Peregrine Trial – Week 2
Comments by Bob Grimes
April 17, 2007 – 8:30 a.m. to 1:30 p.m.
WITNESS MIMI LE
In the continuing cross-examination of Mimi Le, Defense Attorney Iredale pointed out that not all positive press releases resulted in an increase in the value of Peregrine stock.
The Government illustrated that one of Le’s charts did show the reaction of the stock market to the events of 9/11. On Friday, April 13, 2007, Iredale had implied that the Government purposely kept 9/11 off of their charts.
WITNESS MARY LOU O’KEEFE
Mary Lou O’Keefe was the head of Human Resources for Peregrine from April 1999 through January of 2006. AUSA Bhandari showed a chart of the Peregrine top management offices, and had Ms. O’Keefe point out who had occupied each one. Bhandari also went over Peregrine’s corporate structure, noting each major executive’s name, title and duties. According to the Government, Ms. O’Keefe was not involved in any of Peregrine’s illegal activities but it was noted that her office was right in the middle of management and she did notice “longer days and a faster pace” near each quarter’s end.
The Government explained each defendant’s compensation from Peregrine. Both Lenz and Reichner received high base salaries, large bonuses and stock options. AUSA Bhandari used Ms. O’Keefe’s testimony along with many documents to show the jury the entire picture of the compensation packages that Lenz and Reichner received from Peregrine. There were differences between the two, with Lenz’s compensation being the highest. For example, Bhandari put a “separation” document into evidence that showed that after Lenz was terminated for unsatisfactory performance on March 31, 2002, he received better termination benefits than those that were in his employment contract. Lenz was given a full year of severance pay instead of the six months that was spelled out in his employment contract and Lenz was also given a Del Mar Country Club membership valued at $150,000 as part of his severance.
AUSA Bhandari strongly asserted that Gary Lenz “brought in” Joseph Reichner to Peregrine. He obviously believes that it is important to his case that the jury understand the closeness between Lenz and Reichner.
The Government also discussed Towle’s compensation with Peregrine. Patrick Towle was certainly not compensated nearly as well as Lenz and Reichner, but the Government did show that Towle made an annual salary of $49,000 at Arthur Andersen while his annual salary at Peregrine was $73,365 with a bonus of $5,000.
Attorney for Lenz, Thomas Bienert, cross-examined Mary O’Keefe. Attorney Bienert emphasized that Gary Lenz had nothing to do with Peregrine’s financial decisions. According to Bienert, Lenz was mainly involved with Peregrine’s marketing and business development. For example, Bienert talked about Lenz’s difficult task of trying to integrate Harbinger into Peregrine when Peregrine acquired Harbinger.
Several arguments were made outside the presence of the jury. During the morning break, an attorney for Hewlett-Packard brought a motion to quash defense subpoenas for 17 former Peregrine employee personnel files. The defense seeks the information in the personnel files for impeachment purposes. Defense Attorney Leff indicated that she would be willing to narrow the subpoenas. Judge Whelan quashed the subpoenas, ruling that as stated they are over broad.
After the jury was excused for the day, Defense Attorney Attanasio renewed his motion In Limine to strike the testimony of Mary O’Keefe regarding a possible job interview between herself and Attanasio’s client Daniel Stulac for the position of CFO of Peregrine. Judge Whelan denied the motion without prejudice because it is the judge’s understanding that Mary O’Keefe testified that she and Stulac “discussed” the possibilty of employment of Stulac as CFO but that it was not a job interview.
Attorney Attanasio also made a Brady argument that he needs to know what Defendant Gardner will say on this topic of Stulac’s job interview for the position of Peregrine’s CFO. Judge Whelan asked AUSA Bhandari if Defendant Gardner has made exculpatory statements regarding this issue and Bhandari replied “no.” The matter was ended.
April 18, 2007 – 8:30 a.m. to 1:30 p.m.
WITNESS MARY LOU O’KEEFE
Defense Attorney Thomas Bienert continued his cross-examination of Ms. O’Keefe. Bienert asked Mary Lou O’Keefe questions that illustrated that many sales terms and issues were discussed openly at Peregrine. She testified that she was familiar with terms such as “burn” and “channel sale”, and she testified that hearing these sorts of sales terms while she was employed at Peregrine did not raise any red flags for her.
Attorney Bienert also asked Ms. O’Keefe more questions about the Del Mar Country Club membership that she testified to yesterday as being part of Lenz’s severance package from Peregrine. Mary Lou O’Keefe testified that she was misstaken in her expectation that the country club membership would have typically stayed with Peregrine when Lenz was terminated. Attorney Bienert pointed out that the membership was in Gary Lenz’s name and that therefore it had to go with him when he left Peregrine.
Attorney for Lenz, Bienert, also noted that Ms. O’Keefe was not accurate yesterday when she testified that Gary Lenz received 12 months of severance pay instead of the six months that he was entitled to under his employment contract with Peregrine. This morning, Ms. O’Keefe admitted that the amount of money that was given to Lenz as severance pay was six months worth of salary but was paid out over a 12 month period.
Thomas Bienert painted a picture of his client as never being favored by CEO Steve Gardner. After firing Lenz, Gardner wrote an e-mail to Mary Lou O’Keefe about Gary Lenz that ended with the words “I have already wasted too much energy on this guy.”
Defense Attorney for Joseph Reichner, Gene Iredale, continued his cross-examination of Ms. O’Keefe. Iredale characterized CEO Gardner as a Pac-Man always wanting to gobble up other companies. Mary Lou O’Keefe agreed with this characterization. Through Ms. O’Keefe’s testimony, Iredale illustrated how large Peregrine was by referring to charts which showed the many divisions of the company. Iredale also pointed out that there were many employees with vice president in their job title.
