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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 V _______________________________________________________________ Proceedings before the HONORABLE ROBERT E. BLACKBURN, Judge, United States District Court for the District of Colorado, commencing at 8:30 a.m., on the 5th day of April, 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

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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.

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P R O C E E D I N G S (Proceedings resumed at 8:30 a.m.) THE COURT: Very well. Thank you. And please be seated.

Mr. Schmidt, good morning.

Mr. Weed, good morning. MR. WEED: THE COURT: MR. LEWIS: THE COURT: MR. SMITH: THE COURT: Good morning, sir. Mr. Lewis good morning. Good morning. And Mr. Smith, good morning. Good morning. Counsel, good morning. Ladies and

gentlemen of the jury, last but not least, certainly good morning. THE JURY: THE COURT: Good morning. And others welcome. As I survey our

courtroom, all who should and must be present are in fact present and presumably prepared to proceed. Very well. next witness. MR. ANGELO: this time. THE COURT: Thank you. If you will make your way forward Your Honor, we would call Roy Christian at The government may proceed by calling its

Sir, good morning. to be sworn by the court. this open area.

To do that, if you will come stand in If you will please face

About there is fine.

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me and raise your right hand to be sworn.

And thank you.

May I have your attention in the courtroom. (Joseph Roy Christian was sworn.) THE WITNESS: THE COURT: witness stand. Sir, good morning. microphone in front of you. THE WITNESS: THE COURT: Okay. And as you testify, please use the I do. Please be seated in that

Thank you.

And by its peculiar design, that's about

the right distance to leave. THE WITNESS: THE COURT: MR. ANGELO: THE COURT: All right. Thank you.

Mr. Angelo. Thank you, your Honor. You are welcome. DIRECT EXAMINATION

BY MR. ANGELO: Q A Q Would you please state your name for us, please? Okay. Joseph Roy Christian.

And Mr. Christian, can you spell your last name for the

court reporter here? A Q A Q C-H-R-I-S-T-I-A-N. Do you have some difficulty hearing, sir? I have a hearing problem. Is that what you are asking? If you do not hear or

That would be correct, yes.

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Joseph Roy Christian - Direct understand a question, would you let me know? A Q A Q A Q I will. Mr. Christian, where do you live? I live in Wiley, Texas. How long have you lived in Wiley, Texas? Twenty-one years. Can you tell us a little bit about your educational

background? A Q A Education? Yes. I served one year before I served active duty in the U.S.

Army, in the Army Specialized Training Reserve program, training to be an engineer. When I turned 18, I went on active duty. While I was

in basic training World War II ended so I went over to Korea. When I came back, I enrolled at LSU, and the last two-and-a-half years I pursued my graduate degree or my degree, Bachelor of Science degree in petroleum engineering, which I received in 1949. Q Did you actually use that educational background for

engineering, too? A Yes. I was employed by the Shell Oil Company. Subsequently

I was employed by a number of independent petroleum companies, consulting firms. And then in 1965, I was recruited by First

National Bank in Dallas, now part of Bank of America, to head

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Joseph Roy Christian - Direct their trust department, and progressed from there to senior vice president of trust as head of the property management group which included oil, real estate, and closely-held business interests. Q And are you still employed, sir, or are you retired at this

point? A Q A Sir? Are you still employed? No. I am retired. I do occasional consulting work, but

it's not as often as I used to. Q Mr. Christian, do you recall traveling to Kansas City in

1999 for the purposes of meeting with a Mr. Leon Harte? A Q I do. Can you tell us, please, about the events that led up to

that? A In 1995, late 1995, I was introduced over the phone by a

friend of mine in Denver, Colorado, to a Kevin Schnorenberg. Mr. Schnorenberg called probably every month, couple of months, three months. Just occasionally stayed in touch because apparently they were interested in reaching out to people who may have funds to make protector-type investments. So he just kept in touch. And then I didn't hear from

him for quite a few months until -- I believe it was January 1999. He called me from Colorado, and he had Leon Harte

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Joseph Roy Christian - Direct on the telephone with him. He introduced Mr. Harte to me on the telephone. Leon

Harte proceeded to tell me about an opportunity he knew of that he was following and would keep me apprised of, and once a week approximately he would call, just touching base because he really had nothing at that point that I was interested in. Q Did he describe at all in that first conversation what kind

of opportunity he was referring to? A No. No. He knew I had an oil-and-gas background, he knew I

had a real estate background, and he knew I had worked for a bank. So he was just staying in touch at that point, developing

the association, I believe. Q A Q A Okay. And tell us how that progressed.

Pardon? How did that progress? Um, the calls from him probably became less frequent every And in early

ten days or two weeks but they remained constant.

April, sometime in April of 1999, he called me to tell me that he had an opportunity with a party in Kansas City, the Kansas City area, for people with a hundred thousand dollars minimum. That the funds were insured by a major insurance company, and -you want me to go on? Q Why don't you tell us what came of that phone call, if you

would? A Okay. He told me about this opportunity. I had received

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Joseph Roy Christian - Direct inquiries over the recent years from a number of friends of mine, probably half a dozen or so that were in that capability financially and had asked me to be aware that they were interested in anything I might run across if I thought it made sense. Q Now, let me stop you there just briefly. When you say they

were interested in something that you might run across, is this from the standpoint of an investment? A Higher return than I could ordinarily get. These were more

or less venture capital type risk takers, but they wanted, as I did, their money to be safe. Q So tell us then -- I am sorry to have interrupted you. Go

ahead and continue with what happened with respect to this Kansas City situation. A When he called me and told me about this situation I quizzed

him as some length about the safety of the funds, and he assured me that the program was already in progress, it was already paying, and the funds were insured by the major insurance company, one of several. So at that point I said, well, I can't make a judgment on this. I will tell my people about it. And I told a friend Reed --

of mine who used to be with Merrill Lynch, Reed Morgan.

and I also told Brent Campbell, I believe at that point, and Reed Morgan contacted Leon Harte and talked to him several times.

