USA V Karron 07 CR 541 (RPP) Frank Spring Direct Examination and Cross Examination 1

USA v Karron Docket 07 CR 541 (RPP)
Sworn Trial Testimony (Under Oath) of Frank Spring June 6, 2008
MICHAEL J. GARCIA United States Attorney for the Southern District of New York BY: STEVEN KWOK CHRISTIAN EVERDELL Assistant United States Attorneys RUBINSTEIN & COROZZO, LLP Attorneys for Defendant BY: RONALD RUBINSTEIN Also Present: Special Agent Rachel Ondrik, U.S. Dept. of Commerce Special Agent Kirk Yamatani, U.S. Dept. of Commerce
UNITED STATES DEPARTMENT OF COMMERCE The Inspector General Washington, D.C. 20230
May 1, 2013 The Honorable Frank R. Wolf Chairman, Subcommittee on Commerce, Justice, Science, and Related Agencies Committee on Appropriations U.S. House of Representatives Washington, DC 20515-6015 Dear Mr. C hairman: This further responds to your correspondence of December 18, 20 12, in which you requested that we address the current issues invo lving the Office of Special Co unsel (OSC) and the Commerce Office oflnspector General (010). On January 7, 2013, we responded, indicating that our actions to address mismanagement and misconduct in our Office of Investigations included an ongoing personnel matter that we were not at liberty to repo tt about at the time. We are now ab le to provide addi tio na l info rmation co nce rni ng thi s matter. On April 30, 2013 , the U.S . Attorney for the Di strict of Maryland atmounced that two former Commerce OIG special agents pleaded guilty to submitting fal se claims for re location expenses and time and attendance fraud. The investigation was carried out by the FBI and my office. This is another serio us conseq uence of the mi smanage ment we fou nd in our Office oflnvestigations, w hich we detail ed in o ur January 7, 2013 respo nse. The U.S. Attorney's press release is attached for your information. If you have any further questions about this matter, please co ntact me at (202) 482-466 1. Sincerely,
Todd J. Z inser
Attachment
7/8/13
FBI Two Former Special Agents with Department of Commerce-Office of Inspector General Plead Guilty to Submitting False Claims for Relocation Expens
Home Baltimore Press Releases 2013 Two Former Special Agents with Department of Commerce-Office of Inspector General Plead Guilty to Submitting False...
Two Former Special Agents with Department of Commerce-Office of Inspector General Plead Guilty to Submitting False Claims for Relocation Expenses and to Time and Attendance Fraud
U.S. At t orney s Office April 3 0, 2 01 3 Dist rict of Mary land (4 1 0) 2 09 -4 800
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GREENBELT, MDTwo form er special agents with the U.S. Departm ent of Com m erce, Office of Inspector General, Rachel Ondrik, age 3 5, of Frederick, Mary land, and Kirk Yam atani, age 3 8, of Ashburn, Virginia, pleaded guilty today to subm itting false claim s for relocation expenses. Ondrik and Yam atani resigned their positions with the Departm ent of Com m erce on March 2 9 , 2 01 3 , as required by their plea agreem ents. The guilty plea was announced by United States Attorney for the District of Mary land Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Inv estigation; and Todd Zinser, Inspector General for the U.S. Departm ent of Com m erce (DOC). Today s announcem ent is the result of significant efforts by the U.S. Attorney s Office, the FBI, and m y office to hold law enforcem ent agents accountable for y ears of crim inal m isconduct, said Inspector General Todd Zinser of the U.S. Departm ent of Com m erce. In addition to the fraud perpetrated on the U.S. taxpay ers, these now form er em ploy ees also retaliated by carry ing out a destructiv e cam paign of disparagem ent and false allegations against the Office of Inspector General (OIG). Mr. Zinser added, I com m end the U.S. Attorney s Office and the FBI for their diligent efforts and persev erance in conducting this inv estigation. According to their plea agreem ents, in 2 009 , Ondrik and Yam atani transferred from the DOC OIGs Atlanta, Georgia office to Washington, D.C. Ondrik and Yam atani were authorized relocation benefits, including a househunting trip, en route trav el, and tem porary quarters liv ing expenses. E-m ails between Ondrik and Yam atani show that both agents were aware of the rules gov erning their relocations and reim bursem ents for related expenses, y et both attem pted to secure pay m ent from the DOC in am ounts significantly exceeding what was authorized and subm itted claim s for relocation related trips they did not take. For exam ple, Ondrik and Yam atani claim ed $4 ,058.7 5 and $3 ,589 , respectiv ely , for househunting trips, when in fact, they did not m ake a househunting trip during the tim e claim ed. Ondrik and Yam atini each also falsely claim ed m ore than $1 ,500 for trav el to their new duty station and falsely claim ed reim bursem ent for tem porary quarters liv ing expenses in an am ount that was approxim ately three tim es what they were authorized. In all, Ondrik and Yam atani each subm itted at least three false v ouchers seeking reim bursem ent for $3 9 ,56 3 .2 5 and $3 6 ,3 05.57 , respectiv ely . When Ondrik and Yam atanis claim s for reim bursem ent were denied as being ov er what the trav el regulations allowed, Ondrik and Yam atani persisted in their claim s. On sev eral occasions between 2 009 and 2 01 1 , Ondrik and Yam atani reaffirm ed the earlier false statem ents in their v ouchers and m ade false statem ents regarding the circum stances of their claim s for reim bursem ent. Between June 2 009 and February 2 01 1 , Ondrik and Yam atani also com m itted tim e and attendance fraud against DOC-OIG, claim ing to hav e worked hours that they did not actually work. The loss to the gov ernm ent attributable to each defendants conduct was approxim ately $1 4 ,000. The defendants and the gov ernm ent hav e agreed that if the court accepts the plea agreem ent, Ondrik and Yam atani will each be sentenced to a term of probation and ordered to pay a fine of $2 8,000. In addition, each defendant will be required to pay $1 4 ,000 in restitution to the gov ernm ent. U.S. Magistrate Judge Charles B. Day has scheduled sentencing for June 1 9 , 2 01 3 , at 2 :3 0 p.m . United States Attorney Rod J. Rosenstein praised the FBI and DOC-OIG for their work in the inv estigation. Mr. Rosenstein thanked Assistant U.S. Attorney s Adam K. Ake and Robert K. Hur, who are prosecuting the case.
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Home > Collect ions > Whist leblower
Former special agents sentenced to 8 months in prison for fraud

By Josh Hicks, June 1 9 , 2 01 3
A federal judge on Wednesday sentenced two former special agents for the Commerce Department Office of the Inspector General to eight months in prison for submitting false expense claims and clocking hours they didnt work. Judge Charles B. Day, of the U.S. District Court in Maryland, ordered Rachel Ondrik, 35, of Frederick and Kirk Y amatani, 38, of Ashburn into federal custody immediately after their sentencing. Its extremely rare in my experience for law enforcement officers to not be afforded an opportunity to self-surrender, said attorney Steven Levin, who represents Y amatani. We intend to appeal the sentence as well as the order for immediate detention.
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Levin said that the prosecutors had not asked for prison terms and that they stated on the record that probation would be appropriate for the defendants. Ondrik and Y amatani pleaded guilty in April to seeking payments of more than $36,000 apiece in false relocation expenses and to committing time and attendance fraud. Their penalties included $42,000 each in fines and restitution, as well as one year of supervised release. Commerce Department Inspector General Todd Zinser issued a statement in April accusing the two former agents of waging a smear campaign against his office while they were under investigation for their crimes. Ondrik and Y amatani filed complaints against Zinser with the commerce secretary, the FBI, the U.S. Attorneys Office and the Office for Civil Rights, according to documents obtained by The Washington Post. The Office of Special Counsel has investigated the inspector general because of allegations that four Commerce agents were blackmailed into signing gag agreements that kept them from talking to investigators and the public about undisclosed claims of wrongdoing. Zinser retracted the non-disclosure agreements after the Merit Systems Protection Board issued a stay order against them. The four agents involved in the complaints against Zinser said he threatened to place negative appraisals in their personnel files unless they agreed not to speak out against his office, according to the Office of Special Counsel. The lawyers who represented Ondrik and Y amatani have criticized Zinser for suggesting that their clients were connected with the whistleblower case. In a joint statement issued last month, Levin and attorney Tom Abbenante said: Mr. Zinsers efforts to absolve himself of any of his own alleged wrongdoing by connecting these two matters in a press release was inappropriate,
articles.washingtonpost.com/2013-06-19/politics/40070556_1_whistleblower-case-agents-special-counsel
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to say the least. It is our understanding that Mr. Zinsers alleged misconduct against other special agents is a separate and unrelated matter.
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The Office of Special Counsel last month said Ondrik and Y amatani did not bring the whistleblower case against Zinser, who was still under investigation by the agency at the time.
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Comments
r ki r l i n 1 w r ot e:
6/20/2013 12:04 AM EDT
Interesting article! These guys will deservedly spend 8 months in prison for defrauding the federal government. Another article in today's Post talks about how Boeing overcharged the federal government $13 billion for defense items, including $2300 for a $10 item. Boeing is "working with the government to understand what happened." I am sure the Boeing is shocked, shocked that they could be accused of committing fraud by overcharging the government $13 billion. Oh, and can Uncle Sam send the check to Boeing headquarters in Chicago right away? Do you think there will be any jail time for any Boeing employees? Don't hold your breath on that!
IQ168 r espon ds:

6/20/2013 10:02 AM EDT
I believe they will be punished following the example of Enron. Perhaps not ... but at least private sector
2/3
7/8/13
criminals can be fired.
Jel l om a n 2000 r espon ds:

