Free Sentencing Statement - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT F0R THE DISTRICT OF COLORADO Criminal Case No. 04-cr-00103-REB UNITED STATES OF AMERICA, Plaintiff, v. 2. GEORGE ALAN WEED Defendant. ________________________________________________________________________ DEFENDANT WEED'S SENTENCING STATEMENT ________________________________________________________________________ Defendant George Alan Weed, through counsel, files the following sentencing statement, as permitted by General Order 2002-3(B), in response to the Government's 22 June 2007 sentencing statement. INDICTMENT AND TRIAL Defendant Weed was charged in the Second Superseding Indictment with 31 counts: one count of conspiracy, eight counts of mail fraud, eight counts of wire fraud, eleven counts of securities fraud, two counts of money laundering, and one count of forfeiture. The forfeiture count remains pending. Of the other thirty counts, three were dismissed by the Court at trial at the close of the Government's evidence: Count 11, a mail fraud charge was dismissed upon motion of the Government and Counts 42 and 45, 1 both money laundering charges, were dismissed upon motion of Mr. Weed, based upon

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The numbering of these counts correlates to the renumbered counts used by the Court at trial as a result of the dismissal of the original Count 32 against Defendant Jannice McClain Schmidt.

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the Government's failure to produce evidence of these charges sufficient even to tender them to the jury. That left twenty seven charges for the jury to weigh against Mr. Weed. Of those twenty-seven alleged offenses, the jury acquitted Mr. Weed of twenty-four. The jury found him guilty on three charges: Count 5, mail fraud; Count 16, wire fraud; and Count 23, securities fraud. The victim of the mail fraud and wire fraud offenses was Gregory Hector, and the victims of the securities fraud count were William Della Penna and his wife Brenda. AMOUNT OF LOSS The Government argues in its Sentencing Statement, as the Government did at trial, that there was a single overarching scheme or plan to defraud investors, and therefore, that the four convicted Defendants should be held accountable under the 2002 Federal Sentencing Guidelines ("Guidelines") for all losses suffered by all investors, from the time of first offense of conviction forward. This prosecutorial theory, however, does not comport with the jury's verdicts regarding Mr. Weed. First of all, Mr. Weed was found not guilty of the conspiracy charge (Count 1), which, as set forth in the Second Superseding Indictment, delineates the Government's hypothesis concerning a single fraud scheme. Secondly, and just importantly, though, is the fact that Mr. Weed also was acquitted of multiple charges alleged to have occurred after 24 August 2002 and 18 September 2002, the dates, respectively, of the first and second offenses (Count 5 and Count 23) of which Mr. Weed was found guilty. To wit, the following chronology: · 24 September 2002 (Count 6) mail fraud--not guilty

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· · · · · ·

7 October 2002 (Count 24) securities fraud--not guilty 21 October 2002 (Count 25) securities fraud--not guilty 31 October 2002 (Count 26) securities fraud--not guilty 27 October 2002 (Count 27) securities fraud--not guilty 18 November 2002 (Count 43) money laundering--not guilty by order of Court 19 February 2003 (Count 28) securities fraud--not guilty

Then, after the intervening finding of guilty on the wire fraud charge in Count 16, which also involved Greg Hector as a victim and which occurred on 21 February 2003, the chronology of acquittals continued: · · · · · 24 February 2003 (Count 46) money laundering--not guilty by order of the Court 30 April 2003 (Count 17) wire fraud--not guilty 3 April 2004 (Count 7) mail fraud--not guilty 8 May 2004 (Count 8) mail fraud--not guilty 9 May 2004 (Count 9) mail fraud--not guilty

These verdicts clearly evince the jury's determination that Mr. Weed was not involved in a single overarching scheme to defraud investors that began either in 1999, as originally alleged by the Government in the Second Superseding Indictment, or that was underway and joined by Defendant Weed in August, 2002, as the Government now contends. Rather, the most sensible reading of the jury's verdicts is that Mr. Weed was involved in: a) a discrete scheme to defraud Mr. Hector (Counts 5 and 16), an individual with whom Mr. Weed corresponded directly, per Count 5; and b) a second, discrete scheme, whose only identifiable victim is Mr. Della Penna.