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Joseph Roy Christian - Direct Reed called me in probably the second week of April and said that he was going to Kansas City -MR. HAMMOND: Your Honor, I have to object to what

Mr. Reed said because that would be hearsay. THE COURT: MR. ANGELO: Response. Your Honor, I am trying to put this in

We are not offering it for the truth, and we will

explain further actions taken by Mr. Christian in traveling to Kansas City. THE COURT: Very well. This again is non-hearsay

because it's offered to show the effect of the utterance on the hearer to allow the jury then to assess the reasonableness or not of his actions thereafter. The objection for now is overruled. MR. ANGELO: BY MR. ANGELO: Q So please go ahead and describe this conversation with Thank you, your Honor.

Mr. Morgan. A Okay. Reed Morgan called and told me that he was going to

Kansas City April 19th to meet with Mr. Harte, and this fellow Harte. A few days before the 19th, Reed called me and said, I have a conflict, I have to be in Los Angeles on that date. If I

pay your expenses, will you go for me, check it out, and let me know what you think of it when you get back.

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Q A Q A Q A Q A Q

Joseph Roy Christian - Direct And did you in fact go to Kansas City? Did I what? Did you in fact go to Kansas City? Yes, I did. On what date was that? That was April 19th. Of 1999? Of 1999. And who did you anticipate meeting at Kansas City area? Who

did you anticipate meeting at Kansas City? A Q A Q A I am sorry. I am not --

That's all right. There are echoes in the room. Who did you believe you were going to meet? I didn't know the name of the party. The party Leon Harte They

identified to me was himself and a Mr. Norman Schmidt. were to pick me up at the Kansas City airport.

I did not know

who else to meet at that point, except he was the manager of a program that was already working with a hundred thousand dollar minimum investment and paying monthly. Q A Q When you say "already working", what do you mean by that? It was already in progress, it was already paying investors. And paying investors, did you know from what source of

revenue, or how the revenue was generated? A The only thing Mr. Harte identified to me at that point was

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Joseph Roy Christian - Direct that Mr. Schmidt -- he identified Mr. Schmidt as an investor, and he had never met the party that was sponsoring the program. So he was along for the ride to meet this gentleman. Q Okay. And describe that meeting, if you would, please.

First of all, where did it take place? A It took place in a hotel in the Kansas City area. I don't

even know the name of the hotel.

We were in Mr. Harte's van and

we were engaged in getting acquainted. But we arrived at the hotel, went into the lobby and I was introduced to a Mr. Jerry DeFries, who lived in the Kansas City area. We went from the lobby into the dining room, had lunch, and then after lunch Mr. DeFries proceeded to show me some of the information on the program. He didn't show any of the It was

revenue or anything like that that anyone was receiving.

simply the profile and the -- a couple of sanitized insurance policies or bonds that he had me read or more or less scan the language, and I was looking for the protection of the funds. Q And let me just briefly ask you what Mr. DeFries told you

about this program? MR. ANGELO: And I am offering this, your Honor, not

for the truth at this time. THE WITNESS: BY MR. ANGELO: Q Yes. What he told me about the program?

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A

Joseph Roy Christian - Direct He said he was bonding fresh or newly-issued bank

instruments, medium-term notes, other kinds of debentures and governmental issues, and corporate issues, and then reselling those to what he identified as exit buyers or end buyers because those buyers could not buy these instruments until they were -they had CUSIP numbers and registration numbers. So these

apparently were fresh instruments they were ordering with the funds available. Q A What else did he tell you about the insurance? The insurance, he said, guaranteed the loss of the principal

for any reasons of a criminal or fraud or theft or things like that, and he represented that the principal was safe. was left in the account and not moved. Q Did Mr. DeFries or Mr. Harte or Mr. Schmidt discuss what That it

insurance company would be insuring that? A Mr. DeFries did not identify the insurance company, except That's the only

once he said such as Lloyd's of London. reference I recall him making.

Mr. Schmidt did not -- he was quiet during the meeting, and I gathered that he was listening and learning. If the

information that was given to me by Mr. Harte for the purpose of him being there was correct, which I assume it was, he was listening to learn himself. Q A What was Mr. Harte doing? Mr. Harte went on to make a remark once in a while, and it

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Joseph Roy Christian - Direct was not really -- I didn't feel he was trying to pressure me or anything. He was just keeping me in the light. He was making a

joking-type comment as the meeting progressed, but all the presentation at that point was from Mr. DeFries as far as the program is concerned. Q Did Mr. DeFries talk with you about the kinds of returns

that could be expected? A Q A Q A Q Yes, he did. What did he tell you? He represented it to be 50 percent per month per investor. That was per month not per year? Per month. Now, looking at the sanitized -- or the insurance documents

that you talked about, what did you mean by sanitized? A I didn't know what companies they were issued on except his

one-time remark that companies such as Lloyd's of London, but he only showed me two different policies, and when he showed me those, he didn't identify it related to a specific company. just said it was a major company. Q And how did you leave that meeting? Did you make any He

commitments on behalf of Mr. Morgan? A I made no comment that I recall of a judgmental nature.

Mr. Schmidt and Mr. Harte took me back to the airport in Mr. Harte's van. We parted company, and I came back to Dallas,

and a day or two later Reed Morgan called me, and I told him

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Joseph Roy Christian - Direct what I believed about the presentation. Q And what was your belief about the presentation at that

point? A it. I suggested to him that if it were my money, I would not do And he asked why. And I said, because you are dealing with

an offshore insurance company, you are dealing with an offshore deposit, and you are dealing with an offshore program. And if

anything happens and your money is in jeopardy, you have to try to retrieve it in a foreign jurisdiction, which can be quite expensive and take a long time. Q At some point after your conversation with Mr. Morgan, did

you discuss those same issues with Mr. Harte? A He called me possibly later, after I talked to Reed Morgan. I don't know

I believe it was after I talked to Reed Morgan.

whether Reed called him to let him know he was not a candidate, but he asked me. And I said, I can't recommend -- I can't do And he said, why. And as

anything to suggest that someone enter it.

