Free Transcript - District Court of Colorado - Colorado

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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 IV _______________________________________________________________ Proceedings before the HONORABLE ROBERT E. BLACKBURN, Judge, United States District Court for the District of Colorado, commencing at 2:10 p.m., on the 4th 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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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 liking. THE JUROR: THE COURT:

P R O C E E D I N G S (Lunch recess at 11:30 a.m., until 1:05 p.m.) THE COURT: Please be seated. Very well. afternoon. THE JURY: THE COURT: Good afternoon. I hope you find your accommodations to your Ladies and gentlemen of the jury, good Good afternoon, ladies and gentlemen.

Very nice.

Thank you.

You have already been provided with If for some reason you don't have a pad

note-taking materials.

and pencil and/or pen, please let us know and we will make those provisions available to you, and of course, as you can readily discern, since you have note-taking materials you may take notes at all times during the course of there trial. Please write your name on your own note-taking materials, however, so that you can quickly distinguish your notes from those of your colleagues. Now, importantly, your note-taking materials may only be used by you here in the courtroom, in the jury box. the conduct of these formal trial proceedings. They may be taken by you between the jury room and the courtroom, but no other place. don't go home with you. So at the end of the day, they During

Over the noon hour they don't go to the

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restaurant or on a walk with you. deliberation suite.

They stay behind in the jury

Now be assured your notes, if any, will be destroyed by the court without having been read at the conclusion of the trial. If you take notes, please don't let your note-taking detract from your close attention to that which is ongoing and transpiring in the courtroom otherwise. you to take notes sparingly. of the evidence. In fact, I would exhort

Please don't try to summarize all

In my experience, notes can be particularly

helpful in recording and recalling such things as dates, times, places, measurements, identities, and relationships. And whether or not you take notes, please try to rely on your own memory as much as possible, and thus not on your notes or the notes of other jurors. In fact, any notes you take

are for the specific and limited purposes of reviving or refreshing your own memory and recollection. Now, as you can see, we have reconfigured the courtroom somewhat, and you are never, including now, not to be concerned about the seating arrangement of any of the parties in the courtroom. That's my doing. Exclusively. One hundred percent.

And therefore you should not be prejudiced against any party based on the place or position in the courtroom. Now, at this time I am going to read the indictment to you. Again, the indictment is the title under our system given

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to the written charging document that states and contains the charges and allegations against the defendants, these men on trial. And again, I inform you and instruct you that neither

the indictment nor the charges or allegations that are in constitute evidence of anything in this case. In Count 1, it is charged as follows: Beginning in or

about April 1999, and continuing thereafter until in or about October 2004, in the State and District of Colorado, and elsewhere, the defendants, Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Jannice McLain Schmidt, Michael Smith and George Beros, combined, conspired, confederated, and agreed together, and with others known and unknown to the grand jury, to commit mail fraud, in violation of Title 18 United States Code, Section 1341, wire fraud in violation of Title 18 United States Code, Section 1343, and securities fraud in violation of Title 15 United States Code, Sections 77(q)(A)(1) and 77(x). Manner and means of the conspiracy. Two. The

defendants made and caused to be made false statements and representations about the nature of a fraudulent high-yield investment program, and the high returns associated with it, including but not limited to the following: A, the defendants

falsely promised to use current and prospective investors' money to trade medium-term notes, bank debentures, and government instruments through mechanisms frequently referred to as

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high-yield investment programs.

The defendants also falsely

promised, suggested, or caused to be promised or suggested rates of return ranging from two percent to 400 percent per month. And B, the defendants sent and caused to be sent to investors monthly statements which falsely reflected the growth of and earnings on their invested funds. These monthly

statements reassured investors of the program's success and encouraged them to make additional investments and defer disbursements from their accounts for the supposed purpose of compounding earnings. Three, the defendants made and caused to be made false statements and representations about the lack of risk involved with investing money in the fraudulent high-yield investment programs, including but not limited to the following. A, the defendants falsely represented, or caused to be represented, to current and prospective investors, that their investments were safe because investment funds were deposited in a non-depleting account or trust account and could not be moved. And B, the defendants falsely represented or caused to be represented to current and prospective investors that their investments were insured from loss by various insurance companies or programs, including St. Paul Insurance, Lloyd's of London and Securities Investors Protectors Corporation or SIPC. The defendants provided, and caused to be provided, to current and prospective investors copies of insurance

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certificates, policies, and bonds. The defendants falsely represented that such documents or programs insured the safety of the investments and granted current and prospective investors' rights in the insurance policies and bonds. Four, the defendants used a variety of tactics to lend an appearance of legitimacy to the fraudulent high-yield investment program, including but not limited to, the following. A, the defendants obtained, created, used, and distributed, or caused to be distributed, to current and prospective investors, documents containing legal terms, including but not limited to Cooperative Private Placement Agreements, high-yield private placements, medium-term note private placements and private contract agreements. B, the defendants used various entities through which the fraudulent high-yield investment program was offered, including the Reserve Foundation Trust, Reserve Foundation, LLC, Smitty's Investments, LLC, Capital Holdings, LLC, Capital Holdings International, LLC, Monarch Capital Holdings LLC, FastTrack, LLC, Rocky Mountain Sports Promotions LLC, and High Track Team, LLC. C, the defendants distributed, and caused to be distributed, to current and prospective investors promotional materials, treatises, and other apparently authoritative publications.

