Comments by Bob Grimes and Dana Grimes
February 19, 2008 – 2:15 p.m. to 3:20 p.m.
MOTION HEARING – DELLER, CROOK, AND NELSON
Although the retrial of Stulac and Towle was not in session, Judge Whelan heard oral argument today on various motions filed by counsel for defendants Jeremy Crook, Richard Nelson, and Eric Deller. Government responses and oppositions were filed by the three AUSAs who will prosecute this next Peregrine case: Eric Beste, Bill Narus, and Faith Devine. When Judge Whelan conducts a motion hearing, it is immediately apparent that he not only has read all of the motions filed by the lawyers, but that he also remembers the relevant testimony from prior proceedings and knows the relevant case law. Before hearing from either side, he gives a tentative ruling and his reasons for it, which serves to focus the attorneys in their oral argument.
Attorney Benjamin Coleman requested, on behalf of Jeremy Crook, that the court dismiss Counts 2 through 45, arguing that the rules of specialty and dual criminality mandate that the Government should be permitted to proceed on only Count 1 – the conspiracy charge. Crook has been extradited from the United Kingdom to stand trial; he worked at Peregrine’s European headquarters. Attorney Coleman argued that AUSA Sanjay Bandari (who is no longer on the case), only vaguely alleged in his extradition affidavit that Mr. Crook took part in a conspiracy, and that as a result, a judge in the UK found that Mr. Crook’s extradition was limited in scope and could go forward on four specific charges.
Attorney Coleman, along with Co-counsel Timothy Scott, moved to compel the Government to provide notice of any non-United States deals that it seeks to introduce at trial, in order to provide Mr. Crook his constitutional right to prepare a defense to those allegations. AUSA Devine responded that she cannot say right now which deals the Government intends to use. Judge Whelan denied the defense motion, with the understanding that, no later than five months before trial the Government will provide the defense with a list of the non-United States deals it plans to use. When the Government asked for clarification that the request that it provide the defense with such a list was not actually an order, Judge Whelan stated, “It is not a court order, just a strong suggestion.”
Attorney Bob Brewer moved to sever Richard Nelson’s trial from that of defendants Crook and Deller “and any of the original defendants who may face re-re-trial if the jury once again is hung” (referring to Dan Stulac and Patrick Towle). Attorney Brewer argued that it is improper for the Government to try Nelson, a former attorney, with defendant Crook and any others who were involved in sales and auditing. Brewer contended that many of the counts in the third superseding indictment have nothing to do with Nelson. In his papers, Attorney Brewer asserted that the Government is hoping Nelson will be “implicated by the sheer weight of the evidence brought in to establish unrelated allegations against other defendants.” Judge Whelan denied this motion, stating that any danger of spill-over evidence can be addressed via jury instruction. Judge Whelan noted that, in the first Peregrine trial, jurors followed their instructions, as evidenced by the fact that they hung in different amounts for each defendant.
Eric Deller’s Brady motion was denied, as the court ruled that there has been no showing that the Government has withheld any material evidence from the defense. (As a result of Supreme Court cases Brady and Giglio, the Government is constitutionally required to disclose any evidence favorable to the defendant that is material to either guilt or punishment, including evidence that may impact on the credibility of a witness.)
Attorney Brewer, who joined in defendant Deller’s motion, said that this case presents a “very unusual situation,” as no notes were taken nor were FBI reports generated from meetings with Steve Gardner, despite the fact that he was a key witness who was on the stand for 12 days in the first trial. Attorney Brewer argued forcefully that he does not have any access to Brady and Giglio material as a result of the lack of note taking. He suggested that the court conduct a hearing, calling Gardner and FBI agents to the stand to find out what was said during those interviews. AUSA Beste was present at the interviews with Gardner, and has indicated that there is no Brady or Giglio material. Judge Whelan stated he is confident that both the defense counsel and Government attorneys in this case are competent and ethical. He explained that if the Government even has any question of whether a particular piece of evidence is Brady or Giglio material, he believes they will present it to him in camera.
As of yet, the attorneys cannot all agree on a trial date. Attorneys for Deller and Nelson indicate that they will not be prepared until 2009. The Government wants to go to trial this year. There is a tentative two-month trial estimate. On April 28, 2008 at 9:00 a.m., the court will hold a trial status hearing.
