COURT: Thank you, and again please be seated.

We again convene on the record deliberately outside the presence and hearing of the jury to address a matter that may affect the next witness to be called in the trial of this case and the first witness anticipated to be called on behalf of Mr. Michael Smith, a defendant in this case. Very well. prospective witness? MR. STUCKEY: Any issue or request with respect to this I have been misinformed. It's the government's request, your Now

Honor, they were going to ask for Fifth Amendment advice. they have withdrawn.

It wasn't our request that -- the witness He is here voluntarily. He has

has not even been served.

indicated no, given no indication, including meeting with them last Sunday, that he intends to take the Fifth Amendment to anything. He asserted he would testify truthfully, and he has

repeated that so many times I am tired of talking to him. THE COURT: I will take you at your word.

Any discrete request with respect to this as of yet unidentified defense witness?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 36 of 241

4312

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MR. ANGELO:

Yes, your Honor.

The government

originally had some concerns about this, but having done some research on it, I think our concern is any advisement made before testifying, even outside the presence of the jury, may have a chilling effect on testimony should not be done. However, it may be wise at this point, as a matter of caution before the witness actually testifies before the jury, to advise him if he does have a question that's propounded to him that may be something that he is concerned about, that he can somehow signal the court and therefore we would have a conference at the bench rather than have to work it out. THE COURT: it as such. I received your precatory request and treat

That is respectfully denied.

What normally happens in those circumstances is then we get a query about how I should answer the query properly, and then I have to be more specific in tailoring then this cue to signal. And then that normally does produce some trepidation on But because he is not fully advised, he

behalf of the witness.

is sitting there in this state of uncertainty and ambivalence, and that's not fair to the witness or trier of fact or the defendant either. So this is like being gravid or enceinte. are or you aren't, and that's where we are. Very well. Further business with respect to this You either

matter by any of the defendants?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 37 of 241

4313

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Hearing none, we are in recess pending the availability of the jury. (Recess at 9:40 a.m., until 9:45 a.m.) THE COURT: Thank you, and please be seated.

Well, I bid everyone else in the courtroom a good morning but for you, ladies and gentlemen of the jury. you, good morning. THE JURY: THE COURT: Good morning. Again, while you have been working I can We have completed the So to

assure you we have been working.

transaction of business required to be undertaken and consummated outside your presence and hearing, and are again prepared to resume and proceed in these trial proceedings. Very well. If defendant Michael Smith is prepared to

proceed, Mr. Stuckey, he may, and he may call his first witness. MR. STUCKEY: Thank you, your Honor. Defense for

Michael Smith calls Mr. Mark Perreault. THE COURT: Very well. If you will stop just about there.

Good morning, sir. All right. Rule 603.

I am going to administer the oath required under

If you will please face me and raise your right hand to be sworn. May I have your attention in the courtroom. (Mark Perreault was sworn.)

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 38 of 241

4314

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE WITNESS: THE COURT: witness stand.

Yes, sir. Please be seated in that

Thank you.

And sir, again, good morning. Good morning.

THE WITNESS: THE COURT: in front of you.

As you testify, please use that microphone

And by its peculiar design, it works best with

a speaking distance of not less than some six to eight inches, please. Thank you. Mr. Stuckey. MR. STUCKEY: THE COURT: Thank you, your Honor.

You are welcome. DIRECT EXAMINATION

BY MR. STUCKEY: Q Would you please state your name, sir, and spell your name

for our record. A Yes. Mark Clinton Perreault. That's Perreault,

P-E-R-R-E-A-U-L-T. Q A Q A Q Your middle name? Clinton, C-L-I-N-T-O-N. Thank you. Mark, M-A-R-K.

Where do you live, sir?