And I said, because it's a foreign insurance company. far as the activity is concerned.

And I just don't think a

person should move their money offshore to engage in a program such as this. Q And did you later hear from Mr. Harte about that particular

problem? A Yes. In the late fall -- late summer or early fall, I don't

know the specific date, he called and said, I have been working

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Joseph Roy Christian - Direct to design a program similar to the one you saw because I told him the characteristics of the program itself were favorable, but it was the setting and so forth that I couldn't go. So he

called to say that he had a major U.S. program, with a major U.S. insurer. Q A Did he identify the insurer at that time? He did not. He said it would be an A rated company. He

later did, but at that point he just told me it was a major insurance -- well, one of several major insurance companies. Now, a few days later and further conversations, he identified St. Paul Insurance Company. Lloyd's of London. I believe he mentioned

And I told him that unless it was Lloyd's of

London U.S. I would have no interest, and then I believe Republic Life Insurance Company. he used as examples. Q A Q A Did you find the use of St. Paul attractive? Yes, I did. And how did that progress with Mr. Harte from that point? At that point I told him I wouldn't tell the four or five I think those were the three

people that had been asking me for many months to let them know of anything that I saw that might make sense. Q A And who were those four or five people? There was Frank Campbell, who was at that time in He is now in Texas. And I first

Greenville, South Carolina.

met Frank Campbell when he was in Texas before he moved to

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Joseph Roy Christian - Direct Greenville, South Carolina. He and I became friends over the years. Q A And who else? C.W. Crocker in Fort Worth who knew Dennis Cunningham in

Park City, Utah, and Dennis Cunningham told C.W. he was looking for something for perhaps several hundred thousand dollars. a Jerry Vickery in Colleyville, Texas. And I mentioned it to Paul Chandler in Dallas, who introduced me to -- I believe he was a CPA in Chicago, a Rudolph Milano. Mr. Milano had a client, Richard Smith, who was a And

retired tax attorney who personally was interested. Q And did you in fact notify those people about what Mr. Harte

had told you? A I did, and I gave him his contact numbers if they wanted to

follow up on it, and let them do their own due diligence, and I said, you have to be the one satisfied because I can only tell you what I have been told. Q And did you ultimately hear from Mr. Harte again concerning

those people? A Q A Oh, yes. Can you tell us about that? He called periodically to let me know how his program was He sent me subsequently a copy of the -- I believe

developing.

it's called a Corporate Private Placement Agreement, and because I said, I would like to read it, what you are sending the

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investors.

Joseph Roy Christian - Direct Prospective investors. I would like to see what you So he sent me that. What did he tell

are sending them. Q

And let me back up a little bit if I can.

you about how his program was progressing? A It was brand new. He had never done one before. I knew it

was new.

He liked what he saw in Kansas City.

And according to

him, that was working.

And so he just saw the major objection I

had was to be an offshore program so far as the bank was concerned, it must be a U.S. Bank, and the insurer was to be a major A rated or better U.S. insurance company. Q Did he indicate to you what the returns or return on

investment would be in his program? A Yes. He identified the returns as if a party put in a

hundred thousand to five hundred thousand, under five hundred thousand, 50 percent per month. 500,000 would earn him

75 percent per month, and I believe it was a million was the next breaking point and the top return of a hundred percent per month. Q And did he discuss with you where the money would be kept

for the investors? A Q For what? Did he discuss with you where the money was going to be kept

that was received from investors? A Actually, the first I heard was, I believe, US Bank Denver I don't

but I don't know if that's the bank they ended up with.

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Joseph Roy Christian - Direct believe it was. Q Did he ever talk to you during those earlier conversations

about how that the money would be used? A The money was to sit in a commingled account, and as I I

understood it, there would be a line of credit on the money. don't know that it would ever be used directly, but it had to

be -- well, because that was the trigger that would allow them to issue the purchase document for the instruments. Q And did you have any understanding from Mr. Harte about

whether those funds could be withdrawn from the bank or not? A I did. And the Private Placement Agreement provided by the

clients, you mean? Q A Q Well, by Mr. Harte. Well, could be withdrawn by the client? No. My question was, did you have any understanding about

whether Mr. Harte could withdraw those funds? A No, I did not. The only understanding I had was the

representation that the funds would remain in a commingled account. Q If I can ask the -- Mr. Marcy to show the witness And I am going to ask maybe to

Government's Exhibit No. 70.

assist if we could have madam clerk show him the notebook with Exhibit 70. Those are tabbed, Mr. Christian, and if you would turn to tab 70, seven zero.

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Joseph Roy Christian - 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 Okay. Do you recognize that document, sir? That is the Corporate Private Placement Agreement that

Mr. Harte sent me that I requested. Q And would you take a look at the total number of those pages

briefly to make sure that it is an accurate copy, and if you have to remove it from the plastic sleeve, you may do that. A Q A Q A It's got my scribbling on the first page. A notation.

And what did you scribble on the first page? So far as the verbiage is concerned? Yes. This outlines the term of the agreement, including the fact

that the trust -- the representation that the trust has or is in position to provide -Q Let me stop you there, Mr. Christian. Is that scribbling on

the lower right-hand corner yours? A Q A Q It says November 15th, 1999. Is that how you recognize that document or what it was? That is the document. If you want, you can remove the document from the plastic

sleeve so you can review all the pages. A Q What do you want? Remove the document from the plastic sleeve so you can

review all the pages. A Must be at the top. Age impairs a lot of things including

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Joseph Roy Christian - Direct your nimbleness. Q So take a look at that to make sure that's an accurate copy

of what you received. A That's it. MR. ANGELO: Your Honor, at this time the government

would move to admit Government's Exhibit No. 70. THE COURT: defendants? Hearing none, Government's Exhibit 70 for identification admitted in evidence, with leave to publish. MR. ANGELO: your Honor. And we would ask that leave at this time, Any objection by any one or more of the

And if it could be put on the courtroom monitor.