6/20/2013 10:07 AM EDT
The problem is bigger than you know. Time and attendance "fraud" exists in every IG office in every agency. Take it from somebody who's seen it first hand.
-Sorry, I can't blow the whistle, my family depends on my job.
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704 8667KAR1 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 APPEARANCES District Judge HON. ROBERT P. PATTERSON, JR., Before: June 6, 2008 9:15 a.m. ------------------------------x Defendant. DANIEL B. KARRON, v. S2 07 CR 541 (RPP) UNITED STATES OF AMERICA, New York, N.Y. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------x
15 15 16 16 17 17 18 18 19 19 20 20 21 22 23 24 25
MICHAEL J. GARCIA United States Attorney for the Southern District of New York BY: STEVEN KWOK CHRISTIAN EVERDELL Assistant United States Attorneys
RUBINSTEIN & COROZZO, LLP Attorneys for Defendant BY: RONALD RUBINSTEIN
Also Present: Rachel Ondrik, U.S. Dept. of Commerce Kirk Yamatani, U.S. Dept. of Commerce
SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
831 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Spring. FRANK SPRING, called as a witness by the government, having been duly sworn, testified as follows: DIRECT EXAMINATION BY MR. EVERDELL: THE COURT: Please, go ahead. MR. EVERDELL: Riley - redirect Your Honor, the government calls Frank
Good afternoon, Mr. Spring. Hello. What do you do for a living? I serve as a consultant working on bookkeeping and other
financial activities for a number of clients. Q. A. What do you mean by bookkeeping? Well, these are -- generally, I work with small businesses
and they have various bookkeeping needs, keeping track of their income and expenses. Q. A. Q. A. How long have you been doing that kind of a work? For, as a freelance consultant, eight years. And do you work alone or do you work for a company? I am subcontracted by a gentleman called Ken Jackson, who
owns a company called the Jackson Group, which specializes in services like this. Q. And how long have you been working as a subcontractor for
Jackson Group? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
832 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Since the year 2000. What sorts of clients do you have in doing your work? Most of the clients I work for currently are small Spring - direct
businesses, which is to say they might be grossing about a million, a million-and-a-half dollars a year. individuals. Q. And do companies that you deal with as clients typically We also work for
come to you at any particular point in the life of their company? A. Yes. Frequently the companies that come to us, and the
individuals, might be using the computer systems or software systems that we specialize in, and they find that things are going wrong, they don't understand how to use the system, or their in-house bookkeeper has not been doing the job to the company's satisfaction. Q. A. And what are those systems that you're referring to? There are two that we specialize in, both made by the same
company; intuit, and you might be familiar with the names Quicken is one of them which is advertised widely in this country, it's kind of a brand name. That's used mostly for And then
following your personal finances, for tracking them.
the other system is called Quick Books, and that's generally used for small businesses. Q. A. Mr. Spring, do you have any formal training in accounting? Well, what we do is not accounting. What we do is
833 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct In fact, part
bookkeeping, which is substantially different.
of the job of a good bookkeeper is in fact to prepare financial data come tax time, so that the accountant, who is the person actually doing the tax report, can do it in the most accurate way possible. Q. A. What training did you receive in bookkeeping? Mostly -- well, there are two aspects to that. Since 1980, And
I am a small business, small company owner myself.
starting in 1980 I've set up four companies, I've owned four companies over the years. And as part of that business, either
as full owner or co-owner of those companies, I was responsible for the financial dealings of the company, the day-to-day bookkeeping, the financial planning, the budgeting, et cetera. And then when I started acting, doing consultancy services for Mr. Jackson, I was trained extensively by him. Q. A. How long did you do the, your companies for? Oh, we set up -- my partner and I set up our first company
in 1980. Q. Mr. Spring, did there come a time when you met someone
named Dr. Karron, Dr. Daniel Karron? A. Q. A. Q. Yes. Do you see Dr. Karron here in the courtroom today? I do. Would you please point him out and identify an article of
clothing he's wearing? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
834 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. A. Spring - direct
It's the gentleman over there wearing a light colored tie
and a flag pin, if my eyes are holding up. MR. EVERDELL: May the record reflect the witness has
identified the defendant? THE COURT: defendant. Q. A. Q. A. Mr. Spring, how did you first meet the defendant? I was introduced to him by Mr. Jackson. And what was the occasion for that meeting? The first meeting, I was asked to come and meet with Dr. Yes, the witness has identified the
Karron, as there were some bookkeeping needs he need attending to for the project he was working on at the time. Q. A. Do you know what project that was? It was the ATP. THE COURT: Could we have date?
Do you recall the date of that meeting, roughly? I began working on the ATP project in July, late July of And if memory serves correct, it would have been shortly
2002.
before then, because his needs were immediate. Q. Was this the first time that the defendant had sought out
the services of the Jackson Group? A. Q. A. No. Can you explain? Ken Jackson and the Jackson Group had worked previously
with CASI on a project called DARPA, and that would have been, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
835 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct
I believe that was about two or three years before the ATP project. Q. A. Q. A. Q. A. Q. Can you say again when you were hired by CASI? July of 2002. And how long did you work for CASI? Up through October of 2003, about 15 months. Were you paid for your work? I was. What were you asked to do, generally, when you were hired
by CASI? A. Well, when I was hired by CASI, there was already an
in-house bookkeeper working on the ATP project, so I wasn't initially involved in the day-to-day activities, normal activities of a bookkeeper, you know, inputting invoices, writing checks, paying staff, et cetera. But there was a --
one of the requirements, one of the requirements of the ATP project was that there was an audit at the end of the first year. This was simply a requirement of the project. And I
started working for CASI about ten months into that first year, so the audit was coming up and I was asked to come in and assist on preparing the books for the audit. Q. A. Q. And who is conducting that audit? That would've been Joan Hayes. Now, when you were hired to participate in the audit, what
was the first thing your -- oh, withdrawn. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
836 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - direct When you were hired, did you learn who had been responsible for keeping the books before you arrived? MR. RUBINSTEIN: THE COURT: Objection, your Honor. Did you
There was someone working there.
meet the person working there? THE WITNESS: No, your Honor. There was -- well,
there was a young woman, Niki Winters who had been working on the project books before I entered the scene, and continued to work on the books for I believe another three or four months, after I started at the end of July of 2002. I believe -MR. RUBINSTEIN: THE COURT: I object. Previous to that,
Objection sustained.
Did you have any conversations with the defendant about who
kept the books prior to you being there? A. Q. A. Yes, I did. And what was the nature of those conversations? Well, I asked who had been doing them, and the books were
in two separate systems, and so I inquired as to how those were done. And I was told by the defendant that he had been
responsible for some of it, and that there had been other bookkeepers in the past. Q. What were those two systems that you referred to that the
company used? A. Well, the same company, Intuit, makes these two systems SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
837 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct One is this thing called
which I mentioned a few minutes ago.
Quick Books, which is good for small businesses, and then the other one is called Quicken, which you see advertised maybe a lot on television and that kind of thing. That is more
suitable for households and personal stuff. THE COURT: What ones were they using; what system,
what were these two systems? THE WITNESS: The CASI and ATP affairs were being run
out of Quick Books, and then Quicken was being used to track the defendant's personal finances. Q. And did you have any discussions with the defendant about
the particular systems that he was using? A. To the extent that I had to become familiar with the way
the information had been inputted up to my coming into work on these systems, and we started by looking at the personal side of things, which was held within the Quicken software. Q. And what were you asked to do with respect to the personal
side of things in the Quicken software when you arrived? A. I was asked by the defendant to go into those systems, and
on the very first day that I was there he sat me down in front of Quicken, in front of the computer and he navigated me through the Quicken books, the personal finances, and asked me to extract certain kinds of expenses from that, that I was told would be charged back to the ATP project. Q. And do you recall what sorts of expenses those were? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
838 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - direct There
Well, there are a number of kinds of categories.
were things in the order of medical expenses, equipment, local travel, meals, et cetera, smaller items like that. Q. And who told you that these would be ATP allowable expenses
when you were asked to do this? A. Q. A. I was told by the defendant. And do you recall when these expenses were incurred? I was asked by the defendant to go back to April of 2002 to
extract some of these expenses. Q. A. Are you certain about the date April 2002? I am. I -- the project started -- I beg your pardon. I began in September of 2002. It was 2001, I am
getting my years wrong.
The
project had been going on for ten months. April 2001. Q.
So were the charges -- just to be clear, you were asked to
go back to April 2001 to look at the charges? A. Right, right. The project itself started in October of
2001.
So, basically, I was being asked to go back
four-and-a-half, five months before the start of the project to extract expenses. Q. And did you have any discussions with the defendant about
extracting those expenses prior to the start of the grant? A. Well, to the extent that it seemed unusual to me. At this
point I was -- this is really literally my first week or so. THE COURT: Did you have any discussions with the
839 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. No. After extracting the data from the personal system, what Spring - direct
defendant is what you were asked, not what was going on in your mind. A. Well -THE COURT: it, yes or no? THE WITNESS: No. I did what I was told, basically. Did you have discussions with him about
I had no reason to think that if I was asked to go back to April -THE COURT: No was the answer. Let's go ahead.
did you do with that data? A. Well, the data was extracted by, basically, two methods.
One would generate reports using the software, which would detail what these expenses were, and then those would be transferred via one method or another into Quick Books, which was tracking the ATP expense, as well as the CASI expenses. Q. And when all the data was in the corporate Quick Books
system, what, if anything, did you do to the Quick Books system? A. The Quick Book system, I then began to generate what we
would call income and expense statements or profit and loss statements that showed the activity for the previous 10 or 11 months at that point. Q. And what, if anything, did you do with the expenditures SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
that were reflected in the Quick Book system? A. There were number of groups of expenses. This would've
been -- I would have been working several weeks now on the project and I began to -- I had begun to understand what we were, you know, allowable ATP expenses from expenses that were not allowed by the project. And my basic job was to separate
out the two, those things we could allow for the project to pay for, and those things we could not. Q. And how did you become familiar with what was allowable and
what was not allowable? A. I read the regulations. THE COURT: You say you red the regulation? Yes, sir.
THE WITNESS: THE COURT:
What did you look at? If memory serves correct, it was about a
THE WITNESS:
30 page document produced by ATP which said, basically, these are the dos and don't, what was allowable expense and what wasn't. Q. Did you have any other help in deciding what was allowable
and what was not allowable? A. Well, this is several weeks after I had started, maybe And at that point Joan Hayes and, I
again four or five weeks.
because the audit was imminent and she was asking to have data presented to her, so she had began begun to point out to me certain things that were not, by her definition, allowable. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
841 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - direct And Joan Hayes
But by this point I had also read the document.
and I also reviewed the document to make sure that we both understood what was an allowable expense and what wasn't. Q. A. Q. And by document, you're referring to the document? The regulation, yes. Did you have any discussions with the defendant about
whether certain expense would be classified as ATP related expenses versus non ATP related expenses? A. I did question a number of things as my familiarity with -THE COURT: You're asked -Yes.
You were asked whether you had a
conversation with the defendant. THE WITNESS: THE COURT: Yes.
It calls for yes or no answer. Yes.
THE WITNESS:
What was the nature of those discussion you had with the
defendant? A. Well, I, as I became more familiar with what was an
allowable expense and what wasn't, I began to question why certain expense categories were being classed one way or the other; generally, why they were being classed as an allowable expense. Q. And what sorts of expenses did you question with the
defendant? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
842 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - direct
Oh, a range of things; rent, utilities, certain amounts on
capital expenditures, business, you know, medical expenses. Q. And what -- withdrawn. What, if anything, did Dr. Karron
do if he disagreed with your classification of whether they were ATP or non ATP related expenses? A. Well, he would point out to me that I either didn't know my
job, I didn't understand what an ATP allowable expense was or wasn't, or that he was in conversation with the ATP managers in Washington to ensure that these expenses, which I understood to be not allowed by the project, would be allowed into the project as an expense. Q. Did you see anything in particular reflected in the books
regarding these conversations you had with the defendant? A. Well, as the kind of person in charge of keeping the Quick
Books file correct, I took it upon myself to take what was an allowable expense and put it into that category, and if it was not allowed into ATP, to put it into the general CASI expenses. Q. And what, if anything, would the defendant do after you did
that? A. Normally I would go away -- I didn't work at the office
every day, it would be up to three days a week on afternoon. And I would do my work in the office, go away, probably for a couple of days, come back for my next session and find out that the expenses that I had taken out of ATP, turned them back into a CASI only expense, had been turned -- had been reinputted as SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
an ATP allowable expense. Q. And did you have any discussions with the defendant about
who had done that? A. Q. A. Q. A. I did. And what were these discussions? He told me he had done it. And did he tell you why he had done it? Yes. Rather like I, what I said a few minutes ago, I
didn't, either didn't know what I was doing, or the ATP managers would allow these expenses or I didn't, I didn't understand the ATP regulations. THE COURT: That he wouldn't allow it or hadn't
allowed it, the ATP manager? THE WITNESS: No, your Honor that I had taken, that I
had taken out something out of the ATP and put it into a general CASI expense, and that he would then take that and put it back into ATP. THE COURT: I got that part. I'm talking about the
