Peregrine Trial – Week 14
Comments by Bob Grimes
July 10, 2007 – 8:30 a.m. to 3:15 p.m.
CLOSING ARGUMENT BY TOM BIENERT
In his closing argument on behalf of Gary Lenz, Attorney Tom Bienert asked the jury to use their common sense when evaluating the charges against Gary Lenz. Bienert told the jury to follow the money, and to follow the documents.
Bienert argued that Lenz was not paid bonuses or given raises as persuasion to stay on at Peregrine, or as a reward for his participation in the fraud. Bienert said that Lenz did not cash in his stock options when he had the opportunity to do so.
Attorney Bienert said that he welcomed AUSA Bhandari’s invitation to focus on specifics and he proceeded to do just that. Bienert went over the five deals that the government believes were fraudulent deals that Lenz was actively involved in at Peregrine. Bienert carefully explained the exact nature of each deal and explained why Lenz was not culpable in each of the five so-called “bad” deals. Bienert was outraged that AUSA Beste stated in his final argument that Lenz was involved in the AVNET, KPMG/Morgan Stanley, Boeing and Honeywell deals. Bienert said Lenz’s involvement in these deals was extremely minimal and occurred after all negotiations were completed.
Thomas Bienert argued that although Gary Lenz had several different important sounding titles at Peregrine, he was outside the inner circle of the fraud at Peregrine. For example, Bienert pointed out that when Gardner went in for surgery, he did not hand over the reins of Peregrine to COO Gary Lenz, but instead Gardner formed a group of three executives, Lenz, Powanda, and Gless, who would rule over Peregrine in Gardner’s absence.
Attorney Bienert disputed AUSA Bhandari’s characterization of accounting rules as being simple. Bienert asked the jury to consider why the Government did not put on expert testimony to explain some of the accounting concepts that form the basis of the fraud charges in this case. Mr. Bienert argued that software accounting rules are extremely complicated, and the Government has the burden to prove that the rules were broken.
CEO Gardner (and other ex-Peregrine employees) testified that forecast meetings became more frequent and intense near the end of each quarter at Peregrine. According to Gardner, the bad deals were discussed during these “crunch time” forecast meetings. Gardner testified that Lenz was often in attendance at forecast meetings where specific details of wrongdoings were discussed. Bienert said that he went through every e-mail regarding forecast meetings that was sent to Lenz, and Lenz is never included in the e-mail stream near the end of a quarter. Bienert reminded the jury that Dave Roudebush testified that he attended Peregrine forecast meetings and never heard about anything inappropriate or illegal discussed during the meetings. Bienert pointed out that many other Peregrine employees attended forecast meetings and the Government never called anyone else to testify about what was said at these meetings. Attorney Bienert argued that the government wants the jury to rely on Gardner’s testimony regarding this matter. Bienert refers to Gardner as a “professional liar”.
Bienert named many people in this case who could have testified but the Government did not call them as witnesses. He implied that the Government does not want the entire truth regarding this case to be known to the jury.
Attorney Bienert said that the Government attorneys prepared this case before several of the main defendants pled guilty. He said that the Government put on the same case as if Gardner and those last few main defendants did not plead guilty. Bienert said that the Government never focused on the remaining four defendants because they were not the important ones, and this was a complex case to prepare for. At times it did seem as if the witnesses were on trial.
Tomorrow morning Kate Leff, attorney for Patrick Towle, will present her final argument, followed by Mike Attanasio on behalf of Daniel Stulac.
July 11, 2007
CLOSING ARGUMENT BY KATE LEFF
Attorney Kate Leff presented her final argument on behalf of Patrick Towle. Attorney Leff disputed the testimony of Lynn Morimoto, who had testified that Towle told her to white out fax headers on contracts. Leff pointed out that Morimoto had admitted that she had at times whited out fax headers on her own initiative. Morimoto also had denied back-dating contracts for the sales department, but Sales Executive Steve Spitzer testified that it was a common practice for Morimoto to back date contracts.
Leff used a PowerPoint presentation which included a chart of the inner circle of the fraud at Peregrine. At the very center was CEO Steve Gardner. He was surrounded in this exhibit by Matt Gless, Doug Powanda, Andy Cahill, and Jeremy Crook. She described Gardner as a charismatic, powerful and persuasive person. She pointed out that Gardner did not even know Patrick Towle. Leff argued that there had been co-defendants who have pled guilty in this case who were outside of the inner circle but who knowingly facilitated the fraud, but that Patrick Towle was in the category of people who were unwittingly used by Gardner and his inner circle to perpetrate the fraud. Leff stated that the conspirators took a good company and killed it with their fraud, like killing the goose that laid the golden egg.
