Peregrine Trial – Week 29
Comments by Bob Grimes and Dana Grimes
March 6, 2009 – 9:00 a.m. to 1:00 p.m.
AUSA Narus resumed his direct examination of John Benjamin this morning. Throughout his testimony, Benjamin was composed and forthright. A number of jurors took notes while he testified, and they appeared to find him credible. (The jury panel consists of seven men and five women. There is one man and one woman alternate juror.)
AUSA Narus admitted into evidence various e-mails and documents relating to a line of credit with Fleet Bank. Benjamin testified that without the “Ratification of Guarantee” signed by Deller, Fleet would not have allowed the line of credit to be amended.
On cross-examination, Attorney McConville established there is nothing untoward or illegal about selling accounts receivable to banks. (Arthur Andersen was aware of it, and had no qualms with the practice.) Benjamin reported to Matt Gless, and indicated that BJ Rassam and Matt Gless were the ultimate decision-makers with respect to finances. He further stated that the finance department was responsible for a number of the financial documents reviewed on direct examination yesterday. Benjamin testified that the person in finance responsible for computing numbers was BJ Rassam. Benjamin agreed that his impression of BJ Rassam was that he was a man who tried to insulate himself from blame of any problems in financing.
Attorney McConville highlighted the four “warning flags” discussed in yesterday’s testimony: the BT transaction, the ProCom side-letter, the “double dip” accounting, and the airplane financing. Benjamin stated that Deller had only limited involvement in the airplane financing, and that he never discussed “double dip” accounting with Deller. With respect to the ProCom situation, Benjamin agreed that if he had known that Peregrine had undertaken an investigation of the ProCom deal, and had terminated the people responsible for the side-letter, and that employees in finance were assembled to try to account for it, he would have felt more comfortable.
There was some discussion of a number called “Days Sales Outstanding” (DSO), which essentially averaged how long it took Peregrine to collect on sales. Benjamin testified that Matt Gless would set a DSO goal, and put a large amount of pressure on finance department to meet that number – so much pressure that at least once it made Ilse Cappel cry.
Benjamin testified with respect to the BT transaction that, up until September 2001, any warning flags associated with BT were not yet going up because BT was making its scheduled payments. As far as Benjamin knew, there was no fraud going on at that time. By November 2001, he became aware there was some concern with regard to BT, and occasionally he was cc’d on an e-mail about it, but Cappel was handling the issue. Benjamin really became involved in the BT issue in January 2002.
Attorney McConville went back over a number of January 2002 e-mails presented on direct by AUSA Narus yesterday. The e-mails were among Ilse Cappel, Emma Wilson, Benjamin and others. Benjamin testified that, even during the time period when Emma Wilson expressed she felt “extremely uncomfortable given the background with BT to give the assurances requested” (i.e. an opinion letter from UK general counsel certifying the BT contract was still on all fours), Benjamin was still focused on trying to get BT to pay. Benjamin also testified that when he e-mailed Gless, “We’ve been offering assurances since last July . . . we’re not acting like this is a valid receivable,” he still believed the best solution was to get BT to pay. On re-direct, AUSA Beste established that it was significant to Benjamin that Wilson used the words “extremely uncomfortable,” especially since she was a lawyer. He also stated that even if BT made further payments, it would not have changed the fact that the contract was not valid and enforceable.
Benjamin testified the bank relied on Gless’ representations that the BT receivables were valid and enforceable. On re-direct by AUSA Beste, Benjamin testified that Deller made representations to the Wells Fargo bankers that the BT deal was valid and enforceable, and that such representations are a continuing obligation. Benjamin believes that the bank relied on Mr. Deller’s legal opinions. Attorney McConville established that Eric Deller was not at the February 1, 2002 meeting in which Gless provided false assurances to Wells Fargo bankers, and Benjamin did not correct Gless, resulting in the bank relying on inaccurate information from Peregrine.