At 6702 Cole Circle in Arvada, Colorado. Let me start, sir, by asking you if you know Mr. O'Donnell's

client and my client Michael Smith? A Q Yes. Do you see him seated behind us?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 39 of 241

4315

Mark Perreault - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes. Can you tell us, first of all, when you first came to know

Mr. Smith and what the history of your association with him was? A Um, back in -- I have an uncle, my mother's brother, He was in

brother-in-law, excuse me, his name is Ken Downey.

the insurance industry for 37 years with Bankers Life and Casualty. In 1987 I got out of the military in the United States Army and moved to Denver. In 1988 he had flown down to Denver,

got me into the insurance business with Bankers Life and Casualty. In 1992 I went on my own as an insurance broker, and then in 1995, was introduced to Michael Smith from my uncle, Ken Downey. Q A Q A Q A Q A Q A Q 1995? Yes, sir. And that was here in Denver? Yes, sir. Was Mike Smith living in Denver? Yes, sir. Were you both single? No, sir. I was married.

Mike was single? Yes. That was some twelve years ago. Can you tell us briefly

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 40 of 241

4316

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mark Perreault - Direct your association with Michael, say, from 1995 through 2002. when I say briefly, I don't mean too briefly. him? Where did you live?

And

How did you know

And was there some business about you Please relate that to the

moving to Spokane and back to Denver? court and jury. A

In 1995 we started mutually working together in the In 1998 -- in 1997 Michael Smith had moved

insurance industry.

from Denver, Aurora, Colorado, back to Spokane to be closer to his father because of some health problems. Q A Q A Q A Q A Q A Health problems were his father's? Were his father's, correct. And his mother, did you know her situation? Her situation? Well, his original mother had died. Yes. I was aware of that, yes. Did you know that? In 1998 --

And had his father remarried and was there a stepmother? Yes. There was a stepmother, correct.

And they lived in? In Troy, Montana. So in 1998 I had moved to Spokane,

Washington.

I spent approximately a year and a half to two

years there, and then moved back to -- actually, I moved to Las Vegas, Nevada, was married, and then moved back to Denver in February of 2001. Q A Was that a second marriage? Second marriage, correct.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 41 of 241

4317

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q A Q A Q A Q

Mark Perreault - Direct And are you still married to that lady? Yes. And that's who you live with here in the Denver area? Yes, sir. Do you have children? Yes, sir. And while we are at that, let you go back, but during this

trial Michael Smith as a friend has been living with you and your family, right? A Q A Q A Yes, sir. Okay. 2001. Yes. Go ahead. Where did I cut you off at? About 19 --

Then in 2001, in February, I moved back to Denver from

Nevada, and started working with Bankers Life and Casualty a second time, selling insurance. Q Did you keep in contact with Michael Smith during 2001 and

forward? A Q A Q A Q Yes. We are friends, yes.

When you got back to Denver you still kept in touch? Yes. What e-mails, telephone calls? Telephone calls. Did you have occasional visits or did he come to Denver to

visit?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 42 of 241

4318

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A Q A Q

Mark Perreault - Direct Um, during 2001 -- I don't recall. Well, in any event you remained close friends? Yes. At some point, then, sir, did you become associated with

Capital Holdings? A Q A Q A Q A Q Yes, sir. During that? Yes. And you had known a gentleman named Chuck Lewis? Yes, sir. Was that the entrée for you into Capital Holdings? Yes, sir. Okay. Did you actually begin working at the Capital

Holdings office here in downtown Denver? A Q A Q Yes, sir. Go ahead. In March of 2002. Okay. What were your duties and job responsibilities and That --

what was your association or title or alignment with Capital Holdings? A Um, more or less, um, I guess you would call it more or less Making sure that reports were printed out and sent

a secretary. out. Q A

Did you continue your own insurance business? Yes. I had actually stayed with Bankers Life and Casualty

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 43 of 241

4319

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mark Perreault - Direct through July of '02. Q And who else worked there at the Capital Holdings office

either as secretary or whatever with you at first? A Well, first there was myself, Jed Stockham, who was a fellow

insurance agent, and another fellow by the name of Jason Goldtree. Q A What did you understand the Capital Holdings business to be? Well, what I understood it to be was that there were some

trades going on, and the way it was explained to me was hundred-million-dollar blocks of mortgages would be sold, and then there would be certain percentages that were made on every one of those sales. Q A Q A Q Had you had prior experience with mortgages? With mortgages? Yes. No, sir. So -- let me ask another question first. Were you not

familiar with -- did you participate in bringing investors into Capital Holdings? A Q A Yes, sir. And how did that work? Well, to my understanding, anybody that was brought in and

invested in the program would receive, you know, a return on their investment, and anybody else that they brought in, they could receive an override.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 44 of 241

