USA V KARRON 07 CR 541 Rent and Riley Testimony

76K9KARA Arraignment
1
1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 --------------------- -------x
3 UNITED STATES OF AMERICA,
4 v. 07 CR 0541 (RPP)
5 DANIEL B. KARRON,
6 Defendant.
7 ------------------------------x
8 New York, N.Y.
June 20, 2007
9 2:30 p.m.
10
Before:
11
HON. ROBERT P. PATTERSON, JR.,
12
District Judge
13
14 APPEARANCES
15 MICHAEL J. GARCIA
United States Attorney for the
16 Southern District of New York
CHI T. STEVE KWOK
17 Assistant United States Attorney
18 RON RUBINSTEIN
Attorney for Defendant
19
20
21
22
23
24
25
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
770AAKARA
1 ten and $20,000.
Arraignment
17
2 MR. KWOK: Your Honor, if I may, I mean these
3 computers that we're talking about are not just your ordinary
4 laptop computers. They are very high powered super computers
5 primarily used for research and other purposes. I don't know
6 whether it's even cost effective or even technically feasible
7 to download or make a copy of everything on these hard drives
8 with terabytes of memory.
9 To the extent, again, that there is any record at all
10 in those computers I believe the government's already produced
11 a hard copy print out of those accounting records. The rest I
12 am not sure what Mr. Rubinstein is referring to in these
13 computers. But as far as records go relating to this case that
14 the government intends to rely on those have all been turned
15 over to defense counsel.
16 MR. RUBINSTEIN: The defense is this case is very
17 simple. He didn't intentionally do anything wrong, if he did
18 anything wrong at all. So showing all that he did for the
19 money is going to be part of the defense to show the jury that
20 he had no intention of doing anything improper. This man even
21 after the grant was stopped continued working on
22 THE COURT: I don't think that flies, Mr. Rubinstein.
23 I think you can't go into a defense that shows all the good
24 things he did and all the things that he did. The question is
25 whether or not these funds were misapplied and that is the
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1 issue.
Arraignment
18
2 I agree that you have to have a record to be able to
3 show that they weren't misapplied but I think I haven't heard
4 anything so far. Maybe you can educate me, but I haven't heard
5 anything so far that indicates that we should do more than see
6 whether there's more than a financial record that you require
7 or any rebuttal of the case that this application of funds is
8 going is to be produced.
9 MR. RUBINSTEIN: There's also e-mails relating to the
10 grant, your Honor, and those documentation are important for
11 the defense. The government -- I'd ask your Honor that the
12 government provide us with a detail list outlining the $390,000
13 that they now claim was inappropriately spent by Dr. Karron and
14 then at least we have an idea what documents relate to that.
15
16
THE COURT: They've produced those to you?
MR. RUBINSTEIN: No, they have not shown us any list
17 of where the alleged missing money is.
18 THE COURT: Maybe you ought to go and have a personal
19 consultation with Mr. Kwok and maybe he can show them to you.
20 That would be the best way.
21 MR. KWOK: I'll be glad to do that, your Honor.
22 Again, I think your Honor has it exactly right. The government
23 is not contending that, for example, some of the money, for
24 example, that the government contends was misapplied was used
25 for example to renovate Dr. Karron's apartment. We are not
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770AAKARA Arraignment
19
1 saying every cent towards the renovation was spent out of
2 government funds. Dr. Karron did spend some of his own money
3 as part of that home renovation. But that doesn't take away
4 from the fact that the government funds were indeed misapplied
5 toward home renovations. So I don't know what the records that
6 Mr. Rubinstein had in mind
7 THE COURT: He is saying some of the home was used and
8 as na office.
9 MR. KWOK: That's actually quite irrelevant under the
10 rules of the grant because even if it was indeed used as an
11 office you cannot pay overhead expenses using grant money.
12 Grant" money can only be used for direct and research expense
13 and it is clear rent is not used for those items.
14 THE COURT: Not rent but what about fixings up the
15 office so that if that -- or bringing electricity or bringing
16 in high powered computers into the office.
17 MR. KWOK: That's also disallowed and the reason is
18 simply because there is an approved budget. Every item that
19 . Dr. Karron was allowed to use was listed in that budget and if
20 you deviate from that budget you first have to seek pre
21 approval to do that and at no point did Dr. Karron receive
22 that.
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24
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THE COURT: Renovation was a budgeted item?
MR. KWOK: It was not allowed.
THE COURT: Any renovation of the office was a
(212) 805-0300
770AAKARA
1 budgeted item?
Arraignment
20
2 MR. KWOK: I don't believe any of it was. We are only
3 allowed to pay, for example, to hire scientists and research
4 personnel and to buy a specified number of computers for your
5 research. But to renovate your apartment or office to eat out
6 which is another item that Dr. Karron spent money on or to even
7 pay for Internet services they are specifically disallowed
8 under the terms of the grant. And another big item is back
9 rent, and that is also clear that you are not supposed to pay
10 rent or mortgage under the grant.
11 MR. RUBINSTEIN: The government wants the grant to be
12 written in granite. The fact of the matter is that these
13 grants they have modifications all the time. People spend
14 money, as long as they're spending it legitimately that's an
15 issue at trial.
16 THE COURT: But, Mr. Rubinstein, it's very clear that
17 if there's a grant it'll have terms to it and you can argue it
18 but they are not binding. There can be modifications and the
19 jury will make a determination.
20 When will you have your letter that you wish to
21 produce to Mr. Kwok?
22 MR. RUBINSTEIN: I'll have that in a week from
23 tomorrow which is which is the first of August.
24
25
THE COURT: When can we hear the reply?
MR. KWOK: How about a week.
(212) 805-0300
788rkarc
2 ------------------------------x
3 UNITED STATES OF AMERICA
1
4 v. 07 Cr. 541 (RPP)
5 DANIEL B. KARRON,
6 Defendant.
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Conference
8 New York, N. Y.
August 8, 2007
9 4:15 p.m.
10 Before:
11 HON. ROBERT P. PATTERSON, JR.
12 District Judge
13
APPEARANCES
14
15
MICHAEL J. GARCIA
16 United States Attorney for the
Southern District of New York
17 One St. Andrews Plaza
New York, New York 10007
18 CHI T. STEVE KWOK
Assistant United States Attorney
19
20 RONALD RUBINSTEIN, ESQ.
21 Rubinstein.& Corozzo,PC
260 Madison Avenue
22 New York, NY 10016
(212) 679-1844
23
24
25
(212) 805-0300
7A9JKARC Conference
19
1 claim is look, here's what we found, an audit that instead of
2 charging only research salaries of associates or whatever under
3 the grant, the language of the grant, you're making other
4 charges and those amount to 300 and 75,000 or whatever and here
5 it is, and here they are.
6 I don't see on their case that there is any
7 exculpatory evidence that you could find in the computer
8 because the issue is whether the expenses were appropriate or
9 not, and the defense would be they're -- the only defense which
10 you say is the defense they're seeking to make is that look, we
11 gave you the substantial equivalent and we didn't intend to do
12 anything wrong, you got the benefit of the research. The
13 research product is good. We spent the money slightly
14 differently. I don't know how big your rent was and got this
15 result.
16 I don't see how anything can be Brady material. It
17 just doesn't seem to fit into the Brady context.
18 MR. RUBINSTEIN: Your Honor, these notes would show if
19 there was a dinner that they're claiming, what was discussed at
20 the dinner. I understand one of the government's witnesses in
21 this case is Dr. Karron's former accountant who was privy and
22 aware of all of these documents and what have you, and if I'm
23 not able to cross-examine this witness based upon documents
24 that she was aware of that, I could use to show the jury what
25 her thinking was and what her job was and why she filed this
(212) 805-0300
7A9JKARC
1 audit.
2
3
4
5
20
Conference
THE COURT: She is the auditor?
MR. RUBINSTEIN: She is the auditor.
THE COURT: She is his accountant?
MR. RUBINSTEIN: His accountant, yes. She is, what I
6 understand -- I could be mistaken -- she is the star witness or
7 one of the star witnesses for the government. All of these
8 items we are talking about --
9
10 witness.
11
THE COURT: I don't know if she is a star, but a
MR. RUBINSTEIN: She is at least a significant
12 witness. Additionally, apparently the government is claiming
13 today that if I could put the pieces together, I may be
14 mistaken, is going to say she advised Dr. Karron not to do
15 certain things, all right?
16 So these records became very important because she is
17 privy to all of these records. Nothing was concealed from her..
18
19
THE COURT: She is probably privy to everything.
MR. RUBINSTEIN: Yeah. How are we going to examine
20 her? Are we going to be stuck with her word because we're not
21 going to have the records?
22 The government says they're not aware of any. Sure
23 they're not aware of any because they're very happy with this
24 cookie cutter approach and they want to look at anything in the
25 computers. The only thing they have is what the defense handed
(212) 805-0300
RUBINSTEIN & COROZZO, LLP
COUNSELORS AT LAW
RONALD RUBINSTEIN 260 MADISONAVENUE
22ND FLOOR
NEWYORK, N.Y. 10016
JOSEPH R. COROZZO
BRIANA L. HERMAN
TELEPHONE 12125 545-8777
FAX(212) 679-1844
November 29, 2007
Re: NIST Cooperative Agreement No.: 70NAB1H3050
Dear Dr. Karron:
On November 28, 2007, I spoke with Assistant United States Attorney Steve Kwok in
regards to the above entitled matter. According to NIST, there appears to be a balance of $54,500
available. The government believes we misread the letter and the funds are actually not available.
I advised AUSA Kwok that the funds were legitimately earned and if available I would
encourage you to obtain the funds and Mr. Clark advised me that the government's consent was
not necessary
I further suggest you place the funds in my escrow account to be used for expenses in the
criminal case.
Very truly yours,
An
6 2 .
Agorrly
Ron Rubinstein
ko
RUBINSTEIN & COROZZO, LLP
260 Madison Avenue
(212) 545 8777
I
UNITED STATES DEPARTMENT OF COMMERCE
National Institute of Standards and Technology
4."'$
41.1s
,
I
Gaithersburg, Maryland 201399-
November 05, 2007
Mr. Peter Ross
Computer Aided Surgery, I nc.
300 East 33rd Street, Suite 4N
RE: N1ST Cooperative Agreement No.: 70NANB 1113050
Dear Mr. Ross:
The above referenced cooperative agreement ended on September 30, 2004 with a
balance in the grant account totaling $:54,500. We want to be sure our records agree with
yours before we proceed to &obligate these funds.
I f there were additional claims made against the. account. please so indicate and we will
proceed to deobligat.e the remaining balance and finalize the closeout of this project.
You may submit the requested information to me via E-mail at the address noted below.
I f we do not hear from you by November 30, 2007, we will assume that the intbrmation
we have is correct and will proceed to deobligate the. remaining funds in the grant
aecoUnt.
Sincerely yours.
2
.ames M. Brow'mng ),
Grants Specialist
GAI VI DI DA/CFO/NI ST
100 Bureau Drive, MS 1650
Gaithersburg-. MD 20899-1650
Phone: 301-975-8088
FAX: 301-840-5976
[-mail: james.browningliktist.g,ov
C: I leather Manton
Grant File
MST
1
862ZKAR1
1 UNI TED STATES DI STRI CT COURT
1 SOUTHERN DI STRI CT OF NEWYORK
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2
3 UNI TED STATES OF AMERI CA, New Yor k, N. Y.
3
4 v. S2 07 CR 541 ( RPP)
4
5 DANI EL B. KARRON,
5
6 Def endant .
6
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8 J une 2, 2008
9 9: 30 a. m.
9
10
10 Bef or e:
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11 HON. ROBERT P. PATTERSON, J R. ,
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12 Di st r i ct J udge
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14 APPEARANCES
14
15 MI CHAEL J . GARCI A
15 Uni t ed St at es At t or ney f or t he
16 Sout her n Di st r i ct of New Yor k
16 BY: STEVEN KWOK
17 CHRI STI AN EVERDELL
17 Assi st ant Uni t ed St at es At t or neys
18
18 RUBI NSTEI N & COROZZO, LLP
19 At t or neys f or Def endant
19 BY: RONALD RUBI NSTEI N
20
20 Al so Pr esent : Rachel Ondr i k, U. S. Dept . of Commer ce
21 Ki r k Yamat ani , U. S. Dept . of Commer ce
22
23
24
25
SOUTHERN DI STRI CT REPORTERS, P. C.
( 212) 805- 0300
35
8627KAR2 Openi ng - Mr . Ever del l
1 wi t nesses come i n and t hey t el l t hei r st or y i n chr onol ogi cal
2 or der and i t ' s al l wr apped up neat l y i n an hour . I nst ead, t he
3 pr oof i s goi ng t o come t o you i n bi t s and pi eces, because each
4 wi t ness knows hi s or her own smal l por t i on of t he l ar ger
5 pi ct ur e of t hi s case. So, t hi s openi ng st at ement i s my chance
6 t o gi ve you an over vi ew, a r oad map, t hat I hope wi l l hel p you
7 under st and t he evi dence t hat ' s t o come.
8 So, what wi l l t he evi dence i n t hi s case show? You
9 wi l l l ear n t hat i n 2001 t he def endant and hi s company, Comput er
10 Ai ded Sur ger y, I ncor por at ed, or CASI , appl i ed f or and r ecei ved
11 a $2 mi l l i on gr ant f r omt he f eder al gover nment t o pay f or hi s
12 r esear ch i n comput er i magi ng. Now, t hi s par t i cul ar gr ant was
13 supposed t o l ast f or t hr ee year s, wi t h t he $2 mi l l i on bei ng
14 di sbur sed i n i nst al l ment s over t hat t hr ee- year t i me per i od.
15 As you mi ght expect , wi t h such a l ar ge amount of
16 t axpayer money i nvol ved i n t hi s ki nd of gr ant , t he f eder al
17 gover nment has cer t ai n r ul es t hat t he r eci pi ent must f ol l ow
18 when he r ecei ves t hi s ki nd of money and what he can spend t he
19 money on. You wi l l hear what t hose r ul es ar e, but t he mai n
20 r ul e i s si mpl e and st r ai ght f or war d and i t ' s t hi s: You must
21 spent gr ant f unds on your r esear ch. That means t hat t he gr ant
22 money must be spent on t hi ngs t hat di r ect l y i mpact and f ur t her
23 t he r esear ch. The f unds cannot be used t o pay f or t hi ngs such
24 as r ent and ut i l i t i es f or your of f i ce space. Those cost s ar e
25 j ust t he cost of doi ng busi ness. Ever y company has t hose, and
( 212) 805- 0300
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1 t hey ar e not cover ed under t he gr ant . And i t means t hat t he
2 f unds cannot be used t o pay f or per sonal expenses l i ke meal s or
3 per sonal debt s. Those ar e not r esear ch cost s, and t hey ar e not
4 cover ed ei t her . And you wi l l al so hear t hat i n or der t o keep
5 t r ack of t he gr ant money t he gover nment r equi r es t he gr ant
6 r eci pi ent t o submi t a budget t hat out l i nes what you ar e
7 spendi ng your gr ant money on. Al l t he cat egor i es of expenses
8 ar e l ai d out - - sal ar y, t r avel cost s, equi pment cost s - - and
9 agai n t he r ul e i s si mpl e, you must st i ck t o your budget . That
10 means i f you t el l t he gover nment you ar e goi ng t o spend t he
11 gr ant money f or cer t ai n t hi ngs, t hen you must spend t he gr ant
12 money f or t hose t hi ngs; and i f you want t o make any si gni f i cant
13 changes t o your budget , you must get appr oval i n wr i t i ng.
14 Now, t hose ar e t he r ul es i n a nut shel l , and t hey ar e
15 basi c, si mpl e and easy t o under st and, and you wi l l hear t hat
16 t hese r ul es wer e r epeat ed f or t he def endant on sever al
17 di f f er ent occasi ons by gr ant of f i ci al s. You wi l l al so hear
18 t hat t he def endant was gi ven t hese r ul es when he r ecei ved t he
19 gr ant and si gned a f or macknowl edgi ng t hat he under st ood t hose
20 r ul es, and you wi l l al so hear t hat t he def endant was t ol d t i me
21 and t i me agai n by gr ant of f i ci al s and by hi s own empl oyees t hat
22 he coul d not use t he gr ant f unds t o pay f or t he t hi ngs he
23 want ed t o pay f or . But t he evi dence wi l l show t hat t he
24 def endant r ef used t o l i st en t o t hemand went ahead and used t he
25 gr ant money as he want ed.
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1 And how di d he mi sspend t hi s money? Wel l , t o gi ve you
2 j ust one exampl e, l adi es and gent l emen, you wi l l hear t he
3 def endant set up hi s company, CASI , i n t he l i vi ng r oomof hi s
4 own apar t ment i n Mi dt own Manhat t an, and t he evi dence wi l l show
5 t hat when CASI r ecei ved i t s f i r st i nst al l ment of $150, 000 i n
6 gr ant f unds, t he f i r st t hi ng t he def endant di d was t r ansf er
7 $75, 000 of i t , hal f of i t , t o hi msel f and used i t t o pay f or
8 per sonal debt s l i ke hi s cr edi t car d bi l l s. And t hen he used
9 t hose same f unds t o pay hi msel f sever al t housand dol l ar s i n
10 r ent payment s f or CASI ' s use of hi s l i vi ng r oom, despi t e t he
11 f act t hat he was st i l l l i vi ng i n hi s apar t ment and despi t e t he
12 f act t hat he had been t ol d speci f i cal l y on mul t i pl e occasi ons
13 t hat r ent was not an al l owabl e expense under any ci r cumst ances.
14 The def endant ' s mi suse of t he gr ant f unds does not end
15 t her e. You wi l l al so hear t hat he used gr ant f unds t o pay f or
16 so- cal l ed equi pment , el ect r oni c gadget s l i ke a GPS t r acki ng
17 devi ce and a di gi t al camer a and househol d i t ems l i ke a bl ender
18 and shoe r ack, i t ems t hat had not hi ng what soever t o do wi t h hi s
19 r esear ch. And you wi l l hear t hat t he def endant used gr ant
20 f unds t o pay f or t housands of dol l ar s wor t h of dent al and ot her
21 cosmet i c medi cal pr ocedur es. And you wi l l al so hear about how
22 t he def endant adamant l y r esi st ed ef f or t s of ever yone ar ound hi m
23 t o convi nce hi mt hat he was spendi ng money on t hi ngs t hat
24 wer en' t al l owed and t o f i x what he had done bef or e.
25 For exampl e, you wi l l l ear n t hat t he def endant hi r ed a
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1 bookkeeper t o go t hr ough t he company' s books and r ecor ds i n
2 connect i on wi t h t he f i r st year audi t of hi s company, and when
3 t hat bookkeeper r ecl assi f i ed cer t ai n expenses and changed t hem
4 f r omgr ant expenses t o nongr ant expenses accor di ng t o t he
5 r ul es, t he def endant went back i nt o t he books and changed t hem
6 r i ght back agai n so t hat he coul d be sur e t hat gr ant f unds
7 coul d be used t o pay f or t hem.
8 The end r esul t of al l t hi s, l adi es and gent l emen, i s
9 t hat t he def endant has been char ged i n a one count i ndi ct ment
10 wi t h cr i me of mi sappl yi ng gover nment gr ant f unds.
11 So, how i s t he gover nment goi ng t o pr ove i t s case t o
12 you? Her e i s how:
13 You wi l l hear t est i mony f r omt wo of t he gover nment
14 of f i ci al s t hat wer e assi gned t o admi ni st er t he def endant ' s
15 gr ant , and t hey wi l l expl ai n t o you what t he r ul es of t he gr ant
16 ar e and whi ch expenses you can and cannot use gr ant f unds t o
17 pay f or . And t hey wi l l t el l you how t hey spoke t o t he
18 def endant on numer ous occasi ons bot h i n per son and on t he phone
19 and t ol d hi mover and over agai n t hat he coul d not use gr ant
20 f unds t o pay f or t hi ngs such as r ent and ut i l i t i es and ot her
21 nonal l owabl e expenses. And you wi l l hear f r omt wo audi t or s who
22 l ooked at t he company' s books, and t hey wi l l t el l you t hat when
23 t hey l ooked at t he company' s expenses and separ at ed out t he
24 expenses t hat wer e al l owabl e under t he gr ant f r omt he expenses
25 t hat wer e not al l owabl e under t he gr ant , t hey f ound t hat
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1 bookkeeper t o go t hr ough t he company' s books and r ecor ds i n
2 connect i on wi t h t he f i r st year audi t of hi s company, and when
3 t hat bookkeeper r ecl assi f i ed cer t ai n expenses and changed t hem
4 f r omgr ant expenses t o nongr ant expenses accor di ng t o t he
5 r ul es, t he def endant went back i nt o t he books and changed t hem
6 r i ght back agai n so t hat he coul d be sur e t hat gr ant f unds
7 coul d be used t o pay f or t hem.
8 The end r esul t of al l t hi s, l adi es and gent l emen, i s
9 t hat t he def endant has been char ged i n a one count i ndi ct ment
10 wi t h cr i me of mi sappl yi ng gover nment gr ant f unds.
11 So, how i s t he gover nment goi ng t o pr ove i t s case t o
12 you? Her e i s how:
13 You wi l l hear t est i mony f r omt wo of t he gover nment
14 of f i ci al s t hat wer e assi gned t o admi ni st er t he def endant ' s
15 gr ant , and t hey wi l l expl ai n t o you what t he r ul es of t he gr ant
16 ar e and whi ch expenses you can and cannot use gr ant f unds t o
17 pay f or . And t hey wi l l t el l you how t hey spoke t o t he
18 def endant on numer ous occasi ons bot h i n per son and on t he phone
19 and t ol d hi mover and over agai n t hat he coul d not use gr ant
20 f unds t o pay f or t hi ngs such as r ent and ut i l i t i es and ot her
21 nonal l owabl e expenses. And you wi l l hear f r omt wo audi t or s who
22 l ooked at t he company' s books, and t hey wi l l t el l you t hat when
23 t hey l ooked at t he company' s expenses and separ at ed out t he
24 expenses t hat wer e al l owabl e under t he gr ant f r omt he expenses
25 t hat wer e not al l owabl e under t he gr ant , t hey f ound t hat
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1 hundr eds of t housands of dol l ar s of gover nment money had been
2 spent on expenses t hat wer e ei t her not i n t he budget or wer e
3 unr el at ed t o t he r esear ch t hat t he gr ant was supposed t o f und.
4 And you wi l l al so hear f r omt hr ee peopl e who wor ked
5 f or t he def endant at CASI , hi s company. They wi l l t el l you
6 what i t was l i ke t o wor k wi t h t he def endant , how he r ef used t o
7 l i st en t o t hei r advi ce about what he coul d spend t he gr ant
8 money on, how he changed t he bookkeepi ng ent r i es i n t he CASI
9 books and r ecor ds t o make sur e t hat cer t ai n expenses wer e
10 cl assi f i ed as r esear ch- r el at ed expenses so t hat t hey coul d be
11 pai d f or wi t h gr ant f unds, and how he t ol d t hemhe t hought he
12 coul d do what he pl eased wi t h t he gr ant money.
13 Fi nal l y, you wi l l be seei ng a number of document s t hat
14 wi l l show you t he f r aud i n cl ear bl ack and whi t e. I n
15 par t i cul ar you wi l l see an anal ysi s of t he def endant ' s per sonal
16 bank account and t he bank account s of CASI , and you wi l l see
17 how vi r t ual l y 100 per cent of CASI ' s i ncome was f r omt he gr ant
18 f unds and how t hose f unds went t o pay f or al l of t he
19 nonal l owabl e expenses t hat I ment i oned bef or e.
20 Now, bef or e I si t down, l adi es and gent l emen, I woul d
21 l i ke you t o do t hr ee t hi ngs dur i ng t he cour se of t hi s t r i al :
22 Fi r st , pay cl ose at t ent i on t o what t he wi t nesses have
23 t o say, and pay cl ose at t ent i on t o t he exhi bi t s t hat ar e
24 i nt r oduced i nt o evi dence.
25 Second, l i st en ver y car ef ul l y t o J udge Pat t er son' s
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47
8627KAR2 Openi ng - Mr . Rubi nst ei n
1 t hat t hey' r e compl ai ni ng about . And when t hey say t hat he i s
2 not al l owed t o spend money on r ent , wel l , t hat ' s i n t he
3 or di nar y cour se, t hat ' s i n t he r ul es, we concede t hat . But
4 t hey al so, t he gr ant admi ni st r at or s, coul d adj ust t he r ul es.
5 Because t he concept of r ent , as t he gover nment suggest ed i n
6 t hei r openi ng, i s t hat most compani es, t hey' r e doi ng di f f er ent
7 t hi ngs, so t he r ent , i t ' s har d t o at t r i but e r ent t o one
8 speci f i c t hi ng i f t hey ar e wor ki ng on t hr ee or f our pr oj ect s.
9 Her e CASI was wor ki ng on one pr oj ect . The el ect r i c ut i l i t i es
10 went up doubl e, we ar e goi ng t o show you, i n t he t i me t hat t he
11 gr ant was i n oper at i on.
12 And what di d Dr . Kar r on do? He di d ever yt hi ng he
13 coul d i n hi s power t o make t hi s pr oj ect wor k. And he hi r ed
14 account ant s. He hi r ed bookkeeper s, he hi r ed account ant s, and
15 he hi r ed an account ant who was pai d, Ms. Hayes. She i s t he
16 st ar gover nment wi t ness, hi s account ant , hi s account ant who
17 i mpr oper l y wor e t wo hat s because she al so became t he audi t or
18 f or t he pr oj ect , and she i s supposed t o be submi t t i ng t he audi t
19 budget , t he audi t , af t er t he f i r st year . Wel l , t he f i r st year
20 ended Sept ember 30, 2002. You know when Ms. Hayes got t hat
21 budget i n? I n J une of 2003. She got some ext ensi ons.
22 So, i n t he end Ms. Hayes, who was pai d by Dr . Kar r on,
23 was r eal l y not wor ki ng f or hi m, she was wor ki ng f or t he
24 gover nment .
25 And I submi t t o you you ar e goi ng t o f i nd out t hat bad
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8627KAR2 Openi ng - Mr . Rubi nst ei n
1 audi t s ar e not cr i mi nal . Ther e ar e speci f i c l egi t i mat e
2 pat hways out l i ned i n t he r ul es t o r esol ve audi t pr obl ems
3 wi t hout maki ng i t cr i mi nal , and a gr ant r eci pi ent who i s
4 at t empt i ng t o r esol ve a di f f er ence of opi ni on may have
5 di f f er ent pr ocedur es. Dr . Kar r on says I ' ment i t l ed t o t hese
6 f r i nge benef i t s because al l of my empl oyees ar e ent i t l ed t o
7 t hese f r i nge benef i t s.
8 They want t o say he i s not ent i t l ed. They t al ked
9 about medi cal . Yes, t her e wer e speci f i c medi cal expenses, but
10 he has a r i ght t o negot i at e t hese t hi ngs ci vi l l y. And even i f
11 t hey don' t agr ee wi t h hi mci vi l l y, i t doesn' t mean t hat i t was
12 cr i mi nal . Because t he j udge i s goi ng t o t el l you what t he l aw
13 i s, and I amnot goi ng t o t r espass on hi s pr ovi nce, but you ar e
14 goi ng t o f i nd t hat Dr . Kar r on never i nt ended t o commi t a cr i me.
15 And what I ' mgoi ng t o show, what he di d i n hi s own convol ut ed
16 way i s goi ng t o pr ove t o you beyond a r easonabl e doubt t hat he
17 never i nt ended t o commi t a cr i me.
18 He had f our di f f er ent col or checks f or each di f f er ent
19 company t hat he had t hat was r el at ed t o t hi s. He t hen scanned
20 ever y si ngl e document , ever y si ngl e document he ever came i n
21 t ouch wi t h. He di dn' t hi de anyt hi ng. I cal l upon t hemt o
22 pr ove. They sai d i t , t hat he changed r ecor ds. He scanned
23 ever y si ngl e document he had, and t hey wer e i n t he comput er ,
24 and he hi d not hi ng, not hi ng. How do you st eal when you keep
25 r ecor ds? Thi s i s a ma and pa sci ence oper at i on st or e. I t ' s a
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862ZKAR3 Openi ng - Mr . Rubi nst ei n
1 MR. RUBI NSTEI N: So t hat t el l s you how si gni f i cant t he
2 manual i s. And I submi t t o you t hat t her e came a t i me t hat he
3 di d st ar t . They di d pr epar e a manual . I t was af t er t he gr ant
4 was suspended, but t hey di d pr epar e a manual . And al l t he
5 i t ems, whi ch t he f r i nge benef i t s, t hey wer e budget ed f or
6 110, 000 a year , t hey spent l ess t han $110, 000 a year . Most of
7 t he empl oyees t hat Dr . Kar r on had, who wer e f ul l - t i me
8 empl oyees, wer e col l ege pr of essor s and peopl e at academi a who
9 had t hei r own heal t h i nsur ance. So t hey di dn' t need t he
10 benef i t . But i f someone needed t he benef i t , he gave chi l d car e
11 t o a bookkeeper .
12 They t al k about t he r ent . I submi t t o you t hat
13 doesn' t pr ove any cr i mi nal i t y. Most of t he r ent t hat was pai d
14 t o Dr . Kar r on was r ent t hat was due hi mpr i or t o t he gr ant .
15 They j ust di dn' t have t he money so t hey di dn' t , t hey di dn' t pay
16 i t .
17 And al so t her e' s l i t t l e quest i on t hat he coul d' ve
18 got t en per mi ssi on t o have t he r ent , because i t wasn' t what t hey
19 cal l an i ndi r ect expense any mor e, because i t was t he onl y
20 expense f or t hat pr oj ect . And t her e was no at t empt t o hi de
21 t hat t hese checks wer e wr i t t en f or r ent . I t ' s on t he memo of
22 t he checks. Does he i nt end t o commi t a cr i me i f he does t hat ?
23 Par t of t hi s $500, 000 t hey' r e t al ki ng about ar e on
24 sal ar i es, sal ar i es of ot her peopl e t hat t hey di sal l owed. The
25 gover nment or der , di sal l owed. Why? He had a manager , an
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862ZKAR3 Li de - di r ect
1 appl i cant can dr aw.
2 Q. Now what , i f anyt hi ng, does t he gr ant - -
3 THE COURT: I n whose i s name i s t he bank account ?
4 THE WI TNESS: I ' msor r y?
5 THE COURT: I n whose name i s t he bank account ?
6 THE WI TNESS: The bank account i s i n t he name of t he
7 f or pr of i t company. Thank you.
8 THE COURT: The f or pr of i t company.
9 THE WI TNESS: Cor r ect . The money must f l ow t o a
10 company t hat i s f or pr of i t . I t cannot f l ow, f or exampl e, t o a
11 uni ver si t y.
12 Q. And what , i f anyt hi ng, does t he gr ant r eci pi ent have t o
13 cont r i but e t o t he cost s of t he r esear ch?
14 A. A si ngl e appl i cant must pay al l of t he i ndi r ect cost s and
15 can cont r i but e t o t he di r ect cost s.
16 Q. What ar e t hese di r ect ver sus i ndi r ect cost s?
17 A. Di r ect cost s ar e t hose f unds t hat go di r ect l y t o t he
18 r esear ch, such as i ndi vi dual sal ar i es or equi pment needed t o
19 per f or mt hat r esear ch.
20 Q. How about i ndi r ect cost s?
21 A. I ndi r ect cost s ar e t hi ngs t hat woul d be spr ead over al l of
22 t he act i vi t i es of t hat company, such as f aci l i t i es, r ent ,
23 el ect r i ci t y, l egal f ees, secr et ar i al suppor t , admi ni st r at i ve
24 suppor t , l ooki ng f or ot her f undi ng, t hat sor t of t hi ng.
25 Q. So i f a gr ant has t he cost shar ed r equi r ement , wher e does
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8637KAR1
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14 APPEARANCES
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16 BY: STEVEN KWOK
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8637KAR1 Li de - di r ect
1 A. I hel ped devel op some of t he r ul es and r egul at i ons, and I
2 have f ol l owed t hemi n al l of t he pr oj ect s t hat I manage.
3 Q. What ar e a gr ant ee' s obl i gat i on under t hat pr ogr amwi t h
4 r espect t o t hei r budget ?
5 A. Thei r obl i gat i on i s t hat t hey adher e t o t he budget and al l
6 of t he r ul es and r egul at i ons i n t hese document s.
7 Q. Ar e t her e ci r cumst ances under whi ch t hey can devi at e f r om
8 t he budget ?
9 A. Yes, t her e ar e. For any gi ven budget year , f or t he amount
10 of money al l ocat ed t o t hat year , t hey can move up t o 10 per cent
11 f r omone cat egor y t o anot her as l ong as t hose cat egor i es exi st
12 i n t he budget .
13 Q. What i f t hey want t o move money t hat exceeds t he 10 per cent
14 annual budget amount ?
15 A. They must ask f or per mi ssi on and get wr i t t en pr i or appr oval
16 bef or e t he new budget i s aut hor i zed.
17 Q. What i f t hey want t o add a new cat egor y al t oget her ?
18 A. They must ask f or per mi ssi on and get wr i t t en pr i or appr oval
19 bef or e t hey add t hat cat egor y.
20 Q. Ms. Li de, ar e or al appr oval s ever gi ven?
21 A. No.
22 Q. Ar e t her e si t uat i ons wher e gr ant ees can spend t he money
23 f i r st and seek appr oval af t er t he f act ?
24 A. I t i s t he except i on t o t he r ul e. That happens
25 occasi onal l y, but when t hat happens, any of t he money spent
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8637KAR1 Li de - di r ect
1 bef or e t he wr i t t en appr oval i s gi ven i s at t he gr ant ee' s r i sk.
2 Q. Now, ar e t her e cer t ai n pr i nci pl es t hat di ct at e whet her ATP
3 wi l l pay f or cer t ai n expenses or not ?
4 A. Yes, t her e ar e, and t hose ar e al l i n t hese document s.
5 Q. What ar e some of t hose basi c r ul es?
6 A. Basi cal l y ATP wi l l not pay i ndi r ect cost s f or si ngl e
7 appl i cant s, such as r ent , f aci l i t y r enovat i ons, l egal f ees,
8 admi ni st r at i ve cost s f or secr et ar i es and t hat sor t of t hi ng,
9 whi ch i s spr ead over t he whol e company' s act i vi t i es.
10 Q. And do you pay f or expenses i ncur r ed bef or e t he st ar t of
11 t he gr ant pr ogr am?
12 A. No, we cal l t hemsunk cost s, and not hi ng i ncur r ed bef or e
13 t he act ual st ar t dat e of t he pr oj ect can be char ged t o t he U. S.
14 gover nment .
15 Q. How do gr ant ees know about al l of t hese r ul es t hat you j ust
16 descr i bed t o us?
17 A. They know about t hese r ul es i n t hese document s t hat ar e
18 exhi bi t s 1 t hr ough 4 t hr ough conf er ences t hat we gi ve, t hr ough
19 t el ephone advi ce t hat we al ways have avai l abl e, and t hr ough a
20 ki ckof f meet i ng whi ch i s what i s pr esent ed i n Exhi bi t 4.
21 Q. What i s a ki ckof f meet i ng?
22 A. A ki ckof f meet i ng i s a meet i ng bet ween t he gr ant ee and t he
23 pr oj ect management t eamat NI ST wher e we go t hr ough al l of t he
24 r ul es and r egul at i ons, ask i f t her e ar e any quest i ons, and make
25 sur e t hat t he gr ant ee under st ands t he r esponsi bi l i t i es of bei ng
( 212) 805- 0300
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1 A. Ear l y i n t he pr oj ect t her e wer e some mi nor changes t o
2 basi cal l y per sonnel and equi pment .
3 Q. And what , i f anyt hi ng, di d you di scuss wi t h t he def endant
4 about t he t opi c of r ent ?
5 A. Rent i s an unal l owabl e cost . He - -
6 THE COURT: No.
7 MR. RUBI NSTEI N: Obj ect i on, your Honor . I t ' s not
8 r esponsi ve.
9 THE COURT: What di d you say t o t he def endant about
10 r ent ?
11 THE WI TNESS: I t i s an unal l owabl e cost .
12 THE COURT: That came up i n t he conver sat i on?
13 THE WI TNESS: Yes, si r , i t di d.
14 THE COURT: Al l r i ght .
15 Q. Now, Ms. Li de, what di f f er ence woul d i t have made i f t he
16 apar t ment was used, i n par t , as an of f i ce?
17 A. ATP does not pay r ent , so i t woul d make, make no
18 di f f er ence.
19 Q. Di d you expl ai n t hi s t o t he def endant ?
20 A. Yes.
21 Q. What , i f any, was hi s r esponse?
22 A. That i n - - f or t hi s gr ant s, t her e wer e uni que ci r cumst ances
23 and i t shoul d be consi der ed.
24 THE COURT: Can you t el l us, appr oxi mat el y, when t he
25 conver sat i on t ook pl ace?
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1 THE WI TNESS: Ver y cl ose t o t he begi nni ng of t he
2 pr oj ect , cer t ai nl y r i ght af t er t he begi nni ng of t he 2002.
3 That ' s t he best of my r ecol l ect i on.
5 Q. And what di d you say t o hi mi n r esponse t o t hat ?
6 A. That ATP does not pay r ent ; i t i s an unal l owabl e cost . He
7 coul d pr opose t hi s t o t he gr ant s of f i cer and see what woul d
8 happen, but t hat i t was - - i t has never been done.
9 Q. What , i f any, ot her cat egor i es di d you di scuss i n your
10 conver sat i ons wi t h t he def endant ?
11 A. One of t he ot her maj or cat egor i es was r enovat i ons t o t he
12 exi st i ng space, because t he comput er s wer e maki ng t he space
13 ext r emel y hot , and we di scussed i mpr ovi ng t hat space wi t h
14 addi t i onal el ect r i ci t y. And, once agai n, t hat i s a capi t al
15 i mpr ovement , whi ch ATP does not pay f or .
16 Q. Di d you t el l t hat t o t he def endant ?
17 A. Yes.
18 Q. What , i f anyt hi ng, di d you t al k about wi t h t he def endant
19 about t he equi pment ?
20 A. Equi pment must st ay wi t hi n t he amount on t hi s budget , and
21 any change i n t he amount of equi pment needed, any changes i n
22 maj or pur chases woul d have t o be appr oved i n wr i t i ng bef or e
23 t hat coul d occur .
24 Q. And what , i f anyt hi ng, di d you di scuss wi t h t he def endant
25 about f r i nge benef i t s?
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8637KAR3 Li de - cr oss
1 THE COURT: I s t hat DDD?
2 MR. RUBI NSTEI N: Fi ve Ds, your Honor .
3 THE COURT: Fi ve Ds, as i n dog.
4 MR. RUBI NSTEI N: 3501 f i ve Ds.
5 Your Honor , t he gover nment hasn' t pr ovi ded t hese
6 document s t o t he j ur y, your Honor .
7 THE COURT: I under st and.
8 MR. RUBI NSTEI N: I know, but t he j ur y i s l ooki ng.
9 THE COURT: You won' t have i t t her e i n your books.
10 What ' s your quest i on on t he document ?
11 Q. Yes. Does t hat r ef r esh your r ecol l ect i on of di scussi ons
12 about New Yor k st at e, at t empt i ng t o get New Yor k st at e f undi ng?
13 A. Even wi t hout t hat e- mai l , I acknowl edge t hat CASI was
14 t r yi ng t o get ot her f undi ng.
15 Q. And you sai d somet hi ng about t hat t hey had i ndi cat ed t hey
16 want ed t o open an of f i ce i n downt own Manhat t an, cor r ect ?
17 A. That ' s what I r ecal l Dr . Kar r on t el l i ng us, yes.
18 Q. And i n f act you ar e awar e t hat i t was vi r t ual l y i mpossi bl e
19 t o f i nd of f i ces i n downt own Manhat t an af t er 9/ 11/ 01, cor r ect ?
20 A. I honest l y t hought - - I r ecal l some di scussi on on per haps
21 r ent woul d be cheaper and i t woul d be easi er , and t her e wer e
22 al so ot her of f i ces bei ng consi der ed.
23 Q. And one of t hemwas at CUNY.
24 A. Cor r ect .
25 Q. And i n f act di d you l ear n t hat CUNY want ed $1 mi l l i on i n
( 212) 805- 0300
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8637KAR3 Li de - cr oss
1 r ent t o r un t he CASI pr oj ect out of t hei r f aci l i t y?
2 A. I di d not know t hat .
3 Q. Di d you i nqui r e of Dr . Kar r on at any t i me what happened t o
4 t he f aci l i t y at CUNY?
5 A. Act ual l y t he quar t er l y r epor t s r epor t ed t hat t hey wer e
6 st i l l l ooki ng f or space, and al t hough i t hadn' t come t hr ough
7 yet i t was st i l l a possi bi l i t y, and t hat document at i on
8 i ndi cat ed t o us t hat he was st i l l pur sui ng ot her l ab space.
9 Q. And you came i n cont act wi t h t hi s Mr . Or t hwei n, cor r ect ?
10 A. Cor r ect .
11 Q. You met hi mper sonal l y?
12 A. Cor r ect .
13 Q. And you had a number of t el ephone cal l s wi t h hi m, cor r ect ?
14 A. Cor r ect .
15 ( Cont i nued on next page)
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( 212) 805- 0300
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863zkar 4 Li de - cr oss
1 A. Yes.
2 Q. And i ndi r ect - - and t he r eason f or t hat i s t hat i f a
3 busi ness i s f unct i oni ng, t hey may have ot her cust omer s and
4 ot her wor k and t hey don' t appl y t o cost s, di vi de up t he cost s
5 of t he r ent bet ween a number of di f f er ent cust omer s?
6 A. I s t hat a quest i on, si r ?
7 Q. Yeah.
8 A. Or st at ement ?
9 Q. I t ' s a quest i on.
10 A. No. The r eason act ual l y f or a si ngl e company payi ng i t s
11 own i ndi r ect cost i s because t he U. S. Congr ess set up t he
12 Advanced Technol ogy Pr ogr amas a cost shar i ng pr ogr am, and t hey
13 want ed t he gover nment t o shar e t he r i sk. But t hey al so want ed
14 t o know t hat t he f or pr of i t company had somet hi ng at r i sk al so.
15 So i t ' s by st at ut e, t he ATP st at ut e, whi ch i s par t of t he
16 Omni bus Tr ade Bi l l of 1988 est abl i shed t hat , and t hat was t he
17 r eason f or i t .
18 Q. I n f act , t her e' s a 3. 61 copay, r i ght ? I s t hat so t hat t he
19 per son has t o put up a copay?
20 A. No si r . No, si r . The onl y r equi r ement , accor di ng t o t he
21 ATP st at ut e f or a si ngl e company, i s t hat t hey pay t hei r own
22 i ndi r ect cost s. They can al so pr opose t o pay some of t he
23 di r ect cost s, whi ch i n CASI ' s case was t he case.
24 Q. And t hey coul d r equest t hat ATP per mi t t hemt o pay some
25 i ndi r ect cost s and appr ove t hat , cor r ect ?
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863ZKAR6 Snowden - di r ect
1 MR. EVERDELL: Yes, your Honor . Under st ood.
2 Q. Al l r i ght , Ms. Snowden, l et me ask you t hi s quest i on. You
3 sai d he cont act ed you, i s t hat r i ght ?
4 A. Yes.
5 Q. Di d you t wo have a di scussi on?
6 A. Yes.
7 Q. What quest i ons di d he ask you, i f any, dur i ng t hat , t hose
8 conver sat i ons?
9 A. Was he al l owed t o pay f or r ent and ut i l i t i es, wi t h t he ATP
10 f eder al f unded gr ant .
11 Q. And r ent f or what , r ent and ut i l i t i es f or what ?
12 A. For t he condo i n whi ch t he - - at t hi s poi nt I guess CASI ,
13 t he company, was bei ng housed.
14 Q. And whose condo was t hat ?
15 A. Dr . Kar r on' s condo.
16 Q. And what was your r esponse t o t he quest i on, can r ent and
17 ut i l i t i es be pai d f or wi t h ATP f unds?
18 A. No, t hey' r e unal l owabl e cost s.
19 Q. And why i s r ent not , and ut i l i t i es not al l owabl e cost ?
20 A. For one t hi ng, t hey' r e consi der ed i ndi r ect cost s, and
21 t hey' r e - - i ndi r ect cost s f or us i s gener al and admi ni st r at i ve
22 cost s l i ke wat er , el ect r i ci t y, heat , somet hi ng t hat ATP and
23 f eder al f unds we do not pay f or .
24 Q. Now, somet hi ng l i ke r ent s and ut i l i t i es be an al l owabl e
25 expense under t he gr ant r ul es i f t he onl y pr oj ect t hat t he
( 212) 805- 0300
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1 gr ant was r eci pi ent was wor ki ng on was t he pr oj ect t hat was
2 f unded by t he ATP money?
3 A. No.
4 Q. I t woul dn' t make any di f f er ence?
5 A. I t makes no di f f er ence at al l .
6 Q. What i f t he def endant was l i vi ng i n t he apar t ment wher e t he
7 company was housed, woul d t hat make any di f f er ence whet her
8 gr ant money coul d be used f or r ent ?
9 A. No, not at al l .
10 Q. Al l r i ght . Now, t ur ni ng t o your conver sat i ons wi t h t he
11 def endant , di d he cont act you or di d you cont act hi m?
12 A. He cont act ed me.
13 Q. And why - - oh, wi t hdr awn, your Honor . Di d you t wo have a
14 conver sat i on?
15 A. Yes.
16 Q. And what di d you t al k about ?
17 A. He had t he same conver sat i on - - quest i on as Lee Gur f ei n.
18 Q. Whi ch was what ?
19 MR. RUBI NSTEI N: Can we est abl i sh a t i me, your Honor ,
20 wi t h t hese conver sat i ons?
21 THE COURT: Yes. Appr oxi mat el y when di d t hese
22 conver sat i ons t ake pl ace, appr oxi mat el y?
23 THE WI TNESS: Oh, t hi s i s - - t hey f i r st st ar t ed t aki ng
24 pl ace bef or e t he ki ckof f . So t hat ' s i n Oct ober of 2001.
25 THE COURT: Thi s i s about t he r ent ?
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1 THE WI TNESS: Thi s i s about t he r ent and ut i l i t i es.
2 Thi s i s r i ght af t er he was t ol d t hat he - - he r ecei ved t he
3 document s t hat he woul d be r ecei vi ng t hi s f eder al f und, and
4 t hen i t cont i nued.
5 THE COURT: Al l r i ght . Then t he next conver sat i on you
6 sai d t hat was wi t h Gur f ei n. What about t he conver sat i on
7 wi t h - -
8 THE WI TNESS: They - -
9 THE COURT: - - Dr . Kar r on?
10 THE WI TNESS: They bot h woul d cal l me, j ust - -
11 THE COURT: Same t i me?
12 THE WI TNESS: Yeah. No, l i ke a di f f er ent day. Li ke
13 Lee woul d cal l me one day, and t hen Dr . Kar r on woul d cal l me
14 anot her day and ask t he same exact quest i on.
15 THE COURT: They bot h wer e al l i n Oct ober ?
16 THE WI TNESS: No. Some wer e i n Oct ober , and t hen
17 l at er on af t er t he ki ckof f , t hey cont i nued t o cal l me and ask
18 me t he same exact quest i ons.
20 THE WI TNESS: Okay.
21 Q. Al l r i ght . Agai n, j ust t o cl ar i f y t he conver sat i ons wi t h
22 t he def endant , we di scussed your conver sat i ons wi t h Lee
23 Ger f ei n, but what di d you t wo di scuss, you and t he def endant ?
24 A. We di scussed r ent and ut i l i t i es.
25 Q. And what speci f i cal l y di d t he def endant ask you?
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1 A. He asked me wer e t her e al l owabl e cost , and I t ol d hi mover
2 and over agai n, no. He al so - - we had a conver sat i on about - -
3 dur i ng t hi s t i me was 9/ 11, and t he St at e of New Yor k had t ol d
4 t hemt hey woul d gi ve hi msome space. And I guess, I don' t know
5 what agr eement t hey had, but si nce 9/ 11 t hey r esci nded t he
6 of f er . So, t her ef or e, he was i nsi de of hi s apar t ment . I sai d
7 I under st and t hi s, but I ' msor r y; unf or t unat el y, f eder al
8 f undi ng gr ant s, we do not pay f or r ent and ut i l i t i es, so
9 t her ef or e, t he answer was no, t i me and t i me agai n.
10 Q. And about how many t i mes wer e you cont act ed about t hi s?
11 A. Numer ous t i mes. Bet ween Lee and Dr . Kar r on, t hey woul d t ag
12 t aki ng t eam. They woul d bot h cal l me and ask t he same
13 quest i ons l i ke a day apar t , and t hey woul d consi st ent l y get t he
14 same exact answer .
15 Q. What answer was t hat ?
16 A. They wer e unal l owabl e cost s and, no, you can not use
17 f eder al f unds.
18 Q. Di d you ever t el l t he def endant or Lee Ger f ei n t hat r ent
19 and ut i l i t i es wer e al l owabl e expenses under t he ATP f unds?
20 A. Never .
21 Q. Di d you ever appr ove any r ent or r ent payment r equest s f r om
22 t he def endant or anybody at CASI ?
23 A. No, never .
24 Q. Al l r i ght . Asi de f r omcal l i ng you wi t h quest i ons, wer e
25 t her e any r esour ces avai l abl e t o t he def endant t o i nst r uct hi m
( 212) 805- 0300
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1 I NDEX OF EXAMI NATI ON
2 Exami nat i on of : Page
3 BETTI J OYCE LI DE
4 Di r ect By Mr . Kwok . . . . . . . . . . . . . 86
5 Cr oss By Mr . Rubi nst ei n . . . . . . . . . . 151
6 Redi r ect By Mr . Kwok . . . . . . . . . . . . 231
7 Recr oss By Mr . Rubi nst ei n . . . . . . . . . 243
8 HOPE DENI SE SNOWDEN
9 Di r ect By Mr . Ever del l . . . . . . . . . . . 249
10 GOVERNMENT EXHI BI TS
11 Exhi bi t No. Recei ved
12 1 . . . . . . . . . . . . . . . . . . . . 85
13 2 . . . . . . . . . . . . . . . . . . . . 86
14 3 . . . . . . . . . . . . . . . . . . . . 86
15 4 . . . . . . . . . . . . . . . . . . . . 86
16 10 . . . . . . . . . . . . . . . . . . . 111
17 10A . . . . . . . . . . . . . . . . . . . 112
18 10B . . . . . . . . . . . . . . . . . . . 113
19 11 . . . . . . . . . . . . . . . . . . . 114
20 12 . . . . . . . . . . . . . . . . . . . 115
21 13 . . . . . . . . . . . . . . . . . . . 116
22 14 . . . . . . . . . . . . . . . . . . . 116
23 41 . . . . . . . . . . . . . . . . . . . 136
24 31 . . . . . . . . . . . . . . . . . . . 137
25 32 . . . . . . . . . . . . . . . . . . . 137
( 212) 805- 0300
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1 33 . . . . . . . . . . . . . . . . . . . 138
2 34 . . . . . . . . . . . . . . . . . . . 139
3 35 . . . . . . . . . . . . . . . . . . . 139
4 36 . . . . . . . . . . . . . . . . . . . 139
5 30 . . . . . . . . . . . . . . . . . . . 141
6 21 . . . . . . . . . . . . . . . . . . . 144
7 22 . . . . . . . . . . . . . . . . . . . 145
8 23 . . . . . . . . . . . . . . . . . . . 147
9 24 . . . . . . . . . . . . . . . . . . . 147
10 25 . . . . . . . . . . . . . . . . . . . 148
11 26 . . . . . . . . . . . . . . . . . . . 149
12 DEFENDANT EXHI BI TS
14 A . . . . . . . . . . . . . . . . . . . . 221
15 B . . . . . . . . . . . . . . . . . . . . 230
16
17
18
19
20
21
22
23
24
25
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8647KAR1
2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
2
3
4 v. S2 07 CR 541 ( RPP)
4
5
6 Def endant .
6
7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
7
8
8 J une 4, 2008
9 9: 20 a. m.
9
10
10 Bef or e:
11
12
13
13
14 APPEARANCES
14
16 BY: STEVEN KWOK
18
20
22
23
24
25
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303
8647KAR1 Snowden - di r ect
1 of f i ce, of cour se I have t o di scuss i t wi t h my super vi sor
2 Mar i l yn Gol dst ei n.
3 Q. What sor t s of t hi ngs di d t he def endant di scuss wi t h you i n
4 t hese subsequent cont act s?
5 A. Subsequent cont act s wer e basi cal l y about coul d he use
6 f eder al f unds t o pay f or r ent and ut i l i t i es.
7 Q. So, i s t hi s a si mi l ar t opi c as bef or e?
8 A. Exact si mi l ar . I t ' s t he exact t opi c.
9 Q. And what was your r esponse t o hi mon t hose occasi ons t hat
10 he t al ked t o you?
11 A. I t was al ways no. No mat t er what he sai d, how he sai d i t
12 t o me, i t ' s no, t hese ar e t axpayer s money and we do not use
13 t hat t o pay f or r ent and ut i l i t i es.
14 Q. Di d you hear f r omanybody el se f r omCASI af t er t he ki ckof f
15 meet i ng?
16 A. Yes.
17 Q. Who di d you hear f r om?
18 A. Dr . Kar r on and Lee Gur f ei n.
19 Q. And how di d Lee Gur f ei n cont act you?
20 A. He cal l ed me.
21 ( Def endant pr esent )
22 Q. And what i f anyt hi ng di d you di scuss wi t h Lee Gur f ei n?
23 A. The same t hi ng, about cal l s, coul d he use t he f eder al f unds
24 t o pay f or r ent and ut i l i t i es.
25 Q. And what i f anyt hi ng was your r esponse t o Mr . Gur f ei n?
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8647KAR1 Snowden - di r ect
1 A. No. Agai n and agai n, absol ut el y not .
2 Q. Al l r i ght , Ms. Snowden. Di d t her e come a t i me when t her e
3 wer e amendment s t o t hi s gr ant , t he CASI ATP gr ant ?
4 A. Yes.
5 Q. And i f you can pul l out i n f r ont of you t he f ol der s t hat
6 ar e i n evi dence, Gover nment ' s Exhi bi t s 22, 23, 24, 25 and 26.
7 A. OK.
8 Q. Have you had a chance t o l ook at t hose document s?
9 A. Yes.
10 Q. Do you r ecogni ze t hose document s?
11 A. Yes.
12 Q. What ar e t hose document s?
13 A. These ar e amendment s t o t he awar d.
14 Q. And over what cour se of t i me wer e t hese amendment s
15 submi t t ed and appr oved?
16 A. I ncl udi ng t he or i gi nal document t hat he si gned t o accept
17 t he gr ant , Oct ober 2001 t hr ough J une 2003.
18 Q. Wer e t hese amendment s act ual l y appr oved by NI ST?
19 A. Yes, t hese ar e al l appr oved amendment s, yes.
20 Q. I n gener al , what ki nds of changes wer e made t o t he gr ant as
21 a r esul t of t hese amendment s?
22 A. Admi ni st r at i ve changes and a budget change.
23 Q. Why don' t you t ake a l ook at Gover nment Exhi bi t 22. I f you
24 can di spl ay t hat as wel l . Do you see t hat document ,
25 Ms. Snowden?
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864ZKAR4 Snowden - cr oss
1 Q. I r ead cor r ect l y f r omt hat document ?
2 A. I agr ee t hat you r ead t hemcor r ect l y f r omt he document .
3 Q. Thank you.
4 THE COURT: And t hat t hat par agr aph, as I under st and
5 i t , i s par t of t he gover nment f or mt hat i s submi t t ed - -
6 THE WI TNESS: Yes.
7 THE COURT: - - t o t he gr ant ee t o f i l l out .
9 THE COURT: So i s t her e any di sput e about t hat , Mr .
10 Rubi nst ei n? I j ust - -
11 MR. RUBI NSTEI N: Not at al l .
12 THE COURT: What ?
13 MR. RUBI NSTEI N: None at al l . I j ust want ed t o
14 show - -
15 THE COURT: I don' t see any di sput e bet ween you and
16 t he wi t ness, so pl ease go ahead.
17 BY MR. RUBI NSTEI N:
18 Q. Now Dr . Kar r on, di d t her e come a t i me he r equest ed t hat - -
19 can I have t hat document , back, ma' am, t hat 3504 t hat I gave
20 you?
21 ( Handi ng)
22 Q. Now, i n t hese di scussi ons t hat you had wi t h Dr . Kar r on
23 about , r ent and ut i l i t i es asi de, di d you say anyt hi ng el se
24 ot her t han no, when he asked you about t he gr ant money cover i ng
25 r ent and ut i l i t i es?
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864ZKAR4 Snowden - cr oss
1 A. I sai d no.
2 Q. Di d you di scuss t hi s wi t h Mi ss Gol dst ei n, t he super vi sor - -
3 A. Yes.
4 Q. - - t he f act t hat Ms. Gol dst ei n advi sed you t hat i f CASI got
5 commer ci al space and i f t hey made a l ease i n t he name of t he
6 gr ant ATP, DMT, t hat t hat woul d be an accept abl e expense?
7 A. No, i t ' s not an accept abl e expense.
8 Q. No, no. Di d you have t hat di scussi on wi t h Ms. Gol dst ei n?
9 Di d you - - di d Ms. Gol dst ei n t el l you t hat ?
10 A. No.
11 Q. Di d you ever t el l Dr . Kar r on t hat , why don' t you i ncr ease
12 your sal ar y and pay i t out of your sal ar y, t hi s r ent f i gur e?
13 A. Never .
14 Q. Di d Dr . Kar r on advi se you at any t i me t hat t he r ent moni es
15 t hat wer e bei ng pai d wer e bei ng pai d f or a t i me per i od bef or e
16 t he ATP gr ant , and i t was back r ent owed?
17 A. No.
18 Q. So i t was your under st andi ng, when you spoke t o Dr . Kar r on,
19 t hat he was t al ki ng about cur r ent r ent whi l e he was r ecei vi ng
20 f unds f r omATP?
21 A. I t was t o my under st andi ng t hat he was aski ng t o pay f or
22 cur r ent , cur r ent - - use cur r ent f unds t o pay f or r ent , and t he
23 cur r ent f unds wer e di r ect cost s. You can not use - - you can' t
24 use ATP money. Once he r ender ed ser vi ces and he had a pay
25 check at t he end of t he day, he coul d do what ever he want ed.
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8647KAR5
1 Gover nment Exhi bi t i n t hi s t r i al , and i t i s si gned J une 3,
2 2008, New Yor k, New Yor k, on behal f of t he Uni t ed St at es by
3 St eve Kwok, and on behal f of Dani el B. Kar r on by Ronal d
4 Rubi nst ei n, Esqui r e. "
5 Your Honor , t he gover nment moves f or t he admi ssi on of
6 t hi s st i pul at i on and t he exhi bi t s ment i oned t her ei n.
7 MR. RUBI NSTEI N: No obj ect i on.
8 THE COURT: No obj ect i on? Let me have a copy of t he
9 st i pul at i on, pl ease.
10 Gover nment ' s Exhi bi t s 80, 81, 90 and 100, and Exhi bi t s
11 101, 102, 103, 104 and 104A ar e admi t t ed i n evi dence pur suant
12 t o st i pul at i on t o t he par t i es.
13 DEPUTY COURT CLERK: 104A or 120A?
14 THE COURT: I ' msor r y. 104 and 120A. They ar e
15 admi t t ed i nt o evi dence. Thank you.
16 ( Gover nment ' s Exhi bi t s 80, 81, 90, 100, 101, 102, 103,
17 104, 120A r ecei ved i n evi dence)
18 ( Gover nment ' s Exhi bi t 900 r ecei ved i n evi dence)
19 MR. KWOK: The gover nment cal l s Bel i nda Ri l ey.
20 BELI NDA RI LEY,
21 cal l ed as a wi t ness by t he gover nment ,
22 havi ng been dul y swor n, t est i f i ed as f ol l ows:
23
24 DEPUTY COURT CLERK: Pl ease st at e you name, and spel l
25 you f i r st and l ast name sl owl y f or t he r ecor d, pl ease.
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8647KAR5
1
2 THE WI TNESS: My name i s Hazel Ri l ey, H- A- Z- E- L
3 R- I - L- E- Y, but I go by Bel i nda.
4 DI RECT EXAMI NATI ON
5 BY MR. KWOK:
6 Q. Good af t er noon, Ms. Ri l ey.
7 A. Good af t er noon.
8 Q. Wher e do you wor k?
9 A. Depar t ment of Commer ce, Of f i ce of I nspect or Gener al , t he
10 At l ant a r egi on.
11 Q. What ' s your j ob t i t l e?
12 A. Assi st ant r egi onal i nspect or gener al f or audi t s, At l ant a
13 r egi on.
14 Q. I s t hat a super vi sor y posi t i on?
15 A. Yes, i t i s.
16 Q. How l ong have you been a super vi sor ?
17 A. For about t wo year s.
18 Q. What do you do i n your cur r ent j ob?
19 A. I super vi se sever al empl oyees, and I pl an audi t s and ot her
20 dut i es assi gned.
21 Q. What di d you do bef or e you became a super vi sor ?
22 A. I was an audi t or r evi ewi ng gover nment gr ant s or gover nment
23 pr ogr ams.
24 Q. You wer e an audi t or wi t h whi ch depar t ment ?
25 A. The Depar t ment of Commer ce, Of f i ce of I nspect or Gener al ,
( 212) 805- 0300
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8647KAR5 Ri l ey - di r ect
1 si nce J une of ' 97.
2 Q. What wer e your dut i es and r esponsi bi l i t i es when you wer e an
3 audi t or wi t h t he Depar t ment of Commer ce?
4 A. To audi t commer ce pr ogr ams, wor k up commer ce gr ant s, under
5 t he var i ous agenci es.
6 Q. What di d you do bef or e t hen, bef or e you j oi ned t he commer ce
7 depar t ment ?
8 A. I was a r evenue agent wi t h I RS f or about 11 year s.
9 Q. Can you gi ve us a t i me f r ame i f you r emember ?
10 A. I st ar t ed i n Sept ember of ' 86 and l ef t i n J une of ' 97.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
( 212) 805- 0300
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864ZKAR6 Ri l ey - di r ect
1 Q. And what di d you do as an agent wi t h t he I RS?
2 A. For t he f i r st - - I audi t ed i ndi vi dual t ax r et ur ns,
3 cor por at e t ax r et ur ns, exci se t ax r et ur ns.
4 Q. Ms. Ri l ey, what ' s your educat i onal backgr ound?
5 A. I have a bachel or s of - - I have a B. A. i n account i ng, a
6 B. A. i n account i ng i nf or mat i on syst ems, a Bachel or of Sci ence
7 i n Comput er Sci ence Pr ogr ammi ng Opt i on, and I ama cer t i f i ed
8 CPA.
9 Q. How di d you become a cer t i f i ed CPA, what - -
10 A. Cer t i f i ed Publ i c Account ant .
11 Q. What does CPA st and f or ?
12 A. Cer t i f i ed Publ i c Account ant .
13 Q. How di d you become cer t i f i ed?
14 A. I t ook a CPA examat t he t i me, I t hi nk i t was a
15 t wo- and- a- hal f day t est t hat ' s l i ke 19 hour s, and you al so had
16 t o have f i ve year s f or gover nment t o become a CPA i n
17 account i ng.
18 Q. Mi ss Ri l ey, what , i f any, pr of essi onal r ecogni t i on have you
19 r ecei ved f or your account i ng and audi t i ng wor k?
20 A. I have t wo br onze medal s and a si l ver medal awar ded f r om
21 t he Depar t ment of Commer ce.
22 MR. KWOK: Your Honor , gover nment of f er s Bel i nda Ri l ey
23 as an exper t i n account i ng and audi t i ng pr ocedur es.
24 MR. RUBI NSTEI N: No obj ect i on, your Honor .
25 THE COURT: Al l r i ght . Ms. Ri l ey i s accept ed as an
( 212) 805- 0300
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1 exper t i n account i ng audi t i ng pr ocedur es - - account i ng and
2 audi t i ng pr ocedur es.
3 BY MR. KWOK:
4 Q. Ms. Ri l ey, what ki nds of gr ant s does your of f i ce audi t ?
5 A. We audi t NI ST ATP gr ant s, whi ch i s Nat i onal I nst i t ut e of
6 St andar ds and Technol ogy Advanced Technol ogy Pr ogr am, audi t s
7 f or r esear ch. We audi t NTI A gr ant s i n t el ecommuni cat i ons. We
8 audi t EDA gr ant s, whi ch i s Economi c Devel opment Admi ni st r at i on,
9 what ever - - we can audi t any gr ant t hat one of our commer ce
10 agenci es gi ve.
11 Q. Do al l gr ant s awar ded by t he Commer ce Depar t ment get
12 audi t ed by t he Of f i ce of t he I nspect or Gener al ?
13 A. No.
14 Q. How does your of f i ce become i nvol ved?
15 A. Our of f i ce becomes i nvol ved by r equest f r omNI ST or i t
16 coul d be f r omt he hot l i ne cal l t hat says t hat t hey suspect an
17 or gani zat i on i s usi ng f r audul ent , doi ng f r audul ent act i vi t y.
18 Or we have a - - we r evi ew al l of t he NI ST ATP r esear ch gr ant
19 awar ds submi t t ed by t he CPA f i r ms, and so i f dur i ng one of our
20 r evi ews someone sees suspi ci ous, we may audi t t hat awar d.
21 Q. How many audi t s have you handl ed si nce you j oi ned t he
22 depar t ment ?
23 A. Pr obabl y about 10 or 15.
24 Q. How many t i mes have you t est i f i ed i n a cr i mi nal t r i al
25 bef or e i n connect i on wi t h your audi t i ng wor k?
( 212) 805- 0300
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1 A. None.
2 Q. Ms. Ri l ey, di d t her e come a t i me when you became i nvol ved
3 i n audi t i ng an Advanced Technol ogy Pr ogr amgr ant or ATP gr ant
4 awar ded t o a company known as CASI ?
5 A. Yes.
6 Q. Who was t he pr i nci pal i nvest i gat or of t hat gr ant ?
7 A. Dan Kar r on.
8 Q. Do you see Dan Kar r on i n t he cour t r oomher e t oday?
9 A. Yes, he' s over t her e.
10 Q. Coul d you descr i be an ar t i cl e of cl ot hi ng he' s wear i ng?
11 A. He' s got gl asses - - he' s got on gl asses, a pony t ai l and i s
12 t hat a whi t e and gr een t i e?
13 MR. KWOK: Your Honor , may t he r ecor d r ef l ect t hat t he
14 wi t ness has i dent i f i ed t he def endant ?
15 THE COURT: Al l r i ght , t he r ecor d wi l l so r ef l ect .
16 Q. Ms. Ri l ey, how di d you become i nvol ved i n t he CASI audi t ?
17 A. The NI ST gr ant s of f i cer s sent a l et t er t o our - - t he Of f i ce
18 of I nspect or Gener al r equest i ng an audi t , and I was assi gned
19 t he audi t .
20 Q. What di d t hey ask you t o do?
21 A. To det er mi ne t he f i nanci al st at us of t he gr ant pr oj ect .
22 Q. And when was t hi s, appr oxi mat el y?
23 A. We r ecei ved r equest s i n May of 2003, appr oxi mat el y.
24 Q. What di d you do upon r ecei vi ng t hi s r equest ?
25 A. I cal l ed CASI t o schedul e an i ni t i al appoi nt ment f or t he
( 212) 805- 0300
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1 audi t .
2 Q. Wher e di d you go t o conduct t hi s audi t ?
3 A. To t he CASI of f i ce apar t ment .
4 Q. And wher e i s t hat ?
5 A. I n Manhat t an.
6 Q. You sai d apar t ment . How do you know i t was an apar t ment ?
7 A. Wel l , on some of t he vi si t s, Mr . Kar r on woul d be get t i ng
8 out of bed t o answer t he door because I woul d get t her e ear l y
9 i n t he mor ni ng, 10: 00 o' cl ock, 9, 10: 00 o' cl ock, and he was a
10 l at e ni ght per son.
11 Q. And what was t he obj ect i ve of your vi si t ?
12 A. To det er mi ne t he f i nanci al st at us of t he gr ant cost .
13 Q. How do you get up t o speed on t he company' s f i nanci al
14 si t uat i on?
15 A. Okay. Pr i or - - by r evi ewi ng t he l edger s and i nvoi ces
16 pr ovi ded by CASI t o me. Pr i or t o goi ng t o t he - - pr i or t o
17 comi ng t o Manhat t an, I i nt er vi ewed t he NI ST gr ant s of f i ce
18 peopl e and r evi ewed t hei r gr ant f i l es concer ni ng CASI .
19 Q. As par t of t hat pr epar at i on, di d you t al k t o anyone at
20 CASI ?
21 A. Yes. At CASI I t al ked t o Dan Kar r on, t o J oan Hayes, t he
22 CPA t hat he pr ovi ded t o, Fr ank Spr i ng, a book keeper , t o Bob
23 Benedi ct , t he pr oj ect manager .
24 Q. And i s t hat consi st ent wi t h what you usual l y do?
25 A. Yes.
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1 Q. Your usual pr act i ce?
2 A. Yes.
3 Q. You ment i oned i nvoi ces. Can you t el l us how t hose i nvoi ces
4 r el at ed t o what you do as an audi t or ?
5 A. Wel l , we t r ace - - we' r e pr ovi ded j our nal ent r i es or
6 what ever , we' r e pr ovi ded a l i st of expense, expendi t ur es f or
7 awar d, we t r ace a sampl e of t hem, j ust t he suppor t i ng voi ce or
8 cancel l ed check.
9 Q. And wer e you abl e t o f i nd t hose i nvoi ces at CASI ?
10 A. They pr ovi ded some i nvoi ces. The i nvoi ces at CASI had
11 been - - t he or i gi nal i nvoi ces had been scanned i nt o t he
12 comput er , and t he or i gi nal document s had been dest r oyed. And
13 so f or some of t he i nvoi ces, t her e wer e mul t i pl e copi es and
14 some of t hemwe had a har d t i me f i ndi ng or di dn' t f i nd.
15 Q. Di d t her e come a t i me whi l e you wer e conduct i ng t he audi t
16 t hat you spoke as t o an i ndi vi dual by t he name of J oan Hayes?
17 A. Yes.
18 Q. And what i s your under st andi ng as t o what J oan Hayes was
19 doi ng at CASI ?
20 A. She had done t he f i r st year audi t , t hey' r e r equi r ed t o have
21 an audi t by ATP, and she was - - I guess she was t her e t o hel p
22 me wi t h my audi t or t o pr ovi de i nf or mat i on about t he CASI books
23 and r ecor ds or f or answer i ng quest i ons I mi ght have concer ni ng
24 t he books and r ecor ds.
25 Q. And what di d you do wi t h t he mat er i al s t hat J oan Hayes
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1 pr ovi ded you?
2 A. I used, I used t hemas a sour ce of my audi t .
3 Q. And how l ong wer e you at CASI f or t hi s audi t ?
4 A. I t hi nk I got t her e on Wednesday and I l ef t Thur sday or
5 Fr i day of t he next week.
6 Q. Di d you pr epar e a r epor t af t er t he audi t ?
7 A. Yes. I pr epar ed a memo r epor t , a shor t r epor t .
8 Q. I f you coul d f i nd what ' s been mar ked f or i dent i f i cat i on as
9 gover nment exhi bi t 60 i n t hat pi l e t hat i s i n f r ont of you?
10 A. Oh, okay. 60.
11 THE COURT: What per i od of t i me di d you audi t ?
12 THE WI TNESS: I audi t ed t he t i me 10/ 1 - - Oct ober ,
13 Oct ober 1st , 2001 t hr ough 6/ 30 - - 6/ 27, 2003.
14 Q. Do you have t hat document i n f r ont of you?
15 A. Yes.
16 Q. Gover nment exhi bi t 60 mar ked f or i dent i f i cat i on? Do you
17 r ecogni ze t hat document ?
18 A. Yes.
19 Q. Who pr epar ed t hat document ?
20 A. I di d.
21 Q. And what i s i t ?
22 A. I t i s our memo r epor t t hat was pr epar ed af t er t he J une 2003
23 vi si t s.
24 Q. I s t hat t he vi si t you j ust r ef er r ed t o - -
25 A. Yes.
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1 Q. - - a moment ago?
2 A. Yes.
3 MR. KWOK: Your Honor , t he gover nment of f er s exhi bi t
4 60?
5 MR. RUBI NSTEI N: I ' d l i ke a br i ef voi r di r e, your
6 Honor .
7 THE COURT: Yes, you may.
8 VOI R DI RE:
10 Q. Good af t er noon, Ms. Ri l ey.
12 Q. Now, you pr epar ed t hi s r epor t f r omwhat document s?
13 A. Thi s r epor t s wer e pr epar ed, my audi t , as a r esul t of t he
14 document s t hat Dr . Kar r on pr ovi ded dur i ng t hat J une vi si t .
15 Q. Dr . Kar r on or Ms. Hayes?
16 A. Dr . Kar r on, J oan Hayes, Bob Benedi ct , t hey wer e al l t her e.
17 Mi ss Hayes was supposed t o be t he r epr esent at i ve l eadi ng me
18 t hr ough t he books and r ecor ds, and she was r epr esent i ng Dr .
19 Kar r on.
20 Q. Do you have copi es of t hose document s?
21 A. The document s - -
22 Q. That you used t o - -
23 A. Yes.
24 Q. - - cr eat e t hi s r epor t ?
25 A. Yes.
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1 Q. Wher e ar e t hey?
2 A. What - - my audi t r epor t s, my audi t - -
3 Q. Your what ?
4 A. I n my audi t f i l es. I t hi nk t he document t hat my r epor t ,
5 t hat t he r epor t was cr eat ed f r omwas pr ovi ded. I mean, what - -
6 my own - - I have my audi t r epor t t hat I used t o pr epar e t hi s.
7 Q. I n ot her wor ds, do you make a r epor t or cr eat e some
8 wr i t i ngs t o show t hat you used t o put i nt o t hi s r epor t ,
9 Gover nment ' s 60?
10 A. Yes.
11 MR. RUBI NSTEI N: May I appr oach t he gover nment , your
12 Honor .
14 ( Pause)
15 Q. I s i t cor r ect , ma' am, t hat you used J oan Hayes' wor k paper s
16 t o do your - - t hi s r epor t ?
17 A. I used t he wor k - - t he gener al l edger s, t he cash
18 di sbur sement r egi st er s, t he - - what ever i nf or mat i on, t he books
19 t hat wer e pr epar ed by - - some t hi ngs t hat J oan Hayes pr ovi ded.
20 The books t hat wer e bei ng r epr epar ed by Fr ank Spr i ng. He
21 al so - - I al so t al ked t o hi mwhi l e I was t her e, t o do - - t o
22 come up wi t h t he wor k paper s f r omt hi s r epor t .
23 Q. Di d you cr eat e any wor k paper s, ma' am?
24 A. Yes, I di d.
25 Q. Di d you cr eat e a gener al l edger ?
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1 A. For t hi s r epor t ?
2 Q. Yes.
3 A. No. I mean no.
4 Q. You used J oan Hayes' - -
5 A. I di dn' t use J oan Hayes' audi t f or t hi s as a, my - - t he
6 f i nal number f or t hi s r epor t .
7 Q. You t est i f i ed t hat you used J oan Hayes' i nf or mat i on,
8 cor r ect ?
9 A. I used J oan Hayes' - - I used i t , t he i nf or mat i on t hat J oan
10 Hayes - - t hat CASI under Kar r on had asked J oan Hayes t o pr ovi de
11 t o me f or t hi s audi t .
12 Q. Di d you i ndependent l y check what ever document at i on J oan
13 Hayes pr ovi ded f or you, t o you?
14 A. I di d sel ect a sampl e of t he i nvoi ces t o t r ace t he sampl e
15 of t he l edger ent r i es t o t r ace t o t he i nvoi ces f or t hi s r epor t .
16 Q. I sn' t i t a f act t hat J oan Hayes had no gener al l edger ?
17 Ther e was no gener al l edger f or CASI ; i s t hat a f act ?
18 A. Ther e wer e - - CASI used Qui ck Books, and so what ever t he
19 syst emof qui ck books t her e wer e - - t her e wer e - - t her e wer e
20 t hi ngs f or Qui ck Books.
21 Fr ank Spr i ng, I guess Fr ank Spr i ng was cr eat i ng a new
22 gener al l edger or a new l edger syst emor j our nal ent r y syst em
23 f or CASI at t he t i me I was t her e.
24 When I cal l ed t o schedul e t he i ni t i al appoi nt ment ,
25 CASI coul dn' t meet wi t h me because t hey wer e i n t he pr ocess of
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1 r edoi ng t hei r books and r ecor ds, and so i t del ayed my vi si t f or
2 a coupl e of weeks t o gi ve t hemt i me.
3 When I ar r i ved, t he new books wer en' t compl et ed yet ,
4 so t hey wer e goi ng t o be compl et ed t he next day so I wai t ed
5 t i l l t he next day.
6 The - - I used t he r ecor ds t hat t hey pr ovi ded and,
7 i ncl udi ng J oan Hayes, what J oan Hayes had pr ovi ded t o come up
8 wi t h t he number s f or t hi s. I di d not t ake J oan Hayes' r epor t
9 and copy t he number s t o come up wi t h t hi s.
10 Q. I n f act , you never - - do you have, ei t her f r omyour own
11 wor k, f r omFr ank Spr i ng' s - - he was a book keeper of some sor t ?
12 A. Yes.
13 Q. Or f r omJ oan Hayes, a gener al l edger , ma' am?
14 A. I know I have some summar i es pr ovi ded di f f er ent cat egor i es,
15 and I t hi nk t her e ar e some l edger s t her e. I know I have t o - -
16 Q. Di d you do - -
17 A. Yes.
18 Q. - - a r econci l i at i on? Ther e wer e checki ng account s, wer e
19 t her e not ?
20 A. Yes when I - - f or t he audi t ?
21 Q. Yes. Ther e wer e checki ng account s, CASI had a number of
22 checki ng account s, di d i t not ?
23 A. Yes.
24 Q. Di d you do a bank r econci l i at i on of t he var i ous bank
25 account s of CASI ?
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1 A. For t hi s, f or t hi s audi t ?
2 Q. Ri ght .
3 A. No.
4 MR. RUBI NSTEI N: Your Honor , I obj ect .
5 MR. KWOK: Si debar , your Honor ?
6 THE COURT: Yes.
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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1 ( At t he si debar )
2 MR. KWOK: Gr ounds?
3 MR. RUBI NSTEI N: The gr ounds - - t hese ar e some
4 summar y, some document s t hat she doesn' t have, t hat she' s
5 unawar e of , and she came up wi t h t hese number s f r omwher e we
6 wi l l never never know because we don' t have or i gi nal sour ce
7 document s t o l ook at , j udge. She cl ear l y r el i ed upon ot her
8 peopl e' s wor k t o det er mi ne t he cost . I t ' s har d t o bel i eve t hat
9 someone coul d be an audi t or and not r econci l e bank account s
10 t hat pr obabl y had l ess t han 500 checks i n t ot al , f or t he per i od
11 t hat we' r e t al ki ng about .
12 MR. KWOK: Your Honor , we of f er her as an exper t
13 wi t ness under Feder al Rul es of Evi dence 703. Under l yi ng
14 document s t hat an exper t r el y upon does not have t o be
15 admi ssi bl e. That ' s what audi t or s do, t hey don' t necessar i l y
16 have t he under l yi ng document s. They go t o si t es t o l ook at t he
17 company books. They don' t necessar i l y t ake t hose document s
18 back wi t h t hemaf t er t hey' ve compl et ed an audi t . I bel i eve
19 t hat ' s what happened i n t hi s case, t hat she wasn' t - - went t o
20 CASI t o l ook at t he books. She t r i ed t o ver i f y some of i t t o
21 have some conf i dence about t he accur acy of t he number s. She
22 i ssued a r epor t . I t doesn' t mean she t ook away t hose document s
23 and at t ached t hemas some sor t of at t achment t o her r epor t .
24 She went t her e, saw t hi ngs, t al ked t o peopl e make some
25 det er mi nat i ons and i ssue a r epor t . The f act t hat she doesn' t
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1 have t he under l yi ng document s shoul d not be an i ssue, and she' s
2 an exper t . Under Rul e 703 t he under l yi ng document s - -
3 THE COURT: I ' mgoi ng t o al l ow her t o t est i f y because
4 a audi t or does not have t o t ake t he r ecor ds wi t h t hemor copi es
5 of t he r ecor ds. They may have t o t ake copi es of por t i ons t hat
6 t hey r el y on. But f or i l l ust r at i on pur poses, t he audi t or does
7 not have t o - - j ust has t o use gener al accept ed audi t i ng
8 met hods t o ver i f y t he books and account s of t he company.
9 MR. KWOK: I t hi nk t hat ' s exact l y r i ght .
10 THE COURT: I t ' s t he company, i t ' s t he company' s
11 account t hat t he audi t or i s ver i f yi ng.