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As such, Weed should be held responsible, under the Guidelines at §1B1.3, and under the Sixth Amendment's right to trial by jury, for the losses associated with the three counts of which he was convicted and for no more. With respect to the scheme to defraud Mr. Hector, this means, according to the Government's accounting: 2

DATE DEPOSIT (24 AUGUST 2002 and LATER ONLY)

11 October 2002 23 October 2002 24 October 2002 31 October 2002 12 November 2002 19 November 2002 19 November 2002 23 January 2003 21 February 2003 27 February 2003

$55,000 $25,000 $8150 $61,509.85 $7500 $10,000 $30,000

PAYMENT TO BALANCE HECTOR DURING COURSE OF SCHEME WHEN WEED WAS INVOLVED -$55,000 -$80,000 -$88,150 -$149,509.85 -$157,009.85 $25,000 -132,009.85 -$142,009.85 $40,000 -$102,009.85 -$132,009.85 $35,000 -$97,009.85 TOTAL HECTOR LOSS ATTRIBUTABLE $97,009.85 TO WEED:

As regards the scheme where Mr. Della Penna was victimized, the figure is $28,000, 3 the amount that he deposited into a Capital Holdings account on 18 September 2002. As such, the total amount of loss that should be attributed to Mr. Weed under §2b1.1 of the Guidelines is $97,009.85 + $28,000. The sum of these two numbers is $125,009.95.

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By utilizing these numbers herein, Mr. Weed does not necessarily concede either the accuracy or the efficacy of the information contained in the spreadsheets that are a part of the Government's sentencing submission. 3 According to the Government's spreadsheets, Mr. Della Penna did not receive any monies in return on his investment while the scheme was underway.

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A contrary conclusion, one that Weed should be held responsible for investor losses not associated with Weed's three counts of conviction, would mean that his sentence impermissibly would be enhanced for conduct not found by the jury, in violation of Mr. Weed's Sixth Amendment right to a jury trial. He should not be held accountable for allegedly criminal conduct (resulting in investor losses), evidence of which was never considered by the jury, or worse, which was considered by the jury and determined not to be criminal. For "[t]he jury could not function as circuitbreaker in the State's machinery of justice if it were relegated to making a determination that the defendant at some point did something wrong, a mere preliminary to a judicial inquisition into the facts of the crime[s] the State actually seeks to punish." Blakely v. Washington, 542 U.S. 296, 306(2004). As the 10th Circuit very recently noted: If the considered conduct has nothing to do with the offense of conviction, the court is effectively sentencing a defendant for a crime that was never proved to the jury, or admitted by the defendant. To allow this would empower the government to obtain punishment for any number of unrelated crimes, based on bench trial rather than jury trial. The relatedness principle thus keeps the system from straying too far beyond the Sixth Amendment line. United States v. Allen, ___F.3d___, 2007 WL 1560152, p.10 (10th Cir. 2007). However, to the extent that Probation and the Court are willing to consider evidence against Weed even though the jury either never heard such evidence or rejected it, Mr. Weed submits that the Government nonetheless has not established even by a preponderance that said evidence relates to "relevant conduct" under Guidelines §1B1.3(a)(1). The Government has submitted, attendant to its Sentencing Statement, a 29 page document titled "Summary of Investor Deposits Into Non-Depleting Accounts"

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(as putatively pertains to Mr. Weed) and a 25 page document titled "Summary of Investor Payments" (again, as allegedly applicable to Defendant Weed). There is nothing in either document explaining who prepared the information contained therein or how the determination was made as to what financial data would go in and what would stay out, etc. The former document is replete with unexplained terms like "Total Confirmed Deposits", "Confirmed through Forfeiture", "Confirmed through FBI database", and "Total Unconfirmed Deposits." These column titles lead ineluctably to questions like "What is an `unconfirmed' deposit?", "What is a `confirmed' deposit?", and "Who decided which was which?" Moreover, the Government did not explain why most of the entries in the "Summary of Investor Deposits" document are highlighted, but some are not and what the significance of the highlights is. The Government's approach seems to have been to try to overwhelm Probation (and, by extension, the Court) with voluminous accounting entries and figures, perhaps in the hope that the task of deciphering same will prove too arduous and thereby, that Probation simply will adopt the Government's final figures. To be kind, this result ought not obtain. Mr. Weed's penal exposure should not be increased as the result of alleged losses presented in the loose manner aforedescribed. Similarly, Weed should not be held accountable for putative losses suffered by individuals who did not testify at trial; 4 by individuals who may or may not have testified in related civil proceedings where it is unclear whether Weed (unrepresented by counsel) had an opportunity to question said persons; and by individuals whose names apparently appeared in "investor files seized

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It is worth recalling herein that the Court declined to permit the Government at trial to put on demonstrative evidence of losses suffered by individuals who had not testified at the trial.