Attorney McConville questioned this witness regarding Peregrine’s BT “solution”: to repurchase the BT account receivable from Wells Fargo with new receivables as consideration (as opposed to a cash purchase). Attorney McConville established that Benjamin does not perceive Deller’s request to remove the exhibits from the repurchase agreement as “trying to pull a fast one on the bank.” Rather, Benjamin believes it is reasonable to conclude Deller was simply trying to streamline a contract that was more complicated than a typical sale. Eric Deller was not copied in the later e-mails regarding the final Wells Fargo repurchase of receivables agreement.
As discussed yesterday, at the end of January 2002, based on misleading financial information provided to Fleet Bank, Fleet agreed to waive the covenants that Peregrine would have breached by not meeting its projected earnings that quarter. Benjamin drafted the request for waiver of the covenants. The actual waiver itself was drafted by counsel for Fleet Bank and given to Benjamin, Deller, and Peregrine outside counsel at Wilson Sonsini who reviewed it and accepted it. This waiver required a disclosure in Form 10-Q. The jury was shown an e-mail in which Benjamin offered to schedule a conference with two Wilson Sonsini lawyers to discuss how to deal with the waiver in the 10-Q. There was no loss to Fleet Bank as a result of second amended line of credit.
At 11:42 a.m. John Benjamin was excused.
Special Agent Mark Pennebaker
AUSA Beste called Special Agent Mark Pennebaker to the stand. Special Agent Pennebaker has been an FBI agent for five years. He is on the corporate fraud and securities fraud squad at the FBI and has been a major player in the Peregrine investigation. He has been present during all of the Peregrine criminal trials.
Special Agent Pennebaker read documents stating that Deller was given bonuses totaling just over $130,000 between February 2000 and April 2002, and that he exercised stock options once, receiving approximately $128,000 after taxes.
AUSA Beste went through a number of e-mails with Special Agent Pennebaker. These e-mails were gathered by Latham & Watkins during their internal investigation of Peregrine and then turned over to the FBI. They are a subset of the e-mails that existed at Peregrine, which were selected by attorneys at Latham & Watkins based on search terms such as “BT,” “side letter,” etc. The e-mail database includes approximately 21,000 e-mails to and from Eric Deller.
In one April 2001 e-mail chain, Emma Wilson wrote that if salespeople were properly trained “we wouldn’t have such monumental f**k ups as BT.” The e-mails in this chain established that Emma Wilson felt it was imperative that she be included in a telephone conference related to BT. One e-mail from Ms. Wilson directed to Gless, Deller, Trill, and three or four others stated, “I copied Matt (Gless) and Eric Deller for that reason.” She went on to write that when Gless and Deller knew the background of BT they would agree that the associated Peregrine employees should not be without legal support in the call. Deller responded by e-mail that it was essential for a Peregrine lawyer to participate in the call. He stated that he was not interested in pointing fingers, but he wanted legal counsel from that point forward on the BT deal, writing “None of our lawyers is up to speed on it except Emma.”
Attorney Haag reviewed an e-mail forwarded to Deller, dated March 30, 2002, in which Ms. Wilson indicated that Fleet was not going to buy the BT receivable. In another e-mail chain related to the discovery of the ProCom side letter, Deller wrote to Ms. Wilson “Anyone who participated or looked away on this should be fired or killed . . . unbelievable.”
Special Agent Pennebaker was excused, subject to recall, at 12:39 p.m.
Testimony resumes 9:00 a.m. Tuesday morning.
March 5, 2009 – 9:00 a.m. to 4:00 p.m.
AUSA Beste resumed his direct examination of Ms. Nail this morning. Ms. Nail began working at Peregrine in January 2001. She was hired to run Europe’s merger and acquisition integration. She testified that she was curious about large transactions that had occurred at Peregrine. (On cross-examination by Attorney McConville, Ms. Nail agreed that she is not the type of person who limits herself to her own job responsibilities, but she quarreled with the notion that she “picked around.”) After the BT deal fell apart, she spoke about the “flurry of activity” outside her office to try to “put the deal back together.” She had realized very quickly that BT had an out clause and it was not a valid and enforceable contract. Co-workers in the Europe office discussed the problem openly when in February 2001 BT exercised its out clause and the original contract was dead. Thus, from February through July 2001, there was no deal with BT. She learned that in August 2001 a portion of the BT receivable had been sold to a bank. She stated “It should not have been sold because it was not ever going to get paid.” She confirmed that if an employee at Peregrine represented in March or June 2001 that the BT account receivable was “valid and enforceable” that would be false.