12 MR. RUBI NSTEI N: Her e he di dn' t have account s, J udge
13 wi t h al l due r espect , so t hat ' s why - -
14 THE COURT: I don' t know. I mean t hat ' s anot her
15 mat t er .
16 MR. KWOK: You can cr oss on i t .
17 MR. RUBI NSTEI N: I don' t want - -
18 THE COURT: They' r e supposed t o have an account ant ,
19 sor r y, as I under st ood i t .
21
22
23
24
25
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1 ( I n open cour t )
2 MR. KWOK: Your Honor , gover nment of f er s gover nment
3 exhi bi t 60.
4 THE COURT: Gover nment 60 i s admi t t ed i n evi dence.
6 MR. RUBI NSTEI N: I obj ect t o t he - -
7 THE COURT: I under st and. I haven' t r ead i t , so I
8 don' t know what i t i s. I t may be a val i d obj ect i on af t er I see
9 i t .
10 MR. KWOK: Do you st i l l have t he document i n f r ont of
11 you?
12 THE COURT: Di d you use your or di nar y audi t i ng
13 pr ocedur es i n r evi ewi ng t he books of - -
15 THE COURT: CASI ?
17 THE COURT: What ever books you wer e pr esent ed wi t h?
18 THE WI TNESS: Yes, yes.
19 THE COURT: Those i ncl uded t he r epor t of what was her
20 name, Mi ss Hayes?
22 THE COURT: And al so mat er i al s suppl i ed by t he book
23 keeper ?
25 THE COURT: Was t her e - - so, and t hey wer e i n l edger
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1 f or mso you coul d check t hem?
2 THE WI TNESS: Thi ngs wer e i n l edger f or ms.
3 THE COURT: I see, al l r i ght .
4 MR. KWOK: Thank you, your Honor .
5 Q. Ms. Ri l ey, what ' s t he dat e of t hi s r epor t ?
6 A. J ul y 2003.
7 Q. Di r ect i ng your at t ent i on t o pages t hr ee and f our , l et ' s put
8 up page - - i f we coul d put t hemsi de by si de.
9 Ms. Ri l ey, what ar e t he f i ndi ngs t hat you r eached i n
10 t hi s audi t r epor t ?
11 A. That , t hat CASI had not met t he mat chi ng cost shar e
12 r equi r ement ; t hat CASI had excess dr awdowns of over $200, 000,
13 and t hat t hey had submi t t ed a - -
14 THE COURT: Sor r y, what was t he f i r st t hi ng you sai d?
15 THE WI TNESS: That t hey had not met t he mat chi ng
16 r equi r ement s of t he NI ST awar d.
17 THE COURT: Second.
18 THE WI TNESS: That t hey had excess dr awdowns of over
19 $200, 000.
20 Q. And t he t hi r d?
21 A. The t hi r d, t hey had f i l ed i naccur at e f i nanci al st at us
22 r epor t wi t h us.
23 Q. Ms. Ri l ey, l et ' s t ake t hi s one at a t i me now. What does i t
24 mean when you sai d t he company had not cont r i but ed mat chi ng
25 f unds?
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1 A. That t hey, t hey had not - - t hey had not cont r i but ed
2 anyt hi ng t o t he, t o t he NI ST awar d.
3 Q. What ar e t hey supposed t o do?
4 A. They wer e supposed t o cont r i but e 4. 57 per cent of t he f unds.
5 MR. RUBI NSTEI N: I ' msor r y, I di dn' t di gi t hear t hat .
6 A. Of t he pr oj ect cost .
7 MR. RUBI NSTEI N: I mi ssed t he per cent age, your Honor .
8 THE WI TNESS: The 4. 57 per cent .
9 Q. And what i n f act happened?
10 A. They hadn' t cont r i but ed anyt hi ng t o t he cost , t he cost
11 shar e t o t he pr oj ect .
12 Q. And, Ms. Ri l ey, how di d you ar r i ve at t hi s concl usi on?
13 A. By r evi ewi ng t he, t he r ecor ds of what , and t r ansact i ons of
14 t he l edger s.
15 Q. The document s pr ovi ded t o you by t he company?
16 A. Ri ght , t he document s pr ovi ded.
17 Q. The second i ssue you ment i oned was t he excessi ve dr awdowns.
18 Can you expl ai n t o us what t hat means?
19 A. They had, t hey had - - t hey had r ecei ved NI ST gr ant f unds
20 t hat had been spent on CASI expenses i nst ead of t he pr oj ect
21 expenses. They - -
22 THE COURT: You dr opped your voi ce, I can' t hear you.
23 You' l l have t o speak up.
24 THE WI TNESS: They had, t hey had - - t hey had dr awn
25 down f unds f r omNI ST t hat wer e spent on CASI busi ness expenses
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1 or not al l owabl e NI ST pr oj ect expenses.
2 Q. I n ot her wor ds, expenses not appr oved?
3 MR. RUBI NSTEI N: Obj ect i on, your Honor , t o - -
4 Q. Can you expl ai n what you mean by t hat ?
5 THE COURT: Your obj ect i on' s sust ai ned, f or mof t he
6 quest i on, Mr . Kwok.
7 MR. KWOK: I apol ogi ze, your Honor .
8 Q. What do you mean by t hat ?
9 A. They had spent - - t he money had been spent on r ent or
10 ut i l i t i es or on t hi ngs t hat wer e not al l owed per t he gr ant
11 budget .
12 Q. And what i s t he appr oxi mat e si ze of t hi s excess dr awdown?
13 A. 205, 000.
14 Q. And agai n how wer e you abl e t o make t hat det er mi nat i on?
15 A. Fr omr evi ewi ng t hei r books, f r omt he l edger s - - f r omt he
16 books t hat wer e pr ovi ded t o us by CASI .
17 Q. Fi nal l y, you ment i oned f i nanci al st at us r epor t s. Fi r st of
18 al l , what ar e f i nanci al st at us r epor t s?
19 A. Gr ant r eci pi ent s ar e r equi r ed t o submi t f i nanci al st at us
20 r epor t s quar t er l y t o i nf or mNI ST how t hey spent t he gr ant
21 moni es t hat t hey dr ew down f or t hat quar t er .
22 Q. And what t ype of i nf or mat i on ar e t hey supposed t o r epor t on
23 t hese f i nanci al st at us r epor t s?
24 A. Fi nanci al st at us r epor t i ncl udes t he amount of mat ched
25 shar e t hey pr ovi de, and t he amount of cost spent wi t h t he NI ST
( 212) 805- 0300
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1 gr ant pr oj ect .
2 Q. What was your audi t f i ndi ng about CASI ' s f i nanci al st at us
3 r epor t s?
4 A. They r epor t ed t he dr awdown amount s t hey r ecei ved f r omNI ST,
5 not t he expense of what t hey spent dr awdowns on.
6 Q. Can you - -
7 A. Not t he cost . They di dn' t - - t hey di dn' t r epor t how t hey
8 spent t he gr ant moni es.
9 Q. What , i n f act , di d t hey r epor t ?
10 A. They r epor t ed t he dr awdown, t he moni es t hey r ecei ved.
11 Q. Any ot her i ssue wi t h t he f i nanci al st at us r epor t s?
12 A. They r epor t ed a mat ch shar e. They di d not gi ve a mat ch
13 shar e.
14 Q. And how wer e you abl e t o make t hose det er mi nat i ons?
15 A. By r evi ewi ng t he f i nanci al st at us r epor t s.
16 Q. I s t hat what you do as an audi t or ?
17 A. Yes.
18 Q. Ms. Ri l ey, what , i f any, r ecommendat i ons do you make i n
19 your audi t r epor t ?
20 MR. RUBI NSTEI N: I obj ect t o t hat , your Honor .
21 Q. I f you coul d di r ect us t o t he page of t he document ?
22 A. I t ' s on page f i ve.
23 THE COURT: I don' t see t he r el evance of t hat .
24 MR. KWOK: Your Honor , t he audi t r epor t cont ai ns a
25 r ecommendat i on or ser i es of r ecommendat i ons.
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1 THE COURT: The - -
2 MR. RUBI NSTEI N: That ' s what I obj ect ed t o, J udge.
3 THE COURT: That ' s what he obj ect ed t o, t he
4 r ecommendat i on par t .
5 MR. RUBI NSTEI N: 60.
6 MR. KWOK: The r el evance, t he r el evance i s - -
7 THE COURT: I don' t want t o hear your ar gument i n
8 f r ont of t he j ur y.
9 MR. KWOK: Coul d we have a si debar ?
10 THE COURT: I ' l l have i t at t he si debar i f you want t o
11 hal f i t . I t seems t o me i t ' s - -
13
14
15
16
17
18
19
20
21
22
23
24
25
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2 MR. KWOK: Your Honor , t hi s audi t r epor t i s t he f i r st
3 of I bel i eve t hr ee audi t r epor t s t hat t hi s audi t or pr epar ed.
4 She made a ser i es of r ecommendat i ons i n her f i r st audi t r epor t ,
5 and t hen l at er on she went back t o t he company t o audi t t he
6 books f or a second t i me. And I ' mi nt endi ng t o show t hat t he
7 r ecommendat i ons t hat she made t he f i r st t i me wer e not
8 under t aken even si x mont hs l at er when she went back t o t he
9 company.
10 THE COURT: That has not hi ng t o do wi t h whet her or not
11 t hi s man i mpr oper l y used - -
12 MR. KWOK: I t goes t o hi s i nt ent , i t goes t o hi s
13 i nt ent because t he f i r st r epor t t ol d hi mwhat was wr ong, and
14 when si x mont hs l at er she came back, t he same t hi ng st ays t he
15 same. I t goes t o hi s i nt ent .
16 MR. RUBI NSTEI N: I submi t , your Honor , i t doesn' t go
17 t o hi s i nt ent t hat he - - t he audi t r epor t r ecommendat i on. He
18 hi r ed a separ at e account ant who submi t t ed r esponses t o Ri l ey,
19 t o ar gue t he i ssue of her f i ndi ngs, as t o her number of
20 f i ndi ngs. So I submi t i t doesn' t go t o hi s i nt ent , and t hey
21 know i t . They have t hi s, one of t he exhi bi t s.
22 THE COURT: Why can' t you deal wi t h i t i n ot her ways
23 i nst ead of deal i ng wi t h t he r ecommendat i ons, whi ch i nvol ves
24 suspensi on, whi ch doesn' t seemt o me t o be r el evant t o t he
25 i ssue i n t he i ndi ct ment . Why can' t you r ai se t he i ssue about
( 212) 805- 0300
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1 whet her t hi s r epor t and i t s r ecommendat i ons wer e, wer e pr ovi ded
2 t o Mr . , Dr . Kar r on, and whet her she had f ur t her di scussi ons
3 wi t h hi m. And t hey had anot her audi t , et cet er a, and you can
4 get i nt o what t he subj ect mat t er i s of t hose i t ems at t hat
5 t i me, not get i nt o t he r ecommendat i on of suspensi on by - -
6 MR. KWOK: The wi t ness i s act ual l y not goi ng t o
7 answer , I don' t bel i eve, t hat I r ecommended t he gr ant s be
8 suspended. She i s goi ng t o say, I t ol d hi mt hat he needs t o
9 amend hi s f i nanci al st at us r epor t and make t he cost - -
10 THE COURT: But you asked f or t he r ecommendat i on. She
11 i sn' t bei ng asked what she t ol d hi m.
12 MR. KWOK: Okay, can I ask t hat ?
13 THE COURT: The f or mof your quest i on.
14 MR. KWOK: Okay. I under st and. Thank you, your
15 Honor .
17 MR. RUBI NSTEI N: Your Honor , i t ' s past f our .
18 THE COURT: Yeah, wel l , l et ' s j ust l et hi mget t hi s
19 quest i on i n.
20 MR. RUBI NSTEI N: Sur e.
22
23
24
25
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2 THE COURT: Ref r ame your quest i on, Mr . Kwok.
3 MR. KWOK: Yes, your Honor .
4 Q. Ms. Ri l ey, what , i f any, act i ons di d you suggest t he
5 company under t ake t o i mpr ove t he negat i ve audi t f i ndi ngs i n
6 t hi s r epor t ?
7 MR. RUBI NSTEI N: Obj ect i on, your Honor .
8 THE COURT: What act i ons? I ' l l al l ow i t .
9 The j ur y i s i nst r uct ed t o di sr egar d anyt hi ng about
10 negat i ve or possi bl y, what have you.
11 What act i ons di d you t ake wi t h r espect t o Dr . Kar r on
12 and CASI af t er you made t hi s r epor t ? Di d you pr ovi de hi mwi t h
13 a copy?
14 THE WI TNESS: Oh, t hi s r epor t ? Yes, we pr ovi ded a
15 copy of t hi s r epor t t o CASI .
16 THE COURT: And what act i on di d you t ake t her eaf t er ?
17 Q. What act i ons di d you ask t hat t he company t ake?
18 A. We asked t hat t hey r ei mbur se NI ST f or t he f unds dr awn down
19 i n excess of t he f eder al amount , and we asked t hat t hey pr ovi de
20 cor r ect ed f i nanci al st at us r epor t s f or t he per i od of 2002 and
21 f or - - and f i nanci al st at us r epor t s f or t he 2003 year .
22 Q. Af t er you i ssued t hi s audi t r epor t , what , i f any, f ur t her
23 i nvol vement di d you have wi t h CASI ?
24 A. We went - - we di d a - - we di d anot her audi t i n December of
25 2003.
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1 Q. Why do you do anot her audi t i n December of 2003?
2 A. Wel l , we had al ways pl anned on i ssui ng - - t hi s i s a shor t
3 r epor t , our r epor t s nor mal l y ar e l onger , and pr ovi de mor e
4 i nf or mat i on i n quest i oned cost s, so we al ways pl anned on
5 i ssui ng anot her r epor t . But CASI had obt ai ned anot her CPA f or
6 t he audi t when we wer e r eady t o go back, and so - - i t cr eat ed
7 new books and r ecor ds, and so we had anot her si t e vi si t .
8 Q. Appr oxi mat el y, how much t i me passed bet ween t hi s second
9 vi si t and t he i ssuance of t hat r epor t ?
10 A. The second - - t he r epor t was i ssued i n J ul y, and t he second
11 vi si t was i n December 2003, so about f i ve mont hs.
12 Q. Now, by t hi s t i me had CASI under t aken any of t he act i ons
13 t hat you suggest ed?
14 A. They had - -
16 THE COURT: I t hi nk t hi s may be a good poi nt t o
17 suspend f or t he day, sor r y. But I ' mawar e of obl i gat i on, ot her
18 obl i gat i ons t hat I have t o car r y out and have t o be car r i ed out
19 by t he at t or neys. So I t hi nk we bet t er suspend t en mi nut es
20 af t er f our . Thank you f or bei ng so pr ompt t hi s mor ni ng. I
21 hope you get of f t o a good st ar t t omor r ow at 9: 30, and we' l l
22 see you.
23 I hope you get cof f ee and cooki es or what ever t hey
24 ser ve you.
25 ( J ur y exi t s t he cour t r oom)
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1 ( I n open cour t ; j ur y not pr esent )
2 THE COURT: Oh, di d you gi ve Ms. - - al l r i ght , you can
3 st ep down.
5 THE COURT: I s t her e anyt hi ng el se t o t ake up? How
6 l ong wi l l wi t h t hi s wi t ness t ake?
7 MR. KWOK: I bel i eve appr oxi mat el y 45 mi nut es t o an
8 hour .
9 THE COURT: I t ' s awf ul l ong. Go ahead. I ' mj ust
10 t r yi ng t o move t hi s al ong.
11 MR. KWOK: I under st and, but as I t ol d your Honor we
12 bel i eve t hat we may be abl e t o move t hi s case a l i t t l e bi t .
13 Whi l e we' r e her e, shoul d we addr ess t he obj ect i on t hat
14 Mr . Rubi nst ei n j ust made?
15 THE COURT: Yes, you bet t er .
16 MR. KWOK: I t ' s our posi t i on t hat t hat goes t o hi s
17 i nt ent , as Ms. Ri l ey t est i f i es she suggest ed a number of
18 act i ons t hat t he company under t ake, i ncl udi ng payi ng back t he
19 money. And f i ve mont hs l at er she went back t o i ssue t he mor e
20 f ul some r epor t , and at t hat t i me i t was st i l l out st andi ng. So
21 I under st and par t of def ense' s ar gument i s t hey di d ever yt hi ng
22 t hey coul d t o r emedy t he si t uat i on, and t hat ' s si mpl y not t he
23 case. And i t goes t o t he def endant ' s st at e of mi nd. And i f he
24 i nt ends t o ar gue t hat t her e wer e some ot her peopl e i nvol ved who
25 wer e advi si ng t he def endant , he can cr oss on t hat . But t hat
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1 seems t o be a maj or pr i mar y i ssue i n t hi s case and we shoul d be
2 al l owed t o have t he wi t ness t est i f y t o t hat , i n f act .
3 THE COURT: Wel l , t est i f y t o what went on. I f ol l ow
4 your ar gument . But i s t her e any t est i mony about whet her
5 t her e - - f unds wer e avai l abl e f or t he r epayment s t hat t he
6 gover nment want ed?
7 MR. KWOK: Wel l , I bel i eve t her e' s goi ng t o be
8 t est i mony t hat al l - - t he CASI money comes f r omt he NI ST gr ant ,
9 and t he company had pr omi sed t o put some cost shar e wi t hi n, i n
10 t he pr oposal and i t was never pai d.
11 THE COURT: 280, 000 i s a l ot mor e t han t he cost shar e.
12 I t ' s a l i t t l e har d t o pay 280, 000 and meet your cost shar e t oo.
13 They - -
14 MR. KWOK: But t he wi t ness, I bel i eve, i s goi ng t o
15 t est i f y t hat t he company has pai d zer o, t hat - -
17 MR. KWOK: Had not pai d back anyt hi ng, even af t er t he
18 i ssuance of her r epor t , not t he f ul l amount , j ust not hi ng at
19 al l . I bel i eve t hat ' s goi ng t o be t he t est i mony, and I t hi nk
20 t hat goes t o t he i nt ent i onal mi sappl i cat i on of gr ant f unds.
21 THE COURT: They have f unds; t he company have f unds?
22 MR. KWOK: The company does not have i ndependent
23 sour ces of f unds, t hat ' s t he Gover nment ' s posi t i on. However ,
24 t he r eason t hey di dn' t have f unds i s because t hey mi sspent al l
25 t hose f unds t hat t hey had al r eady dr awn down, so i t ' s not - -
( 212) 805- 0300
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1 THE COURT: How does i t go t o t he i nt ent ?
2 MR. KWOK: Wel l , i t goes t o t he i nt ent because t hey
3 di dn' t even t r y t o put i n t he cost shar e t hat t hey had pr omi sed
4 t he gover nment t hat t hey woul d.
5 THE COURT: They di dn' t have any f unds, how coul d t hey
6 do i t ?
7 MR. KWOK: Wel l , I bel i eve Mr . Kar r on - - Mr .
8 Rubi nst ei n el i ci t ed t est i mony f r omsome wi t nesses t hat at some
9 poi nt i n t i me t he def endant mor t gaged, t ook out a second
10 mor t gage of hi s apar t ment t o r epay $60, 000.
11 THE COURT: I s t he apar t ment owned by CASI ?
12 MR. KWOK: No. I t was owned by Dr . Kar r on per sonal l y.
13 THE COURT: The gr ant was t o CASI , was i t not ?
14 MR. KWOK: I t was. But i f Mr . Rubi nst ei n, as he t r i ed
15 t o el i ci t f r omsome of t hese wi t nesses, t hat at some poi nt i n
16 t i me he, al t hough af t er t he per i od al l eged on t he f ace of t he
17 i ndi ct ment , he t ook out a second mor t gage on hi s home t o t r y t o
18 pay back some of t hat money t hat he mi sappl i ed, t o suggest t hat
19 he t r i ed t o r emedy t he si t uat i on, he put s t hat i ssue squar el y
20 at pl ay and we shoul d be al l owed t o count er t hat suggest i on.
21 THE COURT: Oh, but you' r e maki ng a cl ai mt hat - - I
22 don' t know what you' r e maki ng. I don' t know t he nat ur e of t he
23 f ul l case, but you can' t j ust - - t he gover nment made t he gr ant
24 not t o Dr . Kar r on, but t he gover nment made t he gr ant t o CASI .
25 MR. KWOK: That ' s cor r ect , your Honor . But t he r eason
( 212) 805- 0300
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1 t he company di d not have f unds was because i t had been al r eady
2 mi sspent al l t hose f unds.
3 THE COURT: That ' s al l r i ght , but t hey over spent .
4 MR. KWOK: I ' msor r y?
5 THE COURT: They di d, t hey over spent .
6 MR. KWOK: I nt ent i onal l y mi sspent . The onl y basi c
7 poi nt I ' mt r yi ng t o el i ci t f r omt hi s wi t ness i s t he def endant
8 knew about t hese pr obl ems. He under t ook some of t he r emedi al
9 act i ons t hat she r ecommended; namel y, t o r evi se t he f i nanci al
10 st at us r epor t t hat we saw t o cor r ect t he cost shar e amount t hat
11 t hey f al sel y r epor t ed t o t he gover nment wher e t hey di dn' t pay
12 anyt hi ng t hey had r epor t ed t hat t hey had pai d t en' s of
13 t housands of dol l ar s, but t hey never pai d t hat money back, and
14 t hat ' s an i nt egr al par t of what went on at t he company, t hat - -
15 THE COURT: They di dn' t have t he f unds t o pay i t back.
16 They spent i t .
17 MR. KWOK: But t hey cont i nued t o dr aw - - act ual l y,
18 t hey - - I , I don' t t hi nk t hat ' s qui t e t r ue, because t he company
19 cont i nued t o dr awdown ATP money.
20 THE COURT: But you have t o convi nce me - - I ' l l have
21 t o hear i t - - you' l l have t o convi nce me pr ompt l y t hat
22 ar gument , but - -
23 MR. KWOK: As I sai d a moment ago, I bel i eve Mr .
24 Rubi nst ei n had suggest ed i n t he past t wo days t hat at some
25 poi nt i n t i me Dr . Kar r on t ook out a second mor t gage on hi s home
( 212) 805- 0300
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1 t o t r y t o pay back t he money t hat he - -
2 THE COURT: Tel l me wher e, show me i n t he r ecor d. I
3 don' t r ecal l hi msayi ng t hat i n t hi s case on t r i al . I f he - -
4 maybe one of your cohor t s does. I don' t r emember hi msayi ng
5 t hat . I ' mawar e of t he f act t hat t her e was a mor t gage, but - -
6 MR. KWOK: We wi l l go get t he t r anscr i pt .
7 THE COURT: I ' mnot sur e about t hi s whol e t heor y of
8 t hi s evi dence pr ovi ng t he - - bei ng admi ssi bl e. So you bet t er
9 have somet hi ng f or me i n t he mor ni ng.
10 MR. KWOK: We wi l l do t hat . And - -
11 THE COURT: I n wr i t i ng so I can r ead i t , or t oni ght i f
12 you want t o r ead t he cases t hat you' r e r el yi ng on.
13 MR. KWOK: Ver y wel l , your Honor . And i n t he
14 al t er nat i ve, I wi l l go back t o r evi si t t he t est i mony t hat I
15 i nt end t o el i ci t and maybe we can avoi d t he whol e pr obl emby
16 j ust movi ng qui ckl y t hr ough t he audi t r epor t s wi t hout dwel l i ng
17 t oo much on t he r ecommendat i on por t i ons of t he r epor t , because
18 t her e' s ot her ways we can show what we need t o show.
19 THE COURT: I ' mhavi ng t r oubl e wi t h t hi s whol e t heor y
20 t hat t he f ai l ur e t o r epay may be evi dence of hi s i nt ent i n
21 mi sspendi ng t he money.
22 MR. KWOK: Even i f - -
23 THE COURT: I ' mhavi ng t r oubl e wi t h t hat , so you' l l
24 have t o gi ve me cases, maybe Mr . Rubi nst ei n' s of f i ce can t oo,
25 si nce he' s got hi s assi st ant her e t oday.
( 212) 805- 0300
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1 MR. RUBI NSTEI N: We have anot her quest i on t hat mi ght
2 hel p t hat , J udge, but t hat ' s when we f i ni sh wi t h t hi s f i r st .
3 I t ' s mor e i n t he housekeepi ng nat ur e.
4 MR. KWOK: I wi l l do some r esear ch and t r y t o gi ve
5 your Honor case l aw.
6 But t he onl y ot her poi nt I woul d make on t hi s poi nt i s
7 t hat even i f i t does not go t o hi s i nt ent , i t goes t o t he basi c
8 f act s of what happened t o t he money. She' s goi ng t o - -
9 THE COURT: I t doesn' t go t o basi c. What ever happened
10 t o t he money, happened t o t he money. Ther e may be, t her e may
11 be cl ar i f i cat i on as t o. But t he conver sat i ons wi t h Dr . Kar r on
12 don' t have anyt hi ng t o do wi t h what happened t o t he money, as I
13 under st and i t . I mean, she may have got t en f ur t her , f ur t her
14 mat er i al s f r omt he new audi t or , t he new account ant s or what
15 have you, but I ' mhavi ng t r oubl e wi t h t he, t hi s el ement of t he
16 case.
17 MR. KWOK: We' l l submi t a l et t er t o t he Cour t .
18 THE COURT: I don' t know t he ot her wi t nesses you have.
19 MR. RUBI NSTEI N: Your Honor , i n or der t o f aci l i t at e
20 what your Honor suggest ed of hopef ul l y hel pi ng t he Cour t i n
21 r esol vi ng t he i ssue, t her e i s a car d t hat t he secur i t y t ook
22 t hat per mi t s us t o use t he i nt er net , and we woul d need a - -
23 i t ' s a Spr i nt PCS car d t hat - - i n ot her wor ds, t hey don' t l et
24 you br i ng i n a comput er t hat gi ves you access t o t he i nt er net ,
25 but act ual l y t hat woul d be - -
( 212) 805- 0300
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1 THE COURT: Why do we need t he i nt er net ?
2 MR. RUBI NSTEI N: We want t o be abl e t o go i nt o West l aw
3 and, you know, do some r esear ch and st uf f .
4 THE COURT: Oh- - don' t - - bet t er not do i t her e,
5 t hat ' s al l .
6 MR. RUBI NSTEI N: Okay, J udge. Thank you.
7 THE COURT: Al l r i ght . Ar e we al l done?
8 MR. KWOK: Yes, t hank you.
9 ( Adj our ned t o J une 5, 2008 at 9: 30 a. m. )
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3 HOPE SNOWDEN
6 Redi r ect By Mr . Ever del l . . . . . . . . . . 435
8 BELI NDA RI LEY
9 Di r ect By Mr . Kwok . . . . . . . . . . . . . 462
12 47 . . . . . . . . . . . . . . . . . . . 325
13 40, 40A, 41, 41A, 42, 42A, 43, 43A, 44, 45 and333
14 48 . . . . . . . . . . . . . . . . . . . 340
15 2000 and 2001 . . . . . . . . . . . . . . 451
16 [ Exhi bi t s] *[ r ecei ved] . . . . . . . . . . . 461
17 900 . . . . . . . . . . . . . . . . . . . 461
18 60 . . . . . . . . . . . . . . . . . . . 477
21 F . . . . . . . . . . . . . . . . . . . . 433
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6 Def endant .
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8 J une 5, 2008
9 9: 20 a. m.
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10 Bef or e:
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14 APPEARANCES
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16 BY: STEVEN KWOK
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2 THE COURT: We have sever al mat t er s t o t ake up.
3 MR. RUBI NSTEI N: Fi r st of al l , I want t o t el l t he
4 Cour t t hat Dr . Kar r on i s her e. I pi cked hi mup and dr ove hi m
5 her e mysel f , as I pr omi sed your Honor I woul d. He' s doi ng
6 somet hi ng - -
7 THE COURT: He' s her e?
8 MR. RUBI NSTEI N: Yes, he i s. I br ought hi mher e.
9 Much t o my chagr i n, I pi cked hi mup and deposi t ed hi m. But
10 he' s maki ng a cal l f or me now, so he' s - - he consent ed t o be
11 excused dur i ng t he l egal , any l egal ar gument s we make her e.
12 THE COURT: You consent t o hi s absence?
13 MR. RUBI NSTEI N: Yes, your Honor .
14 THE COURT: For t hese ar gument s? Al l r i ght , t hank
15 you.
16 Now, we had some i ssues about whet her t he Gover nment ' s
17 Exhi bi t 2, 000, and 2, 001 wer e 3500 mat er i al t hat wer e not
18 pr oduced t o t he def endant .
19 MR. RUBI NSTEI N: Yes, your Honor . And t he r eason f or
20 t hat i s t hat when I was cr oss- exami ni ng - -
21 THE COURT: I t came up i n cr oss as a r esul t of your
22 cr oss- exami nat i on.
23 MR. RUBI NSTEI N: Yes, because I had never been
24 pr ovi ded wi t h t hose document s, so I was t ot al l y unawar e.
25 THE COURT: Why i s i t 3500 mat er i al ?
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1 MR. RUBI NSTEI N: Wel l , j ust as al l t he ot her f i nanci al
2 st at ement r evi si ons was 3500 mat er i al t hat was t ur ned over of
3 t hi s wi t ness.
4 THE COURT: I t ' s not a f i nanci al st at ement , as I r ead
5 i t . But why i s i t 3500 mat er i al ?
6 MR. RUBI NSTEI N: I t ' s t he same as - - i t was a r evi sed
7 f i nanci al st at ement . The wi t ness t est i f i ed t hat she had
8 r ecei ved f i nanci al st at ement - - i n ot her wor ds, I showed t hat
9 t he f i nanci al st at ement s t hat t he gover nment had i n evi dence
10 wer e submi t t ed August 13t h, 2003. The wi t ness sai d t hat she
11 had seen ear l i er ones. We di dn' t have any ear l i er ones. We
12 had t he ones August 13t h, and I - - and she sai d she had t hemi n
13 her f i l e. So obvi ousl y t he gover nment has a whol e f i l e t hat
14 t hey never t ur ned over , never made avai l abl e ei t her on Rul e 16
15 or under 3500 mat er i al as t o t hi s wi t ness, and t hen t hey
16 i nt r oduce i t . And i t ' s my f aul t because I was doi ng somet hi ng
17 el se at t he t i me, and I shoul d' ve known when t hey came up wi t h
18 a number l i ke 2, 000, t hat ' s what got my i nt er est , i t was a new
19 number sequence i n t hi s case and - -
20 THE COURT: Wel l , l et me hear f r omt he gover nment .
21 MR. EVERDELL: Wel l , your Honor , a f ew t hi ngs. I
22 t hi nk your Honor ' s r i ght , I don' t see how t hese ar e her
23 st at ement s. These ar e r evi sed f i nanci al r epor t s t hat somehow
24 she r ecal l s seei ng, so I don' t see how t hese become her pr i or
25 st at ement s.
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1 THE COURT: Wel l , t hey' r e pr oposed - - what wer e t hey
2 exact l y? They' r e pr oposed f i nanci al st at ement r evi si ons, i s
3 t hat what t hey ar e?
4 MR. EVERDELL: These wer e t hese f i nanci al st at us,
5 quar t er l y f i nanci al st at us r epor t s.
6 THE COURT: Fi nanci al , pr oposed f i nanci al st at us
7 r epor t s.
8 MR. EVERDELL: Ri ght .
9 THE COURT: Whi ch wer e not appr oved.
10 MR. EVERDELL: Ther e, as t he wi t ness t est i f i ed, t her e
11 was some di scussi on about pr oposed f i nanci al st at us r epor t s
12 wi t h t he def endant . And she r ecal l s seei ng t hese and havi ng
13 ot her , ot her pr oposed r evi sed f i nanci al st at us r epor t s t hat she
14 saw i n t he gr ant f i l e. So t hese, I don' t t hi nk, ar e her
15 st at ement s. And pl us t he f act t hat I bel i eve t he i ssue i s
16 wai ved as wel l because def ense counsel di dn' t obj ect when I
17 showed i t t o hi mand onl y came up af t er t he f act , so.
18 THE COURT: Wel l , t hese ar e not st at ement s by her or
19 do t hey cont ai n st at ement s by her ? I f t hey' r e wi t ness
20 st at ement s, I have a pr obl em. I r emember t her e was some
21 not at i on on one of t hemas I r ecol l ect .
22 MR. EVERDELL: Ther e was some ar e ar i t hmet i c not at i ons
23 and t her e was a not at i on down at t he bot t omof one of t hem,
24 t hat ' s cor r ect . I ' mnot sur e i f i t came out whose t hose wer e.
25 THE COURT: Her s, I bel i eve - -
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1 MR. EVERDELL: Yeah.
2 THE COURT: - - i s t he t est i mony.
3 MR. EVERDELL: I n addi t i on, your Honor , f or t he 3500
4 mat er i al we wr ot e a l et t er t o def ense counsel sayi ng t hat ,
5 because di scover y was so vol umi nous i n t hi s case, t hat i f we
6 had al r eady pr ovi ded i t i n di scover y, we wer en' t goi ng t o
7 pr ovi de i t agai n at separ at e 3500 mat er i al . We di d pr ovi de a
8 copy of t he gr ant f i l e i n di scover y, and you know, I mean - -
9 THE COURT: You di d pr ovi de t he gr ant f i l e? I t hought
10 t hey wer e i ncl uded.
11 MR. EVERDELL: I t woul d have. Your Honor , I conf ess
12 t hat when we t r i ed t o l ook t hr ough t he di scover y l ast ni ght t o
13 see i f we can see t hese exact document s t hat we showed
14 yest er day, t he di scover y copy, t he Bat es st amped di scover y
15 copy, I conf ess we coul dn' t f i nd t hemi n t he Bat es st amped
16 di scover y copy.
17 The i ssue i s t hat t he gr ant f i l e was copi ed sever al
18 year s ago when t he agent s went t o D. C. t o copy t he gr ant f i l e,
19 t hat was what we pr oduced. And, appar ent l y, t hese wer e not
20 copi ed, f or what ever r eason.
21 The agent s at t he t abl e had her own copy of t he gr ant
22 f i l e t hat she r equest ed some, a l i t t l e bi t l at er , j ust because
23 t he copy por t i on t hat we pr oduced was - - i t wasn' t or gani zed as
24 ef f ect i vel y as she woul d have l i ked i t t o be, so she j ust
25 r equest ed anot her copy of i t . That ' s what we wer e usi ng
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1 yest er day when I was t ol d of t hese document s. So I had assumed
2 t hat because we had pr oduced t he gr ant f i l e, t hat t hose
3 document s wer e al so i ncl uded i n t he gr ant f i l e. Appar ent l y, i n
4 my r evi ew of t he di scover y l ast ni ght , I don' t see t hem.
5 But I r ai se i t t hat , you know, t hi s onl y came up on
6 cr oss- exami nat i on as t he def endant was t r yi ng t o appar ent l y
7 maki ng i t seen l i ke Ms. Snowden wasn' t doi ng her j ob pr oper l y.
8 I hadn' t i nt ended t o br i ng t hese t o t he j ur y' s at t ent i on at
9 al l . And pl us t hi s i s a conver sat i on she had wi t h t he
10 def endant hi msel f , so t hi s i sn' t r eal l y any gr eat sur pr i se on
11 t he par t of t he def endant . She' s t est i f yi ng about di scussi ons
12 she had wi t h hi mabout addi t i onal r evi si ons t o t he f i nanci al
13 st at us r epor t s. So t hi s i sn' t r eal l y a gr eat sur pr i se t o hi m
14 or shoul dn' t have been. So whi l e I admi t I t hi nk because of
15 t he r evi ew of di scover y l ast ni ght I can' t say f or cer t ai n t hat
16 t hese par t i cul ar t wo document s wer e t ur ned over t o t he
17 def endant i n di scover y, I don' t t hi nk t hi s i s any gr eat
18 sur pr i se t o t he def endant . And gi ven t he nat ur e of how t he
19 document s came up and t he f act t hat def ense counsel di dn' t
20 obj ect when we f i r st t r i ed t o i nt r oduce t hem, I don' t t hi nk
21 t hi s i s - - shoul d be an i ssue.
22 THE COURT: He di dn' t obj ect unt i l af t er t hey wer e
23 admi t t ed i n evi dence.
24 MR. EVERDELL: Cor r ect , your Honor .
25 THE COURT: I don' t know what t he l aw i s on t hat ,
( 212) 805- 0300
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865ZKAR1
1 under t hose ci r cumst ances.
2 MR. RUBI NSTEI N: Your Honor , I woul d have no pr obl em
3 i f your Honor want ed t o gi ve a l i mi t i ng i nst r uct i on t hat Rul e
4 3500 r equi r es t he gover nment t o t ur n over al l t he mat er i al
5 about - - t hat a par t i cul ar wi t ness who was goi ng t o t est i f y and
6 t hat , you know, and i t wasn' t done as t o Exhi bi t 2, 000 and
7 t hat ' s - -
8 THE COURT: Those document s wer e over l ooked? I s t hat
9 what you want ?
10 MR. EVERDELL: Your Honor , I don' t - - unt i l yest er day
11 when t hi s i ssue came up, I don' t t hi nk we knew t hat t hose
12 document s, t hose not at i ons wer e Hope Snowden' not at i ons. We
13 saw t hemi n t he gr ant f i l e because i t l ooked l i ke t hese wer e
14 r evi si ons and we want ed t o, because t he i ssue came up on
15 cr oss- exami nat i on, i t was cl ear t hat t her e wer e ot her r evi si ons
16 t o t he f i nanci al st at us r epor t s. And so we t hought , okay, t hi s
17 i s a copy of t he gr ant f i l e, we t hought we pr oduced t he gr ant
18 f i l e so we' r e goi ng t o i nt r oduce t hese ' cause we don' t want i t
19 t o l ook as i f Hope Snowden wasn' t doi ng her j ob, whi ch i s
20 cl ear l y what t he - -
21 THE COURT: Tel l i ng t he t r ut h i s - -
22 MR. EVERDELL: Wasn' t t el l i ng t he t r ut h, whi ch i s
23 exact l y what t he def ense counsel was I t hi nk t r yi ng t o do wi t h
24 t hat cr oss- exami nat i on. So i t was done i n good f ai t h. I don' t
25 t hi nk a l i mi t i ng i nst r uct i on t o t hat ef f ect i s appr opr i at e
( 212) 805- 0300
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865ZKAR1
1 her e. Pl us t he i ssue of wai ver , I mean t hese wer e t hi ngs t hat
2 we showed t o t he def endant and he di d not obj ect t o i t . He had
3 t he oppor t uni t y t o r evi ew t hembef or e I el i ci t ed t hemf r omt he
4 f r omt he wi t ness, so.
5 MR. RUBI NSTEI N: That ' s not exact l y accur at e, your
6 Honor . They di dn' t gi ve me a copy. They di dn' t hand me a
7 copy.
8 THE COURT: They - -
9 MR. RUBI NSTEI N: They - -
10 THE COURT: They di d show t hemt o you, Mr - -
11 MR. RUBI NSTEI N: No. They of f er ed t o show t hemand I
12 di d not l ook at t hem. I t ' s my f aul t .
13 THE COURT: I saw t hemshow t hemt o you.
14 MR. RUBI NSTEI N: I di dn' t l ook at - -
15 THE COURT: Whet her you exami ned t hemi s anot her
16 i ssue.
17 MR. RUBI NSTEI N: I conceded t hat , J udge.
19 MR. RUBI NSTEI N: I conceded t hat f r omt he out set , f r om
20 yest er day, t oday. I ' mnot suggest i ng t hey di dn' t of f er i t t o
21 show me t hem, okay. And as I sai d, I was l at e i n maki ng t he
22 obj ect i on. You know, j ust as t he def endant ' s not ent i t l ed t o a
23 per f ect t r i al , he' s not ent i t l ed t o a per f ect l awyer .
24 THE COURT: I want t o see t hose document s, but I want
25 t o - - and t hen I want t o consi der what t o do. Because I t hi nk
( 212) 805- 0300
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865ZKAR1
1 i t ' s acknowl edged t hat t he t wo document s wer e appar ent l y not at
2 t he di scover y mat er i al s t ur ned over .
3 Now whet her , whet her t he di scover y mat er i al s - - and I
4 t hi nk t he wi t ness t est i f i ed, I may be wr ong, t hat t he
5 handwr i t t en not at i ons on t he document wer e her s. So I suppose
6 t hey coul d be consi der ed pr i or st at ement s of a wi t ness.
7 MR. EVERDELL: Your Honor , I mean t he wr i t t en
8 st at ement s t her e wer e not t he subj ect of t est i mony. The
9 t est i mony was - -
10 THE COURT: That ' s t r ue.
11 MR. EVERDELL: - - was di d she i n f act have di scussi ons
12 wi t h t he def endant about addi t i onal r evi sed f i nanci al st at us
13 r epor t s.
14 THE COURT: They wer en' t t he subj ect of her di r ect
15 t est i mony.
16 MR. EVERDELL: Cor r ect .
17 THE COURT: She was r esponded t o on cr oss- exami nat i on.
18 MR. EVERDELL: Exact l y. I di d not i nt end t o get i nt o
19 t hi s at al l unt i l Mr . Rubi nst ei n was, appar ent l y, t r yi ng t o
20 t est her cr edi bi l i t y and I f el t l i ke t hi s was somet hi ng I
21 needed t o addr ess on r edi r ect .
22 The i ssue r eal l y was di d she have di scussi ons wi t h t he
23 def endant about addi t i onal r evi sed f i nanci al st at us r epor t s,
24 whi ch she t est i f i ed t o bef or e I even i nt r oduced t he document s.
25 She sai d, yes, I had di scussi ons wi t h hi m; yes, t her e wer e
( 212) 805- 0300
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865ZKAR1
1 f ur t her r evi si ons. I was si mpl y t r yi ng t o f i nd document ar y
2 evi dence because t he def ense counsel was t r yi ng t o - - was
3 aski ng t he wi t ness, di d you make any not es. She sai d yes. So
4 I l ooked t o see i f we had evi dence of t hi s, and i t appear s
5 t her e was. Now, i t ' s t r ue t hat t hese wer e not - - appar ent l y
6 wer e not t ur ned over i n di scover y, but - -
7 THE COURT: I t hi nk you mi sspoke about any not es. But
8 what he asked her was i f t her e had been any ot her f i nanci al
9 st at us r epor t s i n bet ween t he t wo, t he f i nanci al st at us r epor t
10 of t he f i r st one and t he so- cal l ed r evi sed one of 8/ 13
11 somet hi ng or ot her .
12 MR. EVERDELL: That ' s cor r ect , your Honor .
13 THE COURT: Wel l , I want t o consi der t hi s and see
14 what , i f anyt hi ng, shoul d be done about i t .
15 MR. EVERDELL: And your Honor , addi t i onal l y - -
16 THE COURT: Now l et ' s - - we' ve got a j ur y wai t i ng
17 her e. We got anot her pr obl em.
18 Mr . J ur or number ei ght wi l l not be i n, Mr . Naveen
19 spr ai ned hi s ankl e and has di f f i cul t y wal ki ng and wi l l not be
20 i n t oday, so we' l l have t o r epl ace hi m.
21 Al l r i ght . Now, t her e' s anot her i ssue we have t hat
22 came at t he end of t he day, r i ght ?
23 MR. KWOK: That ' s cor r ect . I wi l l not pr ess t hat l i ne
24 of quest i oni ng, your Honor .
25 THE COURT: Not r ef er t o i t i n summat i on ei t her ; not
( 212) 805- 0300
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865ZKAR1
1 make t hat ar gument i n summat i on.
2 MR. KWOK: Cer t ai nl y. But t he onl y ot her t hi ng I want
3 t o f l ag f or t he Cour t , I bel i eve your Honor now has a pr oposed
4 new st i pul at i on whi ch I wi l l r ead i nt o t he r ecor d bef or e we
5 cal l t he wi t ness.
6 THE COURT: Al l r i ght . Ot her wi se ar e we r eady?
7 MR. KWOK: The gover nment i s r eady.
8 MR. RUBI NSTEI N: Def ense i s r eady, your Honor . I f I
9 can j ust r un out and so I don' t have t o r un out l at er .
10 THE COURT: Maybe I shoul d t oo.
11 MR. EVERDELL: Shoul d we get t he wi t ness, your Honor ?
12 THE COURT: You bet t er have t he wi t ness r eady.
13 ( Recess)
14 THE COURT: Pl ease be seat ed.
15 Al l r i ght , we' r e br i ngi ng i n t he j ur y.
16 ( J ur y ent er i ng)
17 THE COURT: Good mor ni ng. Pl ease be seat ed. Good
18 mor ni ng, l adi es and gent l emen.
19 THE J URY: Good mor ni ng.
20 THE COURT: Mr . Mont eagudo r ecei ved a message f r om
21 Mr . Naveen J ohn, j ur or number ei ght . He spr ai ned hi s ankl e
22 yest er day and cannot wal k t hi s mor ni ng, and as a r esul t he wi l l
23 not be i n t oday. And, accor di ngl y, I ' mgoi ng t o ask Ms. Chang,
24 t he f i r st al t er nat e j ur or , t o t ake hi s pl ace as j ur or number
25 ei ght and we' l l pr oceed wi t h t he t r i al , and I guess we' r e st i l l
( 212) 805- 0300
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865zkar 1
1 on t he di r ect exami nat i on wi t h Ms - -
2 MR. KWOK: Ms. Ri l ey, your Honor .
3 THE COURT: I ' msor r y.
4 MR. KWOK: Ms. Ri l ey.
5 THE COURT: Ms. Ri l ey, yes.
6 MR. KWOK: May I pr oceed?
7 THE COURT: Ms. Ri l ey, you' r e r emi nded you' r e st i l l
8 under oat h. The j ur y i s r emi nded t hat on t he succeedi ng day
9 when t he wi t ness t akes t he st and, I ' mobl i ged, as a mat t er of
10 cour t pr ocedur e, t o r emi nd t hemt hey' r e st i l l under oat h.
11 Pl ease.
13 BELI NDA RI LEY,
15 havi ng been pr evi ousl y swor n, t est i f i ed as f ol l ows:
17 BY MR. KWOK:
18 MR. KWOK: Your Honor , bef or e I pr oceed wi t h t he
19 di r ect exami nat i on, I woul d l i ke t o r ead a pr oposed st i pul at i on
20 i nt o t he r ecor d.
21 THE COURT: Al l r i ght , si r .
22 MR. KWOK: Uni t ed St at es of Amer i ca ver sus Dani el B.
23 Kar r on, def endant S2 07 Cr i m. 542. I t i s her eby st i pul at ed and
24 agr eed by and among t he Uni t ed St at es of Amer i ca by Mi chael J .
25 Gar ci a, Uni t ed St at es At t or ney f or t he Sout her n Di st r i ct of New
( 212) 805- 0300
507
865zkar 1 Ri l ey - di r ect
1 Yor k, St eve Kwok and Chr i st i an Ever del l , Assi st ant Uni t ed
2 St at es At t or neys of counsel , and def endant Dani el B. Kar r on, by
3 and wi t h t he consent of hi s at t or ney Ronal d Rubi nst ei n,
4 Esqui r e, par agr aph t hr ee of Gover nment exhi bi t 900 i s amended
5 t o r ead as f ol l ows: The document s mar ked as gover nment exhi bi t
6 0 ar e t he cr edi t car d st at ement s f or t he Amer i can Expr ess car ds
7 of Comput er Ai ded sur ger y, I nc. CASI , and Dani el B. Kar r on, t he
8 def endant , f r omi n or about Oct ober 2001 t o i n or about Apr i l
9 of 2003.
10 I t i s f ur t her st i pul at ed and agr eed t hat gover nment
11 exhi bi t 90 and t hi s st i pul at i on mar ked f or i dent i f i cat i on as
12 gover nment exhi bi t 900A, may be r ecei ved i n evi dence as
13 gover nment exhi bi t s at t r i al , and i t i s si gned New Yor k, New
14 Yor k, J une 5t h, 2008 on behal f of t he Uni t ed St at es by St eve
15 Kwok and on behal f of Dani el B. Kar r on, Ronal d B. Rubi nst ei n,
16 Esqui r e.
17 THE COURT: Al l r i ght , Gover nment ' s exhi bi t 90 i s
18 admi t t ed i n evi dence. I t hi nk Gover nment ' s exhi bi t 900 was
20 THE DEPUTY CLERK: Thi s i s 900A?
21 THE COURT: Excuse me. Gover nment ' s exhi bi t 900A i s
23 ( Gover nment ' s Exhi bi t 900A r ecei ved i n evi dence)
25 BY MR. KWOK:
( 212) 805- 0300
508
1 Q. Good mor ni ng, Ms. Ri l ey.
2 A. Good mor ni ng.
3 Q. Bef or e we br oke yest er day you ment i oned you went back t o
4 CASI t o do a second audi t ; i s t hat r i ght ?
5 A. Yes.
6 Q. When di d you go back t o t hat , t o do t hat second audi t ?
7 A. I n December of 2003.
8 Q. So how l ong was t hat bet ween your f i r st audi t and t hi s
9 t i me?
10 A. About f i ve mont hs.
11 Q. Wher e di d you go t o conduct t hi s second audi t ?
12 A. To hi s account ant , Mel Spi t z' s of f i ce i n Manhat t an.
13 Q. I n conduct i ng your second audi t , what mat er i al s di d you
14 exami ne?
15 A. I exami ned t he books and r ecor ds pr ovi ded by Mel Spi t z.
16 Q. So ar e t hese mat er i al s t hat you exami ned f or t he second
17 audi t di f f er ent or t he same f r omt he mat er i al s you r el i ed on
18 t he f i r st t i me?
19 A. I t was di f f er ent l edger s. The i nvoi ces or what ever woul d
20 been t he same, but t he l edger s wer e new.
21 Q. Di d t her e come a t i me when you compl et ed t hi s second audi t ?
22 A. Yes.
23 Q. When was t hat , appr oxi mat el y?
24 A. I t hi nk t he r epor t was pr obabl y i ssued i n Febr uar y or
25 Mar ch 2004.
( 212) 805- 0300
509
1 Q. And what per i od di d your second audi t cover ?
2 A. I t cover ed t he per i od 10/ 1, 2001 t hr ough J une 27t h, 2003.
3 THE COURT: What dat e i n 2003?
4 THE WI TNESS: J une 27t h, when t he awar d was suspended.
5 Q. Di d you i ssue a r epor t af t er t he second audi t ?
6 A. Yes.
7 Q. Ms. Ri l ey, i f you coul d t ake a l ook at t he st ack of
8 document s i n f r ont of you. I bel i eve t her e' s one mar ked f or
9 i dent i f i cat i on gover nment exhi bi t 61?
10 A. Yes.
11 THE COURT: 61 f or i dent i f i cat i on?
12 MR. KWOK: That ' s cor r ect , your Honor .
13 THE COURT: I t ' s not admi t t ed i n evi dence yet , l adi es
14 and gent l emen.
15 Q. Do you r ecogni ze t hi s document , Ms. Ri l ey?
16 A. Yes.
18 A. I di d.
19 Q. And what i s i t ?
20 A. I t ' s t he dr af t r epor t t hat we i ssued as a r esul t of t he
21 December 2003 r evi ew of CASI ' s r ecor ds.
22 Q. I s t hat t he r epor t you j ust r ef er r ed t o?
23 A. Yes.
24 MR. KWOK: Gover nment of f er s exhi bi t 61.
25 MR. RUBI NSTEI N: Your Honor , except f or concl usi ons, I
( 212) 805- 0300
510
1 have no obj ect i on, your Honor .
2 THE COURT: Exhi bi t 61 i s admi t t ed i n evi dence. I t ' s
3 kept i n t he r egul ar cour se of busi ness by t he agency; i s t hat
4 cor r ect ?
5 THE WI TNESS: I ' msor r y, what ?
6 THE COURT: Thi s r epor t i s kept i n t he r egul ar cour se
7 of busi ness by t he Of f i ce of I nspect or Gener al ?
9 THE COURT: And i t ' s t he r egul ar cour se of busi ness t o
10 keep t hese, t hi s r epor t - -
12 THE COURT: - - i n i t s r ecor ds?
14 THE COURT: Al l r i ght , I ' l l al l ow i t .
16 THE COURT: Exhi bi t 61 i s admi t t ed i n evi dence.
18 Q. Now, Ms. Ri l ey, I di r ect your at t ent i on t o page seven of
19 t hat document . I f you coul d put t hat up on t he scr een.
20 THE COURT: What I have i s page seven - - Mr - - I don' t
21 have a page seven t o t hat document , 61. I have - - I have i n
22 61 - -
23 MR. KWOK: You have t o keep f l i ppi ng t o - - t he i ni t i al
24 pages don' t have number s on i t , and t hen t her e ar e l i t t l e one,
25 l i t t l e t wo, and t hen - -
( 212) 805- 0300
511
1 THE COURT: Those ar e mar ked dr af t .
3 MR. KWOK: Yes.
4 THE WI TNESS: I t ' s a dr af t r epor t .
5 THE COURT: I t ' s not a f i nal r epor t .
6 THE WI TNESS: Ri ght . The f i nal - -
7 MR. KWOK: I can - - I ' mhappy t o expl ai n t hat at
8 si debar .
9 THE COURT: Not you expl ai n i t , l et t he wi t ness
10 expl ai n i t .
11 MR. KWOK: Okay. I wi l l l ay some f oundat i on, your
12 Honor .
13 THE COURT: She' s t he wi t ness, not you.
14 Q. Ms. Ri l ey, can you expl ai n t he di f f er ence bet ween a dr af t
15 r epor t and a f i nal r epor t ?
16 A. Yes. We i ssue t he dr af t - - we i ssue a dr af t r epor t and
17 gi ve t he gr ant ee an oppor t uni t y t o r espond t o our f i ndi ngs and
18 any er r or s we may have i n our number s, our wor di ngs or any - -
19 and t hen we i ssue a f i nal r epor t and i ncl ude t hei r r esponse t o
20 our dr af t r epor t .
21 Q. Thank you.
22 THE COURT: So you want page seven of t he dr af t r epor t
23 t hat ' s accompanyi ng t he - -
24 MR. KWOK: Yes.
25 THE COURT: - - t hat i s at t ached t o exhi bi t 61?
( 212) 805- 0300
512
1 MR. KWOK: That ' s cor r ect , your Honor , page seven of
2 t he dr af t r epor t , exhi bi t 61, we' r e j ust wai t i ng f or i t t o be
3 up on t he scr een. Can we bl ow t hat up.
4 Q. Ms. Ri l ey, what ar e t he f i ndi ngs t hat you r eached?
5 MR. RUBI NSTEI N: I obj ect t o t hi s. Ther e' s no
6 f oundat i on.
7 THE COURT: Obj ect i on over r ul ed.
8 A. We det er mi ned t hat t he gover nment was - - we f ound t hat t he
9 gover nment - - t he r ef und was due t he f eder al gover nment of
10 $582, 000, appr oxi mat el y.
11 Q. Now, i f we coul d go t wo pages af t er t hat . I t ' s appendi x
12 one, page one of ei ght . What ar e some of t he exampl es of t he
13 f unds t hat you di sal l owed?
14 A. Funds t hat wer e used t o pay f or r ent , i nt er net - -
15 MR. RUBI NSTEI N: I can' t hear t he wi t ness, your Honor .
16 I ' msor r y.
17 THE COURT: I ' msor r y, I ' msor r y?
18 MR. RUBI NSTEI N: I can' t - - I coul dn' t hear t he
19 wi t ness.
20 THE WI TNESS: I ' msor r y.
21 THE COURT: I t hi nk you' r e t oo - - I t hi nk you' r e t oo
22 cl ose - - Rober t i s not her e t o.
23 THE WI TNESS: Oh, i f I si t back, i s t hi s bet t er ?
24 MR. RUBI NSTEI N: Thank you.
25 THE COURT: I t ' s bet t er i f you speak up.
( 212) 805- 0300
513
3 THE WI TNESS: I t sounds l oud t o me. Okay.
4 Moni es t hat wer e spent f or r ent s, i nt er net - -
5 THE COURT: Keep t al ki ng i nt o t he mi ke. As soon as
6 you st ar t t ur ni ng l ooki ng ar ound t o t he Cour t Repor t er your
7 voi ce get s muf f l ed.
9 A. For r ent , i nt er net , ut i l i t i es, and cer t ai n ot her CASI
10 expendi t ur es.
11 Q. And I di r ect your at t ent i on t o page ei ght now of t he
12 r epor t , t he one page pr evi ous t o t he one we j ust l ooked at .
13 Di r ect i ng your at t ent i on t o t he t hi r d f ul l par agr aph. What
14 f i ndi ng di d you make t her e?
15 A. That on Oct ober 26 CASI r ecei ved gr ant f unds of 100 and - -
16 THE COURT: Oct ober 26 of what year ?
17 THE WI TNESS: Oh, of 2001, CASI r ecei ved gr ant f unds
18 of $150, 000, and t hey i mmedi at el y wr ot e Dr . Kar r on a check f or
19 $75, 000 as an advance on sal ar y and pai d back r ent of $2, 000 a
20 mont h f or t he per i od, J anuar y 2000 t hr ough Sept ember of 2000,
21 whi ch was pr i or t o t he awar d of t he gr ant .
22 Q. And what di d you concl ude about t hese ser i es of
23 t r ansact i ons?
25 THE COURT: I t hi nk you need - -
( 212) 805- 0300
514
1 MR. KWOK: Your Honor - -
2 THE COURT: Obj ect i on - - I t hi nk you need a f oundat i on
3 quest i on, Mr . Ever del l . Fi r st , di d she - - was t hi s based on
4 any - -
5 MR. KWOK: Cer t ai nl y, your Honor .
6 THE COURT: On what di d she base t hi s concl usi on.
7 Q. Ms. Ri l ey, bef or e you conduct ed t hi s audi t , di d you have
8 occasi on t o r evi ew t he t er ms and condi t i ons of t he ATP gr ant ?
9 A. Yes, I di d.
10 Q. And what di d you concl ude about t hese ser i es of
11 t r ansact i ons?
12 A. The r ent woul d be an i ndi r ect cost , whi ch woul d be
13 unal l owabl e on t hat , but t hat was al so pr i or t o t he awar d so i t
14 woul d not be al l owed.
15 THE COURT: Rober t , woul d you f i x t he mi ke so i t ' s i n
16 t he r i ght spot her e. We' r e havi ng t r oubl e hear i ng her voi ce.
17 J ust so she get s up t o i t cl ose and t hen i t ' s al l - -
18 THE WI TNESS: Do I need t o si t back?
19 THE DEPUTY CLERK: She' s al so got - - l ooki ng at
20 document s so i t ' s sor t of har d. She' s up cl oser . I t ' s okay.
21 Keep - -
23 THE DEPUTY CLERK: Ri ght wher e you ar e. I ' mgoi ng t o
24 move your wat er r i ght her e.
( 212) 805- 0300
515
1 THE DEPUTY CLERK: You shoul d be okay. I t ' s okay.
2 Q. I ' msor r y, can you cont i nue wi t h t he answer ? The quest i on
3 was, what di d you concl ude about t he ser i es of t r ansact i ons?
4 A. That t he r ent payment s wer e - - woul d have been pr eawar d
5 cost and not al l owabl e, but t hey wer e al so i ndi r ect cost s t hat
6 t hey woul d not have been al l owabl e cost s. And t he advance, we
7 don' t , we don' t - - we consi der ed t hi s l i ke t hat he used i t as a
8 per sonal l oan account . You' r e not - - you don' t , you don' t pay
9 advance sal ar y out of gr ant cost .
10 Q. I f you coul d speak up, Ms. Ri l ey, t hat woul d be ver y
11 hel pf ul .
12 A. Okay.
13 Q. Ms. Ri l ey, do you know whet her t he gr ant - - t he def endant
14 gave a wr i t t en r esponse t o your audi t r epor t ?
15 A. Yes, he di d.
16 Q. And how do you know t hat ?
17 A. Because i t was sent t o me, or t o our of f i ce.
18 Q. And di d you i ssue a f i nal r epor t af t er r evi ewi ng t he
19 def endant ' s r esponse?
20 A. Yes, we di d.
21 Q. I ' mshowi ng you what i s next i n t he pi l e, I bel i eve, mar ked
22 f or i dent i f i cat i on gover nment exhi bi t 62. Do you know what
23 t hat i s?
24 A. Yes.
25 Q. What i s i t ?
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1 A. I t ' s our f i nal r epor t t hat we i ssued.
2 Q. Who pr epar ed t he document ?
3 A. I di d.
4 MR. KWOK: Gover nment of f er s exhi bi t 62.
5 MR. RUBI NSTEI N: Same l i mi t ed obj ect i on, your Honor ,
6 as t o opi ni ons of t hi s wi t ness.
7 THE COURT: Thi s i s kept i n t he r egul ar cour se of
8 busi ness by t he agency.
9 THE WI TNESS: Yes, si r .
10 THE COURT: Al l r i ght . I ' l l al l ow i t , 62 i n evi dence.
12 Q. Ms. Ri l ey, af t er t hi s audi t r epor t , exhi bi t 62, di d you
13 conduct a t hi r d anal ysi s of CASI ' s bank account s?
14 A. Yes, I di d.
15 Q. What di d you do?
16 A. Af t er I was pr ovi ded t he bank account r ecor ds f or t he, f or
17 t he year - and- a- hal f per i od of t he gr ant , and I schedul ed out
18 t hem, t he checks by payee, amount , dat e, and t he el ect r oni c
19 f unds t r ansf er s wer e t aken f r omt he bank st at ement s.
20 Q. What bank ar e we t al ki ng about ?
21 A. Chase.
22 Q. And t hese bank st at ement s bel onged t o what per son or what
23 ent i t y?
24 A. CASI .
25 Q. Di d you al so r evi ew t he bank st at ement s of Dr . Kar r on
( 212) 805- 0300
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1 per sonal l y?
2 A. Yes, I di d.
3 Q. How about Dr . Kar r on st at ement s?
4 A. Yes, t he Amer i can Expr ess st at ement s f or t he CASI busi ness
5 account and f or one of t he account s f or Donal d Kar r on onl y.
6 Q. Di d you r evi ew any i nvoi ces?
7 A. Yes, t her e wer e some i nvoi ces.
8 Q. Di d CASI have one account or mul t i pl e account s?
9 A. Ther e wer e f our CASI busi ness account s.
10 Q. And how di d you t r eat t hese mul t i pl e account s i n your
11 anal ysi s?
12 A. I n my anal ysi s - -
13 THE COURT: What ki nd account s ar e we t al ki ng about ?
14 THE WI TNESS: Checki ng.
15 THE COURT: Checki ng account s. Ther e wer e f our
16 checki ng account s?
17 THE WI TNESS: Yeah, yeah. Ther e may have been - -
18 yeah, t her e wer e f our checki ng account s, and t hen a per sonal
19 account had a savi ngs account and a per sonal account .
20 Q. And how do you t r eat CASI ' s mul t i pl e busi ness account s?
21 A. I t r eat ed t hemas one bank account .
22 Q. And why di d you do t hat ?
23 A. Because al l - - t he maj or i t y of t he deposi t s wer e f r omt he
24 NI ST ATP gr ant , and t her e was a l ot of t r ansf er s bet ween t he
25 account s.
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1 Q. Now, i n t er ms of t he i nf or mat i on t hat you r el i ed on, how
2 does t hi s anal ysi s di f f er or t he same f r omyour , t he mat er i al s
3 you r el i ed on i n your audi t r epor t s?
4 A. The audi t r epor t I r el i ed on t he what ever books and r ecor ds
5 or l edger s t hat wer e pr ovi ded by CASI . For t he anal ysi s of t he
6 checki ng account , I was r el yi ng j ust on t he checks.
7 Q. Ms. Ri l ey, I ' mshowi ng you - - i n, f r ont of you t he box
8 mar ked al r eady i n evi dence as gover nment exhi bi t 80.
9 THE COURT: I ' mconf used, Mr . Kwok. I f we used t he
10 exhi bi t number s, I ' d be much happi er , but when you f ai l t o use
11 t he exhi bi t number s I t hi nk i t ' s conf usi ng and not cl ear t o t he
12 j ur y what t he wi t ness i s t al ki ng about .
13 MR. KWOK: I wi l l use t he exhi bi t number . I
14 apol ogi ze, your Honor .
16 Q. I ' mdi r ect i ng your at t ent i on, Ms. Ri l ey, t o exhi bi t 80,
17 whi ch i s t he box i n f r ont of you, i f you coul d st and up?
18 THE COURT: Exhi bi t 80 i sn' t admi t t ed i n evi dence.
19 MR. KWOK: I t ' s by st i pul at i on, your Honor .
20 THE COURT: Oh, al l r i ght .
21 A. Okay. Yes.
22 THE COURT: And what does exhi bi t 80 consi st of so
23 t hat you don' t - - we know what we' r e t al ki ng about ?
24 THE DEPUTY CLERK: Move t hose f ol der s.
25 BY MR. KWOK:
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1 Q. Ms. Ri l ey, what i s exhi bi t 80?
2 A. 80 - - exhi bi t 80 i s Dr . Kar r on' s per sonal checki ng account s
3 and savi ngs account .
4 Q. How about gover nment exhi bi t 81?
5 A. 81 i s t he busi ness checki ng account s, t he f our busi ness
6 checki ng account s.
7 THE COURT: Four checki ng?
8 THE WI TNESS: Yes, si r . I t ' s t hr ough - - t her e i s a
9 CASI busi ness account , and t hen t her e' s NI ST pr oj ect busi ness
10 account , and t hen t her e' s a CASI cor por at i on - - CASI has
11 changed i t s - - become an LLC Cor por at i on, and t her e' s, so
12 t her e' s al so a NI ST LLC cor por at i on account .
13 Q. So, and what i s gover nment - -
14 A. They wer e j ust changi ng di f f er ent ent i t i es.
15 Q. And what i s gover nment exhi bi t 90, 90?
16 A. 90?
17 Q. I t ' s t o your r i ght ?
18 THE COURT: J ust so I ' mcl ear , i n 81 t her e ar e f our ,
19 t hose f our account s wer e i n 81, amI r i ght , Ms. Ri l ey?
20 THE WI TNESS: I ' msor r y, what ?
21 THE COURT: The f our account s t hat you j ust ment i oned
22 t he CASI busi ness account , t he CASI LLC busi ness account , t he
23 NI ST - -
24 THE WI TNESS: NI ST - -
25 THE COURT: CASI NI ST account s and CASI ' s NI ST LLC
( 212) 805- 0300
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1 account - -
3 THE COURT: - - ar e al l par t of exhi bi t 81, i s t hat
4 cor r ect ?
8 Q. Now t ur ni ng t o exhi bi t 90 al r eady i n evi dence, what i s
9 t hat ?
10 A. Thi s i s t he Amer i can Expr ess st at ement s f or t he CASI
11 account s.
12 THE COURT: I t ' s a what ?
13 THE WI TNESS: Amer i can Expr ess account .
14 THE COURT: I n t he name of ?
15 THE WI TNESS: I t ' s - - t her e ar e var i ous Amer i can
16 Expr ess account s and - -
17 THE COURT: I n whose name?
18 THE WI TNESS: The Comput er Ai ded Sur ger y, and Dr - -
19 t her e' s one i n D. B. Kar r on.
20 THE COURT: Dr . Kar r on?
22 THE COURT: That ' s t wo.
23 THE WI TNESS: Oh, t hey' r e t he same. They' r e - -
24 t hey' r e var i ous account number s wi t h t he same name.
25 THE COURT: They' r e var i ous - -
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1 THE WI TNESS: Doct or D. B Kar r on Comput er Ai ded
2 Sur ger y, t her e i s an account number t hr ee - -
3 THE COURT: I coul dn' t under st and you.
4 THE WI TNESS: Doct or D. B. Kar r on Comput er Ai ded
5 sur ger y, t her e' s an account number 37834901721500, and al so
6 account 378349017217006.
7 THE COURT: And i n whose name i s t hat ?
8 THE WI TNESS: Doct or D. B. Kar r on, Comput er Ai ded
9 Sur ger y.
10 THE COURT: Any ot her account s i n t he Amer i can
11 Expr ess.
13 THE COURT: Exhi bi t 90?
14 THE WI TNESS: Al so f or Dr . D. B. Kar r on - -
15 THE COURT: I ' msor r y?
16 THE WI TNESS: Anot her one under t hat same name i s
17 378349017216008.
18 THE COURT: I n t he name of ?
19 THE WI TNESS: Dr . D. B. Kar r on, Comput er Ai ded Sur ger y.
20 THE COURT: Any ot her s?
21 THE WI TNESS: Ther e i s al so under Dr . D. B. Kar r on
22 Comput er Ai ded Sur ger y 378349017218004.
23 THE COURT: Any ot her s?
24 THE WI TNESS: These t wo - -
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1 THE WI TNESS: Thi s, t hese - - al so i n t hi s t her e ar e
2 sect i ons t hat ar e f or ot her peopl e l i ke f or Lee Gur f ei n wher e
3 i t ' s not - -
4 THE COURT: Tel l us whi ch ones you r evi ewed.
5 THE WI TNESS: Okay. So t hen al so t her e' s a per sonal
6 Dr . D. B. Kar r on f or 371543567491006, and one f or Dr . D. B.
7 Kar r on 372893053176002.
8 THE COURT: And what about t he ones f or t he ot her
9 peopl e you say ar e par t of 90?
10 THE WI TNESS: They' r e i n - - l et ' s see. They' r e i n
11 par t of t he st at ement .
13 THE WI TNESS: They' r e l i ke t he one, l i ke account
14 number Dr . D. B. Kar r on.
15 THE COURT: We can' t r emember t hose number s so you
16 have t o t el l us what you' r e doi ng.
17 THE WI TNESS: Okay. So i ncl uded i n some of t he
18 account s t her e' s a, f or Dr . D. B. Kar r on, Al i ci a Gur f ei n and
19 Char l es Desal a, cr edi t car ds under t he account number or t he
20 mai n account number .
21 THE COURT: You mean wer e separ at e cr edi t car ds i ssued
22 under t he - -
23 THE WI TNESS: Under t he same bi l l i ng account number
24 t hey had - - yeah, t hey had t hr ee - - t hi s one cr edi t car d
25 account number had t hr ee separ at e cr edi t car ds t hat appear ed on
( 212) 805- 0300
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1 t hat bi l l f or t hat account number , so i t ' s associ at ed wi t h.
2 THE COURT: I see. Who ar e t hey at t r i but ed t o?
3 THE WI TNESS: Al i ci a Ger f ei n and Char l es Desal a.
4 Q. Ms. Ri l ey - -
5 MR. KWOK: Sor r y, your Honor .
6 THE COURT: Anyt hi ng el se?
7 Q. Yes. Ms. Ri l ey, now I ' mshowi ng you gover nment Exhi bi t
8 100. Do you r ecogni ze what t hat i s, al r eady i n evi dence?
9 A. Yes. I t ' s i nvoi ces f r omDat avi si oi n.
10 Q. How about gover nment Exhi bi t 101?
11 THE COURT: What ar e i nvoi ces f r omdat a bases?
12 THE WI TNESS: I nvoi ces f r omDat avi si oi n i s a - -
13 THE COURT: Dat avi si on.
14 THE WI TNESS: I t ' s a comput er company.
15 THE COURT: Al l r i ght . Suppl i er of some sor t ?
16 THE WI TNESS: Yes, equi pment suppl y, equi pment per son.
18 Q. Gover nment Exhi bi t 101, do you have t hat document i n f r ont
19 of you?
20 A. Yes.
21 Q. Do you r ecogni ze i t ?
22 A. I t ' s i nvoi ces f r omHomef r ont Har dwar e.
23 Q. Ar e t hose i nvoi ces as wel l ?
24 A. Yes.
25 Q. How about gover nment Exhi bi t 102 al r eady i n evi dence?
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1 A. 102, i nvoi ces f r omGener al Comput er Ser vi ce.
2 Q. Gover nment exhi bi t 103 al r eady i n evi dence?
3 A. I nvoi ces f r omSi l i con Gr aphi cs I ncor por at ed.
4 Q. Gover nment Exhi bi t 104?
5 A. I nvoi ces f r omSi l i con Ci t y.
6 Q. Now, Ms. Ri l ey, bef or e I showed you t hose document s, had
7 you l ooked at t hose document s bef or e?
8 A. Yes.
9 Q. And what di d you do wi t h t hose document s?
10 A. I r evi ewed t he t hi ngs on t he document s and t r aced t hemback
11 t o t he sour ce r ecor ds. I al so i ni t i al ed and dat ed t hat I had
12 seen t hem.
13 Q. Di d you summar i ze t he i nf or mat i on i n t he bank r ecor ds, t he
14 Amer i can Expr ess car d st at ement s and t he i nvoi ces, i n a summar y
15 document ?
16 A. Yes, t hey' r e summar i zed i n my r evi ew of t he checks and bank
17 st at ement s.
18 Q. I ' mshowi ng next what ' s been mar ked f or i dent i f i cat i on as
19 gover nment Exhi bi t 110?
20 A. 110.
21 THE COURT: Okay.
22 Q. Do you r ecogni ze what t hat i s?
23 A. Yes.
25 A. I di d.
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1 Q. What i s t he summar y of ?
2 A. I t ' s a summar y of t he bank, anal ysi s of t he bank st at ement s
3 and checks.
4 Q. Of ?
5 A. Of CASI , and t he f our bank account s of CASI .
6 MR. KWOK: Gover nment of f er s gover nment Exhi bi t 110?
8 THE COURT: Let me j ust see. I want t o know exact l y
9 what i t i s. 110 i s t he summar y of whi ch exhi bi t s, t he 70 - -
10 does i t al so i ncl ude cr edi t car ds?
11 THE WI TNESS: Yes, si r , i t does.
12 THE COURT: So i t ' s 70 and 80. And what about - - and
13 81, i s t hat r i ght ?
14 THE WI TNESS: The cr edi t car ds ar e 90, and t he checks
15 wer e 81 - - t he checks wer e 81, r i ght . Checks ar e 81. So i t
16 i ncl udes 90, t he Amer i can, t he Amer i can Expr ess bi l l s and 81,
17 t he checks f r omt he f our bank account s.
18 THE COURT: 90 you mean?
19 THE WI TNESS: Yeah.
21 THE WI TNESS: No.
22 THE COURT: I ncl udes 90?
23 THE WI TNESS: 90 i s, what i s 90? Oh, yes, t he
24 Amer i can Expr ess - - yes, t he Amer i can Expr ess bi l l i s 90, 90
25 and 81.
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1 THE COURT: J ust 90 and 81, not 70, not 80.
2 THE WI TNESS: 70 i s - -
3 Q. I f I can ask t he next quest i on, I t hi nk i t woul d cl ear i t
4 up.
5 Ms. Ri l ey, di d you pr epar e a separ at e summar y f or t he
6 i nf or mat i on cont ai ned i n gover nment exhi bi t 80?
7 A. Yeah, t he separ at e, 80 - -
8 Q. What i s gover nment exhi bi t 80?
9 A. Oh, yes, I di d. Dr . Kar r on' s checks has a separ at e
10 summar y.
11 THE COURT: Al l r i ght . 80 i s a separ at e one. What i s
12 i n t hi s one, 110; what i s i ncl uded i n 110?
13 MR. KWOK: Let me ask t he wi t ness.
14 THE COURT: That ' s what I ' maski ng t he wi t ness.
15 Q. Ms. Ri l ey, does gover nment exhi bi t 110 i ncl ude gover nment
16 exhi bi t 81, gover nment exhi bi t whi ch i s t he CASI bank account
17 st at ement , and gover nment exhi bi t 90, whi ch ar e t he Amer i can
18 Expr ess car d st at ement s?
19 A. Yes.
20 Q. And does what i s mar ked f or i dent i f i cat i on as gover nment
21 exhi bi t 111, i ncl ude a summar y of gover nment exhi bi t 80, whi ch
22 i s t he Chase Bank account st at ement s f or Dr . Kar r on,
23 per sonal l y?
24 A. Yes, pl us i t al so i ncl udes t he per sonal cr edi t car d
25 st at ement s t hat wer e i ncl uded i n 90 Amer i can Expr ess.
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1 MR. KWOK: Gover nment of f er s - -
2 THE COURT: I ' mabsol ut el y conf used as t o what i t
3 cover s. I don' t f ol l ow what she' s cover i ng i n each of t hese
4 exhi bi t s.
6 THE COURT: She doesn' t seemt o make i t cl ear .
8 THE COURT: 90 i s i ncl uded i n bot h, appar ent l y.
9 Q. Ms. Ri l ey, why i s gover nment exhi bi t 90 i ncl uded i n bot h
10 summar i es?
11 A. Gover nment exhi bi t 90 has busi ness cr edi t car ds and i t ' s
12 st at ement s, and i t al so has a coupl e of per sonal cr edi t car d
13 st at ement s. So t he busi ness cr edi t car d st at ement s ar e
14 i ncl uded, al ong wi t h exhi bi t 81, t he busi ness checks and
15 anal yzed, and t he per sonal cr edi t car d st at ement s i n 90 ar e
16 i ncl uded wi t h t he per sonal bank account checks f or Dr . Kar r on
17 and i n Exhi bi t 110, 111 - - 111.
18 THE COURT: So i s t he st i pul at i on you' r e maki ng
19 bet ween Exhi bi t 110 and 111 i s t hat one i s f or per sonal r ecor ds
20 of Dr . Kar r on and t he ot her i s f or t he busi ness r ecor ds of - -
21 t hat or busi ness account s of CASI ?
22 THE WI TNESS: Yes, si r ; yes, si r .
23 THE COURT: Whi ch Dr . Kar r on may have had dr awi ng
24 power over as a - -
25 THE WI TNESS: Ri ght .
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1 THE COURT: - - an execut i ve of CASI ?
2 THE WI TNESS: Yes, he di d have dr awi ng power as an
3 execut i ve of CASI .
4 THE COURT: So whi ch i s whi ch, t he per sonal - - Dr .
5 Kar r on, per sonal l y, i s 110?
7 THE COURT: And CASI and Dr . Kar r on busi ness wi se i s
8 111; i s t hat r i ght ?
9 THE WI TNESS: No, Dr . Kar r on per sonal i s 111, because
10 on t he per sonal - -
12 Q. Ms. Ri l ey, j ust t o be cl ear , gover nment Exhi bi t 111, i sn' t
13 t hat Dr . Kar r on' s - - summar y of Dr . Kar r on' s per sonal expenses
14 as r ef l ect ed i n t he Amer i can Expr ess car d st at ement s and hi s
15 per sonal Chase Bank st at ement s?
16 A. Yes.
17 Q. And j ust t o be cl ear , i s gover nment Exhi bi t 110 a summar y
18 of t he busi ness expenses as r ef l ect ed i n t he Chase Bank
19 st at ement s and t he bank expenses - - CASI ' s expenses as
20 r ef l ect ed i n t he Amer i can Expr ess cr edi t car d st at ement s.
21 A. Yes.
22 MR. KWOK: Gover nment of f er s 110 and 111.
23 THE COURT: 110 and 111 ar e admi t t ed wi t hout
24 obj ect i on.
25 ( Gover nment ' s Exhi bi t s 110 and 111 r ecei ved i n
( 212) 805- 0300
529
1 evi dence)
2 Q. Now, Ms. Ri l ey - - Ms. Moussa, i f we coul d put up gover nment
3 Exhi bi t 110 on t he scr een, whi ch i s t he summar y f or CASI
4 expenses. I f we coul d zoomi n on t he t op hal f of t he page.
5 Ms. Ri l ey, coul d you t el l us what t he col umn headi ngs
6 of your dat a base i ndi cat e?
7 A. Okay. The f i r st one t he I D i s j ust a number assi gned by
8 t he comput er . The descr i pt i on i s t he payee of t he check. I t
9 was el ect r oni c f unds t r ansf er , t he i nf or mat i on f r omt he bank
10 st at ement concer ni ng t he payee. The dat e i s f r omt he dat e
11 t hat - - t he dat e on t he bank st at ement t hat t he check was
12 cl ear ed. The - - and t he t ot al of t he, of t he check. The check
13 memo ent r i es ar e f r om, ar e f r om- - i f t her e was a check memo on
14 t he account , and f or some of t he account s i f I - - I may have
15 gone back t o one of t he l edger s f r omt he pr evi ous audi t t o get
16 a check, an ent r y t her e. But i t nor mal l y says per l edger i f i t
17 di dn' t come f r omt he check.
18 THE COURT: I ' msor r y, what exhi bi t i s t hat f r om? I ' m
19 a st ep behi nd you al l .
20 MR. KWOK: What i s on t he scr een, your Honor , i s
21 gover nment exhi bi t 110.
22 THE COURT: And t hi s i s not t he f i r st page, i t ' s - - oh
23 i t i s t he f i r st page.
24 THE WI TNESS: I t i s t he f i r st page.
25 THE COURT: But i t ' s cut of f , i s t hat t he pr obl em?
( 212) 805- 0300
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1 THE DEPUTY CLERK: They bl ew up a sect i on of i t .
2 THE COURT: You can' t - - you' r e not - - you haven' t got
3 t he whol e page on t her e, because i t says bank t r ansf er , r i ght ?
4 MR. KWOK: That ' s cor r ect .
6 THE COURT: Al l r i ght . Okay.
7 MR. KWOK: Ms. Moussa, i f we coul d put up what i s
8 al r eady i n evi dence, pages f r omgover nment exhi bi t 81, whi ch i s
9 t he CASI bank st at ement s. I f we coul d zoomi n on t he t op
10 check. May I appr oach, your Honor ?