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during the various search warrants" but who the Government itself may or may not even have personally interviewed. GUIDELINES CALCULATIONS I. Specific Offense Characteristics Base Offense Level and Increase Due to Amount of Loss--The Base Offense Level under §2B1.1(a) of the Guidelines is 6. As discussed above, the proper amount of loss should be deemed $125,009.95. Therefore, under §2B1.1(b)(1) ten levels would be added, rendering an adjusted offense level of 16. Number of Victims--Contrary to the Government's argument, no levels should be added under §2B1.1(b)(2) because there were not more than 50 victims of Weed's conduct; in fact, there were not even more than 10. There were two: Greg Hector and William Della Penna. As such, §2B1.1(b)(2) does not call for any increase in levels. Prior Administrative Order--The Government also states that Weed should receive a two level enhancement under §2B1.1(b)(7)(C), because the offense supposedly involved violation "of a prior, specific administrative order--namely, the Cease and Desist Order first issued by the Nebraska Department of Banking and Finance on March 12, 2002, Government Exhibit 12024." While this may be a correct statement about offense conduct committed by one or more of the other Defendants, it is an inaccurate assertion as pertains to Mr. Weed. No evidence was adduced at trial, and, indeed, no evidence exists, period, that Mr. Weed had any knowledge whatsoever about the existence of the Nebraska Cease and Desist Order. The evil that the Guidelines seek to address under §2B1.1(b)(7)(c) is addressed in the Commentary thereto:

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Subsection (b)(7)(C) provides an enhancement if the defendant commits a fraud in contravention of a prior, official judicial or administrative warning, in the form of an order, injunction, decree, or process, to take or not to take a specified action. A defendant who does not comply with such a prior, official judicial or administrative warning demonstrates aggravated criminal intent and deserves additional punishment. Mr. Weed could hardly comply with a Cease and Desist Order of whose existence he had no knowledge. The Government's only averment about Weed in this regard is that he "had been a party to a similar, previous Order of Prohibition entered by the Illinois State Securities Department directed at the RFT." That Order of Prohibition was directed at Weed and the Reserve Foundation Trust, unlike the Nebraska Cease and Desist Order, which was directed at Smitty's Investments, LLC, and its unnamed officers, directors, agents, and employees. Moreover, at trial, Kenneth Podeschi, a representative of the Illinois Department of Securities acknowledged that there was no evidence that Mr. Weed ever had violated the Illinois Order of Prohibition after it was entered. As such, no enhancement is in order under §2B1.1(b)(7)(C). Sophisticated Means--The Government also argues for a two level increase under §2B1.1(b)(8)(C) because the offense allegedly involved sophisticated means. The Government asserts that Weed "disguised his receipt of investor money through Compliance Holdings Company, Inc. (Gov't Ex. 12010)." This claim, however, does not jive with the Guidelines' explanation of what constitutes "sophisticated means." The Commentary to §2B1.1(b)(8)(C) states, in relevant part: `sophisticated means' means especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense. . . .Conduct such as hiding assets or transactions, or both, through

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the use of fictitious entities, corporate shells, or offshore financial accounts also ordinarily indicates sophisticated means. (emphasis added). Mr. Weed's receipt of investor-derived monies into Compliance Holding Company, Inc., simply does not meet this definition. Compliance Holding was neither a fictitious entity nor a corporate shell. Compliance Holding was a real entity that conducted real business: the buying and selling of coal. There was nothing complex or unusual about the setup and establishment of Compliance Holding, as the Government's own Exhibit 12010 attests. Mr. Weed filed papers with the State of Illinois and Compliance Holding came into being. Those same papers, which are a public record, clearly establish Mr. Weed's association with Compliance Holding; there was no concealment, trickery, or intricately deceitful conduct involved. Accordingly, no two level increase should be assessed Mr. Weed under §2B1.1(b)(8)(C). II. Adjustments Obstruction--The Government states that Mr. Weed should receive a two level enhancement under §3C1.1 of the Guidelines because he obstructed justice when he testified in his own defense at the trial. The Government seems to be claiming that any time Mr. Weed testified contrary to what a Government witness had said, Weed was perjuring himself. This view does not stand up to scrutiny, however. Remarkably, the Government claims that Weed gave false testimony when he denied that FBI Special Agent Bratcher had told him during their meeting in the spring of 2000 that the RFT was a scam. The Government blithely notes that "Special Agent Bratcher testified otherwise." The Government fails to add that Special Agent Bratcher