conversation afterwards. approved by -THE WITNESS:
Did he say that they were -- had been
He said they were in the process of
being approved, and that he would be having meetings with the ATP managers to clear up all of these matters that I was questioning. Q. About how many times did you notice changes like this SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
844 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Q. A. Honor. THE COURT: Objection sustained. You can't go into occurring in the books? A. I never did an exact count, but I would say somewhere Spring - direct
between one dozen and two dozen times. Q. Do you remember any particular incident, conversation with
the defendant about this issue? A. Oh, yes, things would get very heated. Because it was like
a tennis game.
I would do what I -- would follow the
regulations, take it out of ATP, come back a few days later, it was back in ATP. I go away again, bang, bang, bang like this.
And after a couple of months of this happening, it reached a kind of a fever pitch where I actually walked out of the client's apartment which in what is now close to 40 years of being in business and providing professional services -MR. RUBINSTEIN: I move to strike that portion, your
how long you've been in business. THE WITNESS: THE COURT: Okay.
The jury will disregard that part of it.
You said you walked out, Mr. Spring? Yes. Did you ever return to CASI? I did. Why did you return? Well, I provided service to client, and I've always taken SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
845 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct And as part
my clients as they are the people that come first.
of my job to help them in, to do my job, the job I was asked to do. The reason I had walked out is that I was being asked to
do a job and then being prevented from doing it at the same time. Q. All right. I'd like you to take a look at what's in front
of you Government's exhibits 144, what's been marked for identification, not yet in evidence as Government's exhibit 144, 145, and 149. Can you pull those out, please. You can
take a look at each of those in succession, please? THE COURT: Bear with us. You can't look at the
documents yet, all right. Q. A. Q. A. Q. A.
They're not admitted in evidence.
Do you see those documents, Mr. Spring? I do. Do you recognize those documents? I do. What are they? These are a series of e-mail chains from or to -- either
from or to myself to the defendant. Q. A. Q. And how do you recognize them? My name is on them. And can you give a basic date range for these e-mail
strings? A. November through, say, early December of 2002. MR. EVERDELL: Your Honor, the government offers
846 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - direct
Government's exhibit 144, 145 and 149. MR. RUBINSTEIN: THE COURT: evidence. (Government's Exhibits 144, 145 and 149 received in evidence) Q. Let's first take a look at government's 144. THE COURT: Do we have a date? I see. No objection, your Honor.
All right 144, 145 and 149 are admitted in
Since these are e-mail strings, we're actually going to go
backwards to forward, the early ones what begin in the back. So if you could turn, please, to page three of Government's 144? A. Q. A. Q. A. Q. A. Q. A. Q. Uh-huh. You see that e-mail, page 3, 144? Yes, yes. Sorry.
And do you see the date of that e-mail? Yes. What's that? November 29th, 2002. And who sent the e-mail and who is it to? It is from the defendant to myself. All right. If you could look and just read the first few
sentences up to, I put the pay-pal stuff? A. This is from the defendant. I found a number of errors in We need to fix this. I also
the program non-program splits.
have problems with the entire way you are splitting the costs between ATP and non-ATP. We need to fix this, as stuff is
falling in the cracks and there can be no cracks for items missing. Q. What did you understand the defendant to mean about ATP
versus non-ATP splits that he was discussing there? A. It's a continuation of the work I had started doing, where
having become familiar with the regulations by this point in the project. MR. RUBINSTEIN: your Honor. Objection, and I move to strike this,
It's not responsive. Let me hear the question.
THE COURT:
What was your understanding, Mr. Spring, as to what was
meant by the problems he was having with your splitting the cost between ATP and non-ATP? A. Well, he didn't agree with the way, with what I was saying As simple as that.
was ATP allowable and what wasn't. Q. All right.
If you could move now to page two, which is the
page before that. THE COURT: It's the page after, but it's the day All right.
before, the message after that. MR. EVERDELL: it's the page before. Q. A.
The message after that, even though
If you could look at the e-mail at the bottom of that page. Uh-huh. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
848 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Spring - direct
And it is one from yourself to Dr. Karron, is that correct? It is. And is that your response to that previous e-mail we just
read? A. Q. It is. Could you read the last two paragraphs of your response,
second two paragraphs of your response? A. I rather doubt your conclusion about the number of errors I have tried to
in my division of ATP and non-ATP costs.
squeeze everything that is chargeable, and then some, into ATP. Example: I tried to get through payments you made to Jill
Feldman at the beginning of 2002, and Pennie & Edmonds. However, Joan's eagle eye caught these and is unlikely to allow them to get through, particularly the legal fees which go back to patent issues related to 1998-1999. Joan made extensive
notes yesterday relating to these and many other things she wants to take a closer look at so some of what you want to do she should be involved in. Otherwise, there is nothing but
more time, and money, expended putting items in, then taking them out, then putting them in, ad nauseam. Q. All right. Let's take a look at individual things in
there. A. Q. A.
You say -- first, do you recall who Jill Feldman is? She is an accountant that CASI had used previously.
Yes.
And do you recall Pennie & Edmonds, what that was? Yes, they, they are a law firm who were working on patent, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
these patent issues I referred to later in the paragraph. Q. You mentioned that you were trying to squeeze everything
that is chargeable into ATP; what did you mean by that? A. Right. We -- well, I was willing to give the defendant the
benefit of the doubt with his continually telling me he was going to get these charges approved by the ATP managers, so I would leave things in in the hopes that they would get approved. Q. You see in the second paragraph that you read, your comment
that there's nothing but more time money expended putting items in and taking them out, putting them in ad nauseum; you see that? A. Q. A. Yes. What did you mean by that? Well, as I alluded to previously -THE COURT: is that right? THE WITNESS: THE COURT: All right. That's right, your Honor. It's what you're referring to previously,
All right, next question.
If you could turn to the previous page, which
is actually the next e-mail response to your e-mail, from the defendant. If we could blowup that e-mail. If you would look,
please, at the second grouping there, that looks like a paragraph? THE COURT: What date are we talking about?
850 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Spring - direct
What's the date of that e-mail, Mr. Spring? November 30th, 2002. Is that the day after the -- well, is that the same day as
the e-mail that we just read? A. It is the same day. The previous e-mail was written at This e-mail you're
9:00 o'clock in the morning on Saturday.
referring is now was written at a little after 2:00 p.m. on that same day. Q. Would you please read that second paragraph, the
defendant's response? A. Right. This is from the defendant. You and she need to Power, Jill Feldman,
keep grinding away on disallowed items.
Solomon and Bernstein, Peter Berger, et cetera, et cetera, et cetera, are all actually and partly allowable. cable, some telephone are not yet allowed. Rent, some
I may get an
allowance on rental of the living room to the project, as it is clearly completely taken over by the project. Q. A. Q. Say again what's the date of that e-mail was? November 30th, 2002. So about how long after the start day of the grant was that
e-mail sent by the defendant? A. The grant started in October -- on October 1st, 2001, so by
this date, end of November of 2002, we are into the second month of the, of fiscal year two, 14 months after the start of the project. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
851 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Q. Spring - direct
To your knowledge, did the defendant ever get an allowance
for rent and utilities, things like that, from the people at ATP? A. Q. No. All right. Now if you would look at Government's 145 and Without putting it on the board, if I
149.
Starting with 145.
just take a look at.
Are these e-mails, 145 and 149, part of
the same e-mail chain, or are they a brand new e-mail chain? A. These are actually part of the same chain. They're dated
the day before, November 29th, 2002. Q. Let's look at Government's 145, page two. I'm sorry, if we
could look at page three, first. Just identify this to orient ourselves, that e-mail that you sent to Dr. Karron, is that the one we read before, about squeezing the charges into the ATP? A. It is, on November the 30th. (Continued on next page)
852 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. EVERDELL: Q. Now, if we could go to page 2, which is a later e-mail, the Spring - direct
previous page, and you see your response to Dr. Karron on the bottom of the page there? A. Q. I do. If you could read, please, the second two paragraphs
starting with "hopefully". A. "Hopefully, you will return from Washington with a clearer
idea of what they are going to allow and not allow as chargeable items. This remains the biggest hang-up, with you
wanting to include everything (including the kitchen sink) and Joan resisting you at every move, as she is doing her job to the letter of the law, which I fully agree with. "Saying that CASI can charge this and that item is all very well, but Joan will want written confirmation of that from the gals at NIST, and hopefully you will be able to get that (or at least set the wheels in motion) when you are in D.C." Q. Mr. Spring you referred to a trip to D.C. Who is going to
D.C.? A. Q. The defendant. And what do you mean when you say "hopefully you will
return from Washington with a clearer idea of what they are going to allow"? A. I am suggesting there that there was still the hope that he
would be able to get -- the defendant would be able to get SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
853 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct
these items which were by the letter of the law nonchargeable or nonallowable, he would somehow be able to get those into the project. Q. Was the defendant going to meet with people at NIST in
D.C.? A. Q. I believe so, with the project managers. What are you referring to when you are saying "they will
want written confirmation from the gals at NIST? A. Well, it's very clear from the regulations and the
contract -- this was a government contract after all -- there was nothing that one could just say, well, fine, somebody told me this. It would have to be written because, you know, it was
going outside the standard regulations that I had reviewed. Q. To your knowledge, did the defendant ever get written
approval from the people at NIST for these items? A. Q. To the best of my knowledge, no. If you could now look at Government's 149, and going to First just to orient ourselves, do you see the e-mail
page 2.
in the middle of the page from you to Dr. Karron? A. Q. A. Q. I do. Is that the e-mail we just read from? Yes. Now, could you look at Dr. Karron's response at the top of
the page. A. OK. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
854 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Spring - direct
What's the first line of that response? "I understand." All right. Mr. Spring, you mentioned rent payments, rent Is that right?
charges you had noticed in the books. A. Q. That's correct.
Did you have any discussions with the defendant about rent
charges, in particular rent payments? A. Q. Well, I did. Especially -- I did. I did. Yes.
And what was the nature of those discussions that you had
with the defendant? A. That, you know, we had not received any written
confirmation or any other confirmation that these would be allowable expenses, so they have to come out of an allowable expense; and given that it was rent on the apartment, these were things that would happen every single month, so the conversation came up a lot, until finally it reached a climax in one of our more heated debates, where the defendant told me he would tell them, by which I think he meant the ATP managers -MR. RUBINSTEIN: THE COURT: you believed. A. All right. The defendant told me he would tell the ATP Objection, your Honor.
Just give the statements, don't say what
managers that he lived in Connecticut. Q. Did the defendant in fact live in Connecticut, to your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
855 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 knowledge? A. Absolutely not. MR. RUBINSTEIN: THE COURT: Objection. I move to strike that. Spring - direct
Well, the jury is not to -- the jury is to
disregard the conclusion of the witness that the defendant did not live in Connecticut. hearsay information. Q. All right. Mr. Spring, besides the issue with the rent It's hearsay. It would be based on
that you just discussed, did you have any discussions with the defendant about other expenses? A. Yes, medical expenses for example; the cleaner, things
related to the rent, utilities, capital improvements on the apartment, which was using ATP money. Q. Let's start with medical expenses. What, if anything, did
you discuss with the defendant about medical expenses? A. Well, a lot of the medical expenses went back to five
months before the start of the project, that he was getting ATP to pay for. That was a big issue as I learned about the
regulations for the ATP project, you know, several weeks into starting -MR. RUBINSTEIN: I'm going to object to this. He has It's
not been qualified as an expert on the ATP regulations. self serving. THE COURT:
The jury is instructed he is not an expert
on the ATP regulations; however, he may state what his SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
856 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 period? THE WITNESS: No, your Honor. A number of them Spring - direct
understanding of those regulations was at the time. A. Q. A. May I continue? Yes, please. My understanding of the ATP regulations was such that there
would be no employee benefits allowed to be paid for by ATP such as medical expenses, if the recipient's company -- CASI in this case -- did not have a formal employee benefits plan, which CASI did not have. Q. A. What sort of expenses did you talk to the defendant about? On the medical expense side there was a large amount of
expenses to doctors, and one that got my immediate attention was for electrolysis. Q. A. How did you know it was for electrolysis? The defendant when he was doing his own data entry had
noted these things as zapping. Q. A. What is electrolysis? That's when you have all of or some hair removed from your Hair removal. THE COURT: All these expenses were within the grant
body.
predated the start of the grant by four or five months. Q. And what if anything did the defendant say to you when you
discussed these expenses with him? A. I would get the usual refrain, which I already cited twice, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
857 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor? THE COURT: Start at the back and start reading Q. Spring - direct
which is that I didn't know what I was doing, I didn't understand the ATP regulations, or that he was seeking approval of these things after the fact from the ATP managers. Q. All right. I want you to look at Government Exhibit 143, Do you see that document?
which is not in evidence yet. A. Q. A. Q. A. Q. A. I do.
Do you recognize that document? I do. What is it? It's another chain of e-mails from the same time period. Between who and who? Between myself and the defendant and -- yes, between myself
and the defendant. MR. EVERDELL: Government Exhibit 143. THE COURT: 143 is admitted in evidence. Your Honor, the government offers
(Government's Exhibit 143 received in evidence) All right. Mr. Spring, if you could please look at the
last two pages of that exhibit -- the last three pages of that exhibit. Without reading directly from the exhibit, could you
summarize the discussion going on between yourself and the defendant. MR. RUBINSTEIN: Do we have a page that he is on, your
858 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. exhibit? MR. EVERDELL: Sorry. This is page 2 of the exhibit. forward. Q. The last three pages, if you could just summarize a bit Spring - direct