BY MR. ANGELO: Q Mr. Christian, I am going to go through this draft of the Let's first

Cooperative Private Placement Agreement with you.

talk about the scribbled note down there, November 15th, 1999, on the lower right-hand corner? A Q A Okay. What was the significance of that note to you again? To identify specifically to the program that these four

people went into or are considering going into at that point. They hadn't gone in yet, as I recall. Q A The program was identified by that date? That is the closing date. That was the date identified by

Mr. Harte that no funds would be accepted after that date.

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Q A Q

Okay.

Joseph Roy Christian - Direct Looking at paragraph 1B.

All right. If I can. The last sentence there in the paragraph,

Mr. Christian, would you take a minute to read that? A All right. "These funds will be used to buy, sell, lease,

or trade on a loss-free presales-agreed basis and medium-term notes and other banking and governmental financial instruments to the mutual benefit of party A and the trust as designated by the trader and the trading bank." Q A Q A Q Was that consistent with what Mr. Harte had told you? That was consistent with what he told me, yes. Would you look at the second page, please, paragraph 3. Okay. Look at the last sentence, if you can. What did you

understand that to mean? A That meant that the funds would remain in the account that

the client sent them to, commingled with the other funds, could not be encumbered in any way or hypothecated and cannot be moved. That was an important statement in the agreement, cannot be moved without party A's written permission. Q And if you turn to the third page of that document, sir.

Looking at paragraph 8B this time. A Q Paragraph which? 8B?

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Joseph Roy Christian - 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 Q D? B as in boy. Okay. Did Mr. Harte tell you why the agreement or the Cooperative

Private Placement Agreement was to be kept confidential and not shared? A He did not, except as I understand it, this is a Private

Placement Agreement, and there are rules of non-disclosure that are always associated with, as I understand it, with most private placements. Q And look at page 5, if you would, please, sir. Do you have

in front of you a document on Reserve Foundation Trust letterhead? A Q A Q Yes. And does it show high-yield private placement? Right. Looking at the yields represented in that document at the

top of the page? A Q That is consistent with what I remembered. Okay. And would you take a look at the section that's

entitled security? A Q A All right. Do you see the first sentence there? The initial principal is one hundred percent bonded by

St. Paul's, Safeco, RLI, or other acceptable surety carrier.

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Q A

Joseph Roy Christian - Direct And was that consistent with what Mr. Harte had told you? It is. And I believe he mentioned verbally in more of the

conversations a Lloyd's of London U.S. Q Okay. Now, look at the last sentence in that paragraph

that's marked security. A Q A Q That is a key sentence; the funds cannot leave the bank. And that was your understanding from Mr. Harte? Yes, sir. Now, with respect to those five parties that you have

identified as people that you passed this information to, did you become aware that they had become investors? A I did. Because they -- as they entered the program, they Our relationship was pretty good. Even

kept me apprised.

though I didn't know Mr. Cunningham when he started considering the program, he and I became very friendly, and he kept me posted, as did Richard Smith in Chicago. Q Now, did you continue to perform services with respect to

their investments? A Q A For them, you mean? Yes. No, sir. My role had ended when I told them about the

program as they had requested. Q During the course of your discussions with Mr. Harte, did he

indicate to you whether in fact you might receive commissions for bringing people into the investment?

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A Q A Q A

Joseph Roy Christian - Direct Yes, he did. At what point did he do that? Pardon me? At what point did he do that? It was to be 20 percent of what the client received but not

deducted from the client's product. Q A When did he tell you that? That was probably -- I am sure it was before the

November 15th date, and it was probably before they had invested their funds. I am not sure that that's the case. I don't

remember that they -- I know that he just mentioned that there was provision for third parties, introducers, because I was very careful to tell him that I did not want to be paid by the investors, nor anyone I was responsible for paying. Q A Q A And tell us again how that commission was computed. How it was computed? Yes. Based on 20 percent of what the net earnings each month to

the client amounted to. Q Now, how were distributions of those earnings made to the

people that you had notified about the program? A Q A Those earnings were made directly to those parties. And then how did you collect your commission? He wire transferred me each month a -- no, he sent me a

check each month that I deposited in a North Dallas Bank and

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Joseph Roy Christian - Direct Trust Company in my account. Q A Q A Q A Did that check represent just your commissions? No, the total. The total of what? A hundred percent. Okay. He represented that he only wanted to pay one person, and

that I was to divide it up among the other introducers. Q A And how many other introducers were there? Oh, goodness. With each client there were different

parties, and it was probably -- I don't recall the count, but probably around ten to twelve. vicinity. Q And if I may ask you to take a look in your book there at I am guessing. But in that

Exhibit No. 71. A Q A Q A Okay. Do you recognize that document, Mr. Christian? I do. What is it? This is a summary of the monthly payments as I received them Now,

and the summary to each beneficiary of their amounts. together -Q Let me ask you a question a second.

When you say each

beneficiary, would that be the same as an introducer? A Yes.

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Q A Q A

Okay.

Joseph Roy Christian - Direct And why did you prepare this document?

Pardon me? Why did you prepare this document? Each month as I received that payment, I had to find out

from each client what they had received because the payment to each individual -- I received a lump sum for the total amount, regardless of whether it was one client or all four clients. I had no knowledge of how that was to be broken up. So

So I asked

each one to let me know what they received each month and what they left in; what they earned and what they left in. they had the option to leave funds in there. Because

But these

calculations were based on what they had earned that month. Q A Q Okay. So each one of them provided me with the numbers. And that was to compute the gross commission to be divided

between you and the introducers? A And as an engineer, and having learned not too long before

to use a computer and how to write the formula in a computer, it was easier for me to have done it on the hand calculator, to set up to hold the computer so that each month as I would get from each client their respective amounts earned, I would punch that number in, and it would run to each party their percentage, and that table is not here, but that's the one behind this. a summary of those numbers. Q Okay. And so, for instance, how much were you making per This is

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Joseph Roy Christian - Direct month in commissions from those -- you yourself -- from the people that you had introduced? A Q A How much did I earn? Um-hm. It was different for each client so I can't tell you from

this except in calculating mentally from the total of what my share was. Q A Do you want that number?