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also initially (and adamantly) testified on cross examination that he had recorded in his 302 of the interview with Weed that he, Bratcher, had given Weed the warning. After being confronted with the actual 302, though, Special Agent Bratcher was compelled to change his answer because, in fact, no such statement of the warning was in the 302. Who, indeed, was more credible on this point, Bratcher or Weed? The Government also opines that Weed lied when he denied that he had told Jerry Landsman "I guess I'm really in trouble" after Landsman supposedly had told him that the RFT was a Ponzi scheme. First of all, it is open to question whether Weed's denial of this point was even material. Secondly, and more importantly though, Jerry Landsman was one of three witnesses from the St. Paul Fire and Marine Insurance Company, an entity whose behavior was widely discredited at the trial of this case. 5 The Government does not, and cannot, point to any fact that makes Landsman's recollection on this point anymore reliable than Weed's. The Government also asserts that Weed lied on the witness stand when he denied telling any investors, including Gary Bell, Linden Markham, Greg Hector, and Mark Bienstock that Lloyd's of London insured their investments. Gary Bell, however, in the spring of 2001 (Govt. Ex. 105) told Weed that Bell appreciated Weed's candor, that Bell thought Weed had been misled by RFT people, and that Bell appreciated Weed's forthrightness and assistance. At the trial, Bell acknowledged on cross examination that he stood behind those assertions.

The proof of this contention is in the jury's verdicts: Mr. Weed was convicted of no offenses involving, even tangentially, the interests of St. Paul's and, indeed, on the special verdict form associated with the conspiracy charge, the one alleged overt act that the jury declined to find had occurred had to do with Mr. Weed applying for an insurance policy from the St. Paul company.

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Linden Markham had some credibility problems of her own at the trial. She admitted on cross examination that when she first spoke to the authorities (namely the SEC) in 2003, she stated that she had called Mr. Weed in 2002, had left him a message, and that he had never called her back. In other words, she had never spoken to him at all. She also admitted on cross examination that the second time she spoke with the Government, this time with FBI Special Agent Yachmetz in November 2003, that she never mentioned having had any conversations with Mr. Weed. Only on the third occasion that she met with law enforcement, Ms. Markham admitted at trial, did she finally state that she even had ever spoken with Mr. Weed. Markham also testified on direct that she had been unable to verify in 2002 that Mr. Weed's insurance license was then still in effect. On cross, though, she quibbled as to whether she had contacted the Illinois Department of Insurance in connection with her "verification" efforts and admitted that, in fact, she not been able to determine that the license was not in effect. In short, Ms. Markham was not exactly the kind of witness whose testimony that the Government should stack up against Mr. Weed's as proof that he perjured himself simply because he contradicted her on a few points. It is notable in this regard that the jury declined to find Mr. Weed guilty of the securities fraud offense alleged in Count 31 wherein Ms. Markham was the victim. As for Greg Hector, he did not testify that he ever spoke with Weed at all, never mind that Weed supposedly told him that his investment was insured by Lloyd's of London as the Government now contends. Mark Bienstock also was a shaky Government witness. Bienstock, previously given immunity when he testified in front of the grand jury, flip-flopped from direct to cross on whether he threatened people with