what you are discussing there, without having to read through the whole e-mail. A. OK, right. This actually really breaks into two parts.
One is still addressing some of the issues we have been talking about here today regarding what was ATP allowable and not, as well as the other area I was working on which were budget for the upcoming fiscal year. Q. If we could now display page 2 of that exhibit, and if you First of all, who
could look at the fourth paragraph there. sent that e-mail to who? A. This is from the defendant to myself. THE COURT:
This is the next to last page of the
And we are at the fourth paragraph from the top. THE COURT: All right.
So, this is an e-mail from the defendant to yourself? That's correct. Will you please read that paragraph, the fourth paragraph. "What cost items did I submit that Joan is disallowing? I can overrule/allow those
Any health or fringe cost items?
costs even though CASI does not have a formal written benefits plan based on the behavior of the company in the past and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
859 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - direct Even if it is
showing it is consistent through the project.
not consistent through the project it is still my option do to these things with an unwritten benefits plan." There are some typos in there, I am afraid. Let's talk about the capital improvement equipment expenses
you mentioned before. A. Q. Yes. Did you have any discussions with the defendant about these
capital improvement equipment expenses that you had mentioned before? A. We are at this point literally two months into the fiscal
year two of the project, and it was my estimation that the cash flow was going to be adversely affected because of the amount of money that was being spent on the project. The funds that
were being tapped from ATP at that time weren't going to allow the project to continue to function financially, and some of this had to do with capital expenditure or equipment expenditure. Q. Why exactly did this have to do with capital expenditures
or equipment expenditures? A. The ATP project I believe for all three of the years that
the project would have run for, the recipient could access the funds on a regular basis, and in the case of year two it was on a monthly basis, and when I ran some projections it was obvious to me that we were tapping into too much money too soon, and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
860 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. Spring - direct
therefore we would run out of money before the end of fiscal year two. Q. Did you have any conversations with the defendant about
that issue, about running out of money? A. Well, when it began to affect things like payroll, I
certainly did. Q. A. How did it affect payroll? Well, we got -- at one point -- I don't remember the exact
date -- it was my estimation that payroll couldn't be met; and as a business owner myself that seemed extraordinary. MR. RUBINSTEIN: Objection, your Honor.
All right, without adding those comments, did you have a
discussion with the defendant about this issue of cash flow? A. Q. I did. And what if anything did the defendant say to you about
this issue of cash flow? A. Q. A. In regards to payroll? In regards to payroll. In regards to payroll he told me that people would get paid
when they get paid. Q. I would like you to look at Government Exhibit 142 which is
not yet in evidence. Do you see that document? I do. Do you recognize that document? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
861 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Q. A. I do. And what is it? This is an e-mail chain from mid-November of 2002. Between who and who? It is between the defendant and myself and -- yes, no one Spring - direct
was copied on those e-mails -- just the defendant and myself. MR. EVERDELL: Exhibit 142. MR. RUBINSTEIN: THE COURT: No objection, your Honor. Your Honor, the government offers
142 is admitted into evidence.
(Government's Exhibit 142 received in evidence) Please turn to the last page of that exhibit, page 4. Is
that an e-mail from yourself to Dr. Karron? A. Q. It is. Could you please look at where you have point five. Could
you read out point five? A. "Transferring 40K would mean that in just over six weeks
into year two of the project CASI has taken over 30 percent of this year's funding. If you factored in (as if they were paid)
the additional $110,000 plus due CASI vendors, this would mean that CASI has actually used up closer to 50 percent of the NIST-supplied funds. Q. A. Just something to ponder ..."
What did you mean by sending the defendant that e-mail? Well, this is mid-November, fiscal year two, one and a half
months into the beginning of fiscal year two, and what I am SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
862 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct
saying there is that we would have used up 50 percent of the year's funding six weeks into it, six weeks into the project. Q. Does this relate to the cash flow problem you mentioned
before? A. Q. A. Oh, absolutely. What if anything was the defendant's response after this? Pretty much it was his company and he would do what he
wanted. Q. All right. You mentioned cleaning expenses. Is he reading from an e-mail or
MR. RUBINSTEIN: something? THE COURT:
No, he wasn't reading from an e-mail.
He
just gave his answer. Q. Let's talk about cleaning expenses which you mentioned You had some discussions with the defendant about
before.
cleaning expenses? A. Q. A. I did. What did you mean by cleaning expenses? Well, there were weekly charges. THE COURT: Let me go back. Yeah, 40K. What did that refer to? Do You mentioned 40,000.
THE WITNESS: THE COURT: you remember? THE WITNESS:
A transfer.
The $40,000, the way one accessed the ATP did not
ATP funds was that it was all done electronically. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
863 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. send CASI a check. Spring - direct We were able to -- Dr. Karron was able to
get online and access the ATP funds and shift them to the CASI bank account. And that's what I meant by a transfer. A draw-down. Yes, that's correct.
THE COURT:
THE WITNESS:
If we could talk about cleaning expenses you mentioned
before? A. Right. Sorry. There were weekly or bimonthly cleaning
expenses written and paid for by ATP. Q. A. Q. A. And who were these cleaning expenses going to? A lady called Margaret Ferrand. Who is Margaret Ferrand? Somebody that I met. She was a person who was associated
with the defendant. Q. A. Q. A. Did you see Ms. Ferrand in the apartment? I did. And what was she doing when you saw her in the apartment? I wasn't there all the time, of course, but I did see her
cleaning on occasion, but I also saw her sleeping in the apartment and just sort of hanging out. Q. Did you ever see her doing any office work while you were
in the apartment and saw her? A. Later, some months after I began, she began to do scanning
of receipts, invoices and so on. Q. How long did she do that for as you observed? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
864 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Spring - direct
I believe a few weeks. What happened after a few weeks? She just disappeared. THE COURT: How long was she there at the business
while you were there? THE WITNESS: Well, your Honor, I remember meeting her
relatively soon after I started in July 2002, and I would think by -- I don't remember the exact date, but to mid-summer, early summer 2003. I wouldn't want to swear to that because I don't
remember the exact date. Q. And were these cleaning expenses that you mentioned
expenses paid out to Ms. Ferrand? A. Q. They were. Did you have any discussions with the defendant about
paying Ms. Ferrand for cleaning? A. Yes, as I didn't believe that these were ATP-allowable,
given that the apartment that she was cleaning was not an allowable expense. Q. A. Q. And what was the nature of those discussions? Pretty much mind my own business. I would like you to look at Government Exhibit 147 not yet
in evidence. A. Could I get a glass of water, please, while we're doing
that? Q. Certainly. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
865 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. 147? A. Q. A. Q. A. I do. Do you recognize that document? I do. What is it? An e-mail chain. The parties involved are the defendant, Spring - direct Mr. Spring, do you have that document in front of you,
myself and Mr. Bob Benedict, who was the year two project business manager. Q. A. And what is the date on that chain roughly? June 21, 2003. MR. EVERDELL: Your Honor, the government offers
Government Exhibit 147 in evidence. MR. RUBINSTEIN: THE COURT: evidence. (Government's Exhibit 147 received in evidence) If you could take a look at page 2 of that exhibit. Sorry. Take a No objection, your Honor.
No objection, 147 is admitted into
look in particular at point 2. who to who? A.
This is an e-mail from
This is an e-mail from myself to the defendant and Bob
Benedict. Q. A. Q. Could we look at your point 2 there for a second. Um-hum. Could you explain -- point 2 begins with "Ferrand". SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
866 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. OK. A. Q. Spring - direct
That's Margaret Ferrand, the cleaner and scanner person. What are you saying in this point in your e-mail to the
defendant? THE COURT: This is in 2003. That's correct, your Honor.
THE WITNESS:
What we're saying here -- what I'm saying or
suggesting to Dr. Karron and Bob Benedict is that in Ms. Ferrand's case on the scanning side of things, her office work, I was certainly of the opinion that part of her time could be spent -- you know, we can justify quite easily as an ATP-allowable expense. Q. And would you justify a full amount of her time as ATP
expense? A. No, part time. I say there specifically on a regular
biweekly basis part of her time spent on scanning, because what she was doing was scanning masses of material, and I had occasion to witness some of the scanning, and noted at the time that some of it was not related to the project. Q. If you could look at the first page of the exhibit. And is
this Dr. Karron's response to you? A. Q. A. Q. Yes. If you look down at the fifth paragraph. Um-hum. And what is Dr. Karron saying to you, if you could read
that out? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
867 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Spring - direct
This is the paragraph beginning, "Please, you are not"? Yes. Do you want me to read this aloud? Yes. OK. This is from the defendant to myself -- and Bob "Please,
Benedict, the business manager, was copied -- to me.
you are not to make interpretations as to allowability or category. You need to be a bookkeeper, not" -- indecipherable I know you like to think like an owner, Because of the
-- "business owner.
but I own this little dinghy, not you. impression that you are "-Q. A. Q. You have read enough. Sorry.
"Mr. Spring, how often were you in the defendant's
apartment when you were doing your work? A. It would vary from week to week. On average two to three
days a week, between four and six hours a day. Q. And when you were in the apartment, how frequently did you
see the defendant in the apartment? A. Q. Often but not always. All right. Mr. Spring, what ultimately happened to the
grant? A. At some point -- I don't remember the exact date -- the ATP
managers closed down the project or at least the funding for the project. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
868 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. A. Q. Q. A. Spring - direct
And when did you terminate your employment? I stopped working there in October of 2003. MR. EVERDELL: One moment, your Honor.
No further questions, your Honor. THE COURT: Remind me. All right. Mr. Rubinstein?
Who is Belinda? Belinda is the woman from the Belinda Riley I believe is
THE WITNESS:
government, the government auditor. her last name. THE COURT: CROSS EXAMINATION BY MR. RUBINSTEIN: Q. A. Q. Good afternoon, Mr. Spring. Hello. Thank you.
Now, just to clarify something, you were shown something
from Exhibit 147 that's in evidence. THE COURT: Exhibit 147? Yeah, Exhibit 147.
MR. RUBINSTEIN:
Do you have that in front of you, sir? Hopefully I will in a moment. There it is. Yes, I do.
Where is the part about the -- where is the part about the
dinghy? THE COURT: About what, sir?
You said something, a sentence started with -THE COURT: I can't hear you when you get a away from
869 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. now? MR. RUBINSTEIN: Oh, I see it now. OK. OK. screen? MR. RUBINSTEIN: THE COURT: Let's move it along. There it is. MR. RUBINSTEIN: THE COURT: OK. No, that wasn't the line, Judge. Is that all right? Do you have it Yes. the mike. MR. RUBINSTEIN: Sorry, Judge. I'm just trying to Spring - cross
locate what was shown on the projector as Exhibit 47, the first page. THE COURT: 147? 147?
DEPUTY COURT CLERK: MR. RUBINSTEIN:
I just want the witness to tell me,
because there was a line put on the screen it started with "because" I think. THE COURT: Do you want the line put back on the
Then we'll put it back on the screen.
Now, I just missed it in reading it, that's all. You were working for the Ken Jackson group when you started
your involvement with Dr. Karron? A. Q. That's correct. And how long did you work for the Ken Jackson group prior
to getting involved with Dr. Karron and CASI? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
870 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Spring - cross
My training by Mr. Jackson started in late 1999, and I
began working for CASI as a subcontractor in July of 2002, so we're basically talking a little over two years. Q. A. Q. A. And you were the sole -- Ken Jackson is a company? He is an LLC, that's correct. And he has -- are you the only employee? No. I don't remember then. Currently he has five people I am a subcontractor. I
on his team.
I am not an employee.
am a 1099 person. Q. So, you were a subcontractor of Jackson assigned to work at
CASI. A. Q. Correct. And your marching orders were to correct the books, Is that right?
correct? A. Q.
That was my understanding from the defendant, yes. Well, when Jackson -- when they sent you on this
assignment, did Jackson tell you that they were having problems with their books? THE COURT: question. Q. Well, is the first time -THE COURT: It calls for a hearsay answer. Objection sustained to the form of the
Was the first time you learned that you were being hired to
correct the books when you met with Dr. Karron? A. I don't actually recollect the exact nature of the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
871 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. conversation. Spring - cross I was aware once I sat down with Dr. Karron that
there were corrections that needed to be made for the books in preparation for the audit by the ATP-appointed person Joan Hayes. Q. It was your understanding that Joan Hayes was appointed by
ATP? A. Yes, she was the third-party auditor, that was my
understanding. THE COURT: You're correcting your answer? Well, she had to come from somewhere, So,
THE WITNESS:
your Honor, and I don't believe she was hired by CASI.
yes, I am making an assumption that if she was not appointed by CASI, was not appointed by myself or Mr. Jackson, ATP was the only thing. THE COURT: You don't know the answer. But I do not know the exact answer, no.
THE WITNESS:
Is that because Joan Hayes was an independent auditor? I -MR. EVERDELL: Objection.
-- believe Ms. Hayes is an independent auditor, yes. And were you hired to reconcile the bookkeeping system at
CASI? A. That would have been one of the functions that one would
have done in preparation for preparing income and expense statements that would be suitable for an audit, yes. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
872 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Yes. Q. Spring - cross
And you were given the task of getting the books in order
for an independent audit required by ATP, correct? A. Q. That was my understanding. The fact that your -- and did you find -- did you ascertain
that there was a Quick Books system in place at CASI? A. Q. There was a Quick Books system in place at CASI, yes. And were you familiar with Quick Books when you got this
assignment to work at CASI? A. Q. Yes, yes. And is it fair to say that the Quick Books at CASI were a
mess? MR. EVERDELL: THE COURT: Objection. I will get his judgment.
Overruled.
I mean that's kind of relative, but they could have
been in better shape. Q. And the books, it was your opinion that the books were not
in good condition, right? A. Q. Yes. Do you have any records, any records of how the books were
initially kept in this Quick Books system? A. You mean earlier? I'm not quite sure I understand the
question. Q. When you started there and you say that there were problems
with the books, do you have any -- did you download any disks, or did you -SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