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D, the defendants made and caused to be made communications to current and prospective investors that contained false, fraudulent, and misleading statements of fact, including but not limited to the following. I, that Norman Schmidt had a special relationship with the Federal Reserve which permitted him access to and allowed him to successfully trade financial instruments. II, that Norman Schmidt and George Beros had a history of successfully trading in financial instruments and were currently engaged in such trading. And III, that George Alan Weed was an authorized representative for St. Paul Insurance and administered insurance coverage for Superior Guaranty Insurance of Vermont and Lloyd's of London. And 5, the defendants used investor funds for purposes other than those represented to current and prospective investors, including but not limited to the following: payments to the defendants; B, personal expenses of the defendants; C, acquisition of unrelated businesses and assets; D, payments to other investors, and E, payments of monthly commissions or overrides to members of a network of individuals, acquaintances, and insurance agents recruited by the defendants to obtain new investors in the fraudulent high-yield investment program. Overt acts in furtherance of the conspiracy. A,

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Six, in furtherance of the conspiracy, the defendants and other coconspirators committed overt acts including but not limited to the following. A, on or about September 10, 1999, George Alan Weed sent an application for a commercial crime policy to St. Paul Fire & Marine Insurance Company. B, on or about February 14th, 2000, Norman Schmidt executed a check in the amount of $50,000 payable to investor Orvalee Farris on the closed account of the Reserve Foundation Trust at New Frontier Bank of Greeley, Colorado. C, on or about April 1, 2000, Norman Schmidt and an unindicted coconspirator executed a contract in the name of the Reserve Foundation Trust to purchase America West Plastics and its associated real estate for $1,650,000. D, on or about May 16, 2000, Norman Schmidt and an unindicted coconspirator, purchased real estate in Pitkin County, Colorado, known as the Redstone Castle properties, in the names of Peaceful Options, LLC, Tranquil Options, LLC, and Serenity Options, LLC using $6,500,000 in funds obtained from investors in the fraudulent high-yield investment program. E, on or about July 25, 2002, an unindicted coconspirator executed a lease for office space in Denver, Colorado, under the name of Northwest Group, LLC, which was used for operating the fraudulent high-yield investment program. And F, on or about February 5, 2003, Norman Schmidt

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transferred $2,500,000 from the Capital Holdings, LLC account at Wells Fargo Bank to the Monarch Capital Holdings, LLC account at Bank One, controlled by him and George Beros. of Title 18 United States Code, Section 371. Counts 2 through 9. 1341 and 2. Selling. Mail fraud. 18 U.S.C. Sections All in violation

At various times beginning in or about

April 1999 and continuing thereafter until in or on about October of 2004, in the State and District of Colorado and elsewhere, Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros devised, intended to devise, and participated in a scheme to defraud and to obtain money and property by means of materially false and fraudulent pretenses, representations and promises, all designed to induce current and prospective investors to invest in the fraudulent high-yield investment program they promoted and they aided, abetted, counseled, commanded, induced, procured, and caused the commission of acts in furtherance of the scheme. Eight, it was a part of the scheme for the defendants Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to make and cause others to make false statements and representations about the nature of the fraudulent high-yield investment program and the high returns associated with it as alleged in paragraph 2 above, which is realleged and incorporated herein to encourage investments in the fraudulent high-yield investment program.

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Nine, it was a further part of the scheme for the defendants, Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to make and cause to be made false statements and representations about the lack of risk involved with investing money in the fraudulent high-yield investment program as alleged in paragraph 3 above, which is realleged and incorporated herein. Ten, it was a further part of the scheme for the defendants Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to use a variety of tactics to lend an appearance of legitimacy to the fraudulent high-yield investment program as alleged in paragraph 4 above, which is realleged and incorporated herein. Eleven. It was a further part of the scheme for the

defendants, Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to use investor funds for purposes other than those represented to current and prospective investors, as alleged in paragraph 5 above, which is realleged and incorporated herein. Twelve. On or about the dates specified below for each

count in the State and District of Colorado and elsewhere, the defendants named in each count, for the purpose of executing the seem described in paragraphs 7 through 11 above, and attempting to do so, knowingly caused the matter described below for each count to be delivered by the mail and private and commercial

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interstate carrier according to the direction thereon. Count 2. Date, February 1, 2000. Mail matter. Defendants Norman Letter

Schmidt, George Alan Weed.

U.S. mail.

from Reserve Foundation Trust to Gordon Hulbert. Count 3. Date January 3, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, and Charles Lewis. Mail matter. U.S. mail. Investment packet from Smitty's

Investments, LLC to Warren Peterson. Count 4. Date February 3, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss and Charles Lewis, mail matter. Federal Express letter from Norman Schmidt to

Thomas Sindelar, S-I-N-D-E-L-A-R. Count 5. Date August 24, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros. Mail matter. U.S. mail.

Letter from George Alan Weed to Greg Hector. Count 6. Date, September 24, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros. Mail matter. U.S. mail letter

from Norman Schmidt to Wendy Delaney. Count 7. Date, April 3, 2004. Norman Schmidt, George

Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros, mail matter. U.S. mail. Four money orders from Jannice

McLain Schmidt to Cliff Seigneur. Count 8. May 8, 2004. Defendants Norman Schmidt,

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George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Mail matter. U.S. mail. Monthly statement from

Jannice McLain Schmidt to Carol Hall. Count No. 9. Date, May 8, 2004. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Mail matter. U.S. mail. Monthly All in

statement from Jannice McLain Schmidt to Darren McGee.

violation of Title 18 United States Code, Sections 1341 and 2. Counts 10 through 17, wire fraud. 1343 and 2. Paragraph 13. Paragraphs 2 through 5 and 7 through 11 18 U.S.C. Sections

are realleged and incorporated herein by reference. Fourteen. On or about the dates specified below for

each count in the State and District of Colorado and elsewhere, the defendants named in each count, for the purpose of executing the scheme described in paragraphs 7 through 11, transmitted and caused to be transmitted by means of wire communication in interstate and foreign commerce writings, signs, signals, pictures and sounds as described below for each count. Count 10. Date November 18, 1999. Defendants Norman

Schmidt, George Alan Weed, writings, signs, signals, pictures and sounds. Telephone conference call among Norman Schmidt,

Leon Harte, Boyd Brown and Kelly Schnorenberg. Count 11. Date, December 31, 1999. Defendants Norman Facsimile

Schmidt, George Alan Weed.