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lawsuits, hedged on whether he had believed Norman Schmidt when Bienstock had been dealing with Schmidt in 2002, and acknowledged that his acceptance of travel expenses from Schmidt (an individual from whom Bientstock was trying to collect money) was a bit unusual. Again, in short, Mr. Bienstock was not exactly the kind of witness whose veracity the Government should offer to prove Mr. Weed's putative mendacity. The Government also claims that Mr. Weed committed perjury when he testified that, during telephone conversations with Gary Herbert, Weed had attempted to correct the misrepresentation in drafts of the Herbert letter that Weed represented Lloyd's of London. The Government offers no proof that this testimony was false. Mr. Herbert, himself a witness of dubious veracity, was not asked by the Government during Herbert's deposition, taken in the spring of 2006, whether Mr. Weed had attempted to correct the misstatement about him representing Lloyd's of London, despite the fact that Herbert did testify, in response to Government questioning, about conversations that he had had with Weed during the process of drafting the letter. The Government also accuses Mr. Weed of knowingly and intentionally falsely testifying about his own belief regarding how investors in Capital Holdings would have been able to file an insurance claim. The Government claims that Mr. Weed's reliance on this point on a letter signed by Richard Gray, a vice president for Wells Fargo Bank, could not have been in good faith because Weed had helped draft the letter for Mr. Gray. This "rubber stamp" argument ignores the fact, though, that Mr. Gray had significantly revised and redacted drafts of the letter before it became final. Mr. Gray's steady and continuing involvement in the preparation of the letter leads fairly to the inference that the final content of the letter was either his own or comprised of assertions with which he

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concurred. In the final analysis, after having thoroughly reviewed the letter, in multiple drafts and as completed, he signed it. Mr. Weed's reliance thereafter, including during trial testimony, on the substance of what Mr. Gray had said, hardly constitutes the stuff of which perjury is made. As such, the crux of the Government's entire obstruction argument seems to be that if Weed had just told the truth when he was testifying, he would have been convicted of more offenses, but since he wasn't, he must have been lying, so he should be punished for that instead. This tendentious reasoning, of course, side steps the more compelling inference. That is that Weed was a credible witness, whom the jury by and large believed, as evidenced by the acquittals rendered on 24 of the 27 charges heard and determined by the jury. Therefore, no two level increase should be applied to Mr. Weed under §3C1.1 of the Guidelines. Accordingly, Mr. Weed's final adjusted offense level should be 16. III. Criminal History and Final Computations Mr. Weed has no criminal history. That places him in Criminal History Category I. The presumptive range of imprisonment for offense level 16, with Criminal History Category I, is 21 to 27 months. Should the Court decide to impose a sentence based upon the now advisory Guidelines, Mr. Weed would request a sentence at the bottom of that range. 18 U.S.C. §3553(a) FACTORS Mr. Weed also believes that Probation and the Court should consider, when weighing his sentence, certain factors under 18 U.S.C. §3553(a). The most obvious of these are his age and his health. Mr. Weed is 71 years old and not in the best of his

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health. He is in the process of getting information to Probation concerning his physical well-being. Dated this 20th day of July, 2007. Respectfully submitted,

s/Thomas E. Goodreid Thomas E. Goodreid 1801 Broadway, Suite 1100 Denver, CO 80202 Telephone: (303) 292-0110 Fax: (303) 292-0522 E-Mail: [email protected] Attorney for Defendant George Alan Weed

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CERTIFICATE OF ELECTRONIC SERVICE I certify that on 20 July 2007, I electronically filed the foregoing DEFENDANT WEED'S SENTENCING STATEMENT with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses: [email protected] (Thomas J. Hammond) [email protected] (Richard Stuckey) [email protected] (Daniel T. Smith) [email protected] (Declan Joseph O'Donnell) [email protected] Mitchell Baker [email protected] (Peter R. Bornstein) [email protected] (Ronald Gainor) [email protected] (Mathew T. Kirsch) [email protected] (Wyatt B. Angelo) [email protected] Richard Kornfeld

s/Thomas E. Goodreid Thomas E. Goodreid 1801 Broadway, Suite 1100 Denver, CO 80202 Telephone: (303) 292-0110 Fax: (303) 292-0522 E-Mail: [email protected] Attorney for Defendant George Alan Weed

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CERTIFICATE OF TRADTIONAL SERVICE I hereby certify that, on this 20th day of July, 2007, I mailed a true and correct copy of the foregoing DEFENDANT WEED'S SENTENCING STATEMENT, first class postage prepaid, to:

Susan Heckman U.S. Probation Officer 1929 Stout Street, Suite C-120 Denver, CO 80294-0101

s/Thomas E. Goodreid Thomas E. Goodreid 1801 Broadway, Suite 1100 Denver, CO 80202 Telephone: (303) 292-0110 Fax: (303) 292-0522 E-Mail: [email protected] Attorney for Defendant George Alan Weed

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