873 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. No. -- or did you make any hard copies to show us that -I don't recollect. I was dealing both with Quick Books and Spring - cross
the personal side of things and Quicken. Q. Dr. Karron requested that you go through his personal
accounts, did he not? A. Q. Yes, he did. And his personal accounts, they were related or unrelated
to CASI? A. I would say it was both. THE COURT: Well, let me ask you, personal accounts,
were you given more than Quicken, the Quicken account? THE WITNESS: My recollection, your Honor, was that
Quicken tracked the defendant's personal expenses. THE COURT: I see. But if he had some other method of
keeping track of his expenses separate and apart from that -THE WITNESS: -- I don't remember being aware of that.
There may have been, but -THE COURT: When you are talking about personal
accounts, you are talking about whatever was on Quicken. THE WITNESS: THE COURT: Correct.
All right.
And also the CASI books were kept in Quicken, right? MR. EVERDELL: THE COURT: Objection.
That's not the testimony so far.
874 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - cross
The CASI books, the records related to the NIST ATP grant,
were they also kept in the Quicken system? A. Well, no, they were kept in the Quick Books system, except
for those items I was asked to extract, as I testified previously, in the Quicken. Q. So, did you find when you were doing the Quicken part for
Dr. Karron's personal that Dr. Karron had made advances to the ATP grant loans, loans to the ATP grant? A. Q. A. Q. Loans to the ATP grant? Right. He may have. I do not recollect that.
There were times when Dr. Karron would go into the Quick
Books himself, correct? A. Q. I believe so, yes. And the Quick Books are the books you just said that were
related to NIST, is that right? A. Q. Sorry. Could you repeat that, please?
The Quick Books were the files that were related to NIST,
correct? A. Q. Correct. And in fact when Dr. Karron would do that, he would
generally mess up the data that was inside the Quick Books, correct? A. It wasn't so much an issue of whether, for example, the It was more of a
amount of the check was written correctly.
875 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Books. THE WITNESS: Yes, that's correct. Within Quicken, Spring - cross
question as to whether the purpose of the money being spent was assigned correctly. THE COURT: Let me ask you something. You say that
Quicken was Dr. Karron personal. THE WITNESS: THE COURT: business. THE WITNESS: THE COURT: not NIST? THE WITNESS: THE COURT: That was also Quick Books. Business side. Personal.
And you say that Quick Books was the
But what about the part of CASI that was
That was also Quick Books. In Quick Books, yes.
So it was all CASI records were in Quick
however, as I testified at the beginning of the other questioning, there were many business expenses also held within Quicken, the personal system, that I was told needed to go into the business system, the Quick Books, so it was a little bit of a succotash, a mix, little bit of this and a little bit of that. THE COURT: So within the quick book system was there
any break-down between what was the ATP grant money and what was other money? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
876 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 simple. THE WITNESS: clearly tagged as ATP. Spring - cross Certainly the income that came in was On the expenses side it was a mix of
some things were correctly tagged as ATP. But if I can just take a moment to explain, it's very These are very simple systems to use, so one has to
create a block of accounts that would say, for example, ATP-allowable, and then under ATP-allowable you would have things, equipment purchases, etc., etc. chunk of data. one chunk. That would be one
It might have many entries, but that would be
And then within that same system, within what we That would be
call a file, you would have CASI expenses. non-ATP expenses. subgroups.
And again all of those would have several It's logical and
It's not rocket science actually.
straightforward.
And these things can break out very easily.
But it's the old saying, garbage in, garbage out. Q. A. Q. You said they could break up very easily? They break out very easily. Well, when you say that there was a mess in these books in
the computer, what do you mean by that? A. Both in the Quicken, the personal finance side, because I
was asked to go back and reconcile, balance the checkbook if you will, on the Quicken side, only we are balancing a check book inside the computer as opposed to sitting there and writing it down with an actual checkbook. There were things I Maybe we
see actually quite a bit, what we call balance hacks. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
877 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Spring - cross If you can't balance the check
are all familiar with that.
book and you get frustrated enough, you just write in a number and go checkbook is balanced and go on doing something else. So there were some instances of that. concern to me because -THE COURT: Just -- I think you answered the question. That wasn't such a great
You were given a free run of the computer system, correct? I was allowed access to both Quicken and Quick Books, yes. And in fact the Quick Books had in it what's called an
audit trail, did it not? A. Well, there are different ways of looking at information
you have previously put into the system, yes. Q. Well, there is a specific system, is there not, called an
audit trail? A. Q. Yes. So you could determine who inputted what into the system,
correct? A. Q. A. Yes. Did you have a code yourself to go into -There was one -- there was one password that myself, the I
defendant and Nicki Winter used to open up the program. never used the audit trail myself. Q.
And did there come a time in April that you began building
a new Quick Books register for CASI? A. I don't remember the exact date, but the time frame sounds SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
878 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - cross
correct, because the auditor would have been -- Joan Hayes would have probably been insisting on such a thing. Q. Well, what does it mean to build a new Quick Books What does that mean? One looked at starting, probably even
register? A.
Quite simple really.
starting prior to the date of the project October 1, 2001, and started out with a clean file so that all the extraneous data from previous years were out of the system, starting on a fresh page. Q. A. You had to change stuff that was already there? Well, I mean there would have been many things that were
entered that were correct, so that wasn't changing them; that was just reentering them. Q. A. Q. A. But you yourself voided a number of checks, did you not? Voided checks? Yes, in the system. If a check was written, sent to the payee, presented at the
bank and appeared on the bank statement, you would not void a check like that. Q. A. Q. A. But did you void other checks? I don't have any recollection. During the time -I may have, but they would have been checks that were not
presented to the bank. Q. During the time you were the bookkeeper, you supervised SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
879 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this woman Nicki, right? A. Correct, to some extent, yeah. She had some experience, Spring - cross
but I was asked to look at what she had done. Q. And it's a fact that you were informed by Dr. Karron that
Nicki got things confused and she didn't get the data correctly? A. Q. That I believe was his assessment. Now, during the time you started being the bookkeeper in
July or August 2002 -- correct? A. No, that is not correct. In July of 2002 Nicki Winter was
on staff. Q. A. Q. A. No, I said you. She was the bookkeeper. And you were what? I was called in to help prepare for the ATP audit, which is
to say I wasn't doing the day-to-day invoice inputting, check writing, payroll, etc. Q. Did there come a time that you took over the
responsibilities of the bookkeeper? A. Q. At some point I did because Nicki Winter left. And when was that that you took over the responsibility of
the bookkeeper? A. Q. I don't recollect the date. Well, during the time that -- for how long a period of time
would you say that you were the bookkeeper for CASI? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
880 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - cross I don't know, five
I left the project in October of '03.
or six months. Q. A. Q. A. Q. And during that period of time -Seven months. -- were there any bounced checks? Yes. I wasn't the only one writing checks, however.
How often were checks bounced during the time that you were
the bookkeeper, sir? A. I have absolutely no idea. I was not doing the sole
bookkeeping either. THE COURT: Could you write checks? I wrote checks, but I did not sign them.
THE WITNESS:
I was not a signatory on the account. THE COURT: Well, how were the checks signed?
Electronically or personally? THE WITNESS: defendant. THE COURT: that system? THE WITNESS: Yes. I don't recollect that that's the Could they be signed electronically under They were signed personally by the
system that we had in place, but there are ways to write electronic checks. THE COURT: These are personal. Personally signed. And Dr. Karron wrote
THE WITNESS:
many of the checks himself. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
881 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. Spring - cross
And the checks would be generated through the Quicken
system. A. Right. You would input your data, you're writing a bill to
whoever, you ask the system to pay the bill, and Quicken and Quick Books both make formatted checks, three-part checks, you stick them into your printer, hit print, and out comes the check, and all it needs is signing. Q. And then you would present the checks that were generated
to Dr. Karron. A. Q. For his signature. And he would require a backup, an invoice to accompany the
check. A. The only way if I was entering -THE COURT: Did he or didn't he? Yes, he did.
All right. From me.
THE WITNESS:
And you also were involved in helping with his personal tax
returns, his being Dr. Karron's? A. Q. A. His personal tax returns? Right. Myself? Not -- I have no tax experience. I think that's highly unlikely. I am not an The only thing I
accountant.
might have done was generate reports out of Quicken. Q. Didn't you create at Hayes' request spread sheets out of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
882 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - cross
the Quick Books in regard to Dr. Karron's income and expenses? A. I don't recollect that. And Dr. Karron's personal expenses
were not in Quick Books, they were in Quicken. Q. Well, did you create spread sheets from the Quick Books for
Joan Hayes? A. Ms. Hayes would have asked me to be preparing reports out
of Quick Books related to the audit, yes. Q. So it was the documents that you created that Joan Hayes
relied upon in relation to the audit, correct? THE COURT: Objection sustained. There's more than
one conclusion in that question. MR. RUBINSTEIN: THE COURT: Pardon?
There is more than one conclusion the Limit
witness would have to be responding to in that question.
your question to one conclusion so that you're sure that the witness understood that there were two conclusions and not one conclusion. Q. Did you inform -- did Joan Hayes in January of 2003 send
you an e-mail related to spread sheets for you to create? A. I would have to see evidence of that e-mail. I have
absolutely no idea of an e-mail that may or may not have been sent five years ago. Q. Well, you were pretty good with the e-mails before? MR. EVERDELL: Well -SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Objection.
883 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. THE COURT: Spring - cross Objection sustained. Let's go.
Let me show you what is marked as Government Exhibit This is one of the documents contained therein. It's
3507-E.
page 2 of 36 it says on top. the red underlining. A. Q. OK.
Take a look at that starting at
Does that refresh your recollection that Hayes asked you to
create spread sheets? A. Yes, Joan Hayes is referring to spread sheets. I probably
would have called them reports, but I think that's just a matter of terminology. THE COURT: referring to? Q. Spreadsheet, there is a hard copy? Is that an actual What does it read, this e-mail you're
document? A. Q. It would have been a piece of paper, yes. And, by the way, did you create two -THE COURT: referring to. MR. RUBINSTEIN: THE COURT: It's -- can you see that, Judge? Which one? Only the I just want to know where on page 2 you're
The top?
MR. RUBINSTEIN:
The red underlining, Judge.
pink means something, but the red underlining. THE COURT: Spreadsheet sample for sample cost for -No, that's the wrong page. That's
MR. RUBINSTEIN:
884 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. page 3 of 36. Spring - cross This is page 2. I am on page 2 of 36. Can I approach, your Honor?
THE COURT:
MR. RUBINSTEIN: THE COURT:
I don't know where you are. Mine says 2 of 36, Judge.
Oh, you're up in here. Yes.
MR. RUBINSTEIN:
By the way, did you create two sample spread sheets related
to Dr. Karron's income tax? A. Q. I don't recollect that. Do you recall testifying before that you didn't have Correct?
anything to do with his personal income tax return? A.
I don't file income tax returns, personal or otherwise, for
any of my clients. Q. But the question is whether or not you as part of your
responsibilities there was to help prepare information for Dr. Karron's personal income tax return filings. A. Q. It's possible. Well, why don't you take a look at page 3 of the same Did you send an e-mail
document, starting one paragraph down. to Joan Hayes? A. Q.
Yes, that's an e-mail I would have written, that's correct. And in that e-mail did you provide that -MR. EVERDELL: THE COURT: Objection.
885 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 thing? MR. RUBINSTEIN: THE COURT: It's one page. MR. RUBINSTEIN: the e-mail in evidence. THE COURT: Do you want the entire e-mail? I think it Spring - cross Well, I will offer that portion of
would have to be offered if you want to offer it. MR. RUBINSTEIN: MR. EVERDELL: OK. I will offer the entire e-mail.
Your Honor, I don't understand the
relevance of this, so I object. THE COURT: cross-examination. MR. RUBINSTEIN: Q, Defendant's Q for identification He is offering it. It's part of his
we offer into evidence, your Honor. MR. EVERDELL: May I see what you're offering? Sure. Is it one page or the whole
MR. RUBINSTEIN:
DEPUTY COURT CLERK:
Well, it starts on the page before and
runs through the page, that third page, and it ends on the fourth page. DEPUTY COURT CLERK: MR. RUBINSTEIN: So it's pages 2, 3 and 4?
On the top it says page 3 of 36 is
what it says, and so it's -THE COURT: But the subject matter. Page 4 and then page 3. Just two pages, page 3 and page
MR. RUBINSTEIN:
DEPUTY COURT CLERK:
886 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. 4. MR. RUBINSTEIN: THE COURT: The top of page 4. Spring - cross
I think you need the bottom of page 2 too,
because that's the subject matter. MR. RUBINSTEIN: OK. The bottom of page 2, all of
page three and the top of page 4. May I proceed, your Honor? MR. EVERDELL: Objection. "so, what I did
Did you write the following to Joan Hayes:
was create two sample spread sheets for the first tax year in question, 1998 through 1999. The first things that have more Did you
detail is I think the one that you will prefer." write that to Joan Hayes? A. Q. A. Q.
This is in reference to Dr. Karron's personal taxes? Right. Yes, it sounds like my verbiage, yes. And is it a fact that Dr. Karron had not in this -- and
this e-mail was written in 2003, and Dr. Karron had yet to file his 1999 tax returns, correct? A. One would make that presumption. I don't remember. It is
probably a question better to be asked of Joan Hayes since she is the person being referenced here, not myself. THE COURT: What about CASI's income tax? I don't recollect, your Honor, whether That
THE WITNESS:
the defendant was filing his taxes or his company taxes. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
887 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. wasn't part of my job. THE COURT: But you don't know whether this is CASI Spring - cross
income taxes or his income taxes, do you? THE WITNESS: I don't actually. Frankly, given that
Joan Hayes is the person that this is primarily addressed to and about, I would think it had to do with CASI's taxes as opposed to his personal taxes. Q. In fact, did you send an e-mail to Joan Hayes saying that
you felt that she was wearing two hats by being the auditor and also dealing with Dr. Karron's personal matters? A. Q. Yes. Yes, I do recollect that.
So, in fact you questioned whether or not she was an
independent auditor, correct? A. Well, anyone who is ever put in the position of wearing two
hats, you know, you have to make sure that you can keep one side very separate from the other. Q. So, does that now refresh your recollection as to who