Yes, please. All right. Over the four months, the total commissions were

$310,521, and my part of that was $95,369. MR. ANGELO: Your Honor, at this time we move for

admission of Government's Exhibit No. 71. THE COURT: defendants? Hearing none, Government's Exhibit 71 for identification admitted in evidence, with leave to publish. MR. ANGELO: publish at this time. BY MR. ANGELO: Q Mr. Christian, after those persons that you had introduced Thank you, your Honor. We would like to Any objection by any one or more of the

to the program invested, did you in fact monitor the fact that they were being paid or not? A Q Did I in fact what -That was a bad question. I am sorry. Did you continue to

monitor whether in fact they were receiving payments?

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A

Yes.

Joseph Roy Christian - Direct I talked to each one of them. I kept in constant

contact with them because as they had questions, Mr. Harte had told me and told them that he didn't want to talk to fifteen people each week. He wanted to talk to one. And I was

appointed that person that would be the communicator back to the clients of anything that might develop along the way that might delay a payment or what have you. So I was in close to all of these because, as I say, we had become fairly -- well, in fact we still are, we stay in communication, except for Mr. Cunningham. Q At some point during your association with the Reserve

Foundation Trust and Mr. Harte, did he talk about another person by the name of Peter Moss? A I learned of Peter Moss in -- I think it was January of

2000. Q A And from whom? From Leon Harte. He was in New York and had called me from

New York to tell me he was there, would be there for a while because he was working to get the funds in to trade, and Peter Moss was the link to the trading. Q A And what did you understand the link to the trade to mean? He knew the sources of the instruments, and apparently had

the sources of the end buyers or exit buyers or the people who were doing the larger programs that they could -- let me use a term piggyback -- piggyback those funds on there.

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Joseph Roy Christian - Direct If they were not sufficient to stand alone to enter a program, and usually my understanding at that time was at least ten million dollars collectively, then they could find something to pay you back on that was in that amount. Q Now, over the course of the conversations that you have had

with Mr. Harte about Mr. Moss, did he ever discuss how small or large a role Mr. Moss was playing in the program? A The only thing he said was that Peter Moss wanted a stronger

voice in the program because what his role was critical to the program getting done, and apparently -- and I don't know, you know, I have to make judgments based on what I was told, but apparently there was some discussion between them of adjusting their roles or their participation, their management, say, in what was being done with the trust. Q And during these conversations, did Mr. Harte discuss with

you purchasing real property in New York? A Yes, he did. He made mention that he was going to buy a top

floor, a penthouse in a condominium project or something like that so that he could have a place to reside and use as a business office while he was in New York. Q Now, at some point did you learn that payments to the people

that you had introduced to the program had ceased? A Q That payments what? That payments had been stopped to your -- the people that

you had introduced?

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A Q A Q A

Joseph Roy Christian - Direct That the payments had been stopped? Yes. Yes. When did you learn that? That was after the May 8th payment of 2000. I wasn't

immediately told at that point. payment did not come.

We learned later when the next

And as best I recall, that's not exactly

clear as to exactly when I learned, but what we were told was -Q A And who told you that, first? Leon Harte told me this. And Leon said that they were

having to -- that Mr. Moss was working to get the funds put into a program that was a 50 million dollar amount. I don't know how

much of those were the Reserve Foundation Trust funds, but it was a minimum of 50 million, and they were very close to having those funds placed in this new arrangement. They were having to

change banks before they could get started so there would be a delay. Q Now, where did you understand the payments or the source of

the funds to make payments to your clients came from? A Q From trading activity. I am going to ask you to take a look in the book now at

Government's Exhibit No. 73. A Q A Okay. Do you have that in front of you, sir? I recognize that as a page -- it's the first page of the

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Joseph Roy Christian - Direct nine pages that was sent to me. Q A Q From whom did you receive that, if you know? That was from Leon Harte. And did he tell you that this communication was coming to

you before you received it? A Q A Q A Did he tell me it was coming before I received it? Yes. Not that I recall. Okay. Now, when you read this document, what did you think?

Well, the partners I had in that program at that point were They were concerned but not too concerned.

not too concerned.

And they were not getting too nervous at that point in time. This seemed to make them feel that they wanted to wait. Because we were considering -- they were considering possibility of requesting their funds back because the loss provision in that Corporate Private Placement Agreement that we looked at earlier, that upon 30 days' notice, anyone could request their funds back, they would be refunded within the 30-day period, together with one more month of payment. in the agreement. MR. ANGELO: Your Honor, at this time we would move to That was the provision

admit Government's Exhibit No. 73. THE COURT: defendants? MR. HAMMOND: Foundation. Any objection by any one or more of the

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Joseph Roy Christian - Direct THE COURT: What is lacking, Mr. Hammond? MR. HAMMOND: THE COURT: I am sorry?

What is lacking? A better identification of the document

MR. HAMMOND:

THE COURT:

Understood.