WITNESS DOUGLAS POWANDA
Douglas Powanda took the witness stand this afternoon, due to an interruption in Mary Lou O’Keefe’s testimony because of a medical appointment. Mr. Powanda characterizes himself as a hard working guy who paid his way through college while laboring at blue collar jobs. Powanda testified that he has pled guilty to committing fraud by recognizing revenue at Peregrine that should not have been booked. It is part of his plea agreement that he testify in this trial.
On the stand, Powanda recalled meeting Joseph Reichner for the first time while playing golf. Powanda remembered talking to Reichner at that time about the various types of compensation that were offered by Peregrine, with the stock options being the “true opportunity” to earn a great deal of money. Douglas Powanda testified that he viewed the Peregrine stock options as being meant to help retain employees at the company because the options vested gradually and as long as the stock was going up in value it was a great incentive to keep working at Peregrine.
April 19, 2007 – 8:30 a.m. to 1:30 p.m.
WITNESS MARY LOU O’KEEFE
Attorney Gene Iredale continued his cross-examination of Ms. O’Keefe. Iredale introduced Joseph Reichner’s personnel option status form from Peregrine into evidence. Mary Lou O’Keefe testified that the form indicated that Reichner never exercised his stock options.
Defense Attorney Leff also pointed out that her client, Patrick Towle, did not exercise his stock options, and that in October of 2000, Towle gave notice to Peregrine that he wished to withdraw from their stock purchase plan. In sharp contrast to Patrick Towle’s single bonus of $5,000, Attorney Leff put multiple documents into evidence which showed the many large bonuses (including one raise) given to BJ Rassam at Peregrine. Mary Lou O’Keefe explained today that she was so shocked by the amount of money which was being given to Rassam in the form of various types of bonuses that she took the unusual action of objecting to CEO Gardner about Rassam’s raise. Gardner disregarded her objection.
Attorney Attanasio explored the details of the hiring process at Peregrine with witness Mary Lou O’Keefe. Attanasio confirmed that Ms. O’Keefe has no documents to demonstrate that an actual job interview took place between Peregrine and his client, Daniel Stulac, for the position of CFO.
On re-direct, AUSA Bhandari introduced a Peregrine July 19, 2000 corporate-wide announcement which named Gary Lenz as President and COO. Bhandari said that this is the correct date that Lenz became COO instead of the mid-October 2000 date which he said Attorney Bienert alluded to yesterday. Bhandari also asked Ms. O’Keefe if there was a benefit to the fact that Lenz’s severance pay was extended to 12 months instead of six months. Ms. O’Keefe said that this time extension gave Lenz a longer time period for his stock options to vest. Bhandari also revisited the issue of Mr. Lenz’s country club membership, which was given to him by Peregrine at the time of his termination. The Government brought out through O’Keefe’s testimony, that although she was misstaken regarding her belief that it could have gone back to Peregrine, she did know at the time of Lenz’s termination that Lenz could have sold the membership and given the money back to Peregrine. Mary Lou O’Keefe was excused, subject to recall.
WITNESS DOUGLAS POWANDA
The Government continued direct testimony from Douglas Powanda. Mr. Powanda testified that Peregrine was a company that was extremely focused on meeting its quarterly goals. Powanda explained the illegal activities which would take place if quarterly goals were not met, which included, keeping the books open and backdating sales contracts, recognizing sales as being final when they were not, giving “kickbacks” to deal partners in order to entice them to sign contracts that had hidden contingencies and recognizing sales as being final when they were actually in the channel.
Outside the presence of the jury, the attorney for Hewlett-Packard objected to a new subpoena that Attorney Leff served him this morning on the grounds that it is improper use of 17-C because the information is sought for impeachment purposes. Leff is still seeking the personnel files for several former Peregrine employees. Leff denied that she wants to use the information for impeachment. Leff indicated that she was no longer asking for any personal information. Judge Whelan ruled to quash the subpoenas because they are still over broad.
April 20, 2007 – 8:30 a.m. to 1:30 p.m.
WITNESS DOUGLAS POWANDA
The Government continued their direct examination of Douglas Powanda. They introduced documents into evidence that illustrated the details of various illegal actions on the part of Peregrine. After going over every detail of the illegal activity, the Government made a point of having Mr. Powanda name every person who would have been involved in the meetings in which the illegal activities were discussed. Doug Powanda almost always named Gary Lenz as having been present at such meetings (at least telephonically if not physically present). Joseph Reichner was named as being present much less frequently. Several times during such testimony, after stating that Lenz was present, Powanda would say that he was uncertain if Reichner had attended the discussion or meeting.
The Government also introduced various e-mails into evidence, some of which discussed the ongoing illegal activities. Again, Lenz was a common name on these e-mail communications between various employees at Peregrine, whereas Reichner’s name rarely appeared.
It was not a pleasant day for Doug Powanda. The Government had Mr. Powanda admit on the stand today that he was not truthful when he was questioned by attorneys representing the Board of Directors at Peregrine at a May 2002 meeting. Powanda also had to admit to being nicknamed “the pig” or “porkwanda” while at Peregrine due to his habit of exercising and selling his considerable stock options as quickly as possible. For example, when the figures in a Peregrine stock options report were added up, it was apparent that Mr. Powanda had made over $10 million in one day of exercising and selling his stock options.
Gene Iredale, the attorney for Joseph Reichner, went over the plea agreement that Doug Powanda signed and made him admit to each allegation. Iredale implied that Doug Powanda sold his stock options because he knew Peregrine’s stock values were inflated and based on lies. Iredale asked Powanda if he had kept this information to himself and let innocent people invest in Peregrine to their detriment and his benefit. Powanda answered in the affirmative.