retained Joan Hayes' service to be "the independent auditor" on the NIST ATP audit? MR. EVERDELL: THE COURT: No, it doesn't. When you went into -- besides going into Quicken for Dr. Objection.
Objection overruled.
Karron's personal accounts, did you have anything to do with his Mastercard credit card? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
888 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. Spring - cross
In terms of entering data? Yes. I don't recollect. How about reviewing the expenditures to see if whether or
not there were any ATP NIST-type expenses that were absorbed by Dr. Karron on his Mastercard? A. Well, as I was stating in my previous testimony, there were
expenses in the personal Quicken accounts which I was informed of by the defendant before I started the gleaning process, getting this data out of Quicken. been on a credit card. Q. Some of those might have
I don't recollect.
Were you aware though that Dr. Karron had an American
Express card that he utilized for the ATP grant? A. There was I believe within Quick Books an American Express
what we call ledger. Q. And did you have any understanding that the American
Express card was used strictly for the business of CASI and the ATP grant? A. I would have to see the individual items entered to
ascertain whether it was personal, CASI or ATP. Q. And is it fair to say that you changed the Quick Books
booking system to include non-NIST categories? A. Well, in a sense the CASI system or everything that wasn't The
ATP or NIST was CASI, so that data was in there already.
main job was to make very clear what was allowable ATP expenses SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
889 8667KAR5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Spring - cross
and what was a nonallowable ATP expense. Q. Do you recall being interviewed by the agents at the first
table here on September 21, 2001 and signing an affidavit? A. Q. A. In 2001? 2004. No. I misspoke. I suppose September 21st
Sorry.
It was a beautiful autumn day.
was the actual day.
I don't recollect.
(Continued on next page)
890 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. BY MR. RUBINSTEIN: Q. Do you recall, without being specific as to September 21st, Spring - cross
2004, do you recall meeting with the agents seated at the first table here, Ms. Garrison? A. I recall meeting them, yes, absolutely; Kirk and Rachel,
yes. THE COURT: Ms. Garrison you're talking about? That's correct, your Honor.
All right.
And where did you meet them? I was working in my home office on West 29th Street, and on
that beautiful autumn day and working on one of my client's books and the door bell rang, and they asked to come in to see me. They identified themselves and asked if they could come up
and speak with me. Q. And did you tell them that you began working for Dr.
Karron, you changed the Quick Books bookkeeping system for the ATP project to include a non-NIST category for CASI spending? A. Q. I'm sorry, could you repeat the question? Yeah. Did you tell them at that interview, when I began
working for Dr. Karron, I changed the Quick Books bookkeeping system for the ATP project to include a non-NIST category for CASI spending? A. Well, yes. As I was saying a few minutes ago, if I may
repeat myself just briefly. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
891 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. A. A. Q. Q. Spring - cross
The question is did you tell that to -THE COURT: To the agents? THE COURT: Yes or no. Just did you say that.
I want to be sure it's understood what that means, what I,
what that statement means. THE COURT: Okay. THE WITNESS: question. THE COURT: The answer calls for a yes or no. So maybe you could rephrase the Wait.
Now, it's a job -THE WITNESS: I have to answer no since I don't
understand the question. Q. You didn't say that to the agents? It's not your language
in an affidavit that you had with the agents? A. If you want to quote directly from the affidavit, I will be
happy to say yes or no. Q. All right. Well -Well, then show him what --
THE COURT:
I'll show you what's been -THE COURT: The proper way is not to quote from
something that's not in evidence. MR. RUBINSTEIN: It's 3507A? 3507A.
THE DEPUTY CLERK:
892 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A, as in apple. Spring - cross I point your attention where I have a
number nine on the side? A. Q. Uh-huh. See after reading that if it refreshes your recollection as
to what you said to the agents? A. Q. Yes, that's correct. So prior to the time that you became a bookkeeper or was
involved in the bookkeeping at CASI, their Quick Books system did not have a category called non-NIST items? A. Everything that was not ATP related would, by definition,
be non-NIST related, it would be CASI related. THE COURT: That isn't answering the question. I'm sorry, your Honor.
The question is when you came there,
before you got there. THE WITNESS: THE COURT: for the ATP NIST. THE WITNESS: was used for CASI. THE COURT: And you created -- and only when you got No, your Honor, that's not correct. It Right.
It's only -- the Quick Books was only used
there did you create the non-NIST category for CASI's spending, is that true; that only when you got there, the non-NIST category for CASI spending was created. THE WITNESS: I do follow you. Follow me? No.
893 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. THE COURT: Spring - cross About two big categories, remember? Correct. This is either CASI or ATP.
All right. Simple as that. My recollection is no,
THE WITNESS:
that the defendant was already using Quick Books for his CASI business. THE COURT: As distinct from his NIST business. Correct, that's correct.
All right. Simple, yeah.
THE WITNESS:
And what was he using for his NIST business? THE COURT: He said that he was using Quick Books for
his NIST business, and he was already using it for his non-NIST business, with CASI. THE WITNESS: That's correct.
Is it fair to say that there was no non-NIST category in
the system before you got there? A. Q. No, that's not correct. So tell us what you meant in your affidavit when you said
that, when I began working for Dr. Karron, I changed the Quick Books bookkeeping system for the ATP project to include a non-NIST category for CASI spending? A. Right, this was what we've been talking about for a while
now, which is, make sure it's clear in Quick Books that anything that was an ATP/NIST expense was marked as such, and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
894 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - cross
everything that wasn't, would be non-NIST or CASI related. Q. A. Q. And you explained that to Dr. Karron? Oh, absolutely. Did he ever tell you, don't do that, keep all the expenses
together? A. Q. A. Q. Keep all the expenses together? Did he ever tell you not to do that? I don't recollect. In fact, you did segregate NIST expenses from non-NIST
expenses, right? A. Q. I did separate the two out, that's correct. And the questions you had with Dr. Karron was a dispute as
to whether or not a particular expense should or should not be included in that category? A. Q. That is correct. And you recategorized expenses that you believed were not
for the ATP project, correct? A. Q. Based on my understanding the regulations, yes. And then you also put expenses that you believe were for
the project, correct? A. Yes, based on my understanding of the regulations, that's
correct. Q. And you did this based upon the NIST guidelines as -- since
you had read them over? A. That's correct. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
895 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Right? Spring - cross Did you also read the CFR that relate to this?
The CFR? Yes. You know what the CFR is?
Could you tell me what acronym stands for, please? THE COURT: Code of Federal Regulations. If this is the 30-page document that I
THE WITNESS:
called the regulations, the answer would be yes. Q. A. What if it's a 150-page document? I don't recollect reading a 150 page document. That I
would remember. Q. A. Q. Do you remember reading a 70 page document? I don't recollect. Did you ever have contact with anybody at ATP and ask them
any questions as to what you should classify an expense as whether it's to be a NIST expense or a non-NIST expense? A. Q. I did not, I did not -- no. Did Dr. Karron ever ask you to change the information that
was the backup for a particular expense? A. Q. I'm sorry, what do you mean by that? Well, any -- in his system, didn't he scan virtually every
piece of paper that he came in contact with into the system? A. Q. A. Q. Yes, he was forced to. And that was in place before you ever got there? The scanning? The scanning. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
896 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - cross
Not as mostly related to the ATP project, that is
incorrect. Q. Any check that Dr. Karron would sign, you had to present to
him an invoice or some backup to show that it was a bona fide expense of the project, correct? A. Any, any check that was written that was based on a bill,
of course, you couldn't enter the -- you couldn't create a check unless you knew what the amount was for to the payee should be. Q. Did you discuss which categories, whether some expense was
a NIST expense or not a NIST expense, with any employees of CASI? A. Employees, that would be Niki Winter -- who else, Jim Cox,
other people? Q. A. Yes. Perhaps, in general conversation. I would not have taken
guidance from any of those people.
They were not appropriate
to the financial dealings of the company or the project. Q. Did you speak to Joan Hayes about what was an appropriate
NIST expense? A. Yes, that's already been referenced in some of those
previous e-mails I read. Q. And did you, in your affidavit, say that you made your
determination as to what was a non-NIST expense based upon discussions with CASI employees and CASI accountant and your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
897 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. No. THE COURT: Just answer the question. Q. Spring - cross
understanding that NIST ATP regulations? A. Yeah. THE WITNESS: Did you say that? THE WITNESS: I may respond. THE COURT: No. The question has prompted something, if Your Honor, may I go back and --
Yes, there were discussions with the business manager. And who was the business manager? For year one it was Lee Gerfein, and for year two, Bob
Benedict. Q. A. Q. And were you familiar with Gurfein's employment contract? Very tangentially. Were you familiar with the fringe benefits that Gurfein was
entitled to? A. I knew there was an employee benefits plan, he was the
business manager, he would probably be participating in it. Other than, there was no formal plan. Q. Were you aware that those kind of expenses, even if you
didn't have a formal plan, if they were, if they were in place prior to the start of the grant, that they were allowable? MR. EVERDELL: THE COURT: Objection.
898 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Q. Spring - cross
Well, did you have discussions with Dr. Karron as to the
medical expenses and how they should be treated? A. Q. I'm sure I must have at some point, certainly. And did Dr. Karron explain to you that you didn't have to
have a written plan in place for it to be allowable? A. Q. A. Q. He may have said that. It doesn't mean it was true.
Doesn't mean it was false, right? Correct. Now, you said in year two that by November, 50 percent of
the grant money had been expended in year two? THE COURT: I don't think he said that. Objection.
MR. EVERDELL:
That is not what I said, no. Well you discussed in, in e-mail 142, exhibit -THE COURT: Exhibit 142. Government's exhibit 142.
MR. RUBINSTEIN:
Do you recall testifying that within a month and a half of
the second year he was using up 50 percent? A. Yes. If you factored in the monthly receivables, the
expenses from year one that he hadn't paid yet, which I believe were in excess of $110,000. Q. And was money available in the NIST account to pay those
expenses? A. Frankly, no, because you were only allowed to drawdown from
the ATP or NIST funds a certain amount of funds every month. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
899 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - cross
You just couldn't go in there and turn on the tap and take as much as you want to. Q. A. Q. A. How do you know that? How do I know that? Right. Dr. Karron personally showed me on the computer the
drawdown system which is, as I said, were was all electronic. Q. So he showed you, according to your testimony, that he was
limited? A. Q. That's correct. The amount of drawdown he could take at any particular
time? A. Q. Per month in year two, that is correct. So if the ATP people said that he could take all the money
at one time would that have any affect on your answer? MR. EVERDELL: THE COURT: Objection.
Objection sustained, form of the question.
Are you aware of Dr. Karron making loans to CASI for the
purposes of ATP? A. Q. I do not recollect any such loan, no. Now, Dr. Karron explained to you that he was going to
Washington to attempt to convince the people at NIST to permit amendments and revisions to the budget, right? A. Q. Yes, I remember. I read rode that e-mail earlier.
And do you know whether or not he actually went to SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
900 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 time. THE COURT: No, you're not. What? I'm asking -- it's my Washington, D.C.? A. Q. My recollection was he did. And do you know if he submitted any budget revisions, Spring - cross
requests for budget revisions? A. I believe one of the points of the trip was to resubmit his
figures, yes. Q. And did you have anything to do with creating numbers to
submit on financial statement revisions for the CASI NIST budget? A. I don't recollect. There were budget issues that were
happening at the same time as the audit by Joan Hayes was happening. Q. A. Wasn't Dr. Karron asking you for actuals, actual expenses? Well, that would be what was actually spent, yes, at the --
I mean that would be part of the process. Q. That's what he was asking for were actual -THE COURT: When are, when are we talking about?
Mr -- let's have a date, let's have an exhibit we're talking about. years. You can't have the open ended covering two and a half No one can tell the relevance of what they're asking
and we're getting to the end here. MR. RUBINSTEIN: Judge, I'm asking to recess at this
MR. RUBINSTEIN:
901 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 done. Spring - cross
anniversary, Judge, and -THE COURT: I'm sorry, I'm sorry. We're getting
through this witness, we are getting through this witness. First I've heard of any anniversary party. MR. RUBINSTEIN: THE COURT: Pardon?
First I've heard of any anniversary party. It's a fact. I'm married June 6th,
MR. RUBINSTEIN: your Honor. THE COURT: MR. KWOK: THE COURT:
I don't dispute it. Objection. That's the first I heard of it and we've
got a witness on cross-examination longer than he was on direct examination, and we're getting through this witness. But we've
got to do it in the next few minutes, not have these extended pauses between questions. These long conversations with your associate, really. MR. RUBINSTEIN: here, Judge, you know. THE COURT: to prepare for it. MR. RUBINSTEIN: THE COURT: I wouldn't say that at all, Judge. It may be, but you have had a lot of time Judge, there is a lot of material
You just go right ahead, but you get it
Put a question.
BY MR. RUBINSTEIN: Q. Well, do you recall an exhibit 143, which is dated November SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
902 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. 29th, on page -THE WITNESS: I can reference it? THE COURT: You don't see exhibits? Do you have a You Could I get the exhibit back, please, so Spring - cross
copy of it for the witness? better get them ready. MR. RUBINSTEIN:
You ought to have the copies.
143.
Yes, it's here in my hand. And that, that's an e-mail that you received from Dr.
Karron on November 27th, 2002, right? A. You're referring to, yes, November 27. I'm looking at that
part of e-mail chain. Q. And in that e-mail, Dr. Karron advises you that he has to
be -- an opportunity to cover any cost or problems by a late budget revision, correct? ATP has given him an opportunity to
cover any cost or problems by a late budget revision, right? A. Q. Yes, that's what he's telling me. And he tells you we need actuals that we could cast into
the budget revision, correct? A. Q. Yes. And he says, I thought we had actuals from the end of
September? A. Q. Yes. And then if you go down, he says, I am also -- you see in
the middle of the page, I'm also concerned -SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
903 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. A. Q. I do. -- that a number of costs are not identifiable from my Spring - cross
personal Quick Books? A. Q. Yes. Then on the next he says, I am trying to classify all of I can't seem to classify the journal
the costs by ATP or CASI.
entries you made as bill payments on my bills to CASI. Correct? A. Q. I just want to read that sentence. Yes.