CLOSING ARGUMENT BY MIKE ATTANASIO
Attorney Mike Attanasio, Dan Stulac’s attorney, began his argument at about 11:00 a.m. For most of Attanasio’s argument, the seats in the audience section of the courtroom were almost all filled. In the Government’s argument, they challenged the Defense to refer to specific evidence, as opposed to generalities. The previous three defense lawyers have responded to that challenge, and Attanasio did as well, with transcripts of trial testimony as well as specific exhibits. He showed the jury Government Exhibit 1-1, which was the first exhibit introduced into evidence in this case, out of thousands of exhibits. This was an e-mail from November of 2000 in which Gless told Gardner and Cahill that there were problems with a number of specific deals, and that they must close this business or risk exposure. Attanasio said that this was a smoking gun exhibit acknowledging that the accountants were going to uncover the fraud and expose Gardner and Cahill and Gless, and this list of problem deals was never shown to the Arthur Andersen engagement team which was headed by Dan Stulac. Attanasio also referred to an exchange of e-mails towards the end of the fraud, in December of 2001, between Rassam and Gless. These e-mails included a specific number of bad deals, many of them involving side letters on European transactions in which Jerry Crook was involved. Regarding these bad deals, Rassam sent an e-mail to Gless stating “Somebody tell me that this is a joke.” Nonetheless, Gless and Rassam continued to conceal this list of bad deals from Stulac and the AA audit team.
Attanasio pointed out that none of the side letters were given to Stulac and the other AA auditors. On the contrary, Gless and Gardner made efforts to cause partners on questionable deals to send confirmation letters to the auditors, falsely stating that these were solid deals with no contingencies. If Stulac had been part of the conspiracy, it would not have been necessary for the conspirators to generate false confirmation letters to the AA auditors. Stulac could simply have caused confirmation letters to be sent only to customers where the transaction was solid and above-board.
Attanasio displayed on the courtroom screen excerpts of the testimony of Senior Auditor Ross Baldwin, who took over the Peregrine engagement from Stulac. Baldwin testified that there are many shades of gray and judgment calls in accounting, particularly with companies that sell software. Generally accepted accounting practices permit a wide range of accounting practices, from conservative to aggressive. These rules continue to evolve. Attanasio argued that Stulac did not knowingly sign off on any procedures which appeared to him to be clearly unacceptable. The fact that Gardner and Gless concealed the most incriminating information from Stulac shows that he was not a knowing participant in the fraud. Part of the conspiracy was to conceal the fraud from the auditors, and this occurred with Stulac, just as it had with the AA engagement partner who preceded him, and the AA engagement partner (Baldwin) who followed him. Attanasio reminded the jury of Baldwin’s testimony that Stulac had little experience as a senior partner for AA, was not very detailed oriented, and was so overworked that at one point he collapsed at his desk. Baldwin also testified that collusive fraud involving the CEO and CFO is almost impossible for the auditors to detect. Attanasio stated that Gardner had groomed Matt Gless for the CFO position (which Gless took after CFO Farley suddenly died of a heart attack in 2000) because Gardner could control Gless, and continue to deceive the auditors.
July 12, 2007 – 8:30 a.m. to 1:20 p.m.
Mike Attanasio continued his final argument. After arguing for several hours yesterday, he had said he planned on arguing for only about twenty minutes today. However, he argued for almost 3 hours, giving detailed responses to the arguments made by AUSAs Bhandari and Beste in their opening argument. Attanasio said that the Government had thrown things up against the wall and engaged in cherry-picking of the evidence, and that it was necessary for the defense to carefully present to the jury all of the surrounding evidence that explained the suspicious sounding Government presentation.
Attanasio is always very organized and articulate. At times he showed considerable emotion. All 4 of the defense lawyers have strong feelings for the causes of their clients, and you can see it on their faces and hear it in their voices.
The final piece of testimony that Attanasio presented on the screen was the testimony of CFO Matt Gless in front of the grand jury on September 14, 2004. This grand jury testimony had been read into evidence during the testimony of Steve Gardner. Gless had testified that in order to manage the audit risk he had misled the auditors, and had convinced them of certain positions that Gless was advocating on behalf of Peregrine. Attanasio concluded his argument by explaining to the jury that the Government gets to make the last argument, and that he and the other defense lawyers would have no opportunity to respond. He told the jury that as they listened to the final points made by the Government, they should keep in mind how strongly the defense has responded to the Government’s arguments when they had the opportunity.
AUSA Eric Beste argued from 11:30 a.m. to 1:20 p.m. Tomorrow the Government’s summation will conclude and the jury will be instructed on the law and will begin to deliberate. The defense lawyers are passionate about the justness of their clients’ defenses, and the AUSAs Beste, Bhandari, and Narus are passionate about the justness of the Government’s case. For much of the argument, 6 or 7 FBI agents, as well as other support staff, have been in the courtroom, watching the culmination of 4 or 5 years of work.