11 THE COURT: Thi s i s par t of what , 80?
12 MR. KWOK: Thi s i s exhi bi t 81. I t ' s not i n t he j ur y
13 bi nder s because i t ' s par t of vol umi nous bank r ecor ds, but i t i s
14 on t he scr een.
16 MR. RUBI NSTEI N: Coul d I j ust ask one quest i on, your
17 Honor ?
18 THE COURT: What f or ? You mean voi r di r e of some
19 sor t ?
20 MR. RUBI NSTEI N: Yes.
21 MR. KWOK: I t ' s al r eady i n evi dence.
22 THE COURT: I t ' s a l i t t l e l at e.
23 MR. RUBI NSTEI N: Coul d I ask one quest i on, J udge? I t
24 may hel p l at er on.
25 THE COURT: Maybe I ' l l ask i t . Why don' t you come up.
( 212) 805- 0300
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1 I hat e t o i nt er r upt .
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
( 212) 805- 0300
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2 MR. RUBI NSTEI N: Each one of t hese account s t hat she
3 ment i oned has a di f f er ent col or check. Showi ng i t up her e i s
4 i n bl ack and whi t e. I j ust want t o ask her what col or check i t
5 i s so t he j ur y wi l l know. That way t hey' l l know what account
6 i t comes f r om.
7 THE COURT: Whet her she knows what col or check?
8 MR. RUBI NSTEI N: She has t he or i gi nal .
9 MR. KWOK: We don' t - - your account ant di d - -
11 MR. KWOK: That ' s t he way i t ' s pr ovi ded t o us by t he
12 bank. I t ' s i n evi dence i n bl ack and whi t e.
13 MR. RUBI NSTEI N: Okay, al l r i ght .
15
16
17
18
19
20
21
22
23
24
25
( 212) 805- 0300
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1 BY MR. KWOK:
2 Q. Ms. Ri l ey, do you r ecogni ze t he document s t hat ar e bei ng
3 di spl ayed on t he scr een t her e?
4 A. Yes.
5 Q. What ar e t hey?
6 A. They ar e checks f r omt he Comput er Ai ded Sur ger y checki ng
7 account .
8 Q. Who i s t he payee?
9 A. Dr . D. B. Kar r on.
10 Q. For how much?
11 A. $2, 000.
12 THE COURT: Whi ch check ar e you t al ki ng about ?
13 Q. Can you t el l us t he check number ?
14 A. The t op check, 2977.
15 Q. What does i t say on t he memo l i ne?
16 A. Rent al of f i ce, 300 East 33r d St r eet , Sui t e 4N.
17 Q. How about t he handwr i t t en not at i on?
18 A. J anuar y 2000 r ent .
19 MR. RUBI NSTEI N: Excuse me?
20 THE WI TNESS: J anuar y 2000 r ent .
21 Q. Can you t el l me how t hat i nf or mat i on i s r ef l ect ed on your
22 dat abase, Gover nment Exhi bi t 110.
23 A. Exhi bi t 110, on page 39 of 44. Exhi bi t 110, page 39 of 44.
24 MR. KWOK: I f we coul d zoomi n on t he bot t ompor t i on
25 of t he page.
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1 Q. Coul d you t el l us how t he i nf or mat i on we j ust l ooked at on
2 t he check i s r ef l ect ed her e?
3 A. OK. I t ' s under r ent on of f i ce. Under t he descr i pt i on i t
4 has i n par ens i t ' s got Dr . Kar r on, and t he ot her t hi ng i s hi s
5 bank account number t hat t he check was deposi t ed i nt o, hi s
6 per sonal account . I t showed t hat t her e was a t r ansf er i nt o hi s
7 checki ng account . And t he dat e of t he t r ansact i on was
8 10/ 26/ 2001.
9 Q. I s t hat t he same or di f f er ent f r omt he check we j ust l ooked
10 at ?
11 A. I t ' s t he same.
12 Q. What i s t he check number r ef l ect ed on t he dat abase?
13 A. 2977.
14 Q. I s t hat t he same check number as we j ust l ooked at ?
15 A. Yes. And t he memo i s r ent on of f i ce per gener al l edger ,
16 f r omt he check memo, and i t ' s $2, 000. I t ' s t he amount f or
17 check number 2977.
18 Q. Now, I ' mshowi ng you anot her page f r omGover nment Exhi bi t
19 81 whi ch i s t he CASI bank st at ement . Do you r ecogni ze t hi s
20 check?
21 A. Yes, i t ' s f r omt he CASI / NI ST checki ng account .
22 Q. What i s t he check number t her e?
23 A. 10325.
24 Q. And who i s t he payee?
25 A. D. Fer r and.
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1 Q. And do you see a si gnat ur e t her e?
2 A. Yes, i t ' s Dr . Kar r on.
3 Q. Coul d you expl ai n t o us how t hi s i nf or mat i on i s r ef l ect ed
4 on your dat abase.
5 I f we coul d go back t o t he dat abase, pl ease.
6 THE COURT: What i s t he amount of t he check?
7 Q. What i s t he amount of t he check?
8 A. $100. OK. Thi s i s on - -
9 Q. Coul d you di r ect us t o t he page of t he dat abase wher e t hat
10 check i s r ef l ect ed?
11 A. The check number was 10325 on page 37 of 44 on Exhi bi t 110.
12 MR. KWOK: Can we zoomi n?
13 MR. RUBI NSTEI N: We' r e st i l l on 110, ar e we?
14 THE WI TNESS: Yes, Exhi bi t 110, page 37 of 44.
15 Q. Wher e shoul d we be l ooki ng?
16 A. I n t he mi ddl e of t he page. I f you l ook, t he check number
17 i t ' s 10325, so i f you l ook under t he check number col umn i t ' s
18 down under - - yeah - - you see t he not at i on.
19 THE COURT: I ' msor r y. She shoul d be doi ng t he
20 poi nt i ng out t o what she i s t est i f yi ng. I t shoul dn' t be you,
21 Mr . Kwok. Al l r i ght ?
22 A. OK. The check number of 10325 f or cl eani ng of f i ce char ges
23 f or t he week endi ng 6/ 22/ 02 i n t he amount of $100. 10325 i s
24 t he check number . I t was f or cl eani ng of f i ces. The amount i s
25 $100, and t he pay payee St eve Kor and, t hat ' s shown under t he
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536
1 descr i pt i on of t he col umn.
2 Q. I f we coul d l ook at t he r est of t he page. Under t he check
3 memo.
4 THE COURT: The r est of t he page of exhi bi t - - you ar e
5 maki ng a r ecor d, Mr . Kwok. The r ecor d has t o be cl ear as t o
6 what exhi bi t s you ar e r ef er r i ng t o at al l t i mes.
7 MR. KWOK: I apol ogi ze.
8 THE COURT: No one can r evi ew t he r ecor d i f you don' t
9 ment i on t he exhi bi t number at al l t i mes.
10 MR. KWOK: I amst i l l l ooki ng at Gover nment Exhi bi t
11 110. I amst i l l l ooki ng at page 37 of 44.
12 Q. Now, di r ect i ng your at t ent i on t o t he t op por t i on of t hat
13 page, what appear s under t he check memo col umn?
14 A. The check memo i s i nf or mat i on t aken f r omt he memo sect i on
15 of t he check.
16 Q. What does i t say on t he check memo?
17 A. Oh, cl eani ng.
18 Q. And what di d you base t hat i nf or mat i on on?
19 A. Some of t he checks wer e based on, i f t hey di dn' t have - - i n
20 or der t o i dent i f y t he check and what t he check was f or , on some
21 of t he checks I l ooked back at t he l edger s t hat I had got t en
22 f r omCASI ' s audi t s pr epar ed by ei t her Mel Spi t z or f or t he
23 check r egi st er s I had got t en f r omt he J une audi t 2003.
24 Q. Ms. Ri l ey, I ' mshowi ng you a check f r omGover nment Exhi bi t
25 81 al r eady i n evi dence, whi ch i s t he bank account st at ement s
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537
1 f or CASI .
2 Can we put one by one up on t he scr een?
3 What i nf or mat i on i s r ef l ect ed - - what check number i s
4 t hat , f i r st of al l ?
5 A. 10330.
6 Q. And what i nf or mat i on i s next t o t he memo l i ne of t he check?
7 MR. RUBI NSTEI N: Sor r y. I mi ssed t he check number .
8 THE WI TNESS: 10330.
9 Q. And what i nf or mat i on i s r ef l ect ed next t o t he memo l i ne of
10 t he check?
11 A. Cl eani ng of f i ce char ges f or t he week endi ng 6/ 29/ 2002.
12 Q. Look at t he next check, st i l l Gover nment Exhi bi t 81. What
13 i s t he check number on t hat check?
14 A. 10325.
15 Q. What i s t he i nf or mat i on r ef l ect ed next t o t he memo l i ne?
17 Q. And di r ect i ng your at t ent i on t o t he upper l ef t - hand cor ner
18 of t he check, what does t hat say?
19 A. Comput er Sur ger y, I ncor por at ed, NI ST ATP DMT Pr ogr am.
20 Q. Let t he r ecor d r ef l ect t hese ar e col or ed checks.
21 A. I t hi nk t hey' r e col or ed, ar en' t t hey pi nk?
22 THE COURT: Do you know?
23 THE WI TNESS: Yeah, t hey' r e col or ed.
24 Q. And who i s t he payee on t hat par t i cul ar check?
25 A. The payee i s D. Fer r and.
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538
1 Q. What ' s t he amount of t he check?
2 A. $100.
3 Q. Let ' s l ook at t he next and f i nal check, st i l l Gover nment
4 Exhi bi t 81, par t of t he bank r epor t s. What i s t he check number
5 on t hi s check?
6 A. 10509.
7 Q. How about t he upper l ef t - hand cor ner of t he check, what
8 does t hat say?
9 A. Comput er Ai ded Sur ger y, I nc. NI ST ATP DMT pr ogr am.
10 Q. And who i s t he payee on t hat check?
11 A. D. Fer r and.
12 Q. For how much?
13 A. $100.
14 Q. And what i s t he i nf or mat i on r ef l ect ed next t o t he memo
15 l i ne?
17 Q. What ' s t he si gnat ur e t hat appear s on t hat check?
18 A. D. B. Kar r on.
19 Q. Now, Ms. Ri l ey, a moment ago you ment i oned Amer i can Expr ess
20 car d st at ement s.
21 A. Yes.
22 Q. How i s t he i nf or mat i on on t he Amer i can Expr ess car d
23 st at ement s, whi ch i s Gover nment Exhi bi t 90, r ef l ect ed on your
24 dat abase?
25 A. The t r ansact i on of t he cr edi t car d i s t aken f r omt he cr edi t
( 212) 805- 0300
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1 car d i nvoi ce, but t he t r ansact i on f or payi ng t he cr edi t car d
2 was pi cked up whenever I anal yzed t he CASI bank st at ement s.
3 THE COURT: What ?
4 THE WI TNESS: The payment of t he cr edi t car d was
5 al r eady i n t he dat abase because I had t hat i nf or mat i on when I
6 r evi ewed t he bank st at ement s, t he bank st at ement s and cancel ed
7 checks. So t he payment was al r eady i n t he dat abase. I j ust
8 added t he t r ansact i ons, t he pur chase t r ansact i ons f r omt he
9 cr edi t car d.
10 THE COURT: You j ust added t he i nf or mat i on about who
11 t he pur chaser was?
12 THE WI TNESS: And t he amount and t he dat e of t he
13 t r ansact i on.
14 THE COURT: I see. So t he t ot al payment f or t he
15 cr edi t car d i s al r eady i n t he dat abase?
17 THE COURT: So, t hese wer e j ust i ndi vi dual - -
19 THE COURT: - - t r ansact i ons.
20 THE WI TNESS: Ri ght . And so t hat i t woul dn' t show as
21 a doubl e payment I handl ed t he cr edi t car d, I t ook t he cr edi t
22 car d payment s out of t he deposi t wi t hdr awal sect i on of t he
23 dat abase.
24 MR. KWOK: May I appr oach, your Honor ?
25 Q. Ms. Ri l ey, I j ust handed you pages f r omGover nment Exhi bi t
( 212) 805- 0300
540
1 90, whi ch i s t he Amer i can Expr ess car d st at ement s. I t ' s i n t he
2 j ur y bi nder s. Now, coul d you show us an exampl e of how some of
3 t he i nf or mat i on i n t he document t hat I j ust handed you i s
4 r ef l ect ed on your dat abase, Gover nment Exhi bi t 110.
5 A. OK. I f we go t o - - does ever ybody have 90?
6 Q. What page ar e you l ooki ng at i n your dat abase, Ms. Ri l ey?
7 THE COURT: What page of 110 ar e you l ooki ng at ? I s
8 t hat what you' r e aski ng her ?
9 MR. KWOK: That ' s what I ' maski ng t he wi t ness.
10 Q. What page of Gover nment Exhi bi t 110 ar e you l ooki ng at ?
11 A. Page 24 of 37 of Exhi bi t 110. Act ual l y - -
12 MR. KWOK: Your Honor , may I di r ect t he wi t ness' s
13 at t ent i on t o a par t i cul ar page?
14 THE COURT: Of 110?
15 MR. KWOK: Yes.
16 THE COURT: She sai d 24 of 37.
17 Q. I s t hat t he cor r ect page?
18 A. I don' t t hi nk so.
19 THE COURT: I t depends on what she i s compar i ng i t t o.
20 Q. Let me do i t t hi s way. Ms. Ri l ey can I di r ect your
21 at t ent i on t o page 29 of 44 of your dat abase. Do you have t hat
22 page?
23 A. Page 29 of 44? Yes.
24 Q. OK.
25 THE COURT: Exhi bi t 110.
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541
1 Q. 29 of 44, Exhi bi t 110, do you have t hat page?
2 A. Oh, you' r e r i ght , OK. I ' msor r y. 29 of 44, yes.
3 Q. OK. Let ' s put your f i nger on t hat page, and l ook back at
4 t he Amer i can Expr ess car d st at ement s t hat I j ust showed you.
5 I f we coul d have t hat up on t he scr een, pl ease.
6 Gover nment Exhi bi t 90.
7 THE COURT: What ar e you aski ng t o have put up on t he
8 scr een.
9 MR. KWOK: Gover nment Exhi bi t 90, t he st at ement f or
10 August 7, 2002.
11 THE COURT: Fi r st page?
12 MR. KWOK: Page 2.
13 Q. Now, l ooki ng at t he scr een, Ms. Ri l ey, and i f you coul d use
14 your poi nt er , what t r ansact i on i s r ef l ect ed f or J ul y 12, 2002?
15 A. I mi spl aced my poi nt er .
16 MR. RUBI NSTEI N: Ar e t her e number s on t he bot t omof
17 t he page t hat I can' t see? OK. I have my r evi sed.
18 Q. OK. Ms. Ri l ey, what t r ansact i on i s r ef l ect ed - - what i s
19 t he f i r st t r ansact i on f or J ul y 12, 2002?
20 A. J ul y 12, 2002, t he Amer i can Expr ess shows a char ge t o Sam' s
21 Noodl e Shop i n t he amount of 29. 10. On page 29 of 44 - -
22 Q. Let ' s go t hr ough t he Amer i can Expr ess car d st at ement s
23 f i r st . Let ' s t ur n t o t he next page of t he Amer i can Expr ess
24 car d st at ement , Gover nment Exhi bi t 90, page 3.
25 A. OK.
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1 Q. What t r ansact i on i s shown f or J ul y 22, 2002?
2 A. J ul y 22, 2002 t her e i s a char ge t o Sam' s Noodl e Shop f or
3 23. 55.
4 Q. And i s t her e a char ge r ef l ect ed on t he same page,
5 Gover nment Exhi bi t 90, page 3 of 7, f or August 7, 2002 t o t he
6 same vendor ?
7 THE COURT: What ' s your quest i on agai n?
8 Q. Di r ect i ng your at t ent i on t o J ul y 30, 2002, Ms. Ri l ey.
9 A. Oh, yes, on J ul y 30 t her e i s Sam' s Noodl e Shop f or t he
10 amount of 19. 45.
11 Q. OK. Now, l et ' s t ur n back t o Gover nment Exhi bi t 110 t hat we
12 j ust l ooked at , page 29 of 44. Can you t el l us how t he
13 i nf or mat i on t hat we j ust l ooked at i s r ef l ect ed on your
14 dat abase?
15 A. I t comes t hr ough t he dat e col umn t o J ul y.
16 MR. RUBI NSTEI N: Your Honor , excuse me. Ar e we on
17 page 24 or 29?
18 THE WI TNESS: 29 of 44.
20 A. On J ul y 12 t her e i s a t r ansact i on t o Sam' s Noodl e Shop i n
21 t he amount of 29. 10, and on J ul y 22 t her e i s a t r ansact i on t o
22 Sam' s Noodl e Shop of 23. 55, and on J ul y 30, Sam' s Noodl e Shop
23 i n t he amount of 19. 45.
24 THE COURT: So, how was t hi s cr edi t car d pai d f or ?
25 THE WI TNESS: I t ' s pai d f or out of t hi s account .
( 212) 805- 0300
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1 THE COURT: What account ?
2 THE WI TNESS: Out of one of t he CASI - - at t he CASI
3 account s. Thi s one - -
4 THE COURT: You t ol d us t her e ar e mul t i pl e CASI
5 account s.
6 THE WI TNESS: Ri ght . But i n my dat abase t hey ar e
7 t r eat ed as one account , one bi g account , because t he deposi t s
8 come f r omNI ST, f r omone sour ce.
9 THE COURT: The deposi t s come f r omwher e?
10 THE WI TNESS: Fr omNI ST, t he ATP gr ant awar d. Ther e
11 i s a l ot of i nt er account t r ansf er s, but f or t he most par t t he
12 deposi t s ar e comi ng f r omt he gr ant moni es.
13 MR. KWOK: I f we coul d put back up on t he scr een
14 Gover nment Exhi bi t 90, t he Amer i can Expr ess car d st at ement , t he
15 August 7, 2002 st at ement , page 1. I f we coul d zoomi nt o t he
16 mi ddl e por t i on of t hat page t her e hi ghl i ght ed i n gr ay.
17 Q. What does t hi s st at ement show r egar di ng payment t o t he
18 out st andi ng cr edi t car d bal ance?
19 A. I t shows on J ul y 14, 1, 074. 91 was r ecei ved by Amer i can
20 Expr ess f r omCASI , and on J ul y 29 t hat Amer i can Expr ess
21 r ecei ved a payment of $2, 940. 01 f r omCASI .
22 Q. And wher e di d t he money come f r omt hat pai d of f t hese
23 cr edi t car d bal ances?
24 A. Fr omt he CASI / NI ST bank account s.
25 Q. How do you know t hat ?
( 212) 805- 0300
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1 A. OK. Those t r ansact i ons ar e r ef l ect ed on page 3 of 44 of
2 Exhi bi t 110.
3 Q. Ar e you t al ki ng about Gover nment Exhi bi t 110, Ms. Ri l ey?
4 A. Yes, Gover nment Exhi bi t 110, page 3 of 44.
5 Q. And wher e ar e you l ooki ng?
6 A. Ki nd of t he mi ddl e of t he page, under t he payment s of t he
7 cr edi t car d.
8 THE COURT: Sor r y. What was t hat page agai n?
10 Q. Can you poi nt t hemout on t he scr een?
11 A. Yes. I t shows t hat Amer i can Expr ess el ect r oni c r emi t t ance
12 was made f r omt he CASI bank st at ement account on 7/ 15 i n t he
13 amount of $1, 074. 91 t o pay Amer i can Expr ess, and t hat anot her
14 el ect r oni c r emi t t ance was made f r omt he account on J ul y 31,
15 2002 t o pay Amer i can Expr ess i n t he amount of $2, 940. 01.
16 Q. Di d you base t hi s i nf or mat i on on t he Chase cr edi t car d
17 st at ement s of CASI ?
18 A. Thi s i nf or mat i on came f r omt he bank st at ement s and t he
19 payment of t he bank st at ement s.
20 Q. Chase Bank?
21 A. Chase Bank.
22 Q. I amhandi ng you a f ew pages f r omGover nment Exhi bi t 81,
23 t he CASI Chase Bank account st at ement s, whi ch i s al so i n t he
24 j ur y bi nder s. Di r ect i ng your at t ent i on t o t he J une 22 t o J ul y
25 22 st at ement per i od, page 3.
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1 MR. RUBI NSTEI N: Excuse me. What ar e t hose dat es?
2 MR. KWOK: I ' ml ooki ng at Gover nment Exhi bi t 81, t he
3 Chase st at ement s f or CASI , t he per i od f r omJ une 22 t o J ul y 22,
4 page 3 of 4.
5 THE COURT: Let t he wi t ness poi nt t o t he ar ea you ar e
6 r ef er r i ng t o.
7 A. The bank st at ement shows t hat on 7/ 15 t her e was an Amer i can
8 Expr ess el ect r oni c payment i n t he amount of 1, 074. 91 f r omt he
9 Chase bank account .
10 MR. KWOK: And i f you coul d zoomout f or a second.
11 Q. Di r ect i ng your at t ent i on t o t he upper r i ght - hand cor ner ,
12 under t he pr i mar y account number , what i s t he t ext t hat ' s
13 under neat h t hat ?
14 A. I t says Comput er Ai ded Sur ger y, I ncor por at ed, NI ST ATP DMT
15 Pr ogr am.
16 Q. And di r ect i ng your at t ent i on now t o t he same exhi bi t ,
17 Gover nment Exhi bi t 81, but now we ar e l ooki ng at t he next
18 st at ement per i od f r omJ ul y 23 t o August 21, 2002, page 3 of 4.
19 Do you have t hat page, Ms. Ri l ey?
20 A. Sor r y. What page?
21 Q. J ul y 23 t o August 21, 2002, t hat per i od st at ement ?
22 THE COURT: Wher e do I f i nd t he dat e?
23 MR. KWOK: I t ' s on t he upper r i ght - hand cor ner of
24 ever y page.
25 THE COURT: I see. J ul y what ?
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1 MR. KWOK: J ul y 23 t o August 21, 2002, t he st at ement
2 f or t hat account per i od.
3 THE COURT: J ust one second. So t hat ' s si x or ei ght
4 pages i n.
5 MR. KWOK: That ' s page 3 of 4. I t ' s t he page on t he
6 scr een.
7 THE COURT: J ul y 23, page - -
8 MR. KWOK: I t ' s act ual l y page 10 on t he bot t omof t he
9 page.
10 THE COURT: Page 10 at t he bot t omr i ght - hand cor ner ?
11 MR. KWOK: Of t he page, yes.
12 THE COURT: Of t hat st at ement .
13 MR. KWOK: Of t hat st at ement , cor r ect .
14 Q. Do you have t hat page, Ms. Ri l ey?
15 A. Yes.
16 Q. Di r ect i ng your at t ent i on t o t he wi t hdr awal and debi t s
17 por t i on of t hat page, what ar e you poi nt i ng at , Ms. Ri l ey?
18 A. Thi s shows t he payment on 7/ 31, t he el ect r oni c r emi t t ance
19 t o Amer i can Expr ess of $2, 940. 01. That cor r esponds t o t he
20 amount t hat we j ust l ooked at on t he Amer i can Expr ess
21 st at ement .
22 Q. So, i s t hat t he same or di f f er ent number t han t he one we
23 j ust l ooked at i n t he Amer i can Expr ess car d st at ement
24 Gover nment Exhi bi t 90?
25 A. I t ' s t he same number .
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1 THE COURT: Same account number .
2 THE WI TNESS: The payment .
3 THE COURT: Same - -
4 THE WI TNESS: - - payment .
5 Q. When you say same number , what number ar e you r ef er r i ng t o?
6 A. The same payment , t he J ul y 29 on t he Amer i can Expr ess bi l l
7 shows t hat t hey r ecei ved $2, 940. 01 f r omCASI , and t he bank
8 st at ement el ect r oni c r emi t t ance shows t hat t hi s bank account
9 pai d $2, 940. 01 t o Amer i can Expr ess.
11 Q. Now, Ms. Ri l ey, ot her t han summar i zi ng i nf or mat i on on your
12 dat abases, what el se di d you do i n your anal ysi s of t he bank
13 r ecor ds?
14 A. Cr eat ed char t s and gr aphs.
15 Q. I amshowi ng you what ' s been mar ked f or i dent i f i cat i on as
16 Gover nment Exhi bi t 112 and 113. They ar e not yet i n evi dence
17 but mar ked f or i dent i f i cat i on. Do you have t hat i n f r ont of
18 you, Ms. Ri l ey?
19 A. Yes, I do.
20 Q. Do you r ecogni ze what t hey ar e?
21 A. Yes.
22 Q. And what ar e t hey?
23 A. They ar e pi e char t s t hat I cr eat ed f r omt he bank st at ement s
24 of CASI .
25 Q. How di d you cr eat e t hese gr aphs?
( 212) 805- 0300
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1 A. I used t he i nf or mat i on t hat was i n Exhi bi t 110, t he bank
2 r ecor ds, t o cr eat e t hese gr aphs.
3 MR. KWOK: The gover nment of f er s Exhi bi t 112 and 113.
4 THE COURT: No obj ect i on?
6 THE COURT: 112 and 113 ar e admi t t ed i nt o evi dence.
8 evi dence)
9 Q. Now, l et ' s t ake t hemone at a t i me, Ms. Ri l ey. Let ' s go
10 f i r st t o Gover nment Exhi bi t 112. What gr aph i s t hat of ?
11 A. Thi s i s a gr aph of t he deposi t s i nt o t he CASI bank account s
12 f or t he per i od 10/ 1/ 2001 t hr ough 9/ 30/ 2002 whi ch i s t he f i r st
13 year of t he gr ant awar d.
14 Q. And what does t he pur pl e ar ea r epr esent ?
15 A. I t r epr esent s t he deposi t s i nt o t he account f or t he NI ST - -
16 f or t he gr ant money.
17 Q. Was t her e any ot her sour ce of f undi ng t hat ' s not f r omt he
18 ATP gr ant ?
19 A. Ther e wer e a coupl e of mi nor deposi t s, but t hey wer e r eal l y
20 cr edi t , r ef unds t o ot her account s, so t hey wer e used as
21 of f set s, not as deposi t s. They wer e r ef und checks.
22 Q. Now, l et ' s go t hr ough Gover nment Exhi bi t 113. Ms. Ri l ey,
23 what i s t hi s a gr aph of ?
24 A. The CASI busi ness account - - deposi t s i nt o t he CASI
25 busi ness account s f or t he per i od 10/ 1/ 2002 t hr ough 6/ 30/ 2003,
( 212) 805- 0300
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1 whi ch i s t he ni ne mont hs of t he second year of t he awar d.
2 Q. What does t he pur pl e ar ea of t he gr aph r epr esent ?
3 A. Deposi t s of gr ant moni es r ecei ved by CASI .
4 Q. And how about t hat l i ne t hat ' s br eaki ng up t he ci r cl e?
5 A. Thi s i s mi scel l aneous ot her deposi t s i nt o t he account .
6 Q. Ms. Ri l ey, di d you pr epar e any addi t i onal gr aphs asi de f r om
7 t hese ones t hat we j ust l ooked at ?
8 A. Yes.
9 Q. What di d you pr epar e?
10 THE COURT: What was t he amount of t hose ot her
11 deposi t s i nt o t he account ?
12 THE WI TNESS: The deposi t s f r omNI ST wer e $545, 000,
13 and t he mi scel l aneous deposi t s wer e l i ke 1200, 1500, somet hi ng
14 r eal l y smal l .
15 THE COURT: Sor r y.
16 Q. Ms. Ri l ey, asi de f r omt hese gr aphs, di d you cr eat e any
17 addi t i onal char t s and gr aphs?
18 A. Yes.
19 Q. What di d you pr epar e?
20 A. I anal yzed t he expendi t ur es f r omt he account s.
21 Q. I amshowi ng you what have been mar ked f or i dent i f i cat i on
22 as Gover nment ' s Exhi bi t s 114 and 115. Do you have t hose i n
23 f r ont of you?
24 A. Yes.
25 Q. Do you r ecogni ze what t hey ar e?
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1 A. Yes, t hey ar e t he pi e char t s t hat I cr eat ed f or t he
2 anal ysi s of t he expendi t ur es.
3 Q. And what document s di d you l ook at t o cr eat e t hese gr aphs
4 and char t s?
5 A. Cancel ed checks and Amer i can Expr ess st at ement s wer e t he
6 mai n sour ce document s used t o cr eat e t hese.
7 MR. KWOK: Gover nment of f er s Gover nment ' s Exhi bi t s 114
8 and 115.
10 THE COURT: 114 and 115 ar e admi t t ed i nt o evi dence.
12 evi dence)
13 MR. KWOK: May we publ i sh t hat t o t he j ur y?
14 THE COURT: You say t hese ar e expendi t ur es?
15 THE WI TNESS: Yes, si r . For 114 and 115 I di d
16 anal ysi s and expendi t ur es.
17 THE COURT: Fi r st f or t he year ended Oct ober 10, 2002?
18 THE WI TNESS: OK. And t hat i s because of t he
19 br eakdown f or t he f r i nge benef i t s f or check pai d t o I RS f or
20 wi t hhol di ngs or what ever , t he br eakdown I had f or check and
21 f r i nge benef i t s, I had an anal ysi s f or t he year pr epar ed by one
22 of t he account ant s t hat I coul d r econci l e t he number s - - t he
23 check payment s t hr ough Oct ober 10. So, i t doesn' t - -
24 THE COURT: 114 and 115 ar e admi t t ed i n evi dence.
25 Q. Now, Ms. Ri l ey l ooki ng f i r st at Gover nment Exhi bi t 114,
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1 what i s t he pi e char t at t he upper l ef t - hand cor ner ?
2 A. The upper l ef t - hand cor ner pi e char t i s j ust a br eakdown of
3 t he budget , t he NI ST budget , gr ant budget t o CASI , and i t has
4 t he budget cat egor i es by amount .
5 THE COURT: Whi ch budget ?
6 THE WI TNESS: For t he year one CASI / NI ST ATP budget .
7 THE COURT: Appr oved t he f i r st one or t he subsequent ?
8 THE WI TNESS: Amendment t o appr oved budget .
9 Q. So, st ayi ng wi t h t hat gr aph f or a second, j ust wal k us
10 t hr ough an exampl e, f or exampl e, what subcont r act or shows.
11 A. Subcont r act or shows t hat t he NI ST- appr oved budget had a
12 budget of $250, 000 f or subcont r act or cost s f or year one f or t he
13 NI ST ATP gr ant awar d.
14 Q. How about , f or exampl e, Dr . Kar r on' s sal ar y, accor di ng t o
15 t he appr oved budget ?
16 A. The appr oved budget had al l owed - - Dr . Kar r on' s sal ar y f or
17 t he appr oved budget was $175, 000.
18 MR. KWOK: OK. Now l et ' s zoomback out . Let ' s t ur n
19 t o t he upper r i ght - hand cor ner of t he char t . I f we coul d zoom
20 t hat i n.
21 Q. What i s t hi s char t ?
22 A. Thi s char t shows accor di ng t o t he checks. The checks ar e
23 t he Amer i can Expr ess t r ansact i ons f r omt he CASI busi ness
24 account . Thi s i s a br eakdown by t he budget cat egor i es of how
25 t he checks wer e wr i t t en.
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1 Q. OK. And what i s t he yel l ow ar ea of t hat char t ?
2 A. The yel l ow ar ea f or t he most par t i s what i s l i mi t ed by t he
3 budget cat egor y. I f i t was spent over budget , t hen t her e i s a
4 por t i on t hat ' s r ed and a por t i on t hat ' s yel l ow. I t ' s cost s
5 t hat ar e al l ocabl e t o t hose budget cat egor i es i n t he anal ysi s
6 of checks and Amer i can Expr ess t r ansact i ons. Li ke f or t he - -
7 Q. And what does t he r ed ar ea of t he gr aph r epr esent ?
8 A. The r ed ar ea r epr esent s cost s t hat wer e over budget s, t hat
9 wer e consi der ed i ndi r ect cost s and nonal l owabl e, l i ke dues and
10 subscr i pt i ons, l awyer s, and t he r ent pai d t o Dr . Kar r on, was
11 not al l owabl e per t he budget .
12 MR. KWOK: Let ' s zoomi t back out . Let ' s t ur n t o t he
13 bot t omr i ght - hand cor ner of t he page.
14 Q. What i s t hat t he char t of ?
15 A. Ther e i s a 10 per cent budget cat egor y adj ust ment t hat ' s
16 al l owed by NI ST ATP.
17 Q. What i s a 10 per cent adj ust ment ? Can you expl ai n t hat ?
18 A. 10 per cent of t he budget amount can be r eal l ocat ed f r omsay
19 subcont r act or cost s t o per sonnel expense, i f you have l ess
20 subcont r act or cost s t han you t hought .
21 So, t hi s i s t o show t hat $83, 000 whi ch coul d be
22 r eal l ocat ed bet ween t he budget cat egor y i f t hat ' s t he onl y
23 t hi ng t hat made somet hi ng unal l owabl e, but i t was over budget .
24 Q. Accor di ng t o t hi s char t , what i s t he t ot al of di sal l owabl e
25 amount f or year one of t he gr ant per i od?
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1 A. Thi s one shows $268, 638.
2 Q. Let ' s zoomi t back out , and l et ' s f ocus on t he t abl e f or
3 now. What does t he t abl e show?
4 A. The t abl e shows t he budget cat egor i es compar ed t o t he
5 amount of money spent by CASI , and t he di f f er ence bet ween what
6 CASI spent and what t he budget al l owed t o be spent , and t hen i t
7 shows t he per cent age di f f er ence.
8 Q. Can you wal k us t hr ough an exampl e of t hat .
9 A. Wel l , f or l i ke Dr . Kar r on' s sal ar y t he budget was $175, 000,
10 CASI spent $200, 000 f or year one, a di f f er ence of $25, 488, f or
11 a di f f er ence of 14. 56 per cent over .
12 Q. OK. Let ' s zoomi t back out . Let ' s go back t o t he upper
13 r i ght - hand cor ner por t i on of t he page, t he pi e char t wi t h t he
14 r ed. Does t hi s char t t ake i nt o account t he l ack of any cost
15 shar e t hat you t est i f i ed about yest er day?
16 A. No, i t doesn' t have cost shar e.
17 Q. What woul d t hi s char t have l ooked l i ke i f t hat i nf or mat i on
18 had been r ef l ect ed on t he char t ?
19 A. Some of t he r ed number s mi ght be yel l ow i f some of t he cost
20 shar e had been r ef l ect ed.
21 Q. I ' msor r y. Let me r ephr ase. I f you had i ncl uded i n your
22 char t t he absence of any cost shar e t hat you t est i f i ed about
23 yest er day, what woul d t hi s char t l ook l i ke?
24 A. I f I t ook i nt o consi der at i on t hat t her e was no cost shar e,
25 none of t he cost woul d be al l owabl e, and al l ot her cost s woul d
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1 be r ed.
2 Q. Let ' s go t o Gover nment Exhi bi t 115. What i s t hi s a char t
3 of ?
4 A. Thi s i s a char t of t he same t ype i nf or mat i on f or year t wo
5 of t he awar d, t he ni ne mont hs of year t wo.
6 Q. Let ' s go t o t he f i r st gr aph, t he upper l ef t - hand cor ner .
7 Agai n, what i nf or mat i on i s r ef l ect ed on t hi s char t ?
8 A. Thi s i s t he expendi t ur es by budget cat egor y i n t he NI ST
9 budget awar d.
10 Q. So, usi ng subcont r act or as an exampl e, what i s budget ed f or
11 year t wo?
12 A. $110, 000.
13 Q. Let ' s go t o t he f ul l page, t o t he upper r i ght - hand cor ner .
14 And once agai n, what i s t hi s a char t of f or year t wo?
15 A. Thi s i s t he expendi t ur es f r omt he CASI NI ST account s br oken
16 down by budget cat egor y, f r omt he check account s and t he
17 Amer i can Expr ess account s.
18 Q. What i s r epr esent ed by t he r ed por t i on?
19 A. The r ed por t i on woul d be cost s t hat woul d be over t he
20 budget cat egor y or maybe not al l owabl e because t hey ar e
21 i ndi r ect cost s.
22 Q. What ar e some of t hose exampl es?
23 A. The equi pment cost over budget her e of $90, 169, suppl y
24 cost s over budget of $8, 800.
25 Q. Let ' s zoomi t back out and l ook at t he char t t o t he bot t om
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1 r i ght . What i s t he t ot al di sal l owed expense t hat you f ound f or
2 year t wo?
3 A. Accor di ng t o t hi s anal ysi s, i t woul d be $196, 504.
4 Q. Once agai n, what i s t hat l i t t l e por t i on t hat ' s a l i t t l e of f
5 t o t he si de?
6 A. I t ' s al l owed, t he 10 per cent r ul e t hat you can al l ow,
7 al l owi ng f or 10 per cent adj ust ment t o t he budget cat egor i es,
8 t her e woul d st i l l be - - t her e woul d onl y be 50, 000 of t he
9 196, 000 t hat woul d be OK.
10 THE COURT: So wi t h t he adj ust ment i t woul d be
11 $146, 017.
13 Q. Now, Ms. Ri l ey, l et ' s go t o what ' s been mar ked f or - -
14 act ual l y what i s al r eady i n evi dence as Gover nment Exhi bi t 101.
15 Do you have t hat document i n f r ont of you?
16 A. 101?
17 Q. That ' s cor r ect .
18 MR. KWOK: I t ' s Gover nment Exhi bi t 101, your Honor .
19 Q. Do you have t hat document ?
20 A. Yes.
21 Q. Do you r ecogni ze i t ?
22 A. Yes, i t ' s t he Homef r ont Har dwar e i nvoi ce.
23 Q. And di d you anal yze t hi s document i n t he cour se of your
24 anal ysi s?
25 A. Yes.
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1 Q. Wer e you abl e t o det er mi ne how t he bal ances r ef l ect ed on
2 t hese i nvoi ces wer e pai d f or ?
3 A. Yes. They wer e pai d f or f r omt he CASI / NI ST bank account ,
4 or Amer i can Expr ess or except f or one t r ansact i on f or $301 t hat
5 was pai d f r omDr . Kar r on' s per sonal cr edi t car d account .
6 Q. Asi de f r omt hat , wer e t her e any i nvoi ces pai d f or f r omDr .
7 Kar r on' s per sonal account ?
8 A. Yes, one f or $301.
9 Q. Asi de f r omt hat , i s t her e anyt hi ng el se?
10 A. No, t he r est of t hemwer e pai d f or f r omt he CASI / NI ST
11 account .
12 Q. And how wer e you abl e t o make t hat det er mi nat i on?
13 A. I t r aced t he payment back t o my dat abase of check payment s,
14 back t o t he bank st at ement s, t o t he cancel ed checks, or t o t he
15 Amer i can Expr ess st at ement t hat pai d t hem.
16 MR. KWOK: Your Honor , at t hi s t i me t he gover nment
17 woul d l i ke t o r ead i nt o t he r ecor d anot her st i pul at i on mar ked
18 f or i dent i f i cat i on as Gover nment Exhi bi t 901.
19 THE COURT: Yes.
20 MR. KWOK: Uni t ed St at es of Amer i ca v. Dani el B.
21 Kar r on, def endant , S1 07 Cr i m. 541.
22 " I t i s her eby st i pul at ed and agr eed by and among t he
23 Uni t ed St at es of Amer i ca, by Mi chael J . Gar ci a, t he Uni t ed
24 St at es at t or ney f or t he Sout her n Di st r i ct of New Yor k, St eve
25 Kwok and Chr i st i an Ever del l , assi st ant Uni t ed St at es at t or neys,
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1 of counsel , and def endant Dani el B. Kar r on, by and wi t h t he
2 consent of hi s at t or ney, Ronal d Rubi nst ei n, Esq. t hat :
3 " 1. The document mar ked f or i dent i f i cat i on as
4 Gover nment Exhi bi t 120 i s an i nvent or y of i t ems sei zed on or
5 about J une 26, 2007 f r om300 East 33r d St r eet , Apar t ment 4N,
6 New Yor k, New Yor k, pur suant t o a sei zur e war r ant i ssued by t he
7 Honor abl e Dougl as F. Eat on, Uni t ed St at es magi st r at e j udge of
8 t he Sout her n Di st r i ct of New Yor k.
9 " 2. The i t emmar ked f or i dent i f i cat i on as Gover nment
10 Exhi bi t 112 cor r esponds t o i t em79, GPS syst em, i dent i f i ed i n
13 Exhi bi t 122 cor r esponds t o i t em20, Sony Cyber shot camer a
14 DSC- F707, i dent i f i ed i n Gover nment Exhi bi t 120.
16 Exhi bi t 123 cor r esponds t o i t em23, I nf ocus LCD pr oj ect or wi t h
17 mount , i dent i f i ed i n Gover nment Exhi bi t 120.
19 Exhi bi t 124 cor r esponds t o i t em18, pr oj ect or scr een,
20 i dent i f i ed i n Gover nment Exhi bi t 120.
22 Exhi bi t 125 cor r esponds t o i t em75, shoe r ack, i dent i f i ed i n
25 Exhi bi t 126 cor r esponds t o i t em37, Ki t chen Cl assi cs bl ender by
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1 War i ng, i dent i f i ed i n Gover nment Exhi bi t 120.
3 Exhi bi t 127 cor r esponds t o i t em46, Lar ge STABI LA bubbl e l evel ,
6 Exhi bi t 128 cor r esponds t o i t em36, Dust Bust er , i dent i f i ed i n
9 Exhi bi t 129 cor r esponds t o i t em82, f ol di ng l adder , i dent i f i ed
10 i n Gover nment Exhi bi t 120.
12 Exhi bi t 130 cor r esponds t o i t em41, Por t er cabl e r echar geabl e
13 t ool set , i dent i f i ed i n Gover nment Exhi bi t 120.
15 Exhi bi t 131 cor r esponds t o i t ems 38 and 39, Por t er cabl e Ti ger
16 Saw qui ckchar ge and t wo bat t er i es and char ger f or i t em38,
18 " 13. The i t ems mar ked f or i dent i f i cat i on as
19 Gover nment Exhi bi t 132 cor r espond t o i t ems 42 and 74, set of
20 t hr ee r echar geabl e f l ashl i ght s wi t h char ger s, and set of t wo
21 r echar geabl e f l ashl i ght s wi t h char ger s, i dent i f i ed i n
23 " I t i s f ur t her st i pul at ed and agr eed t hat Gover nment
24 Exhi bi t s 120 and 121, 122, 123, 124, 125, 126, 127, 128, 129,
25 130, 131, 132 may be r ecei ved i n evi dence as Gover nment ' s
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1 Exhi bi t s at t r i al . "
2 Si gned and dat ed, si gned on behal f of t he Uni t ed
3 St at es by St eve Kwok, and on behal f of Dani el B. Kar r on by
4 Ronal d Rubi nst ei n, Esqui r e.
5 MR. RUBI NSTEI N: What was t hat exhi bi t , si r ?
6 MR. KWOK: I t ' s mar ked f or i dent i f i cat i on as
8 THE COURT: That ' s t he st i pul at i on number ?
10 THE COURT: Wel l , I wi l l have t o have t he st i pul at i on,
11 a copy of t he st i pul at i on, t o r ead of f t he exhi bi t s.
12 Oh, I see i t .
13 Al l r i ght . Exhi bi t s 120, 121, 122, 123, 124, 125,
14 126, 127, 128, 129, 130, 131 and 132 ar e r ecei ved i n evi dence.
15 And Exhi bi t 901 i s r ecei ved i n evi dence.
16 ( Gover nment ' s Exhi bi t s 120, 121, 122, 123, 124 and 125
17 r ecei ved i n evi dence)
18 ( Gover nment ' s Exhi bi t s 126, 127, 128, 129, 130, 131
19 and 132 r ecei ved i n evi dence)
21 MR. KWOK: Your Honor , may we publ i sh t hese i t ems t o
22 t he j ur y?
24 MR. KWOK: Your Honor , may I go t hr ough t he i t ems one
25 by one, j ust r ead of f t he exhi bi t number ?
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2 MR. KWOK: Gover nment Exhi bi t 120, Gover nment Exhi bi t
3 122.
4 MR. RUBI NSTEI N: Can I see t hat when you hol d i t up,
5 pl ease, Mr . Kwok?
6 MR. KWOK: Gover nment Exhi bi t 123. Gover nment Exhi bi t
7 124 i s t he scr een on t he f l oor . Gover nment Exhi bi t 125.
8 Gover nment Exhi bi t 126. Gover nment Exhi bi t 127. Gover nment
9 Exhi bi t 128. Gover nment Exhi bi t 129. Gover nment Exhi bi t 130.
10 MR. RUBI NSTEI N: Can I see t hat , pl ease?
11 MR. KWOK: Gover nment Exhi bi t 131 and Gover nment
12 Exhi bi t 132.
13 BY MR. KWOK:
14 Q. Ms. Ri l ey, di d you r evi ew addi t i onal i nvoi ces i n t he cour se
15 of your anal ysi s?
16 A. Yes.
17 Q. I amshowi ng you a document al r eady i n evi dence as
18 Gover nment Exhi bi t 120A. Do you r ecogni ze what ' s al r eady i n
19 evi dence as Gover nment Exhi bi t 120A, Ms. Ri l ey?
20 A. Yes, i t ' s an i nvoi ce f or Si l i con Ci t y.
21 Q. How ar e you abl e t o r ecogni ze i t ?
22 A. The company name i s at t he t op, and I have i ni t i al ed at t he
23 bot t omt hat I have seen i t .
24 Q. Now l et ' s st ar t wi t h t he f i r st page. What i s t he i t em
25 shown on t he f i r st page of t hat i nvoi ce?
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1 A. A t en f oot scr een f or $2, 315. 50.
2 Q. And what i s t he t ot al amount of t hat i nvoi ce?
3 A. $2, 583. 05.
4 Q. And what i s at t he bot t ompor t i on of t hat page?
5 A. At t he bot t om?
6 Q. That ' s cor r ect .
7 A. I t ' s Comput er Ai ded Sur ger y, NI ST ATP DMT Pr ogr amcheck
8 number 10220 pai d i n t he amount of $2, 583. 05.
9 Q. And what i s t he check number agai n f or t hat check?
10 A. 10220.
11 Q. Ms. Ri l ey, I amshowi ng you a page f r omGover nment Exhi bi t
12 81.
13 THE COURT: What account was t hat on?
14 MR. KWOK: Sor r y, your Honor .
15 THE COURT: 10220, what account i s i t dr awn on?
16 THE WI TNESS: I t ' s shown on t he bot t omof t he page of
17 t he i nvoi ce.
18 THE COURT: What account was i t dr awn on?
19 THE WI TNESS: Fr omt he Comput er Ai ded Sur ger y NI ST ATP
20 DMT Pr ogr amaccount .
21 Q. I amshowi ng you a page f r omGover nment Exhi bi t 81. I t ' s
22 al r eady i n evi dence and i s mar ked as page 23 at t he bot t om
23 r i ght - hand cor ner of t he j ur y bi nder s. I f we coul d put t hat up
24 on t he scr een, page 23 of t he Chase st at ement s.
25 THE COURT: I ' msor r y. I l ost t r ack. What ' s t he
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1 exhi bi t number ?
2 MR. KWOK: I t ' s Gover nment Exhi bi t 81, your Honor .
3 THE COURT: Thank you.
4 MR. KWOK: And t he bot t omi s page 23 of t he j ur y
5 bi nder s.
6 Q. Do you have t hat page, Ms. Ri l ey?
7 A. Yes.
8 Q. Can you show us wher e check 10220 appear s on t hat page?
9 A. On t he bank st at ement i t appear s her e dat ed 6/ 07/ 2002 and
10 i t ' s i n t he amount of $2, 583. 05.
11 Q. Now st ayi ng on t he same page, f ocusi ng your at t ent i on t o
12 t he upper r i ght - hand cor ner por t i on of t he page, under neat h
13 pr i mar y account number , what does t hat say?
14 A. Comput er Ai ded Sur ger y I nc. , NI ST ATP DMT pr ogr am.
15 Q. Now l et ' s go back t o Gover nment Exhi bi t 120A, t he second
16 page. What ar e t he i t ems shown on t hat i nvoi ce?
17 A. A pr oj ect or and a l amp.
18 Q. And how much f or ei t her of t hose i t ems?
19 A. For $3, 482. 72.
20 MR. RUBI NSTEI N: I di dn' t hear .
21 A. 3, 482. 72.
22 THE COURT: Whi ch exhi bi t i s on t he boar d?
23 MR. KWOK: Exhi bi t 120A i s on t he boar d, your Honor ,
24 page 2.
25 Q. What i s t he shi ppi ng cost ?
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1 A. $35.
2 Q. And what i s t he amount mi nus t he shi ppi ng cost ?
3 A. The t ot al amount i s $3, 482. 72 wi t hout t he shi ppi ng cost .
4 Q. And l et ' s l ook at t he bot t ompor t i on of t he same page. I
5 amst i l l st ayi ng wi t h Gover nment Exhi bi t 120A, page 2. What i s
6 r ef l ect ed on t he bot t ompor t i on of t hat page?
7 A. OK. The f i r st Comput er Ai ded Sur ger y, I nc. name, check
8 number 10127, of $35 pays t he shi ppi ng, t he $35 shi ppi ng. And
9 t he next check number 10114 f or $3, 482. 72 on 3/ 29/ 2002 pays f or
10 t he pr oj ect or and t he l amp.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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1 Q. And can you r ead of f t he check number s once agai n?
2 A. 10114 and 10127.
3 Q. Now, l et ' s go back t o gover nment exhi bi t 81 now, whi ch i s
4 t he Chase Bank account st at ement s. Di r ect i ng your at t ent i on t o
5 page 19 of t he j ur y bi nder s, do you have t hat check?
6 A. Yes, on t he bank st at ement . On check number 10114 dat ed
7 4/ 11, f or $3, 482. 72.
8 Q. Now about f or check number 10127?
9 A. 10127 i s f or $35, and i t i s al so on 4/ 11.
10 Q. Let ' s zoomout on t hat page. And once agai n di r ect i ng your
11 at t ent i on t o t he upper r i ght - hand cor ner of t he page, what does
12 t hat say?
13 A. I t ' s f or t he checki ng account Comput er Ai ded Sur ger y
14 I ncor por at ed, NI ST ATP DMT pr ogr amaccount .
15 Q. Do you know what NI ST ATP DMT st ands f or ?
16 A. Nat i onal I nst i t ut e of St andar ds and Technol ogy, Advanced
17 Technol ogy Pr ogr am, Di gi t al Mor se Theor y.
18 MR. RUBI NSTEI N: J udge, I can' t hear her .
19 A. I ' msor r y.
20 MR. RUBI NSTEI N: I don' t know i f anybody el se i s
21 havi ng a pr obl em, but she dr ops her voi ce.
22 THE COURT: J ust - -
24 THE COURT: Don' t be shy, j ust speak up.
25 THE WI TNESS: Nat i onal I nst i t ut e of St andar ds and
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1 Technol ogy, and Advanced Technol ogy Pr ogr am, Di gi t al Mor se
2 Theor y.
3 Q. Thank you, Ms. Ri l ey. I f you coul d keep your voi ce up.
4 Let ' s go back t o t he i nvoi ces, gover nment Exhi bi t
5 120A, page t hr ee. Can we zoomi n on t he t op of t hat page.
6 What i t emi s r ef l ect ed on t hi s i nvoi ce?
7 A. A Gar mi n St r eet Pi l ot , a GPS.
8 Q. How much i s t hat ?
9 A. For $979. 99.
10 Q. How about i ncl udi ng shi ppi ng and t axes?
11 A. $25 shi ppi ng, i t ' s $1, 004. 99.
12 Q. And what appear s on t he bot t omof t hat page? Let ' s zoomi t
13 back out .
14 A. That , t hat i t i t was pai d wi t h - - f r omt he Comput er Ai ded
15 Sur ger y NI ST ATP DMT pr ogr amaccount , check number 10598 f or
16 1, 004. 99 on 11/ 11, 2002.
17 Q. Let ' s go back now t o gover nment exhi bi t 81, whi ch i s agai n
18 t he Chase Bank st at ement s f or t he CASI account , page 25 of t he
19 j ur y bi nder s.
20 THE COURT: I don' t - - page 25 i n t he j ur y bi nder ?
22 THE COURT: What ' s t he exhi bi t number ?
23 MR. KWOK: Exhi bi t number 81, your Honor .
24 THE COURT: And what page of 81?
25 MR. KWOK: I t ' s page 25 of t he j ur y bi nder s on t he
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1 bot t omof t he page.
2 THE COURT: Page 25 of t hat exhi bi t ?
3 MR. KWOK: That ' s cor r ect .
5 Q. Do you see t hat check on t hi s page, Ms. Ri l ey?
6 A. Yes. Check 10598 f or on 11/ 25 f or $1, 004. 99.
7 Q. Now, l et ' s go back t o t he i nvoi ce gover nment , Exhi bi t 120A,
8 t he l ast page. What i t ems ar e shown on t hi s i nvoi ce,
9 Ms. Ri l ey?
10 A. Okay. Thi s i nvoi ce t o Dat avi si on has a di gi t al camer a wi t h
11 accessor i es.
12 Q. And how much al t oget her f or t hose i t ems?
13 A. $1, 519. 95
14 Q. And whose handwr i t i ng i s t hat on t he bot t omof t he page, i f
15 we coul d show t hat ?
16 A. Okay. I t ' s my handwr i t i ng. I t says HBR. I t ' s sayi ng t hat
17 t he Amer i can Expr ess t r ansact i on was on 9/ 20 of ' 02.
18 Q. And how much i s t hat t r ansact i on?
19 A. Amer i can Expr ess i s goi ng t o be - - $1, 519. 95.
20 Q. Okay. Now di r ect i ng your at t ent i on now t o gover nment
21 exhi bi t 90, 90, l ooki ng at t he st at ement , t he cl osi ng dat e?
22 THE COURT: Hol d on a second.
23 MR. KWOK: Gover nment exhi bi t 90, your Honor ?
24 THE COURT: I have t o swi t ch books her e. Al l r i ght
25 exhi bi t 90. What page?
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1 MR. KWOK: I ' mshowi ng you - - what page i s t hat , ?
2 I t ' s page f i ve of ei ght , exhi bi t 90.
3 THE DEPUTY CLERK: Fi ve of ei ght ?
4 MR. KWOK: Exhi bi t 90. I ' ml ooki ng at t he st at ement
5 wi t h cl osi ng dat e of Oct ober 8t h, 2002, page f i ve of ei ght .
7 Q. Okay. Ms. Ri l ey, di r ect i ng your at t ent i on t o Sept ember
8 20t h, 2002.
9 A. Ther e i s an Amer i can expr ess t r ansact i on t o Dat avi si on f or
10 $1, 519. 95.
11 Q. I s t hat t he same amount or di f f er ent f r omt he amount we
12 l ooked at i n gover nment exhi bi t 120A, t he i nvoi ce j ust now?
13 A. I t ' s t he same amount .
14 Q. And st i l l l ooki ng at t hat page, st i l l gover nment exhi bi t
15 90 - -
16 THE COURT: Let me j ust see - - I ' msor r y, I mi ssed her
17 expl anat i on.
18 Q. Ms. Ri l ey, can you - -
19 THE COURT: I have t he wr ong page up now. Let ' s see
20 wher e we ar e. Thi s i s what page? I have f i ve of ei ght . What
21 page shoul d I be on?
22 MR. KWOK: I t ' s page f i ve of ei ght f or t he st at ement
23 wi t h cl osi ng dat e Oct ober 8, 2002.
24 THE COURT: I don' t have t hat . That ' s not - -
25 MR. KWOK: We coul d hand up an ext r a copy.
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568
1 THE COURT: Ther e i s mor e t han 1 f i ve of ei ght . Al l
2 r i ght , okay. Go ahead.
4 Q. Di r ect i ng your at t ent i on agai n, Ms. Ri l ey, t o Sept ember
5 20t h, 2002, what does t hat show?
6 A. The Amer i can Expr ess shows t he t r ansact i on payment t o
7 Dat avi si on of $1, 519. 95.
8 Q. And how does t hat amount compar e t o t he amount we j ust
9 l ooked at i n gover nment exhi bi t 120A?
10 A. I t ' s t he same amount t hat ' s on t he i nvoi ce t o Dat avi si on.
11 Q. And st i l l st ayi ng wi t h t hat page, gover nment exhi bi t 90,
12 page f i ve of ei ght , what i s t he sect i on headi ng j ust above t hat
13 l i st of t r ansact i ons?
14 A. Oh, Expo t r ansact i ons f or Dr . D. B. Kar r on.
15 MR. KWOK: One moment , your Honor .
16 THE COURT: Thi s i s an Amer i can Expr ess char ge?
18 THE COURT: We don' t have how i t ' s pai d f or yet , do
19 we?
20 MR. KWOK: I ' msor r y?
21 THE WI TNESS: Thi s i s - -
22 THE COURT: We don' t know how t he cr edi t , t he Amer i can
23 Expr ess car d cr edi t account was pai d f or , do we?
24 MR. KWOK: Okay.
25 Q. Ms. Ri l ey, can you show us how t hat out st andi ng cr edi t car d
( 212) 805- 0300
569
1 bal ance i s pai d f or .
2 A. Okay, l et ' s see. Okay, i t shoul d show up i n t he - - next
3 mont h' s payment s.
4 Q. Can I di r ect your at t ent i on t o gover nment exhi bi t 110, t he
5 dat a base?
6 A. Yes.
7 ( Pause)
8 Q. Di r ect i ng your at t ent i on t o page, gover nment exhi bi t 110,
9 page t hr ee of 37. What i nf or mat i on i s r ef l ect ed f or Oct ober
10 18t h, 2002?
11 A. That an Amer i can expr ess el ect r oni c r emi t t ance $5, 736. 51.
12 THE COURT: Fr omwhat account ?
13 THE WI TNESS: Fr omt he CASI busi ness account , or t he
14 busi ness account s f r omt he CASI bank.
15 THE COURT: CASI busi ness, what account ? You sai d
16 t her e wer e mor e t han one, di dn' t you?
17 THE WI TNESS: Yes. I t ' s f r omt he - - t hi s r epor t
18 doesn' t i dent i f y i t .
20 THE WI TNESS: Thi s r epor t doesn' t i dent i f y t he
21 speci f i c account , but i n my - - I have a not e i n my dat a base, I
22 know whi ch one i t ' s f r om. I t ' s f r omt he - - i t ' s f r omone of
23 t he CASI busi ness account s.
24 Q. And how i s t hi s account f unded, Ms. Ri l ey?
25 A. Fr omt he NI ST deposi t s.
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1 Q. Does i t have any sour ce of f undi ng f r omanywher e el se?
2 A. J ust a smal l - - a smal l a mi scel l aneous, smal l amount f r om
3 somewher e el se.
4 MR. KWOK: No f ur t her quest i ons, your Honor .
6 MR. RUBI NSTEI N: Good t i me t o t ake a l i t t l e r ecess.
7 THE COURT: Let ' s t ake t he mor ni ng br eak and come
8 back.
9 ( Recess)
10 THE COURT: Al l r i ght , l et ' s br i ng i n t he j ur y. I s
11 Dr . Kar r on her e? You want t o cal l Dr . Kar r on? No one' s goi ng
12 t o go out af t er hi m?
13 MR. RUBI NSTEI N: Aye aye, si r .
14 THE COURT: You got an assi st ant .
15 MR. RUBI NSTEI N: He' s doi ng somet hi ng el se, J udge.
16 THE COURT: He has no aut hor i t y.
17 MR. RUBI NSTEI N: He' s not admi t t ed t o t he Ci r cui t ,
18 J udge.
20 THE COURT: Al l r i ght , pl ease be seat ed.
22
23
24
25
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571
865zkar 3
1 THE COURT: Mr . Rubi nst ei n, cr oss- exami nat i on.
2 CROSS EXAMI NATI ON
4 MR. RUBI NSTEI N: Thank you, your Honor .
5 Q. Good mor ni ng, Ms. Ri l ey.
6 A. Good mor ni ng.
7 Q. Now, you ar e wor ki ng f or t he OI G' s of f i ce?
8 A. Yes, si r .
9 Q. And how l ong have you - - ar e you wor ki ng t her e?
10 A. Si nce J une of ' 97.
11 Q. And pr i or t o t hat , you wer e an I nt er nal Revenue Agent ?
12 A. Yes, I RS.
13 Q. I RS?
14 A. Yes.
15 Q. And how l ong wer e you wi t h I RS?
16 A. Fr om' 86 t o ' 97.
17 Q. Now, di d you do f i el d audi t s or - -
18 A. Yes.
19 Q. - - wor k i nsi de?
20 A. Fi el d audi t s.
21 Q. And when di d you meet peopl e f r omt he f eder al gover nment on
22 t hi s case f or t he f i r st t i me, I mean peopl e at t he pr osecut i on
23 t abl e her e, f i r st t i me?
24 THE COURT: Ar e you r ef er r i ng t o - - one per son' s f r om
25 t he agency, Mr - - ar e you r ef er r i ng t o her ?
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865zkar 3 RI LEY - CROSS
1 MR. RUBI NSTEI N: Wel l , l et ' s st ar t wi t h her .
2 Q. Do you know t he l ady seat ed i n t he mi ddl e?
3 A. Yes.
4 Q. And who i s she?
5 A. Rachel Ondr i k.
6 Q. And t he gent l eman at t he end?
7 A. Ki r k Yamat ani .
8 Q. And on t hi s case i n deal i ng wi t h t hi s ATP gr ant t o CASI ,
9 when di d you meet ei t her or bot h of t hemf or t he f i r st t i me?
10 A. I don' t - - I don' t - - I ' mnot sur e.
11 Q. Was i t i n t he year 2003?
12 A. I ' mnot sur e i f i t was 2003, 2004.
13 Q. Was i t i n 2008?
14 THE COURT: She sai d she was not sur e whet her i t was
15 2003 or 2004.
16 Q. Wel l , do you have anyt hi ng t hat coul d r ef r esh your
17 r ecol l ect i on as t o when you met t hese peopl e f or t he f i r st
18 t i me?
19 A. For t hi s case, I don' t know - - I ' mnot sur e - - I ' mnot sur e
20 when t hat woul d be.
21 Q. Al l r i ght . When i s t he - - bef or e you came her e t o
22 t est i f y - - you' r e f r omanot her st at e, cor r ect ?
23 A. Yeah, I ' mf r omAt l ant a, At l ant a r egi on.
24 Q. Okay, f r omt he At l ant a r egi on. When di d you come her e t o
25 t est i f y on t hi s case?
( 212) 805- 0300
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1 A. For t hi s?
2 Q. Yeah.
3 A. I came - - you mean f or t hi s week f or t he t r i al or - -
4 Q. No. When di d you come f r omAt l ant a, Geor gi a, r i ght ;
5 At l ant a, Geor gi a, r i ght ?
6 A. For t he t r i al , I came Monday.
7 Q. Bef or e you came Monday, wer e you her e i n pr epar at i on f or
8 your t est i mony on t hi s t r i al ?
9 A. Yes.
10 Q. And when di d you come f or t he f i r st t i me f or your
11 pr epar at i on f or t hi s t r i al ?
12 A. That I ' d have t o l ook back. I ' mnot sur e.
13 Q. Wel l , was i t a mont h ago, t wo weeks ago?
14 A. For pr epar at i on f or t he t r i al , i t woul d' ve pr obabl y been
15 maybe t he end of Apr i l .
16 Q. And you st ayed; you di dn' t commut e back and f or t h t o
17 At l ant a, Geor gi a, cor r ect ? Di d you commut e back and f or t h
18 whi l e you wer e pr epar i ng f or t hi s t r i al ?
19 A. Yes.
20 Q. And how l ong di d you st ay when you came somet i me i n Apr i l ?
21 A. For a day.
22 Q. And t hen you woul d go back?
23 A. Yes.
24 Q. And t hen you woul d come back agai n?
25 A. Yes.
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1 Q. For anot her day?
2 A. Yes.
3 Q. About how many t r i ps, day t r i ps di d you make, ma' am?
4 A. I t hi nk maybe t hr ee.
5 Q. And di d you have t el ephone cont act wi t h ei t her t he agent
6 t hat you poi nt ed - - t he agent s you poi nt ed out or anybody i n
7 t he U. S. At t or ney' s Of f i ce?
8 THE COURT: When?
9 Q. Bet ween Apr i l when you st ar t ed comi ng her e?
10 A. Yes.
11 Q. And how of t en woul d you have cont act ?
12 A. Wel l , Ki r k and Rachel wor k i n t he same of f i ce I do.
13 Q. Okay. So you woul d see t hemi n At l ant a?
14 A. I f we al l happened t o be i n t hat day.
15 Q. Wel l , di d you have an i nt er vi ew wi t h t hem, wi t h Ki r k and
16 Rachel on Apr i l 22nd, 2008?
17 A. I coul d have. I ' m- -
18 Q. Wel l , woul d meet wi t h you i n At l ant a, Geor gi a or woul d t hey
19 meet wi t h you her e i n New Yor k?
20 A. For t r i al pr ep?
21 Q. For t r i al pr ep.
22 A. I t woul d - - i t - -
23 THE COURT: What was your answer ?
24 A. For - - how do we def i ne t r i al pr ep? I mean, I can meet at
25 ei t her - - I mean f or t r i al pr ep, I woul d come up and meet wi t h
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1 St eve.
2 Q. Mr . Kwok, t he Assi st ant U. S. At t or ney, cor r ect ?
3 A. Yes.
4 Q. When you met wi t h Rachel di d you - -
5 MR. RUBI NSTEI N: Let me j ust appr oach t he Gover nment
6 f or a moment , your Honor .
7 Q. When di d you meet Mr . Kwok f or t he f i r st t i me?
8 A. I ' mnot sur e.
9 Q. Was i t pr i or t o 2008?
10 A. Pr i or t o 2000 - - I ' mnot sur e when I met hi m.
11 Q. Now, you, as member of t he Of f i ce of t he I nspect or Gener al ,
12 you' r e i n t he ci vi l por t i on of t hat of f i ce, cor r ect ?
13 A. I ' mi n t he audi t por t i on of t hat of f i ce.
14 Q. And i s t hat ci vi l or cr i mi nal end?
15 A. Nei t her . I t ' s - - I do - - I nor mal l y do audi t s.
16 Q. And t he t wo agent s her e ar e?
17 A. I nvest i gat or s.
18 Q. I nvest i gat or s. I n t he cr i mi nal di vi si on?
19 A. Yes - - wel l , what ever , ci vi l or cr i mi nal .
20 THE COURT: I s t her e a cr i mi nal di vi si on and ci vi l
21 di vi si on?
22 THE WI TNESS: No, no. Ther e' s onl y - - t her e' s - - t hey
23 handl e - - I t hi nk - - I under st and t hey handl e bot h.
24 Q. You under st and t hey' r e cal l ed speci al agent s, cor r ect ?
25 A. Yes.
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576
1 Q. So you under st and t hat t hey have t he power t o ar r est
2 peopl e, cor r ect ?
3 A. Yes.
4 Q. Now, I asked you yest er day on t he voi r di r e i f you had any
5 document s t hat you used i n pr epar i ng your r epor t i n J ul y of
6 2003, t he f i r st r epor t t hat you pr epar ed her e?
7 A. Yes.
8 Q. And di d you have any document s?
9 A. Yes.
10 Q. Di d you r evi ew t hose document s bet ween yest er day and t oday?
11 A. Yes.
12 Q. Do you have t hemwi t h you?
13 A. Um, I - - my comput er . I don' t have a pr i nt ed copy of t hem.
14 Q. Wel l , di d you pr i nt a copy out i n 2003, i n J une or J ul y of ,
15 or August of 2003, whi l e you wer e pr epar i ng your f i r st audi t ?
16 A. I had pr i nt ed copi es of t he document s. Yes, I got pr i nt ed
17 copi es of t he document s somewher e.
18 THE COURT: On t he comput er , t he comput er document s;
19 i s t hat what you' r e sayi ng? Or ar e you t al ki ng about t he
20 document s you - - any document s you i nspect ed at t he of f i ces of
21 CASI ?
22 THE WI TNESS: I ' ve got ei t her - - some of t he document s
23 I have ar e comput er document s and some of t he document s I have
24 have been pr i nt ed.
25 THE COURT: By?
( 212) 805- 0300
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1 THE WI TNESS: By - - I don' t know i f i t was by me or by
2 CASI , I mean because i t was 2003.
3 THE COURT: Wer e t hey pr i nt ed by comput er - - out of
4 t he comput er ?
5 THE WI TNESS: They wer e pr i nt ed, and I had comput er
6 r ecor ds t hat wer e pr ovi ded by CASI , copi es of some comput er
7 r ecor ds and some of t hemwer e pr i nt ed and some of t hemwer e
8 not .
9 THE COURT: So some of t hemwer e pr i nt ed of f CASI ' s
10 comput er ?
11 THE WI TNESS: Possi bl y some.
12 THE COURT: Some wer e pr i nt ed of f your comput er ?
13 THE WI TNESS: Possi bl y, yes.
14 THE COURT: Wel l , not possi bl y.
16 THE COURT: Yes or no?
17 THE WI TNESS: Yes, yes. I t coul d be at t he - - i t
18 coul d be ei t her one. I mean - -
19 THE COURT: I ' m- - not possi bl y. Yes or no.
20 THE WI TNESS: Of f t he t op of my head, I don' t r emember
21 whi ch document s wer e pr i nt ed and gi ven t o me or whi ch document s
22 I got back t o At l ant a.
23 THE COURT: They wer e ei t her pr i nt ed - -
25 THE COURT: - - of f t he CASI ' s comput er - -
( 212) 805- 0300
578
2 THE COURT: Or of f your s?
3 THE WI TNESS: Or me.
5 MR. KWOK: Coul d we have a si debar , your Honor ?
6 THE COURT: No, you can not .
8 Q. Now, so you di d have what ' s cal l ed t he har d copi es of i t ems
9 t hat wer e on t he comput er , cor r ect ?
10 A. Some of - -
11 THE COURT: She' s answer ed t hat .
12 A. Yes.
13 Q. And wher e ar e t hose har d copi es t hat you obt ai ned i n t he
14 summer of 2003?
15 A. They' r e i n t he audi t f i l e.
16 Q. And wher e i s t he audi t f i l e?
17 A. Her e.
18 Q. Al l r i ght . And have you t ur ned t hat over t o t he
19 Pr osecut or ?
20 A. The audi t f i l e?
21 Q. Ri ght .
22 A. I pr ovi ded copi es of t he document s t hat we had f r omCASI t o
23 hi m.
24 Q. And i t ' s f ai r t o say you di d not have a gener al l edger ,
25 cor r ect ?
( 212) 805- 0300
579
1 A. I had what ever document s t hat CASI - - I guess i t depends
2 how you' r e def i ni ng gener al l edger t her e. The t hi ng t hat
3 t hat - -
4 Q. You' r e sayi ng - -
5 THE COURT: Let t er her f i ni sh her answer .
6 A. The number , t he number s t hat - - t he number t hat you' r e
7 r ef er r i ng t o came f r omt he books and r ecor ds pr ovi ded t o me by
8 CASI ' s r epr esent at i ve Fr ank Spr i ng, J oan Hayes, Bob Benedi ct .
9 Dr . Kar r on was awar e of t he document s t hat t hey pr ovi ded, and
10 t her e' s, t her e' s summar i es by budget cat egor y of expenses.
11 Those number s wer e t aken f r om, f r omt he - - I guess i t woul d be
12 t he l i ke t he pr of i t l oss st at ement .
13 Q. The summar i es?
14 A. Summar i es.
15 Q. Ri ght ?
16 A. Wel l , i t ' s - - t her e' s al so - - because we used di f f er ent
17 r ecor ds f or 2003, t hey may not have been pr i nt ed. They may
18 st i l l be on a di sk somewher e.
19 Q. You' r e a CPA, ar e you not , ma' am?
20 A. Yes.
21 Q. And you know what a gener al l edger i s, do you not ?
22 A. Yes.
23 Q. And t el l t he j ur y what a gener al l edger i s?
24 A. A gener al l edger i s t he l edger of account s and how t he
25 cost s ar e cat egor i zed by t he account i ng syst em.
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1 Q. Does a gener al l edger r ef l ect ever y t r ansact i on made by t he
2 or gani zat i on?
3 A. Yes, i t shoul d.
4 Q. I t shoul d?
5 THE COURT: Shoul d.
6 Q. And i f t her e ar e changes made or adj ust ment s, somet i mes
7 t her e ar e adj ust ment s because - -
8 A. Yes, t her e ar e adj ust ment s.
9 Q. - - somet hi ng i s mi ssed or some i ncome i s mi ssed, cor r ect ?
10 A. Yes.
11 Q. Wher e woul d t hose adj ust ment s be r ef l ect ed?
12 A. They woul d be r ef l ect ed i n t he gener al l edger , but t hey
13 shoul d al so be car r i ed f or war d t o t he pr of i t and l oss
14 st at ement s.
15 Q. Now, you never saw a gener al l edger her e, cor r ect ? What
16 you j ust descr i bed, di d you ever see t hat at any t i me f r omJ une
17 of 2003, t o t oday?
18 A. I ' ve got t en t he, what ever t he Qui ck Book r ecor ds t hat t hey
19 pr ovi ded t o me.
20 Q. You know t hat t hei r r ecor ds t hat t hey pr ovi ded t o you wer e
21 summar i es; you j ust t est i f i ed t o t hat , cor r ect ?
22 THE COURT: Obj ect i on.
23 THE WI TNESS: But i t ' s some of t he - -
24 THE COURT: One quest i on you' r e aski ng. That ' s a
25 doubl e quest i on. Ask your si ngl e quest i on, Mr . Rubi nst ei n, so
( 212) 805- 0300
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1 i t ' s cl ear what she' s bei ng asked and what she' s answer i ng t o.
2 Q. I s i t a f act t hat what you wer e suppl i ed wer e summar y
3 char t s?
4 A. I was pr ovi ded summar i es, but I al so saw t he suppor t f or
5 t he summar i es.
6 Q. You made copi es of t hose suppor t f or t he summar y?
7 A. I don' t know t he - - I don' t r emember . I t hi nk t hat t her e
8 shoul d be somewher e, but I don' t r emember speci f i cal l y.
9 Q. Do you r ecal l - - you met wi t h a man named Mar k Spi t z,
10 cor r ect - - Mel Spi t z?
11 A. Mel Spi t z, yes.
12 Q. And he was i nt r oduced t o you as t he new audi t or f or CASI
13 LLC?
14 A. Yes.
15 Q. Cor r ect ? And you met hi msomet i me i n December of 2003,
16 r i ght ?
17 A. Yes.
18 THE COURT: I t hought we' r e t al ki ng about J une, J ul y
19 2003, Mr - -
20 MR. RUBI NSTEI N: We wer e.
21 THE COURT: So now we' r e movi ng t o December . Okay. I
22 j ust want - -
23 MR. RUBI NSTEI N: Two year s l at er .
24 THE COURT: Al l r i ght , okay. So she' s or i ent ed al l
25 r i ght .
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1 MR. RUBI NSTEI N: Wel l get her back t o J ul y, J udge.
2 We' l l get her back t o At l ant a t oo.
3 THE COURT: I hope we' r e f i ni shed wi t h J ul y.
4 Q. Di d Mr . Spi t z pr ovi de you wi t h t wo comput er di sks?
5 A. He pr ovi ded me wi t h new books and r ecor ds.
6 Q. Di d he pr ovi de you wi t h - -
7 A. I don' t r emember i f t her e wer e t wo di sks or not .
8 Q. Wel l , di d you l ook at what he had pr ovi ded you wi t h?
9 A. Yes, I di d.
10 Q. Di d t hey - - di d what Mr . Spi t z pr ovi ded you wi t h cont ai n a
11 gener al l edger ?
12 A. He pr ovi ded expenses by budget cat egor y as - - I don' t - - I
13 don' t r emember i f i t was necessar i l y - -
14 THE COURT: Was i t i n t he f or mof a pr oposed gener al
15 l edger or a gener al l edger of any sor t , or i s i t j ust pr oposed,
16 a summar y of - -
18 THE COURT: - - t he t ot al expense; whi ch was i t ?
19 THE WI TNESS: Yes, he pr ovi ded - - he pr ovi ded us a
20 gener al l edger and he pr ovi ded summar i es of expenses.
21 Q. And di d you ut i l i ze hi s document s, i n any way, i n cr eat i ng
22 t he f i nanci al r ecor ds t hat you r el i ed upon?
23 A. Yes.
24 Q. And we have bef or e us i n evi dence Exhi bi t 110 and 111. Ar e
25 you - - do you r ecal l what t hose ar e, ma' am?
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1 A. 110, okay. Yes.
2 Q. And when di d you cr eat e t hose exhi bi t s 110 and 111 t hat ' s
3 i n t he books t hat we al l have, t he j ur or s and what have you?
4 A. I n 2004 or - - yeah 2004, 2005.
5 Q. I sn' t i t a f act , ma' am, t hat you cr eat ed t hemi n
6 pr epar at i on f or t hi s t r i al ?
7 A. I cr eat ed t hemat t he r equest f r omt he r equest of
8 i nvest i gat i ons.
9 Q. Par don?
10 A. I cr eat ed t hemat t he r equest of i nvest i gat i ons.
11 THE COURT: Who i nvest i gat i on?
12 THE WI TNESS: Fr omRachel or Ki r k pr ovi ded me wi t h t he
13 r ecor ds I had subpoenaed.
15 THE WI TNESS: Fr omt he, f r omour i nvest i gat or s t hey
16 had subpoenaed t he checks, cor r obor at ed t hi s f r omt he banks,
17 t he subpoenaed checks.
18 Q. And, i n f act , you di d t hat i n May of 2008, about a week or
19 t wo bef or e - - a week bef or e t he t r i al st ar t ed, r i ght ?
20 A. No. These wer e cr eat ed - - t hi s, t he dat a base was cr eat ed
21 pr i or t o t hat . I was st i l l - - di d some anal ysi s on t he account
22 because i t had been cr eat ed.
23 THE COURT: When was t hi s r ecor d or i gi nal l y cr eat ed
24 t hat you' r e t al ki ng about her e i n t he comput er , 2004, 2003,
25 2005?
( 212) 805- 0300
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1 THE WI TNESS: I t was cr eat ed - - i t was cr eat ed i n
2 t wo - - I ' mnot - - because - - I ' ve got a coupl e dat a bases. I t
3 was cr eat ed somet i me i n 2004, 2005. I woul d have t o l ook back
4 and see t he exact - - l ook at my t i me, l ook t o see t he exact
5 t i me i t was cr eat ed.
6 THE COURT: That ' s sat i sf act or y. Now go ahead.
7 Q. Now, di d you exami ne t he CASI , pr i or t o t hemr ecei vi ng you
8 or any member , t o your knowl edge, of t he Of f i ce of The
9 I nspect or Gener al - -
10 MR. KWOK: Obj ect i on.
11 Q. - - exami ne CASI pr i or t o t hemr ecei vi ng t he act ual gr ant on
12 Oct ober 1st - -
14 Q. - - 2001?
15 THE COURT: Obj ect i on t o t he f or mof t he quest i on i s
16 sust ai ned. You' r e not aski ng f or her knowl edge, so - -
17 MR. RUBI NSTEI N: Okay.
18 THE COURT: Pl ease.
19 Q. I s i t a - - does t he - -
20 MR. RUBI NSTEI N: Wel l , she i s an exper t , your Honor .
21 She was qual i f i ed as an exper t .
22 THE COURT: Not an exper t on t hat , not on when ot her
23 peopl e mi ght have done t hi ngs.
24 Q. Di d you exami ne, on behal f of NI ST, CASI pr i or t o t he
25 gr ant i ng, pr i or t o t hemr ecei vi ng t he gr ant ?
( 212) 805- 0300
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1 THE COURT: Bef or e t hey r ecei ved t he gr ant , di d you
2 exami ne - - have anyt hi ng t o do wi t h CASI ?
3 THE WI TNESS: No, no.
4 THE COURT: Okay.
5 Q. I t ' s a f act t hat under - - you' r e gover ned by Ti t l e 15, CFR
6 14, cor r ect ?
7 A. For t he gr ant , yes.
8 Q. Yes?
9 A. Yes.
10 Q. And as par t of your r esponsi bi l i t y of t he Of f i ce of t he
11 At t or ney Gener al , t he pr i nci pal of f i cer of t he r eci pi ent of t he
12 gr ant i s eval uat ed f or f i nanci al r esponsi bi l i t y, cor r ect ?
14 THE COURT: By t he At t or ney Gener al ?
15 Q. No, by t he Of f i ce of t he I nspect or Gener al .
17 THE WI TNESS: They submi t - - yeah. They - -
19 THE WI TNESS: That doesn' t come t o me. That goes t o
20 anot her sect i on of t he or gani zat i on.
21 Q. I sn' t i t a f act t hat t he key of f i ci al s ar e exami ned as t o
22 t hei r f i nanci al r esponsi bi l i t y?
23 THE COURT: Do you know t hat ?
24 THE WI TNESS: They' r e - -
25 THE COURT: Do you have any knowl edge of t hat ?
( 212) 805- 0300
586
1 THE WI TNESS: They do a backgr ound check bef or e t hey
2 gi ve t he awar ds I t hi nk, yeah.