Ms. Nail testified that Emma Wilson was the legal officer for Peregrine in Europe; she was supervised by Deller in San Diego. Ms. Nail asked Ms. Wilson about the BT transaction and others, to make sure they were getting a wider audience than just Peregrine Europe. (Ms. Nail thought at first that the side letters were a European sales team problem.) Emma Wilson told Ms. Nail that Deller knew about the problems with the BT deal. Ms. Nail stated on cross-examination that she expressed her concerns regarding BT to Andy Cahill, and was comforted when he told her the auditors had the information. She agreed that the independent auditors are a company’s “watch dog.” It later became clear to her that the official cancellation of the BT deal absolutely did not go to the auditors.
On cross-examination, Attorney McConville established that Matt Gless, BJ Rassam, and Dorothy Trill made the determinations how contracts should be booked. Ms. Nail testified that boilerplate legalese plus a “Schedule A” make up a Peregrine deal. She stated that the legal department was responsible for the boilerplate, and the commercial terms in the Schedule A were negotiated by the sales team. Those documents were used together by the controller, BJ Rassam, to make a revenue determination. She testified that the people ultimately responsible at Peregrine for the BT transaction were BJ Rassam and Matt Gless.
Ms. Nail testified that audit confirmation of the BT deal was a “major problem” because BT had exercised its out, creating panic amongst the revenue people who had put it on the books and the sales team. She testified that a lot of “steering” was done by the sales manager to get a BT executive to confirm to Arthur Andersen that the BT deal was a valid contract. When the audit confirmation came back from BT in April or May 2001, Ms. Nail found it “completely astounding that a customer would not tell the truth.”
Ms. Nail also discussed a deal that took place in June 2001 with an approximately $6 million price that was called “ProCom.” She called the deal a “quarter-maker,” and stated that Peregrine had a history of making its numbers every quarter, which was considered outstanding at a time when the Dot-com bubble was about to burst. After her observation of BT, she was skeptical when the ProCom deal “magically closed at the end of the quarter.”
Ms. Nail described a meeting in November 2001 among herself, a man named Joseph from ProCom and her boss. Although the ProCom contract “was a vanilla agreement,” Joseph from ProCom gave excuses regarding why they were not paying. Ms. Nail’s boss asked Joseph if he had anything outside of the contract that would allow ProCom not to pay, and Joseph pulled a side letter out from his briefcase. Ms. Nail suddenly realized that significant large transactions entered into by Peregrine had no substance to them. After the ProCom side letter was uncovered, along with other side letters, “heads were rolling.” A number of salesmen responsible for the side letters were fired. Ms. Nail testified this issue was not disclosed to investors in the next fiscal period by management, even though she believed Jeremy Crook’s termination would have been important enough to footnote in a filing with the SEC. On cross-examination, Attorney McConville established Ms. Nail did not have a role in the pre-preparation of Peregrine’s SEC filings or press releases. She does not know who was in charge of that.
Ms. Nail told Emma Wilson a number of times that the entire emerging market channel appeared to be bogus, and that the “power of the pen” Ms. Wilson possessed as a lawyer could be used to write fraudulent deals. Ms. Nail wanted to make sure Ms. Wilson was not inadvertently writing bad contracts. On cross-examination, Attorney McConville established that, despite Ms. Wilson being a smart lawyer, Ms. Nail felt Ms. Wilson did not fully appreciate the financial implications of the contracts. Ms. Nail has never had a substantive discussion with Eric Deller.
Ms. Nail understood that the salespeople in Europe were receiving a large amount of pressure from the United States, from Matt Gless and Andy Cahill. (Cahill ran Worldwide sales – he was the head of the revenue-generating team.) She stated that Ilse Cappel and John Benjamin dealt with the sales of receivables. She also stated that BJ Rassam, the Controller, was in charge of ensuring that revenue was recorded appropriately and that Peregrine’s books and records were accurate.