Tomorrow the trial of Dan Stulac and Patrick Towle resumes, but only for one day. The trial will resume again on its regular schedule (Tuesdays through Fridays) on Tuesday, February 26. Based on discussions in court today, it appears that the trial of Stulac and Towle could last until late March.
February 20, 2008 – 9:00 a.m. to 3:50 p.m.
The direct examination of Lynn Morimoto resumed this morning, with AUSA Bill Narus establishing that, at first, Matt Gless asked Ms. Morimoto to white-out the fax headers on contracts, and that at some point he stopped. Then, Patrick Towle began to ask her to white-out the headers, and after a while she did it without being asked. She testified that no one told her why she should white-out the fax headers, but she surmised that the outside auditors cared about the dates. During Attorney Thickstun’s cross-examination, AUSA Narus stood and objected so many times to her line of questioning, that he eventually just stayed on his feet, objecting to everything she asked. It became apparent later that she was trying to establish that Ms. Morimoto now works with Matt Gless at a company called Quest Software, and that she is biased in his favor. She indicated that her testimony is not colored by her relationship to Gless.
AUSA Narus then called Inez Luna to the stand; she was a temporary consultant for an outside auditor, and personally packed approximately six to eight boxes of documents found in Patrick Towle’s office. It was her understanding that at the time she was called upon to do this, Towle was no longer working for Peregrine, and had left a few days to a week prior. She stated that the door was unlocked by Peregrine’s attorney to allow her to enter the office, but when pressed on this point, stated that she did not actually see anybody unlock the door. She explained the process of putting “Bates” stamps on documents to keep track of them during an internal investigation. She was asked by AUSA Narus to review some of the documents recovered from Towle’s office, including numerous Schedule A contracts between Peregrine and KPMG (with end-users such as Morgan Stanley, Boeing, and Honeywell). She read the fax headings, which were typically a few days after the hard dates on the contracts. For instance, on a KPMG-Morgan Stanley contract with a value of approximately $11 million, the hard date next to the signature line was September 29, 2000, and the fax header read October 3, 2000. AUSA Narus also asked this witness to read from the quarter the revenue was booked under (which in the KPMG-Morgan Stanley example was the quarter ended September 30, 2000). AUSA Narus directed her attention to documents indicating that, on many KPMG deals, there were large write-offs.
On cross-examination, Attorney Thickstun elicited that there were close to 20,000 pages taken from Towle’s office, and Ms. Luna testified that she does not know when, how, or why those documents got into his office.
Next, AUSA Beste called Bryan Wycliff to the stand. Mr. Wycliff has worked for Pricewaterhouse Coopers (PWC) for 20 years. He works with the forensic technology group at PWC that was hired by Peregrine to assist in its internal investigation. Most of these e-mails were obtained from KPMG. KPMG retrieved the e-mails from servers and forensic images of computers inside of Peregrine. The e-mails were compiled onto an “SQL Database” and a program was written enabling a user to search through the e-mails with key terms. Mr. Wycliff is the keeper of the e-mails and, as we learned in the first trial, an e-mail lasts forever.
AUSA Beste displayed various e-mails retrieved from the Peregrine database, including a channel burned/paid analysis Excel document. On this Excel spreadsheet, there were four KPMG deal rows, with the following columns: book date, total purchased, total burned, total paid, total remaining to burn, and total remaining to pay. AUSA Beste presented this to illustrate that most of the money from the KPMG deals was in the “remaining to pay” column. AUSA Beste presented the witness with an e-mail from Towle to Gless, attaching a “channel inventory” document. Towle wrote in this e-mail to Gless that in the past quarter, they had collected less that $1 million, and that the total balance was $140 million, of which $100 million was booked in the last four quarters. In another e-mail, dated October 4, 2001, Towle responded to an inquiry of Ilse Cappel regarding when he would be finished billing for the September quarter by stating that he expected to be finished billing that very day, but that Matt Gless told him “there may still be a few more deals out there.”