3 THE COURT: You t hi nk?
4 THE WI TNESS: Yeah, t hey have a sect i on f or NI ST
5 gr ant s f i l e, t hey have backgr ound i nf or mat i on, f i nanci al st uf f .
6 THE COURT: You' r e not i nvol ved i n t hat ?
7 THE WI TNESS: I ' mnot i nvol ved i n t hat .
9 Q. But you' r e f ami l i ar wi t h t he f act t hat under t hat sect i on,
10 t he quest i on of whet her or not OI G r evi ews t he appl i cant as t o
11 t hei r r esponsi bi l i t y and as t o t hei r honest y and t hei r
12 f i nanci al st abi l i t y - -
14 Q. - - i s t he of f i ci al s, cor r ect ?
16 THE COURT: Do you have any knowl edge - - obj ect i on - -
17 I t hi nk t hi s i s not t he r i ght wi t ness f or t hi s, Mr . Rubi nst ei n.
18 MR. RUBI NSTEI N: J udge, t hey want Dr . Kar r on t o know
19 ever y l i ne i n t hi s st at ut e.
20 THE COURT: I don' t want t o have an ar gument i n f r ont
21 of t he j ur y of t hi s sor t . I f you want t o r ai se i t , you can
22 r ai se i t at t he si de bar , but you can pr obabl y get a
23 st i pul at i on.
24 Q. Ar e you f ami l i ar wi t h Chapt er Ei ght of 15 CFR, 14?
25 A. What i s i t t al ki ng about ?
( 212) 805- 0300
587
1 THE COURT: I f you want t o put t he - - i f you want t o
2 put somet hi ng f r omt he Code of Feder al Regul at i ons i n, you can
3 put i t i nt o evi dence. Let ' s not wast e our t i me wi t h t hi s
4 wi t ness on t hi s subj ect .
5 MR. RUBI NSTEI N: I ' d l i ke t o mar k i t t hen f or
6 i dent i f i cat i on at t hi s t i me as def endant ' s AAA.
7 THE COURT: Show i t t o t he gover nment and - -
9 THE COURT: Gi ve i t t o t he Cl er k and I ' l l have i t
10 mar ked.
11 MR. RUBI NSTEI N: I mar ked i t , J udge.
13 MR. RUBI NSTEI N: I mar ked i t .
14 THE COURT: They Code of Feder al Regul at i ons,
15 par agr aph ei ght , 14, i s t hat cor r ect ?
16 MR. RUBI NSTEI N: Your Honor , i t ' s chapt er ei ght .
17 THE COURT: What have you mar ked i t as?
18 MR. RUBI NSTEI N: AAA.
19 THE COURT: Def endant ' s AAA?
20 MR. RUBI NSTEI N: Yes. I t ' s chapt er ei ght , r ef er r i ng
21 t o page f i ve, your Honor .
22 THE COURT: J ust chapt er ei ght , page f i ve?
23 MR. RUBI NSTEI N: And chapt er ni ne.
24 THE COURT: Not par agr aph 14.
25 MR. RUBI NSTEI N: Chapt er ni ne, page seven.
( 212) 805- 0300
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1 THE COURT: I ' msor r y, I di dn' t hear t hat .
2 MR. RUBI NSTEI N: Chapt er ni ne, page seven.
3 THE COURT: Ei ght code of Feder al r egul at i ons, chapt er
4 ni ne, page seven; i s t hat cor r ect ?
5 MR. RUBI NSTEI N: Your Honor - -
6 THE COURT: We coul d do t hi s out si de t he pr esence of
7 t he j ur y.
10 Q. As par t of your r esponsi bi l i t y as a member of t he Of f i ce of
11 t he I nspect or Gener al , you' r e pr ovi ded wi t h al l of t hese 15 CFR
12 sect i ons, cor r ect ?
14 THE COURT: Obj ect i on sust ai ned. Now l et ' s get ahead
15 wi t h t hi s. I t doesn' t bear on t hi s wi t ness' t est i mony. Come
16 on.
17 MR. RUBI NSTEI N: J udge, t hey put on t he boar d - -
19 MR. RUBI NSTEI N: - - 15 CFR.
20 THE COURT: You coul d put up on t he boar d CFR t oo.
21 Al l you got t o do i s move i t i nt o evi dence.
22 MR. RUBI NSTEI N: I t ' s i n evi dence, J udge. Coul d you
23 put Exhi bi t 4 - -
24 THE COURT: What i s i n evi dence?
25 MR. RUBI NSTEI N: Exhi bi t 4, Gover nment ' s exhi bi t 4.
( 212) 805- 0300
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1 THE COURT: Al l r i ght . I f i t ' s al r eady i n evi dence,
2 t hen why ar e we mar ki ng t hi s ot her t hi ng f or ?
3 MR. RUBI NSTEI N: Because i t ' s onl y r ef er enced i n
4 Exhi bi t 4. Thi s i t page 11, your Honor .
6 MR. RUBI NSTEI N: 7 or 11, l et me see.
7 THE COURT: Do you want t o have i t mar ked i n evi dence,
8 of f er i t i n evi dence.
9 MR. RUBI NSTEI N: Par don, J udge?
10 THE COURT: Look, we' r e i nt er r upt i ng t he
11 cr oss- exami nat i on her e. Let ' s get t hi s t hi ng movi ng. We' ve
12 had a hal f - hour of exami nat i on and we haven' t yet got t en t o
13 anyt hi ng about t hi s wi t ness' t est i mony. Let ' s get on.
15 Q. When wer e you f i r st cont act ed about t he audi t of t he - -
16 r evi ew what was al l owabl e f or CASI Cor por at i on, CASI , I nc. ?
17 A. End of Apr i l - - appr oxi mat el y May of 2003.
18 Q. And who not i f i ed you?
19 A. Our of f i ce got a r equest f r omNI ST gr ant s of f i ce t o do an
20 audi t , t o r evi ew t he f i nanci al st at us of CASI .
21 Q. And di d you - - and di d you speak t o a per son f r omNI ST,
22 per sonal l y?
23 A. I spoke t o Hope and t o B. J . , Hope Snowden, and who i s t he
24 gr ant s of f i cer , and B. J . Li de, who was t he pr ogr amof f i cer .
25 Q. And di d - -
( 212) 805- 0300
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1 THE WI TNESS: I t hi nk J ane Or t hwei n, who i s al so a
2 pr ogr amof f i cer .
4 THE WI TNESS: And t o J ane Or t hwei n, who i s al so a
5 pr ogr amof f i cer .
6 THE COURT: Who? What ' s t he ot her name?
7 THE WI TNESS: B. J . Li de and J ane Or t hwei n, I t hi nk
8 i t ' s O- r - t - h- w- e- i - n.
9 THE COURT: And i s t her e a t hi r d per son?
10 THE WI TNESS: I coul d' ve t al ked t o one of Hope' s
11 super vi sor s, whi ch - -
13 THE WI TNESS: Mar i l yn.
14 Q. Di d you have a meet i ng wi t h t hese peopl e i n per son or over
15 t he t el ephone or what ?
16 A. I had a meet i ng wi t h t hemi n per son.
17 Q. Al l t hr ee of t hem?
18 A. Yes.
19 Q. And di d you subsequent l y - - who i s Wi l l i amF. Bedwel l ?
20 A. He was t he r egi onal I nspect or Gener al f or At l ant a at t he
21 t i me.
22 Q. And di d he assi gn you t o i nvest i gat e t he expenses of CASI ?
23 A. He woul d' ve pr ovi ded t he audi t assi gnment when t he audi t
24 st ar t ed i n May of 2003.
25 Q. And when di d t he audi t act ual l y st ar t ?
( 212) 805- 0300
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1 A. Wel l , when I got t her e when, when our of f i ce deci ded t o
2 per f or mt he audi t , I cal l ed t o r equest a meet i ng wi t h Dr .
3 Kar r on, wi t h CASI r epr esent at i ves, and t hey wer e r edoi ng t he
4 books.
5 THE COURT: What ' s t he dat e? Al l we need i s t he dat e
6 when, t hat ' s al l , t hat ' s al l he asked.
7 THE WI TNESS: I don' t know - - okay. I don' t - - i n May
8 of 2003. I don' t know t he speci f i c dat e.
9 Q. Di d you have t hat - - i s t hat cal l ed an ent r ance conf er ence?
10 A. We had t he ent r ance conf er ence on J une 18t h when I ar r i ved
11 i n New Yor k.
12 Q. And who di d you meet wi t h?
13 A. Dr . Kar r on and Bob Hayes and J oan Benedi ct , and I don' t
14 r emember Fr ank Spr i ng was t her e or not .
15 Q. And t hat was at - - you met wi t h t hemat t he headquar t er s of
16 CASI ?
17 A. Yes.
18 Q. Cor r ect ? And CASI - - what or gani zat i on had r ecei ved t he
19 gr ant f r omNI ST, t he ATP gr ant f r omNI ST?
20 A. I t hi nk i t was Comput er Ai ded Sur ger y, I ncor por at ed.
21 Q. And you ascer t ai ned t hat Dr . Kar r on was t he pr i nci pal
22 of f i cer of t hat cor por at i on?
23 A. Yes.
24 Q. Wer e you awar e, when you began t he audi t , what t he of f i ci al
25 name of CASI was?
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1 A. I t was at one t i me CASI , Comput er Ai ded Sur ger y I nf or mat i cs
2 Cor por at i on, and so t hey pr ef er r ed t o be cal l ed CASI . So
3 t hat ' s nor mal l y t he name t hat I used f or t hem.
4 Q. Wer e t hey i ncor por at ed; was i t t hen as CASI , I nc?
5 A. Oh, I t hi nk i t coul d have been, yes. Maybe.
6 Q. Wel l , ar e you awar e whet her or not at any t i me t hey changed
7 t hei r name f r omCASI , I nc. t o CASI LLC?
8 A. Yes, t hey had changed t hei r name t o CASI LLC.
9 Q. Now, when you went t o t he l ocat i on at 300 East 33r d St r eet ,
10 apar t ment , i t was apar t ment 1N, cor r ect ?
11 A. I t hi nk t hat ' s t he addr ess.
12 Q. And you had made an appoi nt ment bef or e you got t her e?
13 A. Yes.
14 Q. And when you ar r i ved - - appr oxi mat el y, what t i me di d you
15 get t her e?
16 A. I don' t r emember i f t hat was a mor ni ng or eveni ng. I had
17 come over f r om- - I had t aken t he t r ai n f r omD. C, and I don' t
18 r emember i f I went - - i f i t was i n t he mor ni ng appoi nt ment or
19 eveni ng appoi nt ment or af t er noon appoi nt ment .
20 Q. And f or sur e J oan Hayes was t her e, cor r ect ?
21 A. Yes, I t hi nk J oan Hayes was t her e.
22 Q. Bob Benedi ct was t her e?
23 A. Yes.
24 Q. And Dr . Kar r on was t her e?
25 A. Yes.
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1 Q. Now, wer e t her e ot her peopl e pr esent when you ar r i ved
2 t her e?
3 A. Yes. I t hi nk pr obabl y J i mCox was t her e, and maybe Mat
4 Rot hman.
5 Q. And t hey wer e i dent i f i ed t o you as empl oyees of CASI ?
6 A. Yes.
7 Q. They wer e - - you wer e i nf or med t hey wer e wor ki ng on t he ATP
8 pr oj ect ?
9 A. Yes.
10 Q. And when di d you - - had you t al ked t o J oan Hayes pr i or t o
11 your vi si t on J une 18, 2001?
12 A. I don' t r emember speci f i cal l y i f I t al ked t o her . I coul d
13 have and, i n schedul i ng t he appoi nt ment , because t hey wer e
14 t r yi ng t o r edo t he books, and so we had r eschedul ed. So I ' m
15 not sur e who I - - i f I spoke di r ect l y wi t h Dr . Kar r on f or t hat
16 or i f I t al ked t o one of hi s r epr esent at i ves.
17 Q. And how l ong di d t hi s vi si t t ake, t hi s f i r st vi si t ?
18 A. I t st ar t ed I t hi nk pr obabl y on Wednesday of one week and
19 t hr ough Thur sday or Fr i day t he next week.
20 Q. Now t hi s - - what r oomdi d you meet t hese t hr ee peopl e i n,
21 Dr . Kar r on, Bob Benedi ct - -
22 A. At CASI ' s, at t he CASI , Dr . Kar r on' s apar t ment , CASI
23 of f i ce, t hat , t he f i r st meet i ng?
24 Q. Yes.
25 A. Okay. The f i r st meet i ng was t her e at t he busi ness.
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1 Q. At t he busi ness. And i t was i n t he busi ness sect i on of t he
2 apar t ment ?
3 A. I t was i n t he l i vi ng r oom, I guess t he l i vi ng r oomof t he
4 apar t ment , t he busi ness.
5 Q. You say l i vi ng r oom. Was t her e, wer e t her e couches i n
6 t her e?
7 A. No, t her e wer e comput er s i n t her e.
8 Q. Wer e t her e f ur ni t ur e t hat you woul d expect t o f i nd i n what
9 woul d commonl y be cal l ed a l i vi ng r oom?
10 A. No.
11 Q. And, appr oxi mat el y, how many comput er s wer e t her e?
12 A. I t hi nk t her e wer e f our .
13 Q. And how l ar ge wer e t hey?
14 A. They wer e, t hey wer e l ar ge. I mean, t hey - - I know a
15 coupl e of t hemhad t wo moni t or s. I don' t r emember i f al l f our
16 of t hemhad t wo moni t or s.
17 Q. And wer e t her e wor k ar eas f or peopl e t o wor k at t hat had
18 smal l er comput er s?
19 A. Ther e wer e - - t her e wer e - - I , I don' t r emember . Ther e
20 was, t her e wer e - - I don' t r emember t he si ze of al l t he
21 comput er s.
22 Q. But t her e was al so a bedr oomt her e, cor r ect ?
23 A. Yes.
24 Q. And - -
25 MR. KWOK: Obj ect i on, r el evance.
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1 THE COURT: I wi l l al l ow t he quest i on. I ' l l al l ow t he
2 quest i on. I s t her e a bedr oomi n t he apar t ment ?
3 THE WI TNESS: Oh, I ' msor r y. Yes.
4 Q. I ' mgoi ng t o show you what ' s bei ng mar ked as def endant ' s
5 BBB f or i dent i f i cat i on?
6 THE COURT: 3 B' s?
7 MR. RUBI NSTEI N: 3 B' s, yes, your Honor .
8 Q. And ask you i f you r ecogni ze what i s depi ct ed i n t hat
9 document ?
10 MR. KWOK: Your Honor , may we appr oach t o l ook at i t ?
11 THE COURT: Ther e ar e f our - - i t ' s mor e t han one
12 pi ct ur e.
14 THE COURT: Si x pi ct ur es.
15 THE WI TNESS: Yeah, i t ' s - - i t ' s t he CASI of f i ce
16 apar t ment s.
17 Q. Thank you.
18 THE COURT: Al l of i t , t he ent i r e apar t ment ?
19 THE WI TNESS: I t ' s t he sect i on t hat was known as t he
20 l i vi ng r oomof t he apar t ment , woul d have been t he l i vi ng r oom
21 sect i on of t he apar t ment .
22 THE COURT: Pi ct ur es of t he par t of t he l i vi ng r oom?
23 THE WI TNESS: Yeah, i t ' s t he - - i t ' s a smal l l i vi ng
24 r oom. I t has comput er desks ar ound i t .
25 THE COURT: Let ' s get on wi t h t hi s, Mr . Rubi nst ei n,
( 212) 805- 0300
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1 i nst ead of - -
2 MR. RUBI NSTEI N: Yes, J udge.
3 THE COURT: Let ' s move i t on. We' ve got t o get t o t he
4 t est i mony and what she' s t est i f i ed about , now l et ' s move i t
5 al ong.
6 MR. RUBI NSTEI N: We of f er t hi s i n evi dence.
7 THE COURT: We' ve been her e al most 45 mi nut es on t hi s
8 cr oss- exami nat i on.
9 MR. RUBI NSTEI N: The gover nment t ol d me t hey wer e
10 goi ng t o be 45 mi nut es l ong.
11 THE COURT: Let ' s move i t al ong.
12 MR. RUBI NSTEI N: I want t o of f er BBB i n evi dence.
13 MR. KWOK: No obj ect i on.
14 THE COURT: No obj ect i on? BBB i s r ecei ved i n
15 evi dence.
16 ( Def endant ' s Exhi bi t BBB r ecei ved i n evi dence)
17 MR. RUBI NSTEI N: Put t hi s on t he El mo, pl ease.
18 THE COURT: I guess you have t o - - you have t o move i t
19 si deways t oo f or t he j ur y t o get any i dea. That ' s upsi de down.
20 Q. Now, you see t he scr een i n t he bot t omas you f ace t he
21 pi ct ur e on t he bot t omr i ght por t i on; you see what ' s depi ct ed
22 t her e?
23 A. Yes.
24 Q. Par don?
25 A. The scr een, yes.
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1 Q. And di d you see t hat scr een i n t he apar t ment ?
2 A. I don' t r ecal l i f I saw t he scr een or not . They di d a
3 pr esent at i on, but I was t hi nki ng i t was on t he moni t or ,
4 comput er moni t or s, but I don' t r ecal l i f I saw.
5 Q. And di d you see i n t he, i n 120A t hey pr esent ed an exhi bi t
6 t hat sor t of l ooked l i ke t hi s i t emover her e, a l amp wi t h a
7 pr oj ect i on; di d you see t hat ?
8 A. At t he apar t ment ?
9 Q. At t he apar t ment .
10 A. I don' t r ecal l i f I saw t hat at t he apar t ment .
11 THE COURT: Wel l , when you i dent i f i ed t hi s as Dr .
12 Kar r on' s apar t ment , does i t l ook l i ke t he apar t ment at t he t i me
13 t hat you vi ewed i t i n J ul y 2003; i s t hat a f ai r r epr esent at i on
14 of t he apar t ment and equi pment i n i t at t he t i me i n J ul y 2003?
15 THE WI TNESS: I t , i t had a - - i t had - - I don' t
16 r emember t he - - i f I saw t he scr een, but t he ot her st uf f i s
17 pr obabl y so.
19 THE WI TNESS: The ot her , t he r est of i t pr obabl y.
20 THE COURT: Not pr obabl y.
21 THE WI TNESS: Oh, yeah.
22 THE COURT: You know when t hi s pi ct ur e was t aken?
24 THE COURT: Al l r i ght . Wel l , does i t - -
( 212) 805- 0300
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1 THE COURT: Ther ef or e, t hat ' s why I ' maski ng you t he
2 quest i on.
3 THE WI TNESS: Yes. I t l ooks - - yeah, but I was - -
4 THE COURT: Not t he apar t ment i t sel f , t he equi pment i n
5 i t .
6 THE WI TNESS: Um, yes, t hey had si mi l ar - - t hey woul d
7 have had - - except f or t he - - I don' t know about t he - - I don' t
8 r emember about t he scr een - - but i t had - - di d have comput er s
9 l i ke t hat and t hi ngs under t he deck and al l t he t hi ngs.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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8657KAR4 Ri l ey - cr oss
2 Q. And t her e was shel vi ng ar ound t he r oom?
3 A. Ther e was shel f i ng.
4 Q. And i t wasn' t f or kni ckknacks, r i ght ? I t was f or
5 comput er - r el at ed i t ems, cor r ect ?
6 THE COURT: That cal l s f or a concl usi on. Let ' s go
7 ahead.
8 Q. Wel l , you as t he audi t or , wer e you i nt er est ed i n
9 det er mi ni ng whet her or not gover nment money was spent on
10 comput er - r el at ed i t ems?
11 A. They had a budget f or equi pment .
12 Q. Now, wer e you at t he apar t ment when t he - - t he pr osecut or
13 r ead t o you a whol e l i st of i t ems t hat wer e sei zed. Wer e you
14 pr esent when t he i t ems wer e sei zed?
15 A. No.
16 Q. At t hat meet i ng i n J une of 2001 wi t h J oan Hayes and Bob
17 Benedi ct , who di d you under st and Bob Benedi ct was?
18 A. J une of - -
19 Q. J une of 2003 when you wer e conduct i ng your audi t .
20 A. He was t he pr oj ect manager .
21 Q. And whi l e you wer e i n t he - - whi l e you wer e at CASI , wer e
22 you pr ovi ded wi t h any document at i on?
23 MR. KWOK: Ti me f r ame, your Honor .
24 A. Document at i on f or what ?
25 MR. KWOK: Ti me f r ame.
( 212) 805- 0300
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1 THE COURT: Ti me f r ame.
2 MR. RUBI NSTEI N: When she was at t he apar t ment .
3 THE COURT: Whi ch ar e you t al ki ng about ? J ul y?
4 MR. RUBI NSTEI N: I sai d J une, J udge.
5 THE COURT: Al l r i ght . I n J une.
6 MR. RUBI NSTEI N: Fi r st I sai d 2001 and t hen I sai d
7 2003.
8 THE COURT: I don' t want t o hear t hat . I want t o hear
9 her gi ve some t est i mony t hat ' s accur at e and st r ai ght .
10 THE WI TNESS: He sai d document s.
11 Q. Any f i nanci al st at ement s?
12 A. I was gi ven what ever t he Qui ck Book r ecor ds wer e t hat t hey
13 pr ovi ded t o me.
14 Q. Who i s t hey?
15 A. Pr obabl y J oan Hayes, Bob Benedi ct , Fr ank Spr i ng, Dr .
16 Kar r on. I don' t know who speci f i cal l y handed me t he
17 i nf or mat i on.
18 Q. Was t he i nf or mat i on r eady f or you, or di d t hey have t o
19 pr i nt i t out f r omone of t he comput er s?
20 A. They wer e st i l l i n t he pr ocess of r edoi ng t he second set of
21 books.
22 THE COURT: Di d t hey hand i t out t o you or not ?
23 THE WI TNESS: They gave me some of i t i n comput er and
24 some of i t i n har d copy.
25 Q. And wer e you shown t he syst emt hat was used by t he
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1 pr i nci pal - - by t he peopl e at CASI t o keep t hei r r ecor ds?
2 A. Yes.
3 Q. And i n f act ever y check was scanned i nt o t hi s syst em,
4 cor r ect ?
5 A. Yes, t hey scanned i n checks and i nvoi ces.
6 Q. And t he checks, i nvoi ces and backup, cor r ect ?
7 A. Yeah, t he i nvoi ces woul d be t he backup. They scanned i nt o
8 t he comput er and dest r oyed t he or i gi nal i nvoi ce.
9 Q. And i n your audi t of r evi ewi ng whenever a check was i ssued
10 and cashed was t her e an i nvoi ce t hat backed up t hat par t i cul ar
11 i t em?
12 A. I don' t r emember speci f i cal l y what i t l ooked l i ke, what
13 t hat r ecor d l ooked l i ke.
14 Q. I ' mnot aski ng you what t he r ecor d l ooked l i ke, ma' am.
15 A. You' r e aski ng me i f t her e was a check backi ng up t he
16 i nvoi ce at t ached t o each i nvoi ce.
17 Q. Ri ght .
18 A. I don' t r emember speci f i cal l y i n t he i nst ance of CASI i f
19 t hey had copi es of checks and copi es of i nvoi ces at t ached t o
20 each ot her . I t ' s possi bl e, but I don' t speci f i cal l y r ecol l ect
21 i f t hey di d or not .
22 Q. Wel l , i f t hey had an expense t hat t hey wr ot e a check f or
23 and t her e was no i nvoi ce as a backup, woul d you make a not e of
24 t hat as an audi t or ?
25 A. Yes.
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1 Q. And i n f act i n t hi s case you made no not es of mi ssi ng
2 i nvoi ces t o mat ch wi t h checks, cor r ect ?
3 A. Ri ght , I don' t t hi nk so, r i ght .
4 Q. Now - -
5 A. For t he sampl e r evi ewed.
6 Q. That was t he f i r st r evi ew, t he sampl e r evi ew, cor r ect ?
7 A. Bot h of t hem- - yes, t hey woul d have sampl e r evi ew.
8 Q. Di d you ask quest i ons of Dr . Kar r on?
9 A. Yes.
10 Q. And di d you ask hi mf or speci f i c i nf or mat i on?
11 A. Yes.
12 Q. And gi ve us an i l l ust r at i on of somet hi ng you asked Dr .
13 Kar r on f or .
14 THE COURT: I f you r emember .
15 A. Wel l , I know I asked hi mwhat t he empl oyees di d. That ki nd
16 of i nf or mat i on? I mean - -
17 Q. Di d he r espond t o you?
18 A. Yes.
19 Q. Di d he r espond t o any quest i on you asked hi m?
20 A. I t hi nk so.
21 Q. Di d he of f er t o l et you use t he - - excuse me one second - -
22 and di d t hey act ual l y show you on a comput er scr een document s
23 t hat had been st or ed i n t he comput er - -
24 A. Yes, yes.
25 Q. - - t o show t he expenses t hat wer e i ncur r ed and t he backup
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1 why i t was l egi t i mat e? Ri ght ?
2 A. They showed, document s - -
3 MR. KWOK: Obj ect i on t o f or m.
4 Q. Wel l , backup t o expl ai n what t he expense was f or .
5 THE COURT: Over r ul ed. Coul d I hear t he quest i on
6 back.
7 ( Recor d r ead)
8 THE COURT: I t doesn' t sound l i ke a compl et e answer .
9 THE WI TNESS: Ther e was an obj ect i on, so I di dn' t know
10 i f you - -
11 A. They showed document s. They showed copi es of i nvoi ces t hat
12 t hey had scanned i nt o t he comput er .
13 Q. Now, you used as a st ar t i ng poi nt - - di d you use as a
14 st ar t i ng poi nt f or your audi t what was t he schedul es of t he
15 most r ecent l y appr oved budget ?
16 A. Yes.
17 THE COURT: What you wer e t ol d was t he most r ecent l y
18 appr oved budget .
19 THE WI TNESS: Yes, what I was t ol d was t he most
20 r ecent l y appr oved budget . I t hi nk i t was amendment 2.
21 Q. And i n f act when you wer e i n t he apar t ment - - wi t hdr awn.
22 You became awar e dur i ng t he cour se of your audi t t hat
23 t her e wer e cer t ai n expenses at t r i but abl e t o wor k t hat had been
24 done i n t he apar t ment , shel vi ng and i nst al l at i on of wi r i ng and
25 t hi ngs of t hat nat ur e, cor r ect ?
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1 A. Yes. Yes.
2 Q. Di d you see when you wer e i n t hat apar t ment anyt hi ng t hat
3 you woul d descr i be as const r uct i on?
4 A. The shel ves and t he desks, t he t abl es.
5 THE COURT: Wer e t hey under const r uct i on?
6 THE WI TNESS: No, t hey wer en' t under const r uct i on at
7 t he t i me.
8 Q. The shel ves and t he desks. And i s i t f ai r t o say t hat you
9 di sal l owed t hat expense?
10 A. Yes.
11 Q. And ar e you f ami l i ar wi t h - - and on what basi s di d you
12 di sal l ow t hat expense?
13 A. I t wasn' t al l owabl e per t he budget .
14 Q. Equi pment was al l owabl e, was i t not ?
15 A. I di dn' t quest i on t he equi pment amount up t o t he budget
16 cat egor y.
17 Q. Wel l , ar e you awar e t hat under t he cat egor y of equi pment
18 you ar e per mi t t ed t o do a cer t ai n amount of what you woul d cal l
19 si t e pr epar at i on?
20 A. They st i l l had mor e cost - - t he equi pment was st i l l over
21 t he budget wi t hout t hat cost , so sayi ng whet her t hat was
22 al l owabl e or not al l owabl e was i r r el evant as t o whet her i t
23 woul d be qual i f i ed as al l owabl e equi pment cost s.
24 Q. The money was spent - - i n ot her wor ds, ar e you sayi ng now
25 t hat what ever changes wer e made, physi cal changes wer e made t o
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1 t he apar t ment , wer e made f or t he benef i t of t he pr ogr amf or
2 car r yi ng out t he pr oj ect ?
4 THE COURT: I di dn' t hear her say t hat .
5 Q. Wel l , ar e you f ami l i ar wi t h t he f act t hat under equi pment
6 you ar e per mi t t ed - - " ATP f unds may, however , be used f or
7 const r uct i on of exper i ment al r esear ch and devel opment
8 f aci l i t i es t o be l ocat ed wi t hi n a new or exi st i ng bui l di ng,
9 pr ovi ded t he equi pment or f aci l i t i es ar e essent i al f or car r yi ng
10 out t he pr oj ect . I f such cost s ar e pr oposed, i ncl ude bel ow and
11 pr ovi de j ust i f i cat i on. " Ar e you f ami l i ar wi t h t hat ?
12 A. Yes.
13 Q. And sal ar i es, you r evi ewed t he sal ar i es, di d you not ?
14 A. Yes.
15 Q. And what was your - - you di sal l owed sal ar i es, di d you not ,
16 as par t of you comi ng t o t hi s hal f a mi l l i on dol l ar f i gur e,
17 r i ght ?
18 A. Whi ch f i gur e ar e we t al ki ng about now?
19 Q. Sal ar i es.
20 A. Ar e we t al ki ng about t he J ul y r epor t or t he December
21 r epor t ?
22 Q. I n your t est i mony di d you say t hat you di sal l owed - -
23 THE COURT: No, you' ve got t o gi ve her some t i me
24 f r ame, Mr . Rubi nst ei n.
25 Q. Wel l , how about di d t her e come a t i me t hat you i n your
( 212) 805- 0300
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1 eval uat i on and anal ysi s of CASI , t hat you eval uat ed t he
2 sal ar i es t hat wer e bei ng pai d?
3 A. Yes.
4 Q. And when was t hat ?
5 A. I n t he December 2003 r evi ew.
6 Q. And at t hat t i me di d you make a det er mi nat i on as t o how
7 much sal ar y was appr ovabl e?
8 A. Yes.
9 Q. How much sal ar y was budget ed f or CASI f or t he f i r st year ,
10 Oct ober 1, 2001 t o Sept ember 30, 2002, t he f i r st year of t he
11 gr ant ?
12 A. I woul d have t o l ook back at some document at i on t o know t he
13 speci f i c number .
14 Q. Par don? Do you have anyt hi ng t hat - -
15 A. Dr . Kar r on' s sal ar y was budget ed 175, 000, and t he ot her
16 empl oyees' sal ar i es wer e budget ed at 150, 000.
17 Q. And how much of Dr . Kar r on' s $175, 000 sal ar y di d you al l ow?
18 A. I t hi nk 85 per cent of i t . I s t hat r i ght ?
19 THE COURT: You l ook at t he paper s and t el l us. Don' t
20 say you t hi nk.
21 MR. KWOK: Your Honor , I don' t know whet her
22 Mr . Rubi nst ei n i s aski ng per t he audi t or per t he bank r ecor ds
23 anal ysi s.
24 MR. RUBI NSTEI N: I ' maski ng her audi t , what she
25 al l owed.
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1 THE COURT: Whi ch audi t ?
2 MR. RUBI NSTEI N: I n any audi t .
3 THE COURT: 2004? J ul y 2003? Whi ch audi t ? The f i nal
4 audi t ? The one t hat went up on t he boar d?
5 Q. Wel l , di d your number s change bet ween your f i r st audi t and
6 your second audi t ?
7 A. The f i r st - - t he number s - - t he number on t he f i r st audi t
8 di dn' t get t hat det ai l ed. The shor t r epor t number of t he
9 205, 000 number came f r omt he r evi sed books, how much t hat CASI
10 sai d i t spent f or t he NI ST pr oj ect , excl udi ng t he expenses t hat
11 i t had f or CASI , t he di f f er ence bet ween t hat and t he deposi t s.
12 So, t hat number di dn' t come f r oman anal ysi s of t he speci f i c
13 budget cost cat egor i es. The December r epor t , af t er I met wi t h
14 Mel Spi t z, was an anal ysi s of t he speci f i c budget cat egor i es,
15 si nce Dr . Kar r on t ol d me he had addi t i onal new r ecor ds.
16 Q. Do you want t o l ook at t he appendi x t o your dr af t r epor t
17 t hat ' s i n evi dence, whi ch i s Exhi bi t - -
18 A. Ri ght . And t hat one says - -
19 THE COURT: Wai t . Wai t unt i l he gi ves you t he
20 exhi bi t .
22 Q. 61. I ' msor r y. 62. Appendi x 1, page 2 of 8. Does t hat
23 r ef r esh your r ecol l ect i on of how much of Dr . Kar r on' s appr oved
24 sal ar y you di sal l owed t o come t o your f i gur e of over $500, 000?
25 A. I t hi nk 15 per cent .
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1 Q. Par don?
2 A. 15 per cent . The chi ef t echni cal of f i cer , r i ght ?
3 Q. And t hat was based on an hour l y comput at i on?
4 A. That was based on an est i mat e of t i me spent on ot her
5 act i vi t i es ot her t han t he NI ST gr ant .
6 Q. What act i vi t i es was t hat ?
7 A. The busi ness of CASI .
8 Q. I s i t a f act t hat CASI had no ot her busi ness?
9 A. CASI was a busi ness t hough.
10 Q. But t hei r onl y pr oj ect was t he ATP pr oj ect ?
11 A. Ri ght , but t her e woul d st i l l be expenses associ at ed wi t h
12 t he exi st ence of t he busi ness.
13 Q. When t he budget was appr oved, i t was appr oved f or $175, 000,
14 cor r ect , sal ar y?
15 A. Cor r ect .
16 Q. And was t her e any i ndi cat i on of how many hour s Dr . Kar r on
17 woul d spend i n or der t o ear n hi s $175, 000 on t hi s ATP pr oj ect ?
18 A. I don' t r emember i f t hey speci f i cal l y had t i me sheet s or
19 not .
20 Q. Di d you det er mi ne how many hour s a week Dr . Kar r on wor ked
21 on t he ATP gr ant ?
22 A. The sal ar y, t he hour s don' t - - i t doesn' t necessar i l y
23 mat t er t he hour s. I t ' s per cent of t i me wor ked.
24 Q. Wel l , what about Mr . Gur f ei n, was he budget ed f or sal ar y?
25 A. Yes.
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1 Q. How much was he budget ed f or sal ar y?
2 A. I don' t r ecal l . I don' t have a copy of t he budget i n f r ont
3 of me.
4 Q. So you over r ul ed ATP t hat aut hor i zes $175, 000 f or Dr .
5 Kar r on, cor r ect ?
7 THE COURT: Obj ect i on sust ai ned t o t he f or mof t he
8 quest i on.
9 Q. I n f act , does i t r ef r esh your r ecol l ect i on t hat Mr . Gur f ei n
10 was t o r ecei ve $100, 000 annual sal ar y?
11 THE COURT: Does t hat r ef r esh your r ecol l ect i on?
12 A. I f I coul d see a copy.
13 Q. Why don' t you l ook at t he same page. See i f i t r ef r eshes
14 your r ecol l ect i on. He was t he chi ef oper at i ng of f i cer ,
15 cor r ect ?
16 A. Yes.
17 Q. Di d t hat r ef r esh your r ecol l ect i on of what Mr . Gur f ei n' s
18 sal ar y was?
19 A. You sai d t hat i t was $100, 000 accor di ng t o t he budget .
20 Q. And di d you al l ow $100, 000 i n cost s f or Mr . Gur f ei n?
21 A. J ust because i t ' s al l owabl e i n t he budget cat egor y doesn' t
22 make i t al l owabl e - -
23 THE COURT: The quest i on i s di d you or di dn' t you.
24 THE WI TNESS: I - -
25 THE COURT: Yes or no?
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1 THE WI TNESS: I don' t have t he i nf or mat i on her e t o
2 t el l how much was al l owabl e.
3 THE COURT: What does your r epor t say r i ght on t he
4 f r ont page?
5 THE WI TNESS: I t says how much.
6 THE COURT: Page 2 of 8 on t he appendi x.
7 THE WI TNESS: Ri ght . I t says how much i s quest i oned;
8 i t doesn' t say how much was al l owed.
9 THE COURT: Wel l , when you say i t ' s quest i oned, i sn' t
10 t hat you di sal l ow i t subj ect t o t hei r comi ng back t o you t o
11 show t hat i t was appr opr i at e?
12 THE WI TNESS: J ust because t her e i s a budget cat egor y
13 wi t h an al l owabl e amount , t hat means t hey al l ow up t o t hat
14 amount i f appl i cabl e t o t he NI ST pr oj ect or par t of t he NI ST
15 pr oj ect cost . I t doesn' t mean you ar e ent i t l ed t o t hat amount
16 of money no mat t er what .
17 Q. I t doesn' t mean you ar e not ent i t l ed t o i t ei t her , cor r ect ?
18 A. I f i t ' s al l owabl e i n t he NI ST ATP gr ant cost i t ' s al l owabl e
19 up t o t hat amount . J ust because you have an amount i n a budget
20 f or an expense doesn' t mean you ar e ent i t l ed t o t hat amount i f
21 you di dn' t have al l owabl e cost s f or t hat amount .
22 Q. I f you have a budget f or $100, 000 f or equi pment and you
23 spend $100, 000 on equi pment f or your pr oj ect , i s t hat OK?
24 A. I f i t ' s a NI ST ATP pr oj ect equi pment .
25 Q. Wel l , her e t her e i s onl y one pr oj ect , cor r ect ?
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2 Q. I n your audi t di d you f i nd t hat CASI was doi ng any ot her
3 pr oj ect ot her t han t he NI ST ATP pr oj ect ?
4 A. They wer e wor ki ng on t he NI ST ATP pr oj ect . They may - -
5 t hey al so had been t r yi ng t o get ot her awar ds.
6 Q. For t hi s pr oj ect .
7 THE COURT: Obj ect i on. Do you know what t hey wer e
8 f or , ot her awar ds?
9 THE WI TNESS: Onl y t he one t hat kept comi ng up f r om
10 t he St at e of New Yor k t hat di dn' t happen.
11 Q. They want ed t o get f unds f r omt he St at e of New Yor k t o add
12 t o t hi s NI ST ATP pr oj ect , cor r ect ?
14 THE COURT: Obj ect i on sust ai ned.
15 Q. How much of Mr . Gur f ei n' s $100, 000 sal ar y di d you di sal l ow?
16 A. 25 per cent .
17 Q. So, t hat woul d be $25, 000, cor r ect ?
18 A. Yes.
19 Q. I f he got 100, 000, i t woul d be 25, 000?
20 A. Yes.
21 Q. And on what basi s di d you r educe hi s sal ar y by 25 per cent ?
22 A. Because of t he dut i es t hat he di d.
23 Q. He spent onl y 75 per cent of hi s t i me on NI ST ATP pr oj ect s,
24 i s t hat your t est i mony?
25 A. Wel l , t he t hi ngs t hat Mr . Gur f ei n was doi ng wer e not
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1 necessar i l y t hi ngs f or t he r esear ch, t hey wer e t o cont i nue t he
2 pr oj ect . So, t hey wer en' t necessar i l y al l al l owabl e NI ST
3 pr oj ect expendi t ur es f or gr ant pur poses.
4 Q. Wel l , i sn' t i t a f act t hat Mr . Gur f ei n' s sal ar y was
5 appr oved on t he basi s t hat onl y 75 per cent of hi s t i me woul d be
6 devot ed t o t he NI ST pr oj ect ?
7 A. Ri ght . And so when he car r i ed i t out t hen he woul dn' t have
8 had - -
9 Q. Ar e you awar e of t hat , ma' am?
10 THE COURT: Do you know what t he si t uat i on was i n
11 t er ms of how hi s sal ar y was comput ed - -
12 THE WI TNESS: I have t o see t he budget .
13 THE COURT: - - f or t he budget ?
14 THE WI TNESS: I know i t was a per cent age of what ever
15 hi s sal ar y was was al l owabl e.
16 Q. I amaski ng you, ma' am, whet her or not when you made t he
17 det er mi nat i on and you put i n your r epor t t hat $25, 000 - - t hi s
18 i s r eadi ng f r omappendi x A, page 2 of 8 pages, i t says, $25, 000
19 of t he 71, 550 i s quest i oned f or t he chi ef oper at i ng of f i cer due
20 t o 25 per cent of hi s t i me and sal ar y bei ng al l ocat ed t o
21 non- NI ST act i vi t i es. Cor r ect ?
22 A. That ' s what i t says, yes.
23 Q. So, t hat he i s supposed t o i nvest 75 per cent of hi s t i me t o
24 a NI ST act i vi t y, accor di ng t o your cal cul at i on, r i ght ?
25 A. Yes.
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1 Q. But i sn' t i t a f act t hat t he budget speci f i cal l y appr oved
2 by NI ST ATP pr ovi ded t hat Gur f ei n was onl y t o spend 75 per cent
3 of hi s t i me on t he pr oj ect ?
4 A. So, i t had 75 per cent of hi s sal ar y t i mes t hat came up wi t h
5 a l ower number t han a hundr ed per cent of hi s sal ar y t hat was
6 al l owed f or t he budget .
7 THE COURT: What ar e you sayi ng?
8 THE WI TNESS: Wel l , i f hi s - - I don' t r emember . But
9 i f hi s sal ar y was $100, 000 a year , and NI ST al l owed 75 per cent
10 of t hat as NI ST ATP f or t he budget , t hen 75 t i mes a hundr ed
11 woul d be $75, 000 of hi s sal ar y coul d be r ei mbur sed by t he NI ST
12 pr oj ect cost s, and t he ot her 25, 000 woul d be pai d by CASI .
13 THE COURT: Let me ask you a quest i on. What di d you
14 under st and t he budget $100, 000 t o be payi ng hi m? Di d you
15 expect i t t o be f or 75 per cent of hi s t i me?
16 THE WI TNESS: 75 per cent of t he t i me, t he sal ar i ed
17 amount .
18 THE COURT: That ' s what i t was i n t he budget .
19 THE WI TNESS: That ' s what t he budget woul d al l ow i f he
20 devot ed t hat much t i me t o t he pr oj ect , yes.
21 THE COURT: Now, so i f he spent 75 per cent of hi s t i me
22 on t he budget , why wasn' t he ent i t l ed t o t he f ul l amount of t he
23 $100, 000?
24 THE WI TNESS: No, not wor ki ng on t he budget . But t he
25 NI ST budget mul t i pl i es i t out acr oss t hat says $100, 000, t i mes
( 212) 805- 0300
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1 75 per cent of hi s t i me, so t hat woul d be $75, 000 t hat NI ST
2 woul d r ei mbur se of t he sal ar y t hat he was pai d. I ' mnot sur e
3 i f hi s sal ar y was $100, 000. What ever hi s sal ar y was, t i mes 75
4 per cent of t he t i me, t hen NI ST woul d pay t hat amount .
5 I s t hat how t hat ' s wr i t t en? I don' t - -
6 THE COURT: I s t hat how what i s wr i t t en?
7 THE WI TNESS: The budget .
8 THE COURT: So, you ar e j ust accept i ng what Mr . - -
9 THE WI TNESS: No, I ' msayi ng how i t ' s wr i t t en.
10 THE COURT: Wel l , you ar e t he one we' r e aski ng how
11 i t ' s wr i t t en, not hi m.
12 THE WI TNESS: OK, I need a copy of t he budget t o see.
13 THE COURT: Wel l , you bet t er exami ne a copy of t he
14 budget bef or e you st ar t answer i ng quest i ons.
15 THE WI TNESS: OK.
16 THE COURT: Thi s i sn' t hypot het i cal st uf f .
18 THE COURT: Do you under st and?
21 MR. RUBI NSTEI N: Why don' t we t ur n t o Gover nment
22 Exhi bi t 10B.
23 THE COURT: Do you have a copy bef or e you?
( 212) 805- 0300
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1 Q. Have you r evi ewed t hat , ma' am?
2 A. Yes. Wher e i s t he t hi ng t hat - - t hi s i s - - wher e i s t he
3 t hi ng t hat i ncor por at es t hi s par t of t he awar d or of t he
4 budget ? Because f or amendment 2 what i t shoul d say i s i f hi s
5 annual sal ar y i s $100, 000, t hen 75 per cent of t hat woul d be
6 $225, not $300, 000, so t hi s shoul d be mul t i pl yi ng t hi s acr oss.
7 I t hi nk t hese ar e pr epar ed by I t hi nk CASI and submi t t ed.
8 THE COURT: 10B?
10 THE COURT: I s submi t t ed by t hem?
11 THE WI TNESS: I s submi t t ed by CASI t o NI ST.
12 THE COURT: Wher e i s what t he awar d appr oved, t he
13 budget t hat t he awar d appr oved? Do we have t hat exhi bi t ?
14 MR. KWOK: I t ' s Gover nment Exhi bi t 22, I bel i eve, your
15 Honor .
17 DEPUTY COURT CLERK: Gover nment 22.
18 THE COURT: 22.
19 MR. RUBI NSTEI N: Your Honor , I dr aw. I f you l ook
20 at - -
21 THE COURT: She i s l ooki ng at 22 now. Let ' s st ay wi t h
22 what she i s l ooki ng at and t hen you can ask a quest i on.
23 THE WI TNESS: Ther e shoul d be somet hi ng t hat br eaks
24 down t he expenses by year s.
25 MR. RUBI NSTEI N: Can I ask a quest i on, your Honor ?
( 212) 805- 0300
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1 THE COURT: She hasn' t answer ed t he quest i on yet .
2 THE WI TNESS: Ther e shoul d be - -
3 THE COURT: Thi s i s t he budget t hat was appr oved.
4 THE WI TNESS: Ther e shoul d be somet hi ng t hat br eaks
5 down f or t he year one t hat l ooks si mi l ar t o t hi s, t hat br eaks
6 down by year one, year t wo, year t hr ee, i nst ead of j ust al l
7 t hr ee t oget her , and i t shoul d - -
8 THE COURT: I don' t f ol l ow what you' r e sayi ng. But
9 now you can see t hat t hey r equest ed f or t he t hr ee year s
10 $1, 330, 000, l ooki ng at 10B - -
12 THE COURT: - - f or per sonnel .
13 THE WI TNESS: And t hen l ooki ng at page 2 of t hi s
14 exhi bi t , t he t hr ee year t ot al i s $1, 075, 000.
15 THE COURT: So, t her e was some adj ust ment made.
16 THE WI TNESS: Yes, t her e i s some adj ust ment .
17 THE COURT: But you don' t know what adj ust ment was
18 made.
19 THE WI TNESS: Mat hemat i cal l y t hi s shoul d show - - t he
20 annual sal ar y i s $100, 000. I t shoul d be t hr ee t i mes a 100, 000,
21 t i mes 75 per cent , and t hat woul dn' t be $300, 000, so t her e i s a
22 mat hemat i cal t hi ng t her e.
23 Q. Ar e you awar e t hat t he $325, 000 al l ocat i on f or sal ar y and
24 wages was of f an amended budget t hat i ni t i al l y had $375, 000
25 t hat was appr oved?
( 212) 805- 0300
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1 A. Yes.
2 THE COURT: You ar e?
3 THE WI TNESS: Wel l , I know t hat t hi s budget was
4 adj ust ed, and t hey had moved some money t o consul t i ng t o pay
5 f or Geor ge Wol ber g.
6 THE COURT: What ?
7 THE WI TNESS: They moved some money f r ompayr ol l cost
8 t o consul t i ng cost s or subcont r act i ng cost t o pay f or Wol ber g.
9 THE COURT: I ' mt r yi ng t o have you t el l us what you
10 wer e l ooki ng at - -
11 THE WI TNESS: Oh.
12 THE COURT: - - whi ch al l owed you t o deduct or di sal l ow
13 Mr . El i sha Gol dber g' s sal ar y i n t he amount of $25, 000. That ' s
14 what I ' maski ng you t o show us, what you wer e r el yi ng on t o do
15 t hat . Now, woul d you show i t t o us.
16 THE WI TNESS: OK. The suppor t i ng document t hat shows
17 t he br eakdown of cost s by year , t hat l ooks si mi l ar t o 10B, has
18 si mi l ar per sonnel , f r i nge benef i t s, t r avel , i t br eaks down t he
19 cost as a year one, year t wo, year t hr ee, i nst ead of a t ot al
20 cost . On t hi s i t says l i ke Lee Gur f ei n, $100, 000 annual
21 sal ar y, per cent age of t i me on pr oj ect i s est i mat ed, t he
22 budget ed i s est i mat ed t o be 75 per cent , and so t hat shoul d not
23 be $300, 000, i t shoul d be i t shoul d be 225. Pl us
24 mat hemat i cal l y i t ' s not r i ght .
25 THE COURT: Al l r i ght . Wel l , we have t o t ake - -
( 212) 805- 0300
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1 THE WI TNESS: But t her e i s some ot her document .
2 THE COURT: You bet t er st udy your document s, and we
3 bet t er t ake a l uncheon br eak. I t ' s t en af t er one, so t he j ur y
4 i s excused unt i l t en af t er t wo. And t he par t i es ar e i nst r uct ed
5 t hey ar e not t o t al k t o t he wi t ness dur i ng t he br eak.
6 ( Luncheon r ecess)
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1 AFTERNOON SESSI ON
2 2: 05 p. m.
3 ( J ur y not pr esent )
4 MR. KWOK: Your Honor , may we j ust r ai se one qui ck
5 i ssue wi t h t he cour t - -
6 THE COURT: Yes.
7 MR. KWOK: - - bef or e we cal l i n t he j ur y? I bel i eve
8 t he wi t ness j ust now was r ef er r i ng t o some wor k paper s or ot her
9 mat er i al s t hat she used t o assi st her i n conduct i ng her audi t .
10 I bel i eve she i s r ef er r i ng t o t hat box of document s t her e whi ch
11 we j ust got on Monday. I t l ooks l i ke mat er i al s t hat she
12 gat her ed t o assi st her i n her wor k. We haven' t l ooked at i t .
13 Def ense hasn' t l ooked at i t . But i f she i s r ef er r i ng t o and i f
14 she want s t o l ook at t hat t o assi st her , I was wonder i ng i f
15 anyone had any obj ect i on t o gi ve t hat t o t he wi t ness.
16 MR. RUBI NSTEI N: J udge, I suggest ed t o Mr . Kwok t hat I
17 woul d have no pr obl emi f she r evi ewed i t and showed us whi ch
18 document she was goi ng t o r el y upon. I don' t want t o have
19 anot her 2000 si t uat i on.
20 THE COURT: Do you want t o r ecal l her and have her
21 come back, have anot her wi t ness? The j ur y i s al r eady i nqui r i ng
22 about wher e we ar e i n t hi s case, how many mor e wi t nesses, how
23 l ong.
24 MR. KWOK: We can t ake t hat out of or der .
25 THE COURT: Wel l , bot h l awyer s have t o agr ee.
( 212) 805- 0300
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1 MR. KWOK: We have our next wi t ness her e who i s Lee
2 Gur f ei n. We can t ake hi mf i r st , and i n t he meant i me we can
3 have t he pr i or wi t ness r evi ew t he box of document s she was
4 r ef er r i ng t o.
5 MR. RUBI NSTEI N: I t sounds al l r i ght . I amj ust goi ng
6 t o use t he f aci l i t i es f or a second.
7 THE COURT: Let ' s cal l t he j ur y i n.
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( 212) 805- 0300
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1 ( J ur y pr esent )
2 THE COURT: Ladi es and gent l emen, Ms. Ri l ey want s t o
3 r evi ew her per sonal f i l e i n or der t o gi ve you an answer t o t he
4 quest i on t hat was pendi ng, so she i s subj ect t o r ecal l f or t hat
5 quest i on and cont i nued cr oss- exami nat i on. I n or der t o save
6 t i me, we have anot her wi t ness.
7 Wi l l t he cl er k swear i n t he wi t ness, pl ease.
8 ELI SHA GURFEI N,
10 havi ng been dul y swor n, t est i f i ed as f ol l ows:
11 DEPUTY COURT CLERK: St at e your name, spel l your f i r st
12 and your l ast name sl owl y f or t he r ecor d, pl ease.
13 THE WI TNESS: El i sha Gur f ei n, E- L- I - S- H- A. Last name
14 G- U- R- F- E- I - N.
15 THE COURT: Pl ease pr oceed, Mr . Ever del l .
17 BY MR. EVERDELL:
18 Q. Good af t er noon, Mr . Gur f ei n.
20 Q. Wher e do you wor k?
21 A. I cur r ent l y wor k at New Yor k Uni ver si t y and Wi l l i am
22 Pat t er son Uni ver si t y.
23 Q. What do you do at t hose uni ver si t i es?
24 A. I t each.
25 Q. What do you t each?
( 212) 805- 0300
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8657KAR4 Gur f ei n - di r ect
1 A. I t each economi cs and f i nance at Wi l l i amPat t er son, and I
2 t each cour ses on nat ur al r esour ces at New Yor k Uni ver si t y.
3 Q. How l ong have you t aught at t hose uni ver si t i es?
4 A. For a f ew year s.
5 Q. What di d you do bef or e you wer e a t eacher ?
6 A. I had a company of my own i n commodi t y t r adi ng.
7 Q. How l ong di d you do commodi t i es t r adi ng?
8 A. Oh, wi t h my own company about 20 year s and bef or e t hat f or
9 t en.
10 Q. And bef or e you wer e a commodi t i es t r ader , what di d you do?
11 A. I wor ked f or t he def ense i ndust r y. I wor ked f or a company.
12 The name of t he company was Fur k & El mer .
13 Q. What di d you do f or t hat company?
14 A. I was i nvol ved i n get t i ng - - pur sui ng gover nment cont r act s
15 f or t he company.
16 Q. How l ong di d you do t hat f or ?
17 A. Ten year s.
18 Q. What i s your educat i onal backgr ound?
19 A. I have a bachel or ' s degr ee i n mat hemat i cs, and I have an
20 MBA wi t h a speci al t y i n f i nance.
21 Q. And you ment i oned gover nment cont r act s. Coul d you expl ai n
22 t hat a l i t t l e bi t mor e.
23 A. Wel l , I was i nvol ved i n t r yi ng t o obt ai n gover nment
24 cont r act s f or t he company, but most l y t he Def ense Depar t ment
25 and ot her agenci es of t he gover nment .
( 212) 805- 0300
623
1 Q. Mr . Gur f ei n, di d t her e come a t i me when you met a man named
2 Dani el Kar r on?
3 A. Yes.
4 Q. Do you see Mr . Kar r on i n t he cour t r oomt oday?
5 A. Yes.
6 Q. Coul d you pl ease poi nt hi mout and descr i be an ar t i cl e of
7 cl ot hi ng.
8 A. He i s si t t i ng i n t he cour t r oomwi t h a pl ai d shi r t .
9 MR. EVERDELL: Let t he r ecor d i ndi cat e t hat he has
10 i dent i f i ed t he def endant .
11 THE COURT: The r ecor d wi l l so i ndi cat ed.
12 Q. How di d you f i r st meet t he def endant ?
13 A. A mut ual acquai nt ance some t i me back, pr obabl y i n 2000
14 r oughl y, I ' mnot sur e.
15 Q. Was t hat t he f i r st t i me you met hi m?
16 A. Yes.
17 Q. Di d t her e come anot her t i me when you met hi m?
18 A. Yes.
19 Q. When was t hat r oughl y?
20 A. I n t he spr i ng or ear l y summer of 2001.
21 Q. And what was t he r eason f or t hat second meet i ng?
22 A. Dr . Kar r on t ol d me t hat he was goi ng t o pur sue a gr ant f r om
23 t he Depar t ment of Commer ce and t hat he i ndi cat ed t o me t hat
24 because I had backgr ound i n gover nment cont r act s and i n
25 busi ness, he asked me t o hel p hi mwr i t e t hat pr oposal .
( 212) 805- 0300
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1 Q. And was he appl yi ng f or t he gr ant on behal f of hi msel f or a
2 company?
3 A. On behal f of a company.
4 Q. What company was t hat ?
5 A. CASI .
6 Q. What ' s CASI st and f or ?
7 A. Comput er Ai ded Sur ger y, I nc.
8 Q. And what was t he def endant ' s posi t i on at CASI ?
9 A. I bel i eve he was t he owner and pr esi dent .
10 Q. What gr ant was he appl yi ng f or ?
11 A. He was appl yi ng f or an ATP gr ant wi t h NI ST.
12 Q. Do you r ecal l what NI ST i s?
13 A. The Nat i onal I nst i t ut e of St andar ds and Technol ogy.
14 Q. And what was your under st andi ng of why t he def endant asked
15 you t o hel p wi t h t he gr ant wr i t i ng pr oposal ?
16 A. Because of my f ami l i ar i t y wi t h gover nment cont r act i ng and
17 wi t h wr i t i ng pr oposal s f or gover nment cont r act s.
18 Q. Di d you and t he def endant di scuss whet her you woul d have
19 any cont i nui ng r ol e - - oh, sor r y.
20 Di d you t wo di scuss what your r ol e wi t h t he company
21 woul d be i f you wer e t o r ecei ve a gr ant ?
22 A. Yes.
23 Q. What di d you di scuss?
24 A. I was t o be t he busi ness manager i n t he event of an awar d.
25 Q. And what woul d t he busi ness manager do?
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1 A. Basi cal l y be r esponsi bl e f or al l nont echni cal i ssues.
2 Q. Woul d t hose i ncl ude budget i ng i ssues?
3 A. The pur chasi ng of equi pment , hi r i ng of peopl e, t he
4 budget i ng, var i ous ot her f i nanci al mat t er s.
5 Q. Wer e you goi ng t o have any ot her r ol e wi t h CASI besi des
6 managi ng t he gr ant f unds?
7 A. Yes, I was t o be at t empt i ng t o obt ai n addi t i onal f unds f or
8 CASI t hat woul d be suppl ement al t o t he f unds comi ng f r omNI ST.
9 Q. Addi t i onal f unds?
10 A. Yes.
11 Q. And how much of your t i me was goi ng t o be spent on
12 nonf undr ai si ng?
13 A. Wel l , 75 per cent was t o be f or CASI di r ect l y on t he gr ant ,
14 and 25 per cent was t o be f or ot her f undr ai si ng, at t empt i ng t o
15 get mor e f unds, whi ch was par t of t he gr ant s r equi r ement , by
16 t he way.
17 Q. How l ong di d t he gr ant wr i t i ng pr ocess t ake, t he pr oposal
18 wr i t i ng pr ocess?
19 A. Sever al mont hs. I can' t r emember exact l y, but sever al
20 mont hs.
21 Q. Dur i ng t hat t i me di d you become f ami l i ar wi t h t he f i nanci al
22 t er ms of t he gr ant and what const i t ut ed pr oper and i mpr oper
23 expendi t ur es?
24 A. Yes.
25 Q. How di d you do t hat ?
( 212) 805- 0300
626
1 A. Wel l , t he package t hat we r ecei ved f r omNI ST spel l ed out
2 t he var i ous r equi r ement s and t he qual i f i cat i ons of t he gr ant .
3 Q. Was t hat t he pr oposer ' s package?
4 A. Yes, t he pr oposer ' s package, cor r ect .
5 Q. And di d you r evi ew t hose mat er i al s dur i ng t he t i me of t he
6 gr ant wr i t i ng pr ocess?
7 A. Yes.
8 Q. And what di d t hose mat er i al s say about al l owabl e ver sus
9 unal l owabl e cost s?
10 A. Wel l , i t def i ned what was al l owed and what woul d not be
11 al l owed i n wor ki ng on t he gr ant .
12 Q. What sor t s of t hi ngs wer e t hose?
13 A. Wel l , i t i ndi cat ed t hat al l di r ect cost s woul d be al l owed
14 pr et t y much, but t her e wer e cer t ai n i t ems t hat wer e not t o be
15 al l owed l i ke r ent , ut i l i t i es, account i ng, l egal , ot her s I can' t
16 r emember .
17 Q. Di d you ever di scuss t hese r ul es wi t h Dr . Kar r on whi l e you
18 wer e pr epar i ng t he pr oposal ?
19 A. Yes.
20 Q. How many t i mes woul d you di scuss t hese spendi ng r ul es?
21 A. At var i ous t i mes, numer ous t i mes, but at var i ous t i mes
22 under di f f er ent condi t i ons or what ever par t i cul ar i t emwe wer e
23 di scussi ng.
24 Q. Di d you di scuss any par t i cul ar cost s wi t h t he def endant
25 dur i ng t hat per i od?
( 212) 805- 0300
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1 A. Yes. We di scussed at t he t i me of t he wr i t i ng t he pr oposal
2 t he wr i t i ng cost s, t he var i ous cost s associ at ed wi t h t hat .
3 Q. Can you be mor e speci f i c?
4 A. Wel l , I mean t her e wer e var i ous cost s t hat we had. I n
5 par t i cul ar , t her e wer e cost s f or t r avel t o Gai t her sbur g wher e
6 NI ST was l ocat ed, t her e wer e some host t r avel cost s, t her e wer e
7 mot el s what ever , f ood, what ever we expended t hat way, whi ch
8 act ual l y at t he t i me I was l ayi ng out t hat money. And Dr .
9 Kar r on and I di scussed t hat .
10 Q. You had some di scussi ons about t hose cost s?
11 A. Yeah.
12 Q. What was t he nat ur e of t hose di scussi ons?
13 A. Dr . Kar r on sai d we wi l l t r y and see i f we can get t hose
14 t hi ngs pai d, and you wi l l get your money back and so f or t h.
15 Q. What i f anyt hi ng di d you say t o hi m?
16 A. I sai d, you know, t hey' r e not al l owabl e, t hose cost s ar e
17 not al l owabl e, so, you know, l et ' s not wor r y about i t . Because
18 t her e wasn' t t hat much money t o begi n wi t h, but
19 not wi t hst andi ng, t hey wer en' t al l owed.
20 Q. Al l r i ght . Mr . Gur f ei n, di d CASI event ual l y r ecei ve an ATP
21 gr ant .
22 A. Yes.
23 Q. And how much money was aut hor i zed?
24 A. My memor y says $2. 1 mi l l i on, but I coul d be of f by a l i t t l e
25 bi t .
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628
1 Q. And how was t hat money goi ng t o be di sbur sed?
2 A. I n pr ogr ess payment s over a t hr ee- year per i od.
3 Q. Di d you i n f act have any cont i nui ng i nvol vement wi t h CASI
4 af t er t he gr ant was awar ded?
5 A. Yes.
6 Q. What was t hat i nvol vement ?
7 A. I was t aken on as t he busi ness manager .
8 Q. How l ong wer e you t he busi ness manager ?
9 A. For one year .
10 Q. St ar t i ng when and endi ng when?
11 A. St ar t i ng Oct ober 1, 2001, endi ng Sept ember 30, 2002.
12 Q. Wer e you pai d anyt hi ng f or t hi s j ob?
13 A. Yes.
14 Q. How much wer e you pai d?
15 A. I was pai d $100, 000.
16 Q. Mr . Gur f ei n, di d t her e come a t i me when you met wi t h peopl e
17 at NI ST af t er t he gr ant was awar ded t o di scuss t he gr ant ?
18 A. Yes.
19 Q. About when was t hat ?
20 A. Appr oxi mat el y a mont h or so af t er t he awar d.
21 Q. When was t he awar d?
22 A. The awar d was ef f ect i ve Oct ober 1, 2001. We wer e advi sed
23 of i t on Oct ober 4, 2001.
24 THE COURT: For t he $100, 000, was t hat a f ul l - t i me
25 j ob?
( 212) 805- 0300
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1 THE WI TNESS: The $100, 000 was f or 75 per cent of my
2 t i me.
3 THE COURT: So, you spent 75 per cent on busi nesses
4 ot her t han CASI , i s t hat cor r ect ? I mean 25 per cent - -
6 THE COURT: - - on busi nesses of your s ot her t han CASI .
7 THE WI TNESS: Yes, si r . But t he 25 per cent was al so
8 on CASI ' s behal f - -
9 THE COURT: Yes.
10 THE WI TNESS: - - i n pur sui ng ot her f unds.
11 THE COURT: I see. Al l r i ght . Sor r y, Mr . Ever del l .
12 MR. EVERDELL: That ' s al l r i ght , your Honor .
13 Q. So, you ment i oned t he meet i ng you had wi t h t he NI ST peopl e
14 af t er t he gr ant was awar ded.
15 A. Sor r y?
16 Q. You ment i oned a meet i ng you had wi t h NI ST peopl e af t er t he
17 gr ant was awar ded.
18 A. Yes.
19 Q. About when di d t hat t ake pl ace agai n?
20 A. About a mont h or so, maybe a l i t t l e mor e t han a mont h af t er
21 t he awar d.
22 Q. Di d t hat meet i ng have a name i n par t i cul ar ?
23 A. That was r ef er r ed t o as a ki ckof f meet i ng.
24 Q. What was t he ki ckof f meet i ng?
25 A. Wel l , i t was a meet i ng t o essent i al l y r est at e t he r ul es,
( 212) 805- 0300
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1 t he gr ound r ul es, what was expect ed of us, what t hat agency was
2 al l about , namel y t he NI ST agency, what t he r epor t i ng of t he
3 f undi ng woul d be, what t he r epor t i ng of pr ogr ess woul d be, what
4 was al l owed, what was not al l owed, under what condi t i ons woul d
5 we have t o appl y f or a change t o t he budget t hat was appr oved.
6 Q. And who at t ended t hi s meet i ng f r omCASI ?
7 A. Dr . Kar r on and I at t ended t hat meet i ng.
8 Q. And who at t ended f r omNI ST?
9 A. Wel l , Hope Snowden, who was t he gr ant admi ni st r at or
10 at t ended, as di d J ayne Or t hwei n and B. J . Li de, and t her e mi ght
11 have been some ot her peopl e. I t hi nk maybe Mar i l yn Gol dst ei n,
12 and I t hi nk even t he di r ect or mi ght have popped i n f or a l i t t l e
13 bi t , Mar k St anl ey. I r emember shaki ng hi s hand. That ' s al l I
14 r emember .
15 Q. Those ot her peopl e t hat you ment i oned - - Hope Snowden,
16 J ayne Or t hwei n, B. J . Li de - - who ar e t hey?
17 A. Hope Snowden was a gr ant admi ni st r at or .
18 Q. Was she on t hi s par t i cul ar gr ant wi t h CASI ?
19 A. Yes, yes. B. J . and J ayne wer e super vi sor y management t ype
20 per sons who wer e mor e i nvol ved i n t he t echni cal aspect s, as
21 wel l as t he busi ness but i n t he over al l aspect s of t he gr ant .
22 Q. And what happened at t he ki ckof f meet i ng?
23 A. How do you mean?
24 Q. Di d t he peopl e at NI ST have any di scussi ons wi t h you at
25 t hat meet i ng?
( 212) 805- 0300
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1 A. Yes, t hey t ol d us what t hey expect ed of us.
2 Q. And how di d t hey i mpar t t hat i nf or mat i on t o you?
3 A. Ther e was a pr esent at i on made t o us.
4 Q. I want you t o t ake a l ook at what ' s al r eady i n evi dence as
5 Gover nment Exhi bi t 4, whi ch i n t he f ol der i n f r ont of you, one
6 of t hose t wo f ol der s.
7 A. Yeah.
8 Q. Di spl ay t he f i r st page.
9 A. I see i t .
10 Q. Do you r ecogni ze what t hat i s?
11 A. Yes.
12 Q. What i s t hat ?
13 A. That was par t of t he pr esent at i on made t o us at t he
14 ki ckof f meet i ng.
15 Q. What di d t hat pr esent at i on i nvol ve?
16 A. That pr esent at i on i nvol ved a st at ement of what t he ATP
17 pr ogr amwas and what our r esponsi bi l i t i es woul d be i n r epor t i ng
18 and so f or t h.
19 Q. What i f anyt hi ng wer e you t ol d about t he r esponsi bi l i t i es
20 concer ni ng t he budget ?
21 A. Wi t h r espect t o t he budget ?
22 Q. Yes.
23 A. Wel l , one of t he t hi ngs we t al ked about was i f we wer e mor e
24 t han a cer t ai n per cent age f r omt he budget ed number s, t hen we
25 had t o appl y f or per mi ssi on t o do t hat .
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865ZKAR5 Gur f ei n - di r ect
1 BY MR. EVERDELL:
2 Q. And how di d t hat per mi ssi on come?
3 A. That woul d be i n wr i t i ng.
4 Q. What , i f anyt hi ng, wer e you t ol d about spendi ng out si de t he
5 budget ?
6 A. That i t coul d be al l owed, but i t woul d have t o be appr oved.
7 Q. What about di r ect ver sus i ndi r ect cost s, wer e you t ol d
8 anyt hi ng about t hat ?
9 A. Ri ght . I mean we wer e abl e pr et t y much t o spend on
10 i ndi r ect - - I ' msor r y - - on di r ect cost s i n a most gener al way,
11 but i ndi r ect cost s wer e gener al l y not al l owed.
12 Q. What wer e t hose t hi ngs cover ed at t hi s meet i ng?
13 A. Wel l , agai n, t he r ent , t he ut i l i t i es, account i ng, l egal ,
14 maybe some ot her i t ems. I can' t r ecal l .
15 Q. Now, ar ound t he t i me when t he gr ant was awar ded and t he
16 ki ckof f meet i ng occur r ed, di d you have any di scussi ons wi t h Dr .
17 Kar r on about any par t i cul ar expendi t ur es?
18 A. Wel l , agai n l eadi ng up t o t he awar d, we had di scussed
19 var i ous of t hose i t ems t hat wer e not al l owed. Agai n, we
20 di scussed t he pr oposal wr i t i ng cost s.
21 Q. What exact l y di d you di scuss about ?
22 A. Wel l , whet her t hey woul d be al l owed and - - you know, i t was
23 I t hought pr et t y cl ear t hat we wer en' t al l owed, but he sai d
24 maybe we' l l get t hemal l owed. But I ' mnot sur e how t hat was
25 goi ng t o happen.
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1 Q. To your knowl edge, wer e any of t hose pr epr oposal cost s ever
2 appr oved by NI ST peopl e?
3 A. Not t o my knowl edge.
4 Q. What ot her speci f i c expendi t ur es di d you di scuss wi t h t he
5 def endant ar ound t hi s t i me when t he gr ant was awar ded?
6 A. Wel l , af t er t he awar d, we di scussed r ent and ut i l i t i es and
7 l egal and account i ng.
8 Q. Let ' s t al k about r ent s and ut i l i t i es f or a moment . What
9 was t he nat ur e of your di scussi ons about r ent and ut i l i t i es?
10 A. Wel l , we had, i n t he pr oposal , and as appr oved i n t he
11 gr ant , we had i ndi cat ed t hat we wer e goi ng t o be i nvol ved wi t h
12 t he Ci t y Uni ver si t y at Fi f t h Avenue and 34t h St r eet wi t h t he
13 gr aduat e cent er t her e, t he comput er sci ence par t of i t , wher e
14 we woul d have a f aci l i t y t her e, and t hat f aci l i t y woul d be a
15 company wi t h some suppor t st af f f r omgr aduat e st udent s or
16 what ever , who wer e i n t he comput er sci ence ar ea.
17 Q. What happened wi t h r espect t o t hat f aci l i t y?
18 A. Wel l , i t was deci ded t hat we woul d not be usi ng t hat
19 f aci l i t y.
20 Q. Why not ?
21 A. I t hi nk Dr . Kar r on had i ndi cat ed t hat t he over head r at es
22 f or t he peopl e t her e was hi gh, and t hat i t was somet hi ng t hat
23 woul d not be desi r abl e.
24 Q. So wher e di d CASI set up i t s busi ness l ocat i on?
25 A. We set up, basi cal l y, i n Dr . Kar r on' s apar t ment .
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1 Q. And what , i f any, di scussi ons di d you have wi t h t he
2 def endant about r ent and ut i l i t i es wi t h r espect t o t he busi ness
3 space of CASI ?
4 A. Wel l , yeah, he f el t t hat - - I mean, he i ndi cat ed t o me t hat
5 t he r ent shoul d be pai d t o hi mby CASI , because t hat ' s wher e we
6 wer e doi ng al l t he wor k, and i t was essent i al l y an of f i ce
7 l abor at or y si t uat i on.
8 Q. Thi s was r ent f r omCASI t o t he def endant ?
9 A. Fr omCASI t o t he def endant , yes.
10 Q. And when t he def endant t ol d you t hi s, what , i f anyt hi ng,
11 was your r eact i on?
12 A. Wel l , i t was cl ear t hat t he r ul es, or t he gui del i nes gi ven
13 t o us by t he peopl e at NI ST sai d no, t hat ' s - - t hat was not
14 al l owed.
15 Q. And what , i f anyt hi ng, di d t he def endant r espond?
16 A. Wel l , he asked me t o see i f we can get i t appr oved. So I
17 wound up cal l i ng Hope Snowden at NI ST and aski ng her i f i t
18 coul d be appr oved.
19 Q. What , i f anyt hi ng, was her r esponse?
20 A. She sai d no.
21 Q. And what di d you do af t er you hear d no f r omHope Snowden?
22 A. I r epor t ed t o Dr . Kar r on. And he sai d, wel l , we t al ked
23 about i t and he sai d, wel l , why don' t you go back and t r y
24 agai n. But under t he i dea t hat t hi s i s a one gr ant company,
25 and so i t ' s cl ear t hat ever yt hi ng we do her e i s f or t hi s gr ant
( 212) 805- 0300
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1 and t her e wer e no ot her f unds, and so t hat t her e' s no ot her
2 act i vi t y at t he moment . So t hat we coul d si mpl y - - you know,
3 i t woul d be, as he expr essed i t , appr opr i at e f or us t o get pai d
4 r ent f or t hat f aci l i t y.
5 Q. And di d you, i n f act , cal l Hope Snowden agai n?
6 A. Yes, I di d.
7 Q. And di d you ask her t hat quest i on?
8 A. Yes, I di d.
9 Q. That way?
10 A. Wi t h r egar d, wi t h r egar d t o i t bei ng a one gr ant oper at i on,
11 yes.
12 Q. And what was her r esponse?
13 A. She sai d no, we can' t - - we don' t appr ove t hat .
14 Q. And what , i f anyt hi ng, di d you do wi t h t hat r esponse?
15 A. I t ol d i t t o Dr . Kar r on.
16 Q. And what was hi s r esponse?
17 A. I don' t know. I t hi nk he was a l i t t l e none pl used by i t , I
18 don' t know exact l y. For t hat moment we dr opped i t at t he
19 moment at t hat poi nt .
20 Q. About how many t i mes di d you speak t o Hope Snowden about
21 t hi s i ssue of r ent ?
22 A. Wel l , cer t ai nl y t wi ce, maybe mor e, but cer t ai nl y t wi ce.
23 Q. And di d you - - di d Hope Snowden ever t el l you t hat r ent was
24 an al l owabl e expense?
25 A. No.
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1 Q. Di d you have any ot her di scussi ons wi t h Hope Snowden about
2 ot her expense?
3 A. Yes. We di scussed ot her expenses. I t hi nk I pr obabl y
4 di scussed t he pr oposal cost s expense and ut i l i t i es. I t hi nk we
5 di scussed agai n si mi l ar t o t he r ent di scussi on.
6 THE COURT: Di d you ever t al k t o anyone besi des Hope
7 Snowden about t hese t hi s r ent and ut i l i t i es?
8 THE WI TNESS: I t ' s possi bl e. I mi ght ' ve di scussed - -
9 I mi ght have cal l ed her super vi sor , Mar i l yn Gol dst ei n, on a f ew
10 occasi ons.
11 THE COURT: And di d you get a - - what answer di d you
12 get ?
13 THE WI TNESS: Essent i al l y, no.
15 Q. And about how of t en di d you cal l Hope Snowden and t hese
16 ot her peopl e you ment i oned?
17 A. Wel l , at t he begi nni ng of t he gr ant per i od t hat I was
18 t her e, I woul d cal l her t wo t i mes a week or so. As t i me went
19 on, I cal l ed her maybe t wo t i mes a mont h.
20 Q. Al l r i ght . Mr . Ger f ei n, do you know, appr oxi mat el y, when
21 CASI r ecei ved i t s f i r st i nst al l ment of ATP gr ant money?
22 A. I ' ve been t r yi ng t o f i gur e t hat out . But I know i t was
23 ver y ear l y. I t was not ver y much af t er t he not i ce of awar d.
24 The not i ce of awar d was Oct ober 4t h. I keep t hi nki ng i t was
25 r i ght af t er t hat , but I ' mnot sur e.
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1 Q. Do you r ecal l how much was t r ansf er r ed i nt o t he CASI bank
2 account ?
3 A. Yes. $150, 000.
4 Q. And wher e di d t hat money go?
5 A. That money went i nt o a CASI gener al account of some ki nd.
6 Q. Di d you - -
7 A. At Chase Bank.
8 Q. I ' msor r y?
9 A. I t was at Chase Bank, I r ecal l t hat .
10 Q. Di d you ever have any di scussi ons wi t h t he def endant about
11 t hat i ni t i al t r ansf er of $150, 000?
12 A. Yes. He, he - - we had appl i ed f or , I bel i eve, or we had t o
13 appl y f or i t , and I t hi nk wi t h happi ness he t ol d me one mor ni ng
14 when I ar r i ved at hi s apar t ment t hat t he money came i n, t he
15 150, 000 came i n. And i n t he same sent ence I r ecal l he sai d,
16 and I ' ve t r ansf er r ed $75, 000 out of t he account .
17 Q. Di d he say why he di d t hat ?
18 A. Yes. He sai d he had some per sonal obl i gat i ons t o hi s
19 f ami l y, money owed t o hi s f ami l y, and he sai d t hat he had
20 cr edi t car d payment s t o make.
21 Q. Wi t h r espect t o hi s obl i gat i ons t o hi s f ami l y t hat you
22 ment i oned, di d you ever have any ot her di scussi ons wi t h hi m
23 about t hat t opi c?
24 A. Wel l , I mean i n t he cour se of wr i t i ng t he pr oposal , he had
25 al l owed t hat he had not had a - - been empl oyed i n any way, nor
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1 had any ot her gr ant money f or somet i me, and so t hat he had t o
2 r esor t t o cr edi t car ds and t o f ami l y hel p.
3 Q. And what i n par t i cul ar di d you - - di d he say what he was
4 spendi ng t he cr edi t car d money on?
5 A. Wel l , my sense was t hat f r omwhat t he di scussi ons wer e was
6 t hat he was spendi ng i t on j ust l i vi ng. He sai d he had t o
7 l i ve, and so he used hi s cr edi t car ds t o l i ve.
8 Q. When you hear d f r omt he def endant t hat he had t r ansf er r ed
9 $75, 000 out of t he $150, 000, what , i f anyt hi ng, di d you say?
10 A. I t ol d hi mhe coul dn' t do t hat .
11 Q. And what was t he def endant ' s r esponse?
12 A. He sai d, I have t o do i t .
13 Q. Di d he expand on t hat ?
14 A. Wel l , he sai d he had no choi ce; he had t o get r i d of t hose
15 debt s he had and he was t aki ng t hose f unds at t he get - -
16 i ni t i al l y, he had t o j ust t ake t hose f unds i mmedi at el y.
17 Q. Di d you have any ot her di scussi ons wi t h t he def endant about
18 wher e t he gr ant money was bei ng deposi t ed?
19 A. Yes.
20 Q. What wer e t hose di scussi ons?
21 A. Wel l , I t ol d hi mt hat we had t o open up a separ at e account
22 f or t he gr ant so t hat we don' t have i t mi xed up wi t h any ot her
23 act i vi t i es of CASI , i f t her e wer e any.
24 Q. And what was t he def endant ' s r esponse t o t hat ?
25 A. Wel l , at f i r st he r ej ect ed t he i dea, I t hi nk sayi ng t hat i t
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1 was - - i t woul d j ust cost t oo much t o open up anot her account .
2 But I di dn' t - - I di dn' t under st and what t hat meant about t he
3 cost woul d be so gr eat . But I t ol d hi mi t was a r equi r ement of
4 t he gr ant t hat we had t o have a separ at e account .
5 Q. And was a separ at e account event ual l y opened?
6 A. Yes.
7 Q. Mr . Ger f ei n, when you accept ed t he j ob at CASI as busi ness
8 manager , what was your under st andi ng about who woul d have t he
9 aut hor i t y t o si gn checks f or t he company?
10 A. Our i ni t i al di scussi ons wer e t hat I was goi ng t o have sol e
11 r esponsi bi l i t y f or si gni ng checks. I t ol d hi mt hat , l ook,
12 t hat ' s okay, but t hi s i s your company and r eal l y t her e shoul d
13 be dual si gnat ur e r equi r ement f or most checks. And we agr eed
14 t hat t her e woul d be dual si gnat ur e r esponsi bi l i t y, but anyt hi ng
15 under $250 coul d be si gned by one per son.
16 Q. I s t hi s i n f act t hat ar r angement you j ust descr i bed, i s
17 t hat i n f act what happened af t er t he gr ant was awar ded?
18 A. No.
19 Q. How di d i t wor k i n pr act i ce af t er t he gr ant was awar ded?
20 A. Wi t hi n one week exact l y on Oct ober 11t h, Dr . Kar r on sent a
21 not e t o Hope Snowden sayi ng t hat , whi l e I had admi ni st r at i ve
22 r esponsi bi l i t y, I had no si gnat ur e or of f i cer r esponsi bi l i t y at
23 CASI .
24 Q. And what di d you under st and t hat t o mean?
25 A. That means t hat I was st r i pped of my abi l i t y t o cont r ol t he
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1 busi ness as I was t ol d I woul d have.
