Peregrine Trial – Week 28

Comments by Bob Grimes and Dana Grimes

February 21, 2009

A new surrender date was ordered for Stephen Gardner – he must report to the Bureau of Prisons by noon on April 6, 2009, to begin serving his 97 month sentence. This new date was selected to make him more readily available to testify against Eric Deller, whose trial is still scheduled to begin on March 3.

To allow Deller’s defense attorneys to prepare for the cross-examination of Government witnesses, Judge Whelan has ordered that Deller’s lawyers will be able to access information from the presentence reports of Peregrine defendants who have pled guilty and will likely be called as Government witnesses. (These defendants are John Benjamin, Matthew Gless, Douglas Powanda, and B.J. Rassam.) This information includes each defendant’s statement of the offense, each defendant’s employment since working at Peregrine, and each defendant’s financial information.

The parties are also making preparations to have computers, printers, monitors and other electronic equipment in the courtroom to assist with the presentation of evidence in this trial.

February 10, 2009

Eric Deller, the sole remaining Peregrine defendant, appeared in federal court today, accompanied by his two defense attorneys, Melinda Haag and Thomas McConville. For over an hour, the defense attorneys and AUSA Bill Narus discussed the status of the imminent trial. Judge Whelan heard a number of pre-trial motions, listening to argument from both sides on issues such as the production of evidence, jury questionnaires, and expert testimony.

Judge Whelan agreed to conduct an in camera review of the probation reports of cooperating defendants whom the Government intends to call as witnesses against Mr. Deller to evaluate them for possible exculpatory material. The judge ruled this blog will be dealt with the same way that it was handled in the last two trials; if the parties raise the issue, blog-reading witnesses will be questioned outside of the presence of the jury to evaluate whether they can provide testimony independent of what they have read. Judge Whelan deferred a number of rulings regarding the relevance of potential evidence because, as he has indicated in the past, he does not like to rule in a vacuum. With regard to ruling on the evidence as it is presented at trial, Judge Whelan stated “You’ll just have to trust me that I’ve done this before.”

Attorney Haag argued strenuously for a dismissal of the indictment for alleged violations of the Speedy Trial Act. After Judge Whelan denied the motion, Attorney McConville joined her in arguing for a continuance. Deller’s attorneys stated that the entire landscape of the case had changed for them with the guilty pleas of Defendants Crook and Nelson, and that they had only prepared for a few witnesses because until three weeks ago they thought they were going to be defending the least culpable, least involved defendant in a three-defendant trial. Attorney Haag stated “We were hoping to blend into the background,” and argued that they were now way behind, having to prepare for every possible Government witness. She gave a long list of things the defense team still needs to do before trial now that Mr. Deller is the sole defendant. Judge Whelan denied the motion for a continuance, finding that Mr. Deller’s attorneys have had ample time to prepare the case because they have been handling it for two years, and noting that the attorneys agreed long ago to the March 3, 2009 trial date.

Now that Mr. Crook and Mr. Nelson have pled guilty, this third Peregrine trial will likely last two to three weeks. On March 2, 2009 at 2:00 p.m., the parties will meet again in Judge Whelan’s courtroom to discuss pre-trial status. Jury selection is scheduled to begin on March 3, 2009 at 9:00 a.m.

January 26, 2009

On January 26, 2009, Jeremy Crook appeared in front of Judge Whalen and pled guilty to one count of wire fraud. Crook was hired by Peregrine in 1998 as Vice President of its European sales operations, and held this position until his resignation in October 2001. In his plea agreement, Crook admitted that he and his co-conspirators, including Gardner, Gless, and Cahill, knew that in late 2000 Peregrine was negotiating with British Telecom PLC (BT) over the sale of Peregrine software for resale to end-users. By January 2001, Peregrine and BT had not reached an agreement on a binding contract for the sale of this software, but the co-conspirators wanted to include revenue from this transaction in the fiscal quarter that had ended on December 31, 2000. In order to convince BT to sign a backdated contract for this deal, Peregrine agreed to grant BT a 30-day “money back guarantee,” which allowed BT to cancel the contract for any reason within 30 days. On January 4, 2001, Crook signed the contract, backdated to December 2000, and caused it to be faxed from the United Kingdom to San Diego.