On that basis the objection is

respectfully overruled. And Government's Exhibit 73 for identification is now admitted in evidence, with leave to publish. MR. ANGELO: Thank you, your Honor. And we do ask that

it be published at this time. BY MR. ANGELO: Q If you can look on your screen, Mr. Christian, or the book,

whichever works best for you, I want to take a look at the second paragraph of Exhibit No. 73. read that silently to yourself? A Q Yes. Did you have any discussions with Mr. Harte about the fact Would you take a minute and

that the pure size of the current trust was the reason for the problem? A Q No, sir, I did not. Looking at the third paragraph, if you would, please,

briefly, to yourself. A Q Okay. Is that last sentence concerning requests for return of

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Joseph Roy Christian - Direct funds by investors consistent with your understanding of what the contracts provided? A Yes. I do recall that was a provision of this new

arrangement. Q A Q And looking at the -Pardon? Would you look at the fifth paragraph down, please, and read

that to yourself. A Q Okay. Did Mr. Harte ever discuss with you the employment of

bankers, lawyers, trustees, insurance companies, in renewing this program? A Q I do not recall those discussions. Now, following the receipt of Government's Exhibit 73, were

you aware that any of your clients did request the return of their funds? A They did not, because I specifically -- we discussed this They had their questions of me, and I

with each one of them.

said, it's your decision, we don't -- you can either stay for the ride or you can go ahead and send your notice and opt out. It's your call. Q And did you continue to receive commissions after this

letter? A Q No, sir. And do you know if your clients continued to receive

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Joseph Roy Christian - Direct disbursements or not from their investment? A No, sir, they did not. The last disbursement -- I did not

receive a commission unless the client received payment, and the last one of those happened May 8th for the April payment. Q Now, did you communicate with either Mr. Harte or Mr. Moss

concerning the cessation of those payments? A I never talked to Mr. Moss. I only heard of him through

Mr. Harte. Q A Okay. And we tried on occasion. He was difficult to reach, hence

the reference to communications being difficult and strained. They were strained. him at times. Q A Q A When you say "him", who are you referring to? Referring to Mr. Harte. Okay. And we -- I would call or investors would call, certain ones Because we were having difficulty reaching

of them, Mr. Schmidt, because we couldn't reach Mr. Harte on the phone. Q A How did you know about Mr. Schmidt at that point? Because he was with Mr. Harte when we went to Kansas City

earlier, and Mr. Harte had mentioned that Norm was assisting him in the Reserve Foundation Trust. that time. Q Okay. So were you able to reach Mr. Harte at some point, I did not know his capacity at

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Joseph Roy Christian - Direct you yourself? A Not -- I don't remember the date that he became hard to But I do recall he sent me once a change of phone

reach.

numbers from Fort Collins to a place near Grand Junction, that was out of Grand Junction, I believe. residence. Q Did you discuss the fact that the payments had stopped with When he had changed

him at some point? A Q A Oh, yes. Tell us about that, sir. Oh, yes. He told me they were working on it, just be

patient, they would have to resolve, and that Peter Moss was working to get things worked out. particular word in this exhibit? Q A Certainly. The spelling of the word "rumor", R-U-M-O-U-R, I don't think I suspect this was And may I point out one

Mr. Harte would spell "rumor" that way.

drafted by someone else and sent by the foundation. Q Okay. Now, how many times different conversations did you

have with Mr. Harte about the fact that payments had stopped? A Until his patience wore thin and he would not take my calls Now, he did take them later on. Did you also try to contact

for a while. Q

Let's back up a little bit.

Mr. Schmidt directly yourself? A I was unable to contact Mr. Schmidt after -- I believe it

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was May.

Joseph Roy Christian - Direct He changed his phone number, and I was not privy to I did not know how to reach him.

the new number. Q

Did you talk to him in May, however, before his number was

changed? A Oh, yes. I talked to him when I couldn't reach Mr. Harte.

Mr. Schmidt was not the detail man. Q A Tell us what he told you in those telephone conversations. Well, he generally deferred to Mr. Harte. The basics of the

conversations were more or less generic in nature, that Leon was working on it, that they expected to get it done, but he did not know specifically the dates or the progress or the steps that were being taken, who they were talking to, those kinds of things. That was generally the gist. I can't recall a specific

conversation. Q Were you reassured by your conversations with either

Mr. Schmidt or Mr. Harte? A Yes. Yes. And so were certain of my investors. We were

comfortable. Q A Q Now, did in fact payments restart? No. And did those investors who had left their funds in get the

money back? A They did not get the principal back. As part of the earlier

exhibit we looked at, we didn't look at the second part of it, it was the tabulation of the clients' returns, and they put in

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Joseph Roy Christian - Direct $565,000 collectively, and received some 300 -- I am recalling round numbers, but I think it was some 360,000 over and above what they put in. None of the investors in the 1999 program

lost net dollars, but they didn't recover their principal. Now, I did advise them sometime around June, maybe -it was probably July, that they should go ahead and make demand for their funds back because by then I was losing confidence. Q Okay. Mr. Christian, it's been a long time, obviously. Do

you know if you would recognize Norman Schmidt or not? A Q I am not sure I would. Okay. I only saw him the one time.

Now, you testified in an earlier proceeding

approximately three years ago, did you not? A Q Did I what? Did you testify at an earlier proceeding about three years

ago? A Q Yes. Do you recall being granted testimonial immunity at that

time? A Q A Yes, I do. Are you testifying today with testimonial immunity or not? No, I am not. MR. ANGELO: Honor. Thank you. THE COURT: Thank you. We have nothing else at this time, your

Cross-examination of this witness on behalf of

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Joseph Roy Christian - Direct Mr. Smith, Mr. Stuckey. MR. STUCKEY: THE COURT: Thank you, your Honor.

You are welcome. May I ask, with the court's permission,

MR. STUCKEY:

Mr. Goodreid's assistance to bring the board over here like he had it? MR. GOODREID: THE COURT: May I, your Honor? Thank you.

You may.

CROSS-EXAMINATION BY MR. STUCKEY: Q A Q Can you see this, sir? Yes, I can. Mr. Christian, my name is Richard Stuckey. One of the

defense attorneys in this case.

And I first want to ask you

about pronunciation of some names. You referred to a gentleman that you didn't think you could recognize that you met in Kansas City, Mr. Norman Schmidt. And then several times I thought you were talking about him, and I thought I heard you say Smith. right? A Q You will have to put up with my Texas drawl. I am sorry. I just The man you knew is Schmidt,

Well, anybody could do it with a drawl or without.

want to clarify that. A Yes, sir. That's the correct spelling that I am familiar

with.