2 Q. Take a l ook at Gover nment ' s exhi bi t 21 i n t he ot her f ol der
3 i n f r ont of you. Coul d we di spl ay t hat on t he scr een, page
4 t hr ee. I t ' s al so i n t he j ur y bi nder s.
5 A. Uh- huh. Yes.
6 Q. You see t hat document ?
7 THE COURT: I t ' s a l i t t l e har d t o see, but can you
8 r ead i t ?
10 THE COURT: I can' t , I can' t r ead i t .
11 THE WI TNESS: Her e' s my copy.
12 THE DEPUTY CLERK: J udge, he has a copy.
13 THE COURT: Al l r i ght . He was l ooki ng up t her e, so I
14 was - -
15 Q. Act ual l y, he, i f you coul d bl owup exact l y what you bl ew up.
16 Mr . Ger f ei n, do you see t hat document ?
17 A. Yes.
18 Q. What i s t hat document ?
19 A. That document i s t he l et t er t hat Dr . Kar r on sent t o Hope
20 Snowden dat ed Oct ober 11t h, 2001 and i ndi cat i ng t hat I onl y had
21 t he admi ni st r at or r esponsi bi l i t y, but not t he si gnat ur e
22 aut hor i t y. And i t says her e, and i s not aut hor i zed t o si gn f or
23 t he cor por at i on.
24 Q. Wher e do you see t hat ?
25 A. Fr omt he t hi r d - - on t he r i ght si de, t hi r d l i ne f r omt he
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1 bot t om.
2 Q. And you see t he f i nal sent ence whi ch says, t he
3 aut hor i zat i on f or Mr . Ger f ei n t o commi t t he cor por at i on wi l l be
4 made by separ at e l et t er aut hor i zat i on i f t he need ar i ses?
5 A. Cor r ect . I see t hat .
6 Q. Wer e you ever gi ven si gnat or y aut hor i t y f or t he company
7 whi l e you wer e wor ki ng at CASI ?
8 A. No.
9 Q. And what ' s t he dat e on t hi s l et t er ?
10 A. I ' msor r y?
11 Q. What ' s t he dat e on t hi s l et t er ?
12 A. The dat e on t he l et t er above, Oct ober 11t h - - r i ght t her e,
13 yeah.
14 Q. And about how l ong af t er t he gr ant was awar ded was t hat
15 l et t er dat ed?
16 A. I t ' s dat ed - - wel l t he gr ant was - - not i f i cat i on of awar d
17 was Oct ober 4t h, and t hi s l et t er i s dat ed Oct ober 11t h. So
18 i t ' s exact l y one week af t er t he not i ce of awar d.
19 Q. Al l r i ght . Mr . Ger f ei n, di d you have any f ur t her
20 di scussi ons wi t h t he def endant about spendi ng gr ant money af t er
21 t hat l et t er was submi t t ed?
22 A. About spendi ng gr ant money?
23 Q. About par t i cul ar expendi t ur es?
24 A. Sur e, I mean we di scussed var i ous t hi ngs t hat - - I mean Dr .
25 Kar r on ki nd of l i ked equi pment . I mean he - -
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1 Q. Why di d you di scuss t he equi pment di scussi ons you had?
2 A. I n par t i cul ar , we di scussed - - t her e wer e many i t ems of
3 di scussi on, but we di scussed some moni t or s t hat he bought t hat
4 wer e ver y expensi ve. I mean as moni t or s go, I t hi nk t hese
5 wer e, i f I r emember cor r ect l y, a coupl e t housand dol l ar s a
6 pi ece. They wer e l ar ge, at t r act i ve, but I di dn' t t hi nk t hey
7 wer e necessar y, and t hey wer e not par t - -
8 MR. RUBI NSTEI N: Obj ect i on, move t o st r i ke.
9 A. They wer e not par t of t he gr ant .
10 MR. RUBI NSTEI N: I move t o st r i ke what he t hought .
12 THE COURT: Obj ect i on sust ai ned, I guess.
13 Q. Ar e you - -
14 THE COURT: As t o what he t hought . You sai d you
15 t hought t hat you t ol d hi mt hey wer e not par t of t he gr ant .
17 THE COURT: Go ahead, what . Di d you t el l hi manyt hi ng
18 el se?
19 Q. I ' msor r y, Mr . Ger f ei n, you ment i oned moni t or s i n
20 par t i cul ar ?
21 A. Ri ght .
22 Q. I s t her e any ot her pi eces of equi pment ?
23 A. They wer e not par t of t he gr ant . Al so, t he poi nt t hey wer e
24 not par t of appr oved gr ant .
25 Q. Al l r i ght , l et ' s - - what , i f any, di scussi ons di d you have
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1 wi t h def endant about t hese pi eces of equi pment not bei ng par t
2 of t he gr ant ?
3 A. Wel l , t hat , you know, he coul dn' t j ust buy anyt hi ng he
4 want ed; t hat he had t o do t hi ngs t hat wer e par t of t he gr ant .
5 I f he want ed t o get somet hi ng t hat was not par t of t he gr ant ,
6 he woul d have t o appl y f or a wr i t t en appr oval . And hi s
7 r esponse t o me was I ' mt he PI , meani ng I ' mt he pr i nci pal
8 i nvest i gat or , and I can do anyt hi ng I want . I sai d, you can' t
9 do anyt hi ng you want . And t hat went on and on. That , t hat
10 i nt er change t ook pl ace a number of t i mes.
11 Q. Di d you appr ove or di sappr ove your sel f of t hese
12 expendi t ur es?
14 THE COURT: Obj ect i on sust ai ned. As I under st ood i t ,
15 hi s t est i mony i s t hat he di dn' t have appr oval aut hor i t y af t er
16 Oct ober 11t h.
17 MR. EVERDELL: I ' msor r y, your Honor , I j ust meant not
18 wi t h r espect t o your appr oval , si gnat or y aut hor i t y, but di d you
19 t hi nk t hat t hese expendi t ur es - -
20 THE COURT: The quest i on i s whet her t hey came wi t hi n
21 t he gr ant or not , not whet her he per sonal l y appr oved t hi ngs.
22 Thi s i sn' t a t r i al i n connect i on wi t h - -
23 MR. EVERDELL: Cer t ai nl y, your Honor .
24 THE COURT: - - per sonal appr oval s or di sappr oval s.
25 Q. When you sai d t hat t hese wer e not par t of t he gr ant , t hese
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1 expendi t ur es t hat you wer e t al ki ng t o t he def endant about , what
2 di d you mean by t hat ?
3 A. Wel l , we had i ncl uded i n our pr oposal var i ous f i gur es,
4 i ncl udi ng f i gur es f or equi pment , and t he equi pment was
5 del i neat ed, and t he i t ems t hat we j ust t al ked about wer e not
6 i ncl uded. And when t hose i t ems wer e bei ng pur chased t hat wer e
7 not r equi r ed by t he gr ant , or not appr oved by t he gr ant , I
8 shoul d say, t hen t hey r eal l y shoul d not have been bought .
9 Q. Di d you di scuss t hi s wi t h t he def endant ?
10 A. Yes, but - -
11 Q. What was hi s r esponse?
12 A. Wel l , f i r st of al l , i t was al ways af t er t he f act t hat I
13 f ound out t hat t hese t hi ngs wer e bought , because I di dn' t have
14 anyway of st oppi ng i t . And so I ' d come i n t her e one day as an
15 exampl e, and t her e woul d be t hi s movi e si zed t heat er - - t hese
16 t heat er si ze movi e scr een goi ng up, pr oj ect i on scr een pr obabl y
17 as bi g as t hat , maybe bi gger , don' t know. And I sai d t o hi m,
18 what i s t hat al l about ? And he sai d, wel l , we need t hat . And
19 I sai d, f or what ? And I j ust di dn' t under st and why we' d have
20 t o spend anot her f ew t housand dol l ar s when we - -
21 MR. RUBI NSTEI N: Obj ect i on t o what - - hi s f eel i ngs.
22 THE COURT: The j ur y i s i nst r uct ed t o di sr egar d t he
23 l ast t hr ee or f our wor ds. What t he i ssue i s t hat , was t hat
24 amongst t he equi pment t hat was del i neat ed i n t he gr ant ?
25 THE WI TNESS: I t i s not . That equi pment was not
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1 i ncl uded i n t he gr ant .
2 Q. What was t he def endant ' s r esponse when you woul d t al k t o
3 hi mabout t hese non- del i neat ed equi pment pi eces?
4 A. He sai d, we needed i t .
5 Q. Do you know what f unds wer e used t o buy t hese i t ems,
6 equi pment ?
7 A. The onl y f unds we had wer e f unds f r omNI ST, ATP f unds. So
8 t her e wer e no ot her f unds t hat I knew about t hat came i nt o t he
9 company.
10 Q. How do you know t he onl y f unds you had wer e ATP f unds?
11 A. Wel l , because I had been t r yi ng t o get ot her f unds and I
12 had not been successf ul i n doi ng t hat .
13 THE COURT: Di d you r evi ew - - wer e you i n char ge of
14 t he books and r ecor ds?
15 THE WI TNESS: Essent i al l y not . I mean, I shoul d have
16 been, but I had no cont r ol over i t .
17 THE COURT: What about t he bank account ?
18 THE WI TNESS: Same.
19 THE COURT: You di dn' t - -
20 THE WI TNESS: I had no cont r ol over i t .
21 THE COURT: You di dn' t r evi ew t he bank account s?
22 THE WI TNESS: I di d, but I had no cont r ol over i t .
23 Q. Di d you have any di scussi ons wi t h t he def endant on t he
24 subj ect of f r i nge benef i t s f or medi cal expenses?
25 A. Yes.
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1 Q. And what wer e t he nat ur e of t hose di scussi ons?
2 A. The nat ur e of t hose di scussi ons wer e t hat t he, t he f i gur e
3 of 34 per cent of an empl oyee' s gr oss sal ar y was al l owabl e f or
4 medi cal and ot her expenses l i ke t hat , f r i nge benef i t s. And Dr .
5 Kar r on was of t he opi ni on t hat , because he t ol d me so, t hat i f
6 i t was 34 per cent of t he t ot al payr ol l , t hat woul d be okay.
7 Q. What do you mean, i f i t was 34 per cent of t he t ot al ?
8 A. I f we di d not exceed 34 per cent of t he ent i r e payr ol l as
9 opposed t o j ust 34 per cent of each i ndi vi dual , t hat woul d be
10 okay. So t hat i f one per son had, say, 20 per cent and one
11 per son had 50 per cent , t he aver age woul d be l i ke 35 per cent or
12 somet hi ng cl ose t o t hat , so t hat woul d be okay.
13 THE COURT: Di d t he company have a benef i t pl an? Di d
14 t he company have a benef i t pl an?
15 THE WI TNESS: Not t hat I ever saw.
16 THE COURT: And how wer e f r i nge benef i t s admi ni st er ed?
17 THE WI TNESS: They wer e ver y l oosel y ar r anged at t hat
18 t i me.
19 THE COURT: What do you mean by t hat ?
20 THE WI TNESS: Wel l , t her e was, t her e was an assi gnment
21 gi ven t o an at t or ney t o gener at e a benef i t pol i cy, but t hat
22 never happened whi l e I was t her e.
23 THE COURT: But how - - you sai d t hey wer e l oosel y
24 admi ni st er ed. Someone had t o document somet hi ng l i ke t hat .
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1 THE COURT: What woul d happen?
2 THE WI TNESS: Doct or ' s bi l l , i f t he per son woul d have
3 i nsur ance or t he bi l l woul d be submi t t ed, but basi cal l y t he
4 company pai d f or i nsur ance i n my case.
5 THE COURT: Was t her e i nsur ance; t her e was heal t h
6 i nsur ance?
7 THE WI TNESS: Ther e was no - - t o my knowl edge, t her e
8 mi ght have been a pol i cy, but I can' t r ecal l . I do know t hat
9 i n my case i t was handl ed a l i t t l e bi t di f f er ent l y, but st i l l
10 i t was, t her e was no f or mal pol i cy.
11 THE COURT: What di d t hey do, pay t hemas t he bi l l s
12 came i n?
13 THE WI TNESS: I was cover ed by - - I was cover ed by an
14 i nsur ance pol i cy. I t hi nk Dr . Kar r on had one t oo. But I t hi nk
15 t her e wer e ot her bi l l s t hat he mi ght have had, as I r ecal l ,
16 t hat wer e pai d possi bl y di r ect l y. I r eal l y don' t know.
17 THE COURT: So t hat ' s what you mean by " l oosel y"
18 admi ni st er ed.
20 THE COURT: I see.
21 BY MR. EVERDELL:
22 Q. Mr . Ger f ei n, di d t he def endant have any heal t h expendi t ur es
23 t hat you' r e awar e about dur i ng t hi s per i od you wor ked wi t h
24 CASI ?
25 A. Yes, he had - - I t hi nk he had a l ot of heal t h expendi t ur es.
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1 I n par t i cul ar , I r emember he had dent al expendi t ur es.
2 Q. How do you know he had dent al expendi t ur es?
3 A. Wel l , of t en t i mes he asked me t o pi ck hi mup at t he dent i st
4 on my way i nt o t he of f i ce.
5 Q. And do you know what ki nd of dent al pr ocedur es he was
6 havi ng?
7 A. I n par t i cul ar , he had i ndi cat ed t hat he had a j aw
8 r econst r uct i on act i vi t y goi ng on wi t h t he dent i st .
9 Q. And di d you have any sense about why t he def endant was
10 havi ng hi s j aw - -
11 A. Based on hi s di scussi on wi t h me, and some ot her peopl e who
12 had such pr ocedur e, and t hat t hey wer e get t i ng a sex change
13 oper at i on, i t became cl ear t hat t hat j aw r econst r uct i on was f or
14 a sex change oper at i on.
15 Q. And j ust t o r epeat , di d you see any wr i t t en pl an f or t he
16 empl oyees at CASI f or heal t h benef i t s?
17 THE COURT: Wai t . I don' t under st and. A dent i st
18 can' t - - doesn' t do a sex change oper at i on.
19 THE WI TNESS: Cor r ect ; yes, si r .
20 THE COURT: You pi cked hi mup at t he dent i st .
21 THE WI TNESS: Ri ght , but - -
22 THE COURT: So al l you know i s t hat he had dent al
23 expenses.
24 THE WI TNESS: Ri ght . But based on hi s descr i pt i ons he
25 made of some ot her peopl e who he knew who had a si mi l ar
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1 pr ocedur e, and t hat was as t he cosmet i cs f or i n cont empl at i on
2 of a sex change oper at i on.
3 Q. Al l r i ght . Mr . Ger f ei n, di d you ever see a wr i t t en pl an i n
4 pl ace f or CASI f or heal t h expendi t ur es?
5 A. I di d not .
6 Q. Mr . Ger f ei n, when you had di scussi ons wi t h t he def endant
7 about spendi ng, wher e woul d you have t hose conver sat i ons?
8 A. Wel l , t ypi cal l y we woul d l eave t he of f i ce, whi ch was
9 usual l y ver y noi sy and poor l y vent i l at ed, and we' d go t o a
10 cof f ee shop, one of sever al cof f ee shops acr oss t he st r eet .
11 Q. And when you had meet i ngs wi t h t he def endant , woul d you
12 schedul e meet i ngs or woul d you j ust show up?
13 A. Wel l , bot h. Somet i mes I j ust show up and somet i mes t hey
14 wer e schedul ed.
15 Q. When you di d schedul e meet i ngs, di d t he def endant al ways
16 at t end your schedul ed meet i ngs?
17 A. Ver y of t en not .
18 Q. Can you expand on t hat ?
19 A. Wel l , I woul d t r y t o see hi mon var i ous occasi ons havi ng t o
20 do wi t h budget ar y t hi ngs and ot her mat t er s, and somet i mes I ' d
21 show up at t he appoi nt ed t i me, l et ' s say 11: 00 o' cl ock and he
22 was ei t her sl eepi ng or he' s i n t he gymor what ever , but ver y
23 of t en he was not t her e.
24 Q. You say he was sl eepi ng; how do you know he' s sl eepi ng?
25 THE COURT: I don' t see t he r el evance of whet her he' s
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1 sl eepi ng or not , Mr . Ever del l . You have t o - -
2 Q. As a - -
3 MR. EVERDELL: Your Honor , i f we coul d have a br i ef
4 si debar ?
5 THE COURT: I f you got - - al l r i ght , go ahead t hen.
6 MR. EVERDELL: Al l r i ght .
7 THE COURT: You got a r el evant poi nt , but I j ust
8 want ed t o cal l your at t ent i on t o t he possi bl e l ack of
9 r el evance.
10 Q. How, i f anyt hi ng, di d t hi s, di d t hese - - di d t he
11 def endant ' s wor k habi t s i mpact your wor k?
13 THE WI TNESS: Ver y of t en i t was di f f i cul t t o - -
14 MR. RUBI NSTEI N: I have an obj ect i on.
15 THE COURT: I wi l l al l ow t he quest i on.
16 Q. How, i f any - -
17 A. Wel l , ver y of t en I woul d t r y t o meet wi t h hi mand - - wel l ,
18 one t i me I had an appoi nt ment t o see hi mon a Sunday eveni ng
19 ' cause I coul d get hi s at t ent i on wi t hout i nt er f er ence, and I ' d
20 show up and I wai t f or an hour , and he di dn' t show up.
21 Q. Do you ever have any di scussi ons wi t h Dr . Kar r on about hi s
22 wor k habi t s?
23 A. Yes, I di d. I t ol d hi mt hi s i s not j ust accept abl e. I
24 used t o get f r ust r at ed j ust showi ng up t i me and t i me agai n, and
25 he' d be out doi ng what he was doi ng.
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1 Q. Mr . Ger f ei n do you know someone named Mar gar et Fer r and?
2 A. I know t he name Mar gar et .
3 Q. Who i s Mar gar et ?
4 A. Mar gar et was a cl eani ng l ady.
5 Q. And what di d you - - oh, di d you ever see her i n t he
6 apar t ment , Mar gar et ?
7 A. Sur e.
8 Q. How of t en?
9 A. I woul d guess once a week, but I ' mnot r eal l y sur e.
10 Q. And what was she doi ng when you saw her i n t he apar t ment ?
11 A. She' d be cl eani ng di shes or t oi l et s or , you know, what ever ;
12 dust i ng, what ever a cl eani ng l ady does.
13 Q. Di d you ever see Mar gar et doi ng any of f i ce wor k, asi de f r om
14 cl eani ng, whi l e you wer e t her e?
15 A. Not when I was t her e.
16 MR. EVERDELL: One moment , your Honor .
17 Q. Mr . Ger f ei n, when di d you t er mi nat e your empl oyment at
18 CASI ?
19 A. I t er mi nat ed my empl oyment Sept ember 30t h, 2002.
20 Q. Why di d you l eave af t er onl y one year ?
21 A. Wel l , Dr . Kar r on sai d he coul dn' t af f or d t o pay me t he
22 hundr ed t housand dol l ar s a year . And he asked i f I woul d st ay
23 on at $50, 000 a year . And i t di dn' t t ake much t i me f or me t o
24 know t hat I woul dn' t st ay t her e ei t her way, at 100 or 50,
25 because my ment al heal t h was mor e val uabl e t han bei ng par t of
( 212) 805- 0300
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1 t hat oper at i on.
2 MR. EVERDELL: Thank you. No f ur t her quest i ons.
3 THE COURT: Mr . Rubi nst ei n.
5 CROSS EXAMI NATI ON
7 Q. I n f act , Mr . Gur f ei n, you had a cont r act , di d you not ?
8 A. I di d.
9 Q. And your cont r act was f or one year , cor r ect ?
10 A. Cor r ect .
11 Q. And at t he end of t he year wer e you of f er ed a r enewal of
12 t hat cont r act ?
13 A. No.
14 Q. You wer e a member of t he boar d of di r ect or s, wer e you not ?
15 A. For one mont h.
16 Q. And - -
17 A. Appr oxi mat el y.
18 Q. Was t hat t he f i r st mont h?
19 A. That was - - no. I t was somet i me bet ween J ul y and August ,
20 somet hi ng l i ke t hat .
21 Q. J ul y and August of 2002?
22 A. Cor r ect .
23 Q. And wer e you an of f i cer i n t he cor por at i on?
24 A. For about t hat one mont h. I was made an of f i cer of t he
25 cor por at i on wi t hout my bei ng t ol d i n advance, and I r esi gned
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653
865ZKAR5 Gur f ei n - cr oss
1 t hat wi t hi n a mont h, r oughl y, of t he t i me t hat I had t hat ,
2 whi l e I t hat mai nt ai ned my posi t i on as t he busi ness manager .
3 Q. You r esi gned as member of t he boar d, cor r ect ?
4 A. Yes.
5 Q. Who el se was on t he boar d?
6 A. Dr . Kar r on, I t hi nk t her e was a Mr . Ber nst ei n I bel i eve who
7 was an at t or ney, t her e was Abe Kar r on, who was Dr . Kar r on' s
8 br ot her . Ther e wer e, t her e pr obabl y was one ot her per son, I
9 t hi nk possi bl y Fr eder i ca Mi l l er at t or ney. I ' mnot sur e. She
10 mi ght have been a member of t he boar d as wel l .
11 Q. And t hese - - di d you at t end any boar d meet i ngs?
12 A. That one. Oh, as a di r ect or or as a vi si t or ?
13 Q. At any t i me?
14 A. I t hi nk I at t ended t wo boar d meet i ngs i n t ot al , i f I
15 r emember cor r ect l y.
16 Q. And wher e wer e t he boar d meet i ngs hel d?
17 A. They wer e hel d at t he of f i ce of Mr . Ber nst ei n.
18 Q. And what t i me of day or ni ght ?
19 A. I t hi nk pr obabl y i n t he eveni ng.
20 Q. And you, when you wor ked at CASI , what wer e your wor k
21 hour s?
22 A. The wor k hour s wer e pr et t y var i abl e. They wer e up t o me.
23 And some days I wor ked at CASI ' s of f i ces l i ke t hr ee days a
24 week, maybe f our , maybe t wo, and t he r est of t he t i me I wor ked
25 at home. But r emember I was t her e on 75 per cent of t he t i me.
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1 Q. When you came t o t he of f i ce, how l at e woul d you st ay on a
2 non- boar d member day?
3 A. I t var i ed.
4 Q. Wel l , what was t he l at est t hat you ever st ayed at t he
5 of f i ce when you wer e t he - - you wer e t he chi ef oper at i ng
6 of f i cer ?
7 A. No, I was not .
8 Q. What was your t i t l e?
9 A. Busi ness manager , I t hi nk.
10 Q. How l at e di d you - - what ' s t he l at est you ever wor ked at
11 CASI t he year as t he busi ness manager ?
12 A. Pr obabl y mi dni ght .
13 Q. And how of t en di d you do t hat ?
14 A. I don' t r emember .
15 Q. Mor e t han once?
16 A. Oh, sur e.
17 Q. And you wer e asked t o i nvest money i n CASI , wer e you not ?
18 A. I was.
19 Q. You wer e asked t o i nvest money by Dr . Kar r on' s br ot her , Abe
20 Kar r on, r i ght ?
21 A. I t wasn' t qui t e l i ke you' r e sayi ng.
22 Q. Wel l , wer e you asked t o i nvest $50, 000?
23 A. That ' s cor r ect .
24 Q. And when you wer e asked t o i nvest , when was i t ?
25 THE COURT: Coul d we have a dat e, Mr . Rubi nst ei n?
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1 Q. Was t hat ear l y on - -
2 A. Yes.
3 Q. - - your empl oyment , cor r ect ?
4 A. Cor r ect .
5 Q. I t was pr i or t o t he t i me t hat t he l et t er was gener at ed t o
6 Mar i l yn Gol dst ei n l i mi t i ng your f unct i ons?
7 A. No, i t was af t er t hat .
8 Q. When was i t ?
9 A. I don' t know t he dat e, but i t was af t er t hat .
10 Q. Wer e you a si gnat or y at one t i me on t he checki ng account s?
11 A. Was I a si gnat or y on t he checki ng account ? Di d I si gn
12 paper , document s at Chase t o do t hat at some poi nt ? I t hi nk I
13 di d. Di d I ever si gn a check? No.
14 Q. How wer e t he checks cr eat ed?
15 A. How wer e t hey cr eat ed?
16 Q. Yeah. You got pai d, di dn' t you?
17 A. Yes.
18 Q. Pai d ever y week, cor r ect ?
19 A. No.
20 Q. Got pai d ever y t wo weeks?
21 A. No.
22 Q. How of t en you get pai d?
23 A. Once a mont h.
24 Q. Each mont h?
25 A. Each mont h.
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1 Q. Now, you t ol d us about Dr . Kar r on i n t he f i r st mont h of t he
2 gr ant he t ook $75, 000 f or as a l oan f or hi s per sonal use,
3 cor r ect ?
4 A. Cor r ect .
5 Q. Now, he was ear ni ng $175, 000 f or t he year , cor r ect ?
6 A. Cor r ect .
7 Q. And t hat comes out t o about $14, 000 and change a mont h?
8 A. Cor r ect .
9 Q. Di d you know i f Dr . Kar r on t ook a check, a paycheck i n
10 November of 2001?
11 A. I don' t know.
12 Q. Do you know i f he t ook a paycheck i n December of 2001?
14 Q. Do you know i f he got a paycheck i n J anuar y of 2002?
15 A. I don' t r emember t hat .
16 Q. I sn' t i t a f act t hat t he f i r st paycheck t hat Dr . Kar r on got
17 was i n May of 2002?
18 A. I don' t know t hat .
19 Q. Wel l , as t he - -
20 THE COURT: The j ur y i s t o dr aw no i nf er ences.
21 Quest i ons onl y ar e what i s t he evi dence bef or e you. Don' t dr aw
22 any i nf er ences f r omt he quest i on.
23 Q. Now, t her e wer e a number of peopl e who wor ked at CASI on
24 t hi s pr oj ect , wer e t her e not ?
25 A. Sever al , yes.
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1 Q. And what was t he or i gi nal budget f or sal ar i es?
2 A. For what ?
3 Q. For sal ar i es, f or t ot al sal ar i es?
4 A. I don' t r emember . I don' t r ecal l t hat of f hand.
5 Q. Let me show you an exhi bi t t o see i f i t r ef r eshes your
6 r ecol l ect i on?
7 THE COURT: What exhi bi t ?
8 Q. Okay. Af t er t he i ni t i al budget was submi t t ed, was t her e an
9 amendment , a r equest f or an amendment t o t he budget submi t t ed?
10 A. I ' msor r y, coul d you r epeat t hat ?
11 Q. Yeah. Af t er t he i ni t i al budget was submi t t ed, you
12 submi t t ed a budget bef or e you r ecei ved t he f unds, cor r ect ?
13 A. Yes.
14 Q. And t hat was t o get $800, 000 t he f i r st year , cor r ect ?
15 A. Cor r ect .
16 Q. And af t er - -
17 THE COURT: Tot al budget .
18 Q. For t he f i r st year ?
19 A. I bel i eve, I bel i eve 800, 000 sounds about r i ght . I t mi ght
20 have been a l i t t l e bi t mor e.
21 THE COURT: Budget . We' r e not t al ki ng sal ar i es at
22 t hi s poi nt . Budget .
23 MR. RUBI NSTEI N: No, t al ki ng t ot al budget .
24 A. Yes.
25 Q. The f i r st year . And t hen t he t ot al you t ol d us was f or t he
( 212) 805- 0300
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1 t hr ee year s was about 2. 1 mi l l i on?
2 A. Cor r ect .
3 Q. Now, i n Oct ober di d you f i l e f or a budget amendment , a
4 r evi si on ear l y on?
5 A. Yes.
6 Q. And I t ur n your at t ent i on t o exhi bi t - - do you have t he
7 exhi bi t s i n f r ont of you, si r ? I s t her e a book wi t h exhi bi t s
8 t her e?
9 A. Whi ch exhi bi t ar e you - -
10 Q. I ' mr ef er r i ng t o exhi bi t 22.
11 A. I don' t have such an exhi bi t .
12 MR. EVERDELL: One moment , your Honor .
13 MR. RUBI NSTEI N: I ' l l gi ve hi mmy exhi bi t , your Honor .
14 MR. EVERDELL: Her e.
15 Q. Mr . Ger f ei n - -
16 THE COURT: The wi t ness has been handed exhi bi t 22.
17 Q. Di d you r evi ew t hat , si r ?
18 A. Whi ch pi ece of paper ar e you aski ng me t o l ook at ?
19 Q. The ent i r e exhi bi t .
20 A. Okay. I , I have an i dea what t hi s i s.
21 Q. Di d you have di scussi ons wi t h peopl e, ei t her Hope Snowden
22 or anybody at ATP about a r evi si on i n t he budget ?
23 A. About a pr ovi si on i n t he budget ?
24 Q. No, a r evi si on?
25 A. Oh, yes. The chances ar e I di d, al t hough t hi s was
( 212) 805- 0300
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1 submi t t ed - - we di d make a submi ssi on.
2 Q. And di d you pr epar e t he submi ssi on?
3 A. I bel i eve I di d. I can' t be 100 per cent sur e. But i f I
4 di d i t , I di d i t wi t h t he Dr . Kar r on. I mean, we cer t ai nl y
5 di scussed i t .
6 Q. Al l r i ght . And by l ooki ng at t hat document , does i t
7 r ef r esh your r ecol l ect i on as t o what t he budget was f or t he
8 f i r st year ?
9 A. Ri ght . I see t hat .
10 Q. And t her e wer e submi t t ed r easons f or t he r equest f or
11 r evi si ons, cor r ect ?
12 A. Yes.
13 Q. As a mat t er of f act , t hi s was t he second r evi si on f or
14 budget ?
15 A. I don' t r ecal l t hat . I , I j ust don' t r ecal l whi ch r evi si on
16 i t was, i f t her e was a f i r st or second.
17 Q. Do you r ecal l submi t t i ng a r evi si on t o change your name
18 f r omLee t o El i sha?
19 A. I f t her e was such changes, I do not r emember i t .
20 Q. Now, t he sal ar y - - di d you under st and, si r , as t he busi ness
21 manager , t hat you di d not need appr oval i f you changed a
22 cat egor y by 10 per cent ?
23 A. Wi t hi n 10 per cent .
24 Q. Of t he gr ant ?
25 A. Yes.
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1 Q. So t hat you coul d add $80, 000 t o a cat egor y as l ong as you
2 t ook 80, 000 away f r omt hat cat egor y, cor r ect ?
3 A. Um, t hat coul d be cor r ect . I can' t be sur e 100 per cent i f
4 t hat ' s cor r ect .
5 Q. Now, you t ol d us t hat you had heal t h i nsur ance. You
6 act ual l y had a cont r act , cor r ect ?
7 A. Yes.
8 Q. And di d t hat pr ovi de f or heal t h benef i t s f or you?
9 A. I t hi nk so, but I can' t r emember exact l y. I don' t have i t
10 i n f r ont of me.
11 Q. Do you r ecal l who t he l awyer was who you ment i oned was
12 cont act ed t o devel op a f r i nge benef i t manual ?
13 A. My best r ecol l ect i on - -
14 THE COURT: Pl an or manual ?
15 Q. Pl an or manual ?
16 A. My best r ecol l ect i on was Fr eder i ca Mi l l er .
17 Q. And do you know i f Fr eder i ca Mi l l er was pai d anyt hi ng t o do
18 t hi s wor k?
19 A. I have no i dea.
20 Q. Now, i n addi t i on t o t he - - your wi f e had separ at e cover age,
21 di d she not ?
22 A. My wi f e had separ at e cover age, yes.
23 Q. And CASI r ei mbur sed you f or your wi f e' s medi cal expense,
24 r i ght ?
25 A. Not our medi cal expense, our i nsur ance.
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1 Q. What ki nd of i nsur ance?
2 A. I t was a gr oup i nsur ance, I t hi nk. I t was our por t i on of
3 t he gr oup i nsur ance.
4 Q. Gr oup i nsur ance cover i ng what ?
5 A. Cover i ng medi cal .
6 Q. And wer e you al so on t he medi cal pl an t hat CASI had f or i t s
7 empl oyees?
8 A. No.
9 THE COURT: Whose gr oup medi cal wer e you t al ki ng
10 about ?
11 THE WI TNESS: My wi f e' s medi cal . My wi f e was par t of
12 a gr oup, and so - -
13 THE COURT: I see. Di f f er ent , separ at e gr oup?
14 THE WI TNESS: Agai n, t her e was no - - I must make a
15 poi nt . Ther e was no pol i cy, and Dr . Kar r on sai d, okay, we' l l
16 j ust pay your medi cal i nsur ance. And t he way i t was set up,
17 t hat my wi f e woul d be cover ed under t hat as wel l .
18 Q. And t her e wer e f r i nge benef i t s pr ovi ded f or i n your budget ,
19 wer e t her e not ?
20 A. Cor r ect .
21 Q. And how much wer e t he f r i nge benef i t s pr ovi ded f or i n t he
22 CASI budget ?
23 A. I woul d have t o l ook t hat up. I don' t know t hat exact l y.
24 The f r i nge benef i t s wer e pr obabl y 34 per cent of t he t ot al
25 payr ol l . The payr ol l - - and t hat f i r st year says her e
( 212) 805- 0300
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1 $325, 000. So f r i nge benef i t s shoul d have been 34 per cent of
2 what ever t hat number i s, whi ch shoul d be somet hi ng over
3 $100, 000, I t hi nk.
4 Q. And do you see on - - so t hat was - - di d you ar gue wi t h Dr .
5 Kar r on as t o whet her or not you - - your wi f e shoul d be
6 r ei mbur sed f or your medi cal i nsur ance?
7 A. Ar gue? No, t her e was no ar gument . He - - t her e was never
8 an ar gument about t hat .
9 Q. Di d you say t o hi m, I don' t t hi nk t hat ' s an al l owabl e
10 f r i nge benef i t ?
11 A. No.
12 Q. Di d you t hi nk i t was al l owabl e?
13 A. Based on t he, t he l oose pol i cy t hat he had est abl i shed, i t
14 was.
15 Q. What about ATP, di d you t hi nk t hat hi s l oose pol i cy
16 vi ol at ed t he ATP - -
17 A. I ' mnot sur e how. I f i t was f or me, wi t hi n 34 per cent of
18 my, of my gr oss pay, i t was not vi ol at i ng, no.
19 Q. Was i t - - di d you know of any r ul e t hat suggest ed t hat t he
20 f r i nge benef i t amount was r el at ed t o an i ndi vi dual ' s gr oss pay?
21 A. Yes.
22 Q. Wher e, wher e i s i t t hat i t ' s - - wher e i s t he document t hat
23 suggest s t hat f r i nge benef i t s ar e i n di r ect pr opor t i on t o one' s
24 sal ar y?
25 A. As f ar as - - I r emember r eadi ng t hat i n t he document s.
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1 Q. You had t hat di scussi on wi t h Dr . Kar r on, di d you not ?
2 A. Yes. Wel l , we di scussed t he subj ect i n gener al , mor e wi t h
3 r espect t o hi s r equi r ement s f or medi cal t han mi ne. I was way
4 wi t hi n t he 34 per cent .
5 Q. And hi s vi ew was t hat i f you had f r i nge benef i t s f or t he
6 company, what ever was ut i l i zed, as l ong as i t was a f r i nge
7 benef i t , anybody coul d use i t ?
8 A. I don' t under st and your quest i on.
9 Q. Di d you have a di scussi on wi t h Dr . Kar r on as t o t he use of
10 f r i nge benef i t s?
11 A. Yes.
12 Q. And di dn' t he advi se you t hat i t was hi s under st andi ng t hat
13 f r i nge benef i t s - - t hat he coul d ut i l i ze up t o what ever f r i nge
14 benef i t money was not used by ot her empl oyees t hat was
15 avai l abl e f or hi m?
16 A. He sai d t hat .
17 Q. And ar e you awar e - - di d you have anyt hi ng t o do wi t h t he
18 quar t er l y f i nanci al st at ement s?
19 A. Yes.
20 Q. Di d you hel p pr epar e t hem?
21 A. Yes.
22 Q. Wher e di d you get t he number s f r omt o put i nt o t he
23 quar t er l y f i nanci al st at ement s?
24 A. Those number s wer e t he aggr egat e of what was i n t he mont hl y
25 appl i cat i ons f or , f or t he var i ous pr ogr ess payment s. That ' s
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1 wher e t hese number s came f r om.
2 Q. Di d t hey come f r omact ual expenses?
3 A. No, t hey di d not .
4 Q. And who det er mi ned t hat t hat was t he pr oper number s, t hose
5 wer e t he pr oper number s t o use?
6 A. Wel l , t he f i r st t i me we went i n af t er Dr . Kar r on wi t hdr ew
7 t he $75, 000, and we had we had a di scussi on about t hat , about
8 how t hat $75, 000, f or exampl e, coul d be appl i ed t o di r ect - - on
9 t he di r ect char ges f or t he gr ant , whi ch we coul dn' t possi bl y do
10 because i t wasn' t - - I mean t hat money was not spent on t he
11 gr ant . So Dr . Kar r on sai d j ust , okay, make i t t hat i t wor ks;
12 make sur e t hat , you know, you don' t r ai se any r ed f l ags and
13 j ust submi t t he number s t hat wi l l make i t wor k. And t hat ' s
14 what we di d.
15 Q. You ar e awar e, si r , t hat Dr . Kar r on pai d back t hat $75, 000
16 i n t hat f i r st year ; you' r e awar e of t hat ?
17 A. I am. But i t caused us gr eat pai n t o have t hat $75, 000
18 t aken out , so at t he end of ever y mont h we wer e down t o al most
19 zer o on t he bank account .
20 Q. And whenever you got down t o zer o, Dr . Kar r on woul d put hi s
21 own money i nt o t he company, cor r ect ?
23 Q. Wel l , how di d you get above zer o?
24 A. We got anot her pr ogr ess payment .
25 Q. Di d you get a per sonal l oan f r omCASI dur i ng t hi s per i od?
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1 A. Di d I get a per sonal l oan?
2 Q. Yes.
3 A. Not t o my knowl edge.
4 Q. Di d you get a per sonal l oan f r omDr . Kar r on dur i ng t hi s
5 per i od?
7 Q. You al so had a t el ephone i nst al l ed i n your house r el at ed t o
8 CASI busi ness wi t h t he ATP gr ant , di d you not ?
9 A. Cor r ect .
10 Q. And t hat t el ephone was pai d f or by CASI ?
11 A. Cor r ect .
12 Q. And you used t hat phone st r i ct l y f or company busi ness?
13 A. Cor r ect .
14 Q. Di d you have a cr edi t car d t o use f or CASI ?
15 A. I don' t r ecal l i f I had a cr edi t car d. I f I di d, i t was
16 har dl y used. I n f act , I t hi nk I gave i t back t o hi m. I f I had
17 one, I gave i t back t o hi m.
18 Q. At what poi nt ?
19 A. Ri ght away. I mean i t was - - I , I , I can' t r emember t he,
20 any cr edi t car d bei ng of any subst ance.
21 Q. Di d you cal l anybody at ATP t o r epor t t hat Dr . Kar r on had
22 bor r owed $75, 000?
23 A. I di d not .
24 Q. When you say t hat you wer e, t he company was shor t money,
25 t her e was $800, 000 deposi t ed by ear l y Oct ober or by t he mi ddl e
( 212) 805- 0300
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1 of Oct ober i nt o an account f or you t o dr awdown; i s t hat
2 cor r ect ?
3 A. I ncor r ect .
4 Q. Wher e was t he money t hat was gi ven by ATP, t he $800, 000,
5 how di d t hat - -
6 A. The $800, 000 came i n pi eces. The f i r st pi ece was 150, 000
7 and ever y mont h i n t he f i r st year af t er t hat i t was $60, 000.
8 We had t o appl y f or t hat money each mont h.
9 Q. Ar e you awar e t hat you coul d have appl i ed f or t he f i r st - -
10 i n t he f i r st mont h f or t he whol e $800, 000?
11 A. I was not awar e of t hat .
12 Q. So i f somebody f r omATP had t est i f i ed her e at t he t r i al ,
13 you wer e unawar e of t hat , cor r ect ?
14 A. I ' munawar e of t hat .
15 Q. You wer e pr esent at - - on November 8t h, 2001 at what ' s
16 cal l ed a ki ckof f meet i ng?
17 A. Yes. Yes, I was.
18 Q. And you went over r ul es and r egul at i ons wi t h t he peopl e - -
19 A. Yes.
20 Q. - - at NI ST?
21 A. Cor r ect .
22 Q. And I t hi nk you t ol d us t hat you met Mar k St anl ey t her e?
23 A. I t hi nk I shook hands wi t h hi mat most .
24 Q. And di d Dr . Kar r on know Mar k St anl ey?
25 A. Yes.
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1 Q. And t hey had a cor di al comf or t abl e r el at i onshi p?
2 MR. EVERDELL: Obj ect i on.
3 THE COURT: Do you know? Wer e you pr esent ? Do you
4 r emember any of t hei r meet i ngs bef or e t he gr ant ?
5 THE WI TNESS: No, I was not .
6 Q. Wel l , di d Dr . Kar r on or you di scuss t hese, t hi s agr eement
7 agr eement s you had wi t h hi mas t o whet her or not an expense,
8 was a pr oper NI ST expense, you had a number of t hese di scusses,
9 cor r ect ?
10 A. Yes.
11 Q. And di d he advi se you t hat he woul d get t he appr oval
12 because NI ST l oved hi mand he bought i t ems bef or e he asked or
13 r ecei ved appr oval f r omNI ST?
14 A. I can' t hear what you' r e sayi ng.
15 Q. Di d he t el l you t hat - -
16 THE COURT: You bet t er get back t o t he mi cr ophone, Mr .
17 Rubi nst ei n, because I coul dn' t hear hal f t hat quest i on.
18 MR. RUBI NSTEI N: Sor r y.
19 Q. When you quest i oned t he pr opr i et y of cer t ai n expendi t ur es
20 by Dr . Kar r on, wi t hout pr i or appr oval , and i n f act t hat Dr .
21 Kar r on t ol d you t hat he woul d get appr oval because NI ST l oved
22 hi m?
23 A. Yes, he sai d t hat .
24 Q. Di d you bi l l a, and be r ei mbur sed f or par ki ng whi l e you
25 wer e a CASI empl oyee?
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1 A. Yes.
2 Q. And di d you al so bi l l f or t r avel ?
3 A. For mi l eage you mean?
4 Q. Yes.
5 A. I don' t r ecal l t he mi l eage. I r ecal l I t hi nk par ki ng at
6 t he met er . Possi bl y t ol l s. I don' t r emember t hat . That ' s
7 possi bl e. But I don' t r ecal l mi l eage, al t hough t hat ' s possi bl e
8 t oo.
9 Q. Do you r ecal l r ecei vi ng an e- mai l f r omDr . Kar r on
10 r equest i ng t hat you r epay cer t ai n expenses t hat wer e not
11 appr oved by ATP?
12 A. I don' t r ecal l such an e- mai l .
14
15
16
17
18
19
20
21
22
23
24
25
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8657KAR6 Gur f ei n - cr oss
2 Q. Let me show you t hi s document and mar k i t as - - i t ' s par t
3 of act ual l y gover nment ' s 3507- S, at page 27 of 28 pages.
4 THE COURT: 3507 what ?
5 Q. Bef or e you t est i f i ed, di d you have an oppor t uni t y, si r , t o
6 go over e- mai l s t hat ei t her you sent or t hat wer e sent t o you?
7 A. No, not par t i cul ar l y, no.
8 Q. You ar e El i sha Gur f ei n and your e- mai l addr ess i s
9 egur f ei n@ear t hl i nk. net , r i ght ?
10 A. Cor r ect .
11 Q. I s t hat cor r ect , si r ?
12 A. Yes.
13 Q. I di r ect your at t ent i on t o page 28.
14 A. Page 28?
15 Q. Take a l ook at t hi s page her e.
16 THE COURT: Page what ?
17 MR. RUBI NSTEI N: I t ' s page 27, your Honor , and 28.
18 THE COURT: What ' s t he dat e?
19 THE WI TNESS: Thi s e- mai l was dat ed Febr uar y 1, 2003.
20 I don' t r ecal l ever r ecei vi ng t hi s e- mai l . Thi s i s mor e t han
21 si x mont hs or so af t er I l ef t . I don' t r emember seei ng t hi s
22 e- mai l .
23 THE COURT: Who i s t he e- mai l f r om?
24 MR. RUBI NSTEI N: I t ' s f r omDr . Kar r on t o Mr . Gur f ei n.
25 And I woul d of f er t hi s por t i on of Gover nment ' s 3507- S.
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1 MR. EVERDELL: Obj ect i on, your Honor .
2 THE COURT: Sor r y?
4 THE COURT: I di dn' t hear t he st at ement .
5 MR. EVERDELL: He i s of f er i ng t he e- mai l i n evi dence.
7 Q. Wel l , i s i t a f act , si r , whi l e i n t he year you had wor ked
8 f or CASI you had char ged $2, 000 f or par ki ng?
9 A. I don' t r emember t hat number , no.
10 Q. Do you r ecal l char gi ng CASI $1, 589 f or t r avel ?
11 A. I don' t r ecal l t hat number ei t her .
12 Q. Do you r ecal l bei ng asked by Dr . Kar r on t o pr ovi de backup
13 and j ust i f i cat i on f or expenses t hat you had?
14 A. No.
15 Q. Now, t her e was, was t her e not , i n t he budget t hat we ar e
16 t al ki ng about , $110, 500 appr oved f or f r i nge benef i t s, cor r ect ?
17 A. Show me wher e t hat i s.
18 Q. Do you st i l l have t hat Exhi bi t 22 i n f r ont of you?
19 A. Hol d on. What page i s t hat on her e?
20 THE COURT: 22, i t ' s t he t hi r d page i n what he i s
21 aski ng about .
22 MR. RUBI NSTEI N: J udge, I t hi nk, wi t h al l due r espect ,
23 t he f our t h page i n.
24 THE WI TNESS: What page?
25 MR. RUBI NSTEI N: I f you l ook on page 4, or on page 3
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1 as t he cour t sai d.
2 THE WI TNESS: I aml ooki ng f or a f i gur e of $110, 500.
3 I do not see t hat . Oh, yes, I do. Sor r y, I do see i t .
4 Q. Now, who was t he account ant f or CASI when you f i r st st ar t ed
5 wor ki ng t her e?
6 A. J i l l Fel dman, I t hi nk.
7 Q. And di d you have cont act wi t h her ?
8 A. Br i ef .
9 Q. Was she r epl aced?
10 A. Yes.
11 Q. And who r epl aced her ?
12 A. J oan Hayes.
13 Q. Appr oxi mat el y when was t hat ?
14 A. I t was l at er . I ' mnot sur e exact l y when J oan came i nt o t he
15 pi ct ur e.
16 Q. And what was her f unct i on as t he account ant f or CASI ?
17 THE COURT: Whi ch one? Hayes?
18 MR. RUBI NSTEI N: Hayes.
19 A. What was Hayes' f unct i on?
20 Q. Yeah. Di d she wor k under you? You wer e t he busi ness
21 manager ?
22 A. No, no. You have t o r emember al l my aut hor i t y was t aken
23 f r omme by Dr . Kar r on. The i dea t hat I had any aut hor i t y over
24 anybody i s j ust f al l aci ous.
25 Q. That l et t er mer el y sai d t hat you coul dn' t si gn checks,
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1 r i ght ?
3 Q. You wer e get t i ng pai d a gr oss sal ar y of $100, 000 a year ,
4 r i ght ?
5 A. Cor r ect .
6 Q. And J oan Hayes was wor ki ng t her e as an account ant , cor r ect ?
7 A. Cor r ect .
8 Q. Di d you see her when you went t her e t o CASI ?
9 A. Sur e.
10 Q. How of t en - - you sai d you woul d be t her e l i ke t hr ee days a
11 week?
12 A. The quest i on i s how of t en was she t her e when I was t her e.
13 That var i ed.
14 Q. How of t en woul d you see her ?
15 A. She woul d be t her e dur i ng a cer t ai n t i me i nt er val . I
16 r emember seei ng her t her e mor e of t en t han ot her s but t hat was
17 l at er on. She st ar t ed showi ng up t her e l at er on, not ear l y i n
18 t he pr oj ect , not i n t he f i r st year anyhow.
19 Q. Wel l , when you say t he f i r st year , you mean 2001.
20 A. Wel l , Oct ober 1, 2001 unt i l Sept ember 30, 2002 when I was
21 t her e. That ' s t he f i r st year of t he gr ant .
22 Q. So, you di d not see her of t en when you wer e - -
23 A. Oh, I saw her ver y of t en t owar ds t he end of t hat per i od I
24 j ust ment i oned, but not at t he begi nni ng.
25 Q. Woul d you see her at al l ?
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1 A. Sur e.
2 Q. I n t he begi nni ng?
3 A. She wasn' t on i n t he begi nni ng. J i l l Fel dman was on i n t he
4 begi nni ng.
5 Q. J i l l Fel dman l ef t ear l y i n 2002, di d she not ?
6 A. Yeah, I don' t r emember t he exact dat e.
7 Q. I s i t your under st andi ng t hat Hayes had pur chased J i l l
8 Fel dman' s pr act i ce?
10 THE COURT: Sust ai ned.
11 Q. Wel l , di d you obser ve - - by t he way, di d you have access t o
12 t he comput er at CASI ?
13 A. Di d I have access t o i t ?
14 Q. Ri ght .
15 A. What does t hat mean?
17 Q. Coul d you use t he comput er at CASI ?
18 A. Yeah, sur e.
19 Q. Wer e you awar e t hat - -
20 THE COURT: You ar e t al ki ng about t he busi ness
21 comput er ?
23 Q. Wer e you awar e t hat t hey had a pr ogr am, sof t war e pr ogr am
24 cal l ed Qui ck Books, i nst al l ed?
25 A. Yes.
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1 Q. And ar e you awar e t hat t hat was pur chased pr i or t o Oct ober
2 1, 2001, wi t h f unds of Dr . Kar r on?
3 A. I di d not know t hat .
4 Q. But you knew i t when you wer e wor ki ng t her e t hat t hi s Qui ck
5 Book syst emwas i n ef f ect .
6 A. Yes.
7 Q. And al so wer e you awar e t hat t her e was a pr ogr ami n ef f ect
8 t o scan al l document s i nt o t hat same comput er syst em?
9 A. Yes.
10 Q. Di d you par t i ci pat e i n scanni ng document s i nt o - -
11 A. No.
12 Q. Di d you par t i ci pat e i n t hat Qui ck Book syst emgener at i ng
13 i t s own checks?
14 A. No.
15 Q. Di d i t ?
16 A. That i t gener at ed i t s own checks? Di d I t ake par t i n t hat ?
17 No.
18 Q. No, no, but di d t he syst emgener at e a check?
19 A. I ' msor r y?
20 Q. The Qui ck Book syst em, di d i t gener at e checks?
22 Q. I s i t f ai r t o say t hat Dr . Kar r on woul d have vi r t ual l y
23 ever y pi ece of paper t hat came i nt o t he CASI - -
25 Q. - - gr ant scanned?
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2 Q. Wel l , who di d you see scan document s i nt o t hat comput er
3 syst em?
4 A. Dr . Kar r on f or t he most par t , and maybe some ot her peopl e.
5 Q. Wel l , Mar gar et Fer r and, di d you see her scan anyt hi ng?
6 A. No.
7 Q. As a mat t er of f act , how many peopl e wer e t he maxi mumt hat
8 wer e wor ki ng at CASI at 300 East 33r d St r eet at one t i me?
9 A. I can' t say f or sur e at t hi s poi nt . Wor ki ng f or CASI on
10 t he gr ant ?
11 Q. Yes.
12 A. Wel l , var i ous peopl e came and l ef t , so i t ' s a l i t t l e bi t
13 har d t o r eal l y know t hat number exact l y. I f you ask me how
14 many peopl e woul d be pr esent at any one t i me i n t hat l i vi ng
15 r oom? I woul d say pr obabl y maybe a maxi mumof si x or seven at
16 t he most . At most . But t hat was not t he usual .
17 Q. But you coul d have as many as t hat .
18 A. That woul d be t he absol ut e maxi mum, seven maybe, pr obabl y
19 l ess.
20 Q. Wer e t her e al so vol unt eer s t hat Dr . Kar r on had r ecr ui t ed t o
21 wor k on t hi s pr oj ect ?
22 A. I t hi nk he mi ght have had a gr aduat e st udent or t wo l i ke
23 t hat .
24 THE COURT: Woul d your si x or seven i ncl ude t he
25 vol unt eer s, or ar e you excl udi ng t he vol unt eer s?
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1 THE WI TNESS: I don' t r ecal l , your Honor , seei ng a
2 gr oup mor e t han - - except when t her e was a si t e r evi ew wi t h
3 peopl e f r omNI ST, I don' t r ecal l seei ng mor e t han hal f a dozen
4 peopl e, maybe seven, at any one t i me.
5 Q. How about - - was Dr . Wol ber g t her e?
6 A. Rar el y.
7 Q. Was J i mCox t her e?
8 A. Yes.
9 Q. Was Mat t Rot hman t her e?
10 A. Yes.
11 Q. Scot t Al bi n?
12 A. Scot t Al bi n? Yes, but not al l at t he same t i me.
13 Q. And you sai d t her e was a l i vi ng r oom. Was t her e any l i vi ng
14 r oomf ur ni t ur e i n t her e?
15 A. De mi ni mi s.
16 Q. I n f act i t was basi cal l y a comput er l ab, cor r ect ?
17 A. For t he most par t , cor r ect .
18 Q. Let me show you what has been mar ked as BBB f or
19 i dent i f i cat i on and al so mar ked CCC f or i dent i f i cat i on. I show
20 you t hese t wo pages of phot ogr aphs, and t hese ar e t he l et t er s.
21 Take a l ook at def endant ' s BBB f or i dent i f i cat i on.
22 A. Yes.
23 Q. Tel l me i f you r ecogni ze what ' s depi ct ed i n t hose
24 phot ogr aphs.
25 THE COURT: The quest i on i s: I s i t a f ai r and
( 212) 805- 0300
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1 accur at e r epr esent at i on?
2 THE WI TNESS: Yes, t hi s appear s t o be Dr . Kar r on' s
3 l i vi ng r oomas I r emember i t .
4 MR. RUBI NSTEI N: I woul d of f er BBB i nt o evi dence, your
5 Honor .
6 MR. EVERDELL: No obj ect i on.
7 THE COURT: BBB i s admi t t ed i n evi dence.
8 DEPUTY COURT CLERK: J udge, I t hi nk t hat ' s al r eady i n.
9 THE COURT: I t i s i n evi dence. I ' msor r y.
10 MR. RUBI NSTEI N: No, i t wasn' t . I t was mar ked f or
11 i dent i f i cat i on.
12 THE COURT: I t hi nk t he gover nment consent ed t o i t i n
13 evi dence. Go ahead.
14 MR. RUBI NSTEI N: CCC?
15 THE COURT: You had t hemup on t he boar d, di dn' t we?
16 Ar en' t t hese t he pi ct ur es we had up on t he scr een.
17 MR. RUBI NSTEI N: Oh, I ' msor r y. She sai d she coul dn' t
18 t est i f y about i t , I t hi nk. Thank you, Rober t . You' r e r i ght .
19 I apol ogi ze.
20 THE COURT: Go ahead.
21 Q. You r ecogni ze what t he phot ogr aphs ar e depi ct ed i n CCC?
22 A. Not al l of t he i t ems I do r ecogni ze i n CCC. I r ecogni ze - -
23 MR. RUBI NSTEI N: May I appr oach t he wi t ness?
24 A. I r ecogni ze t he bat hr oom, not much el se. I never saw t hi s
25 si gn. I don' t r emember t hi s her e. I r emember t hi s. I
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1 r emember t hi s t el ephone si t uat i on i n t he bat hr oom, but I don' t
2 r emember anyt hi ng el se on t hi s page.
3 Q. Do you r ecal l anyt hi ng about Dr . Kar r on' s r oomi t sel f ?
4 A. Ther e wer e some comput er s i n t her e.
5 Q. That ' s hi s bedr oom.
6 A. Yes.
7 MR. RUBI NSTEI N: Let me publ i sh BBB f or t he j ur y.
8 Q. Now, st ar t i ng, si r , at t he t op l ef t as we l ook at t hi s
9 exhi bi t , what por t i on of t he ar ea r ef er r ed t o as t he l i vi ng
10 r oomwas t hi s?
11 A. What does t hat mean?
12 Q. Wel l , do you see t hat l ar ge - - l et me poi nt t o i t - - I ' m
13 poi nt i ng t hi s at somet hi ng shown on t he r i ght hand - - t her e ar e
14 si x phot ogr aphs, cor r ect ?
15 A. Yes.
16 Q. I n t hi s exhi bi t ? Thi s i s on t he r i ght - hand si de, t he
17 mi ddl e phot ogr aph. Do you r ecogni ze what t hat i s?
18 A. That l ooks l i ke a scr een, but I - -
19 Q. How about down her e on t he l ower r i ght ?
20 A. That l ooks l i ke a scr een.
21 Q. Was t her e a scr een at t hat f aci l i t y?
22 A. Ther e was one i nst al l ed whi l e I was t her e.
23 Q. And who i nst al l ed i t ?
24 A. Abe Kar r on, t o my knowl edge. I saw hi mi nst al l i t .
25 Q. And t hat was a scr een si mi l ar t o t he scr een t hat we have
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1 her e. I mean - -
2 A. Yes, f or a r oomt hat ' s about one quar t er t he si ze or one
3 f i f t h t he si ze.
4 Q. And t her e was al so a pr oj ect or si mi l ar t o t he pr oj ect or
5 r i ght over her e, cor r ect ?
6 A. Pr obabl y was, yeah.
7 Q. Do you r ecogni ze t hi s i t emt hat ' s i n evi dence as Gover nment
8 Exhi bi t 123?
9 A. Wel l , not expl i ci t l y, but I coul d have seen i t bef or e.
10 Q. OK. Now, wer e you ever pr esent when pr esent at i ons wer e
11 made by t he peopl e at CASI on t hi s ATP pr oj ect ?
12 A. Yes.
13 Q. And when pr esent at i ons wer e made, was t hat scr een ut i l i zed?
14 A. One t i me I was at such a pr esent at i on, yes.
15 Q. And who el se was pr esent ?
16 A. Dr . Kar r on and a whol e bunch of ot her peopl e, i ncl udi ng
17 J ayne Or t hwei n and B. J . Li de and some ot her peopl e.
18 Q. Ar e you awar e - - ar e you awar e t hat Dr . Kar r on woul d go
19 somet i mes t o New J er sey t o l ect ur e and was cal l ed upon t o
20 l ect ur e on t he ATP pr oj ect ?
21 A. New J er sey? Not t o my knowl edge.
22 Q. Anywher e.
23 A. I f i t happened, i t was on no r egul ar basi s t hat I knew
24 about .
25 Q. Now, goi ng t o t he t op pi ct ur e on t he l ef t , do you see, ar e
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1 t hose t wo comput er s?
2 A. Yes.
3 Q. And - -
4 A. Wel l , t hey' r e moni t or s, anyhow.
5 Q. Moni t or s. And ar e t hose t he moni t or s you di scussed bef or e,
6 t he ones t hat cost - -
7 A. I don' t t hi nk so.
8 Q. And t hese, do you see t hose shel ves?
9 A. Yes.
10 Q. Do you know who const r uct ed t hose shel ves?
11 A. No.
12 Q. Do you know what was cont ai ned on t hose shel ves?
13 A. Oh, var i ous books and r ecor ds, I t hi nk.
14 Q. By t he way, was t her e an i nst al l at i on of wi r i ng done i n
15 t hat r oom?
16 A. I n t he l i vi ng r oom?
17 Q. Ri ght .
18 A. An i nst al l at i on of wi r i ng?
19 Q. Ri ght .
20 A. Pr obabl y.
21 Q. Was t her e an i ncr ease i n t he ai r condi t i oni ng?
22 A. Ther e cer t ai nl y was.
23 Q. I t woul d get pr et t y hot i n t her e, woul d i t not ?
24 A. I t di d.
25 Q. Bet ween t he comput er s and al l t he peopl e?
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1 A. Yes.
2 Q. And was i t messy i n t her e?
3 A. Was i t what ?
4 Q. Messy.
5 MR. EVERDELL: Obj ect i on. Obj ect i on.
6 THE COURT: Obj ect i on sust ai ned. I don' t see t he
7 r el evance of t hat .
8 Q. Wel l , you t est i f i ed - -
9 THE COURT: Pl ease go ahead. No speaki ng obj ect i ons.
10 Ask anot her quest i on.
11 Q. Do you know a per son named Chr i s Wegner ?
12 A. I met Chr i s Wegner .
13 Q. And ar e you awar e t hat Chr i s Wegner was a f or mer empl oyee
14 of CASI ?
15 A. I do.
16 Q. And ar e you awar e t hat when Chr i s Wegner was an empl oyee of
17 CASI pr i or - - wi t hdr awn - - t hat Chr i s Wegner had sur ger y
18 per f or med and was pai d f or by CASI ?
19 A. That ' s possi bl e, yes.
20 THE COURT: Was t hi s dur i ng t he gr ant per i od or not i n
21 t he gr ant per i od? We' r e t al ki ng about t he gr ant per i od,
22 Mr . Rubi nst ei n.
23 Mr . Gur f ei n, ar e we t al ki ng about t he gr ant per i od?
24 THE WI TNESS: I don' t know when t hat was pai d f or , but
25 I don' t t hi nk i t was pai d f or dur i ng t he gr ant per i od.
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1 Q. But i t was cust omar y f or CASI bef or e t hey got t he gr ant t o
2 have t hese - - t o pay f or empl oyee' s benef i t s, r i ght ?
4 THE COURT: You wer en' t connect ed wi t h CASI unt i l t he
5 t i me - - you don' t have knowl edge of anyt hi ng - -
6 THE WI TNESS: No. I have knowl edge, but I t hi nk i t
7 was pr i or t o my bei ng wi t h CASI .
8 THE COURT: But you don' t have knowl edge of anyt hi ng
9 t hat happened bef or e you. You don' t have per sonal knowl edge of
10 anyt hi ng t hat happened bef or e you wer e at CASI .
11 THE WI TNESS: Cor r ect .
12 THE COURT: Do you have knowl edge of t hi s?
13 THE WI TNESS: Dr . - -
14 THE COURT: Per sonal knowl edge.
15 THE WI TNESS: Dr . Kar r on t ol d me t hat - -
16 THE COURT: No, al l r i ght . That ' s hear say.
17 Q. When you wer e di scussi ng wi t h Dr . Kar r on t he medi cal
18 expenses t hat you t est i f i ed t o bef or e, di d Dr . Kar r on i n
19 r esponse t el l you anyt hi ng about t he pol i ci es of hi s company?
20 A. He sai d t o me t hat i n t he case of Chr i s Wegner he got I
21 t hi nk i t was $10, 000 f r omsome ot her f unds ot her t han NI ST
22 f unds t o pay f or t hat sur ger y. That ' s what he t ol d me.
23 Q. Di d he t el l you what hi s pol i cy was f or empl oyees and
24 f r i nge benef i t s and heal t h benef i t s pr i or t o get t i ng t he gr ant ?
25 A. Pr i or t o get t i ng t he gr ant ?
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1 Q. Ri ght .
2 A. No, he di dn' t t el l me what t he pol i cy was pr i or t o get t i ng
3 t he gr ant .
4 Q. Di d you ever ask hi mi f he ever char ged any - - what ki nd of
5 f r i nge benef i t s he was accust omed t o payi ng pr i or t o get t i ng
6 t he gr ant ?
7 A. I n t he most gener al way I know t hat hi s pol i cy unwr i t t en
8 was ver y l oose.
9 Q. Now, wer e you i nvol ved i n t he hi r i ng of J oan Hayes?
10 A. No.
11 Q. Di d you have deal i ngs wi t h her i nvol vi ng any f i nanci al
12 document s?
13 A. Yes.
14 Q. Whi ch f i nanci al document s wer e t hose?
16 Q. You f i l ed I bel i eve t he quar t er l y f i nanci al st at ement s?
17 A. Yes.
18 Q. And di d Ms. Hayes pr ovi de any of t he f i gur es t hat you
19 i ncor por at ed i n t hose f i l i ngs?
20 A. I don' t t hi nk so. I t ' s possi bl e, but I don' t r ecal l t hat .
21 THE COURT: Wher e di d you get t he f i gur es?
22 THE WI TNESS: Wel l , basi cal l y t he f i gur es wer e not
23 r epr esent at i ve of what was act ual l y spent but r epr esent at i ve of
24 what was r ecei ved f r omNI ST.
25 THE COURT: So wher e di d you get t he f i gur es?
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1 THE WI TNESS: Wel l , t he f i gur es f or t he quar t er l y
2 r epor t s wer e basi cal l y a summat i on of dat a i n t he appl i cat i ons
3 made f or t he pr i or t hr ee mont hs t o NI ST f or t he pr ogr ess
4 payment s, wher e we had t o r epor t what was done i n t he pr i or
5 mont h.
6 THE COURT: Wher e woul d you get t hose f i gur es?
7 THE WI TNESS: Wel l , t hose f i gur es woul d agai n be
8 got t en f r omessent i al l y f r omwhat we r ecei ved as opposed t o
9 havi ng t he cor r ect f i gur es, whi ch woul d have been what was
10 act ual l y spent di r ect l y on t he pr oj ect .
11 THE COURT: Wel l , what you r ecei ved was $150, 000 and
12 t hen mont hl y payment s of - -
13 THE WI TNESS: - - 60, 000.
14 THE COURT: - - 60 or 65.
16 THE COURT: So t hose don' t t el l you t he br eakdown.
18 THE COURT: Does t he quar t er l y r epor t show a
19 br eakdown?
20 THE WI TNESS: No, no br eakdown of t he quar t er l y
21 r epor t .
22 THE COURT: Let me see a quar t er l y r epor t .
23 MR. EVERDELL: Your Honor , Gover nment Exhi bi t 40 f or
24 exampl e.
25 THE COURT: He has one. He has handed me one.
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1 Exhi bi t 21, t he cover page. I see. But t hi s i sn' t one t hat
2 was f i l ed by you. Thi s i s an amendment t o t he f i nanci al
3 assi st ance r epor t .
4 THE WI TNESS: I apol ogi ze.
5 MR. EVERDELL: Your Honor , I t hi nk t hi s i s one.
6 THE WI TNESS: I ' msor r y. Wr ong i t em.
7 THE COURT: Her e i s one, Gover nment Exhi bi t 40. That
8 was al l egedl y f i l ed J anuar y 10, 2002. And t hi s shows t he t ot al
9 amount r ecei ved and t he t ot al amount cont r i but ed by CASI - -
11 THE COURT: - - t o t hi s awar d. The t ot al amount of
12 f unds r ecei ved i n t hat quar t er and t he t ot al cont r i but i on
13 al l egedl y made by CASI .
15 THE COURT: Wher e di d you get t he f i gur e f or t he
16 amount t hat CASI cont r i but ed?
17 THE WI TNESS: Wel l , CASI di dn' t cont r i but e anyt hi ng.
18 These number s wer e backed i nt o essent i al l y t o make i t l ook
19 r i ght , because t hat ' s what I was t ol d t o do.
20 THE COURT: By whom?
21 THE WI TNESS: By Dr . Kar r on.
22 THE COURT: That ' s t r ue f or t he next quar t er and next
23 quar t er ? Di d you f i l e a next quar t er ?
24 THE WI TNESS: I f i l ed f or t he f i r st quar t er , t he
25 second quar t er , t he t hi r d quar t er . The f our t h quar t er I don' t
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1 r ecal l f i l i ng because I was not t her e anymor e.
2 THE COURT: And t hey wer e done on al l t hr ee quar t er s
3 i n t he same f ashi on?
5 Q. Now, you wer e at CASI , wer e you not , i n Apr i l of 2002,
6 cor r ect ?
7 A. Yes.
8 Q. And ar e you awar e t hat an amended f i nanci al st at us r epor t
9 was f i l ed i n Apr i l of 2002?
10 A. I ' mnot sur e I r emember t hat .
11 Q. Let me show you what ' s i n evi dence as Gover nment Exhi bi t
12 2000. And I wi l l l eave 2001 up t her e.
13 THE COURT: 2000 and 2001.
14 Q. Do you want t o r evi ew t hose document s, si r ?
15 A. Yes.
16 Q. Do you r ecogni ze t hose document s?
17 A. Wel l , yes.
18 Q. And di d you f i l e t hose document s?
19 A. No, Dr . Kar r on f i l ed t hem.
20 Q. And di d you assi st hi mi n pr epar i ng t hem?
21 A. Yes.
22 Q. And di d J oan Hayes assi st i n pr epar i ng t hem?
24 Q. Wel l , do you r ecal l t hat you wer e at t empt i ng t o get a
25 budget r evi si on i n November of 2001, December 2001?
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1 A. A budget - -
2 Q. - - r evi si on.
3 A. Yes.
4 Q. And you wer e t al ki ng t o Hope Snowden about i t ?
5 A. Yes.
6 Q. And Hope Snowden at some t i me suggest ed you cal l J ayne
7 Or t hwei n t o di scuss t he changes?
8 A. I f r ankl y don' t r ecal l t hat , but i t ' s possi bl e.
9 Q. Wel l , l et me show you - -
10 THE COURT: We don' t want i t ' s possi bl e. You ei t her
11 r ecal l i t or you don' t r ecal l i t .
12 THE WI TNESS: I don' t r ecal l i t .
13 THE COURT: Anyt hi ng i s possi bl e.
14 Q. Let me show you what ' s mar ked f or i dent i f i cat i on as
15 Def endant ' s DDD.
16 DEPUTY COURT CLERK: Def endant ' s BBB?
17 MR. RUBI NSTEI N: D, dog dog dog. See i f t hi s
18 r ef r eshes your r ecol l ect i on, si r .
19 MR. KWOK: May I see i t ?
20 THE WI TNESS: Now t hat I r ead i t , I f r ankl y don' t
21 r ecal l i t t hat wel l , but , yes, I see i t and - -
22 THE COURT: No, j ust what you r ecal l . I t ' s onl y bei ng
23 shown t o you i f i t r ef r eshes your r ecol l ect i on. Don' t r ead t he
24 document i nt o t he r ecor d. I f i t r ef r eshes your r ecol l ect i on,
25 say yes i t does r ef r esh your r ecol l ect i on.
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1 THE WI TNESS: I t does not . I don' t r ecal l t hi s.
2 Q. That i s an e- mai l t hat was sent f r omyou t o Dr . Kar r on, was
3 i t not , on December 7, 2001?
4 MR. EVERDELL: Obj ect i on, your Honor . He sai d i t
5 doesn' t r ef r esh hi s r ecol l ect i on.
6 MR. RUBI NSTEI N: Wel l t hen I ' mof f er i ng i t i nt o
7 evi dence.
8 THE COURT: Wel l , wai t a mi nut es. December 7 - - he
9 can' t r ead i t unt i l i t ' s admi t t ed i nt o evi dence i n t he f i r st
10 pl ace.
11 MR. RUBI NSTEI N: Cor r ect .
12 THE COURT: But what you showed hi mwas somet hi ng t hat
13 was submi t t ed somet i me i n Apr i l , and now you ar e t al ki ng about
14 December . Ther e i s no r el at i onshi p i n t he dat es of your
15 quest i ons.
16 MR. RUBI NSTEI N: I t hi nk t her e i s, J udge.
17 THE COURT: Wel l , you may t hi nk t her e i s, but t hi s way
18 pr ecedes t he dat e you wer e i nqui r i ng about by mor e t han t hr ee
19 mont hs.
20 MR. RUBI NSTEI N: J udge, t hi s i s an e- mai l sent by t hi s
21 wi t ness.
22 THE COURT: Look, i t may be, but you t ol d me t he dat e.
23 Now, I don' t want t o hear a speaki ng obj ect i on. Br i ng i t over
24 her e t o t he si de. Ther e i s an obj ect i on about i t , l et ' s get i t
25 cl ear ed up.
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2 MR. EVERDELL: Thi s i s t he document , your Honor .
3 THE COURT: I have no i dea.
4 MR. EVERDELL: The def ense counsel i s usi ng t hi s t o
5 t r y t o r ef r esh t he wi t ness' s r ecol l ect i on. He hasn' t had hi s
6 r ecol l ect i on r ef r eshed, so i t can' t be used f or t hat pur pose
7 any mor e. He can' t admi t i t i n evi dence because he doesn' t
8 r ecogni ze t he e- mai l . Ther e i s no way t o admi t t hi s i nt o
9 evi dence.
10 MR. RUBI NSTEI N: He does r ecogni ze t he e- mai l account .
11 I t ' s hi s account .
12 MR. EVERDELL: He says he doesn' t r emember i t .
13 MR. RUBI NSTEI N: No, he doesn' t r emember t hi s
14 document , t hi s e- mai l .
15 THE COURT: He doesn' t r emember i t , and he has
16 admi t t ed al r eady t hat he at t empt ed t o go above Hope Snowden on
17 one occasi on t o get an appr oval .
18 MR. RUBI NSTEI N: Ri ght . And, J udge - -
19 THE COURT: He has al r eady t est i f i ed t o t hat . Thi s
20 doesn' t add a t hi ng.
21 MR. RUBI NSTEI N: J udge, t he f act of t he mat t er i s t hat
22 t her e i s an ent i r e l i ne comi ng f r omHope Snowden of t hese
23 negot i at i ons, al l t he whi l e she kept aski ng f or r evi si ons.
24 THE COURT: He has al r eady t est i f i ed about t hat .
25 MR. RUBI NSTEI N: No, he di dn' t .
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1 THE COURT: Yes, he di d t est i f y about i t ,
3 Now, how much l onger ar e you goi ng t o be?
4 MR. RUBI NSTEI N: Pr obabl y hal f hour , 45 mi nut es.
5 MR. EVERDELL: Your Honor , my di r ect was how l ong?
6 THE COURT: Wel l . Sor r y, we wi l l have t o go on a
7 l i t t l e whi l e l onger .
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2 MR. RUBI NSTEI N: You do r emember at t empt i ng t o get a
3 budget r evi si on near t he end of 2001?
5 THE COURT: He has al r eady t est i f i ed about t hat . He
6 sai d yes he di d t r y t o get t hem. He sai d t hat sever al t i mes.
7 That ' s t he cour t ' s r ecol l ect i on. I t ' s t he j ur y' s
8 r ecol l ect i on t hat gover ns.
9 Q. How many budget r evi si ons wer e submi t t ed bet ween December
10 2001 and Febr uar y 2002?
12 Q. You do r ecal l Hope Snowden - - havi ng conver sat i ons wi t h
13 Hope Snowden, cor r ect ?
14 A. Yes.
15 Q. And you r ecal l her aski ng you or CASI t o submi t r evi sed
16 budget r equest s?
17 A. Wel l , we di scussed changes i n t he budget , yes.
18 Q. And do you r ecal l pr epar i ng or par t i ci pat i ng i n t he
19 pr epar at i on of r evi sed budget ?
20 A. Yes.
21 Q. And di d you consul t wi t h J oan Hayes as t o t he f i gur es, t he
22 act ual f i gur es t hat wer e expended by CASI dur i ng t he gr ant
23 per i od?
24 A. At whi ch poi nt ?
25 Q. Whi l e you wer e negot i at i ng wi t h Hope Snowden t o get a
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1 r evi sed budget .
2 A. At whi ch poi nt ?
4 Q. Wel l , at what poi nt wer e you negot i at i ng wi t h Hope Snowden?
5 A. I don' t r ecal l expl i ci t l y, but i t was ear l y on.
6 Q. At what poi nt i n your negot i at i on di d you consul t wi t h J oan
7 Hayes about what number s wer e t o be ut i l i zed?
8 THE COURT: I f you di d.
9 THE WI TNESS: I don' t r ecal l consul t i ng wi t h J oan
10 Hayes.
11 Q. Now, you had t est i f i ed bef or e t hat t her e wer e a number of
12 l awyer s associ at ed wi t h CASI ?
13 A. Yes.
14 Q. And you sai d t her e was a Mr . Ber nst ei n?
15 A. Yes.
16 Q. You sai d t her e was a Ms. Mi l l er ?
17 A. Yes.
18 Q. And wer e t her e ot her at t or neys?
19 A. Those ar e t he onl y ones I r emember .
21 THE COURT: Those ar e t he onl y ones he r emember s.
22 Q. Di d you ever di scuss wi t h any of t hose at t or neys about t he
23 expenses t hat Dr . Kar r on was char gi ng t owar ds t he NI ST budget ?
24 MR. EVERDELL: Obj ect i on, r el evance.
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1 A. I don' t r ecal l t hose di scussi ons on t hat poi nt .
2 Q. Di d you ever t al k t o Hope Snowden or anybody at ATP as t o
3 any speci f i c expense t hat Dr . Kar r on was char gi ng t o NI ST?
4 A. What ki nd of expense?
5 Q. Any ki nd of expense.
6 A. That ' s ver y br oad. I ' mt r yi ng t o - -
7 THE COURT: Di d you ever t el l hi mt hat he was spendi ng
8 money t hat was not pr ovi ded f or i n t he budget and at t r i but i ng
9 i t t o NI ST?
10 THE WI TNESS: I don' t r ecal l t hat conver sat i on.
11 Q. As a mat t er of f act , J oan Hayes was Dr . Kar r on' s per sonal
12 account ant , was she not ?
13 A. I don' t know t hat ei t her . I di dn' t know t hat .
14 Q. Ar e you awar e of whet her or not J oan Hayes pr epar ed Dr .
15 Kar r on' s per sonal t ax r et ur ns - -
17 Q. - - f or ' 99, 2000 and 2001?
20 THE COURT: He doesn' t know t hat .
21 Q. Di d you ever i n your di scussi ons wi t h Dr . Kar r on about your
22 vi ew of what was al l owabl e and not al l owabl e, t el l hi mt hat i f
23 he di d i t hi s way he coul d wi nd up i n j ai l ?
24 A. I t ol d hi mt hat he can' t do j ust anyt hi ng he want ed t o do
25 l i ke he t hought he coul d. He t hought he coul d spend t he way he
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1 t hought he coul d spend and not necessar i l y t he way t he r ul es
2 sai d he coul d spend.
3 Q. Di d you ever say t o hi m, you know, I t hi nk you mi ght be
4 commi t t i ng a cr i me by doi ng what you' r e doi ng?
5 A. Maybe not i n t hose wor ds but al ong t hose l i nes.
6 MR. RUBI NSTEI N: No f ur t her quest i ons, your Honor .
7 THE COURT: Any r edi r ect ?
8 MR. EVERDELL: Fi ve mi nut es, your Honor ?
9 THE COURT: Fi ve mi nut es, and t hat ' s i t , no mor e.
10 REDI RECT EXAMI NATI ON
11 BY MR. EVERDELL:
12 Q. Al l r i ght . Mr . Gur f ei n, you t est i f i ed on cr oss- exami nat i on
13 about a conver sat i on you had wi t h def endant ' s br ot her Abe
14 Kar r on, i s t hat cor r ect ?
15 A. Yes.
16 Q. That conver sat i on r el at ed t o a possi bl e i nvest ment of
17 $50, 000 i n t he company?
18 A. Yes.
19 Q. Can you expl ai n mor e br oadl y what t he ci r cumst ances of t hat
20 conver sat i on wer e?
21 A. Thi s conver sat i on was about my havi ng t he - - t he
22 conver sat i on was about t he f act t hat my si gnat ur e aut hor i t y was
23 t aken away, and I t hought t hat was a mi st ake, and hi s r esponse
24 was i f you i nvest $50, 000 i n t he company you can have t hat
25 r esponsi bi l i t y back. And I sai d I ' mnot i nvest i ng $50, 000 i nt o
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1 t hi s company, i t i s t oo r i sky.
2 I n f act t hi s i s t he poi nt t o be made. One of t he
3 r easons f or get t i ng t he ATP gr ant i n f act i s because i t i s
4 gi ven t o r i sky vent ur es t hat have di f f i cul t y r ai si ng f unds i n
5 t he pr i vat e sect or , and t hat ' s one of t he pur poses and one of
6 t he cr i t er i a f or get t i ng t he awar d. So, I t ol d hi mno, and I
7 of cour se di d not gi ve t he 50, 000, nor di d I get t he si gnat ur e
8 aut hor i t y back.
9 Q. You t est i f i ed al so on cr oss- exami nat i on about some
10 quar t er l y f i nanci al r epor t s.
11 A. Yes.
12 Q. And I bel i eve you t est i f i ed t hat t he def endant t ol d you t o
13 make i t wor k, i s t hat cor r ect ?
15 Q. Who act ual l y si gned t hose f i nanci al r epor t s t hat wer e
16 submi t t ed?
17 A. Dr . Kar r on.
18 Q. Di d you si gn t hose f i nanci al r epor t s?
19 A. I di d not . I had no such aut hor i t y.
20 THE COURT: Ar e you awar e of any cont r i but i ons t o t he
21 capi t al of CASI t hat wer e made by anyone ot her t han NI ST?
22 THE WI TNESS: No, I ' mnot awar e of any such
23 cont r i but i ons.