Beste argued that the defense arguments ignored the real nature of a conspiracy. He said that Lenz and Reichner (who were both fired from Peregrine in January of 2002) have taken the position that conspirators don’t fire other conspirators. Beste pointed out that Jerry Crook was also fired by Gardner, and the defense clearly agrees that Crook was part of the conspiracy.
The defense has shown the jury a lot of instances when these 4 defendants were lied to by Gardner and the inner circle of the conspiracy. Beste said that the defense is promoting the fallacy that conspirators don’t lie to each other. He pointed out that confessed conspirator Matt Gless lied to confessed conspirator BJ Rassam regarding KPMG transactions in 2001. Beste said that the defense was accusing the Government of cherry-picking the evidence, but it was really the defense that was cherry-picking the evidence.
These 4 defendants profited very little from the conspiracy, and the defense has argued that the jury should follow the money. Beste said don’t follow the money, follow the evidence. The defense is well organized but so is the Government, and AUSA Beste presented a number of e-mails and excerpts of testimony to make his points.
The case should go to the jury tomorrow.
July 13, 2007 – 8:30 a.m. to 11:30 p.m.
AUSA Beste finished the Government’s rebuttal argument. Beste told the jury that the defense counsel in this case had personally attacked the Government attorneys and many of the witnesses. He reminded the jury that “the Government is not on trial here, these 4 defendants are”, as he pointed towards the defense table.
Beste discussed several points, which he grouped under the heading of “Witness Credibility”, in his PowerPoint presentation. The first issue raised by Beste was “Memory Tricks”. He cautioned the jury that the defense wanted to trick them into not believing some of the witnesses. Beste conceded that the defense attorneys had demonstrated that some of the witnesses were unsure of their own prior words on some topics. AUSA Beste argued that a witness may not be able to remember his or her own exact words, but that does not mean they do not remember specific events.
Beste also warned the jury to be unimpressed by “Perry Mason Moments”. Beste characterized the defense team as being overly dramatic and showy during some of their cross-examination and he said that the jury should disregard the theatrics.
The Government said the defense sometimes characterized the evidence as being favorable to them when it was not. Beste called this concept “Heads they win – Tails we lose”. Beste explained that the evidence in this case is not as simple as the defense would have them believe. For example, Beste warned the jury that they should not dismiss Gardner’s testimony simply because he has been known to lie in the past.
His next point was “Falsely Denying is Not Falsely Accusing”. AUSA Beste said that just because a witness was involved in a fraud does not mean that they have falsely accused other people of also being in the fraud. Many of the witnesses in this case have pled guilty to committing fraud while at Peregrine.
Beste said the defense has told the jury that they “Can’t Believe People Who Would Know”. This was Beste’s last point regarding the issue of witness credibility. He noted that the defense attorneys have repeatedly pointed out that witnesses who have pled guilty may be hoping to receive a lighter sentence by implicating one or more of the defendants in this trial. Attorney Beste argues that these witnesses must tell the truth if they hope to receive a lighter sentence because that is what their plea agreement says they must do.
Eric Beste argued that the fact that these defendants did not cash in their stock options was not proof that they were un-involved in the fraud at Peregrine. Stulac did not have stock options. Beste said that the other 3 defendants did not cash in their options because they would not make enough money if they cashed them in.
Focusing his argument on Patrick Towle, Beste stated that the conspiracy would have fallen apart without Patrick Towle’s involvement. Beste said that Towle instructed his staff to white out the fax headers on back-dated contracts, knowingly booked uncollectible deals, and allowed the allocation of deceptive write-offs.
AUSA Beste focused on Daniel Stulac (more than any other defendant) in his rebuttal argument to the jury today. Beste argued that Stulac knew about the ongoing fraud at Peregrine or displayed reckless indifference to the truth of the statements being made to him by the Peregrine financial division. For example, Daniel Stulac issued an unqualified opinion and signed off on the Peregrine Germany audit when the German AA auditors refused to issue an opinion. Beste said it was reckless for Stulac to rely on a “sketchy” memo from Matt Gless. Gless’s memo stated that Stulac should sign off on the Peregrine Germany audit because the German AA auditors failed to recognize that Peregrine has a history of accepting extended payment terms. The Government has consistently viewed this signing off by Stulac as evidence of his participation in the fraud at Peregrine. Attorney for Stulac, Mike Attanasio, has steadfastly maintained that this is an example of how convincing Matt Gless, former CFO of Peregrine, could be.
Beste stated that Brian Allen and Richard Corgel testified that Daniel Stulac did not mention the acquisition write-offs. Beste argued that Stulac did not tell his superiors at AA about the write-offs because he knew they were wrong, and Stulac had joined in the conspiracy at Peregrine.
Judge Whelan instructed the jury on the law and the jury will begin deliberations next week.