Alleged wire fraud.

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transmission of a Cooperative Private Placement Agreement to Orvalee Farris. Count 12. Date, February 17, 2000. Defendants Norman $100,000 wire

Schmidt, George Alan Weed.

Alleged wire fraud.

transfer from Gary Bell, agent for Develop Aldear account at Commercial Federal Bank to Reserve Foundation, LLC account at Bank One. Count 13. Date, April 7, 2000. Defendants Norman Alleged wire fraud.

Schmidt, George Alan Weed, Peter A.W. Moss.

$109,770 wire transfer from Gold Coast Enterprise account at Bank of Nevis to Reserve Foundation, LLC account at Bank One. Count 14. Date, May 12, 2000. Defendants Norman

Schmidt, George Alan Weed, A.W. Moss.

Alleged wire transfer.

$126,000 wire transfer from Gary Bell agent for Develop Aldear account at Commercial Federal Bank to Reserve Foundation, LLC account at Bank One. Count 15. Date, August 1, 2000. Defendants Norman Alleged wire

Schmidt, George Alan Weed, Peter A.W. Moss. transfer.

$50,000 wire transfer from Cynthia Lange account at

US Bank to Reserve Foundation, LLC account at Bank One. Count 16. Date, February 21, 2003. Defendants Norman

Schmidt, George Alan Weed, Charles Lewis, Peter A.W. Moss, Michael Smith, George Beros. Alleged wire fraud. $30,000 wire

transfer from Gregory Scott Hector account at Wells Fargo to FastTrack, LLC, d/b/a Capital Holdings International account at

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Key Bank. Count 17. Date, April 30, 2003. Defendants Norman

Schmidt, George Alan Weed, Charles Lewis, Peter A.W. Moss, Michael Smith, George Beros. Alleged wire fraud. $45,000 wire

transfer from Carol J. Hall account at Wells Fargo to Rocky Mountain Sports Promotions, LLC account at Commercial Federal Bank. All in violation of Title 18 United States Code, Sections

1343 and 2. Counts 18 through 29. Securities fraud. 15 U.S.C.

Sections 77(q)(A) and 77(x) and 18 U.S.C. Section 2. Paragraph 15. Paragraphs 2 through 5 and 7 through 11

are realleged and incorporated herein by reference. Sixteen. It was a further part of the scheme for the

defendants, Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to conceal from and omit to state to current and prospective investors material facts, including but not limited to the following. A, that Norman Schmidt had previously been convicted of a felony, mail fraud, in violation of Title 18 United States Code, Section 1341, and wire fraud in violation of Title 18 United States Code, Section 1343, in the United States District Court for the District of Wyoming. B, that Charles Lewis had previously been convicted of a felony, theft, in violation of Colorado revised statute 18-4-401, in the District Court for the 18th Judicial District

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of Colorado, and during times relevant to this indictment, was on probation for that offense. C, that between March of 2000 and March of 2002, the states of Illinois, Nebraska and Iowa had ordered some or all of the following defendants or entities to cease and desist the same and similar promotional investment activities as described in paragraphs 2 through 4 above, namely Norman Schmidt, George Alan Weed, the Reserve Foundation Trust, and Smitty's Investments. D, that investor funds were moved at the defendants' will from the banks in into which the investors were told their funds would be deposited and would remain. E, that investor funds were being used for purposes unrelated to the high-yield investment program. F, that many investors associated with the Reserve Foundation Trust and the Reserve Foundation, LLC were unable to recover their monies invested or their purported earnings. And G, that investor funds had not been used or traded in the manner represented to current and prospective investors. Seventeen, it was a further part of the scheme for the defendants Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith and George Beros to offer and sell and to aid, abet, counsel, command, induce, procure and cause the offer and sale of securities, including but not limited to the investment contracts previously described as Cooperative

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Private Placement Agreements, high-yield private placements, medium-term note private placements and private contract agreements. Eighteen. It was a further part of the scheme for the

defendants Norman Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, and George Beros to use and cause others to use the United States mails, commercial interstate carriers, interstate wire and communication facilities, the interstate banking system, and interstate transportation facilities in connection with the purchase and sale of the securities they offered. Nineteen. On or about the dates specified below for

each count, in the State and District of Colorado and elsewhere, the defendants named in each count, in the offer and sale of a security, willfully employed the scheme described in paragraphs 2 through 5, 7 through 11, and 16 through 18 above, by the use of the means and instrumentalities of interstate commerce and of the mails described in each count. Count 18. Date, April 4, 2002. Defendants, Norman Use of interstate

Schmidt, George Alan Weed, Peter A.W. Moss. commerce/mails.

$557,100 wire transfer from Gold Coast

Enterprises, Inc. account at Bank of Nevis to Reserve Foundation, LLC account at Bank One. Count 19. Date, November 13, 2000. Defendants Norman Use of interstate

Schmidt, George Alan Weed, Peter A.W. Moss.

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commerce/mails.

$10,000 deposit from Gary and Jacqueline

Rademacher, spelled R-A-D-E-M-A-C-H-E-R, account at Wells Fargo into Smitty's Investments, LLC account at Bank One. Count 20. Date, August 7, 2001. Defendants Norman Use

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis. of interstate commerce/mails. $20,000 deposit from Shirley

Lehr, L-E-H-R, account into Smitty's account at Wells Fargo. Count 21. Date, February 25, 2002. Defendants Norman Use

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis. of interstate commerce/mails.

$25,000 wire transfer from Linden

Lee Markham account to Smitty's account at Wells Fargo. Count 22. Date, May 9, 2002. Defendants Norman Use

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis. of interstate commerce/mails.