Attorney McConville displayed various e-mails to the jury, including one December 2001 e-mail from Ms. Nail asking various people to “touch base to make sure that we are all on the same page with revenue recognition” because she “sensed a disconnect” between the sales, finance and legal departments. However, soon events overtook her efforts.
Ms. Nail discussed the May 6, 2002 press release announcing the resignation of the CEO and CFO. She stated “they didn’t resign, they were fired” when their side letters and fraud were discovered. She said that, at that point, the company was in free-fall; the stock was de-listed, 1,500 people were laid off in San Diego, and another 500 or so were laid off in Europe. The stock options of the employees became worthless.
AUSA Bill Narus conducted the direct examination of John Benjamin. Benjamin pled guilty to Conspiracy to Commit Wire Fraud by providing false information to financial institutions via e-mail and telephone, deceiving the banks. He testified that Matt Gless, Ilse Cappel, BJ Rassam, and Eric Deller were involved in deceiving the banks. In 2004, Benjamin signed a guilty plea under which his advisory guideline sentencing range was between 10 and 16 months of custody. He received a benefit for cooperating with the Government and was sentenced on December 23, 2008 to five years of probation.
Benjamin testified that it is only possible to sell an account receivable that is valid and enforceable. The bank purchasing the receivable would know whether an account was valid from Peregrine’s representations made to the bank. Those representations consisted of certain legal documents signed by Deller, and other documents signed by CFO Gless.
Benjamin testified to a number of “warning signs” that Peregrine was in trouble. He stated that in the fall of 2001 he did not know Gless had committed fraud, but around that time he began to see warning signs. For example, Ilse Cappel approached Benjamin with evidence of the ProCom side letter relieving ProCom of its obligation to pay. This concerned Benjamin, who reported it to Rassam. Rassam was defensive and asserted that he had nothing to do with it. He also told Deller about it, because as general counsel Deller was supposed to know about it. Deller was anguished when they learned of the side letter.
Another cause for concern to Benjamin related to his negotiations in December 2001 to purchase a corporate aircraft. He was negotiating to purchase the aircraft just a few days before Peregrine announced a significant shortfall in revenue and earnings. Benjamin was upset that Gless must have known that they were going to miss their numbers, but he nonetheless recklessly wanted to ask a bank to loan Peregrine $30 or $40 million dollars for a luxury item. Benjamin stopped trusting Gless.
The last major warning sign that Benjamin discussed observing related to the BT deal, when it became apparent that the account receivable sold to Wells Fargo was not enforceable. Benjamin does not know who at Peregrine represented that the BT deal was valid and enforceable when it was sold to Wells Fargo. AUSA Narus introduced a number of e-mails into evidence that cc’d Peregrine employees, including Benjamin and Deller. These e-mails discussed the problem of Wells Fargo requesting an assurance from Peregrine UK legal counsel that the BT contract was valid and enforceable for insurance purposes. Emma Wilson, the UK counsel, responded to her Peregrine colleagues that she would be extremely uncomfortable certifying the BT contract as valid and enforceable; as Ms. Cappel pointed out, Peregrine was not treating the BT deal like a valid contract internally because they were not attempting to collect. At that point, Benjamin believed his obligation was to notify Wells Fargo that they had the right to get their money back, but he did not do so because that could have resulted in Peregrine seeking bankruptcy protection.
According to Benjamin, Deller was made aware at the end of January 2002 of this issue. He recounted a meeting in Deller’s office, with Cappel, Deller and Benjamin present, in which they discussed the effect that the Wells Fargo repurchase could have on the cash situation of the company at the end of March 2002. Gless, Cappel and Benjamin did not tell the bank they had a right to get their money back from Peregrine because that would have created very significant problems for the company.
Benjamin testified that Deller knew Wells Fargo had purchased the BT account receivable. They did not discuss the details as to the BT account receivable having been invalid to begin with; they focused on the implications of a costly repurchase by Peregrine of the account receivable.