4320

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q

Mark Perreault - Direct Was that common practice in the insurance industry with

which you had been involved? A Yes, it is. For instance, when I was at Bankers Life and

Casualty, it started with the salesmen, then you had an assistant manager, you had a manager, a regional manager, a district manager, and then a field vice president, and then the upper brass of the company. And everybody that was in that line -- and most captive insurance companies weren't that way. They would all receive a

portion of the sales commissions for a sale that originated from the original salesman. Q And those commissions came from the premiums paid by the

persons that bought the insurance policies? A Q Yes, sir. And was this business of overrides at Capital Holdings

different? A Q No. It worked relatively the same manner. By the way, then, were you a licensed insurance agent I guess so if you worked at Bankers Casualty.

Okay.

in Colorado? A Q A Q Yes, sir.

Are you also a licensed mortgage broker now? Yes. Okay. At the present time, yes. Again, then, how did you understand that the Where did

investors would get this return on their investment? that money come from?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 45 of 241

4321

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A Q A

Mark Perreault - Direct From the trades. And who made the trades? It was explained to me that Norm Schmidt -MR. ANGELO: Your Honor, I will object unless the

source is identified. MR. HAMMOND: ground of hearsay. THE COURT: Your Honor, Mr. Schmidt objects on the

Could we just repeat each other? I have no idea. It sounded like four

foreign languages and five different people. Mr. Angelo, the objection of the government. MR. ANGELO: Yes, your Honor. We are going to object

unless the source is identified, and we may have further objections after that. MR. HAMMOND: hearsay. THE COURT: Response. This is testing the witness's knowledge. He has identified it in his partial And again, the Mr. Schmidt objects on the ground of

MR. STUCKEY:

The source is identified.

answer to explain this to him I thought.

question is, what was your knowledge of where the monies came from to trade these -- to pay these premiums on the investors' money. THE COURT: Right now the declarant isn't identified.

The statement by the witness does implicate at least for now hearsay.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 46 of 241

4322

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mark Perreault - Direct Thus, the objection of the government and Mr. Schmidt are sustained. MR. STUCKEY: BY MR. STUCKEY: Q A Q A Q A Q A Q Moving on here. Yes, sir. And how much money? $10,000. And did you get returns? Yes, sir. On that investment? Both. Going to where I guess I need to get to is, after you Did you take them? Did you roll them? Did you invest? Thank you, your Honor.

started in March of 2002, did you have a communication with Michael Smith about this Capital Holdings program? A Q A Yes, sir. Okay. How did that take place and what did you tell him?

Well, after I was introduced -MR. ANGELO: MR. STUCKEY: THE COURT: Objection, your Honor. Hearsay.

What did he tell Mr. Smith.

What the witness told Mr. Smith? Yes, sir.

MR. STUCKEY: THE COURT: MR. ANGELO:

And you are arguing that that is hearsay. I am, your Honor, unless it's offered for

purposes other than -- for non-hearsay purpose.

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 47 of 241

4323

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mark Perreault - Direct THE COURT: The objection is noted but respectfully overruled. That means that you may respond to counsel's question on two conditions, which you will probably here hear again. first of which is, after the exchange, do you recall the question. Do you? I would like it repeated. Counsel. The

THE WITNESS: THE COURT:

Very well.

MR. STUCKEY: BY MR. STUCKEY: Q

Kind of a double question.

How did that happen after communication with Mr. Smith?

What did you tell him about Capital Holdings? A I actually had called him and told him about the program and

my experiences with it for the brief amount of time that I was involved at that time. Q A Q A Q A Q And shortly thereafter did he make a trip to Denver? Yes, sir. Was that at your request or invitation or suggestion? Suggestion. Invitation.

And did he come to the offices of Capital Holdings? I believe so, yes. Were you present -- well, do you know if the program was

explained to him? A Q Yes. Were you present?

Case 1:04-cr-00103-REB

Document 1596

Filed 06/17/2008

Page 48 of 241

4324

Mark Perreault - Direct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q A Yes, sir. And who did the explanation? No. Did you?

I was basically just sitting off to the side listening