He goes on to say, I also can't find the receipts from, for
each invoice and I can't match up the amounts on some journal entries to invoices either? A. Q. A. Q. A. Q. A. Yes, that is what it says. And what is your response to him on that? In the e-mail? Yeah. My e-mail response? Yeah. Written the next day, Dr. K, I have my doubts about just
how much we can get through on Friday, as the priorities seem to keep shifting, and Joan has her own needs, schedule, agenda, which we must also take into account. THE COURT: I --
Go ahead, read on.
I do believe that most of the data you are seeking for any
further budget revisions is actually there in the Q.B.'s, or SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
904 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. Spring - cross
Quick Book's or spread sheet files and probably just needs some reformatting. Joan will be arriving at ten on Friday, and I
will be at CASI shortly before that. Q. Nowhere in there do you dispute any of Dr. Karron's
complaints to you on a prior e-mail, right? A. Q. No. By the way, do you know, did Dr. Karron make sure that all
payroll taxes and other taxes were paid? MR. EVERDELL: Did Dr. Karron -THE COURT: All right. Objection.
Make sure that all taxes, including payroll taxes, were
paid? A. I was not involved in payroll for the most part, so I can't Those are tax reporting issues.
answer that question. Q.
You know whether or not Dr. Karron deferred receiving his
salary when the balances were low? A. I don't know. My only recollection of payroll relates to
what I testified to before. Q. A. Well, were you involved in generating the payroll checks? After Niki Winter left, whatever people were being paid on He did not use a payroll service.
a weekly or biweekly basis. THE COURT: who did it? THE WITNESS:
Did you, did you do it or did he do it;
I don't recollect totally, since Dr.
905 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. signed. THE COURT: All right. Spring - cross
Karron also wrote checks out of Quick Books, but I think I probably would've written some checks which he would've signed. THE COURT: Payroll checks? Payroll checks, which he would've
THE WITNESS:
Now, you say that you had disagreements with Dr. Karron as
to certain expenses that occurred before the grant started October 1st, 2001? A. Q. That's correct. I testified to that, that's true.
And he believed, Dr. Karron believed that if he paid it
after the grants started -THE COURT: question. Q. Next. Objection sustained as to the form of the
Did Dr. Karron tell you that he believed if you paid the
expense after the grant started, it was okay to do that? A. Q. I don't recollect him saying that, no. Well, do you recall in your affidavit saying -THE COURT: affidavit? MR. RUBINSTEIN: He signed an affidavit on What are you referring to as his
September -- on a beautiful autumn day. THE COURT: I missed the page. Objection.
MR. EVERDELL: THE COURT:
Has he got a copy of it before him?
906 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Come on. MR. RUBINSTEIN: THE COURT: Judge, I would ask that -MR. RUBINSTEIN: THE COURT: Spring - cross I don't know, Judge.
You're asking about his affidavit. Yes.
Show it to him and do it the right way.
You've asked the -He be given his documents, his 3500
MR. RUBINSTEIN: documents. THE COURT:
You've asked the question, you know that. I know, but he should have --
Show him the documents, does this refresh
your recollection, et cetera. MR. RUBINSTEIN: I know, but it would make a lot of
sense, in all due respect, your Honor, if they had given him his own 3500 material. THE COURT: I don't know whether they did or didn't.
I don't think he's supposed to recollect everything in there anyway. A. Q. That's why the rule is the way the rule is.
And what was your question, please? My question is whether you stated in your affidavit that
Dr. Karron believed that if an expense was paid after the start of the project, then it was a project expense? A. Yes, that's the way I've written clearly. What I stated
too. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
By the way, did he ever ask you to change a date on some
expense so that it would come within the time of the grant? A. I don't recollect that, whether he did or not. THE COURT: I think you asked that question before. I did not, your Honor.
MR. RUBINSTEIN: THE COURT: BY MR. RUBINSTEIN: Q.
All right.
If he asked you to do that, that's something that you would
wouldn't forget, would you? MR. EVERDELL: THE COURT: question. Q. If he asked you -THE COURT: hypothetical. Q. Objection sustained. It's obviously Objection.
Objection sustained to the form of the
Please.
Now, Dr. Karron advised you that he was speaking to people
at NIST about equipment charges, correct? A. Q. A. Yes. Do you know -- are you a scientist, by the way? Well, actually, my one of my college degrees is in
experimental psychology, so if you want to consider psychology a science, the answer is yes. THE COURT: All right, let's. With that, can't we leave with a
MR. RUBINSTEIN:
smile on our face Judge, for the day? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
908 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. THE COURT: Spring - cross The big smile will come when you say --
So it's fair to say that you had no knowledge of the
research project that Dr. Karron was given $2 million over three years to develop? A. No, I did 'cause he was very proud to explain to me, and I
did have an interest. Q. And did you -- were you aware of what each piece of
equipment was used for in the project? A. Q. Each piece, no. And you said that the rent was not deductible, allowable by
NIST, right? A. That's correct, if the grant recipient resided in a place
of where the project happened. Q. So it's your understanding that it was because the grant
recipient, Dr. Karron, resided at the location where the computers were, that that was the reason that that rent expense would not be allowed? A. Rather the other way around. The project was housed in the That's something
recipient, the defendant's apartment. somewhat different. Q. A. What's the difference?
Well, the difference is there was an established home where
the grant recipient lived, and you couldn't run -- if you ran your -- there was nothing per se running the project out of your apartment. It's just that you couldn't take your
909 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. Q. Spring - cross It's very simple. You
apartment as an allowable expense. either could or you couldn't. Q.
What if he moved to one floor down?
This is a high-rise
building, right, on East 33rd Street? MR. EVERDELL: THE COURT: Rubinstein, come on. Q. Well -THE COURT: Let's move it on. Objection.
Hypothetical question again, Mr.
If you move one flight down to somebody else's apartment -MR. EVERDELL: Objection.
-- would you deduct the expense? THE COURT: I think it's the first floor. Pardon?
MR. RUBINSTEIN: THE COURT: the first floor, so. MR. RUBINSTEIN:
I think you told us this apartment was on
No, it's on the 4th floor, Judge.
If
I said it was on the first floor, I misspoke. THE COURT: Okay. All right.
All right.
So it's cetera your view that a rent expense, the only
reason the rent expense was not allowable was because the defendant resided at the location, correct? A. Yes, and that was confirmed by Joan Hayes. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
Did you ever hear of the concept, direct and indirect
expenses related to the grant? A. Yes, I think I have in the past. I haven't thought about
it for some years. Q. A. Q. Well, in the 30 pages that you read -I didn't. -- did you happen to notice anything about indirect
expenses? A. Q. To my recollection right now, no. By the way, you also said that you had discussed with Dr.
Karron the unallowability of utilities, correct? A. Q. Correct. And, in fact, are you aware of negotiations as to having as
an expense deductible from NIST for utilities? MR. EVERDELL: THE COURT: sustain that. Q. Well, were you a recipient of any e-mails related to rent, Objection, your Honor. I'm going to
I don't see the relevance.
utilities expenses? A. There were hundreds of e-mails written in the course of 15 There may have been one related to utilities. I would
months.
have to see it. Q. A. Q. You were present in the summer of 2002, correct? I -- my first billable day was July 27th, 2002. And were you aware that Dr. Karron had taken a $75,000 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
911 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. Spring - cross
payment in October of 2001? A. Yes. This was an initial drawdown. The minute the ATP tap
fund tap was turned on, some ten months before I started working on the project. Q. And are you aware that in August that there were
bookkeeping entries made to turn that $75,000 into salary? THE COURT: Objection. Objection.
Sustained.
Did you see any records in this, in these Quick Books
indicating that 75 -- that Dr. Karron was credited as salary in August 2nd of 2002 for $61,000 and change? A. I don't remember the exact payments Dr. Karron took as his
drawdown or his salary or advances on salary, or money that he paid himself before the project started. Q. But were you aware of a journal entry made in the books on
September 30th, 2002, attributing 60 -- $61,000 to Dr. Karron as salary and that no check was then issued? MR. EVERDELL: THE COURT: Objection.
Do you have any recollection of that? No, your Honor, I don't.
THE WITNESS: Well, in your -THE COURT:
Jury is instructed that you're not to take The questions
into account the questions as being evidence. are not evidence.
The only evidence comes from the witness.
912 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. we're -THE COURT: Let's bring it to an end, Mr. Rubinstein. Yes. I'm getting there, Judge. Spring - cross
This witness hasn't testified about those things. Q. Well, before -THE COURT: Let's -May I have some more water while
THE WITNESS:
And getting there quickly.
Now, when you were doing this financial work for, for the
audit, right, you were getting papers for the audit for Joan Hayes? A. Preparing reports, separating out the NIST allowable from
the non-NIST allowable, yes. Q. Did you find any, in your preparation, any $75,000 loan
outstanding that Dr. Karron owed? THE COURT: Do you remember? Your Honor, what I remember is that when
THE WITNESS:
I worked back in time, since we're talking about ten months prior to my starting at ATP, that within the first, literally, the first or second day of the start of the project on October 1st, 2001, Dr. Karron took $75,000 out of the NIST funds as a what bookkeepers or accountants like to call draws. fact, pay yourself a lump sum of money. THE COURT: explanation. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Wait. You don't have to give an This is in
913 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. Q. Q. THE WITNESS: Spring - cross Okay.
In your working with the Quick Books in preparation for the
audit, did you find that there was a $75,000 loan outstanding that Dr. Karron owed on the ATP project? A. The check -THE COURT: Do you remember? All I remember is the check that was
THE WITNESS:
written out of ATP to the defendant for $75,000 and, it was marked by the defendant himself, since this was ten months before I started, as D.K., Dan Karron draw. check was noted. Q. And you have no recollection of whether or not that was That was how the
ever repaid? THE COURT: He said that was all his memory.
Well, you did find -THE COURT: I'll allow the question, let's go ahead.
-- as a bookkeeper -THE COURT: Do you remember whether that was repaid in
August 2003? A. Q.
That was the question.
I don't recollect one way or the other, no. Wouldn't it be something that you would, as a -MR. EVERDELL: Objection.
-- a bookkeeper something that if it was not repaid, you
would have to make some kind of note about? MR. EVERDELL: Objection.
914 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Q. A. Q. A. Q. A. THE COURT: Spring - cross Objection sustained.
Did you know a Mark Stanley? Mark Stanley? Yeah. Oh, no. Did you know Marilyn Goldstein? The name sounds familiar, but I don't recollect anything. Hope Snowden? Hope? Yes. I believe if you're talking about Hope, one of the ATP
managers, I knew her by name. Q. A. Q. A. B.J. Lide? B.J. is another ATP manager. You ever speak to any of those people? I said hello to B.J. two weeks ago, and it was just hello,
I'm Frank, and she said hi, I'm B.J. Q. A. Q. A. Q. A. Q. Here in the courthouse? No, not in the courthouse, no. In the U.S. Attorney's Office? That's the building next door? Yes. Yes. I said, I said hello to her.
And by the way, the, quote, apartment, were you ever in the
bedroom of that apartment where CASI was headquartered? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
915 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - cross When computers were down,
Yes, on a couple of occasions.
the defendant had a computer in that room. Q. A. Q. A. How -Once or twice, literally once or twice, probably. You worked there three days a weeks, correct? It would, as I've testified already, it would vary between,
say, one and three days a week. Q. And how many people were generally there working on the
project when you were there? A. Again, that would be -- would change. When Miss Winter was
around doing the day-to-day okay keeping for the first couple of months after I joined, Niki was often there. of the programmers was often there. Jim Cox, one
And then a gentleman
called Mat, who appeared to be a bit of a hanger on, I was never quite sure what Mat did, and Margaret, another hanger on. Q. A. Q. A. Q. Margaret did a lot of scanning, right? I saw her scanning once or twice. And how much was Margaret paid a week? I have absolutely no recollection at this point. Now, there came a time that a Bob Benedict was hired,
correct? A. Correct. He is the business manager for fiscal year two. Objection.
Really, Mr. Rubinstein, this is not --
this is going way beyond what's necessary for your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
916 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. Q. cross-examination. Q. Bob Benedict was the business manager for CASI, correct? MR. EVERDELL: THE COURT: Objection. Spring - cross
He's already testified to that.
And in fact there came a time when the bookkeeping system
got moved off-site, right? A. Q. A. Q. A. Q. That is correct. And that's after Bob Benedict came aboard? That is correct. And was it moved to Ken Jackson Group area? Yes. Now, the project was suspended, the grant was suspended,
was it not, in the latter part of June of 2003? MR. EVERDELL: THE COURT: to it before. Q. Objection. He's testified
We're all aware of that.
Now let's go ahead.
Did Dr. Karron advance monies to pay bills after the grant
was suspended? MR. EVERDELL: THE COURT: Objection.
Are you aware of whether or not Dr. Karron loaned money to
the NIST project during the time that you were there? MR. EVERDELL: Objection.
I am not aware of that. Pardon? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
917 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. A. Q. A. Q. A. Q. A. Q. Spring - cross
I am not aware of that. Well, let me show you an e-mail that's marked 3507Q? THE COURT: What letter? 3507Q?
THE DEPUTY CLERK: MR. RUBINSTEIN:
Q. 3507Q.
THE DEPUTY CLERK:
I show you this e-mail dated September 3rd, 2002? Uh-huh. From Frank -- from you? Correct. To Dr. Karron? Right. C.c. Hayes? THE COURT: What page of this? This is page ten of 51, your Honor.
This is September 3rd, 2002? Correct.
MR. RUBINSTEIN:
And did you, in that e-mail, say that, my biggest concern
is making sure that everything is kosher on the flow of monies that has happened since the inception of NIST project between CASI and the NIST sub accounts in CASI and Dr. Karron's personal finances. Dr. K, very understandably, and as most
small business owners needs to operate, has made personal loans in various ways to meet his cash flow needs in CASI, NIST, and I want to make sure that we take note of every, everything and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300
918 866ZKAR6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. that it is all clean. Do you recall sending that e-mail? Well, now, I -- that is my writing, yes. This is about Spring - cross
less than five weeks after I started the project, started working on the project. Q. And does that refresh your recollection that Dr. Karron
made loans to this project personal loans? A. Q. A. Subsequent to the writing of that e-mail -Does that refresh your recollection? It doesn't, it doesn't -- it doesn't refresh my
recollection enough to be specific about whether he actually did make loans or not. I was under the impression, looking at
the data that was in Quick Books and Quicken, that he made loans. MR. RUBINSTEIN: THE COURT: No further questions.
Any redirect? No redirect, your Honor. Thank you. I'm sorry, jury,
No redirect?
but it saved us one witness. MR. RUBINSTEIN: me to ask. THE COURT: Oh, no. One question. One last question my associate asked
Jury's excused.
(Jury exits the courtroom) SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