$50,000 deposit from Greg Hector

account at Wells Fargo to Smitty's account at Wells Fargo. Count 23. Date, September 18, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A. W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

$28,000 deposit from William and Brenda Dellapenna account at Bank of America into Capital Holdings, LLC account at Wells Fargo. Count 24. Date, October 7, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

$350,000 deposit from Main Street Mortgage of Colorado, LLC

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account at First Bank of Boulder into Capital Holdings, LLC account at Wells Fargo. Count 25. Date, October 21, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A. W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

$5,000 deposit from Lambros Gianos account at Bellco Credit Union into Capital Holdings, LLC account at Wells Fargo. Count 26. Date, October 21, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

$15,000 deposit from Carol and Clarence Hendrikson account at Farmers and Merchants Bank into Capital Holdings, LLC account at Wells Fargo. Count 27, date, November 4, 2002. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

$35,000 deposit from Carol and Clarence Hendrikson account at Farmers and Merchants Bank into Capital Holdings, LLC account at Wells Fargo. Count 28. Date, February 19, 2003. Defendants Norman

Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

Interstate travel by Norman Schmidt and Charles Lewis from Denver, Colorado to Chicago, Illinois. Count 29. Date, May 20, 2003. Defendants Norman

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Schmidt, George Alan Weed, Peter A.W. Moss, Charles Lewis, Michael Smith, George Beros. Use of interstate commerce/mails.

Deposit of $25,000 cashier's check from Cliff Seigneur into Rocky Mountain Sports Promotions, LLC account at Commercial Federal Bank. All in violation of Title 15 United States Code, Sections 77(q)(A)(1) and 77(x), and Title 18 United States Code, Section 2. Counts 30 through 31. Money laundering. 18 U.S.C.

Sections 1956(a)(1), (b)(1), and (2). Paragraph 20. Paragraphs 2 through 5 and 7 through 19

are realleged and incorporated herein by reference. Twenty-one. On or about the date specified below for

each count, in the State and District of Colorado and elsewhere, the defendants named in each count did conduct and aided, abetted, counseled, induced, procured, and caused another to conduct a financial transaction affecting interstate and foreign commerce as described in each count, which involved the proceeds of a specified unlawful activity, namely mail fraud, in violation of Title 18 United States Code, Section 1341, wire fraud in violation of Title 18 United States Code, Section 1343, and securities fraud in violation of Title 15 United States Code, Sections 77(q)(A)(1) and 77(x), knowing that the transaction was designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or

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the control of the proceeds of the specified unlawful activity, and while conducting such transaction, knew that the property involved in the financial transaction represented the proceeds of some form of unlawful activity. Count 30. Schmidt. Date, May 15, 2000. Defendant Norman

Financial transaction.

$2,164,737.03 wire transfer

from Reserve Foundation, LLC account at Bank One to Aspen Title Corp. escrow account at Wells Fargo Bank. Count 31. Peter A.W. Moss. May 16, 2000. Defendant Norman Schmidt, $3,500,000 wire

Financial transaction.

transfer from SunState FX, Inc. account at First Union of Florida to Aspen Title Corp. escrow account at Wells Fargo Bank. All in violation of Title 18 United States Code, Sections 1956(a)(1), (b)(1) and 2. Counts 32 through 45. Sections 1957 and 2. Paragraph 22. Paragraphs 2 through 5 and 7 through 19 Money laundering. 18 U.S.C.

are realleged and incorporated herein by reference. Twenty-three. On or about the date specified below for

each count in the State and District of Colorado and elsewhere, the defendants named in each count did knowingly engage and knowingly aided and abetted, counseled, induced, procured, and caused another to engage in the monetary transactions described below, by, through, and to a financial institution, affecting interstate and foreign commerce involving criminally-derived

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property of a value greater than $10,000 as described below for each count, such property having been derived from a specified unlawful activity, namely mail fraud, in violation of Title 18 United States Code, Section 1341, wire fraud, in violation of Title 18 United States Code, Section 1343, and securities fraud, in violation of Title 15, United States Code, Sections 77(q)(A)(1) and 77(x). Count 33. Strike that. 32. Date, March 23, 2000. $500,000 wire

Defendant Peter A.W. Moss.

Monetary transaction.

transfer from Reserve Foundation, LLC account at Bank One, to an American Place account at Citibank. Count 33. March 23, 2000. Defendant Norman Schmidt.

Clearing of check No. 1012 in the amount of $20,000 on Reserve Foundation, LLC account at Bank One payable to America West Packaging. Count 34. Date, April 14, 2000. Defendant Peter A.W.

Moss, monetary transaction, $6 million wire transfer from Reserve Foundation, LLC account at Bank One to SunState FX, Inc. account at First Union of Florida. Count 35. Date, June 18, 2002. Defendants Norman $24,273.75 wire

Schmidt, Michael Smith.

Monetary transaction.

transfer from Smitty's account at Wells Fargo Bank account to Asset Holdings account at US Bank. Count 36. Date, July 23, 2002. Defendants Norman Clearing of

Schmidt, Charles Lewis.

Monetary transaction.

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check No. 1412 in the amount of $20,000 on Smitty's account at Wells Fargo Bank, payable to Miloka, spelled M-I-L-O-K-A, Holdings. Count 37. Schmidt. Date, August 5, 2002. Defendant Norman

Monetary transaction.

Clearing of check No. 1428 in

the amount of $35,000 on Smitty's account at Wells Fargo Bank, payable to Team Walker Motor Sports. Count No. 38. Schmidt. Date, August 7, 2002. Defendant Norman

Monetary transaction.

Clearing of check No. 1460, in

the amount of $50,000 on Smitty's account at Wells Fargo Bank, payable to Jannice McLain. Count 39. Date, August 15, 2002. Defendants Norman $219,703.41 wire

Schmidt, Michael Smith.