24 Q. You wer e al so asked about a scr een i n t he def endant ' s
25 apar t ment , i s t hat cor r ect ?
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8657KAR6 Gur f ei n - r edi r ect
1 A. Yes.
2 Q. You sai d you r ecal l ed when t hat was i nst al l ed?
3 A. Yes.
4 Q. Do you r ecal l how much was pai d f or t he i nst al l at i on?
5 A. I t hi nk Abe Kar r on was pai d $3, 000 r oughl y f or t hat .
6 Q. And you sai d I bel i eve on cr oss- exami nat i on i n r esponse t o
7 quest i ons about t he def endant get t i ng cost s appr oved, t hat he
8 woul d be abl e t o do i t because NI ST l oved hi m?
9 A. Yes.
10 Q. Di d you ever have any conver sat i on wi t h t he def endant al ong
11 t hose l i nes?
12 A. Yes, i t was a const ant r ef r ai n: They l ove me, t hey' l l
13 appr ove i t .
14 MR. EVERDELL: One moment . No f ur t her quest i ons, your
15 Honor .
16 THE COURT: Wi t hi n t he scope, Mr . Rubi nst ei n.
18 RECROSS EXAMI NATI ON
20 Q. Let me show you what i s mar ked as Def endant ' s FFF f or
21 i dent i f i cat i on and ask you, number one, i f you r ecogni ze - -
22 MR. EVERDELL: Can I see i t ?
23 Q. - - t he si gnat ur es on t hose document s.
24 MR. EVERDELL: Can I see t he document ?
25 THE COURT: You have t o show i t t o t he gover nment
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8657KAR6 Gur f ei n - r ecr oss
1 f i r st .
2 MR. RUBI NSTEI N: I am, your Honor .
3 Q. Do you r ecogni ze Dr . Kar r on' s si gnat ur e on t hose document s,
4 si r ?
5 I even have a copy f or your Honor .
6 A. I r ecogni ze hi s si gnat ur e on t hese document s, yes.
7 Q. And do you r ecogni ze t he check - - t he name on t he check - -
8 checks?
9 MR. EVERDELL: Your Honor , I ' mgoi ng t o obj ect t o
10 t hi s. Thi s i s cl ear l y goi ng t o be out si de t he scope of t he
11 r edi r ect .
12 MR. RUBI NSTEI N: That ' s what t hey asked on r edi r ect .
13 THE COURT: I asked i t .
14 MR. RUBI NSTEI N: That count s t oo, J udge.
15 THE COURT: I di d i t . I opened t hat door . Go ahead.
17 A. Yes, I see t hem.
18 THE COURT: Had you ever seen t hembef or e?
20 MR. RUBI NSTEI N: We of f er Def endant ' s FFF - -
22 MR. RUBI NSTEI N: - - i nt o evi dence.
23 MR. EVERDELL: The wi t ness has never seen t hem.
24 THE COURT: He can' t aut hent i cat e t hem.
25 MR. RUBI NSTEI N: He has aut hent i cat ed t hem.
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1 THE COURT: He says t hey' r e Kar r on' s si gnat ur e, but he
2 has never seen t hembef or e.
3 Next quest i on.
4 Q. You r ecei ved per sonal checks f r omDr . Kar r on, have you not ?
6 THE COURT: You' r e not goi ng t o be abl e t o get t hem
7 i n. I f he has never seen t hese checks bef or e, you cannot get
8 t hemi n t hat way.
9 MR. RUBI NSTEI N: Let me ask i t t hi s way.
10 Q. Does t hat r ef r esh your r ecol l ect i on as t o whet her or not
11 you ever had a conver sat i on wi t h Dr . Kar r on about hi ml oani ng
12 CASI money dur i ng t he gr ant per i od?
13 A. I do not r ecal l t hat .
14 Q. By t he way, t he cont r act t hat you si gned - -
16 THE COURT: Obj ect i on sust ai ned. That ' s out si de t he
17 scope.
18 MR. RUBI NSTEI N: Thi s i s not out si de, J udge. Wi t h al l
19 due r espect , can I ask t he quest i on?
20 THE COURT: The way you st ar t ed i t , you t al ked about
21 somet hi ng t hat was not i n t he scope, so you bet t er get i t i nt o
22 t he scope.
23 Q. When your aut hor i t y was t aken away i n Oct ober of 2001, di d
24 you r esi gn f r omCASI ?
25 A. No.
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1 MR. RUBI NSTEI N: No f ur t her quest i ons.
2 MR. EVERDELL: No f ur t her quest i ons, your Honor .
4 J ur y i s excused unt i l 9: 30 t omor r ow mor ni ng.
5 MR. RUBI NSTEI N: J ust one moment . J ust one moment . I
6 j ust f ound somet hi ng t hat I j ust want t o - -
7 THE COURT: Come on, we can' t wai t f or t hi s.
8 MR. RUBI NSTEI N: I have one document . I t ' s goi ng t o
9 come out of t he comput er r i ght now.
11 Q. I sn' t i t a f act t hat Dr . Kar r on l oaned you $4, 000 on J ul y
12 3, 2002?
15 A. J ul y 3, 2002?
16 Q. Cor r ect .
18 Q. I show you t hi s document .
19 THE COURT: Does t hat r ef r esh your r ecol l ect i on?
20 THE WI TNESS: Yeah, a l i t t l e bi t , but I r eal l y don' t
21 r ecal l . I don' t r ecal l t hi s or t he r eason f or i t .
22 Oh, her e i s what i t says. I t says as a memo, " l oan
23 agai nst f r ozen sal ar y. " That ' s what i t says.
24 THE COURT: Do you r emember t hat ?
25 Q. So, you r emember i t now?
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1 A. Wel l , yeah, a l i t t l e bi t bet t er , yeah.
2 Q. Last quest i on. That r ef r eshes your r ecol l ect i on t hat i n
3 J ul y 2002 Dr . Kar r on l oaned you $4, 000, cor r ect ?
4 A. Cor r ect .
5 THE COURT: How much?
6 THE WI TNESS: $4, 000.
7 MR. RUBI NSTEI N: No f ur t her quest i ons.
9 MR. EVERDELL: No f ur t her quest i ons, your Honor .
10 THE COURT: Excuse me?
11 MR. EVERDELL: No f ur t her quest i ons.
12 THE COURT: Al l r i ght . The j ur y i s excused. We wi l l
13 see you at 9: 30 t omor r ow mor ni ng.
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2 THE COURT: Now, we bet t er be i n her e what t i me? Who
3 i s your next wi t ness?
4 MR. EVERDELL: Wel l , your Honor , we shoul d pr obabl y
5 di scuss - -
6 MR. KWOK: I t hi nk, your Honor , t omor r ow we wi l l - - i f
7 Mr . Rubi nst ei n has f ur t her cr oss- exami nat i on of our pr i or
8 wi t ness, Bel i nda Ri l ey, we can pr oceed wi t h t hat , and t hen t he
9 gover nment wi l l cal l i t s next wi t ness Fr ank Spr i ng.
10 THE COURT: Fr ank who?
11 MR. EVERDELL: Spr i ng.
12 THE COURT: How many mor e wi t nesses have you got ?
13 MR. EVERDELL: The cont i nuat i on of Ms. Ri l ey,
14 Mr . Spr i ng and Bob Benedi ct . And I ant i ci pat e t hat Mr . Spr i ng
15 and Bob Benedi ct wi l l be a si mi l ar l engt h as Mr . Gur f ei n. I
16 can' t account f or cr oss, but t he di r ect wi l l be a si mi l ar
17 l engt h.
19 Do you have anyt hi ng el se t o come bef or e t he cour t ?
20 MR. RUBI NSTEI N: No, your Honor .
21 MR. KWOK: No, your Honor .
22 THE COURT: Al l r i ght . You bet t er be i n her e at 9
23 o' cl ock i f we have Ms. Ri l ey. Oh, I have a t el ephone
24 conf er ence at ni ne, so make i t 9: 15 as usual .
25 ( Tr i al adj our ned t o J une 6, 2008 at 9: 15 a. m. )
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3 BELI NDA RI LEY
4 Di r ect By Mr . Kwok . . . . . . . . . . . . . 506
6 ELI SHA GURFEI N
9 Redi r ect By Mr . Ever del l . . . . . . . . . . 695
13 900A . . . . . . . . . . . . . . . . . . 507
14 61 . . . . . . . . . . . . . . . . . . . 510
15 62 . . . . . . . . . . . . . . . . . . . 516
16 110 and 111 . . . . . . . . . . . . . . . 528
17 112 and 113 . . . . . . . . . . . . . . . 548
18 114 and 115 . . . . . . . . . . . . . . . 550
19 120, 121, 122, 123, 124 and 125 . . . . . 559
20 126, 127, 128, 129, 130, 131 and 132 . . 559
21 901 . . . . . . . . . . . . . . . . . . . 559
24 BBB . . . . . . . . . . . . . . . . . . . 596
25
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2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
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4 v. S2 07 CR 541 ( RPP)
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6 Def endant .
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8 J une 6, 2008
9 9: 15 a. m.
9
10
10 Bef or e:
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13
13
14 APPEARANCES
14
16 BY: STEVEN KWOK
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1 ( Tr i al r esumed; j ur y not pr esent )
2 THE COURT: Good mor ni ng. We have a not e f r oma j ur or
3 r ecei ved yest er day af t er noon t o J udge Pat t er son. " I ' d l i ke t o
4 speak wi t h you about my need t o f ol l ow up wi t h my medi cal
5 si t uat i on. Your t i me woul d be much appr eci at ed. Thank you. "
6 I t hi nk t hi s i s J ur or 7, Chr i st i ne Hul l . My
7 r ecol l ect i on i s t hat she di d not have an appoi nt ment dur i ng
8 j ur y sel ect i on but was t r yi ng t o get an appoi nt ment f or medi cal
9 f ol l owup, and I suggest ed she t r y and do i t af t er t he
10 schedul ed t r i al , but I don' t know t he nat ur e of her medi cal
11 f ol l owup. Of cour se i f i t ' s a l i f e- t hr eat eni ng di sease, I
12 woul d have pr obl ems. So, I guess we bet t er have her i n her e
13 and l i st en t o her , and I wi l l deci de accor di ngl y.
14 We st i l l have t hr ee j ur or s. I f t hi s case goes over
15 t wo weeks, we wi l l pr obabl y l ose J ur or 1; and i f i t goes t hr ee
16 weeks, we l ose J ur or 8, t he f or mer al t er nat e J ur or 1. And who
17 knows what el se.
18 Now, how ar e we comi ng on t r i al ? Ther e ar e t wo
19 wi t nesses t he gover nment has, i s t hat i t ?
20 MR. EVERDELL: Yes, your Honor . The gover nment af t er
21 we f i ni sh wi t h Ms. Ri l ey has t wo mor e wi t nesses. As I t hi nk I
22 i ndi cat ed yest er day, t hey ar e al ong t he l i nes of Mr . Gur f ei n i n
23 l engt h. One wi t ness has some e- mai l s t hat we need t o i nt r oduce
24 t hr ough hi m. That ' s Fr ank Spr i ng. So t hat may t ake a l i t t l e
25 l onger j ust wi t h t he i nt r oduct i on of exhi bi t s, but i t woul d
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1 t ake - - r oughl y al ong t he l i nes - - t he di r ect at l east wi l l
2 t ake r oughl y al ong t he l i nes of what i t t ook f or Mr . Gur f ei n.
3 THE COURT: Wel l , we have t o make pr ogr ess her e.
4 Let me say somet hi ng whi l e t hat subj ect i s up. I am
5 concer ned t hat t he gover nment - - as I hear t he evi dence t hat ' s
6 comi ng i n, I ' mnot sur e t hat so f ar anyway t he gover nment has
7 shown an i nt ent i onal mi sappl i cat i on of t he f unds of CASI .
8 Now, i f you ar e t al ki ng about t he gr ant f unds, t hat ' s
9 anot her mat t er , you may have somet hi ng wi t h r espect t o
10 mi sappl i cat i on of gr ant f unds. I don' t know. I haven' t hear d
11 al l of t he evi dence.
12 For i nst ance, wi t h r espect t o t he scr een, CASI got t he
13 benef i t of t hat scr een. I don' t t hi nk t hat can be consi der ed a
14 mi sappl i cat i on of f unds. And i f t he gover nment i s pr oceedi ng
15 i n t hat way, unl ess t hey show t hat t he cor por at i on di dn' t
16 benef i t i n any way by t he pur chase, I don' t t hi nk i t can be
17 consi der ed a mi sappl i cat i on of CASI ' s gener al f unds.
18 So, I don' t know what t he r est of t he evi dence i s, but
19 I ' d l i ke t o have a memor andumr eal l y by Monday mor ni ng
20 del i neat i ng, i f you wi l l , how you ar e goi ng t o go, because I
21 have t o char ge t he j ur y. Thi s i s a ver y di cey si t uat i on i f you
22 r ead cases i n t hi s ar ea, because you have t o have knowi ng
23 i nt ent t o mi sappl y t he f unds, and i t ' s vi r t ual l y t he same as
24 conver si on. And I t hi nk t he l eadi ng case i s Mor i set t e.
25 But you ought t o have somet hi ng by Monday t o show t hat
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8667KAR1
1 I shoul dn' t t hr ow t hi s case out .
2 By t he way, one of t he def ense exhi bi t s f or
3 i dent i f i cat i on was l ef t her e on t he bench, FFF. Maybe i t ' s
4 f our Fs or t hr ee Fs. Al l r i ght . Wel l , l et me get t hi s j ur or
5 i n. Rober t , can you ask Ms. Hul l t o come i n.
6 How much l onger do you t hi nk you ar e goi ng t o be wi t h
7 Ms. Ri l ey?
8 MR. RUBI NSTEI N: Possi bl y most of t he mor ni ng, your
9 Honor .
10 ( J ur or pr esent )
11 THE COURT: Good mor ni ng, Ms. Hul l . You sai d you
12 want ed t o t al k t o me about your doct or ' s si t uat i on.
13 J UROR: Act ual l y f or a coupl e of year s I have been
14 deal i ng wi t h sever al pr obl ems, and I have some br ai n l esi ons
15 t hat t hey' r e t r yi ng t o di agnose whet her i t ' s MS or some ot her
16 pr obl emgoi ng on. And t hen af t er I sent my r epl y back t o t he
17 j ur y pool I got a r esul t f r oma mammogr amt hat I have
18 cal ci f i cat i ons i n one br east r equi r i ng bi opsy. So I ' mi n t he
19 pr ocess now of get t i ng some speci al i st t o l ook at t hat .
20 But t hi s br ai n t hi ng and t he vest i bul ar weakness i s
21 causi ng me t o be ext r emel y t i r ed. I get r eal l y exhaust ed, and
22 I f el t yest er day I l i ke zoned out al most l i ke i f I ' mf al l i ng
23 asl eep or somet hi ng dur i ng t he pr ocess of wi t ness exami nat i on.
24 THE COURT: I di dn' t not i ce i t .
25 J UROR: You di dn' t ? I was st unned.
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1 THE COURT: I may have been car r yi ng on.
2 J UROR: Ther e ar e j ust t hose i ssues goi ng on, and I
3 f eel ver y f eel good about t he pr ocess, but I don' t know i f I
4 can f ul f i l l t hi s. I f I get an appoi nt ment t o get t he bi opsy
5 done, I wi l l have t o get i t t aken car e of .
6 THE COURT: Wel l , i f you have t o l eave f or t he bi opsy,
7 we wi l l accommodat e you.
8 J UROR: So, you don' t see me ki nd of spaci ng out over
9 her e or anyt hi ng? Because I ' mt r yi ng t o pay at t ent i on, but
10 i t ' s - -
11 THE COURT: I t hi nk i f you know you ar e goi ng t o be
12 excused i f t he bi opsy appoi nt ment i s made dur i ng t he t r i al ,
13 t hat you wi l l be excused - -
14 J UROR: OK, I wi l l t r y my best t o hang i n t her e.
15 THE COURT: - - maybe you wi l l have an easi er mi nd.
16 MR. RUBI NSTEI N: Sounds good t o me, your Honor .
17 MR. KWOK: To t he gover nment as wel l .
18 THE COURT: Al l r i ght . Thank you f or bei ng so f r ank
19 and br i ngi ng i t t o our at t ent i on. And i f you need a br eak,
20 j ust r ai se your hand and you can have a br eak.
21 J UROR: I appr eci at e i t , your Honor .
22 ( J ur or not pr esent )
23 MR. RUBI NSTEI N: We' r e shor t one def endant , your
24 Honor . I di dn' t pi ck hi mup t hi s mor ni ng, because he pr omi sed
25 me he woul d be on t i me. I do want t o say somet hi ng about
( 212) 805- 0300
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1 sl eepi ng j ur or s. I was on a j ur y, and t he t wo har dest t hi ngs
2 was st ayi ng awake - - t hese seat s ar e so comf or t abl e you have no
3 i dea.
4 THE COURT: Ar e you sur e i t wasn' t t he j udge?
5 MR. RUBI NSTEI N: I t wasn' t t he j udge.
6 THE COURT: Somet i mes i t ' s t he at t or neys.
7 MR. RUBI NSTEI N: I t coul d have been. That coul d have
8 been.
9 J udge, can I make t he cal l t o my cl i ent ?
10 THE COURT: Sur e.
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2 THE COURT: Good mor ni ng, l adi es and gent l emen. Thank
3 you f or bei ng so pr ompt . Al l r i ght , your next wi t ness.
4 You' r e r ecal l i ng Ms. Ri l ey?
5 MR. KWOK: Yes, your Honor .
6 BELI NDA RI LEY, r esumed.
7 THE COURT: You ar e r emi nded you ar e st i l l under oat h.
9 THE COURT: And t he j ur y i s r emi nded I have t o do t hat
10 as a mat t er of cour t pr ocedur e. OK, t hank you. Cont i nue your
11 cr oss.
13 CROSS EXAMI NATI ON ( Cont i nued)
15 Q. Ms. Ri l ey, I bel i eve when we suspended your t est i mony you
16 wer e l ooki ng f or a r ecor d t o r ef r esh your r ecol l ect i on as t o
17 Mr . Gur f ei n' s sal ar y.
18 A. I was l ooki ng f or t he r ecor d - - I t hought I was l ooki ng f or
19 t he r ecor d f or t he gr ant , f or t he 75 per cent , t o show t he
20 mul t i pl i cat i on t o det er mi ne t he al l owabl e por t i on of hi s
21 sal ar y. Because t he r ecor d you had had a hundr ed t housand
22 t i mes 75 per cent equal ed a hundr ed t housand, and t her e was a
23 mat hemat i cal er r or . That shoul d have sai d - - wel l , I t hi nk t he
24 one I f ound sai d 133 t i mes 75 per cent was a hundr ed t housand,
25 whi ch I di dn' t check, but i t was t o show t hat t her e was a
( 212) 805- 0300
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1 mat hemat i cal er r or on t hat document .
2 Q. Mat hemat i cal er r or on what document ?
3 A. The budget document t hat was showi ng 100, 000 t i mes 75 i s a
4 100, 000. Because 100, 000 t i mes 75 per cent woul d be 75, 000 not
5 100, 000.
6 Q. Wel l , woul d $133, 333, comput e 75 per cent t o t hat , woul d
7 t hat comput e t o 100, 000?
8 A. I ' mnot sur e. I was j ust t r yi ng t o show t hat i t was
9 i ncor r ect f or t hat , f or t he 100, 000, t hat i t wasn' t - - i t
10 shoul d be a mat hemat i cal cor r ect number . I di dn' t check t he
11 ot her document .
12 Q. Wel l , ar e you awar e t hat t he budget was amended i n t hi s
13 case?
14 A. The budget was amended t o show - - yes, t he budget was
15 amended, but i t di dn' t have - - but t he amendment 2 di dn' t have
16 t hat par t i cul ar at t achment on i t .
17 Q. Wel l , I show you what ' s been mar ked as Def endant ' s Exhi bi t
18 H, whi ch i s a por t i on of Gover nment Exhi bi t 33. Do you have
19 Exhi bi t 33?
20 THE COURT: For i dent i f i cat i on?
21 Q. Yeah, f or i dent i f i cat i on, your Honor ?
22 MR. RUBI NSTEI N: Yeah, f or i dent i f i cat i on, your Honor .
23 ( Def endant pr esent )
24 Q. Do you r ecogni ze t hat document t hat i s par t of Exhi bi t 33
25 t hat ' s i n evi dence?
( 212) 805- 0300
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1 A. Yes.
2 Q. I n f act , i n t he r evi sed budget f or t he f i r st year 2001 t o
3 2002 Mr . Gur f ei n' s sal ar y as pr oj ect manager was r ai sed t o
4 $133, 333, and 75 per cent of t hat was l i st ed as t he cost t o t he
5 pr oj ect , $100, 000, cor r ect ?
6 A. Cor r ect . So, i f Mr . Gur f ei n was act ual l y pai d $133, 000,
7 t hen t he 75 per cent woul d be appl i ed t o t he amount t hat he was
8 act ual l y pai d ver sus t he amount t hat was budget ed. He woul d be
9 al l owed up t o $100, 000 i f t hat was 75 per cent of t he amount he
10 was act ual l y pai d.
11 Q. So, i n f act your cal cul at i on of deduct i ng par t of
12 Mr . Gur f ei n' s sal ar y i n t he amount of $25, 000 was i ncor r ect .
13 A. On t he books and r ecor ds pr ovi ded by Mel , Mr . Gur f ei n' s net
14 pay was $100, 000 t i mes 75 per cent , whi ch woul d be 75, 000. And
15 t he wi t hhol di ng por t i on was separ at ed i nt o t he f r i nge benef i t s
16 sect i on, and so t hat por t i on of t he gr oss pay i s shown as an
17 adj ust ment i n t he f r i nge benef i t sect i on.
18 Q. When you say Mel , you mean Mr . Spi t z, cor r ect ?
19 A. Mr . Spi t z.
20 Q. But you di dn' t meet hi munt i l t he l at t er par t of 2003,
21 r i ght ?
22 A. Ri ght . And t he December 2003 r epor t i s based on hi s books
23 and r ecor ds pr ovi ded by Mr . Spi t z.
24 Q. Di dn' t you t el l us yest er day t hat you r el i ed upon t he books
25 and r ecor ds t hat you r ecei ved f r omCASI and Ms. Hayes?
( 212) 805- 0300
713
1 A. For t he J une 2003 r epor t , t he shor t r epor t , I r el i ed on t he
2 r ecor ds t hat wer e submi t t ed i n J une.
3 For t he December r epor t I r el i ed on t he books and
4 r ecor ds t hat wer e submi t t ed by Mr . Spi t z i n December .
5 On some of t he t hi ngs I mi ght have l ooked back t o see,
6 i f I needed addi t i onal cl ar i f i cat i on, how t hey wer e booked,
7 because t he check r egi st er s pr ovi ded by t he J une 2003 r ecor ds
8 wer e - - you know, I di dn' t quest i on whet her Dr . Kar r on' s books
9 pai d t he per son t hat t hese checks wer e wr i t t en t o; i t was j ust
10 t he al l ocat i on of t he cost bet ween t he budget cat egor i es.
11 Q. Ar e you sayi ng t hat t he r epor t s t hat Mr . Spi t z pr esent ed t o
12 you wer e di f f er ent t han t he f i nanci al r epor t s t hat you had
13 pr evi ousl y r ecei ved f r omCASI ?
14 A. Cer t ai n of t he budget cat egor i es wer e di f f er ent . The
15 per sonnel cat egor i es shoul d have been si mi l ar .
16 Q. Wel l , was i t ?
17 A. I di dn' t r econci l e bet ween t he t wo set s of books. I used
18 t he ones submi t t ed by Mr . Spi t z December 2003 f or t hat r epor t .
19 The cost cl ai med on t he December 2003 r epor t r econci l es back t o
20 t he Mel Spi t z books.
21 Q. But t he bot t oml i ne i s now t hat you l ooked at Def endant ' s
22 Exhi bi t H f or i dent i f i cat i on, whi ch i s act ual l y par t of
23 Gover nment Exhi bi t 33, t aki ng t hat i nt o account , t hen i t was
24 appr opr i at e t o pay Mr . Gur f ei n $100, 000, cor r ect ?
25 A. No, i t was appr opr i at e t o pay Mr . - - i t was appr opr i at e f or
( 212) 805- 0300
714
1 t he NI ST gr ant t o - - wel l , based on t hi s document , i f
2 Mr . Gur f ei n act ual l y wor ked 75 per cent of hi s t i me f or t he NI ST
3 gr ant , i t woul d be appr opr i at e t o pay hi m75 per cent of hi s
4 sal ar y as al l owabl e cost .
5 THE COURT: At t r i but abl e t o t he NI ST gr ant .
6 THE WI TNESS: At t r i but abl e t o t he gr ant . I f he spent
7 75 per cent of hi s t i me wor ki ng on t he gr ant , wi t h al l owabl e
8 t hi ngs f or t he gr ant , t hen he woul d be ent i t l ed t o - - t he gr ant
9 woul d r ei mbur se f or up t o 75 per cent of hi s sal ar y i f he spent
10 t hat much t i me wor ki ng.
11 I f he onl y spent 50 per cent of hi s t i me on al l owabl e
12 gr ant act i vi t i es, t hen even t hough t he budget woul d al l ow 75
13 per cent , he woul d have act ual l y onl y spent 50 per cent , so he
14 shoul d onl y be r ei mbur sed 50 per cent of t he t i me.
15 Q. But i n your f i ndi ngs you f ound t hat he wor ked 75 per cent of
16 t he t i me and, t her ef or e, you at t r i but ed a $25, 000 r educt i on i n
17 al l owabl e expenses, cor r ect ?
18 A. My audi t al l ows f or 75 per cent of hi s t i me.
19 Q. Whi ch r educed hi s sal ar y f r om$133, 333 t o $75, 000, cor r ect ,
20 accor di ng t o your cal cul at i ons?
21 A. No. Thi s woul d be t he gr oss sal ar y. The 133 shoul d be t he
22 gr oss sal ar y, but i n my cal cul at i ons t he r ecor ds pr ovi ded i n
23 December 2003 had di vi ded t he sal ar y i nt o net sal ar y, and t he
24 wi t hhol di ngs wer e i ncl uded as par t of f r i nge benef i t s, and so
25 t hat comput at i on i s ki nd of i n t wo par t s. Par t of i t shows up
( 212) 805- 0300
715
1 i n t he f r i nge benef i t s sect i on of t he r epor t , and par t of i t
2 shows up i n t he per sonnel sect i on of t he r epor t .
3 Q. But t he t ot al comes out t o $25, 000, cor r ect ?
4 A. The t ot al adj ust ment comes out t o - - can I have a copy of
5 my December r epor t ?
6 Q. Why don' t you t ake a l ook at I bel i eve i t ' s Exhi bi t 62.
7 THE COURT: She hasn' t got copi es of her r epor t s i n
8 f r ont of her ?
9 Al l t he document s she had on di r ect , not j ust one.
10 By t he way, H i s not i n evi dence. Def endant ' s H i s
11 f or i dent i f i cat i on. You have not of f er ed i t i n evi dence,
13 MR. RUBI NSTEI N: I t hi nk i t ' s par t of - -
14 THE COURT: I know, but - -
15 MR. RUBI NSTEI N: Al l r i ght . We wi l l of f er H i nt o
16 evi dence, your Honor .
17 THE COURT: You say t hat , but t he gover nment has t o
18 l ook at i t , makes sur e i t i s par t of i t , and I have t o l ook at
19 i t .
20 MR. RUBI NSTEI N: OK. I gave a copy t o t he gover nment ,
21 your Honor , and I woul d of f er def endant ' s H i nt o evi dence.
22 THE COURT: Any obj ect i on?
24 THE COURT: Def endant ' s H i s i n evi dence.
25 ( Def endant ' s Exhi bi t H r ecei ved i n evi dence)
( 212) 805- 0300
716
1 A. OK. For t he chi ef oper at i ng of f i cer $25, 000 i s quest i oned,
2 pl us a per cent age on page 4 of 8 wher e i t says $8, 466 i s
3 quest i oned f or payr ol l f or t he chi ef oper at i ng of f i cer and
4 chi ef t echni cal of f i cer ' s sal ar y - -
5 THE COURT: J ust sl ow down.
6 A. OK. The addi t i onal amount quest i oned f or t he gr oss sal ar y
7 i s i ncl uded i n t he $8, 466.
8 Q. Now t hat you have r evi ewed Def endant ' s H, Gover nment
9 Exhi bi t 33 - - wi t hdr awn.
10 Now, you ar e an i ndependent audi t or f or t he of f i ce of
11 t he i nspect or gener al , cor r ect ?
12 A. Yes.
13 Q. I t ' s your r esponsi bi l i t y t o make sur e t he number s t hat you
14 submi t ar e cor r ect , r i ght ?
15 A. Yes.
16 Q. And you have access, do you not , t o al l t he r ecor ds of t he
17 NI ST ATP gr ant , cor r ect ?
18 A. Yes.
19 Q. And you had access t o what ' s i n evi dence as Gover nment ' s
20 33, cor r ect ?
21 A. Yes.
22 Q. And by l ooki ng at Gover nment ' s 33 i n def endant ' s H, whi ch
23 i s par t of i t , i s i t f ai r t o say t hat i t was an er r or on your
24 par t t o deduct $25, 000 as al l owabl e expenses on behal f of
25 Mr . Gur f ei n t he chi ef oper at i ng of f i cer ?
( 212) 805- 0300
717
1 A. No.
2 Q. And on what basi s do you say t hat ?
3 A. Thi s adj ust ment i s based on a sal ar y pai d t o Mr . Gur f ei n,
4 75 per cent of t he act ual sal ar y pai d.
5 Q. What was t he act ual sal ar y pai d?
6 A. I t hi nk i t was ar ound 125, 000.
7 Q. I sn' t i t accor di ng t o t he document t hat I showed you
8 $133 - -
9 THE COURT: Let ' s not have what you t hi nk. Go t o your
10 document s and t el l us.
11 MR. RUBI NSTEI N: She has Exhi bi t H t her e i n f r ont of
12 her , your Honor .
13 THE COURT: I under st and.
14 MR. RUBI NSTEI N: Can you l ook at Exhi bi t H?
15 THE COURT: You asked her . She sai d i t was act ual
16 sal ar y pai d. Thi s i s a concl usor y document . She has conduct ed
17 an audi t ; she di d t he bank r ecor ds; she di d t he ot her r ecor ds.
18 She can l ook at t hose t o det er mi ne what t he act ual sal ar y pai d
19 was.
20 MR. RUBI NSTEI N: Absol ut el y.
21 Q. What was t he act ual sal ar y pai d t o Mr . Gur f ei n, ma' am?
22 A. The act ual sal ar y was appr oxi mat el y $122, 000.
23 Q. And what ' s 25 per cent of $122, 000?
24 A. That was t he gr oss sal ar y. The net sal ar y was $100, 000. 75
25 per cent of t he $100, 000 i s t he $25, 000 adj ust ment .
( 212) 805- 0300
718
1 Q. I sn' t i t 25 per cent of t he gr oss, ma' am, t hat you t ook of f ?
2 A. The addi t i onal por t i on, t he gr oss, i s i n t he f r i nge
3 benef i t s number of t he $8, 466.
4 Q. I sn' t i t a f act t hat your audi t f ound t hat Mr . Gur f ei n was
5 t o be pai d $100, 000, ma' am? That was t he f i ndi ng of your audi t
6 t hat you j ust sai d you got f r omMr . Spi t z, t hat hi s gr oss
7 sal ar y was $100, 000 - -
8 A. Hi s net sal ar y was $100, 000. The r emai nder was i ncl uded i n
9 t he f r i nge benef i t br eakdown by Mr . Spi t z.
10 Q. Fr i nge benef i t s ar e consi der ed par t of sal ar y?
11 A. The wi t hhol di ngs wer e account ed f or i n t he books t hat way.
12 Q. Wel l , wi t hhol di ng i s a f r i nge benef i t , cor r ect ?
13 A. The cost s her e shoul d be t he - - t he annual sal ar y shoul d
14 i ncl ude t he wi t hhol di ngs as par t of i t i n t he budget .
15 THE COURT: So i t ' s wi t hhol di ng, not f r i nge benef i t s
16 t hat account s f or t he di f f er ence?
17 THE WI TNESS: Yes, wi t hhol di ngs. But i n t he books and
18 r ecor ds pr ovi ded, t he wi t hhol di ngs wer e i ncl uded as a f r i nge
19 benef i t number , and so i n my audi t adj ust ment I i ncl uded t hem
20 wher e t hey wer e i ncl uded f or t he books I was pr ovi ded.
21 Q. But when you t al k about f r i nge benef i t s l i ke heal t h
22 i nsur ance and vacat i on, t hat ' s not i ncl uded i n t he per son' s
23 sal ar y, i s i t ?
24 A. I n t he br eakdown t hat I was pr ovi ded - - I i ncl uded t hese
25 number s wher e Mr . Spi t z had i ncl uded t he accr ual f or t he cost .
( 212) 805- 0300
719
1 Q. Ma' am, you ar e an audi t or , cor r ect ?
2 A. Yes.
3 Q. You ar e f ami l i ar wi t h account i ng pr i nci pl es?
4 A. Yes. Wi t hhol di ngs woul d not be par t of t he f r i nge
5 benef i t s. But i n t he audi t - -
6 THE COURT: But t hey wer e i n t he books, i s t hat what
7 you' r e sayi ng?
8 THE WI TNESS: They wer e i n t he books, and so I
9 adj ust ed wher e t hi ngs wer e i n t he books.
10 Q. I t ' s your t ake- home pay pl us your wi t hhol di ng t hat makes up
11 f or your sal ar y, cor r ect ?
12 A. Cor r ect .
13 Q. I mean i f I get $1, 000 a week sal ar y and I ' mi n t he 28
14 per cent br acket , on t he books i t shows t hat I had $1, 000 t hat I
15 had t o pay t axes on, cor r ect ?
16 A. Can you r epeat t hat ?
17 Q. Your t axes ar e wi t hhel d i f you ar e a sal ar i ed empl oyee,
18 cor r ect ?
19 A. Cor r ect .
20 Q. So t hat i f you make $1, 000 a week and you ar e i n l et ' s say
21 t he 30 per cent br acket , you get a net check of $700 a week.
22 A. Cor r ect .
23 Q. Ri ght ?
24 A. Cor r ect .
25 Q. And t hose moni es t hat wi t h wi t hhel d ar e pr oper l y i n f r i nge
( 212) 805- 0300
720
1 benef i t s, cor r ect ?
2 A. The money f or wi t hhol di ng ar e par t of your gr oss sal ar y and
3 ar e of t en account ed f or i n t he f r i nge benef i t s sect i on.
4 THE COURT: But t hey' r e not par t of your - -
5 He asked you about f r i nge benef i t s. Ar e wi t hhol di ng
6 t axes deduct ed, f r oman audi t i ng poi nt of vi ew, pr oper as
7 f r i nge benef i t s?
8 THE WI TNESS: As an audi t i ng poi nt of vi ew we nor mal l y
9 adj ust t hemwher e t hey wer e cl ai med by t he per son doi ng t he
10 books. I n t hi s i nst ance t hey wer e cl ai med under f r i nge
11 benef i t s, and so we adj ust ed t hemunder what t hey wer e cl ai med.
12 We di dn' t adj ust per sonnel cost t o i ncl ude t he f r i nge
13 benef i t s because t hey - - i t was act ual l y consi der ed har der t o
14 expl ai n t hat way, but . . .
15 Q. Do you have a schedul e of t he act ual checks t hat wer e
16 r ecei ved by Mr . Gur f ei n, ma' am?
17 A. Yes.
18 Q. Wher e i s t hat schedul e?
19 A. My dat abase.
20 THE COURT: Exhi bi t ?
21 MR. KWOK: I bel i eve i t ' s Gover nment Exhi bi t 110, your
22 Honor .
23 THE COURT: Exhi bi t 100, i s t hat what you' r e r ef er r i ng
24 t o, Ms. Ri l ey?
25 DEPUTY COURT CLERK: I t hi nk t hey sai d 110.
( 212) 805- 0300
721
1 THE COURT: 110? And 111?
2 MR. RUBI NSTEI N: And can you t el l us what page?
3 THE COURT: Ms. Ri l ey, you have a way when I ask you
4 f or a yes or no answer , i nst ead of gi vi ng me a yes or no
5 answer , you gi ve me an expl anat i on.
6 THE WI TNESS: OK.
7 THE COURT: Same goes - - gi ve a yes or no answer .
8 Then i f t hey ask f or an expl anat i on, gi ve t he expl anat i on. But
9 when you answer i t t hat way, no one knows whet her you ar e
10 answer i ng yes or no somet i mes. Maybe t hey don' t under st and
11 you.
13 THE COURT: OK. Now, l et ' s f i nd t he pages t hat have
14 Mr . Gur f ei n' s sal ar y. Can you hel p us t her e?
15 MR. KWOK: Can we di r ect t he wi t ness t o a page?
16 THE COURT: Yes.
17 MR. RUBI NSTEI N: Pl ease.
18 MR. KWOK: Coul d I di r ect your at t ent i on t o page 36 of
19 44 i n Gover nment Exhi bi t 110.
21 Q. Ar e you l ooki ng at t hat page, ma' am?
22 A. I do.
23 Q. And you have a t ot al of t he net amount of Mr . Gur f ei n' s
24 sal ar y?
25 A. That shows t hat - -
( 212) 805- 0300
722
1 Q. Do you see t he t op of t he page, ma' am?
2 A. Sor r y. What page was t hat ?
3 Q. Par don?
4 A. What page?
5 Q. I t ' s 36 of 44 i n Exhi bi t - - ma' am, coul d you l ook at t he
6 t op of t hat page, page 36 of 44.
7 A. Yes.
8 Q. And i s t hat a schedul e of Mr . Gur f ei n' s net , t he checks
9 t hat wer e act ual l y wr i t t en t o Mr . Gur f ei n?
10 A. No, i t was a check t hat I had - - t he dat abase I had
11 cr eat ed, so I had t hought t hat t he net checks shoul d be t her e.
12 Q. Par don?
13 A. I t ' s t he dat abase t hat I had ent er ed al l t he checks f r om
14 Dr . Kar r on.
15 Q. So, t hat ' s not a Spi t z document .
16 A. No, t hat ' s not Spi t z document s.
17 Do we have Spi t z?
18 Q. Wel l , f r omt he checks t hat you saw f r omCASI t hat you put
19 i n t hi s exhi bi t t hat ' s i n evi dence, what i s t he t ot al amount of
20 net pay r ecei ved by Gur f ei n?
21 A. $70, 000 i n checks wr i t t en.
22 Q. Not 100, 000, r i ght ?
23 A. No.
24 Q. You j ust t est i f i ed under oat h t hat i t was 100, 000 t hat he
25 r ecei ved i n net sal ar y, cor r ect ?
( 212) 805- 0300
723
1 A. Accor di ng t o t he r ecor ds pr ovi ded by Mel Spi t z. So, t her e
2 mi ght have been some adj ust ed j our nal ent r i es.
3 Q. But not accor di ng t o t he r ecor ds you pr ovi ded.
4 A. Wel l , t hey wer e j ust based on t he checks wr i t t en.
5 Q. Your s i s based on t he act ual checks.
6 A. The act ual checks wr i t t en t o hi m.
7 Q. And you have t hose checks, do you not , or copi es of t hose
8 checks?
9 A. Yes, I do.
10 Q. I mean you have access t o any bank st at ement and copi es of
11 any checks t hat wer e wr i t t en, cashed on any account i n t hi s
12 case, cor r ect ?
13 A. Wr i t t en on - -
15 THE COURT: Obj ect i on over r ul ed.
16 Q. You have aut hor i t y t o subpoena - - i f you di dn' t get t he
17 act ual r ecor ds f r omCASI , you can subpoena a bank, Chase Bank,
18 r i ght , t o get t he r ecor ds t hat t hey have, r i ght ?
19 A. We' r e t al ki ng about bank r ecor ds f or CASI ?
20 Q. Tal ki ng about t he checks - -
21 A. The checks f or CASI .
22 Q. The checks of CASI .
23 A. Yes.
24 Q. And di d you do a bank r econci l i at i on on t he checks t hat
25 wer e dr awn agai nst t he f our CASI account s t hat you ment i oned
( 212) 805- 0300
724
1 yest er day?
2 A. Yes.
3 Q. And i s i t f ai r t o say t hat t he schedul e t hat you have her e
4 on page 36 of 44 of Exhi bi t 110 was comput ed on t he basi s of
5 your anal ysi s of t hose checks?
6 A. Yes.
7 Q. So, now do you concede t hat your number bef or e of $100, 000
8 i n net pay t o Mr . Gur f ei n was i naccur at e?
9 THE COURT: Net pay?
10 MR. RUBI NSTEI N: Yeah, t hat ' s what she sai d, t he
11 100, 000 was t he net pay.
12 THE COURT: Di d you say t hat ?
13 MR. RUBI NSTEI N: Or somet hi ng l i ke 122, 000.
14 THE WI TNESS: Net pay, yes, based on Mr . Spi t z' s
15 r ecor ds.
16 THE COURT: Wel l , what was t he net pay t hat you put i n
17 your books, i n your audi t ?
18 THE WI TNESS: Fr ommy audi t t he net pay was $100, 000.
19 THE COURT: But yet your audi t says t hat he onl y got
20 70, 000 on page 36 of 44.
21 THE WI TNESS: I t says t hat 25 per cent of t he - -
22 THE COURT: Wel l , 36 of 44 says what ?
23 THE WI TNESS: 36 of 44 says 70, 000 was net pay.
24 THE COURT: Ri ght .
25 THE WI TNESS: And t hat came f r omt he act ual deposi t .
( 212) 805- 0300
725
1 THE COURT: Ri ght . And your audi t r epor t says net pay
2 was 100, 000?
3 THE WI TNESS: Wel l , t hey ar e f r omdi f f er ent sour ces.
4 The audi t r epor t i s f r omMr . Spi t z' s r ecor d, so i t may have
5 adj ust i ng j our nal ent r i es.
6 THE COURT: I don' t f ol l ow. Why woul d you use
7 Mr . Spi t z' s r ecor d when you have your own r ecor d of what i t i s?
8 THE WI TNESS: Because I di dn' t cr eat e t hemunt i l
9 l at er , unt i l af t er t he audi t was done.
10 THE COURT: You di dn' t cr eat e what ?
11 THE WI TNESS: Thi s r ecor d, t he 36 of 44, unt i l af t er
12 t he audi t was done. I di d not anal yze t he cancel ed checks
13 unt i l asked t o by i nvest i gat i ons.
15 THE WI TNESS: So t hey wer e done at di f f er ent t i mes.
16 THE COURT: So, i t ' s your t est i mony t hat based on your
17 under st andi ng of Mr . Spi t z' s r ecor ds t her e was a $25, 000
18 over payment t o Mr . Gur f ei n.
20 THE COURT: But when you act ual l y checked t he r ecor ds
21 l at er af t er t he audi t was done, and you f ound out i n f act i t
22 wasn' t 100, 000.
24 THE COURT: So, t he 100, 000 det er mi nat i on by you was
25 i ncor r ect - -
( 212) 805- 0300
726
2 THE COURT: - - based on t he r ecor ds.
3 THE WI TNESS: Based on t he cancel ed checks, yes.
5 Q. So, i s i t f ai r t o say t oday, J une 6, 2008, t hat t he
6 di sal l owance of t he $25, 000 i n sal ar y of Mr . Gur f ei n was an
7 er r or i n t he cal cul at i ons?
9 THE COURT: Obj ect i on sust ai ned. I t ' s not f ai r t o say
10 t hat . I t was based on an i ncor r ect concl usi on possi bl y.
11 MR. RUBI NSTEI N: OK, i ncor r ect concl usi on.
12 THE COURT: But based on t he r ecor ds - - but cor r ect
13 under t he r ecor ds t hat she had r ecei ved f r omMr . Spi t zer or
14 what ever hi s name i s.
15 Q. That ' s an accept abl e audi t i ng t echni que, ma' am, t o use t he
16 r epr esent at i ve of t he t axpayer , t hei r r ecor ds?
17 A. Yes.
18 Q. That ' s an accept abl e audi t i ng pr i nci pl e?
19 A. Yes, we use t hei r r ecor ds.
20 Q. I s t hat an audi t ? Ther e ar e pr i nci pl es of audi t i ng, ar e
21 t her e not , ma' am?
22 A. Yes.
23 Q. And i s i t your t est i mony t hat you do not do any i ndependent
24 eval uat i on of r ecor ds submi t t ed t o you?
25 A. I sampl ed cer t ai n t r ansact i ons i n Mr . Spi t z' s books.
( 212) 805- 0300
727
1 THE COURT: I s an audi t a r evi ew of t he r ecor ds of t he
2 company you' r e r evi ewi ng on accor di ng t o what t hey say, or does
3 an audi t or have t o go back t o t he under l yi ng r ecor ds t o
4 det er mi ne what t he t r ut h i s?
5 THE WI TNESS: We t est t he r ecor ds t hat t hey pr ovi de
6 us, and i f we t hi nk t hat t hey do a f ai r and accur at e
7 r epr esent at i on of t he expenses, t hen we st ar t our audi t usi ng
8 t hei r r ecor ds and make adj ust ment s.
9 So, i n t hi s case I woul d have l ooked at t he r ecor ds
10 pr ovi ded f r omMr . Spi t z, det er mi ned t hat NI ST onl y agr eed t o
11 pay 75 per cent of what Mr . Gur f ei n' s sal ar y was, and so my
12 audi t adj ust ment woul d be t he books showed he was pai d 100, 000
13 he was onl y ent i t l ed t o ATP r ei mbur sement of 75 per cent of
14 t hat , so CASI woul d have pai d 25, 000 t o Mr . Gur f ei n and NI ST
15 woul d have pai d t he 75, 000 t o Mr . Gur f ei n based on Mr . Spi t z' s
16 r ecor ds.
17 Q. And Spi t z' s r ecor ds show t hat t he gr oss, accor di ng t o you,
18 was 100, 000, cor r ect ?
19 A. The net sal ar y was 100, 000.
20 Q. Do you have t hose r ecor ds her e?
21 A. Mr . Spi t z' s r ecor ds?
22 Q. Yes, t hat you say t hat Spi t z sai d t hat t he net sal ar y was
23 $100, 000.
24 A. Yes.
25 THE COURT: Do you have t he r ecor ds her e?
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1 THE WI TNESS: I have comput er copi es.
2 THE COURT: A comput er copy of Mr . Spi t z' s r ecor ds?
4 THE COURT: But not i n f r ont of you.
5 THE WI TNESS: Not i n f r ont of me.
6 Q. And you di dn' t use Spi t z' s f i gur es f or Exhi bi t 110,
7 cor r ect ?
8 THE COURT: For exhi bi t - -
9 MR. RUBI NSTEI N: 110, t he one she i s t al ki ng about .
10 THE COURT: She sai d t hat 110 was cr eat ed af t er t he
11 December audi t .
12 MR. RUBI NSTEI N: But i f she - -
13 Q. I f you di dn' t use t hese f i gur es i n 110 f or your audi t , how
14 ar e t hey r el evant t o t hi s case?
15 A. Si nce t hey wer e t he - -
16 THE COURT: Wel l , t hat ' s not a good quest i on f or her
17 t o answer . That ' s not a quest i on f or her .
18 MR. RUBI NSTEI N: Al l r i ght . Wel l , I ' mnot goi ng t o - -
19 THE COURT: You can ar gue t hat on summat i on.
20 MR. RUBI NSTEI N: I have gone f ar enough on t hi s i ssue.
21 Q. The bot t oml i ne, ma' am, i s t hat bet ween Mr . Gur f ei n and Dr .
22 Kar r on, you di sal l owed a t ot al of $71, 550, r i ght ?
23 THE COURT: Based on Mr . Spi t z' s r ecor ds. I s t hat
24 r i ght ?
25 THE WI TNESS: Yes, f r omMr . Spi t z and Dr . Kar r on,
( 212) 805- 0300
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1 yes - - I mean f or Gur f ei n and Dr . Kar r on.
2 Q. And Spi t z' r ecor ds i ndi cat ed t hat Dr . Kar r on wasn' t
3 ent i t l ed t o a hundr ed per cent of hi s $175, 000 sal ar y?
4 A. The NI ST budget al l ows t hat a sal ar y can be up t o. I t ' s
5 not i n st one t he al l ocat i ons of t i me wor ked. These ar e
6 est i mat es of per cent age of pr oj ect ed t i me on pr oj ect .
7 Q. The budget per mi t t ed $175, 000 f or Dr . Kar r on, cor r ect ?
8 A. The budget woul d have per mi t t ed a hundr ed per cent of t he
9 t i me f or Dr . Kar r on i f he spent a hundr ed per cent of hi s t i me
10 wor ki ng on t he ATP pr oj ect .
11 Q. How many hour s a week i s he supposed t o wor k on t he ATP
12 pr oj ect t o j ust i f y hi s $175, 000 sal ar y?
13 A. He i s a sal ar i ed empl oyee, so i t doesn' t amount t o hour s.
14 I t i s t he per cent age of t i me wor ked. So, i f he wor ks - -
15 THE COURT: Not i f s. What wer e you t ol d by
16 Mr . Spi t z' s r ecor ds?
18 THE COURT: What di d Mr . Spi t z t el l you? What di d
19 Mr . Spi t z' s r ecor ds - - what di d he t el l you?
20 THE WI TNESS: Mr . Spi t z' s r ecor ds woul d have shown a
21 hundr ed per cent of hi s t i me. Wel l , i f Spi t z' s r ecor ds - - j ust
22 had t ot al sal ar y.
23 Q. Par don?
24 A. Mr . Spi t z' s r ecor ds showed net sal ar y under t he per sonnel
25 sect i on.
( 212) 805- 0300
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1 Q. So, you r el i ed upon Mr . Spi t z' s r ecor ds f or Gur f ei n, but
2 you di dn' t r el y upon Mr . Spi t z' s r ecor ds f or Dr . Kar r on?
3 A. No, t he - - Dr . Kar r on i s t he CEO of CASI and i s al so car i ng
4 about t he pr oj ect . Mr . Gur f ei n' s r esponsi bi l i t i es i ncl uded
5 f undr ai si ng and pr oj ect managi ng, st r at egi c pl anni ng. Dr .
6 Kar r on woul d have made - - as owner of CASI and i nt er est ed i n
7 t he pr oj ect - - woul d have had di scussi ons wi t h Mr . Gur f ei n
8 concer ni ng t hose i ssues, and t hose i ssues, si nce t hey ar e not
9 al l owabl e cost s, t he t i me he woul d have spent di scussi ng t hose
10 ki nds of i ssues woul d not be al l owabl e char ges t o t he ATP
11 pr oj ect .
12 So, he di dn' t r eal l y - - he r eal l y wasn' t spendi ng a
13 hundr ed per cent of hi s t i me, and so as audi t or s, based on
14 i nt er vi ews - -
15 THE COURT: How di d you det er mi ne he wasn' t spendi ng a
16 hundr ed per cent of hi s t i me?
17 THE WI TNESS: Based on - -
18 THE COURT: For t hi s audi t r epor t .
19 THE WI TNESS: Based on - - j ust on what - - t hat i t ' s a
20 company, I guess pr of essi onal j udgment .
22 THE WI TNESS: Pr of essi onal j udgment . Knowi ng t he t ype
23 of busi ness, knowi ng t hei r r equi r ement s, t hat a hundr ed per cent
24 of t he t i me f or t he CEO i s not on j ust pr oj ect t i me.
25 THE COURT: I t wasn' t based on anyt hi ng t hat Mr . Spi t z
( 212) 805- 0300
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1 or Dr . Kar r on t ol d you or anyt hi ng of t hat sor t ? I t ' s j ust
2 pr of essi onal j udgment .
3 THE WI TNESS: Ri ght . And I had asked Dr . Kar r on about
4 t hi ngs, var i ous empl oyees, and, you know.
5 THE COURT: And what ?
6 THE WI TNESS: And obser ved t hi ngs t hat peopl e di d.
7 THE COURT: You mean your obser vat i ons dur i ng t he
8 audi t ?
9 THE WI TNESS: Yeah, and t hi ngs di scussed dur i ng t he
10 audi t .
11 Q. So, i t ' s your t est i mony t hat i f I ' ma sal ar i ed - - i f a
12 per son i s a sal ar i ed empl oyee, and t hey wor k 80 hour s a week on
13 one pr oj ect , and t hey spend t wo hour s of t hat 80 hour s on
14 non- di r ect act i vi t i es, you ar e goi ng t o deduct par t of t hei r
15 sal ar y as an al l owabl e expense?
16 A. As a NI ST- r ei mbur sabl e expense f or - - t hey' r e bei ng
17 r ei mbur sed f or - - yes.
18 I f t hey' r e not wor ki ng on t he NI ST pr oj ect , and t hei r
19 dut i es ar en' t r el at ed t o t he NI ST pr oj ect , t hen onl y t he
20 por t i on t hat ' s r el at ed t o t he pr oj ect cost i s al l owabl e.
21 Q. Wel l , what i f t hey had t wo j obs, t hey had a NI ST j ob and at
22 ni ght t hey t aught at some uni ver si t y, and now t hey onl y wor k 40
23 hour s a week?
( 212) 805- 0300
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1 Q. I s i t f ai r t o say t hat you ar e not t he l ast wor d on what ' s
2 al l owabl e and what ' s not al l owabl e i n t he OI G' s of f i ce?
3 A. Dur i ng r esol ut i on of t he audi t ?
4 Q. I n t he whol e pr ocess t hat a company can di sput e your
5 i nt er pr et at i ons, cor r ect ?
6 A. Cor r ect , i t goes t hr ough a r esol ut i on pr ocess.
7 Q. And ar e you par t of t hat r esol ut i on pr ocess?
8 A. Yes.
9 Q. Do you make t he f i nal deci si on at t hat r esol ut i on pr ocess?
10 A. The gr ant s of f i ce makes t he f i nal deci si on.
11 Q. The gr ant s of f i ce?
12 A. Um- hum.
13 Q. The gr ant s of f i ce of what ?
14 A. NI ST ATP.
15 Q. So t hey have a r i ght i n t he f i nal r esol ut i on t o appr ove any
16 of t hese expenses, cor r ect ?
17 A. Yes, t hey do.
18 Q. Now, you t al ked about f r i nge benef i t s. Di d you make any
19 det er mi nat i on i n your audi t as t o ot her f r i nge benef i t s ot her
20 t han t he payr ol l t ax, t ax wi t hhol di ng? Di d you make any
21 det er mi nat i ons as t o any ot her f r i nge benef i t s, whet her t hey
22 wer e al l owabl e or not ?
23 A. Yes.
24 Q. Because act ual l y you ar e maki ng a det er mi nat i on i n your
25 anal ysi s of what i s al l owed, cor r ect ?
( 212) 805- 0300
733
1 A. Yes.
2 Q. As di st i ngui shed f r omwhat i s al l owabl e.
3 A. I make t he det er mi nat i on f or what i s al l owabl e.
4 Q. Wel l , di d you r evi ew any mat er i al s t o det er mi ne what was an
5 appr opr i at e f r i nge benef i t f or t he CASI or gani zat i on?
6 A. What i s your - - I don' t under st and t hat quest i on.
7 Q. Di d you r evi ew anyt hi ng t o det er mi ne i n your mi nd what
8 f r i nge benef i t s woul d be, l i ke l et ' s say medi cal , what medi cal
9 f r i nge benef i t s shoul d be al l owabl e?
10 A. Yes.
11 Q. And what di d you r evi ew?
12 A. He had some ki nd of pl an document I t hi nk f r om' 96 t hat
13 di dn' t ment i on t hese ki nds of benef i t s.
14 THE COURT: What di d you say?
15 THE WI TNESS: He had a document t hat di dn' t ment i on - -
16 I don' t t hi nk i t ment i oned f r i nge benef i t s or ment i oned al l of
17 t hese.
18 THE COURT: Sor r y. What ? I can' t hear you.
19 THE WI TNESS: He had a pl an document or an of f i ce
20 pol i cy document .
21 THE COURT: Whi ch was i t ?
22 THE WI TNESS: Of f i ce pol i cy. That ' s t he onl y document
23 t hat I r evi ewed t hat ment i oned - - t hat was i n ef f ect dur i ng t he
24 per i od of t he gr ant .
25 THE COURT: That ' s what you wer e gui ded by her e?
( 212) 805- 0300
734
1 THE WI TNESS: And I r evi ewed - - wel l , I r evi ewed t he
2 expense r ecor ds, t he l edger r ecor ds.
3 THE COURT: Pr ovi ded t o you by?
4 THE WI TNESS: Mel Spi t z, Mr . Spi t z.
5 THE COURT: Go ahead. What el se?
6 THE WI TNESS: Ever yt hi ng el se was t he l og.
7 THE COURT: What ? The l og?
8 THE WI TNESS: Yeah, t he cr i t er i a t hat was pr ovi ded
9 by - -
10 THE COURT: What cr i t er i a?
11 Q. What cr i t er i a?
12 A. Wel l , ATP gui dance or what ever cr i t er i a woul d have t o do
13 wi t h f r i nge benef i t s.
14 Q. I sn' t t he company' s pol i ci es, even i f t hey' r e not wr i t t en,
15 ar en' t t hey t o be consi der ed i n maki ng t hat det er mi nat i on what
16 t he pr act i ce i s of t hat or gani zat i on?
17 A. I t di dn' t ment i on t hose ki nds of benef i t s i n t he pol i cy
18 t hat I saw.
19 THE COURT: The of f i ce pol i cy.
20 THE WI TNESS: I n t he of f i ce pol i cy.
21 Q. That ' s not t he quest i on.
22 A. OK.
23 Q. You say you saw a document f r om1996, cor r ect ?
24 A. I t was an ol d document . I ' mnot sur e. I don' t r ecal l t he
25 exact year but i t was - -
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735
1 Q. Di d you ask - -
2 THE COURT: Thi s document , what i s i t ? What ar e we
3 t al ki ng about ? Ar e you t al ki ng about t he of f i ce pol i cy manual ?
4 I s t hat what you mean by t he document , Mr . Rubi nst ei n?
5 MR. RUBI NSTEI N: That ' s what she i ndi cat ed.
6 THE COURT: Al l r i ght . But l et ' s be sur e we ar e
7 t al ki ng about what we' r e t al ki ng about .
8 Q. The document t hat you say t hat you saw, di d you di scuss
9 whet her or not t hat was st i l l i n ef f ect i n t he year 2003 when
10 you di d t he audi t ?
11 A. They wer e r evi si ng i t i n 2003.
12 Q. And di d t hey advi se you t hey wer e r evi si ng i t ?
13 A. Yes, t hat t hey wer e r evi si ng i t .
14 THE COURT: And who gave you t he document ?
15 THE WI TNESS: I don' t know i f I have a copy. I don' t
16 know t hat t hey had f i ni shed - - I don' t t hi nk I got a copy. I ' m
17 not sur e I have a copy of t hat document .
18 THE COURT: Whi ch document ?
19 THE WI TNESS: The r evi sed document .
20 THE COURT: I ' mnot aski ng you about t he r evi sed
21 document . Who handed you t he document t hat you di d see?
22 THE WI TNESS: I don' t r ecal l . I t hi nk I got t hat one
23 i n J une, but I don' t r ecal l speci f i cal l y.
24 THE COURT: When? Fr omwhomi s what I asked, not
25 when.
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1 THE WI TNESS: I don' t know whom.
2 THE COURT: I asked f r omwhom.
3 THE WI TNESS: I don' t r emember .
4 THE COURT: Li st en t o t he quest i on bef or e you answer ,
5 and t r y and gi ve a yes or no answer , pl ease.
6 THE WI TNESS: I don' t r emember whom.
7 THE COURT: OK.
8 Q. Now, you wer e i nf or med t hat t hey wer e wor ki ng on a r evi sed
9 manual , i s t hat cor r ect ?
10 A. Yes.
11 Q. And wer e you advi sed t hat t he r evi sed manual woul d have t he
12 f r i nge benef i t s t hat wer e i n pl ace i n CASI f r ombef or e t he
13 gr ant ?
15 Q. That t he r evi sed - -
16 THE COURT: Quest i on wi t hdr awn. St ar t over agai n,
18 Q. You had di scussi ons t hat t hey wer e wor ki ng on a r evi sed
19 manual , cor r ect , i ncl udi ng f r i nge benef i t s?
20 A. Yes, I knew t hat t hey wer e r evi si ng t hei r manual .
21 Q. And di d you quest i on as t o what pol i ci es had been i n ef f ect
22 pr i or t o t he ATP gr ant ?
23 THE COURT: For get about t he r evi sed manual now. He
24 i s aski ng you di d you ask what pol i ci es wer e i n ef f ect pr i or t o
25 t he ATP gr ant . Di d you ask t hat quest i on?
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1 THE WI TNESS: I don' t r ecal l .
2 Q. I s i t a f act t hat under t he audi t i ng pr ocedur e you can
3 i nqui r e as t o f r i nge benef i t s such as medi cal , as t o what t he
4 company' s pol i cy was and what i t had done pr evi ousl y?
5 A. That i s one consi der at i on.
6 THE COURT: Sor r y. What ?
7 THE WI TNESS: Yes. Yes.
8 Q. And di d you i nqui r e of anyone - - wel l , di d you i nqui r e of
9 Dr . Kar r on what t he pr act i ce of CASI was pr i or t o get t i ng t he
10 ATP gr ant as t o f r i nge benef i t s?
11 A. I don' t r ecal l .
12 Q. Wel l , l et me show you what ' s been mar ked f or i dent i f i cat i on
13 as Def endant ' s L and ask you i f you have ever seen t hat
14 document bef or e.
15 A. I don' t r ecal l seei ng t hi s document bef or e.
16 Q. Now, di d you r evi ew t he cont r act of Mr . Gur f ei n when you
17 wer e r evi ewi ng hi s sal ar y?
18 A. Yes.
19 Q. And l et me show you what ' s been mar ked f or i dent i f i cat i on
20 as Def endant ' s K.
21 THE COURT: 3505 what ?
22 MR. RUBI NSTEI N: I t ' s i n 3505. I t doesn' t have a
23 l et t er but i t ' s bef or e C. 3505, I guess i t must be i n t he B
24 par t .
25 Q. I s t hat a document t hat you r evi ewed whi ch was a CASI
( 212) 805- 0300
738
1 document , ma' am?
2 A. Yes.
3 Q. As a mat t er of f act , you had a copy of t hat , di d you not ?
4 A. Yes.
5 Q. As a mat t er of f act , you t ur ned your copy over t o t he
6 pr osecut i on yest er day, cor r ect ?
7 A. Yes.
8 MR. RUBI NSTEI N: We of f er Def endant ' s K i nt o evi dence.
10 THE COURT: Def endant ' s K i s admi t t ed i nt o evi dence.
11 Can I see a copy?
12 MR. RUBI NSTEI N: I gave you one, J udge.
13 ( Def endant ' s Exhi bi t K r ecei ved i n evi dence)
14 THE COURT: Thi s i s an empl oyment agr eement - -
16 THE COURT: - - bet ween Mr . Gur f ei n and Comput er Ai ded
17 Sur ger y, dat ed as of Oct ober 1, 2001, si gned on December 26,
18 2001.
19 Q. And t hi s was pr ovi ded t o you as par t of t he audi t , cor r ect ?
20 A. Yes.
21 Q. To show - - wel l , I wi l l wi t hdr aw t hat . Thi s cont r act
22 pr ovi des f or f r i nge benef i t s, does i t not ?
23 A. Sor r y. What ?
24 Q. Thi s document pr ovi des f or f r i nge benef i t s?
25 A. Yes.
( 212) 805- 0300
739
1 Q. And wi l l you r ead t o t he j ur y what t he f r i nge benef i t s
2 pr ovi ded by CASI wer e.
3 A. On page 3, t he execut i ve wi l l be ent i t l ed t o par t i ci pat e i n
4 al l benef i t pl ans or pr ogr ams of t he company cur r ent l y i n
5 exi st ence or t o be est abl i shed, i ncl udi ng medi cal , dent al , l i f e
6 i nsur ance, r et i r ement , pensi ons, vacat i ons, si ck l eave and
7 hol i days.
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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866zkar 2 Ri l ey - cr oss
2 Q. Thank you. Now, you al so - - you al so di sal l owed cer t ai n
3 sal ar y of ot her peopl e, i s t hat cor r ect ?
4 A. Yes.
5 Q. And you di sal l owed sal ar y of Abe Kar r on?
6 A. Yes. Wel l - -
7 THE COURT: I ' msor r y, ar e you changi ng your - -
8 A. Abe di dn' t have sal ar y.
9 THE COURT: She say Abe di dn' t have a sal ar y.
10 Q. Di d Abe r ecei ve any moni es f r omCASI ?
11 A. For t he pr oj ect i on, pr oj ect or .
12 THE COURT: For what ?
13 THE WI TNESS: He di d, t he pr oj ect or and t he scr een.
14 He di dn' t have - - wasn' t sal ar i ed.
15 THE COURT: I f you answer f i r st yes or no, t hat hel ps.
16 THE WI TNESS: Oh, sor r y.
17 Q. And t hat was an al l owabl e expense, cor r ect ?
18 A. I ' msor r y, what ?
19 Q. That was al l owabl e?
20 A. What was al l owabl e?
21 Q. The money pai d t o Abe Kar r on?
22 THE COURT: What di d you say?
23 THE WI TNESS: What money pai d t o Abe Kar r on?
24 Q. The t housand dol l ar s and change?
25 A. I t hi nk t hat was quest i oned under equi pment , maybe.
( 212) 805- 0300
741
1 Q. Di d you al l ow or di sal l ow t hat amount ?
2 THE COURT: Wer e any of t hese al l owed or di sal l owed or
3 wer e t hey quest i oned, any of t hese expenses?
4 What was your r ol e her e? Wer e you di sal l owi ng or wer e
5 you r ecommendi ng or wer e you quest i oni ng; what wer e you doi ng?
6 THE WI TNESS: We - -
7 THE COURT: You.
8 THE WI TNESS: Yes. We quest i oned, we quest i oned t he
9 cost and r ecommend t hat i t be di sal l owed.
10 THE COURT: Okay.
11 Q. And you r ecommended i n t hi s r epor t t hat over $500, 000 woul d
12 be di sal l owed, cor r ect ?
13 A. Cor r ect .
14 THE COURT: Thi s i s t he December r epor t ?
15 MR. RUBI NSTEI N: The audi t was i n December - -
16 act ual l y, i t was f i l ed I bel i eve i n Mar ch of 2004.
17 Q. I s t hat cor r ect , Ms. Ri l ey?
18 A. Cor r ect .
20 Q. Now, t her e was an empl oyee Mi ss Wi nt er ?
21 A. Yes.
22 Q. And di d you al l ow or di sal l ow par t of her sal ar y?
23 A. Di sal l ow.
24 Q. And how much of her sal ar y was di sal l owed.
25 A. 25 per cent , appr oxi mat el y.
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742
1 Q. What basi s was - - Ms. Wi nt er was a bookkeeper at CASI
2 cor r ect ?
3 A. Cor r ect .
4 Q. And on what basi s was 25 per cent di sal l owed?
5 A. On t he basi s t hat she al so kept t he books f or t he busi ness
6 CASI , and so she, she wor ked on - - so NI ST woul d r ei mbur se her
7 t ot al sal ar y.
8 THE COURT: I coul dn' t hear you.
9 THE WI TNESS: NI ST woul d onl y r ei mbur se t he por t i on of
10 t he t i me t hat she wor ked f or NI ST.
11 THE COURT: I see. And t he r est was f or t he
12 cor por at i on?
13 THE WI TNESS: Theor y Cor por at i on.
14 THE COURT: Theor y?
15 THE WI TNESS: Theor y Cor por at i on.
16 Q. Wasn' t her j ob as a bookkeeper f or CASI ?
17 A. Yes.
18 Q. Wer en' t empl oyee sal ar i es i ncl uded i n t he budget ?
19 A. Onl y t he por t i on of t he t i me t hat woul d be at t r i but abl e t o
20 NI ST wor k woul d be r ei mbur sed by t he gr ant .
21 Q. But t her e was onl y one pr oj ect goi ng on at CASI , cor r ect ?
22 A. Cor r ect , but - -
23 Q. So 100 per cent of her t i me was bei ng spent on CASI - r el at ed
24 i t ems, cor r ect , ATP r el at ed i t ems?
25 A. No.
( 212) 805- 0300
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1 Q. You al so - - she al so had some f r i nge benef i t s, di d she not ?
2 A. Yes.
3 Q. What ki nds of f r i nge benef i t s di d she have?
4 A. Medi cal expense and chi l d car e.
5 Q. And you di sal l owed her chi l d car e, cor r ect ?
6 A. Cor r ect .
7 Q. That was a f r i nge benef i t of CASI , cor r ect ?
8 A. Cor r ect .
9 Q. And you deci ded t hat - -
10 THE COURT: Was i t i n t he manual or not ?
11 THE WI TNESS: I t was not i n t he manual . That was
12 pr ovi ded t o me or i gi nal l y.
13 THE COURT: Wer e you gi ven anot her one l at er ?
14 THE WI TNESS: J ust t he one t hat I was - - j ust t he
15 r evi sed one I j ust r ecei ved now.
16 THE COURT: You wer e, you wer e gi ven t hat ?
17 THE WI TNESS: No, no. Thi s i s - - no, I wasn' t gi ven
18 t he r evi sed manual .
19 THE COURT: You wer e gi ven t he r evi sed manual ?
20 THE WI TNESS: No, I di d not , di d not r ecei ve t he
21 r evi sed manual .
22 THE COURT: Then why di d you answer yes?
23 THE WI TNESS: I j ust got i t - - I sai d yes, j ust now, I
24 r ecei ved t he r evi sed manual .
( 212) 805- 0300
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1 THE WI TNESS: Because I j ust got t hi s r evi sed manual ,
2 yes. Not t he t i me of t he audi t .
3 THE COURT: I di dn' t - - I ' maski ng you about what you
4 di d at t he t i me you di d i t .
5 THE WI TNESS: Yeah, I di d not r ecei ve t he r evi sed
6 manual at t hat t i me.
7 THE COURT: Al l r i ght . So on t he i nf or mat i on you had,
8 you deci ded t o not al l ow chi l d car e?
10 THE COURT: Okay.
11 Q. Di d you di scuss wi t h anybody, wi t h Dr . Kar r on, as t o t he
12 f r i nge benef i t pol i cy r el at ed t o chi l d car e f or Mi ss Wi nt er ?
14 THE COURT: That r evi sed manual i sn' t i n evi dence, i s
15 i t ?
17 THE COURT: You' r e r el yi ng on somet hi ng t hat ' s not
18 even i n evi dence yet .
19 THE WI TNESS: Oh, okay.
21 THE WI TNESS: Al l r i ght .
22 THE COURT: Let ' s get i t t oget her .
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1 THE COURT: Obj ect i on - - obj ect i on sust ai ned. I don' t
2 know what , what you' r e obj ect i ng t o. I t may have been my
3 r emar ks, so maybe.
4 MR. KWOK: No, I ' mobj ect i ng t o t he - -
5 THE COURT: I ' l l sust ai n i t , I ' l l sust ai n t hat al so.
6 MR. RUBI NSTEI N: You want t o st r i ke your r emar ks, your
7 Honor ?
8 THE COURT: Wel l - -
9 Q. Now, CASI wr ot e checks f or r ent , cor r ect ?
10 A. Cor r ect .
11 Q. Now, r ent i s or di nar i l y not per mi t t ed as a di r ect cost ,
12 cor r ect ?
13 A. Cor r ect .
14 Q. I n a si t uat i on wher e t he sol e - - and t he r eason, i s t he
15 r eason f or t hat because nor mal l y a busi ness i s conduct i ng ot her
16 busi nesses ot her t han t he gr ant pr oj ect and, t her ef or e, i t ' s
17 har d t o at t r i but e what por t i ons woul d be appl i cabl e?
18 A. I t ' s - - i t woul d need t o be i n t he budget .
19 Q. Ther e' s ot her s - - t her e' s a pr ovi si on f or ot her s i n t he
20 budget , cor r ect ?
21 A. Cor r ect .
22 Q. And you coul d i ncr ease t hat cat egor y by up t o 10 per cent of
23 t he 800, 000 i n t he f i r st year , cor r ect ?
24 A. Cor r ect .
25 Q. Now, but goi ng wi t h t he - - so t hat i s an i ssue t hat - -
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1 act ual l y whet her somet hi ng i s an i ndi r ect or a di r ect cost i s
2 somet hi ng t hat coul d be negot i at ed wi t h t he gr ant of f i ces,
3 r i ght ?
5 Q. Wel l , i n t he audi t r esol ut i on you coul d negot i at e whet her
6 or not t hat woul d be a di r ect cost as opposed t o an i ndi r ect
7 cost ?
8 A. Rent woul d be consi der ed an i ndi r ect cost .
9 Q. Gener al l y speaki ng, r i ght ; i s t hat cor r ect ?
10 A. Cor r ect .
11 Q. But t he CFR t hat you' r e gover ned by says t hat you deal on a
12 case- t o- case basi s?
13 A. Cor r ect .
14 Q. Now, l et ' s assume f or t hese quest i ons t hat t he r ent was, i n
15 f act , not al l owabl e; i t was i n f act an i ndi r ect cost , okay.
16 Fol l ow t hat ?
17 A. Not al l owabl e - - yes.
18 Q. I ' massumi ng t hat you' r e cor r ect , okay?
19 A. I ' mcor r ect .
20 Q. The r ent at t r i but abl e t o t he ATP gr ant woul d st ar t when?
22 A. St ar t ?
23 Q. Yeah, when woul d i t st ar t ? I f r ent was pai d - -
24 A. I f r ent was al l owabl e?
25 Q. No, no. I f i t was pai d, i t was an expense. I t ' s not
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1 al l owabl e, i t ' s an expense t hat ' s pai d, but not al l owabl e.
3 Q. Let me ask you - -
4 THE COURT: I don' t under st and t he quest i on.
5 Q. Let me ask you t hi s, was t her e - -
6 THE COURT: I don' t under st and t he quest i on. Ref r ame
7 t he quest i on.
8 Q. Okay. When you st ar t ed t o audi t CASI , di d you ascer t ai n
9 what t he f i nanci al condi t i on of CASI was bef or e t he gr ant
10 st ar t ed i n Oct ober of 2001?
11 A. Yes.
12 Q. And i s i t f ai r t o say t hat CASI Cor por at i on was i n debt i n
13 excess of bet ween 100 and $200, 000 at t hat t i me?
14 A. I don' t know how much t hey wer e i n debt .
15 Q. Wel l , i n f act - -
16 THE COURT: You don' t know whet her t hey wer e i n debt ?
17 THE WI TNESS: They wer e i n debt . I don' t know t he
18 amount .
19 Q. And CASI , pr i or t o t he ATP gr ant , was i n f act payi ng r ent
20 t o Dr . Kar r on f or use of t hat por t i on of t he apar t ment at 300
21 East 33r d St r eet ?
22 THE COURT: Bef or e t he gr ant ?
23 MR. RUBI NSTEI N: Bef or e t he gr ant .
24 THE COURT: I s t hat your knowl edge?
25 THE WI TNESS: No. My knowl edge i s t hey t ook - - t hey
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1 pai d t hemsel ves ni ne mont hs of back r ent when t hey f i r st got
2 t he check, CASI , pai d, t ook - -
3 Q. Go ahead.
4 A. The back - - t hey pai d, t hey pai d back r ent wi t h t he f i r st
5 dr awdown of NI ST f unds f or ni ne mont hs, $18, 000.
6 Q. And t hey l i st ed, t hey l i st ed what mont hs t he r ent was f or ,
7 cor r ect ?
8 A. Cor r ect .
9 Q. I mean, t her e i s a memo on each check, r i ght ?
10 A. Yes. Now t her e i s.
11 Q. Par don?
12 A. Yes.
13 Q. And t he memo says what mont h t hat $2, 000 check was payment
14 f or ?
15 A. Yes.
16 Q. Now, di d you do any - -
17 THE COURT: To whomwas t he check payabl e?
18 THE WI TNESS: Dr . Kar r on.
20 THE WI TNESS: Dr . Kar r on.
21 Q. And i f he r ecei ved r ent money, t hen he woul d have t o r epor t
22 t hat as i ncome on hi s t ax r et ur n, cor r ect ?
23 THE COURT: Obj ect i on - -
25 THE COURT: - - sust ai ned.
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1 Q. Wel l , ar e you awar e - - di d you exami ne Dr . Kar r on' s t ax
2 r et ur ns - -
4 Q. - - as par t of t hi s audi t ?
5 THE COURT: As par t of t he audi t , di d you l ook at hi s
6 t ax r et ur ns?
7 THE WI TNESS: I don' t r ecal l i f I have hi s t ax r et ur ns
8 or not .
9 Q. When, when was t he l ast - - wel l , i f you' r e cor r ect t hat - -
10 so t he f i r st ni ne checks, $18, 000 was pai d f or an expense t hat
11 was i ncur r ed pr i or t o t he gr ant , r i ght ?
12 A. Cor r ect .
13 Q. And i t woul dn' t mat t er i f you cal l ed i t r ent or you bought
14 a pi ece of equi pment unr el at ed t o t he gr ant pr i or t o t he gr ant ,
15 i t was an expense t hat he - - i t was a debt t hat he was payi ng
16 of f , cor r ect ?
17 A. Cor r ect .
18 Q. Now, he woul d be ent i t l ed, woul d he not , t o i ncr ease hi s
19 sal ar y under t he r ul es by as much as 10 per cent wi t hout pr i or
20 appr oval ?
21 A. Sal ar y woul d pr obabl y need t o be pr i or appr oval . The
22 per sonnel sal ar i es t ot al may not need pr i or appr oval .
23 Q. May?
24 A. But woul d need - - t he - - i f he wer e usi ng t he 10 per cent
25 r ul e f or - - and you had addi t i onal sal ar i es of 10 per cent . But
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1 f or a speci f i c sal ar y, you know, i f t hi ngs, i f t hi ngs changed
2 wi t h t he named peopl e, t hat ' s supposed t o get an appr oval f r om
3 t he gr ant peopl e.
4 Q. I sn' t he al l owed t o get 10 per cent of t he $800, 000 t o use
5 wi t hout any budget appr oval f or any l i ne i t emt hat had al r eady
6 been est abl i shed; i sn' t t hat t he r ul e?
7 A. He can r eal l ocat e t en per cent of t he l i ne i t ems i f i t ' s - -
8 i f i t ' s al l owabl e NI ST cost , at t r i but abl e t o t he gr ant .
9 Q. Hi s sal ar y was al l owabl e, cor r ect ?
10 A. At t he amount t hey appr oved.
11 Q. But he coul d, under t he 10 per cent r ul e, he coul d i ncr ease
12 t hat sal ar y, cor r ect ?
13 A. I ' mnot sur e about t hat .
14 Q. He coul d i ncr ease - - coul d he i ncr ease equi pment ?
15 A. Equi pment he coul d.
16 Q. Coul d he i ncr ease f r i nge benef i t s?
17 A. Fr i nge benef i t s, al l owabl e f r i nge benef i t s t o t he - - i t
18 woul d be abl e t o i ncr ease.
19 Q. That payment - - by t he way, Dr . Kar r on had, you sai d he had
20 f our account s, r i ght ?
21 A. Four checki ng account s.
22 Q. Four checki ng account s. And he had a di f f er ent col or ed
23 check f or each checki ng account , cor r ect ?
25 Q. You saw t he checks, di d you not ?
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1 A. I saw copi es of t he checks.
2 Q. They wer e not i n col or ?
3 A. No.
4 Q. These r ent checks wer e pai d out of t he CASI , I nc. account ,
5 cor r ect ?
6 A. I don' t r ecal l , but t hat coul d be t r ue.
7 Q. Now, you have a schedul e as t o t he r ent checks, do you not ?
8 THE COURT: Wer e t hese checks t o t he l andl or d? Rent
9 checks, was t her e a l andl or d her e or i s i t - - or i s i t a - -
10 MR. RUBI NSTEI N: Wel l , Dr . Kar r on was t he l andl or d,
11 your Honor .
12 Q. Now, whi ch - -
13 THE COURT: I don' t know. The wi t ness t hen shoul d
14 t est i f y, Mr . Rubi nst ei n.
16 Q. You have t hi s on t he schedul e i n t he 3500 mat er i al ,
17 cor r ect ? And I di r ect your at t ent i on t o 3500 t en - - 110, page
18 39 of 44?
19 MR. KWOK: Your Honor , I bel i eve t hat ' s gover nment
20 Exhi bi t 110.
21 MR. RUBI NSTEI N: Yeah, gover nment exhi bi t . I ' msor r y,
22 J udge.
23 THE COURT: Bef or e you get i nt o t hat , j ust so we' r e
24 cl ear , Ms. Ri l ey, was t hi s cr eat ed af t er your - - was t hi s
25 document 110 cr eat ed af t er your audi t was, December , was
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1 cr eat ed?
3 THE COURT: Af t er t he r epor t was cr eat ed?
5 THE COURT: Al l r i ght . So you know, appr oxi mat el y,
6 when i t was cr eat ed?
7 THE WI TNESS: The dat a base was cr eat ed i n 2004, 2005
8 but t hi s speci f i c document was cr eat ed on May 28. I t ' s got t he
9 dat e on her e.