USA V Karron 07 CR 541 (RPP) Frank Spring Direct Examination and Cross Examination 1

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USA V Karron 07 CR 541 (RPP) Frank Spring Direct Examination and Cross Examination 1

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USA v Karron Docket 07 CR 541 (RPP)

Sworn Trial Testimony (Under Oath) of Frank Spring June 6, 2008

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SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

Jackson Group? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

following your personal finances, for tracking them.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

833 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct In fact, part

bookkeeping, which is substantially different.

I am a small business, small company owner myself.

clothing he's wearing? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

834 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. A. Spring - direct

It's the gentleman over there wearing a light colored tie

835 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct

by CASI? A. Well, when I was hired by CASI, there was already an

There was someone working there.

837 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct One is this thing called

which I mentioned a few minutes ago.

838 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - direct There

Well, there are a number of kinds of categories.

getting my years wrong.

project had been going on for ten months. April 2001. Q.

So were the charges -- just to be clear, you were asked to

So, basically, I was being asked to go back

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

840 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct

THE WITNESS: THE COURT:

again four or five weeks.

841 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Spring - direct And Joan Hayes

But by this point I had also read the document.

THE WITNESS: THE COURT:

You were asked whether you had a

conversation with the defendant. THE WITNESS: THE COURT: Yes.

It calls for yes or no answer. Yes.

defendant? A. Well, I, as I became more familiar with what was an

defendant? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

842 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Spring - direct

Oh, a range of things; rent, utilities, certain amounts on

that? A. Normally I would go away -- I didn't work at the office

843 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct

conversation afterwards. approved by -THE WITNESS:

Did he say that they were -- had been

He said they were in the process of

I would do what I -- would follow the

The jury will disregard that part of it.

845 866zkar4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Spring - direct And as part