Monetary transaction.

transfer from Capital Holdings, LLC account at Wells Fargo Bank to Northwest Group, LLC account at U S Bank. Count 40. Date, August 15, 2002. Defendants Norman

Schmidt, Charles Lewis.

Clearing of check No. 1031 in the

amount of $55,000 from Capital Holdings, LLC account at Wells Fargo Bank, payable to Charles Lewis. Count 41. Schmidt. Date, October 1, 2002. Defendant Norman

Monetary transaction.

$25,000 wire transfer from

Smitty's account at Wells Fargo Bank to Federal Recovery Group account at North Fork Bank. Count 42. Date, November 18, 2002. Defendants Norman Clearing of

Schmidt, George Alan Weed.

Monetary transaction.

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check No. 1621 in the amount of $130,000 on Smitty's account at Wells Fargo Bank, payable to Compliance Holding Company. Count 43. Date, December 12, 2002. Monetary transaction. Defendants Norman $7,500,000 wire

Schmidt, George Beros.

transfer from Capital Holdings, LLC account at Wells Fargo Bank to First Clearing Corp. account at First Union Bank. Count 44. Date, December 30, 2002. Monetary transaction. Defendants Norman Clearing of check

Schmidt, George Beros.

No. 1735, in the amount of $65,000 on Smitty's account at Wells Fargo Bank, payable to Concrete Building Systems. Count 45. Alan Weed. Date, February 24, 2003. Defendant George

Monetary transaction.

Clearing of check 1008 in the

amount of $92,632 and 60 cents on FastTrack, LLC account at Key Bank payable to Compliance Holding Company. Count 46. Schmidt. Date, May 2, 2003. Defendant Norman

Monetary transaction.

Withdrawal of $13,516.41 from

Rocky Mountain Sports Promotions, LLC account at Commercial Federal Bank. All in violation of Title 18 United States Code, Sections 1957 and 2. Again, ladies and gentlemen, you are instructed that neither the indictment nor the counts charged, nor the crimes charged, nor the other allegations contained in the indictment are evidence in this case of anything. Ladies and gentlemen, a separate crime is charged in

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each count of the indictment.

Each charge and the evidence

pertaining to it should be considered separately by you, the jury. The fact that you may find a defendant guilty or not guilty as to one of the counts should not control your verdict as to any other crime charged, or as to any other defendant. No

defendant is on trial for any acts or conduct not specifically charged in the indictment. Let me take this opportunity briefly to describe to you the procedural protocol step by step that we will follow henceforth during the course of this trial. First, the government and each of the defendants may make an opening statement. However, each of the defendants may

defer his opening statement until after the government has presented its evidence in its case-in-chief. You must draw no inference or conclusion from the order the defendants present opening statements, and you must not be prejudiced against any defendant from the order in which he presents his opening statement. That is my doing.

I instruct you that opening statements are not evidence. Their purpose is to help you understand what the

evidence will be from the unique perspective of the attorney for the party making the opening statement. Therefore, what the attorneys say to you or show to you during opening statements are not evidence, and may not be

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considered by you as such. Now, following opening statements, the evidence in the case will be presented. Evidence consists of the sworn

testimony of the witnesses, the exhibits received in evidence, and any fact that is admitted, stipulated, or judicially noticed. evidence. The mere number of witnesses appearing for or against a certain side, fact, issue or proposition does not in and of itself prove or disprove that side, fact, issue or proposition. There are two types of evidence from which you the jury may properly find the truth as to the facts of this case. is direct evidence, such as from an eyewitness or an ear witness. The other is circumstantial evidence, that is the One Again, the indictment and its allegations are not

proof of facts from which other facts may reasonably be inferred. The law makes no distinction between direct and circumstantial evidence. first. The government presents its evidence

Each defendant may cross-examine all witnesses and

evidence presented against him by the government. You must draw no inference or conclusion from the order in which the defendants conduct cross-examination. You must not

be prejudiced against any defendant from the order in which he conducts cross-examination, if any. Again, that is my doing.

After the government has presented its evidence, each

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defendant may present evidence in his own behalf, but he is not required, obliged or expected to do so. I remind you that each defendant is presumed to be innocent. The government must prove the guilt of the defendants A defendant does not have to prove

beyond a reasonable doubt.

his innocence or call any witnesses or introduce any evidence or examine or cross-examine any witnesses, although he certainly may do so. The government may cross-examine any witness called

by any of the defendants. If a defendant presents evidence, the government, if permitted by the court, may present rebuttal evidence. If any

defendant presents evidence, you must draw no inference or conclusion from the order the defendants present evidence. You

must not be prejudiced against any defendant from the order in which he presents his evidence, if any. doing. At the conclusion of the evidence, I will instruct you on the rules of law which you are to use in reaching your verdicts in this case. I will read those rules of law to you, Again, the order is my

and you will be allowed to take them in the form of jury instructions to the jury room during your solemn deliberations. After you have heard all the evidence and after I have instructed you on the law, the parties may make closing arguments, starting with the government, followed by each of the defendants, and concluding with the government by way of

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response or reply. Once again, you must draw no inference or conclusion from the order the defendants present closing arguments. You

must not be prejudiced against my defendant from the order in which he presents his closing argument. doing. You will then retire to the jury room to do your job, commence, and conclude your solemn deliberations. Your purpose as jurors is to eventually decide what the facts are in this case, and your decision must be based solely on the evidence. Again, I instruct you neither sympathy, bias, prejudice, nor public opinion should influence your participation or ultimately your decision as a juror or the jury in this case. Undoubtedly, you will have to decide what testimony and evidence to believe. You should carefully consider all of the Again, the order is my

testimony given and the circumstances under which each witness has testified. Consider each witness's knowledge, motive, state of mind, demeanor and manner while on the witness stand. Consider

the witness's means of knowledge, ability to observe, and strength of memory. Consider also any relationship each witness may have to either side of the case, the manner in which each witness might