Going over the e-mails, and the complicated process by which they were gathered, left the jurors looking dazed. Perhaps sensing this, Attorney Attanasio began his cross-examination with a bit of comic relief, asking Mr. Wycliff a sentence so full of the acronyms the witness had been using, that it had no actual words in it. Attanasio then elicited the testimony that PWC was in some respects reliant on the data it was provided by KPMG, which in turn had gathered its data from Peregrine. He established that PWC took over from KPMG because of a potential conflict of interest, and that, in fact, KPMG ended up being one of the search terms used to look through the database. The witness testified that it is his understanding that Peregrine employed a deletion policy with e-mails, and that, after 90 days, the company automatically deleted e-mails. Attorney Attanasio then asked Mr. Wycliff a question about programs for “scrubbing” a computer’s memory, such as the “Window Washer” software. Over the Government’s objection to its authentication, which was overruled, Attorney Attanasio showed Mr. Wycliff an e-mail from Gardner asking to buy a new Window Washer program.
(Interestingly, almost exactly one year ago, February 27, 2007, Judge Whelan heard a motion by Steve Gardner’s counsel to exclude evidence of the Window Washer program. At that hearing, the Government argued that they had an expert witness who had examined Gardner’s laptop computer and found that a Window Washer program had been installed after Gardner learned of the Peregrine internal investigation, and that information had been removed from the laptop computer, including information from folders that appeared to have contained documents that would have been relevant to the investigation. Judge Whelan ruled that the evidence of this expert witness would be admissible.)
Attorney Attanasio’s main point on cross was that, as the jury sits here today, they can’t know how many thousands of e-mails were deleted by Peregrine’s automatic deletion policy or the Window Washer program. On cross-examination by Attorney Thickstun, Mr. Wycliff stated that one e-mail was from the United Kingdom, and the contract amount was in pounds. He also indicated that it is impossible for him to know when the contracts were signed; he does not know if they were signed on the date indicated by the hard date line, or the date indicated on the fax headers.
Mary Lou O’Keefe was scheduled to be the next witness. Outside the presence of the jury, and before allowing her to testify, Judge Whelan asked Mary Lou O’Keefe questions relating to the fact that she began reading this blog after her testimony in the first trial. Judge Whelan asked Ms. O’Keefe questions in order to determine whether her reading of this blog would affect her testimony today. Judge Whelan determined that her blog reading would not affect her testimony.
Mary Lou O’Keefe took the stand. She was the Senior Vice President of Peregrine, and helped in the hiring of senior level employees. AUSA Narus elicited on direct examination that, in 2000, Dan Stulac interviewed with Ms. O’Keefe for 45 minutes to discuss his candidacy for the CFO position. It was Ms. O’Keefe’s opinion that Stulac was not ready for that position, as he lacked managerial and leadership experience in a publicly traded software company. Matt Gless ended up filling the position, when CFO Farley unexpectedly died. On cross-examination, Ms. O’Keefe testified that she believed Gless was also unqualified for the position, but that he was hand-picked by Gardner. She also stated that many interviews were conducted in a more formal way than was Stulac’s interview, and involved resume review and scheduling meetings with upper management.
On cross-examination, Ms. O’Keefe testified regarding what she considered to be excessive bonuses and stock options for BJ Rassam. (These bonuses are referred to in the corporate world as golden handcuffs, because they entice key employees to stay and help develop a company.) Attorney Attanasio displayed a February 22, 2001 e-mail chain between Mary Lou O’Keefe and Steve Gardner in which O’Keefe opposed giving Rassam another bonus. Gardner wrote back that he respectfully disagreed with O’Keefe because Peregrine needed Rassam; Gardner stated that Rassam was the “only possible back-up” for Gless.
The final witness of the day was Leslie Romines, who took the stand at 3:35 p.m. Ms. Romines was the executive assist to Ms. O’Keefe, who was in charge of coordinating interviews with candidates and Peregrine employees. High-level executive candidates met with upper-level Peregrine management in interviews sometimes lasting half a day. She was presented with an e-mail in which she had written to the executive assistants of Gardner and Lenz that Stulac and others had upcoming interviews. Attorney Attanasio pointed out on cross-examination that Ms. Romines has no knowledge of what actually happened on Stulac’s interview date, and that he did not have a long list of meetings scheduled with Peregrine management, as did other candidates in the e-mail.
At 3:50 p.m. today, Ms. Romines was excused. Testimony resumes next Tuesday at 9:30 a.m.