In connection with “the Revolver,” a revolving $150 million line of credit, Benjamin provided false information to Fleet Bank in late January 2002 by making the misrepresentation that all sold receivables were valid and enforceable. AUSA Beste introduced e-mails from January 2002 indicating that Deller was aware that Benjamin was preparing a wavier for Peregrine’s obligations under the Revolver, and that Benjamin worked with Deller on an amendment to the Revolver. Not all relevant information was disclosed to Fleet Bank when the second Amendment was executed – material omissions included the uncollectible nature of the BT deal, so-called “double-dipping” accounting irregularities, and the ProCom side letter. AUSA Narus highlighted that Deller signed a “Ratify of Guarantee” to the amendment, certifying that Peregrine subsidiaries guaranteed the amended Revolver.
AUSA Narus also introduced an e-mail from Benjamin to a Wells Fargo employee responding to a demand letter on which Deller was cc’d. The e-mail read “our general counsel feels that the covenants in the letter are sufficient to document the agreement, and as such, the exhibits are unnecessary.” The exhibits referred to include a form of opinion of counsel to Peregrine (something Deller would sign) and a form of certificate of officer of Peregrine. The implication AUSA Narus made was that Deller didn’t want to sign an opinion letter making misrepresentations to the bank. The bank demanded the opinion letters, which ultimately were executed. Peregrine financial employees “fixed” the BT receivable problem by repaying Wells Fargo with other accounts receivable, not cash. The ultimate loss to Wells Fargo from the BT receivable and those substituted for it was $340,000 – an amount consistent with the normal 2% of accounts receivable being uncollectible.
Today’s testimony was dense and laden with accounting terminology. The jurors appeared attentive throughout the day. Testimony will resume at 9:00 a.m. tomorrow.
March 4, 2009 – 9:20 a.m. to 4:00 p.m.
A jury of diverse backgrounds, ages and professions was selected today to serve in the Deller trial. One juror was so happy to make it to the jury box he hollered “Hot dog!” when his name was called. Some of his fellow jurors include a retired Continental airline pilot, a young high school teacher and a former mortuary driver (who joked with counsel that he was particular about his job, because you would not want to deliver the kind of package he transported to the wrong person). The Government hopes they will come to “the only conclusion supported by the evidence” and return a verdict of guilty on all counts, whereas the defense hopes the jury will “end this nightmare” for Deller by finding he is an innocent man.
AUSA Beste delivered the opening statement for the Government. His statement was brief, about 40 minutes in length, and clear. He stated the evidence would show that a handful of senior executive-level employees at Peregrine, including the CEO, CFO, high-ranking salesmen, and General Counsel Deller were responsible for the fraud at Peregrine Systems. He stated that Deller and the Peregrine defendants who have pled guilty created “phantom sales.”
AUSA Beste displayed PowerPoint slides, juxtaposing Deller’s photo with the allegations against him, including the issuance of false press releases, false SEC filings and false legal opinions, and the concealment of information from banks and investors. He said the evidence will show that Deller received a number of “warning signs” of the illegal activity at Peregrine, including a letter from a former employee’s lawyer claiming the employee was wrongfully terminated for failing to go along with “unethical and illegal” sales practices such as channel stuffing.
AUSA Beste stated Deller signed legal documents allowing Peregrine to borrow money, erroneously certifying bad accounts receivable as valid and enforceable. He used the BT deal as an example, stating that Deller gave statements to Wall Street claiming that he had “examined” the deal and that it was legitimate (when in fact there was an out-clause in that deal which BT utilized).
Throughout jury selection, Deller presented as a likeable person. He smiled at jokes, looked at prospective jurors, and occasionally glanced at his wife and other friends and family in the courtroom. Deller, a tall man with a square jaw and a military style haircut, remained stoic during both opening statements.
Attorney Haag made a compelling opening statement for the defense. She agreed that there was a group of insiders, the top managers and sales people at Peregrine, who were in the fraud “up to their eyeballs,” but argued that Deller was not among them. She stated that Deller was an inexperienced young attorney in over his head, when nine months after responding to a newspaper ad for legal work at Peregrine, and without any real in-house experience, he found himself taking over the role of general counsel. As Peregrine grew and acquired new companies, she explained Deller was so overwhelmed it was as if he was “drinking water from a fire hose.”