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be affected by your verdicts, and the extent to which, if at all, each witness is either supported or contradicted by other evidence in this case. In summary, but importantly, you should consider all facts and circumstances shown by the evidence which affects the credibility of the witness's testimony. Then you may believe

all of the testimony of a witness or only part of it, or absolutely none of it. Now, as you may have gathered, it's my job to decide what rules of law apply during the trial of this case. You must

follow all of the rules of law as I instruct you, as I explain those rules to you. You may not follow some, and then ignore others. Even

if you disagree, or do not understand the reasons for those rules of law, nevertheless, consistent with your solemn oath, you must follow them as I instruct you. You will then apply those rules of law to the facts which you have determined from the evidence, and in this way, ladies and gentlemen, you will determine ultimately whether the government has proven the guilt of any of the defendants as to any crime charged as required by proof beyond a reasonable doubt. Now, testimony and exhibits may be admitted into evidence during a trial if the testimony or the exhibit satisfies certain legal criteria, standards, or rules. And it

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is the right of an attorney to object when testimony or other evidence is offered which the attorney believes is inadmissible. In fact, only by offering an objection can an attorney request and receive a ruling from the court on the admissibility of the evidence offered by another party. You must not be prejudiced against any attorney or party because an attorney makes an objection. Do not attempt to

interpret my rulings on objections as somehow indicating how I think you should decide the case or what verdicts you should return. I am only ruling on legal arguments and issues. Now, at times, ladies and gentlemen, I may sustain -sustain -- objections or direct that you disregard certain questions, testimony, exhibits, or other information. You may

not guess or speculate about what the answer or evidence might have been. You must not consider any evidence to which an

objection has been sustained or which I have instructed you to disregard. At other times, I may overrule -- overrule -objections to questions or answers. You must not give any such

evidence any more weight simply because I overruled an objection. At times, I may limit the introduction of evidence to a specific party, or for a specific purpose. You may not consider

such evidence against any other party or for any other purpose. Legal arguments are occasionally required to be made

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and considered outside your hearing and sometimes outside your presence altogether. This may, of course, cause some delay.

Please understand, ladies and gentlemen, that while you will be waiting, we will be working. And the purpose of these

conferences, whether conducted at my bench or while you are out of the courtroom, is not intended to keep relevant evidence from you, but instead to decide properly how certain potential evidence is to be treated under our Rules of Evidence, and to avoid prejudice, confusion, and error. Of course, all of us will do all that we can to keep the number and length of these conferences to a minimum. In

fact, I may not grant an attorney's request for a conference. Do not consider my granting or denying a request for a conference as any indication of my opinion of the case or what your verdicts should be. And do not be prejudiced for or against any attorney or party if I grant or deny a request for a conference. All

rulings that I'm required to make in the trial of this case will be based solely on the applicable law, and you must not infer anything from any ruling or from anything I say or do during the trial that I hold any views either for or against any side or party to this case. Now, throughout the trial you may not infer or conclude anything from the order in which I read the names of these defendants. You may not be prejudiced against any party based

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on the order in which I read the names of the parties. such order is my doing. Now, ladies and gentlemen of the jury, listen carefully.

Again,

I do not permit jurors to ask questions of the Therefore, please do not interrupt

witnesses or the attorneys.

the attorneys during their examination of the witnesses or otherwise. However, there is one important exception. If you are

unable to hear an attorney or witness, please raise your hand and I will rectify that situation. During recesses and adjournments of court, you will not be sequestered. Instead, you will be free to separate, leave

this Federal Courthouse, to eat lunch and go home at the end of the day, subject always to the important rules that govern your conduct, communication, and deportment as trial jurors in this case. Just in case, ladies and gentlemen, I recommend that you pack and keep with you an overnight case. Just in case you

must remain in downtown Denver overnight due to inclement weather or otherwise. Now, you have met your bailiff, Mrs. Ginny Kramer. is here to serve your personal needs. She

She is not your attorney

individually, and she is not the attorney for the jury generally. Therefore, do not attempt to seek any kind or form

of legal advice from her because I am afraid, with all due

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respect, you might get that for which you pay. respect, Mrs. Kramer.

With all due

If you have a personal or individual need, please feel free to take that up with Mrs. Kramer, and in turn she will review that matter with me. Now, among you are twelve regular jurors and four alternate jurors who shall remain anonymous until the commencement of deliberations of the twelve regular jurors or until further order of this court. Therefore, all of you must

pay close attention to all that which transpires during the trial of this case. You may not assume from your seating

position that you are a regular or an alternate juror. Very well. Under Federal Rules of Evidence 615, except

for the defendants, advisory witnesses, witnesses granted exemptions from sequestration, and other witnesses who may testify during the trial, anyone else must now leave and remain outside the courtroom, and may not discuss their testimony with anyone, except for counsel pending further order of court. Counsel for all parties, if you will assist the court in the implementation of this sequestration order, please. MR. ANGELO: Your Honor, Mr. Russell from our office He will need to

has been endorsed and he is in the courtroom. leave. THE COURT: regard, please. Very well.

Will you assist me in that

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MR. ANGELO: THE COURT:

He is leaving at this time. Again, a word about opening statements You are not to infer anything from the

because we are there.

order in which the parties present their opening statements. Again, you must not be prejudiced against any party based on the order in which a party presents opening statements. order is my doing. That concludes my preliminary instructions to you ladies and gentlemen of the jury. Very well. To opening statements. If the government Again, that

is prepared to render its opening statement, it may. Mr. Angelo. MR. ANGELO: We are, your Honor. I just need to check

on the courtroom presentation system, and then I will commence. THE COURT: MR. ANGELO: Very well. Thank you. OPENING STATEMENT MR. ANGELO: THE COURT: MR. ANGELO: May it please the court. Thank you counsel. And you are welcome, your Honor. Thank you.