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Q

Joseph Roy Christian - Cross That's the man you met in Kansas City, and that you were

talking about during your testimony, right? A Q That's correct. Now, I represent in this case, along with Mr. O'Donnell, a

man named Smith. A Q That name I am not familiar with. His first name is Michael Smith, and I will ask him to You don't even know this gentleman, do you?

stand. A Q

I don't recall ever meeting him. Thank you. It's been a simple matter but I thought I ought

to clear that up since a couple of times I thought I heard you say Smith, and whether it was your drawl or not, no problem. A I might have said it. Sir, I will be 80 years old in

two-and-a-half months, and it's hard to work with the almost -if I take these hearing aids out, I can't hear the telephone ring. Q So I have some problems.

Sometimes that could be a real blessing. And speaking of Smith, you did refer to Richard Smith.

You said he is a retired tax attorney? A Q A That's correct. How did you know him? I was introduced to him by Rudolph Milano, an accountant in

Chicago. Q A Around '95? In 2000.

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Q

Okay.

Joseph Roy Christian - Cross Did they give you or did you inquire into Mr. Richard

Smith's background? A No, sir, I did not. I was subsequently told by someone that

he was a tax attorney in his professional career. Q A Q A Q Did they tell you anything else about his history? Not that I am aware of. And you did not inquire? Pardon? You did not inquire or make a due diligent inquiry regarding

his background; is that correct? A Q No, sir, I did not. As a matter of fact, in terms of that due diligence

business, you said that you always told your clients to do their own due diligence. And you could only tell them what had been

told to you; is that correct? A Q That is correct. That does make sense, right? You want them to be satisfied

and content or have a high comfort level if they are going to make this investment, right? A That is up to them. I am not a licensed securities broker.

I know my limits, and I stay within those bounds. Q Very good, sir. But you did tell them in terms of what had

been told you, that their funds, their principal, their main first investment, or additional investments if they added to it, would stay or remain in this commingled account, correct?

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A Q

Joseph Roy Christian - Cross That's what the document's representing. And we can leave out the commingled part. That just means

everybody's funds went into the same bank account? A Q A Q A That's correct. Did they tell you what bank? The same bank account in the same bank, as I understood it. Did they tell you what bank or did you know? The initial bank I was told -- I believe it was US Bank in

Denver. Q All right, sir. You said in your direct testimony, that you

understood, though, there would be -- I don't know if you said LOC or line of credit on that money, right? A Q That was my understanding. Even though, as you testified -- not even though -- but you

also testified, of course, that would be necessary because the funds couldn't be taken out by Mr. Harte or anybody else? A Q That's based on the documents, yes, sir. What did you think the bank's position was regarding this

line of credit or -- the line of credit just means a loan, right? A Q Yes, sir. The bank is going to loan them money if they need it to make

these trades, right? A Q Pardon? The bank is going to loan them money if they need it to make

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Joseph Roy Christian - Cross these trades? A Q That's correct. So what did you think the bank's position was regarding the They couldn't

funds in this account that couldn't be taken out?

use those funds as security for the line of credit, right? A I have no idea what relationship Mr. Harte had as a customer

of the bank or anybody else associated with him. Q Excuse me. You didn't think that -- and they didn't tell

you that -- I don't know, maybe they did -- but let me ask you. Did they tell you that they had an unsecured line of credit with this bank where the money was going to be, and that they could borrow on this line of credit without any collateral? A All I can accept was what the representations were in the

documents that they negotiated. Q All right. What did you think, though? Did it ever occur

to you, that, my goodness, the funds of the investors that go in the commingled account must be collateral, and if these trades go sour, they are sure going to be moving out of the account because the bank is going to draw down on them to pay off the loan, right? A I did not know what other means Mr. Harte had or what

relationship he had, what assets he had, that would allow him to draw the line of credit in the manner that he represented he could do it. Q Did any of your clients ever ask you, well, how can that be?

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A Q

Joseph Roy Christian - Cross No, sir. They were just satisfied with this high rate of return,

right? A Q Yes, sir, they were. And in that regard, you said that you told Mr. Harte you

didn't want to get any commissions from the clients' monies or the investors' monies, correct? A He told me up front about the provision for the

intermediaries, and I said, great, because I did not want to negotiate with the clients any fees. Q Well, you said you are not a broker and you are not selling

securities, and so you wanted your money from who, Harte? A Q A Q I didn't ask for it. Fair enough. He volunteered it up front.

Twenty percent?

Out of what the investor was paid. Of the return. Not 20 percent in any way, shape, or form or

any percent of what the investor invested, correct? A Q No, sir, that's correct. Well, then I guess you said at one time 20 percent of the But those are the clients' net

net earnings each month. earnings, right? A Q The clients' what?

Those were the clients' or the investors' net earnings,

right? A That's correct.

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Q A

Joseph Roy Christian - Cross So the 20 percent came out of that? No, sir. Not to my knowledge. He took that out of his

share. Q

Out of the trust share. And that being -- he was capable of that because you

Okay.

thought that all this big trading activity, and it made a fortune whatever each month, enough for the client to get 20 percent return -- I am sorry -- enough for the client to get whatever return they were getting, and then for you to get 20 percent of that, all out of the profits from the trades? A Q A Yes, sir. Okay. What was the return for the investors? Did it vary?

The return for the investors was 50 percent, except that

Mr. Cunningham left part of his funds in to compound, and on the fourth one he had accumulated -- I believe it was $550,000, so he tripped the 75 percent payment for that one month. Q A Q A Q A Q I think you said that. Yes, sir. Well, I bet they were happy, right? Pardon? I bet they were happy, right? Yes, sir. They were very happy. Ten or twelve of these Fifty percent a month?

Would you say ten or twelve of them?

investors? A No, sir. Four. The only ones I was familiar with were

four.

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Q

Joseph Roy Christian - Cross The four that were shown on the sheet.