She also stated that Deller relied on the successful people who ran the corporation, including superstar CEO Steve Gardner, and on Arthur Andersen’s audits of the financial statements. She stated that it was not Deller’s role, nor was it even within his skill set, to evaluate the finances of the corporation. Attorney Haag stated that the people with knowledge of the fraud – Gardner, Farley, Gless, and the top salesmen – met for forecast meetings to discuss the real numbers, and Deller was not in that executive suite.
Attorney Haag told the jurors that one evening in the Spring of 2002, a KPMG auditor found a suspicious document in BJ Rassam’s office contradicting the information Peregrine had been providing its auditors; shortly thereafter, the fraud was uncovered and the criminal indictments began. She said that the only reason Deller was indicted, five years after that e-mail was found in Rassam’s office, is because Rassam is using “the only way out in this system,” implicating someone else. She stated that Rassam has an incentive to lie, because when he first appeared in court to face the charges against him, the Government announced that the total exposure in prison for all of the counts against him was a thousand years. The Government announced in court that the mandatory sentence on Rassam’s charges was life imprisonment, and stated that would be the likely recommendation. (BJ Rassam was sentenced to 24 months of custody. The recommendation of the Government, taking his cooperation into consideration, was 41 months.)
Attorney Haag stated that there would be no evidence that Deller knew of the accounting fraud scheme.
AUSA Beste called the Government’s first witness, Mr. Michael Faber. Mr. Faber is a plaintiff’s employment litigation attorney in Santa Monica. He represented an employee fired by Peregrine in a wrongful termination demand. Mr. Faber wrote a letter to Peregrine Systems on his client’s behalf, stating that the employee had learned that salespeople at Peregrine were manipulating revenue projections to inflate the stock price in violation of SEC laws. His claim was that the employee had been terminated for objecting to that practice and for refusing to participate in it. AUSA Beste established that Peregrine did not owe any money to the employee; however, after Mr. Faber sent the letter outlining the employee’s claim to Peregrine, the employee received a half-a-million dollar settlement.
On cross-examination, Attorney Haag pointed out that Deller responded to the letter denying the allegations on behalf of Peregrine. She established that Mr. Faber wrote his letter based up the representations of his client, not any independent factual investigation. She revealed that the employee had been fired for insulting employees by forcing them to wear dunce caps if they performed poorly, and noted that a sexual harassment claim had been made against him. She suggested that the $500,000 in severance pay given to the employee was paid by Peregrine to avoid the nuisance of defending a lawsuit.
The Government’s second witness, called by AUSA Beste, is Ms. Gretchen Nail. Ms. Nail worked at the London office of Peregrine. She recounted that when Peregrine went on a “massive buying spree” of companies, the work was difficult to manage. Because of her background in contracts and her desire to understand how Peregrine conducted business, she read the software licensing agreement between Peregrine and BT. She realized that there was a 30-day out clause, and knew that it made the $10 million contract unenforceable. She explained that the reaction was “panic” amongst the salespeople when the BT deal dissolved. Ms. Nail’s testimony will resume tomorrow morning at 9:00 a.m.
March 3, 2009 – 9:30 a.m. to 4:30 p.m.
Outside of Judge Whelan’s courtroom there was further carnage in the financial industry and more headlines forecasting national and global economic disaster; inside the courtroom jury selection began in the trial of Eric Deller, a man charged with being part of an employee scheme that defrauded Wall Street, caused the collapse of a Fortune 500 company and cost innocent investors billions of dollars. The jurors did not forget about the calamitous economic climate when they stepped into court this morning. When defense attorney Thomas McConville asked “We are currently in a financial catastrophe – does anybody believe that it’s related to corporate greed?” The entire courtroom erupted in laughter.
A number of prospective jurors talked about declining 401K’s, and their reluctance even to open their investment statements. Clearly Mr. Deller’s attorneys are concerned that the recent collapse of our economy will bias the jurors against Deller, whose alleged misconduct occurred in the 1999-2002 timeframe. Attorney McConville stated to the jury during voir dire that the evidence would show Deller did not line his pockets before Peregrine’s collapse, as did some of his co-defendants. Attorney McConville suggested the Government will not be able to prove motive for this economic crime because Deller did not make money from it. (This echoes Attorney Mike Attanasio’s successful “follow-the-money” argument for his client Dan Stulac in the first two Peregrine trials.)