10 THE COURT: I see.
11 Q. Now, by l ooki ng at t hat document , ma' am, coul d you use t hat
12 t o r ef r esh your r ecol l ect i on as t o how - - t he r ent was $2, 000 a
13 mont h, cor r ect ?
14 A. Cor r ect .
15 Q. And by l ooki ng at t hat document , can you t el l t he j ur y how
16 many payment s wer e made of $2, 000 pr i or t o t he st ar t of t he
17 gr ant on Oct ober 1?
18 THE COURT: How many payment s wer e made?
19 Q. Yeah, at t r i but abl e t o r ent t hat was f or per i ods pr i or t o
20 t he st ar t of t he gr ant of J anuar y - - of Oct ober 1, 2001?
21 THE COURT: Do you have a page t o r ef er t o?
22 MR. RUBI NSTEI N: Yes. I t ' s page 39 of 44. i n exhi bi t ,
23 gover nment Exhi bi t 110, your Honor .
25 Q. Do you have t hat , ma' am?
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1 A. Yes.
2 THE COURT: By t he way, what i s GL?
3 THE WI TNESS: The gener al l edger , one of t he gener al
4 l edger s.
5 Q. And by r evi ewi ng t hat document , how many of t he r ent
6 payment s wer e made af t er f or t i me per i ods af t er Oct ober 1st ,
7 2001, st ar t - -
8 A. Af t er - - how many checks wer e made f or t he per i od st ar t i ng
9 Oct ober 1, 2001?
10 Q. When t he gr ant st ar t ed.
11 A. When t he gr ant st ar t ed, how many payment s wer e made, af t er
12 t hat ?
13 Q. Ri ght .
14 A. Ther e' s 21 payment s made dur i ng t he gr ant per i od and ni ne
15 payment s - -
16 Q. 21?
17 A. - - f or per i ods pr i or t o t he - -
18 Q. Dur i ng t he gr ant per i od - - excuse me, ma' am. Di d you say
19 dur i ng or bef or e t he gr ant per i od?
20 A. 21 t hat wer e pai d dur i ng t he gr ant per i od, and ni ne wer e
21 made f or a per i od pr i or t o t he gr ant awar d.
22 Q. I sn' t i t a f act t hat t he - - i f you st ar t at t he, wher e i t
23 says r ent on of f i ce, 30 det ai l ed r ecor ds, cor r ect ?
24 A. Yes.
25 Q. And you st ar t out , t he f i r st check was t o pay t he r ent owed
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1 f or J anuar y, 2000, cor r ect ?
2 A. Cor r ect .
3 Q. And you f ol l ow down t he next number of checks, t her e i s a
4 t ot al of ni ne checks t hat wer e at t r i but abl e t o r ent owed f r om
5 2000, cor r ect ?
6 A. Yes.
7 Q. And t hen t hat ' s al l pr i or t o t he gr ant , cor r ect ?
8 A. The ni ne, t he ni ne - - t he f i r st ni ne wer e pr i or t o t he
9 gr ant .
10 Q. And t hen you have t he next check i s J anuar y ' 01, goi ng down
11 t o t he bot t omof t hat page?
12 THE COURT: Wai t a mi nut e. Af t er t he f i r st ni ne
13 checks dat ed Oct ober 26, 2001?
15 THE COURT: The next check i s 11/ 9, not J anuar y.
16 MR. RUBI NSTEI N: No, your Honor . I f your Honor l ooks
17 at det ai l s f or t he check, t hey have - - t hey show t he dat e
18 t hat - - f r omt he memo as t o what per i od. We concede i t was
19 pai d af t er t he gr ant . But t hi s, t hese expenses wer e f or - -
20 wer e owed f r om2000.
21 THE COURT: I under st and. You' ve cover ed t hat . But
22 t hen you ski pped t hi s Oct ober 26 t o J anuar y, and t her e wer e
23 payment s made i n November and i n December whi ch you omi t t ed i n
24 your quest i on. You sai d i t was t he next check.
25 MR. RUBI NSTEI N: I amgoi ng by t he, t he checks i n t he
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1 schedul e, your Honor . Ther e' s - -
2 THE COURT: I ' mgoi ng by t he checks i n t he schedul e
3 t oo, page 39 of 44.
4 MR. RUBI NSTEI N: Ri ght . The f i r st - -
5 THE COURT: So l et ' s f r ame your quest i on pr oper l y.
7 Q. The f i r st check t hat was pai d was f or J anuar y 2000' s r ent ,
8 cor r ect ?
9 A. Yes.
10 Q. The next check was Febr uar y 2000' s r ent ?
11 A. Yes.
12 Q. Next i s Mar ch 2000 r ent ?
13 A. Yes.
14 Q. And Apr i l 2000 r ent ?
15 A. Yes.
16 Q. Then May 2000' s r ent ?
17 A. Yes.
18 Q. J une 2000' s r ent ?
19 A. Yes.
20 Q. J ul y 2000 r ent ?
21 A. Yes.
22 Q. August 2000 r ent ?
23 A. Yes.
24 Q. Sept ember 2000 r ent , cor r ect ?
25 A. Cor r ect .
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1 Q. Okay. So t hose ar e ni ne checks t hat wer e wr i t t en af t er t he
2 gr ant , but pai d f or expenses i ncur r ed bef or e t he gr ant ,
3 cor r ect ?
4 A. Cor r ect .
5 Q. Now, t hen you have t he next check i s f or J anuar y r ent 2001,
6 cor r ect ?
7 A. Cor r ect .
8 Q. Febr uar y r ent , 2001?
9 A. Cor r ect .
10 Q. Mar ch r ent , 2001?
11 A. Cor r ect .
12 Q. Apr i l r ent , 2001?
13 A. Cor r ect .
14 Q. We' l l t ake December out . Then J une r ent , 2001?
15 A. Cor r ect .
16 Q. May r ent , 2001?
17 A. Cor r ect .
18 THE COURT: But what dat e - - t hat ' s what you' r e
19 r eadi ng of f i s t he dat e on t he expl anat i on, i s t hat cor r ect ?
20 MR. RUBI NSTEI N: Cor r ect , your Honor .
21 THE COURT: Wel l , when wer e t he checks wr i t t en?
22 MR. RUBI NSTEI N: Checks wer e wr i t t en i n Oct ober ,
23 November , December and J anuar y - - Oct ober , November ,
24 December 2001, af t er t he gr ant .
25 THE COURT: I s t hat cor r ect , Ms. Ri l ey?
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1 THE WI TNESS: The checks - - t hi s i s t he dat e t he
2 checks cl ear ed t he bank on t hi s dat e.
3 THE COURT: Excuse me?
4 THE WI TNESS: The checks cl ear ed t he bank. These
5 woul d have been t he t i mes t he checks cl ear ed t he bank.
6 THE COURT: When wer e t he checks - - yes or no, wer e
7 t he checks wr i t t en i n November , December , and J anuar y?
9 THE COURT: Ther e wer e checks wr i t t en i n November wer e
10 at t r i but ed on t he check t o payabl e f or t he J anuar y 1st r ent ?
12 THE COURT: Al l r i ght . And si mi l ar l y - -
13 Q. So i s i t f ai r t o say t hat 18 of t hese $2, 000 checks wer e
14 wr i t t en t o pay f or expenses t hat occur r ed pr i or t o t he gr ant ?
15 A. Yes.
16 Q. That woul d come t o a t ot al of $36, 000?
17 A. Ri ght .
18 Q. Cor r ect ?
19 A. Yes.
20 Q. Okay. Fr i nge benef i t s wer e budget ed f or a $110, 000, i s
21 t hat cor r ect , accor di ng t o t he budget ?
22 A. Fr i nge benef i t s - -
23 Q. Do you have t he budget , ma' am?
24 A. Fr i nge benef i t s wer e f or - -
25 MR. KWOK: Your Honor , may I hand up t he budget t o t he
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1 wi t ness?
2 THE COURT: You may.
3 MR. KWOK: Gover nment exhi bi t 22.
4 ( Handi ng)
5 Q. Have you exami ned exhi bi t 22, ma' am?
6 A. For year one?
7 Q. Year one.
8 A. $110, 000 i s t he budget f or f r i nge benef i t s.
9 Q. And how much f r i nge benef i t s wer e expended by t he busi ness?
10 A. I don' t have t he, t he year one amount expended. The year
11 one - - wher e i s t he - -
12 Q. You want t o l ook - -
13 A. Wher e i s t he - -
14 Q. You want t o l ook at exhi bi t 62?
15 A. Less t han $110, 000.
16 Q. Par don? You want t o l ook at exhi bi t - - maybe t hi s wi l l
17 hel p you, exhi bi t 62. Ther e i s an appendi x number t hr ee.
18 A. Exhi bi t 62.
19 Q. Page 16. Does t hat , i n any way, r ef r esh your r ecol l ect i on
20 as t o t he amount of f r i nge benef i t s t hat wer e cl ai med by CASI ?
21 A. That doesn' t .
22 Q. Do you have anyt hi ng t hat , t hat shows you t he amount t hat
23 you di sal l owed, or suggest ed shoul d be di sal l owed?
24 THE COURT: What ar e you r ef er r i ng t o now?
25 MR. RUBI NSTEI N: Ther e i s an appendi x i n exhi bi t 62,
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1 gover nment exhi bi t 62, your Honor , appendi x number t hr ee,
2 page - -
3 THE COURT: What page?
4 MR. RUBI NSTEI N: Page 16.
5 MR. KWOK: Your Honor - -
6 THE COURT: Yes.
7 MR. KWOK: I t hi nk def ense counsel i s di r ect i ng t he
8 wi t ness' at t ent i on t o t he def endant ' s r esponse, not t o her
9 wor k.
10 MR. RUBI NSTEI N: No. I ' mdi r ect i ng her at t ent i on t o
11 t he l ef t si de of t he page. As you l ook at i t , t her e i s - -
12 THE COURT: I ' mj ust t r yi ng t o f i nd t he page, so I can
13 det er mi ne what you' r e r ef er r i ng t o. Page 16, appendi x t hr ee?
14 MR. RUBI NSTEI N: Appendi x t hr ee, yes, your Honor .
16 Q. Al l r i ght . As you l ook at t he page, t he l ef t - hand por t i on
17 ar e your number s, cor r ect , Ms. Ri l ey?
18 A. Okay. The l ef t - hand number s.
19 Q. As you l ook at t he page?
20 A. Yes.
21 Q. Wher e i t says, di sal l ows, t hen t her e i s a col umn?
22 A. Yes, quest i oned i s a col umn. Yes, okay.
23 Q. And t he ot her si de says answer . That was what was
24 submi t t ed by Mr . Spi t z i n hi s pr esent at i on, cor r ect ?
25 A. Cor r ect .
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1 THE COURT: So t he posi t i on - - t hi s i s a r esponse t o
2 t he dr af t audi t r epor t , as Mr . Kwok sai d, r i ght , Mr - -
3 MR. RUBI NSTEI N: No. These ar e her number s - - yes.
4 But t hose - - yes.
5 THE COURT: As cont ai ned i n t he r esponse - -
7 THE COURT: - - t o t he dr af t audi t r epor t .
8 MR. RUBI NSTEI N: Fai r enough, J udge.
9 THE COURT: What ?
11 Q. Di d you check t hat Mr . Spi t z had pr oper l y cal cul at ed and
12 i dent i f i ed what you had di sal l owed i n t hi s audi t ?
13 A. I ' msor r y, r epeat t hat ?
14 Q. I n ot her wor ds, t he di sal l owances ar e pur por t ed by
15 Mr . Spi t z t o be what you di sal l owed as t he OI G audi t or f r om
16 CASI ?
17 A. Cor r ect .
18 Q. And di d you check t hese f i gur es so t hat coul d you det er mi ne
19 t hat t hose wer e, i n f act , your di sal l owances?
20 A. Cor r ect .
21 Q. So t hese - - so i t ' s f ai r t o say t hat t he number s depi ct ed
22 on t he l ef t - hand si de of t he page, as you l ook at i t , mar ked
23 di sal l owance, ar e i n f act your number s?
24 A. Cor r ect .
25 Q. And by t he way, Mr . Spi t z submi t t ed an 80 page r esponse,
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1 di d he not ?
2 A. The r esponse? Dr . Kar r on, wi t h t he ai d of Mr . Spi t z. I - -
3 what , t hi s 38 page r esponse?
4 Q. Wel l , di d you - - was i t an 80 page r esponse?
5 THE COURT: I t says 16 of 38, Mr - -
6 MR. RUBI NSTEI N: I know what i t says, J udge. I ' mj ust
7 aski ng a quest i on.
8 THE COURT: Was i t i n f act mor e t han t hi s 38 pages,
9 Ms. Ri l ey?
10 THE WI TNESS: I - -
12 THE WI TNESS: I t hi nk t hi s i s al l .
13 THE COURT: Do you know? Yes or no, or you don' t
14 know?
15 THE WI TNESS: I don' t know.
16 THE COURT: Okay.
17 THE WI TNESS: Thi s i s al l I know.
18 Q. Your t ot al quest i onabl e i t ems was $547, 000, cor r ect ? You
19 want t o l ook at 3502B, t op of t he second page and see i f t hat
20 r ef r eshes your r ecol l ect i on?
21 A. 547?
22 Q. What ?
23 A. Yeah 547.
24 Q. 547, 000 was quest i onabl e, cor r ect ?
25 A. Cor r ect .
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1 Q. And you di dn' t change one dol l ar af t er you r evi ewed
2 Mr . Spi t z' s r esponse, cor r ect ?
3 A. Cor r ect .
4 Q. And i t ' s a f act t hat - -
5 THE COURT: Who gave t he r esponse; do you know who
6 wr ot e i t ?
7 THE WI TNESS: The r esponse says t hat Dr . Kar r on, wi t h
8 t he ai d of , wr ot e i t .
9 THE COURT: Dr . Kar r on, wi t h t he ai d of Mr . Spi t z?
10 THE WI TNESS: On page, on page one of 38.
11 THE COURT: Al l r i ght . Thank you.
12 Q. So wer e t her e addi t i onal r ebut t al s, ot her t han t hi s
13 appendi x? Wer e t her e ot her document s submi t t ed besi des t hi s
14 r ebut t al t hat we have her e i n appendi x t hr ee?
15 A. Af t er t he f i nal r epor t ? Af t er t he r epor t was - - af t er t he
16 dr af t ?
17 Q. No, when you r ecei ved - -
18 A. I don' t r ecal l any, any ot her .
19 Q. Wel l , do you r ecal l t el l i ng Mr . Kwok on Apr i l 22nd, 2008
20 t hat an 80 page r ebut t al was submi t t ed?
22 Q. Let me show i t t o you. You met wi t h Mr . Kwok on Apr i l - -
23 I ' msor r y - - Apr i l 22nd, cor r ect ?
24 A. I don' t r ecal l t he dat e.
25 Q. I show you what ' s - - when you met wi t h Mr . Kwok, di d he
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1 t ake not es when he spoke t o you?
2 A. I don' t r ecal l i f he t ook not es.
3 Q. Al l r i ght . I ' mgoi ng t o show you what ' s been mar ked as
4 3502B and i dent i f i ed as def endant ' s exhi bi t I f or
5 i dent i f i cat i on and ask you t o l ook at t he second page wher e I
6 have a number t en on t he r i ght - hand si de and see i f t hat
7 r ef r eshes your r ecol l ect i on as t o t el l i ng Mr . Kwok t hat an 80
8 page r ebut t al was submi t t ed?
9 A. I don' t r ecal l sayi ng an 80 page r ebut t al was submi t t ed.
10 Q. Okay. Now, do you have any cal cul at i on f or t he, f or t he
11 t ot al amount of f r i nge benef i t s t hat wer e expended?
12 A. Tot al amount - - yes.
13 Q. And what was t he t ot al amount - -
14 A. For - -
15 Q. - - of f r i nge benef i t s t hat wer e expended by CASI ?
16 MR. KWOK: Your Honor , i f I coul d di r ect t he wi t ness'
17 at t ent i on t o gover nment exhi bi t 114 and 115.
18 ( Handi ng)
19 THE COURT: I t ' s 10 af t er 11: 00. Whi l e you' r e
20 conf er r i ng, l et ' s have t he j ur y t ake a br eak whi l e you conf er
21 and get your exami nat i on t oget her .
22 ( J ur y exi t s t he cour t r oom)
24
25
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2 THE COURT: Al l r i ght , ar e you near t he end?
3 MR. RUBI NSTEI N: Unf or t unat el y not , J udge, because I
4 can' t get yes or no answer s, and - -
5 THE COURT: You can get yes or no answer s.
6 MR. RUBI NSTEI N: Al l r i ght .
7 THE COURT: Al l you have t o do i s ask f or t hem, you' l l
8 have t hem.
9 MR. RUBI NSTEI N: I ' l l do t hat .
10 THE COURT: Al l r i ght , t hank you.
11 ( Recess)
12 THE COURT: Al l r i ght , pl ease be seat ed. Let ' s br i ng
13 i n t he j ur y.
15 THE COURT: Pl ease be seat ed.
16 Al l r i ght , Mr . Rubi nst ei n.
18 Q. I had asked you bef or e t he br eak i f you have a t ot al of t he
19 amount of f r i nge benef i t s t hat wer e pai d by CASI ?
20 THE COURT: I n any year ?
21 Q. I f t he year , f i r st year i n r ent . We' ve est abl i shed t hat
22 t hey wer e aut hor i zed t o pay 110, 000, and t he gover nment gave
23 you exhi bi t s one - - gover nment Exhi bi t 114 and 115 f or you t o
24 r ef r esh your r ecol l ect i on?
25 A. Cor r ect . And so t hey have an al l ocat i on f or 163, 460,
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1 accor di ng t o t he checks.
2 Q. Par don?
3 A. 160 - - 100 and - - i n t he checks wr i t t en - -
4 THE COURT: What ar e you l ooki ng at ?
5 THE WI TNESS: At t he gover nment 110.
6 Q. Looki ng at gover nment 110?
7 THE COURT: Wher e i n gover nment 110? What ?
8 THE WI TNESS: Oh, I ' msor r y. On page t en of 44. Page
9 t en, page t en.
10 THE COURT: 10 of 44?
12 Q. What was t hat page agai n, pl ease?
13 THE COURT: Page t en of 44, Mr . Rubi nst ei n.
15 THE COURT: What i s 110 t aken f r om, Ms. Ri l ey; whose
16 r ecor ds ar e you basi ng t hi s on?
17 THE WI TNESS: On t he - - t hi s document i s t he one we
18 di d f r omt he cancel l ed checks af t er l ast year - - af t er t he
19 audi t .
20 Q. So i t ' s pages 110 and 111, i s t hat - - I ' msor r y, pages t en
21 and 11 of Exhi bi t 110, i s t hat what you' r e r ef er r i ng t o?
22 THE COURT: She sai d page t en of 44.
23 Q. 10 of 44?
24 A. 10 of 44, yes.
25 Q. What i s your t ot al amount of f r i nge benef i t s t hat was
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1 cl ai med?
2 A. 158 - - I don' t have t hat f or a year .
3 THE COURT: Do you have i t f or - -
4 THE WI TNESS: The cl ai ms, t he cl ai med amount i s
5 158, 576.
6 THE COURT: For what per i od?
7 THE WI TNESS: Oct ober 1, 2001 t hr ough J une 27t h, 2003.
8 Q. So t hat ' s f or a year and ni ne mont hs?
9 A. Yes.
10 Q. You do not have t he - - t hey wer e ent i t l ed t o 110, 000 i n
11 f r i nge benef i t s t he f i r st year , cor r ect ?
12 A. Cor r ect .
13 Q. And t hey wer e ent i t l ed, I t hi nk, t o 127, 000 t he second
14 year ; amI cor r ect or i ncor r ect about t hat ?
15 A. Cor r ect .
16 Q. So t hat t hat woul d be over 230, 000 f or f r i nge benef i t s, and
17 t hat i ncl udes t he payr ol l t axes, r i ght ?
18 A. Cor r ect .
19 Q. How much of t hi s f i gur e was t he payr ol l t axes; i s t hat on
20 t he bot t omof page 11?
21 A. How much of whi ch f i gur e?
22 Q. Of t he, your 163, 460. 37 i s your t ot al f r i nge benef i t
23 expenses, act ual expenses, f or 21 mont hs of t he gr ant , cor r ect ?
24 A. Can you r epeat t hat ?
25 Q. The f r i nge benef i t s f or - - f r omOct ober 1st , 2001 t o J une
( 212) 805- 0300
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1 30t h, 2003, ar e r ef l ect ed i n t hi s number t hat says, wher e i t
2 says f r i nge benef i t s on t he l ef t , i f you go acr oss i n bol d
3 pr i nt , you go acr oss t hat l i ne, i t says 129 det ai l ed r ecor ds?
4 MR. KWOK: What document , your Honor ?
5 THE COURT: Yeah, l et ' s - - we don' t know what you' r e
6 r eadi ng f r om.
7 MR. RUBI NSTEI N: I ' msor r y, J udge.
8 THE COURT: You don' t i dent i f y i t .
9 MR. RUBI NSTEI N: I ' msor r y. I t hought we wer e al l - -
10 THE COURT: I t makes no sense f or t he r ecor d, Mr .
11 Rubi nst ei n.
12 MR. RUBI NSTEI N: I ' msor r y, J udge. I t hought we wer e
13 al l on page t en of 44 of Exhi bi t 110. That ' s what we' r e
14 t al ki ng about .
15 THE COURT: She' s t est i f i ed t o what i t was. Let ' s go
16 on, 160. I t shows t her e, f or t he r ecor d, 163, 460. I s t hat
17 cor r ect , Ms. Ri l ey?
19 Q. For a 21 mont h per i od, st ar t i ng - -
20 THE COURT: We' ve cover ed t hat .
21 Q. Okay. How much of t hat was wi t hhol di ng, payr ol l
22 wi t hhol di ng t axes t hat ar e consi der ed f r i nge benef i t s?
23 A. 135, 000.
24 THE COURT: How much?
25 THE WI TNESS: One - - i t ' s - - t he empl oyment t ax amount
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1 i ncl udes t he, t he empl oyer ' s shar e, but i t ' s 135, 000 f or t he
2 t ot al empl oyment t ax.
4 THE WI TNESS: 135, 000 on page 11 of 44.
5 THE COURT: Page 11 of 44?
6 THE WI TNESS: Of 110.
8 Q. And so t he non- payr ol l t ax f r i nge benef i t s equal what ?
9 A. Appr oxi mat el y 35 - - appr oxi mat el y $30, 000.
10 Q. Now, and you di sal l owed - - your r ecommendat i on was a
11 di sal l owance of $68, 884, cor r ect ?
12 A. Cor r ect .
13 Q. Because when you di sal l owed sal ar y, you di sal l owed what t he
14 per cent age of payr ol l t ax woul d be appl i cabl e t o t hat sal ar y,
15 cor r ect ?
16 THE COURT: I s t hat t he r eason you di d i t ?
17 THE WI TNESS: Repeat t hat , pl ease?
18 Q. Yeah. When you di sal l owed sal ar y, you know, l i ke Gur f ei n' s
19 25, 000, Dr . Kar r on' s 40 some odd t housand, you t hen di sal l owed
20 as al l owabl e expense t he payr ol l t ax t hat was pai d on t hat
21 $71, 000?
22 A. Cor r ect .
23 Q. So t hat i f t he sal ar y was i n f act al l owabl e, t hen t he
24 f r i nge benef i t woul d' ve been al l owabl e, cor r ect ?
25 A. Cor r ect .
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1 Q. And di d you di sal l ow - - wel l , I ' l l wi t hdr aw t hat .
2 Now, you al so had a cat egor y of meal s, cor r ect ?
3 A. Cor r ect .
4 Q. And you had di sal l owance i n t hat cat egor y?
5 A. Cor r ect .
6 Q. You showed us an ent i r e schedul e r el at ed t o meal s, cor r ect ?
7 A. Cor r ect .
8 Q. And di d you ascer t ai n whet her or not - - wi t hdr awn. I t ' s
9 appr opr i at e, i f you have a busi ness meet i ng, t o - - meal s ar e
10 deduct i bl e, ar e t hey not ?
11 MR. KWOK: Obj ect i on. Deduct i bl e?
12 Q. Wel l , al l owabl e. I ' msor r y. I s t hat cor r ect ?
13 A. For what ?
14 Q. Ar e meal s an al l owabl e expense i f - -
15 A. Appr oved by t he budget .
16 Q. - - i f di scussi ng CASI busi ness at a cof f ee shop?
17 THE COURT: Al l owabl e gr ant expense?
18 THE WI TNESS: No, not f or di scussi ng CASI .
20 Q. Par don?
21 THE COURT: Why not ?
22 THE WI TNESS: No. The meal s - - t he meal s woul d not
23 be - - meal s woul d depend.
24 Q. Par don?
25 A. Meal s - - t hey woul d - - f or di scussi ng CASI busi ness, t hey
( 212) 805- 0300
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1 woul d not be al l owabl e.
2 Q. On what t heor y?
3 A. Some - -
4 Q. What audi t i ng t heor y i s t her e t hat says t hat a busi ness
5 meet i ng conduct ed i n a r est aur ant or i n a boar d r oomwher e f ood
6 i s suppl i ed, i s not an al l owabl e expense?
7 A. They - - i t woul d - - t he some - - some may be al l owabl e f or - -
8 f or NI ST expense.
9 THE COURT: What , I ' msor r y?
10 A. To di scuss NI ST. But f or meet i ngs t o di scuss CASI busi ness
11 expense - -
12 Q. Wel l , t he onl y busi ness CASI had was NI ST, cor r ect ?
13 A. Al l of t he aspect s of a NI ST ar e not - - t he
14 commer ci al i zat i on of t he end pr oduct of t he mar ket i ng st r at egy
15 of t he pr oduct you' r e cr eat i ng i s not an al l owabl e expense,
16 even t hough i t ' s r equi r ed by NI ST f or t he gr ant .
17 Q. Di d you i nqui r e as t o what any of t hese meal deduct i ons
18 r el at ed t o?
19 A. I , I ' ve - - yes.
20 Q. And di d you ascer t ai n t hat i n t he comput er at CASI wi t h t he
21 scanned i nvoi ces and checks, wer e al so scanned r ecei pt s f r om
22 each one of t hese i t ems t hat you say ar e - - t hat you l i st i n
23 t he meal s cat egor y?
24 A. I don' t r ecal l i f I have a speci f i c sampl e f r omt he f ood
25 cat egor y.
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1 Q. I s i t f ai r t o say, ma' am, t hat you j ust t ook t he Amer i can
2 Expr ess st at ement , mont hl y st at ement s and j ust wr ot e down ever y
3 meal t hat was char ged, or cof f ee or Chi nese f ood or what ever ,
4 r i ght ?
5 A. For t he r evi ew of t he end anal ysi s of checks, yes.
6 Q. The anal ysi s of t he Amer i can Expr ess, t her e wer e no checks
7 wr i t t en f or t hese, quot e, meal s, cor r ect ?
8 A. Cor r ect .
9 Q. They wer e pai d f or by t he Amer i can Expr ess car d, r i ght ?
10 A. Cor r ect .
11 Q. Now, di d you ever r equest any backup t o show what - - who
12 was pr esent when t hese f unds wer e expended?
14 Q. Wel l , l et me show you what ' s been mar ked f or i dent i f i cat i on
15 as def endant ' s - - I show you what ' s been mar ked as def endant ' s
16 exhi bi t CCC.
17 MR. RUBI NSTEI N: Her e, your Honor .
18 ( Handi ng)
21
22
23
24
25
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2 Q. I show you what ' s been mar ked f or i dent i f i cat i on as CCC.
3 Ar e you f ami l i ar wi t h t hat document , ma' am?
5 Q. Wel l , why don' t you t ake a l ook at Gover nment Exhi bi t 110,
6 page 24 of 37. I n t he mi ddl e of t he page you have a Moonst r uck
7 East r est aur ant on 4/ 5/ 03, r i ght ?
8 A. Cor r ect .
9 Q. I n t he amount of $50, r i ght ?
10 A. Yes.
11 Q. And t hat ' s i n t he amount of $50, cor r ect ?
13 Q. CCC - -
14 A. Yes.
15 Q. I s t hat t he r ecei pt f or t he same dat e and t he same amount
16 - -
17 A. Yes.
18 Q. - - t hat you have i n your exhi bi t ?
19 A. Yes.
20 Q. And you never saw t hi s bef or e, cor r ect ?
21 A. CCC?
22 Q. Yes.
23 A. I don' t r ecal l seei ng t hi s bef or e.
24 Q. Di d you ever ask f or any document at i on of any of t he meal s
25 t hat you di sal l owed?
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2 Q. Page 2, do you see what ' s r ef l ect ed on page 2 of t hat
3 document , CCC?
4 A. Oh, yes.
5 MR. RUBI NSTEI N: We of f er CCC i nt o evi dence, your
6 Honor .
8 THE COURT: CCC i s admi t t ed i nt o evi dence.
9 ( Def endant ' s Exhi bi t CCC r ecei ved i n evi dence)
10 Q. Do you see on t he second page i t says di nner meet i ng,
11 cor r ect ?
12 A. Yes.
13 Q. And do you r ecogni ze Dr . Kar r on' s si gnat ur e?
14 A. Yes.
15 Q. And do you r ecogni ze - - t her e ar e t wo ot her si gnat ur es
16 t her e, cor r ect ?
17 A. Cor r ect .
18 Q. Do you r ecogni ze ei t her of t hose si gnat ur es?
19 A. I - - no.
20 THE COURT: She doesn' t r ecogni ze any of t he
21 si gnat ur es.
22 MR. RUBI NSTEI N: I j ust want t o exhi bi t t hat t o t he
23 j ur y, your Honor . That ' s t he r ear por t i on of t he r ecei pt .
24 Q. Bot t oml i ne says di nner meet i ng. Above t hat i s Dr .
25 Kar r on' s si gnat ur e, r i ght , Ms. Ri l ey?
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1 A. Cor r ect .
2 Q. And above t hat ar e t wo ot her i t ems, cor r ect ?
3 A. Cor r ect .
4 Q. That you cannot i dent i f y?
5 A. Cor r ect .
6 THE COURT: Let ' s move i t al ong, Mr . Rubi nst ei n. We
7 don' t need al l t hose ext ended conf er ences at t he t abl e t her e.
8 Let ' s pl ease move i t on. We don' t need t hose ext ended wai t s
9 and ext ended t i me. We ar e l osi ng a l ot of t i me by t hat .
10 Q. Di d you i n f act go wi t h Dr . Kar r on and Bob Benedi ct t o
11 Chr i st i ne' s on J une 25, 2003?
12 A. Yes.
13 THE COURT: What ? To wher e?
14 MR. RUBI NSTEI N: C- R- I - S- T- I - N- A- ' - s.
15 Q. Di d you go t her e?
16 A. I went t o a r est aur ant wi t h t hem.
17 THE COURT: You di d go t o a r est aur ant wi t h t hem?
18 THE WI TNESS: Um- hum.
19 Q. And di d you - - t he audi t i s deduct i bl e, cor r ect ? The cost
20 of t he audi t i s deduct i bl e.
21 THE COURT: The cost of whose audi t ?
22 Q. The payment f or an audi t or , Ms. Hayes i n t hi s case, i s a
23 deduct i bl e expense, al l owabl e expense, under t he NI ST gr ant ,
24 cor r ect ?
25 THE COURT: The cost f or Ms. Hayes audi t i ng t he books
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1 i s a deduct i bl e expense, t hat ' s t r ue. I s t hat cor r ect ?
2 THE WI TNESS: Yes, t he cost of t he audi t i s a
3 deduct i bl e expense.
4 Q. And i n f act when you went t o l unch - - r at her , when you went
5 out wi t h Dr . Kar r on and Ms. Hayes, Dr . Kar r on pai d f or t hat ,
6 di d he not ?
7 A. Yes, I guess.
8 Q. I show you what ' s been mar ked - -
9 THE COURT: Di d he pay f or i t ?
10 THE WI TNESS: I guess. I guess.
11 THE COURT: You don' t know.
13 THE COURT: Al l r i ght . Then answer t hat .
14 Q. Let me show you what ' s been mar ked as Def endant ' s N f or
15 i dent i f i cat i on and ask you t o l ook at t he f r ont .
16 THE COURT: Pl ease, l et ' s move i t al ong.
17 MR. RUBI NSTEI N: Wel l , I ' mwai t i ng f or an answer f r om
18 t he wi t ness.
19 THE COURT: What have you shown her ?
20 MR. RUBI NSTEI N: I have shown her Exhi bi t N, as i n
21 Nancy. My wi f e' s name.
22 THE COURT: Let me see i t . I haven' t got t en a copy.
23 MR. RUBI NSTEI N: I ' mt r yi ng t o pr i nt i t out now,
24 J udge.
25 THE COURT: What dat e i s i t ?
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1 MR. RUBI NSTEI N: The dat e i s J une 25, 2003. I t ' s
2 r ef l ect ed on Gover nment Exhi bi t 110, page 23 of 37.
4 Q. Ma' am, by l ooki ng at Exhi bi t N, does t hat r ef r esh your
5 r ecol l ect i on?
6 A. Exhi bi t N?
7 Q. Yes.
8 A. Yes.
9 Q. And, as a mat t er of f act , do you r ecal l t hat you pai d your
10 own shar e?
11 A. Yes.
12 Q. And so $17 even was t he shar e f or Ms. Hayes, Mr . Benedi ct
13 and Dr . Kar r on, cor r ect ?
14 A. Thi s i s showi ng t hat Ms. Hayes pai d separ at el y al so.
15 Q. Ms. Hayes pai d separ at el y, OK. And t hat was dur i ng, whi l e
16 you wer e t her e t o do your f i el d wor k.
17 A. Yes.
18 Q. Ri ght ?
19 A. Yes.
20 Q. You deduct ed - - you di sal l owed t hat meal , t hat $17 on your
21 schedul e, r i ght ?
22 THE COURT: J ust yes or no.
23 A. Yes.
24 Q. Di d you f eel t hat goi ng and di scussi ng - - you di scussed
25 audi t busi ness, di d you not ?
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1 A. Yes, we di d.
2 Q. Do you f eel t hat t hat meet i ng, di scussi ng audi t busi ness,
3 i s not an al l owabl e expense under NI ST?
4 A. No.
5 Q. No what ? I t ' s not al l owabl e?
6 A. I t woul d be al l owabl e.
7 THE COURT: I t what ?
8 THE WI TNESS: Woul d be al l owabl e.
9 THE COURT: I t woul d be al l owabl e.
10 THE WI TNESS: I f t her e was - - yes, i t woul d be
11 al l owabl e.
12 MR. RUBI NSTEI N: We of f er Def endant ' s N i nt o evi dence.
13 MR. KWOK: Obj ect i on, your Honor . The wi t ness has not
14 aut hent i cat ed t he document .
15 THE COURT: Let me see t he document .
16 Q. Di d you si gn t he back of t hat , ma' am? I s t hat your
17 si gnat ur e on t he back?
18 THE COURT: I s t hat your si gnat ur e, or i s t hat someone
19 el se' s wr i t i ng?
20 THE WI TNESS: I t ' s not my si gnat ur e.
21 Q. But t hat i s t he expense t hat you have on your sheet , do you
22 not ? That i s f or t he same dat e, t he same amount , t he same
23 r est aur ant t hat you have l i st ed i n Exhi bi t 110, cor r ect ?
24 THE COURT: I amal l owi ng i t i nt o evi dence. Let ' s go
25 ahead.
( 212) 805- 0300
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1 MR. RUBI NSTEI N: OK.
2 THE COURT: What page i s t hi s on?
3 MR. RUBI NSTEI N: Page 23 of 37, your Honor , near t he
4 t op quar t er of t he page.
6 Q. Now, i n addi t i on t o t hat , you have on page 22, number 37 of
7 Exhi bi t 110, you have expenses f or a r est aur ant Benj ami n' s. Do
8 you see t hat ? I t says 530 i s t he number on t he l ef t - hand si de.
9 THE COURT: What page?
10 MR. RUBI NSTEI N: Page 22 of 37.
11 THE COURT: Go ahead. What dat e ar e you r ef er r i ng t o?
12 Q. Do you know what t he f i r st vi si t t o Benj ami n' s was at
13 November 5, 2002?
14 THE COURT: Di d you ever ask about November 5, 2002?
16 Q. Wel l , ar e you awar e - - di d you ever speak t o - - wi t hdr awn.
17 You spoke t o Ms. Li de and Ms. Or t hwei n of NI ST ATP,
18 cor r ect ?
19 A. Yes.
20 Q. Ar e you awar e as you si t t her e now whet her or not t hey went
21 wi t h Dr . Kar r on t o Benj ami n' s r est aur ant when t hey came f or
22 t hei r si t e vi si t at CASI ?
23 A. I don' t know what t hey di d.
24 Q. Now, you got t hese expenses f r omt he Amer i can Expr ess car d,
25 cor r ect ?
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1 A. Cor r ect .
2 Q. And wer e t her e meal s char ged ever y day t o t he Amer i can
3 Expr ess car d?
4 A. No.
5 Q. As a mat t er of f act , Dr . Kar r on had anot her cr edi t car d,
6 di d he not ?
7 A. A per sonal - - yes.
8 Q. He had a Mast er car d, r i ght ?
9 A. Yes.
10 Q. Have you ever r evi ewed hi s Mast er car d r ecor ds?
11 A. No.
12 Q. Ei t her i n your Gover nment Exhi bi t 110 or Gover nment Exhi bi t
13 111 you have a Mast er car d schedul e, do you not ?
14 A. I have an Amer i can Expr ess schedul e.
15 Q. No Mast er car d.
16 A. No.
17 Q. And you never saw a Mast er car d schedul e?
18 A. I don' t r ecal l seei ng a Mast er car d schedul e.
19 THE COURT: Let ' s move t hi s al ong, Mr . Rubi nst ei n.
21 Q. And t he equi pment - - sor r y, suppl i es, di d you di sal l ow
22 suppl i es?
23 A. Yes.
24 Q. And how much suppl i es di d you di sal l ow?
25 A. Suppl i es, 24, 000.
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1 THE COURT: Whi ch year ar e we t al ki ng about ?
2 MR. RUBI NSTEI N: The f i r st year of t he gr ant .
3 A. Oh, t he f i r st year ? That ' s t ot al gr ant .
4 THE COURT: I t ' s t he t ot al gr ant .
5 MR. RUBI NSTEI N: Par don?
6 THE COURT: You have t o move t hi s al ong. I mean you
7 ar e put t i ng me t o sl eep, Mr . Rubi nst ei n. Let ' s move i t al ong.
8 Al l r i ght ? I ' monl y goi ng t o al l ow you anot her 15 or 20
9 mi nut es. That ' s i t .
10 MR. RUBI NSTEI N: I agr ee wi t h you, J udge.
11 THE COURT: Let ' s go.
12 Q. You di sal l owed ut i l i t i es, di d you not ?
13 A. Di sal l owed ut i l i t i es?
14 Q. Yes.
15 A. Yes.
16 Q. Ar e you awar e t hat t her e wer e di scussi ons bet ween Dr .
17 Kar r on and NI ST as t o whet her t o al l ow a por t i on of t he
18 ut i l i t i es?
19 A. Yes.
20 THE COURT: When? Al l r i ght .
21 Q. And i s i t f ai r t o say t hat you det er mi ned t hat a por t i on of
22 t he ut i l i t i es shoul d be al l owabl e?
23 MR. KWOK: Your Honor , i s i t an audi t , or i s i t an
24 anal ysi s based on t he bank st at ement s? I don' t know what
25 Mr . Rubi nst ei n i s aski ng.
( 212) 805- 0300
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1 THE COURT: The audi t ? Ar e you addr essi ng t he audi t ,
2 Mr . Rubi nst ei n?
4 THE COURT: I n t he audi t , di d you say t hat some - - di d
5 you det er mi ne t hat a por t i on of t he ut i l i t i es shoul d be
6 al l owabl e? Yes or no? Yes or no?
7 THE WI TNESS: No.
9 Q. And what about educat i on?
10 A. No.
11 Q. You di sal l owed al l t he educat i on, r i ght ?
12 A. Ri ght .
13 Q. Even i f t he educat i on was r el at ed t o t he NI ST ATP pr oj ect ,
14 cor r ect ?
15 THE COURT: Wer e you advi sed t hat any of i t r el at ed t o
16 t he pr oj ect ?
20 THE COURT: What por t i on?
21 THE WI TNESS: One of t he cost s was f or a st udent .
22 Ther e wer e t wo educat i onal cost s, and I t hi nk one was f or a
23 st udent .
24 THE COURT: One was f or a st udent .
25 THE WI TNESS: The Ph. D st udent , r i ght ? A st udent
( 212) 805- 0300
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1 empl oyee t hat Dr . Kar r on had.
2 Q. And anot her one was J oan Hayes goi ng t o a semi nar t o l ear n
3 about audi t i ng f or f eder al gr ant s, cor r ect ?
4 A. Cor r ect .
5 Q. You di sal l owed bot h of t hem, cor r ect ?
6 A. Cor r ect .
7 Q. Now, you coul d per mi t f r i nge benef i t s ei t her under t he
8 budget i t emor i t coul d be char geabl e t o ot her s, r i ght ?
9 A. Cor r ect .
10 Q. By t he way, t her e was some t al k about medi cal bi l l s. Do
11 you know when Dr . Kar r on had sur ger y?
12 THE COURT: Di d you know he had sur ger y at al l ?
13 THE WI TNESS: I knew he had sur ger y. I don' t know
14 when.
15 Q. I sn' t i t a f act t hat i t was af t er t he gr ant was suspended?
16 A. I don' t know when.
17 THE COURT: The sur ger y was or t hat she l ear ned of i t ?
18 Q. Di d you see any expense, medi cal expense, f or sur ger y f or
19 Dr . Kar r on?
20 MR. KWOK: When?
21 Q. When you di d your audi t .
22 A. Ther e wer e medi cal expenses f or Dr . Kar r on.
23 Q. Di d you see anyt hi ng f or sur ger y?
24 A. I don' t r ecal l seei ng anyt hi ng speci f i cal l y, what
25 ever yt hi ng was.
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1 Q. Now t hi s audi t t hat NI ST r equi r es, r equi r es an i ndependent
2 audi t or , cor r ect ?
3 A. Cor r ect .
4 Q. And t hey had Ms. Hayes, cor r ect ?
5 A. Cor r ect .
6 Q. I n f act you wer e awar e t hat Ms. Hayes di d Dr . Kar r on' s
7 per sonal t ax r et ur ns, wer e you not ?
8 A. I don' t r ecal l i f I knew t hat at t he t i me or not .
9 Q. Woul d t hat di squal i f y her as an i ndependent audi t or ?
11 THE COURT: Di d you al l ow t he expense f or her as an
12 i ndependent audi t or ?
14 THE COURT: You di d. Obj ect i on sust ai ned.
15 Q. My quest i on i s she cr eat ed r ecor ds t hat she gave t o you,
16 cor r ect ?
17 A. Cor r ect .
18 Q. Now, i s i t f ai r t o say t hat t he per son t hat does t he
19 audi t - - i n t hi s case Ms. Hayes - - i s supposed t o be an
20 i ndependent audi t or ?
21 A. Cor r ect . Cor r ect .
22 Q. Because she mi ght have some i nt er est i f she wasn' t
23 i ndependent , cor r ect ?
24 A. Cor r ect .
25 Q. I n t hi s case wer e you awar e whet her or not she was i nvol ved
( 212) 805- 0300
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1 i n management deci si ons?
3 THE WI TNESS: I ' mnot sur e how much her i nvol vement
4 was.
6 THE WI TNESS: I don' t - - I don' t know.
7 THE COURT: You di dn' t know t hat .
8 THE WI TNESS: I don' t know about her .
9 Q. Ar e you f ami l i ar wi t h Qui ck Books, t he syst emQui ck Books?
10 A. Yes.
11 Q. Wer e you f ami l i ar wi t h t hemi n 2003 when you di d t hi s
12 audi t ?
13 A. No.
14 THE COURT: You wer en' t f ami l i ar wi t h t he - -
15 THE WI TNESS: I ' mnot f ami l i ar - -
16 THE COURT: - - wi t h t hat syst emof bookkeepi ng?
17 THE WI TNESS: No, I ' mnot f ami l i ar . I wasn' t f ami l i ar
18 wi t h t hat syst emof bookkeepi ng.
19 Q. Now, you t ol d t hi s j ur y - - how much money of Dr . Kar r on was
20 at t r i but abl e as a cof und by Dr . Kar r on?
22 THE COURT: Sor r y. Coul d I hear t he quest i on.
23 Q. Yeah. How much money do you say was cont r i but ed by Dr .
24 Kar r on as hi s cont r i but i on t o t he NI ST ATP pr oj ect ?
25 A. Not hi ng.
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1 Q. Do you r ecal l t est i f yi ng her e and sayi ng i t was ver y smal l ,
2 bet ween $1200 and $1500?
3 THE COURT: That ' s not my r ecol l ect i on of t he quest i on
4 and t est i mony as t o hi s cont r i but i on.
5 Q. Wel l , you sai d i t was mi scel l aneous. Do you r ecal l t hat ?
6 A. Yes.
7 Q. And do you have a schedul e of what you say wer e
8 mi scel l aneous cont r i but i ons?
9 THE COURT: I s t he answer yes?
10 THE WI TNESS: Yes. I ' msor r y. Yes.
11 THE COURT: Do you want her t o l ook i t up?
12 MR. RUBI NSTEI N: No, your Honor , I want t o move al ong.
13 Q. How much was i n t he bank i n t he begi nni ng of Oct ober , i n
14 t he CASI account s i n t he begi nni ng of Oct ober 2001?
15 A. I don' t r ecal l . I s t her e a bank st at ement ?
16 Q. Wel l , l et me show you what ' s been mar ked as Def endant ' s O.
17 THE COURT: Def endant ' s O f or i dent i f i cat i on.
18 MR. RUBI NSTEI N: I ' msor r y. I wi l l wi t hdr aw t hat .
19 Q. Do you know what sunk cost s ar e?
20 A. What ?
21 Q. Do you know what sunk cost s means?
22 A. No.
23 THE COURT: Sunk cost s?
24 MR. RUBI NSTEI N: S- U- N- K cost s.
25 A. No.
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1 Q. Do you know whet her or not pur chases made f or t he gr ant ,
2 t hat wer e made pr i or t o t he gr ant ' s st ar t of Oct ober 1, 2001,
3 wer e pai d af t er Oct ober 1, 2001, whet her or not t hose ar e
4 pr oper expendi t ur es under t he gr ant ?
5 A. Gr ant s pai d pr i or t o t he gr ant awar d need wr i t t en
6 per mi ssi on.
7 THE COURT: Sor r y? Wi t ness.
8 A. Payment s made pr i or t o t he gr ant awar d need wr i t t en
9 appr oval by NI ST. They need wr i t t en appr oval . I s t hat what
10 we' r e aski ng? Cost s t hat wer e bef or e t he awar d? ATP cost s
11 t hat wer e made pr i or t o t he awar d, i s t hat al l owabl e i n t he
12 gr ant ? I f t he gr ant awar d document al l ows i t .
13 THE COURT: I f you have wr i t t en appr oval .
14 THE WI TNESS: Yes, i f you have wr i t t en appr oval .
15 Q. So, i f you pur chased somet hi ng, i f CASI pur chased t he Qui ck
16 Books sof t war e i n Sept ember of 2001 and i t was del i ver ed af t er
17 t he gr ant - - af t er Oct ober 1, 2001, and pai d f or i n November of
18 2001, woul d t hat be an al l owabl e or unal l owabl e i t em?
19 A. I f i t was used f or t he ATP gr ant , i t was par t of t he gr ant
20 cost i t coul d be al l owabl e.
21 THE COURT: I t coul d be. On what condi t i on?
22 THE WI TNESS: I f i t ' s speci f i cal l y f or t he ATP
23 pr oj ect , t he sof t war e f or a speci f i c account i ng - - i f t he
24 busi ness account i ng i s al so done on t hat syst emi t woul d not
25 necessar i l y be al l owabl e, because t he busi ness shoul d al r eady
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1 have i t i n pl ace as par t of t hei r busi ness.
2 Q. Di d you ent er t ai n how much cost s wer e i ncur r ed pr i or t o t he
3 Oct ober 2001 by CASI on behal f of t he ATP NI ST gr ant ?
4 A. Speci f i cal l y I used t he books pr ovi ded, and what ever t hey
5 r equest ed was consi der ed. So i f i t ' s a cost t hat was pr i or t o,
6 i t woul d have been consi der ed i f i t was on t he books, because I
7 t hi nk t hey went t o t he check t o cash basi s, so t hey woul d have
8 pai d - -
9 THE COURT: Sor r y. What di d you say?
10 THE WI TNESS: I t hi nk Mr . Spi t z had moved t o t he cash
11 basi s, so i f i t was i ncl uded as payment i t woul d have been one
12 of t he t hi ngs cl ai med, pr obabl y under equi pment or suppl i es,
13 and woul d be over budget , so i t woul d be over budget .
14 Q. How about t he cost shar e pr ovi ded by donat i ng equi pment , i s
15 t hat per mi ssi bl e?
16 A. I f i t ' s speci f i cal l y NI ST ATP pr oj ect cost s, yes.
17 Q. Di d you make any al l owance - - wi t hdr awn.
18 Wer e you awar e whet her or not Dr . Kar r on had comput er s
19 and equi pment pr i or t o t he ATP gr ant ?
20 A. Yes.
21 Q. Di d you make any al l owance t o gi ve hi mcr edi t f or hi s shar e
22 of t he cont r i but i on of about $36, 000 i n t he f i r st year of t he
23 gr ant t hat he was supposed t o cont r i but e?
24 A. I asked f or t hei r cost shar e. No one put f or t h t hat as an
25 answer .
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1 Q. No one ment i oned t hat ?
2 A. Ri ght , no one came up - - no one pr ovi ded document at i on t o
3 show t hat .
4 THE COURT: And no one sai d so?
5 THE WI TNESS: Ri ght . No one of f er ed t hat . I don' t
6 r ecal l anyone of f er i ng t hat as a t hi ng f or mat ch, but usual l y
7 you woul d have what ever you woul d go i nt o a busi ness, t hat
8 woul d not be what t hey consi der ed t hei r cost shar e or t hei r
9 mat ch shar e.
10 Q. I sn' t i t a f act t hat Mr . Spi t z gave you backup t o show when
11 t he equi pment was pur chased?
12 A. Most - - I was under t he i mpr essi on t hat t he equi pment had
13 been r epl aced by t he equi pment pur chased wi t h t hi s awar d.
14 Q. And who gave you t hat i mpr essi on?
15 A. Var i ous peopl e t hat I spoke t o, r evi ewi ng t he i nvoi ces of
16 t he equi pment cost .
17 Q. Now, i t ' s your t est i mony t hat Dr . Kar r on di d not cont r i but e
18 any f unds t o t he - -
19 THE COURT: You' ve got about f i ve mi nut es.
20 Q. I show you t hat Dr . Kar r on cont r i but ed not hi ng, no
21 f i nanci al f unds t o t he gr ant . I s t hat your t est i mony?
22 A. Cor r ect .
23 Q. You r evi ewed t he checks, Dr . Kar r on' s per sonal checks?
24 A. Cor r ect .
25 Q. And I show you what ' s been mar ked f or i dent i f i cat i on as
( 212) 805- 0300
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1 Def endant ' s FFF and ask you do you r ecogni ze what ' s cont ai ned
2 i n t hat document ?
3 A. Checks.
4 Q. Par don?
5 A. They' r e checks.
6 Q. Ar e t hose checks of Dr . Kar r on' s on account endi ng 1665?
7 A. OK.
8 Q. Do you r ecogni ze t hose checks?
9 THE COURT: FFF.
10 Q. FFF?
11 A. Yes.
12 MR. RUBI NSTEI N: We of f er t hemi n evi dence, your
13 Honor .
14 THE COURT: FFF ar e admi t t ed i n evi dence.
16 ( Def endant ' s Exhi bi t FFF r ecei ved i n evi dence)
17 Q. Now, I show you what ' s i n evi dence. Thi s i s copi es of a
18 number of checks wi t h t he f r ont s and t he backs. Now, do you
19 see t hat exhi bi t , ma' am?
20 THE COURT: Thi s i s par t of FFF?
22 A. Yes.
23 Q. Do you see what dat e t hat i s?
24 A. 10/ 11/ 2001.
25 Q. And who i s t he payee?
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1 A. Comput er Ai ded Sur ger y.
2 Q. And i s t her e a memo on t her e?
3 A. Emer gency l oan t o t he Comput er Ai ded Sur ger y.
4 Q. So, t hat ' s $2, 000 t hat was - - and Comput er Ai ded Sur ger y,
5 I nc i s t he account t hat NI ST expenses wer e bei ng made out of ,
6 r i ght ?
8 A. Yes.
9 Q. NI ST expenses wer e bei ng pai d at t hat t i me out of t hi s
10 account .
11 A. Yes.
12 Q. And i n f act t hi s i s pr i or t o t he t i me t hat any NI ST moni es
13 wer e t r ansf er r ed t o Dr . Kar r on.
14 A. Yes.
15 THE COURT: To what account ?
16 MR. RUBI NSTEI N: Any account .
17 THE COURT: Thi s i s pr i or t o t he t i me t hat any money
18 was pai d t o t hat account ?
19 MR. RUBI NSTEI N: Cor r ect . I t hi nk t he f i r st t i me was
20 Oct ober 25, i f I ' mnot mi st aken.
21 Q. Now, I show you t hi s check mar ked 1052 as par t of Exhi bi t
22 FFF. See i f you r ecogni ze t hat check.
23 A. Yes.
24 Q. And t hat i s al so a check made t o Comput er Ai ded Sur ger y
25 I nc. i n t he amount of $1, 000, cor r ect ?
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791
1 A. Cor r ect .
2 Q. And i t says t he memo i s emer gency l oan t o cor por at i on.
3 Ri ght ?
4 A. Ri ght .
5 Q. And agai n t hat ' s t he cor por at i on t hat ' s payi ng NI ST bi l l s,
6 r i ght ?
7 A. At t hi s t i me - - when di d t he ATP account come i nt o
8 exi st ence?
9 THE COURT: I can' t hear you.
10 THE WI TNESS: I t may have been - -
11 Q. And on August 12, 2002 Dr . Kar r on' s per sonal check number
12 1121 was payabl e t o CASI , Comput er Ai ded Sur ger y, I nc. ?
13 A. Yes.
14 Q. The memo i s l oan t o t he company?
15 A. Yes.
16 Q. So he i s l oani ng hi s per sonal money t o t he company, r i ght ?
17 A. Yes.
18 Q. And how much i s t hat check f or ?
19 A. $20, 000.
20 Q. Do you have any r ecor d i n al l of your r ecor ds of any of
21 t hese checks so f ar ?
22 A. Yes. Yes.
23 Q. As cont r i but i ons of Dr . Kar r on?
24 A. No, no.
25 THE COURT: You have r ecor ds of t he checks?
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2 THE COURT: Wher e?
3 THE WI TNESS: They' r e - - t hey' r e bot h r ecor ds
4 act ual l y.
5 MR. KWOK: Your Honor , may we di r ect t he wi t ness t o a
6 par t i cul ar page of Gover nment Exhi bi t 110?
7 THE COURT: Yes.
8 MR. KWOK: Gover nment Exhi bi t 110, page 38 of 44.
9 Q. So, i s i t f ai r t o say i n r evi ewi ng your r ecor d t hat you
10 have a t ot al of $37, 000 at t r i but abl e t o cont r i but i ons made by
11 Dr . Kar r on, i s t hat r i ght ?
12 A. I consi der ed t heml oan r epayment t o t he $129, 000 t hat he
13 had t aken f r omt he NI ST ATP account .
14 Q. Par don?
15 THE COURT: Repeat your answer . You speak ver y
16 qui ckl y, and you j ust r at t l e i t of f . Al l r i ght ?
17 A. OK. I at t r i but ed t he $37, 000 payment s as l oan r epayment s
18 t o t he $129, 850 t hat Dr . Kar r on had t aken as l oans f r omt he
19 NI ST ATP gr ant .
20 Q. Ti me out . Dr . Kar r on t ook $75, 000 l oan i n Oct ober or ear l y
21 November 2001, af t er he got $150, 000 f r omNI ST ATP, cor r ect ?
22 A. Cor r ect .
23 Q. You di d your anal ysi s when?
24 A. Whi ch anal ysi s?
25 Q. When di d you do your anal ysi s?
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1 A. I - -
2 Q. When di d you make t hat det er mi nat i on t hat t hese wer e
3 r epayment of a l oan?
4 A. I ni t i al l y back - -
5 Q. I n J une of ' 03?
6 A. December of ' 03.
7 Q. December of ' 03?
8 A. Or J une of ' 03.
9 THE COURT: Wel l , wai t a mi nut e. She hasn' t f i ni shed.
10 A. Wai t . What ' s t he - -
11 THE COURT: What ' s t he r est of your answer ?
12 THE WI TNESS: J une of ' 03.
13 THE COURT: Par don?
14 THE WI TNESS: J une of 2003.
15 THE COURT: J une of 2003.
16 Q. I sn' t i t a f act , ma' am, t hat i n August and Sept ember of
17 2002 Dr . Kar r on r epai d t hat money out of hi s sal ar y i n f act ?
18 A. The r epayment s of t he sal ar y wer e par t of expendi t ur es t hat
19 wer e al so di sal l owed. I t depends on whi ch - -
20 Repeat your quest i on.
21 Q. I n August of ' 02 di d you see an ent r y on August 2, 2002 of
22 $61, 918. 07 as sal ar y t o Dr . Kar r on?
23 THE COURT: What ar e you r ef er r i ng t o, Mr . Rubi nst ei n?
24 I s i t an exhi bi t i n evi dence? What i s i t ?
25 Q. Di d you cal cul at e at any t i me t he moni es r ecei ved as sal ar y
( 212) 805- 0300
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1 i n a schedul e, sal ar i es r ecei ved by Dr . Kar r on?
2 THE COURT: I don' t under st and t he quest i on.
3 MR. RUBI NSTEI N: He r ecei ved payment .
4 THE COURT: I j ust want t o hear t he quest i on phr ased
5 so t hat i t ' s under st andabl e.
6 MR. RUBI NSTEI N: The quest i on i s di d t hi s wi t ness
7 pr epar e a schedul e showi ng t he sal ar y checks of Dr . Kar r on f r om
8 Oct ober 1, 2001 unt i l Sept ember 30, 2002, t he f i r st year of t he
9 gr ant ?
10 THE COURT: What t i me ar e you aski ng?
11 MR. RUBI NSTEI N: Dur i ng t hat year , t he f i r st year of
12 t he gr ant .
13 THE COURT: Dur i ng t he year - - Oct ober 1, 2002.
14 MR. RUBI NSTEI N: 1, Oct ober 1, 2001.
15 THE COURT: 2001 t o Sept ember 30, 2002, di d you
16 pr epar e a schedul e? I s t hat your quest i on?
18 THE COURT: Of hi s sal ar y f or t hat year ?
19 MR. RUBI NSTEI N: Ri ght .
20 THE COURT: Wer e you assi gned t o t he audi t i n t hat
21 per i od of t i me?
22 THE WI TNESS: I di d t he audi t st ar t i ng J une of 2003.
23 THE COURT: So, you coul dn' t have done anyt hi ng dur i ng
24 t hat f i r st f i scal year , i s t hat r i ght ?
25 THE WI TNESS: Ri ght , yes.
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1 THE COURT: You di dn' t pr epar e any schedul es dur i ng
2 t he f i r st f i scal year .
4 THE COURT: Do you want t o r ef r ame your quest i on,
5 Mr . Rubi nst ei n?
6 Q. Do you know what a schedul e i s, ma' am?
8 THE COURT: Obj ect i on sust ai ned. Fi ve mor e mi nut es.
9 Fi ve mor e mi nut es, t hat ' s i t .
10 MR. RUBI NSTEI N: J udge, i t ' s not f ai r .
11 THE COURT: Fi ve mi nut es.
12 MR. RUBI NSTEI N: I ' mnot get t i ng answer s.
13 THE COURT: You' r e get t i ng answer s; you' r e not aski ng
14 quest i ons. You' r e dawdl i ng ar ound t her e i n t he back of t he
15 cour t r oom.
16 MR. RUBI NSTEI N: I amnot .
17 THE COURT: And you' r e not aski ng quest i ons. Now ask
18 quest i ons and do i t qui ckl y.
19 Q. How many checks di d Dr . Kar r on r ecei ve i n t he f i r st year of
20 t he gr ant f or sal ar y?
22 Q. Do you have any not es or not at i ons?
23 A. I have i t i n t hi s document I pr epar ed i n 2004. I don' t
24 have - -
25 Q. You have a f i gur e i n Gover nment Exhi bi t 114 and 115.
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1 That ' s t he backup f or t hat ?
2 A. Thi s document i s t he backup f or t he 114 and 115, and i n t he
3 f i r st year of t he gr ant - -
4 THE COURT: And you ar e l ooki ng now at Exhi bi t 110?
6 THE COURT: Al l r i ght . Wher e i n 110? Can we poi nt t o
7 a page wher e hi s sal ar y i s l i st ed? Can t he gover nment poi nt me
8 t o a page? Let ' s move t hi s on.
9 THE WI TNESS: Payr ol l i s on page 39 of 44.
10 THE COURT: Page 39 - -
11 THE WI TNESS: Of 44.
12 THE COURT: Thank you ver y much.
13 Q. And how much di d Dr . Kar r on - - how much was he pai d i n t hat
14 year , t he f i r st year of t he gr ant ?
15 A. I t shows net sal ar y of $35, 000.
16 MR. KWOK: Your Honor , I t hi nk t her e i s a conf usi on of
17 t he dat e. I t hi nk t he wi t ness i s l ooki ng at t he dat abase f or
18 year t wo. I t hi nk Mr . Rubi nst ei n i s aski ng i nf or mat i on about
19 year one. Oh, I ' msor r y, I t ake t hat back. I t ake t hat back.
20 Q. So you show $35, 000. I s t hat net or gr oss pai d t hat Dr .
21 Kar r on r ecei ved?
22 A. Net .
23 Q. That ' s af t er you deduct ed 45, 000 as di sal l owed? I s t hat
24 what you' r e sayi ng?
25 A. He al so r ecei ved $129, 000 t hat he cal l ed l oans.
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1 Q. Di dn' t he have a sal ar y of $14, 000 a mont h?
2 A. I don' t know.
3 Q. Ar e you awar e of t he f act t hat on Sept ember 2 - - sor r y - -
4 August 2, 2002 Dr . Kar r on, t her e was an ent r y on t he books of
5 CASI showi ng payment t o Dr . Kar r on of $61, 000 and change?
6 A. For ?
7 Q. Sal ar y.
8 A. But - -
9 MR. KWOK: What page, your Honor ?
10 THE COURT: Yes.
11 MR. KWOK: What exhi bi t ?
12 THE COURT: You' r e r ef er r i ng us t o, Ms. Ri l ey, t o page
13 38 of 49, and t he t op of t he page you have l oan and bot t omof
14 t he page you have l oan r epai d.
16 THE COURT: And on t he next page i t says payr ol l . So
17 basi cal l y t he checks - - t hen you have payr ol l on t he next page.
18 THE WI TNESS: Speci f i cal l y i dent i f i ed as payr ol l on
19 t he checks when I l ooked at t hemi n 2004 and 5.
20 THE COURT: Accor di ng t o your anal ysi s of t he checks,
21 t he onl y ones t hat wer e made f or payr ol l ar e t he ones on page
22 39 of 44?
24 THE COURT: And t he ot her s.
25 Q. Let me show you t hese exhi bi t s.
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1 THE COURT: Wel l , l ook, j ust l et me cl ear t hi s up. We
2 hear d about t he $75, 000 l oan i n Oct ober . On what basi s di d you
3 det er mi ne t hat t he ot her amount s wer e l oans by Dr . Kar r on?
4 Based on t he ent r i es of t he check or what ?
5 THE WI TNESS: I t ' s not ed i n t he check memo, some of
6 t hemf r omt hei r check r egi st er s or gener al l edger s.
7 THE COURT: Sor r y.
8 THE WI TNESS: Fr omt hei r r ecor ds, f r omt hei r check
9 r egi st er s or t hei r l edger s.
10 THE COURT: Fr omt hei r l edger s?
11 THE WI TNESS: Fr omt he l edger s or check r egi st er s
12 pr ovi ded by CASI t o me.
13 Q. Let me show you t hi s document , Def endant ' s Exhi bi t P f or
14 i dent i f i cat i on. I s t hi s t he document t hat was pr ovi ded t o you
15 as a r egi st er by CASI ?
17 Q. I sn' t i t a f act on t he r ecor ds of CASI t her e was an ent r y
18 on August 2, 2002 f or a payment of sal ar y of $61, 000 and change
19 t o Dr . Kar r on?
20 MR. KWOK: Obj ect i on. The wi t ness says she doesn' t
21 r ecal l .
22 THE COURT: I don' t know what she saw because I wasn' t
23 pr ovi ded wi t h a copy of i t . Can I have a copy?
24 I ' mgoi ng t o sust ai n t he obj ect i on.
25 Al l r i ght .
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1 MR. RUBI NSTEI N: I of f er i n evi dence, your Honor , as
2 P- 1, 2, 3, 4, 5, 6.
3 THE COURT: What ?
4 MR. RUBI NSTEI N: Checks, P- 1 t hr ough P6.
5 THE COURT: As what Exhi bi t ?
6 MR. RUBI NSTEI N: I sai d i t ' s P- 1 t hr ough P- 6.
7 THE COURT: Oh, Def endant ' s Exhi bi t s P- 1 f or
8 i dent i f i cat i on t hr ough P- 6 f or i dent i f i cat i on.
9 Q. I show you t hese checks and ask you i f you r ecogni ze t hese
10 checks, ma' am.
11 A. Ar e t hose - - yes.
12 Q. And ar e t hose - -
13 MR. RUBI NSTEI N: We of f er t hemi nt o evi dence, your
14 Honor .
16 THE COURT: Def endant ' s P- 1 t hr ough P- 6 admi t t ed i n
17 evi dence.
18 ( Def endant ' s Exhi bi t s P- 1 t hr ough P- 6 r ecei ved i n
19 evi dence)
20 Q. Do you know of any addi t i onal checks t hat wer e gi ven t o
21 doct or - - wi t hdr awn. Those checks have a memo as t o payr ol l
22 per i ods, cor r ect ?
23 A. Cor r ect .
24 Q. And t hey ar e payr ol l checks payabl e t o Dr . Kar r on, cor r ect ?
25 A. Cor r ect .
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1 Q. And t hey st ar t on May 11, 2002, cor r ect ?
2 A. Cor r ect .
3 Q. And i s i t f ai r t o say t hat on a $175, 000 sal ar y, Dr . Kar r on
4 woul d be pai d appr oxi mat el y $14, 000 a mont h gr oss?
5 A. Cor r ect .
6 Q. And so i f he bor r owed $75, 000 i n Oct ober , wi t hi n f i ve
7 mont hs he basi cal l y woul d pay t hat back, cor r ect ?
8 THE COURT: Answer , pl ease.
9 Q. 14 t i mes f i ve i s 70, cor r ect ?
10 A. Yes.
11 Q. And Oct ober , November , December , J anuar y, Febr uar y, by t he
12 end of Febr uar y he woul d have basi cal l y pai d back t he 75, 000,
13 cor r ect ?
14 A. For t he gr oss, cor r ect .
15 Q. And i n May he got a net check f or $5, 019. 84, r i ght ?
16 A. Cor r ect .
17 Q. For a pay per i od Apr i l 1, ' 02 t o Apr i l 30, ' 02, cor r ect ?
18 A. Cor r ect .
19 Q. And t hen - -
20 THE COURT: Let me see. How much i s t hat check?
21 MR. RUBI NSTEI N: $5, 019. 84.
22 I n J une he get s a check, memo pay per i od i t says
23 3/ 1/ 02 t o 5/ 31/ 02, i n t he amount of $5, 002. 25.
24 I n J ul y he r ecei ves a check f or t he payr ol l per i od of
25 December 1, 2001 t o December 31, 2001, and t hat net amount of
( 212) 805- 0300
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1 t hat check i s $9, 288. 07.
2 Al so i n J ul y, on J ul y 5 he r ecei ves a check, t he
3 paycheck f or t he pay per i od November 1, 2001 t o November 30,
4 2001, i n t he amount of $4, 756. 38. Cor r ect ?
5 A. Cor r ect .
6 Q. And t he t hi r d check on t he same day f or t he payr ol l Oct ober
7 1, 2001 t o Oct ober 31, 2001 pay per i od, he r ecei ved a check i n
8 t he amount of $5, 502. 01, cor r ect ?
9 A. Yes.
10 Q. And t hen he r ecei ved a check on August 2, 2002 f or pay
11 per i od J ul y 1, ' 02 t o J ul y 31, ' 02, i n t he amount of $5, 675. 03,
12 cor r ect ?
13 THE COURT: Ar e t hose checks i ncl uded i n your
14 schedul e?
16 THE COURT: On page 39 of 44?
18 Q. And wher e was t he r est - - i f you pay t axes on t hose checks,
19 how much woul d have been t he gr oss appr oxi mat el y?
21 THE COURT: I don' t t hi nk she shoul d have t o - -
22 Q. Wel l , what happened t o t he r est of t he $175, 000? Di d he
23 r ecei ve any addi t i onal moni es ot her t han t he 34, 35, 000 t hat
24 ar e r ef l ect ed i n t hose checks?
25 A. Wi t hhol di ngs woul d have been pai d t hr ough t he company f or
( 212) 805- 0300
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1 t hose checks.
2 Q. Woul d t he wi t hhol di ngs be equal t o t he amount of t he
3 checks?
4 A. No.
5 Q. Even i f t hey wer e equal , you onl y have 70, 000. We' r e st i l l
6 mi ssi ng 105, 000, r i ght ?
7 A. Yes.
8 Q. Di d you gi ve hi many cr edi t f or t hat mi ssi ng sal ar y t hat he
9 never got ?
10 A. He got t he l oans. He st i l l had mor e l oans.
11 Q. Loans f or what ?
12 A. What ever he wi t hdr ew t he money f or .
13 Q. You don' t know, r i ght ?
15 Q. The onl y one we know about i s t he $75, 000.
16 THE COURT: Ar e t he l oans r ef l ect ed on t he books?
17 THE WI TNESS: Yes. Wel l , t hey say l oans. They don' t
18 say what t hey' r e f or .
19 THE COURT: Or dr aws?
20 THE WI TNESS: The l oans say l oans.
21 Q. Show me some l oans ot her t han t he $75, 000 l oan. Not i n
22 your books. Show me. Show me a check.
23 MR. KWOK: Obj ect i on, your Honor .
24 THE COURT: Al l she has i s t he books.
25 MR. RUBI NSTEI N: Wel l , I want t he backup.
( 212) 805- 0300
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1 MR. KWOK: I t ' s i n f r ont of her i n t hat box. Does
2 Mr . Rubi nst ei n want t he wi t ness t o di g t hr ough t hat box of
3 checks?
4 MR. RUBI NSTEI N: Wel l , she di d yest er day.
5 THE COURT: Ar e t hey r eadi l y avai l abl e?
6 Q. Ma' am, i n your schedul e of Exhi bi t 114 - -
7 THE COURT: She i s l ooki ng. You asked f or her t o show
8 you.
9 MR. RUBI NSTEI N: I ' mgoi ng t o wi t hdr aw t hat .
10 THE COURT: You asked f or her t o show you t hose
11 checks.
12 MR. RUBI NSTEI N: I have a qui cker way. She can do
13 t hat on t he gover nment ' s t i me. Al l r i ght ?
14 Q. I n your schedul e Gover nment Exhi bi t 114 you have sal ar y t o
15 Dr . Kar r on, cor r ect ?
16 A. Yes.
17 Q. Budget ed 175, r i ght ?
18 A. Cor r ect .
19 Q. CASI spent $200, 488 on hi s sal ar y. How di d you get t hat
20 number ?
21 A. By i ncl udi ng t he wi t hhol di ngs por t i on of t he f r i nge
22 benef i t s as par t of t he sal ar y of what he r ecei ved. I t
23 i ncl udes t he sal ar y, i t i ncl udes t he di f f er ence bet ween t he
24 l oans he r ecei ved and t he l oans he pai d, and i t i ncl udes t he
25 f r i nge benef i t s.
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1 Q. You have f r i nge benef i t s l i st ed separ at el y, do you not ,
2 ma' am?
3 A. I j ust have t he i t ems t hat ar e - -
4 Q. Do you see 59, 500 i n f r i nge benef i t s?
5 THE COURT: She di dn' t f i ni sh her answer ,
7 MR. RUBI NSTEI N: She j ust sai d t hat t he f r i nge
8 benef i t s ar e i ncl uded, and I submi t , your Honor , t hat on t hat
9 same schedul e - -
11 MR. RUBI NSTEI N: - - t he f r i nge benef i t s ar e l i st ed
12 separ at el y as $59, 000.
14 MR. RUBI NSTEI N: $59, 500.
15 THE COURT: You' r e not a wi t ness.
16 MR. RUBI NSTEI N: I ' maski ng i f t hat ' s on her schedul e,
17 her exhi bi t , t he Gover nment ' s Exhi bi t 114.
18 THE COURT: Fi nd out what you' r e deal i ng wi t h and t he
19 exhi bi t and I wi l l al l ow your quest i on, but I ' mnot al l owi ng
20 t hat . And your t i me i s up. So t hi s i s t he l ast quest i on.
21 MR. RUBI NSTEI N: J udge, I ' d ask you t o gi ve me t en
22 mor e mi nut es.
23 THE COURT: Al l r i ght , t en mi nut es, and t hat i s al l .
25 Q. You have on Exhi bi t 114 an expense f or Dr . Kar r on' s f r i nge
( 212) 805- 0300
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1 benef i t s?
2 A. Yes.
3 Q. And i s t hat expense $59, 500? Do you see i t on t he
4 schedul e? I onl y have t en mi nut es.
5 THE COURT: J ust gi ve her a mi nut e.
6 MR. RUBI NSTEI N: I t ' s her schedul e, J udge.
7 THE COURT: You' r e l ooki ng not on t he schedul e. You
8 ar e l ooki ng at a char t . Exhi bi t 114 i s t he pi e char t .
9 MR. RUBI NSTEI N: On t he bot t omi s a br eakdown of
10 number s, your Honor .
11 THE COURT: I agr ee wi t h t hat , but l et ' s r ef er t o t he
12 document as t he pi e char t , 114. Now what ' s your quest i on?
13 Q. My quest i on i s: You j ust t est i f i ed t hat t he $200, 000 t hat
14 CASI spent on Dr . Kar r on f or sal ar y t hat you have her e was
15 because of f r i nge benef i t s, cor r ect ?
17 THE COURT: I don' t t hi nk t hat i s her t est i mony.
18 Obj ect i on sust ai ned.
19 Q. What was t he ext r a 25, 488, what i s t hat at t r i but abl e t o?
20 THE COURT: The 200, 488?
21 MR. RUBI NSTEI N: Wel l , i t ' s an addi t i onal $25, 488. I
22 wi l l t ake si l ence as an answer and move on.
23 THE COURT: Wel l , she has t o l ook. You' r e aski ng her
24 t o t ake her pi e char t and t hen gi ve you t he backup f or t he pi e
25 char t , and she has t o l ook t o t he exhi bi t s t o show wher e t hat
( 212) 805- 0300
806
1 i s.
2 THE WI TNESS: For year one, whi ch number ar e you
3 aski ng about ? 25?
4 THE COURT: Ar e you aski ng about t he 25, 000 or t he
5 200, 488?
6 MR. RUBI NSTEI N: I amaski ng her how she expl ai ns t hat
7 Dr . Kar r on, wher e t he addi t i onal - - of her number of 200, 000,
8 wi t h t he addi t i onal 165, 000 t hat she at t r i but es t o Dr . Kar r on,
9 wher e i s t hat ?
10 THE COURT: 165, 000?
11 MR. RUBI NSTEI N: Yeah. We onl y have checks of about
12 35, 000.
13 THE COURT: Look, st op a second. What f i gur e i s
14 165, 000, Mr . Rubi nst ei n, t hat you' r e r ef er r i ng t o?
15 Q. The checks P- 1 t hr ough P- 6 t ot al about $35, 000, cor r ect ,
16 ma' am?
17 A. Cor r ect .
18 Q. You have a f i gur e CASI spent f or Dr . Kar r on wi t hout f r i nge
19 benef i t s of $200, 488?
20 A. Cor r ect .
21 Q. You subt r act 35, 000 f r om200, 000, you come up wi t h r oughl y
22 $165, 000, r i ght ? Yes or no?
23 A. Cor r ect .
24 Q. Do you have any document at i on t o show $165, 000?
25 A. Thi s char t was pr epar ed f r omt he check r egi st er . The
( 212) 805- 0300
807
1 200, 000 comes f r omt he l oan - - t he di f f er ence bet ween t he l oan,
2 t he l oan pay back and t he amount of sal ar i es t hat he r ecei ved,
3 pl us t he wi t hhol di ngs f r omappl i cabl e payr ol l , wi t hhol di ngs,
4 t hat woul d have been associ at ed wi t h hi s - -
5 Q. The gr ant was suspended at your r equest , r i ght ?
7 Q. At your r equest t he gr ant was suspended on J une 27, 2003,
8 cor r ect ?
9 A. Cor r ect .
10 Q. What wer e t he moni es owed by CASI t o NI ST suppl i er s at t he
11 t i me t he gr ant was suspended?
14 Q. Di d you make any ki nd of schedul e - - t hey' r e cal l ed
15 payabl es, r i ght ? I f you owe money and you di dn' t pay your
16 suppl i er s, i s t hat what you cal l t hem?
18 THE COURT: Let her gi ve an answer bef or e you ask a
19 second quest i on.
20 Now, what was t he quest i on you wer e aski ng?
21 MR. RUBI NSTEI N: Di d she make any l i st of payabl es,
22 moni es owed by CASI , t o suppl i er s who suppl i ed pr oduct f or t he
23 NI ST ATP gr ant .
24 THE COURT: I n J ul y 2003.
( 212) 805- 0300
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1 Q. Do you know af t er t he gr ant was suspended whet her or not
2 Dr . Kar r on i nvest ed addi t i onal money i nt o t he CASI pr oj ect , yes
3 or no?
4 A. No.
5 THE COURT: Do you know whet her he i nvest ed any money
6 i n t he CASI pr oj ect af t er t he gr ant was suspended?
7 THE WI TNESS: No.
8 THE COURT: I amended your quest i on because i t cal l ed
9 f or t wo concl usi ons, Mr . Rubi nst ei n.
10 MR. RUBI NSTEI N: Par don, your Honor ?
11 Q. I sn' t i t a f act - - do you have any document at i on t hat woul d
12 show whet her or not Dr . Kar r on cont r i but ed any moni es af t er t he
13 gr ant was suspended - -
14 MR. KWOK: Obj ect i on, r el evance.
16 Q. Wel l , when t he gr ant was suspended, di d NI ST say t hat he
17 was shor t on hi s cont r i but i on?
19 Q. Was t he gr ant - - I wi l l wi t hdr aw t hat .
20 Was t he gr ant suspended because he was shor t on hi s
21 copay por t i on accor di ng t o your audi t - -
22 THE COURT: I n?
23 Q. I n J une 27, 2003?
24 A. Yes.
25 Q. And i n f act wer e you i nf or med t hat he cont r i but ed $60, 000
( 212) 805- 0300
809
1 i n t he begi nni ng of J ul y 2003?
2 THE COURT: You mean af t er t he audi t was compl et e?
3 MR. RUBI NSTEI N: No, af t er t he f i r st audi t , not t he
4 f i nal audi t i n December .
5 Q. I n J une 27 t he gr ant i s suspended, he doesn' t get anymor e
6 money, r i ght ?
7 A. Cor r ect .
8 Q. He' s got debt s out st andi ng on behal f of NI ST, r i ght ?
9 A. Cor r ect .
10 Q. To get t he gr ant r est ar t ed he i s supposed t o pay back
11 $54, 000, cor r ect ?
12 A. I t hi nk i t was mor e t han t hat , but he was supposed t o pay
13 back an amount .
14 Q. Al l r i ght . And i s i t f ai r t o say he deposi t ed mor e t han
15 t hat amount i n t he CASI account and pai d expenses of NI ST wi t h
16 t hat money af t er t he gr ant was suspended?
19 A. Was he aski ng me - -
20 THE COURT: He i s aski ng you i f you know what happened
21 af t er t he gr ant was suspended.
22 THE WI TNESS: I know t hat some money was deposi t ed.
23 Q. Now, you t ol d us bef or e t hat af t er your audi t t her e i s an
24 appeal s pr ocess, cor r ect ?
25 A. Cor r ect .
( 212) 805- 0300
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1 Q. And t her e i s a negot i at i on on what ' s al l owabl e and
2 unal l owabl e, cor r ect ?
3 A. Cor r ect .
4 Q. Cal l ed a wr ap r epor t ?
5 A. I ' mnot f ami l i ar wi t h t hat t er m.
6 Q. I s i t a f act - - was Dr . Kar r on or CASI ever af f or ded an
7 oppor t uni t y t o have t hi s audi t r econci l i at i on?