Counsel, ladies and gentlemen of the jury. While our opening statement to you today will be in such a chronological order, I want to point out to you by way of introduction that, due to the delays that we have had in seating you all, our evidence presentation may be somewhat out of that

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order. For that reason, we ask that you pay particular attention to the time frames with respect to the testimony which you will be hearing from the witnesses whom we will be starting with this afternoon. The evidence to be presented in this case will describe and define a scheme and a conspiracy by these defendants to defraud hundreds of investors over a five-year period who were solicited to invest in a high-yield investment purporting to return anywhere from two to 400 percent per month. correct. Per month. Generated supposedly from trading securities, referred to as bank debentures, Fannie Mae mortgages, or medium-term notes, oftentimes referred to as MTNs. Instead, tens of That's

millions of dollars of investors' funds were used by those charged here and others for unrelated purposes. Although

continuously evolving in sophistication, there are four elements which are always going to be present, from 1999 through 2004. First, false statements concerning the security -- I am sorry -- concerning the extraordinary returns from trading on MTNs. False and misleading statements concerning lack of risk,

including the existence of insurance on the investment, which either did not protect against the acts of these defendants, or did not exist at all. And that investors' money could never leave the bank

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without their agreement, or was placed in a non-depleting custodial trust account. exist. The defendants used trappings of legitimacy, like the use of a trust called the Reserve Foundation Trust formed in St. Vincent in the Grenadines are multiple limited liability companies, some with lofty names like Capital Holdings, and others with names not so lofty. They used contract lookalikes called Private Placement Agreements with investor qualification forms. To further the A type of account which does not

appearance of legitimacy, the defendants made claims that, for instance, Peter Moss had connections at the World Bank, or that Norman Schmidt was licensed to trade this type of securities by the Federal Reserve. And that famous people, like former

Senator Bill Bradley or the Rockefellers were investors in the program. Using unsuspecting investor funds, they acquired the trappings of success like castles, NASCAR racing teams to impress investors and convince them that this type of investment and that they themselves were legitimate and successful. The fourth and last element is that the money is never used to trade medium-term notes or any other security, but for the purposes unrelated and undisclosed to investors that I have talked about before. The mail and wire communications by conspirators with

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investors and wire transfers and deposits and funds by those investors constitute the basis for the specific mail fraud, wire fraud, and security fraud counts in the indictment. The scheme was first given birth in 1999 by Leon Harte, now deceased, and Norman Schmidt, now seated before you. They

created a trust in St. Vincent in the Grenadines called the Reserve Foundation Trust, which purportedly offered investments in an MTN trading program. The Reserve Foundation Trust is

later reincarnated in Colorado as the Reserve Foundation, LLC. The trustee that Harte and Schmidt recruited was a man by the name of Clifford Pitt from St. Vincent in the Grenadines who theoretically controlled the trust, but never the bank account at a bank called CIBC in the Caribbean. controlled by Norman Schmidt and Leon Harte. Harte and Schmidt solicited investors directly and in conjunction with others who were paid monthly commissions for recruiting investors. Those commissions were computed, and That was

based on a percentage of the amounts invested by the investors they had recruited. All of those commissions were paid, not

from profits, but from investors' own monies. To convince people of the safety of the investment, the individual defendants and those who solicited for them touted the fact that investor monies were protected by two forms of insurance which, as you will see, were valueless to protect them or their investment from the acts of Mr. Schmidt, Mr. Moss, and

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Mr. Harte. This insurance was provided by Alan Weed of the Weed Insurance Agency of Benton, Illinois. Peter Moss, a person

described as having those connections at the World Bank, was represented to be one of the few persons who were able to trade bank medium-term notes, which purportedly generated the large returns. The documents used by the defendants assured investors that their funds would be used to buy, sell, lease, or trade medium-term notes from which they could expect returns of up to 400 percent per month, depending upon the amount invested. And with those kind of promised returns, it was a program that practically marketed itself. As a safety feature,

it was represented in the investment documents that investors' funds could not be hypothecated or encumbered, or that their funds would never leave the bank. Their principal was to be one

hundred percent bonded by Safeco, RLI, or other acceptable sureties. Many were told that the only risk of loss was to their earnings from their investment. return. In other words, the monthly

And that earnings would become part of the protected The net effect of doing so

principal, if it was not withdrawn.

was to convince people to leave their investments in the program, and not withdraw the cash that was needed to perpetuate the scheme.

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For the first and last time in the life of the scheme, George Alan Weed acquired, for a short period of time, insurance from St. Paul Insurance companies, in the form of a depository bond and a commercial crime policy. The protections afforded investors under these coverages were elusory. The depository bond insured only the

Reserve Foundation Trust from loss of funds in its account at the CIBC bank in the Caribbean, and only from failure of that bank. But nothing insured when Schmidt and Harte moved over

$5 million from that account to a different bank. Moreover, investors were not insured as they had been Claims against the bond could only be made by the

trustee, Clifford Pitt, and only from funds on deposit at the CIBC bank, and only if that particular bank failed. There was a similar situation with the commercial crime It ensured only the trust controlled by Harte and