The maximum penalty for this wire fraud conviction is 5 years in prison and a fine of $250,000. Under the plea agreement negotiated for Crook by his attorney, Ben Coleman, with Assistant United States Attorneys Eric Beste and Bill Narus, the advisory guideline range is 46 to 57 months, and the Government will recommend the lower end of that range. A significant factor in the guideline analysis is the amount of loss; at his sentencing, Crook will have the opportunity to argue to Judge Whalen that the amount of loss in the plea agreement ($80,000,000) overstates the loss caused by his involvement in the fraud.

Eric Deller is the last remaining Peregrine criminal defendant. His trial is still set for March 3, 2009, and he is scheduled to appear on February 10, 2009 for pretrial motions. Deller, who was an in-house lawyer at Peregrine and general counsel for a time, was the last Peregrine defendant indicted, on April 25, 2007. The initial indictment was returned in October 2004. The Government appears to believe that Deller had a minor role in the fraud at Peregrine, but enough involvement to justify an indictment. Deller’s position is that he was never knowingly involved in the fraud.

The major conspirators in the fraud have already been sentenced. Of the final three defendants involved in the third trial, Crook had the most significant role in the fraud, and now he has pled guilty. Nelson, who was not viewed by the Government as a major conspirator, but probably was viewed as more culpable than Deller, pled guilty last week. It may be possible that, in view of these recent pleas, the Government will re-evaluate whether it still wants to try this case against this one remaining defendant. At the present time, however, it appears that both the Government and Deller are preparing for trial, and both sides continue actively to file pretrial motions and responses to motions related to procedural and evidentiary issues.

January 9, 2009

Richard Nelson appeared in court on January 9, 2009 and pled guilty to one count of bank fraud. In a written plea agreement, Mr. Nelson admitted that in November or December 2001, he learned that millions of dollars in reseller transactions in Peregrine’s Europe, Middle East, and Africa Divisions were uncollectible because Peregrine representatives had given side letters to customers, relieving them of any obligation to pay on these deals. By December 2001, Peregrine had obtained more than $100 million in loans from banks, including Fleet Bank, using its receivables as collateral, and Richard Nelson admitted that he knew that it was highly likely that the financial statements provided to Fleet Bank were false. It was agreed by the parties that because the borrowed funds were repaid before the offense was detected, there was no actual loss to Fleet Bank.

The base offense level for the above conduct under the advisory sentencing guidelines is level 10, which calls for six to twelve months in custody. The Government will recommend the lower end of the range, so they will presumably be arguing for six months in custody, and Nelson’s lawyers will likely argue for probation or home detention.

Richard Nelson is a CPA and an attorney (he will be losing both of those licenses as a result of this conviction), and his positions at Peregrine included general counsel, corporate secretary, and COO. The Government never viewed Nelson as having the level of culpability of Gardner, Gless and Powanda, but based on the statements of cooperating defendants, e-mails, and other documents, they believed that he was involved in the fraud and had to be held accountable.

Nelson’s lead defense counsel, Bob Brewer, is a highly regarded white-collar defense lawyer who has tried many significant cases, but this was an offer he could not let his client turn down. To roll the dice on a jury trial in this case would have exposed Nelson to the risk of a sentence of 10 to 15 years in federal prison because of the sentencing guideline calculations, had he been convicted on some or all of the counts that were dismissed under this agreement.

In this case the primary conspirators, including Gardner, Gless, Powanda, Cahill, and Rassam, have all been sentenced prior to their potential testimony in the third trial. Usually, cooperating defendants are not sentenced until after their trial testimony is concluded, and the fact that the cooperating defendants in this case have already been sentenced could have put Nelson at a tactical disadvantage in cross-examining these witnesses (this is a problem that the remaining defendants Crook and Deller will face when the trial begins on March 3, 2009). The defense attorneys during the first two trials were successful in cross-examining the cooperating defendants with their plea agreements. For example, Gardner’s five days of cross-examination in the first trial began with the defense pointing out that without his plea agreement Gardner could have received a life sentence, and even under the plea agreement the only way for Gardner to get less than twenty years was to get a Government recommendation for a downward departure based on his cooperation. Now that Gardner has been sentenced to 97 months, the defense can still argue that he has a motive to shade his testimony to try to get a further reduction of his sentence, but a lot of the drama will be gone from the cross-examination.