AUSA Beste, on the other hand, implied with hypothetical questions to the jury panel that, although Deller did not profit as certain co-defendants did, he is equally responsible for his role in the conspiracy. (Jurors nodded in agreement when AUSA Beste asked if two bank robbers are equally responsible if they happen to end up with different amounts of money for the same robbery.) AUSA Beste used a few other analogies in his voir dire, including the home-inspector analogy he used in the last Peregrine trial – asking jurors how they would react if they realized a home inspector had irresponsibly signed off on their house, not alerting them to a cracked foundation. His questions to the jurors suggest that the Government will argue that Deller made misrepresentations, concealed material facts, and signed false certifications giving an air of legitimacy to deals he knew were phony.
The defense team inquired about prospective jurors’ familiarity with e-mail, and a number of jurors agreed that they do not assign the same level of priority to every e-mail. Interestingly, at one point, when Attorney McConville was talking to a woman whose daughter works in the legal malpractice insurance industry, he referred to a mistake a lawyer could make as a “monumental screw-up.” This had a strikingly similar sound to the phrase “monumental f%*k up,” which appears in an e-mail that will probably be introduced by the Government as evidence of Deller’s understanding of the scheme at Peregrine. It is likely that much of what the Government argues as evidence of intent will be argued by the defense as evidence of mistake.
Jury selection will resume tomorrow morning at 9:00 a.m., after which the Government will begin the presentation of its case on the 7-count indictment.
March 2, 2009 – 2:15 p.m. to 3:00 p.m.
Eric Deller was named in the Third Superseding Indictment in the Peregrine case in April 2007. He will be tried tomorrow on Bank Fraud, Securities Fraud, Conspiracy to Commit Bank Fraud, and Wire Fraud charges. The Government estimates their case-in-chief will not last more than two weeks, and Deller’s four defense attorneys (Melinda Haag, Thomas McConville, Warrington Parker and Sarah Mariott) predict a four-week trial.
The final status conference took place today in Judge Whelan’s courtroom. There was much discussion regarding a videotaped deposition of former Peregrine employee Emma Wilson (who was deposed in London by the defense attorneys and the prosecutors because she will be unavailable at trial). Emma Wilson was a subordinate of Deller’s at Peregrine. According to the government, “Wilson demonstrated that she was aligned with Defendant Deller . . . displayed hostility toward the Government” and called an FBI report by Special Agent Cook describing her prior statements “rubbish.” According to the defense, “Emma Wilson is not on anyone’s side; she is a fact witness.”
Judge Whelan ruled that the Government can not play the deposition in its entirety to the jury as part of their case-in-chief, but they can use it in rebuttal if circumstances warrant it.
The parties then attempted in various ways to illicit evidentiary rulings from the court, but Judge Whelan holds firm in his belief that he should hear the evidence before he rules on it. Attorney Haag argued that the judge should rule on her statute of limitations argument as to one of the counts before trial, but the Court declined. The defense also expressed concern regarding so-called Pinkerton liability (a doctrine under which an overt act of one conspirator may be the act of all conspirators without any new agreement specifically directed to that act). Defense counsel stated they thought they were defending bank fraud committed by Deller, but now the Government is “switching gears” to a conspiracy theory, and can argue that Gless or Cappel committed the fraud. Judge Whelan pointed out that the indictment contains conspiracy charges and indicated that, if the evidence shows conspiracy, he will instruct on Pinkerton.
There is an attorney-client privilege issue present in this trial that did not exist in the previous two Peregrine trials, because Deller was Peregrine’s General Counsel from March 2000 to June 2002. Judge Whelan indicated that he agrees that a lawyer is under a different duty than say, a treasurer, when it comes to alerting a bank of his client’s possible misrepresentations. Judge Whelan told both parties, “We’ll cross that bridge when we get to it.”
The trial schedule is Tuesday through Thursday from 9:00 a.m. until 4:00 p.m., and Friday from 9:00 a.m. to 1:00 p.m. Jury voir dire will begin tomorrow morning.