Schmidt from the dishonest acts of a single employee, Clifford Pitt, the trustee. It did nothing to protect the investors'

funds or investors from the later acts of either Norman Schmidt, Leon Harte, or Peter Moss from dissipating investor funds for their own purposes. Again, only the trust was insured and only the trustee, Clifford Pitt, could make a claim in the event that the funds had been stolen by him. In order to create appearance that an

individual investor's money was protected, the investors were

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sent what purported to be St. Paul insurance certificates created by Alan Weed, and falsely creating the impression that the investors and their money were insured by the bond and a crime policy. These certificates were signed by George Alan Weed, falsely representing himself as an agent of St. Paul Insurance, which you will hear he was not. Following the cancellation of the St. Paul crime policy in early 2000, many investors were orally told that their investment was now protected by Lloyd's of London. Instead of purchasing medium-term notes or trading medium-term notes, investors' money was spent by Harte, Schmidt, and Moss on themselves, and to purchase a castle and real estate in Redstone, Colorado, for $6 million in the name of three different entities controlled by Harte, Schmidt, and Moss known as the Tranquil Options, LLC, Peaceful Options, LLC, and Serenity Options, LLC. They also invested in a highly speculative foreign currency trading program called Sunstate FX, which immediately lost $1.5 million of investors' funds. They also invested in a restaurant in New York called An American Place, using $750,000 of investor funds. None of

these investments, as I have described to you, were ever disclosed to investors before their money was solicited and deposited.

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The use of monies for these purposes will form the basis of the early money laundering accounts that you will be asked to consider. Following the purchase of the castle in April of 2000, there were no funds left available to pay profits, or supposed profits, from the non-existent trading, and all payments to investors requesting withdrawal of their funds were stopped. A variety of excuses were crafted to comfort investors. It was first represented that the success of the program itself had caused problems and that bankers, lawyers, and accountants were working to clear it up. Harte and Schmidt continued to tell investors that their funds were intact, and that they were in process of reorganizing the trust. Investors were told that an audit was

being performed, and once completed, there would be no further problems. George Alan Weed told investors that all was well when they inquired about making claims against the insurance policy that was non-existent at this point. As a result of the failure to continue to make payments to those investors in programs at that time, the ability to continue to use the Reserve Foundation or Reserve Foundation name was substantially diminished. Recognizing that, and almost the same time as the purchase of the castle, Norman Schmidt formed a new limited

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liability company called Smitty's Investments to take the place of the Reserve Foundation. Smitty's Investments later transitioned to and most of its investors' accounts were maintained under the name of Capital Holdings or Capital Holdings International. In the summer of 2002, the defendant Norman Schmidt and George Beros incorporated another limited liability company called Monarch Capital Holdings, which operated from an office in Cleveland, Ohio. In addition to seeking investment opportunities in the private sector using investor funds from Capital Holdings investors, investments were solicited under four or five large-scale investors under the Monarch Capital Holding name. Now, besides Norman Schmidt and members of his family, the principal solicitors were Smitty's Investments and Capital Holdings for Jannice McLain, soon to become Jannice McLain Schmidt, Charles or Chuck Lewis, and Mark Perreault, thereafter to be joined in 2002 by Michael Smith and his partner, John Schlabach, operating under the name of the Northwest Group from Spokane, Washington. When Michael Smith and John Schlabach joined this conspiracy, the client base expands rapidly after Smith recruits a network of insurance agents from all over the United States to market the investment to their insurance clients, many of whom are senior citizens.

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The number of persons investing through Michael Smith and that network numbered in the hundreds. Some invested their

savings while others took out mortgages on their homes for the investment. Alan Weed continued to be portrayed and portrayed himself as the person who provided the insurance which was purported to protect investors' money. Only as you will see

later, the defendants had abandoned the idea of paying for the appearance of insurance, and through the efforts of George Alan Weed and Michael Smith, engaged in creating an elaborate series of documents distributed to investors to convince them that their investment and that they individually were insured. During the early stages of this Smitty's Capital Holdings investment program, Peter Moss and Norman Schmidt continued to be represented as persons with the contacts in the world financial community who were able to trade medium-term notes, which were the purported source again of profits. In late 2002, George Beros, operating the Monarch Capital Holdings sister office in Cleveland, was portrayed as a trader. The multitude of investors in Smitty's and Capital Holdings were promised that their funds would be used to trade medium-term notes or exclusively for the purposes of trading, promising returns of up to ten percent per month generated from that trading.

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With the entry of Michael Smith and John Schlabach in the conspiracy, major changes occur in the scheme's sophistication and method of operation. Investment documents were now called Medium-Term Note Placement Program or Private Placement Contracts. They

continued to repeat the mantra that investors' funds would be deposited in a fully insured non-depleting custodial trust account. Those contracts have a more professional and legal Michael Smith brings to the scheme a series of

appearance.

official-looking treatises and brochures like the Federal Reserve Bulletin and others to convince people of the legitimacy and viability of the investment. Official-looking statements depicting purported growth and promised monthly returns on investments are generated and sent to investors and convinced investors that the returns are real, and most importantly, that they should leave their money in the accounts to take advantage of compounding. Again, the intended effect of which, and the actual effect of which, is that it convinced many investors to leave their funds in so that there was no cash drain on the scheme and they could perpetuate it. A legal opinion letter over the signature of Norman Schmidt's attorney, Gary Herbert, containing many misleading and untrue statements, used a merge program to generate input from George Alan Weed and Michael Smith. It was used extensively by

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Schmidt, McLain, Lewis, and Smith to give potential investors confidence in the existence of the purported insurance, the safety of their money, and the overall legitimacy of the program. The statements concerning the safety of the investment, and repeated again that one single phrase, your money will be placed in a non-depleting custodial trust account. They claimed falsely that the accounts were insured through SIPC, or the Securities Investor Protection Corporation, which they were not. Accounts were insured by Lloyd's of London

insurance policy was the claim, and if you wanted to make a claim, according to George Alan Weed, you could file a claim just as you would with your homeowner's or insurance policy. In addition to helping to create this legal opinion letter, Mr. Weed creates letters on Weed insurance stationery and letterhead addressed to conspirators and designed for distribu