And that those four

and their investments you made about -A Ten or twelve with the beneficiaries of what I was

responsible for as payments for the introducers. Q A The four being the introducers? The four people we were introduced to. Some of these would

introduce me -- had introduced me over the years to someone else who had introduced me to someone else. next to the crime in those cases. Q In any event, you made about $95,000 in a fairly short That person was the one

period of time off that, right? A Q A Q Yes, sir. That's what the exhibit shows? Yes, sir. And the prosecutor asked you how much did you make, and you It's true that you felt that

responded, how much did I earn?

these were legitimate earnings for your work and effort on terms of bringing people into this lucrative investment, right? A Q A Q A Q Yes, sir. And you declared it on your taxes as earnings, right? What, sir? You declared it on your taxes as earnings? Oh, yes, sir. Very good. And you understood, of course, throughout this

whole thing, that the source of all these funds came from the

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Joseph Roy Christian - Cross trading activity? A Q Yes, sir. And they came from the trading activity to Mr. Harte and his

organization? A Q A Q A Q Yes, sir. And then one check came to you? That's correct. And then as pay master, you had to split that up? Right. To the people. And you kept your records and knew what to

do, and you showed us through that exhibit how you did handle that. What was this business about testifying earlier and having testimonial immunity? A Do you know what that meant?

The only thing I can relate that to possibly is from I got a call from an FBI agent I asked the question And I didn't

watching too much television.

saying that they have a subpoena for me.

of the lady in Dallas, I said, am I in trouble?

even know what it related to at that point, and she said, oh, no, you are not in trouble. As I recall the conversation. But

anyway she was making an appointment to deliver that subpoena because she apparently had tried to deliver it to the house and I was not there. So that was the subpoena to appear before the grand jury.

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Q A Q

Joseph Roy Christian - Cross Here in Denver? Yes, sir. And when you appeared, that's when you were given a, what?

Letter that indicated you would not be prosecuted? A For the testimony I gave. It was limited immunity. Based

on the testimony I would be giving or the questions I would be asked and my responses to them in the meeting, unless it was found that I had answered untruthfully. Q If you said something untruthful, you would be in trouble.

But it also said -- I think you described this -- that nothing that you said during that testimony would ever be used against you in any criminal proceeding against you, right? A Q As long as I told the truth when I gave it, yes, sir. But it didn't say you couldn't be prosecuted for your

involvement with the Reserve Foundation Trust, did it? A Q A Q Not to my knowledge, it did not say that. And you are thankful that you were not prosecuted, correct? That's correct. One last question, sir. Mr. Christian, you discussed -- you

said -- I don't know -- probably if you could have, every hour -- I am sorry -- probably every hour you wanted to be on the phone with Mr. Harte when these payments weren't coming, and you were insistent and trying to know what's going on and you asked him what the problem was, correct? A I did, but it was not that often. It was every couple of

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Joseph Roy Christian - Cross 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 days. Q All right. You said you also talked to your people or your

investors, and told them what had been told to you, just be patient, right? A No. I didn't tell them to be patient. I told them what he

said. Q That's right. You did. And you also advised them at some My You

point to go ahead and demand their funds back, right?

question is, did you say to Mr. Harte, how can this be?

have all this trading activity, we were getting 50 percent return a month, you make these trades with these bank instruments, these medium-term notes, these bank debentures, whatever, you are making this fortune, you were, for us, how can it all of a sudden have stopped? A His answer to that question was that they were piggybacking

a $10 million transaction and the underlying program ran its course, and so they had to look for another program. Hence, the

$50 million program that they referred to subsequently that they were going to tack onto. Q A Q A Q A Did that make any sense to you at all? Yes, sir, because I have heard of that before. Heard of it how? Sir? How have you heard about that before? I knew an attorney in Oklahoma City, Oklahoma. I was

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Joseph Roy Christian - Cross introduced to him in the '80s. That actually made money in a $10 million program. Q He made enough money that he retired. It

Well, in any event -- I guess this is my last question.

never occurred to you that the delay in payments was because they had run out of investor money from which they were making the payments, and that the trades were never occurring? came across your mind, right? A At that point, it did not. But I did make recommendations Never

to my clients that they send their demand letters for the return of the money and those recommendations were ignored by the clients. I also made the recommendations to two of my clients, the second month. I told them they had the option of leaving

the funds in and letting them roll and compound, and I also told them that it was my suggestion that they take out enough funds to make sure that their principal was back in their hands. Because I did not know anything about what they were doing or when this might stop, but I wanted -- it made me nervous by leaving their money in, so they did. and Frank Campbell. This was Mr. Cunningham

And even though I would make more money if

they left it in because my 20 percent would go up, I was concerned about their money, and I wanted to see them make themselves secure as early as they could. So that's why I recommended. They ignored me on the

request for the money back until it was too late.

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Q

Joseph Roy Christian - Cross Very good, sir, on your part, but still again, you didn't

make that advice based on some thought that you had that maybe this was a so-called Ponzi scheme? A I had no knowledge or no idea at that time that it was. MR. STUCKEY: Thank you, sir.

Thank you, your Honor. THE COURT: You are welcome.

Cross-examination for Mr. Lewis, Mr. Gainor. CROSS-EXAMINATION BY MR. GAINOR: Q A Q A Q Mr. Christian, good morning. Good morning. Can you hear me okay? Yes, I can. All right. I am just going to ask you a couple of

questions.

I understand that you have a Bachelor of Science in

petroleum engineering? A Q A Q A Q A Q Right. Any other degrees subsequent to that? Yes. Louisiana State University.

What was that degree in? Petroleum engineering, Bachelor of Science. Any other degrees after the BS? No. Okay. Now, I understand, and you have put on as a matter of

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Joseph Roy Christian - Cross record that you are not a licensed security broker/dealer, correct? A Q A No. I was licensed at one time. When I was with the bank.

As a trust officer? As a trust officer, and having to be on the trust investment So I

committee, the bank required us to have security licenses.

did have to qualify and become a licensed security broker, but I did not have a license later. Q Okay. Now, what