8 A. No.
9 THE COURT: She sai d no, and t hen t he cour t r epor t er
10 sai d no, and t hen she sai d no.
11 MR. RUBI NSTEI N: I know t hat i t ' s no. Al l r i ght ?
12 Q. So nobody r evi ewed your number s f r omt he ATP gr ant of f i ces,
13 r i ght ?
14 A. I bel i eve t hat ' s pr obabl y cor r ect . They get a copy of my
15 r epor t , so I don' t know. I don' t know.
16 Q. You t ol d us t hat t hey' r e t he ones t hat shoul d have t he
17 f i nal say- so of what ' s al l owabl e and what ' s not al l owabl e i n a
18 gr ant , r i ght ?
19 A. Cor r ect .
20 Q. And what happened her e i s t hat t he speci al agent s j umped i n
21 on t hi s back i n 2003, r i ght ?
24 Q. And t hey made t hi s f r oma ci vi l mat t er i nt o a cr i mi nal
25 mat t er , cor r ect ?
( 212) 805- 0300
811
1 MR. KWOK: Obj ect i on. Obj ect i on.
3 Q. Wel l , i s t he audi t r esol ut i on a ci vi l pr ocedur e?
4 A. I t ' s j ust a pr ocedur e.
5 Q. Yeah, wher e you si t down wi t h t he gr ant of f i cer s and
6 di scuss whet her or not cer t ai n expenses ar e al l owed or
7 al l owabl e or not ?
8 A. Cor r ect .
9 Q. That never happened her e, r i ght ?
11 Q. I t never happened her e?
12 THE COURT: He says t hat never happened.
14 THE COURT: You never sat down wi t h hi m?
15 THE WI TNESS: Oh - -
16 MR. RUBI NSTEI N: I s my t en mi nut es up, J udge?
18 MR. RUBI NSTEI N: I r et i r e. I ' mf i ni shed.
19 THE COURT: We wi l l t ake a l uncheon br eak.
20 Do you have any r edi r ect ?
21 MR. KWOK: Ver y br i ef l y.
22 THE COURT: I t ' s got t o be br i ef . I mean we have t o
23 move t hi s case al ong.
24 MR. KWOK: Ver y br i ef .
25 THE COURT: Thi s i s t er r i bl e. J ur or 3 has got her
( 212) 805- 0300
812
1 eyes awake al l t he t i me, but I keep an eye on her because she
2 l i es back i n t hat chai r .
3 Al l r i ght . The j ur y i s excused unt i l t en af t er t wo.
4 Can I get away wi t h f i ve af t er t wo? Let ' s say f i ve af t er t wo.
6 THE COURT: I s t her e anyt hi ng t o t ake up?
8 MR. KWOK: No, your Honor , not at t hi s t i me.
9 THE COURT: Wel l , l et ' s be back 2 o' cl ock t o t ake up
10 somet hi ng t hen.
11 MR. EVERDELL: Ther e i s one mat t er . I not e t hat
12 def endant has i nt r oduced CCC. I t hi nk t her e al r eady i s a
13 def ense CCC i n evi dence, so I t hi nk we may have t o r ename t hat
14 DEPUTY COURT CLERK: I haven' t seen t hem.
15 THE COURT: We have t o keep t r ack of t hese t hi ngs
16 because t hi s i s a compl ex si t uat i on.
17 THE DEFENDANT: I don' t t hi nk I ' ve seen any of t he
18 def ense exhi bi t s.
19 THE COURT: You have t o mar k t hem.
20 ( Luncheon r ecess)
22
23
24
25
( 212) 805- 0300
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866zkar 4
1 A F T E R N O O N S E S S I O N
2 2: 05 p. m.
3 THE COURT: Al l r i ght , pl ease be seat ed. Let ' s br i ng
4 i n t he j ur y, and t he wi t ness.
5 MR. KWOK: Ver y qui ck your Honor , hopef ul l y.
6 THE COURT: I ' l l bel i eve i t when I see i t .
8 THE COURT: I t hi nk your chai r - - t hose car t s ar e al l
9 i n t he mi ddl e of t he j ur y pat h.
11 THE COURT: Al l r i ght , pl ease be seat ed.
12 Go ahead, Mr . Kwok.
15
16
17
18
19
20
21
22
23
24
25
( 212) 805- 0300
814
866zkar 4
2 BY MR. KWOK:
3 Q. Ms. Ri l ey, you r emember on cr oss Mr . Rubi nst ei n aski ng you
4 quest i ons about meal s?
5 A. Yes.
6 Q. And he showed you r ecei pt s of ever y meal s t hat Dr . Kar r on
7 had wi t h ot her peopl e?
8 A. Yes.
9 Q. Ms. Ri l ey, ar e meal s a l i ne i t emi n t he CASI budget
10 submi t t ed t o NI ST f or t he gr ant ?
11 A. No.
12 Q. Ms. Ri l ey, you r emember Mr . Rubi nst ei n showi ng you checks
13 t hat Dr . Kar r on wr ot e t o CASI ?
14 A. Yes.
15 Q. Let ' s pul l up gover nment Exhi bi t 114.
16 Ms. Ri l ey, di d you t ake t hose checks i nt o account i n
17 your anal ysi s f or year one?
18 A. Yes.
19 Q. And st i l l , what i s t he col or r epr esent ed i n r ed t her e?
20 A. $268, 638.
21 Q. Let ' s pul l up gover nment Exhi bi t 115. I n your - -
22 THE COURT: I ' msor r y, l et me j ust see - - t hi s i s 114?
23 MR. KWOK: 114, your Honor .
24 THE COURT: What i s t he t ot al amount f or what ?
25 MR. KWOK: Repr esent ed i n t he r ed.
( 212) 805- 0300
815
866zkar 4 Ri l ey - r edi r ect
1 THE COURT: The r ent ?
2 MR. KWOK: Red, not r ent .
3 THE DEPUTY CLERK: I n t he r ed, i n t he r ed.
4 MR. KWOK: Col or r ed.
5 THE COURT: Red, oh.
6 Q. Let ' s t ur n now t o gover nment Exhi bi t 115?
7 A. Okay.
8 Q. Di d you t ake t hose checks t hat Mr . Rubi nst ei n showed you
9 i nt o account i n your anal ysi s f or year t wo?
10 A. Yes.
11 Q. And st i l l what i s t he dol l ar amount r epr esent ed i n t he
12 col or r ed on your char t ?
13 A. 196, 504.
14 Q. Now, Ms. Ri l ey, you r emember Mr . Rubi nst ei n al so aski ng you
15 quest i ons about cost shar e?
16 A. Yes.
17 Q. And he asked you about t he equi pment and how i t mi ght
18 r el at e t o cost shar e?
19 A. Yes.
20 Q. Let ' s pul l up gover nment exhi bi t 40A, 40A. Let ' s f ocus on
21 l i ne I .
22 Ms. Ri l ey, what i nf or mat i on i s cal l ed f or on l i ne I of
23 gover nment exhi bi t 40A?
24 A. Cost shar e.
25 Q. And what i nf or mat i on i s r ef l ect ed - - what number i s
( 212) 805- 0300
816
1 r ef l ect ed on l i ne I ?
2 A. Zer o.
3 Q. I f we coul d zoomout of - -
4 THE COURT: Thi s i s 40A?
5 MR. KWOK: 40A, your Honor .
6 THE COURT: And t hi s i s submi t t ed by - - t hi s i sn' t
7 your r ecor d, t hi s i s submi t t ed by CASI ?
9 Q. Who submi t t ed t hi s f or m?
10 A. Yes, CASI submi t s t hi s f or mt o us.
12 Q. Coul d we zoomi n on t he si gnat ur e bl ock on t he bot t omof
13 t hat ? Whose si gnat ur e appear s on t he bot t omof t hat f or m?
14 A. Dr . Kar r on.
15 Q. Let ' s go t o gover nment exhi bi t 41A. Let ' s zoomi nt o l i ne
16 I . Agai n, what i nf or mat i on i s cal l ed f or on l i ne I ?
17 A. Cost shar e.
18 Q. What i s t he number t her e?
19 A. Zer o.
20 Q. Let ' s zoomout . Go t o t he second bl ock. What si gnat ur e
21 appear s i n t he bot t om?
22 A. Dr . Kar r on' s.
23 Q. Go t o 42A. What i s t he number shown f or l i ne I i n 42A?
24 A. Zer o.
25 Q. And what si gnat ur e appear s on t he bot t ompor t i on of t hat
( 212) 805- 0300
817
1 f or m?
2 A. Dr . Kar r on.
3 Q. Go t o 43A, l i ne I ?
4 A. Zer o.
5 Q. Si gnat ur e bl ock, what si gnat ur e appear s t her e?
6 A. Dr . Kar r on' s.
7 Q. Now, Ms. Ri l ey, one l ast t hi ng. Coul d you r ead t he
8 cer t i f i cat i on above t he si gnat ur e bl ock?
9 A. I cer t i f y, t o t he best of my knowl edge and bel i ef , t hat
10 t hi s r epor t i s cor r ect and compl et e and t hat al l out l ays and
11 unl i qui dat ed obl i gat i ons ar e f or t he pur poses set f or t h i n t he
12 awar d document s.
13 MR. KWOK: No f ur t her quest i ons.
14 RECROSS EXAMI NATI ON
16 Q. When you consul t ed wi t h Mr . Spi t z i n December of 2003, di d
17 he di scuss wi t h you t he meal s i ssue?
19 Q. Wel l , under t he budget , i sn' t i t a f act t hat t her e i s a
20 cat egor y cal l ed " ot her s" ?
21 THE COURT: Thi s i s beyond t he scope.
23 MR. RUBI NSTEI N: I submi t i t ' s not . I t was asked
24 about meal s and whet her t her e' s a l i ne i t emi n t he budget about
25 meal s.
( 212) 805- 0300
818
866zkar 4 Ri l ey - r ecr oss
1 THE COURT: That i s, t he scope of t he di r ect di d not
2 have anyt hi ng t o do wi t h meal s.
4 THE COURT: J ust go r i ght ahead.
6 THE COURT: We have gone t hr ough meal s al r eady.
7 MR. RUBI NSTEI N: I know t hat .
8 THE COURT: You ar e i nst r uct ed not t o go beyond t he
9 di r ect . That i s an or der of t he Cour t , t hat i s a r ul e of
10 t r i al s.
11 MR. RUBI NSTEI N: Absol ut el y, J udge.
12 THE COURT: You ar e t o conf i ne your sel f t o t he
13 r edi r ect of t he gover nment .
14 MR. RUBI NSTEI N: Ri ght . But I submi t , your Honor , i f
15 you l ook at t he t r anscr i pt - -
17 MR. RUBI NSTEI N: I j ust aski ng your Honor t o l ook at
18 t he t r anscr i pt .
19 THE COURT: Don' t ar gue about i t . You have an
20 i nst r uct i on. I f you want a si debar , you can have i t .
23
24
25
( 212) 805- 0300
819
2 MR. KWOK: Your Honor , i n my r edi r ect I di dn' t ask a
3 si ngl e quest i on about t he audi t s. I si mpl y asked a quest i on
4 about whet her l i ne i t em- - wher e meal s ar e a l i ne i t emon t he
5 budget , t hat ' s al l I asked. I di dn' t go i nt o audi t s, I di dn' t
6 go t o meal s, I don' t know wher e he' s goi ng. On r ecr oss, he' s
7 goi ng t o t ake anot her hour i f we go t hi s way.
8 MR. RUBI NSTEI N: Wi t h t hei r di r ect s t hey shoul dn' t
9 compl ai n. Your Honor shoul d compl ai n, but not t hem.
10 Al l r i ght . They asked about meal s, and I ' maski ng her
11 whet her or not - -
12 THE COURT: They di dn' t ask meal s.
13 MR. RUBI NSTEI N: Yes, t hey di d. They sai d i s t her e a
14 l i ne i t emf or meal s.
15 THE COURT: They di dn' t ask.
16 MR. RUBI NSTEI N: They di d.
17 MR. EVERDELL: That ' s al l I asked. I di d ask t hat
18 quest i on, but I j ust asked - -
19 THE COURT: Di d you, a l i ne i t em? I di dn' t hear t he
20 meal s.
21 MR. RUBI NSTEI N: So I ' maski ng i f - -
23 MR. RUBI NSTEI N: I can go i nt o t hi s.
24 THE COURT: I ' l l al l ow i t .
( 212) 805- 0300
820
2 THE COURT: I t hought t he quest i on was al l owed wi t h
3 r espect t o Exhi bi t 140. I s t hat t he exhi bi t t hat t he quest i on
4 was asked about ? No, not 140. I ' msor r y.
5 THE DEPUTY CLERK: 114 and 115.
6 THE COURT: 114 and 115.
7 Wi t h r espect t o 114 and 115, I wi l l al l ow i t .
9 Q. Now, t her e i s a cat egor y cal l ed ot her s, i s t her e not - -
10 A. Yes.
11 Q. - - Ms. Ri l ey?
12 A. Yes.
13 Q. And i s i t a f act t hat meal s coul d be cl assi f i ed under t he
14 l i ne i t emcal l ed ot her s?
15 THE COURT: The quest i on i sn' t whet her i t coul d be.
16 The quest i on i s was i t .
17 A. I t was not .
18 Q. Was i t ?
19 A. I t was not .
20 Q. What was l i st ed under ot her s?
21 A. Audi t i ng ser vi ces.
22 Q. Par don?
23 A. Audi t i ng ser vi ces.
24 Q. And what el se?
25 A. Under ot her s? That ' s al l I r ecal l .
( 212) 805- 0300
821
1 Q. Now - -
2 A. I mean f or what , f or what ? On t he budget ? The budget was
3 f or audi t i ng. Cl assi f i ed - - al l owed f or ot her s, ot her cost i n
4 t he budget was audi t cost s. That was t he onl y t hi ng t hat was
5 al l owed i n t he budget .
6 Q. Ther e i s a cat egor y cal l ed ot her s. I s t her e a cat egor y
7 cal l ed audi t s, yes or no?
8 A. No.
9 Q. I s t her e a cat egor y cal l ed ot her s, yes or no?
10 A. Yes.
11 Q. And can meal s be consi der ed under t he cat egor y " ot her s" i f
12 i t r el at es t o t he pr oj ect ?
13 THE COURT: Ther e i s a cat egor y cal l ed audi t , i sn' t
14 t her e?
15 THE WI TNESS: Ther e' s ot her s, yes.
16 THE COURT: Audi t I sai d.
17 THE WI TNESS: Oh, i t was - - t hey - - no - - wel l , on
18 our , my char t may have a cost , but .
19 THE COURT: A char t has i t ?
20 THE WI TNESS: The char t has - -
22 THE WI TNESS: The char t has t hat cat egor y.
23 THE COURT: Look at t he char t , l ook at t he exhi bi t I ' m
24 t al ki ng about when you answer t he quest i on. Don' t j ust dr eam
25 about somet hi ng el se.
( 212) 805- 0300
822
1 THE WI TNESS: I t hought we wer e t al ki ng about budget .
2 THE COURT: Not t al ki ng about budget , we' r e t al ki ng
3 about t he exhi bi t .
5 THE COURT: Al l r i ght , t he quest i on t hat was asked
6 was about t he exhi bi t 104 - - 114.
7 THE DEPUTY CLERK: 114.
8 THE COURT: 114.
10 THE COURT: And 115, t hose ar e t he onl y quest i ons.
12 THE COURT: Now, you got a quest i on, Mr . Rubi nst ei n?
13 MR. RUBI NSTEI N: Di d we get an answer ? That ' s al l
14 I - -
15 THE COURT: Wel l , I don' t know what t he quest i on was.
16 MR. RUBI NSTEI N: Wel l , t he quest i on was coul d meal s
17 t hat ar e had r el at i ng t o NI ST ATP busi ness meet i ngs, can t hey
18 be al l owabl e under t he budget l i ne ot her s, yes or no.
19 THE COURT: You can ask about 114 and 115, t hat ' s al l .
20 Q. Wel l , ma' am, you t est i f i ed as t o 41A, 42A and 43A, cor r ect ?
21 THE COURT: Yes, she di d.
22 A. Yes.
23 Q. Li ne I ?
24 A. Yes.
25 Q. And i s t hat what you woul d ut i l i ze t o make a det er mi nat i on
( 212) 805- 0300
823
1 t hat t he equi pment coul d not be ut i l i zed as a cof undi ng
2 cont r i but i on?
4 THE COURT: Let me get t he exhi bi t . Obj ect i on
5 sust ai ned. Thi s document was f i l ed by Dr . Kar r on. She di dn' t
6 pr epar e i t . Dr . Kar r on pr epar ed i t .
7 MR. RUBI NSTEI N: I asked i f she - -
9 MR. RUBI NSTEI N: I f she ut i l i zed i t .
10 THE COURT: Al l we' r e t al ki ng about i s l i ne I , t hat ' s
11 al l .
12 MR. RUBI NSTEI N: Yeah, t hat ' s what I ' mt al ki ng about .
13 Wel l , al l r i ght , J udge.
14 THE COURT: Al l r i ght , t he document was not pr epar ed
15 by t hi s wi t ness. The document was pr epar ed by Dr . Kar r on,
16 appar ent l y. She cannot answer what was i n t hat or shoul d or
17 shoul d not have been i n t hat l i ne.
18 MR. RUBI NSTEI N: That wasn' t t he quest i on, J udge. The
19 quest i on was, di d she r evi ew t hat t o make a det er mi nat i on.
20 They br ought i t out on r edi r ect l i ke she had used t hat t o make
21 her det er mi nat i on.
23 THE COURT: I don' t - - obj ect i on sust ai ned.
24 Q. What wer e you asked about 41A, ma' am, by t he Pr osecut or ?
( 212) 805- 0300
824
2 MR. RUBI NSTEI N: I ' maski ng her exact l y what she was
3 asked.
4 THE COURT: We al l hear d what she was asked her .
5 MR. RUBI NSTEI N: Obj ect i on.
6 THE COURT: She doesn' t have t o r epl y t o t hat
7 quest i on, now go ahead and ask a quest i on i f you' r e goi ng t o
8 ask one or t he cr oss- exami nat i on, r ecr oss i s over .
9 MR. RUBI NSTEI N: Wi t h al l due r espect , J udge, coul d I
10 have a si debar ?
11 THE COURT: No, you may not at t hi s poi nt . The r ul es
12 appl y t o r ecr oss- exami nat i on and t hey' r e goi ng t o be st r i ct l y
13 adher ed t o, i n l i ght of t he l engt hy l engt hy cr oss- exami nat i on
14 we' ve al r eady hear d.
15 MR. RUBI NSTEI N: I ' mgoi ng t o ask f or a l i mi t i ng
16 i nst r uct i on t o t he j ur y, your Honor , on t hat comment by your
17 Cour t . I t hi nk i t was, i n al l due r espect - -
18 THE COURT: I don' t know what t o i nst r uct t hem. Al l
19 I ' mdoi ng i s st at i ng t he f act s. I f you want t o have a si debar
20 on t hat , I ' l l t ake a si debar on t hat .
23
24
25
( 212) 805- 0300
825
2 THE COURT: I f I got annoyed enough so I made some
3 mi sst at ement s, I ' l l cor r ect i t , but ot her wi se t he r ul e i s, and
4 you know i t ver y wel l , t hat r ecr oss cannot exceed t he r edi r ect .
5 MR. RUBI NSTEI N: I agr ee, J udge.
6 THE COURT: The scope.
7 MR. RUBI NSTEI N: I agr ee, J udge. But when t he
8 gover nment , A, br i ngs out i s t her e a l i ne i t emf or meal s and
9 she says no, I t hi nk I have a r i ght t o ask i f i t coul d come
10 under t he cat egor y ot her s, t hat ' s number one. Number t wo, when
11 t he gover nment - -
12 THE COURT: A l i ne.
13 MR. RUBI NSTEI N: - - br i ngs out - -
14 THE COURT: The i nqui r y, I bel i eve, was was t her e a
15 meal s cat egor y or a meal s - - a f i gur e f or meal s i n t hose t wo
16 exhi bi t s. She sai d no.
17 MR. RUBI NSTEI N: They wer e asked speci f i cal l y, J udge,
18 whet her t her e' s a budget l i ne f or meal s. That ' s what t hey
19 asked. I t ' s mi sl eadi ng because i t doesn' t have t o be. I t
20 coul d be under ot her s and I f eel I have a r i ght t o st r ai ght en
21 i t out .
22 THE COURT: You can br i ng - - you br ought t hat out .
23 MR. KWOK: You went past t hat al r eady.
24 MR. RUBI NSTEI N: You obj ect ed t o i t and you sust ai ned
25 i t .
( 212) 805- 0300
826
1 THE COURT: We' r e her e t o - -
3 THE COURT: - - based on your want i ng me t o cor r ect
4 somet hi ng t hat I may have sai d t o t he j ur y.
5 MR. RUBI NSTEI N: Yes. The second t hat - - yeah, t hat
6 your Honor suggest ed t hat i t was i nappr opr i at e f or counsel t o
7 cr oss- exami ne t he l engt h he di d, par t i cul ar l y i n vi ew of t he
8 f act t hat you l i mi t ed me t o - -
9 THE COURT: I t ' s not - -
10 MR. RUBI NSTEI N: - - i n t he ki nd and I don' t t hi nk t hat
11 t he j ur y - - t hat counsel has an absol ut e r i ght t o cr oss- exami ne
12 j ust as t he gover nment has a r i ght - -
13 THE COURT: You got - -
14 MR. RUBI NSTEI N: - - t o show t he same exhi bi t s t hr ough
15 ever y wi t ness, show t he same exhi bi t on t he scr een. I
16 shoul dn' t be - - and as t o t he l et t er I i n 40, i n t he A' s
17 exhi bi t s i n t he 40s, i t says t ot al - -
18 THE COURT: The cost shar e.
19 MR. RUBI NSTEI N: Shar e. So t hey ar e suggest i ng t hat
20 because t her e' s not hi ng i n her e t hat she coul dn' t consi der i t .
21 She never consi der ed t hi s document , J udge. She never
22 consi der ed i t .
23 MR. KWOK: I never suggest ed t hat . I j ust asked her
24 what t he document says.
25 THE COURT: She - -
( 212) 805- 0300
827
1 MR. RUBI NSTEI N: What was t he pur pose of i t ?
2 THE COURT: To show t her e was no di sput e.
3 MR. RUBI NSTEI N: Par don?
4 THE COURT: To show t her e was no di sput e about t hat
5 i t em.
6 MR. RUBI NSTEI N: But she consi der ed i t .
7 MR. KWOK: Who sai d she consi der ed - -
8 THE COURT: No one sai d she consi der ed i t .
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
( 212) 805- 0300
828
2 MR. RUBI NSTEI N: Can I ask t he Cour t Repor t er i f t hat
3 was answer ed, t hat quest i on about t he meal s was asked answer ed?
4 THE COURT: No.
5 MR. RUBI NSTEI N: Coul d I ask i t agai n?
6 THE COURT: You can ask anot her quest i on, not t hat
7 one.
8 MR. RUBI NSTEI N: You sai d at t he si debar I coul d ask
9 i t .
11 MR. RUBI NSTEI N: You sai d at t he si debar , I coul d ask
12 i t .
13 THE COURT: I di dn' t say t hat .
15 Q. I n t he exhi bi t s, gover nment Exhi bi t 114 - -
17 Q. The gover nment asked you quest i ons about 114, cor r ect ?
18 THE COURT: Yes.
19 Q. By your - -
20 THE COURT: I f i t ' s wi t hi n t he scope of t he r edi r ect .
21 We' r e not goi ng t o go over al l of 114 and st ar t al l over agai n.
22 MR. RUBI NSTEI N: I don' t i nt end t o, J udge.
23 Q. By your r ed por t i on of t he ci r cl es, Dr . Kar r on owes t hr ee
24 t i mes t he amount of money t hat he r ecei ved, r i ght ; i s t hat
25 cor r ect ?
( 212) 805- 0300
829
2 THE COURT: I don' t under st and t he quest i on. You want
3 t o poi nt t o somet hi ng i n Exhi bi t 114 or 115, you can, but t he
4 quest i ons you' r e aski ng cal l f or comput at i ons.
5 Q. How much, accor di ng t o t hese r ed ci r cl es on Exhi bi t 114 and
6 115, how much does Dr . Kar r on, accor di ng t o you, owe NI ST ATP?
7 A. Accor di ng t o t he r ed ci r cl es? I t woul d be 268, 000 pl us - -
8 Q. Par don?
9 A. - - 196.
10 Q. What ?
11 A. 268, 000 pl us 196, 000 i s how much CASI woul d owe back.
12 MR. RUBI NSTEI N: I ' msor r y, J udge.
13 Q. Di d you say 196?
14 THE COURT: Tal ki ng about what CASI owes or what Dr .
15 Kar r on owes?
16 THE WI TNESS: CASI , r i ght . Dr . Kar r on woul d be - -
17 what CASI owes.
18 Q. And what does Dr . Kar r on owe?
19 THE COURT: What ' s t he r est of your quest i on? You' r e
20 aski ng what Dr . Kar r on owes, accor di ng t o Exhi bi t 114?
21 MR. RUBI NSTEI N: 115.
22 THE COURT: 115?
23 MR. RUBI NSTEI N: Ei t her one.
24 THE COURT: Whi ch one?
25 MR. RUBI NSTEI N: They' r e r el at ed. I can' t t el l .
( 212) 805- 0300
830
1 Q. I want t o know bet ween t hese t wo exhi bi t s, i f we coul d f i nd
2 out how much she cl ai ms Dr . Kar r on has i n unal l owabl e expenses?
3 A. Thi s shows t he CASI unal l owabl e expenses.
4 THE COURT: J ust Dr . Kar r on, j ust Dr . Kar r on, t hat ' s
5 al l you wer e asked. You' r e l ooki ng at Exhi bi t 114.
6 MR. RUBI NSTEI N: I have no f ur t her quest i ons, your
7 Honor .
8 MR. KWOK: Two quest i ons, your Honor , t wo quest i ons.
9 THE COURT: How ar e you goi ng t o be i n t he scope? Al l
10 r i ght .
11 MR. KWOK: Wi t hi n t he scope.
12 THE COURT: I t ' s got t o be wi t hi n t he scope.
14 BY MR. KWOK:
15 Q. Can you pul l up gover nment Exhi bi t 110B, page seven?
16 THE COURT: Wai t a mi nut e. Wher e ar e we goi ng now?
17 I t ' s a di f f er ent exhi bi t . That ' s not wi t hi n t he scope. I t ' s
18 not al l owed.
19 MR. KWOK: Fi nal quest i on.
20 Q. Ms. Ri l ey, i n your r evi ew of al l t he checks, who si gned al l
21 t hose checks f or CASI ?
22 MR. RUBI NSTEI N: Obj ect i on, your Honor , beyond t he
23 scope.
25 Al l r i ght . You' r e excused. Next wi t ness.
( 212) 805- 0300
8AKMKARS Sentence
1
2 ------------------------------x
3 UNITED STATES OF AMERICA,
4 v. 07 Cr. 541 (RPP)
5 DANIEL B. KARRON,
6 Defendant.
7 ------------------------------x
8 New York, N.Y.
October -20, 2008
9 2:30 p.m.
10
Before:
11
HON. ROBERT P. PATTERSON, JR.,
12
District Judge
13
14 APPEARANCES
15 MICHAEL J. GARCIA
United States Attorney for the
16 Southern District of New York
STEVE KWOK
17 CHRISTIAN EVERDELL
Assistant United States Attorneys
18
RUBINSTEIN & COROZZO
19 Attorneys for Defendant
BY: RONALD RUBINSTEIN
20
21
22
ALSO PRESENT: KIRK YAMATANI
23 RACHEL ONDRIK
24
25
(212) 805-0300
2
8AKMKARS Sentence
1 (Case called)
2 MR. KWOK: Good afternoon, your Honor, Steve Kwok for
3 the government. With me at counsel table is Chris Everdell.
4
5
THE COURT: Good afternoon, Mr. Kwok and Mr. Everdell.
MR. RUBINSTEIN: Good afternoon, your Honor, Ron
6 Rubinstein for the defendant. I have to apologize. I thought
7 it was 2:30, the sentence. It must have been a senior moment.
8
9
10
11
12
13
14
15
'THE COURT: I have a presentence report. The latest
one is dated October 7, 2008. Has the defendant seen the
presentence reports, including the latest one, October 7, 2008?
MR. RUBINSTEIN: Yes, your Honor.
THE COURT: He has read them?
THE COURT: Are there any changes to be made?
MR. RUBINSTEIN: No. Except for the objections we
16 have --
17 THE COURT: Except for the objections that you have in
18 your letter of October 13 and also in a letter received Friday,
19 October 17, 2008, those two letters to the Court?
20
21
MR. RUBINSTEIN: That's correct, your Honor.
THE COURT: The government sent us a letter dated
22 October 17 also. I have not received any response by the
23 government to your letter of October 17.
24 MR. KWOK: The government did not submit a response to
25 the latest letter.
(212) 805-0300
1
2
3
8AKMKARS
3
Sentence
THE COURT: You're willing to proceed on that basis?
MR. KWOK: The government is ready to proceed.
THE COURT: Then I guess the best way -- I don't know
4 how the parties think the best way to proceed, but it would
5 appear to me that the best way to proceed is by considering
6 Mr. Rubinstein's letter of October 17, which disputes the
7 computation of loss contained in the presentence report and in
8 the government's letter.
9 I might say that I've had some concerns about the loss
10 computation. It's not clear to me that a failure to get
11 approval of expenditures from the grant officer amounts to the
12 same as an intentional misapplication of funds. And to the
13 extent that we have here in this case, as I understand it, the
14 final budget as approved in December 2001, and subsequent to
15 the applications to amend the budget were not approved. So the
16 requisite documents that the Court has to examine of the budget
17 contained in -- is it Exhibit 12?
18 MR. KWOK: Your Honor, I think the last approved
19 budget is the budget attached to Government Exhibit 22. It's
20 the third page --
21 THE COURT: It's Exhibit 12. Just a second. Exhibit
22 12 is the original budget that Dr. Karron signed. Then there
23 is Exhibit 20. 21 was just an administrative contact change.
24 Exhibit 22 contains the final budget approved -- amended budget
25 approved by the agency.
(212) 805-0300
1
8AKMKARS Sentence
So I have difficulties. For instance, looking at
4
2 Exhibit 20 and 22 and the fringe benefits being allowed at 34
3 percent of salary, as I see it in the documents. I have
4 difficulty also with the tabulation contained in Government
5 Exhibit 114 and 115 because they are just rough calculations,
6 as I see it. I don't know who compiled them, but I gather it
7 was Ms. Riley, but we never went into the detail about, for
8 instance, the statement in the tabulation that Dr. Karron's
9 salary budgeted.at 175, various cash. He spent 200,486,
10 according to that tabulation. Those amounts, as I saw them,
11 err were salary. They involved loans made which someone, I
12 don't know whom, I presume Ms. Riley, determined the equivalent
13 of salary.
14 AsI alluded to earlier, the fringe benefits figure in
15 this tabulation -- I'm looking at 114 says that Dr. Karron
16 didn't spend $40,337 in fringe benefits, and yet in the same
17 tabulation it says that the fringe benefits were not allowed
18 and spent $4,081. That whole scenario .of fringe benefits is
19 somewhat illusive to me.
20 The testimony, as I recollect it, was CASI, the
21 corporation, did not have a formal benefit plan and they were
22 endeavoring to compile one during the time of the grant. And
23 instead what Dr. Karron did was to pay benefits just as he was
24 accustomed to paying them, for whatever medical expenses the
25 various employees had for their wives. I have some difficulty
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5
1 in, 1, finding that there was criminal intent with respect to
2 these expenditures, which are all on Government 114, and with
3 the manner in which those overexpenditures were computed. It
4 seems to me this is just a rough calculation and not something
5 that a Court could rely on in a criminal case. I'll hear from
6 you. That's my assessment of that proof.
7 MR. EVERDELL: Your Honor, I think; in fact, I know
8 114 and 115 are based on Ms. Riley's underlying analysis.
9
10
11
THE COURT: The spreadsheets.
MR. EVERDELL: Yes, the spreadsheets.
THE COURT: But it doesn't meet it because in her
12 spreadsheet she doesn't have any payment like $248,000 worth of
13 salary in year one.
14 MR. KWOK: Your Honor, she does. That number is the
15 net transfers.
16
17
THE COURT: I've looked at salary, I think.
MR. KWOK: Including the tax withholding, I believe is
18 the testimony that she testified to. When you take into
19 account all the money that Dr. Karron took out from CASI, minus
20 the amount that he paid back --
21 THE COURT: That isn't salary. We are talking about
22 salary. I don't see salary. There is nothing like salary in
23 those d o c ~ ~ e n t s that equals 248 -- $200,488.
24 MR. KWOK: Salary is just a heading. What she meant
25 by this is money that defendant took, pure money, not in terms
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6
1 of expenditure; cash that he took from CASI, whether in the
2 form of quote unquote loan or whether in terms --
3 THE COURT: Show me. She has no tabulation putting
4 114 into context with her 110, Exhibit 110.
5 MR. KWOK: If your Honor could look at Government
6 Exhibit 110.
7
8
9
10 it here.
11
12
THE COURT: I did look at Exhibit 110.
MR. ~ K W O K : Page 38.
THE COURT: I have it here. I don't know that I have
MR. KWOK: Page 38 of 44.
THE COURT: I guess we will have to get 110, because I
13 don't think I have it here, but I'm fully familiar with it. I
14 think it's in Mr. Rubinstein's submission, as a matter of fact.
15 MR. KWOK: That page shows money going to the
16 defendant and money coming from the defendant. So taking
17 THE COURT: What page are you referring to? Maybe
18 it's in Mr. Rubinstein
19
20
21
22
23
24
25
MR. KWOK: 38 of 44.
THE COURT: He has payroll. Looking at 13 of 44?
MR. KWOK: Page 38 of 44.
THE COURT: That's loan and loan repay. That's not
salary.
MR. KWOK: If you look at the memo line, it is salary.
Look at, for example, the third check, per check register,
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1 salary advance.
Sentence
7
2
3
THE COURT: That one she treated as a loan.
MR. KWOK: These are expressed in a spreadsheet as
4 loans, but they are all money going to the defendant.
5
6
THE COURT: I understand. It's just not salary.
MR. KWOK: You can give it whatever label you like,
7 but the bottom line is, the defendant took from the company
8 this much money which added to 188.
9
THE COURT: I don't doubt that's what your
10 are.
11 MR. KWOK: If I can just correct a misimpression,
12 Government Exhibit 114 is not a rough calculation. It's not a
13 guess. It's based entirely on Government Exhibit 110 which, In
14 turn, is based entirely on the bank records that she reviewed.
15
THE COURT: They are certainly not in those records, a
16 showing of $200,488 in salary.
17
18
MR. KWOK: If I can explain how she got that number.
THE COURT: It's denominated salary. It's a table
19 saying salary. I don't care how she got the number.
20 MR. KWOK: But that doesn't really affect the loss
21 amount. You can label it and give it whatever label you want.
22 But at the end of the day -- let me back up one step. The
23 grant says Dr. Karron can take from the grant for his own use,
24 whether we call it salary or compensation for efforts that he
25 put into the grant, $175,000. That's the amount -- the portion
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8
1 of the pie that he can get from the grant, $175,000.
2 THE COURT: He can get a salary of 175,000 is what it
3 says in the budget, plus 34 percent for fringe benefits.
4 MR. KWOK: If he took from the grant money in addition
to $175,000, putting aside fringe benefit for a second, any
6 amount above that is a disallowed amount, whether you call it
7 excess salary or call it a loan that never gets paid back. It
8 doesn't really matter. At the end of the day, the budget says
9 $175,000 and no more. If you take more than that, the first
10 dollar above $175,000 is disallowed. Whether you call that
11 excess salary or loan, it doesn't really matter.
12 THE COURT: I'm not dealing with ifs. I'm dealing
13 with what the record shows. This doesn't show what the records
14 show as far as salary goes.
15 MR. KWOK: It shows that, just for simplicity, she
16 doesn't want to create that many different categories. Salary,
17 loan.
18 THE COURT: She has got a salary category. She shows
19 it. Go on a couple of pages. Payroll, next page, $35,293.58.
20 MR. EVERDELL: Your Honor, also, to bear in mind with
21 this, these entries on the spreadsheet are based on how
22 Dr. Karron himself characterized things in the documents. So
23 we have checks here for pay periods that are quote unquote
24 payroll checks for salary. However, he called other things
25 loans or other things like that.
SOUTHERN.DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
1 Now, Lynn Riley, in doing this analysis, put those
2 together in the same category because as Mr. Kwok was saying,
3 it was money paid from CASI to Dr. Karron. If he is allowed a
4 payroll, a salary of $175,000, it doesn't necessarily matter
5 how the defendant himself characterizes those paYments to
6" himself. Whether he calls them payroll checks or whether he
7 calls them loans, it's still a paYment to him personally from
8 CASI funds. So her object, I think in doing it this way, was
9 to sweep together those things which were direct paYments from
10 the company to Dr. Karron.
11 THE COURT: I don't dispute that. But the tabulation
12 is not something that I can go along with. It is not salary.
13 MR. KWOK: We have no problem with that. If you want
14 to call it salary/loans or just simply money to Karron, excess
15 money to Karron, it doesn't really affect the loss amount
16 because at the end"of the day the loss amount is simply
17 arithmetic, what he took from CASI minus what he is supposed to
18 get under the grant, which is $175,000. We have no problem, if
19 it makes things clearer, instead of calling that salary, we
20 could call that, simply, excess money to Dr. Karron.
21 THE COURT: You see what he did was -- I think it is
22 borne out by the defendant's papers to some degree -- is he"
23 took a very low salary to pay back the loans. Is that a fair
24 statement?
25 MR. EVERDELL: Your Honor, that fact that you just
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10
1 said, the fact that he didn't take his full salary, is taken
2 into account
3 THE COURT: I didn't say that. I want to know whether
4 you're disputing what I just said.
5 MR. EVERDELL: \Nhat I agree with is that, yes, the
6 defendant did not take his full salary in the sense that when
7 you look at salary in checks, they are less than the $175,000
8 of quote unquote salary.
9
10
THE COURT: You saw there was less withholding, right?
MR. EVERDELL: But he paid himself in other ways in
11 things he do did not characterizing as salary.
12 THE COURT: Was there less withholding or not? You
13 better confer.
14 MR. EVERDELL: Your Honor, apparently what happened
15 was, he wasn't characterizing anything -- there was no
16 withholding until an accountant came in towards the end of year
17 one and said, you have to call these things payroll, you have
18 to take your salary and then you have to calculate withholding.
19 And that account went back retroactively and looked at these
20 payments and did the withholding retroactively with all these
21 payments to him which had not been characterized.
22 THE COURT: There are documents appended to the
23 defendant's papers which indicate that the withholding was
24 taken timely. That's not borne out by what you say, showing
25 Mr. Rubinstein's letter of Friday. Where did I put it? He has
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11
1 got documents showing money being withheld to calculate salary.
2
3
MP_. KWOK: Which page are you looking at, your Honor.
THE COURT: I'm trying to find the letter now.
4 Attached to it, if you look, it's about ten pages in. It shows
5 the salary, August 2, 2002, salary. It shows outstanding
6 salary of $61,918; federal withholding tax, minus 17,104;
7 social security deduction, 2,091; Medicare and employee 462.81.
8 New York withholding, New York City resident also:. It I S all in
9 there. He also has one for the pay period 7/01/2002.' Maybe
10 that's the same.
11
12
13 top.
14
MR. KWOK: Are you looking at this page?
THE COURT: Yes, I believe so. It has a check at the
MR. EVERDELL: Your Honor, I think this may actually
15 reflect what we are talking about. If you look at check No.
16 10401. Is that the page you're looking at?
17
18
THE COURT: Yes.
MR. EVERDELL: That looks like it was paid out on
19 August 2, 2002, which is towards the end of year one of the
20 grant. If you ,look at the spreadsheet that Ms. Riley created,
21 it shows that the first actual paid check that he got was in
22 May of 2002; again, sort of towards the end of year one of the
23 grant. This is, as we are getting towards the end of year one,
24 where Dr. Karron is being told that needs to pullout
25 withholding. I don't think this contradicts what we were
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1 saying before.
Sentence
12
2 THE COURT: It does contradict what was said. What
3 you said is not consistent with what you're saying now. That's
4 the trouble with these analyses. They are fine as far as they
5 go, but they do not tell the story.
6 Anyway, there are, similarly, prescriptions, first
7 item in Mr. Rubinstein's letter. I don't think that the item
8 is prescriptions. I think the item is other and it included
9 other matters such as bank processing, consultants, lawyers,
10 and bookkeeping.
11 MR. EVERDELL: Your Honor, if I can just step back for
12 one second and just talk about the general position of the
13 government on loss, which is that unless it's specifically
14 budgeted for -- that it has been preapproved in a budget or has
15 had subsequent approval authority from NIST, or whatever
16 expenditure it may be, that it's overbudget or an item in a
17 category that is not a budgeted category, that constitutes a
18 loss to the government. The reason why is --
19 THE COURT: It has to be -- it seems to me it has to
20 be a loss as to which there was criminal intent.
21
22
MR. EVERDELL: Your Honor, I think --
THE COURT: In order for there to bean intentional
23 misapplication of funds. You have to have criminal intent
24 here. The fact that the government lost money on the grant or
25 the money wasn't expended properly does not necessarily mean
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13
1 that there was criminal intent involved in all those
2 expenditures.
3 MR. E \ ~ R D E L L : Your Honor, according to the
~
4 guidelines, the guidelines commentary, when you're looking at
5 government benefits, you are supposed to look at what the
6 intended use for the money was. For loss amount you look at
7 whatever was diverted to in unintended use. It's the
8 government's position that with this money that was given out,
9 it came with a lot of very specific spending rules and those
10 rules were clear and set forth. So that is the intended use of
11 the money.
12 We handled this money such that you would spend it in
13 accordance with these rules and that included the budgetary
14 rules, the prior approval rules, all of the other spending
15 rules that came attached to the grant. So that when money is
16 diverted elsewhere, when it is not part of an approved category
17 or overbudgeted category, that's not an intended use of the
18 money. That is not an intended use of the money because,
19 otherwise, why not just give away the grant money with no rules
20 and say, okay, here is a block of money for you to use as you
21 see fit. We won't ask you how you're spending it. Come back
22 in a year or so and tell us the progress you've made on your
23 grant. I'm sure there are grants that probably do operate that
24 way, but that's not this one. This one wanted to keep a very
25 close leash on how this money was spent, they wanted to approve
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14
1 everything that was spent and see all of the expenditures
2 beforehand so that they were on board.
3
4
THE COURT; All the expenditures that were budgeted.
MR. EVERDELL: They wanted to see a b ~ d g e t first,. yes,
5 and anything that was not in that budget or over that budget,
6 with the exception of the 10 percent rule that we are all
7 familiar with, had to be approved. The reason why they do that
8 is because, as defense counsel said many times in his own
9 submissions, this is a type of grant where the government is
10 actually very involved. So they want to keep a tight leash on
11 how this money is spent.
12 Given that that is the posture of this grant, how the
13 money is supposed to be spent, that is the intended use of the
14 money, to be spent according to budgeted items or items that
15 have been preapproved by NIST. So it's the government's
16 position that when you go outside of those categories or go
17 over budget on one of the approved categories, that still
18 constitutes a loss to the government because they have not been
19 able to exercise the control that they meant to exercise with
20 instituting these grant rules and these spending rules.
21 THE COURT: Look. Let's go right to an item that
22 bothers me, fringe benefits. They were approved at 34 percent
23 of salary. No one said what constitutes a valid, as far as I
24 could find in the papers in the court, what was a valid fringe
25 benefit and what wasn't. How can I have any confidence that
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15
1 not approved fringe benefits of $4,000 is something that is a
2 willful disregard of the Lules?
3 MR. EVERDELL: Your Honor, there are a couple of
4 things with fringe benefits which is" I believe, how this was
5 calculated. We heard testimony that there was no plan in
6 place.
7 THE COURT: I heard that, but there was no plan in
8 place from the beginning. You only found that out at a certain
9 point. No one went and checked the group out or anything in
10 advance. It says fringe benefits. The testimony is, he had a
11 cafeteria plan or whatever it was.
12 MR. KWOK: Your Honor, if I may, I think the
13 testimony --
14 THE COURT: And anything and everything could be
15 expended in the way of fringe benefits to himself and members
16 of the family and for the employees. The government may come
17 back with, oh, it wasn't in the plan, so, therefore, it
18 shouldn't be allowed, but there is no warning to the person
19 there. I can't see the criminal intent there.
20 MR. KWOK: The defendant was certainly told
21 repeatedly --
22 THE COURT: The government may have lost the money,
23 but I can't see any criminal intent.
24 MR. KWOK: The intent is when he asked a question and
25 was told no and went ahead and did it anyway. It was in the
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1 documents--
Sentence
16
2 THE COURT: He didn'L ask any question about medical
3 benefits, as far as I know; from the record.
4 MR. KWOK: If I could just address your Honor's
5 question about amount. The amount reflected on this chart is
6 simply the amount over budget because he took more salary
7 because fringe benefits is a percentage of salary. So it's
8 calculated as a fixed percentage of salary. So because he took
9 more from CASI than the amount that he was allowed, namely,
10 $175,000, the amount we just allowed him is an amount of $4,000
11 or so. It is simply an amount over budget because he took more
12 in dollars
13 THE COURT: He underspent budget through those fringe
14 benefits by $4,000 it says right above it. Look at that. This
15 is a mess.
16 MR. EVERDELL: Your Honor, I think we can make this
17 much simpler. Let me see if I can. do this. Even if you look
18 at just the categories that were nonbudgeted categories, we are
19 not talking about fringe benefits anymore, we are not talking
20 about even equipment overexpenditures, we are not talking
21 anything that w a s a c ~ u a l l y a budgeted category that had been at
22 least somewhere approved by NIST before.
23 If we are talking about everything else, that is,
24 rent, utilities, cleaning, meals, capital improvements, or
25 these other expenses which were actually not listed in the
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17
1 category other under the budget, we are already talking about
2 for years one and two of the grant, we are already talking
3 about a loss amount, under my calculation, is over $172,000. I
4 think
5 THE COURT: What figures did you use in the first year
6 of the budget to get 172,000?
7 MR. EVERDELL: I just added up in years one and years
8 two, so this would be 114 and 15.
9
10
THE COURT: Which items are you adding up?
MR. EVERDELL: I'm adding up rent, which is $60,000 in
11 year one; I'm adding up utilities, which is 16,341 in year one.
12 I'm adding up capital improvements.
13
14
15
16
17
THE COURT: Rent. You're adding up after rent what?
MR. EVERDELL: Rent was first, 60,000.
THE COURT: Utilities.
MR. EVERDELL: Utilities was second.
THE COURT: There was some testimony on utilities. He
18 got an approval.
19 MR. EVERDELL: Your Honor, I don't think there was
20 ever testimony that he got a prior approval for utilities. In
21 fact, he was told repeatedly that utilities were not allowed.
22 THE COURT: The difference between the utilities for
23 the apartment before and after the upgrade for air conditioning
24 and for the machinery --
25 MR. EVERDELL: I think the only testimony we had on
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18
1 the record is that he tried to get an approval for the
2 utilities, but he never received one.
3 THE COURT: Mr. Rubinstein's quotes a utilities f i ~ ~ r e
4 using Mr. Benedict's testimony at 1057 .. I can't find it. Here
5 it is, 1057.
6 MR. EVERDELL: I'm looking at the page he cited. Here
7 it just says -- his question is, this is Mr. Rubinstein's
8 question, and he is questioning --
9 THE COURT: And the discussions were that if he could
10 indicate the fact that there was an increase, that they could
11 be classified as direct expenses, not indirect expenses.
12 MR. EVERDELL: It says the discussions were, right,
13 that if he could demonstrate the fact that there was an
14 increase, that they could be classified as direct expenses, not
15 indirect expenses. But there was never any approval of this.
16 So at this point none of the testimony here is talking about
17 any approval of any additional utilities, expenses, or anything
18 like that.
19 THE COURT: Sounds like approval, but not written
20 approval.
21 MR. EVERDELL: He is talking to Bob Benedict. Bob
22 Benedict, I think, is a witness here who is the finance
23 manager. We are not talking to the people at NIST, who
24 actually made the approval, such as Hope Snowden. If I recall
25 correctly, Hope Snowden's testimony about utilities was simply
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19
1 that there were lots of conversations that she had with the
2 defendant himself and with others about whether or not grant
3 funds could be used for utilities, and she said no.
4
5
6
7
8 them --
9
T ~ E COURT: Where is this?
MR. EVERDELL: The cites to the record?
THE COURT: Yes.
MR. EVERDELL: Your Honor, I'm afraid I don't have
THE COURT: This does say the witness summarizes his
10 testimony at the end of the page. The incremental amount of
11 additional expense caused by the grant could be classified as
12 direct expense and not indirect expense. Direct expenses are
13 allowed, regardless of what they are. Indirect expenses are
14 not allowed.
15 MR. EVERDELL: I think that that quote just says right
16 there that they are talking about a possibility, but a
17 possibility that was never actually approved. And a
18 possibility 'that was never actually budgeted. So--
19 THE COURT: It suggests not approved in writing. I
20 have seen that. I agree wi.th that. But it sounds as if it was
21 approved orally.
22 MR. EVERDELL: I don't know if I read that as that.
23 Maybe it's Mr. Benedict's understanding of what he could
24 possibly get approved under the rules.
25 THE COURT: I think that's a little bit -- the point
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1
2
3
4
5
20
I 8AKMKARS Sentence
is that the criminal intent of the defendant is important here.
And if he was proceeding on that basis, that seems to me -- I
have reason to -- it seems to me that that amount is an amount
that should n o ~ be considered in the loss calculation.
MR. EVERDELL: Your Honor, I think I have to
6 respectfully disagree with that. My colleague, Mr. Kwok, has
7 pointed me to the part in the record. This is Hope Snowden's
8 testimony on page 256 of the record where she is talking about
9 her conversations with I believe it's Dr. Karron and
10 Mr. Gurfein about expenses. And the question was:
11 What questions did he ask you, if any, during those
12 conversations?
13 And the answer lS: Was he allowed to pay for rent and
14 utilities with the ATP federal-funded grant.
15 "Q. And rent for what, rent utilities for what?
16 "A. For the condo in which at this point, I guess, CASI, the
17 company, was being housed.
18 "Q. And whose condo was that?
19 "A. Dr. Karron'scondo.
20 "Q. What was your response to the question? Can rent and
21 utilities be paid for with ATP funds?
22 "A. No. They are unallowable costs."
23 THE COURT: I understood that testimony. That comes
24 well preceding Benedict's testimony, it comes well preceding
25 the work for the apartment for the air conditioning, and that's
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21
1 what caused the utilities to go up and that's after the time
2 that Snowden is talking about, as far as I can see.
3
4
5
MF, EVERDELL: Let's just do this then, your Honor.
THE COURT: I've got to be --
MR. EVERDELL: Let's do this. Let's set aside for the
6 moment the issue of whether that $4,595 should or should not be
7 included in the loss amount.
8
9 4,000.
10
11
THE COURT: According to Mr. Rubinstein, it's not
MR. EVERDELL: I was looking at page 2 of his letter.
THE COURT: 16,341, as I understand it. The utilities
12 prior were 4595, prior to the project.
13 MR. EVERDELL: I b e l i ~ v e that's 16,341 is what the
14 government is claiming is the utilities amount for year one.
15 THE COURT: Maybe you're right. That's the
16 government's claim, not 16,000. He claims
17 MR. EVERDELL: He claims that the loss is only 4,595,
18 which is the amount of the increase, he says.
19 THE COURT: That's the prior amount of utilities, not
20 the increase. The difference should be not a loss.
21 MR. EVERDELL: I apologize, your Honor. He's claiming
22 the difference between the two Sh01lld be not included in the
23 loss.
24 But setting that aside for the moment, again, if you
25 add up the categories again that were nonbudgeted expenses,
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22
1 even leaving that issue aside, I guess let's just say that that
2 is almost $12,000, not quite, of difference.
3 If you go to the next category, which is capital
4 improvement, in year on2 is 11,248. Again, this has no --
5 there is nowhere in the budget where this stuff is talked
6 about. There is no prior approval from NIST for this sort of
7 thing. Mr. Benedict is using the money, same which he does for
8 cleaning and meals,to do whatever he feels like he wants to do
9 with it, and he's spending it on outside budget categories.
10 THE COURT: Let's deal with capital improvements.
11 They claim that this should be more profited by the site
12 preparation.
13 MR. EVERDELL: But even site preparation isn't a
14 budgeted category.
15
16
THE COURT: I don't know that it is.
MR. EVERDELL: It's not, according to the exhibits.
17 Basically, what the defense counsel has tried to do in this
18 submission is take every possible expenditure that he can think
19 and try to claim that if it had some tangential or arguable
20 benefit to the research, then it can't be qualified as a loss.
21 That simply can't be workable, your Honor, because almost every
22 single expenditure has some benefit to the research. You just
23 can't work that standard. It's unworkable.
24 So what we decided and what our loss calculation and
25 theory is about is whether or not it's in budget because that
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23
1 is clearly what the intended use of the money was. We give you
2 this money so thatyou can spend it according to the rules, and
3 they were very clear about that. There was lots of testimony
4 about how the rules were supposed to be followed, how they
5 explained the rules to them, how they had to adhere to their
6 budget, and for good reason, and how they needed approvals for
7 things that were outside of the budget.
8 So while I understand that certain things that the
9 defendant is claiming may arguably have benefited the research
10 in some way, that's simply not the standard we can work with,
11 because then there would be no loss at all, it would seem like.
12 Even meals. People have to eat in order to conduct research,
13 but you can't spend federal grant money to do it. Yes, you
14 need to clean things in order to have your house cleaned, but
15 you can't spend federal grant money to do it. It has to be
16 budgeted if you're going to do it that way.
17 Things like site improvement, capital improvement,
18 whatever it is, things that may sound even arguably better than
19 meals and cleaning in terms of how it might affect the
20 research, it doesn't count because it's not budgeted. There is
21 a good reason for that. The government needed to understand
22 and approve all the expenditures related to the research,
23 whether it was because it was in a budget or because someone
24 came to them later and asked for approval for something that
25 was outside of the budget .
. SOUTHERN DISTRICT REPORTERS, P.C.
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1
8AKMKARS Sentence
THE COURT: Let's not quite put it that way because
24
2 there is this 10 percent rule that they have got in there.
3 MR. EVERDELL: Yes, your Honor. If you look at 114
4 and 115, down at the bottom right-hand corner you see the pie
5 chart at the bottom right-hand corner which has I don't know
6 if you can see it.
7
8
9 inclined
THE COURT: I can see the pie chart.
MR. EVERDELL: The slice is the 10 percent. If you're
it's our argument that the '10 percent rule, the
10 money still has to go from somewhere. Even if you are going to
11 exclude the 10 percent from the calculation, it's still going
12 to rise far above the level that I think your Honor is
.13 considering.
14 Not only that, 10 percent can't be used for new
15 categories. I'm talking simply now about categories that are
16 not in the budget. The 10 ,percent rule only applies to
17 categories that are already in the budget, and you may
18 reallocate funds within those preapproved categories.
19 So with respect to the money I'm talking to. you about
20 now, the ones that are not budgeted categories at all, the 10
21 percent rule does not even apply to that. So even if you add
22 it up, all these out-of-budget, nonbudgeted categories, you
23 would still get to a loss amount, under my calculation, over
24 $172,000 in loss.
25 If your Honor subtracted the 12,000 or so from the
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25
1 utilities, we are still over the 120,000 threshold and
2 guidelines which makes it -- I believe, it's a level -- I want
3 to check -- it bumps it down two levels from the calculation
4 that's in the PSR. But it's still a total offense level of 18
5 as opposed to 20, using that calculation.
6
7
THE COURT: The PSR originally was more than 200,000.
MR. EVERDELL: Your Honor, we still think that the
8 calculation in 114 and 115 is entirely correct. Weactually
9 think that is the loss that the government suffered. In fact,
10 we are giving the defendant quite a bit of the benefit of the
11 doubt because we are saying that everything within the budgeted
12 category was a proper expense. It makes that assumption. And
13 everything -- all we are saying is everything outside of that,
14 either if it's a nonbudgeted category or something overspended
15 on a budgeted category, represents a loss to the government.
16 However, if your Honor is not inclined to accept that,
17 because of concerns you have about the calculations here, at
18 the very least, if you look simply at the nonbudgeted
19 categories, things that were not approved by NIST at all, which
20 are those things that I mentioned before -- rent, utilities,
21 capital improvement, cleaning, meals, and other -- then we have
22 a loss amount that is at a minimum just two levels less than
23 what's in the PSR.
24 THE COURT: You would agree that it should not be
25 entitled to subscriptions as other expenses.
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MR. EVERDELL: I apologize, your Honor. I
26
2 miscalculated. It's not two levels less. It's actually four
3 levels less. If you start with ~ base offense of 6 and the
4 loss amount is more than 120,000, that acds 10 and you get 16.
5 MR. RUBINSTEIN: Your Honor, I think that the initial
6 distinction is a question of what is allowable and what is
7 allowable. And I think --
8
9
10
11
THE COURT: What is what?
MR. RUBINSTEIN: Allowable; in other words
THE COURT: I know what allowable is.
MR. RUBINSTEIN: As opposed to what the budget says
12 that was allowed. I say to your Honor that this money was not
13 . given to buy equipment, just to buy equipment, to get
14 subcontractors, to have employees: This money was given for
15 research. That was the purpose of the money.
16 I think that the government is using the budget in a
17 way that it never was intended for the purposes of what a loss
18 should be. Let's assume that Dr. Karron's spent the whole
19 $800,000 on machinery. He wasn't budgeted for it, but he spent
20 $800,000 for machinery for the project. He didn't take a
21 salary, he didn't spend money on anything else and, 10 and
22 behold, the project ran the three years and he developed the
23 science that the money was given for. Under that theory he
24 could be prosecuted for $690,000 in misspent money.
25 The bottom line is, your Honor, the fact that they
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27
1 come up with a category and then they say, we have a category
2 here, capital improvements, the testimony is clear,
3 uncontroverted, that these weren't capital improvements. They
4 were site preparation and they devalued the apartment -- we had
5 an expert -- a one bedroom apartment in Kips Bay selling for
6 just over $500,000. Everyone who knows anything about the real
7 estate market in New York City. That figure was devalued
8 because it devalued, but they have a category. It's called
9 capital improvements and we don't have a category in the
10 budget. Therefore, not only whatever you spent, no matter what
11 else you want to call it, we called it capital improvements.
12 Did anybody call it capital improvements but the government?
13 Now they say, it's capital improvement, not in the budget,
14 therefore disallowed. I submit to your Honor, this is site
15 preparation. Any reasonable, logical person would conclude
16 THE COURT: The trouble- is, in his application for the
17 grant he said -- he gave the impression that they were up and
18 running.
19
20
21 cetera.
22
23
MR. RUBINSTEIN: They had equipment there.
THE COURT: As I understood it, active Web site, et
MR. RUBINSTEIN: They had a Web site.
THE COURT: And they had computer equipment.
24 MR. RUBINSTEIN: But they didn't have this kind of
25 computer equipment, Judge. We are going back --
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2
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28
Sentence
THE COURT: You don't need site improvement.
MR. RUBINSTEIN: They needed it here. The contractor
3 testified what he did. He built things, he put up rackings for
4 them to convert the living room into a computer lab.
5 THE COURT: The material was -- everything was in
6 there. What he did was, as I understood it, was to improve the
7 usability of the space.
8
9
10 budget.
11
MR. RUBINSTEIN: Not for an apartment.
THE COURT: Not something that was called for in the
MR. RUBINSTEIN: It's not called for in the budget, I
12 agree with you. It may come under the categories of others.
13 It may come in here. But the question is --
14 THE COURT: Others is for audits. Other was the only
15 thing -- the budget under other was audits, is my recollection.
16 MR. RUBINSTEIN: There was a budgeted category called
17 audits, your Honor.
18 THE COURT: The only thing that was budgeted under
19 others was audits, $10,000.
20 _ MR. RUBINSTEIN: If you look at 115, you'll see that
21 In 115, next year, they disallowed the $10,000.
22 The bottom line is that the items that the prosecutors
23 talked about, capital improvements, I submit, were not capital
24 improvements. The meals, they have no breakdown of where the
25 meals were, who the meals were for. If you recall Riley's
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29
1 testimony, she went to lunch with Dr. Karron to talk about this
2 investigation with other people from CASI, and she disallowed
3 that lunch. Any business is going to charge a lunch like that.
4 Dr. Karron spent on his Master Card -- he had three credit
5 cards. The only card that he charged meals on that were
6 deducted were on the American Express CASI card. His own card
7 and the Master Card is in evidence. He never deducted.
8 To suggest that there is not a category of meals,
9 there is travel. There is travel does travel include meals
10 when you travel? That's why when we broke down, your Honor,
11 the subscription, we told you what those were. They had
12 nothing to do -- you sort of have the category, you were
13 thinking of some magazines like Sports Illustrated. This is
14 for research for access to research for the projects. So you
15 subscribe to a service to get your scientific data ..
16 THE COURT: The big item that Mr. Everdell was saying,
17 just, look, take the ones that aren't within the budget, the
18 nonbudgeted items, and add them up and giving you credit for
19 the utilitiesam?unt, so you have an $11,000 credit, as I
20 understand it. You still have 11,000 under utilities or maybe
21 12, 12,000.
22 MR. RUBINSTEIN: It would be almost 5,000 under
23 utilities--
24 THE COURT: You save that, so to the extent, instead
25 it would be 5,000. What about the other entry, the rent entry?
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MR. RUBINSTEIN: Clearly, he was not entitled to the
30
2 rent, your Honor, so that's $60,000.
3
4
5
6
7
THE COURT: Then you add the other two then --
MR. RUBINSTEIN: What do you add two with, Judge?
THE COURT: $43,000 spent.
MR. RUBINSTEIN: For subscriptions?
THE COURT: No. For bookkeeping, auto expense, blank
8 processing, consultants, lawyers, dues, prescriptions.
9
10
MR. RUBINSTEIN: That he's allowed. Subcontractors.
MR. EVERDELL: Your Honor, I think that the defense
11 counsel is saying it's allowed simply because it is listed
12 under the category other, but, as your Honor pointed out, in
13 the budget, the only thing that the company listed for its
14 other expenses was the audit.
15 THE COURT: You got this 80,000 figure that you can
16 move around. But that seems to me is already taken care of
17 when you look at the overdrawn equipment and the overdrawn
18 materials and supplies. That takes care of the 80,000 pretty
19 well.
20 MR. RUBINSTEIN: But those were budgeted items, your
21 Honor, that went back to the intent theory. If they were
22 budgeted items and he had no criminal intent he intended to
23 misappropriate. We concede that. He spent over the budget.
24 But did he criminally intend to misappropriate that amount?
25 THE COURT: He didn't spend much over the total amount
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31
1 because he took out the 836,5 plus $1300, apparently, the first
2 year. It's these expenditures in the other category that
3 MR. RUBINSTEIN: If you have 60,000 for the rent, you
4 have 11,000 for the -- you have 5,000 for the utilities.
5 That's 65,000 in the first year for the utilities. I submit
6 that the capital improvements are not -- are a legitimate
7 expense. The cleaning is questionable. Even though I think
8 that it's arguable on defendant's side, I won't contest the
9 cleaning.
10 THE COURT: It's an appropriate expense. He should
11 have gotten approval for it.
12 MR. RUBINSTEIN: That is the point. The point is, if
13 he didn't get approval, we know that the rent -- he was turned
14 down.and he still took the rent. We know that that is an
15 amount that he took that he wasn't entitled to.
16 But as to other items that were for the benefit of the
17 research, it doesn't seem that the guidelines, when you look at
18 the loss factors and how to consider loss and you consider
19 government benefits, I think even though they don't have the
20 specific illustration, the government can't cite one grant case
21 where there was a misappropriation.
22 The problem here is that, what was the government's
23 benefit? They gave money for a research project. It's
24 unquestionable that's all they did was research. The only
25 monies he put in his pocket were the rent monies.
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32
Sentence
THE COURT: The problem is that CASI, he did own CASI,
2 as I understood it, he and his family, I guess. You can
3 misapply money not just for your benefit, but you can misapply
4 money for the corporation's benefit.
5
6
MR. RUBINSTEIN: Right.
THE COURT: The trouble with capital improvements,
7 yes, it probably was not to his personal benefit because the
8 probably was worth more unimproved than it was
9 containing those improvements, but it would be beneficial to
10 CASI as a computer center, research computer center, to have
11 the improvements made. That's the problem. That would still
12 not be the research contemplated by the grant.
13 MR. RUBINSTEIN: I still don't see where they get
14 their figure that they are claiming --
15 THE COURT: I don't see the capital I
16 didn't realize the amount was $37,000.
17 MR. RUBINSTEIN: When the apartment was sold they had
18 to rip out all that stuff for the new owner.
19 THE COURT: That's what I was referring to earlier.
20 What kind of a figure do you come up with,
21 Mr. Rubinsteini
22 MR. RUBINSTEIN: In the first year, 60,000 for rent,
23 5,000 for utilities. I'm rounding off. 2,000 for meals and
24 67,000 in the first year. Questionable capital improvements or
25 site preparation, which would probably go under equipment. And
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1 the --
2
3
4
5
Sentence
MR. KWOK: Can we have the amount on that?
MR. RUBINSTEIN: For capital improvements?
MR. EVERDELL: The thing you just cited.
MR. RUBINSTEIN: I said 2,000 for meals, 5,000 for
33
6 utilities, 60,000 for rent. Second year, there is 2,000 for
7 rent, 5,000 for utilities. Meals, the second year, rounded off
8 to $1500. I'm sorry. Meals. $3,000. That would make it
9 $77,000 without capital improvements. If you gave the whole
10 capital improvements, which I don't see how you can do that for
11 the two years, you're talking about 20. We don't concede this.
12 We are talking about 31,000 over there.
13 So in a worst-case scenario it would be 108,000, but I
14 submit to your Honor that I don't see why capital improvements
15 should be considered as a nonbudgeted item when it clearly was
16 used in order to facilitate -- you couldn't put those big
17 computers in that apartment without site preparation. You
18 wouldn't do it without having the shades to keep the heat out,
19 without having extra wiring to get the electricity needed for
20 the place. These are things that are totally unrelated to what
21 anybody would consider a capital improvement.
22 THE COURT: Part of the problem here is that the site
23 was changed from NYU to apartment. With NYU you had free space
24 and a place for the computers. When that fell down, he
25 switched to the apartment. But the budget doesn't change in a
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1 material way, I believe, between the two budgets. I think it
2 should have.
3 MR. RUBINSTEIN: Judge, I just feel that looking at
4 Judge Rakoff's decision in Adelstein -- Adelson, rather, and In
5 other,decisions that I've seen, including Judge Block's
6 decision out of the Eastern District --
7
8
THE COURT: It's not in your memo.
MR. RUBINSTEIN: I know. Because I'll give you the
9 citations, your Honor. Judge Rakoff is 441 F.Supp.2d 506.
10 Judge Block's decision citing Judge Rakoff's decision is a
11 Westlaw citation of 354151 and a and they talk about --
12 those cases were primarily stock cases. They talk about that
13 the fraud guidelines -- because the numbers increase so much
14 that they give a distorted view of what a reasonable sentence
15 should be.
16 In both of those cases -- I'm not even up to that
17 point because first we have to have a guideline analysis before
18 we get to the questions of downward departure or 3553
19 considerations. I think what the Court is trying to decide now
20 in its analysis is, first, doing what the guideline calculation
21 is required to do, before you determine whether or not you want
22 to give a guidelines sentence or a nonguidelines sentence. I
23 think that for the purposes of a guideline analysis, I think
24 that a figure of between 70,000 and 120,000 for guideline
25 purposes, analysis purpose, that that would be an appropriate
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1 range, 70,000 to 120,000 without --
2 MR. KWOK: Your Honor, if I may, even taking just the
3 items Mr. Rubinstein talked about, the rent, utilities, meals.
4 Utilities, by the way, just the difference, not the whole
5 thing, we are up to $100,000 already. And then if you look at
6 Government Exhibit 115, year two, the category under other,
7 which includes all manners of things like bookkeeping, auto
8 expense, bank processing, consultants, lawyers, dues,
9 subscriptions, that alone is $31,000. If you add that category
10 alone to all the stuff that Mr. Rubinstein just conceded, we
11 are already over $120,000, which puts us at level 16.
12 MR. RUBINSTEIN: I didn't concede that. There is no
13 breakdown of what they are talking about. They give you
14 bookkeeping auto expenses, which I assume relate to travel,
15 bank processing consultants is budgeted for 250,000 rather,
16 he is budgeted for $110,000 in subcontractors, which I guess
17 are consultants. He spends only 6,000 of that, and they throw
18 in consultants, dues, subscriptions into a category. Then they
19 want to say, that's $31,000. I submit to your Honor, that
20 nobody from that chart or from the 110 backup could say how
21 they ever arrived at this number. Then they want to
22 arbitrarily plug it in and say, no, look at that, we have
23 arrived at the next level.
24 THE COURT: I'm looking where those figures must have
25 come from. I think if you look at 110, 111, we can probably
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1 determine --
Sentence
36
2 MR. KWOK: For example, your Honor, you can look at
3 G o v e r r ~ e n t Exhibit 110, page 17 of 37. That, for example,
4 lists all the gas paYments, all her expenses. That's where it
5 came from. That's just one example.
6 THE COURT: Mr. Spring is bookkeeper. That's what Kim
7 Jackson is for Sprint.
8
9
MR. KWOK: That's right.
THE COURT: The sole purpose, as I understood the
10 testimony, and I may be wrong, for Mr. Spring to be employed
11 was to get the books in order for the other. They had another
12 bookkeeper, as I understood it, but I may be wrong, who could
13 take entries for bookkeeping, but wasn't skilled enough for
14 interpreting what should be in the company's expenses and what
15 should be personal expenses, and what should be reasonable
16 expenses. Is that correct?
17 MR. EVERDELL: Your Honor, I think Mr. Spring, in
18 addition with helping with the 'audits,also stayed on to do
19 additional bookkeeping work for the company even after the
20 audit was over.
21
22
THE COURT: I thought it was all computerized.
MR. EVERDELL: I misspoke.
23 In addition to help preparing the books for the
24 upcoming audit, he also conducted some regular bookkeeping
25 Even so, you have $10,000 budgeted
8AKMKARS Sentence
37
1 for the audit and you went over that $10,000 by the amounts in
2 other, which includes the overage, includes some of the Frank
3 Springs expenses, but it also includes some things like auto
4 expenses.
5 THE COURT: But you are allowed the $80,000, but then
6 the $80,000 has been used up.
7 MR. EVERDELL: By equipment or any other number of
8 categories, yes, your Honor.
9 It's the government's position that at the very least
10 that this money should be counted as a loss. It's nonbudgeted
11 and it's completely absent from the budgets that were
12 submitted, and was money spent with ATP grant money.
13 Let's also not lose sight of the fact that it was very
14 clear from the budget rules or from the ATP rules that indirect
15 costs are not covered, and that was made very clear to the
16 defendant at all the premeetings before he started the grant.
17 Yes, certain things -- research can't happen without
18 lots of things being bought, lots of things being improved,' all
19 this stuff. But it doesn't mean that you can use ATP grant
20 funds to spend on that stuff. You have to follow the rules.
21 So these expenses I think, just looking at the
22 spreadsheet that Ms. Riley prepared, you can see how they are
23 itemized out here, at least the other category.
24 THE COURT: Is Peter Ross an employee or was he a
25 consultant?
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38
Sentence
MR. EVERDELL: Peter Ross, your Honor? I don't think
2 I know where you're looking, your Honor. I see.
3 Your Honor, I think that Dr. Karron chose to pay Peter
4 Ross as a consultant. Even so, what we are talking about here,
5 that's a $15 charge.
6
7
THE COURT: what charge?
MR. EVERDELL:I thought you were talking about the
8 Peter Ross parking charge.
9
10
11 charge.
12
THE COURT: Yes.
MR. EVERDELL: Reimbursement to Peter Ross is a $43
We are talking about very small numbers here. Under
13 the guidelines, as it says in the commentary, the Court need
14 only make a reasonable estimate of the loss. And I think when
15 you consider all these categories that we are talking about and
16 the fact that it is backed up on the paper here, that we are in
17 the range, at least, of 120,000, given what Mr. Rubinstein has
18 just told your Honor and the very small difference .that seems
19 to exist at this point.
20 The categories that are nonbudgeted categories should
21 be counted, and that bumps us into the $120,000 range without
22 much trouble at all. Given that your Honor doesn't have to
23 come to an exact dollar amount of loss, the minor
24 discrepancies, to the extent they even exist, shouldn't deter
25 your Honor from coming to that larger loss amount because I
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1 think the clear, logical way to read the evidence is that there
2 are lot of nonbudgeted categories and they are backed up by the
3 spreadsheet analysis, and that these should be considered as
4 loss to the government because they were not approved, as the
5 defendant knew he needed.
6
7
THE COURT: Brings me back to the question --
MR. RUBINSTEIN: The problem is, 'Judge, when you go to
8 the backup that they throw out there, 110, and you find that
9 the bank charges are under $336 --
10
11
THE COURT: What page are you on?
MR. RUBINSTEIN: We have a gas expense on page 17 of
12 37 of $1,189.68. We then have --
13
14
THE COURT: I missed the page.
MR. RUBINSTEIN: Page 17 of 37. We know that
15 Dr. Karron was traveling to Washington, D.C. and to New Jersey
16 as part of his work on this research, but let's take the whole
17 figure. Next they have let's assume she put in -- the
18 parking, $67, that's on 18 of 37. Then they have pank
19 processing on 18 of 37 of $336. If you add up lawyers they
20 have on 21 of 37 $1,173.75. And I submit that's questionable
21 because I think those lawyers were patent lawyers related to
22 securing intellectual property that they were allowed to do.
23 'Ehen it says dues and subscriptions under that. They have
24 $198.
25 I'm looking for the -- they have that bookkeeping
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40
1 figure out. I don't think it is appropriate, but they have a
2 bookkeeping I don't know who that included, but let's leave
3 the bookkeeping out of it. We are talking about under $3,000,
4 in my quick math, of expenses. And then they tell you that the
5 category calls for $31,000, but their thing is 31 thousand 8 or
6 625, depending on your eyesight. How that's broken down,
7 whether or not these are appropriate expenses, then they say,
8 let's plug In this additional $31,000. I submit to your Honor
9 that would be inappropriate.
10 MR. EVERDELL: Your Honor, let me address -- for
11 example, there is a specific issue with the lawyers. Pennie &
12 Edmonds, patent attorneys, it was my understanding that this
13 was incurred before the grant even started. And these charges
14 for lawyers are specifically prohibited by the grant rules.
15 Was Mr. Karron told this? No. Because he never
16 actually tried to budget it as an item. Had he tried to budget
17 it, he would have been told specifically that he couldn't use
18 grant money to do this.
19 Again, we are faced with this argument that if it
20 arguably somehow benefits the research, it should not be
21 covered at the loss. The government submits that that is
22 simply unworkable. What we have to work with is what was
23 budgeted and what was approved by NIST, and anything that
24 wasn't is a loss to the government.
25 Not only that, your Honor, we are talking at least --
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41
1 now we seem to be talking about the difference of maybe $10,000
2 between two thresholds in the guidelines. The defendant's
3 calculation that he gave you a few moments ago doesn't even
4 include the cleaning expenses, and that's several thousand
5 dollars two years in a row. And that I just don't see the
6 argument there. Again, the only argument could be, as he said
7 in his papers, was that you need to clean in order to make the
8 computers work. That simply doesn't hold water.
9 This is an indirect expense, something that is
10 disallowed by the grant and was never budgeted and never
11 approved. That is a loss to the government. It was money that
12 was spent in contravention of .clear rules that were set out
13 governing the grant fund.
14 So given the fact that we are literally arguing now
15 about a couple thousand dollars here and there, and I
16 believe -- we could sit here and tally up all of these
17 nonbudgeted expenses. I guarantee you, we would be over the
18 120,000 dollar mark without any trouble whatsoever.
19 THE COURT: What's the applicable note that we apply
20 here to losses?
21 MR. EVERDELL: Your Honor, there are a few. One is
22 the estimation of loss, which just says -- thac's 3A -- 3C,
23 which says that the Court need only make a reasonable estimate
24 of the loss, but also the special rules.
25 THE COURT: You're looking in the commentary.
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MR. EVERDELL: I'm looking at the commentaryI yes
l
42
2 your Honor.
3 Commentary 3
1
which is loss under subsection Bl and
4 then 3C
I
estimation of lossl said: The Court need only make a
5 reasonable estimate of the loss. And the Court's loss
6 determination is entitled to appropriate deference. And then
7 if you look at F
I
which are the special rules --
8 THE COURT: I just want to see one second because I
9 have trouble
l
I guess I in determining whether or not it should
10 be loss to the government or misappropriation.
11
12
MR. RUBINSTEIN: There is another basis
THE COURT: Intentional misappropriation by the
13 defendant. It seems to me it should be intentional
14 misappropriation by the defendant.
15 MR. EVERDELL: An intentional misappropriation
l
your
16 Honor I would include the fact that he was told that he needed
17 to submit all of these charges in his budget and get prior
18 approval for them.
19
20 lacking.
21
THE COURT: The fraud and deceit element is somewhat
MR. EVERDELL: Your Honor
l
as you
l
I thinkI pointed
22 out earlier
l
the case law shows that you can have a
23 misappropriations case even if the expenditures arguably
24 benefited the company. That's the Urlacher case.
25 THE COURT: Isn't this application to the benefit of
SOUTHERN DISTRICT REPORTERS I P.C.
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1 the defendant, or third party?
2
3
MR. E V ~ R D E L L : Or to the defendant.
THE COURT: That's under one of these guidelines.
4 Which lS it?
5 MR. RUBINSTEIN: No, it's not, Judge. That is for the
6 purposes of gUilt. We are talking now for guideline purposes
7 determining the loss, which I suggest is a different analysis.
8 I think your Honor" should be directed to 2B1.1, 3B, where it
9 says gain. This is an alternate method for the Court to use.
10 THE COURT: Let me find you, where you are. 3B. Now
11 you're going to the commentary.
12 MR. RUBINSTEIN: I'm in the commentary, Judge. 3B
13 says gain. The Court shall use the gain that resulted from the
14 offense as an alternative measure of loss only if there is a
15 loss, but it reasonably cannot be determined. And I submit to
16 your Honor that under these circumstances you cannot reasonably
17 determine what the loss is, so you should look at the gained
18 factor which in this case would result in looking at the rent,
19 the $62,000; the utilities; cleaning, if you want; meals, and
20 you would be just over $70,000. I think that is the
21 appropriate analysis here before you consider any credits or
22 offsets. But first we have to arrive at what is an appropriate
23 figure. Obviously, the guideline considers the fact of what
24 someone actually puts in their pocket for personal benefits.
25 MR. EVERDELL: Your Honor, I have not looked at the
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44
1 case law on this recently and it was not cited in any
2 submission by Mr. Rubinstein, but I think the loss can be
3 reasonably determined based on the numbers set forth by the
4 government. I don't think we need to rely on any alternative
5 method of loss because we can determine what the government
6 lost as a result of all of this.
7 I think, if I remember correctly, the cases where you
8 talked about alternative loss calculations is where the
9 victims -- there are so many victims and the calculation
10 involved things like stocks and how the value of stocks go up
11 and down and how that's very hard to estimate. Here we are
12 talking about hard numbers. We know what grant money went to
13 the defendant and we know what he spent it on. The question
14 for your Honor to consider is which of these expenditures are
15 you consider asa loss to the government and which are not.
16 THE COURT: Insofar as the misapplication involved
17 fraud, then I think you used loss. Insofar as the
18 misapplication is intentional -- this application seems to be a
19 different definition of intended. Then it seems to me to use
20 the gain to the defendant or a third party. But I can't see
21 where I am in the guideline notice. I don't see that it really
22 applies under the guideline notes. So what I just said isn't
23 supported by the guideline notes.
24
25 that.
MR. RUBINSTEIN: What's that, your Honor? I missed
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THE COURT: What I just said isn't supported by the
45
2 guideline notes, as I see it.
3
4
MR. RUBINSTEIN: What's that, your Honor?
THE COURT: I gather that you only apply gain to an
5 intended misapplication, you apply loss to a fraud case if it's
6 done by a fraud. Then you apply loss. My problem from the
7 beginning here has been that distinction. I am not sure you
8 apply loss here.
9 MR. EVERDELL: Your Honor, the commentary that the
10 government was following was actually -- in combination with a
11 reasonable estimate was the 3F special rules.
12
13
THE COURT: Let me look at the rules.
MR. EVERDELL: 3F2, government benefits, which is also
14 the section that was cited by the defendant in his letter,
15 which says: In a case involving government benefits, e.g.
16 grants
17 THE COURT: It says: Subject to the exclusion and
18 subdivision if the loss is the greater of actual loss and
19 intended loss. In a sense, the whole thing, the whole
20 agreement was a loss to the government.
21 MR. EVERDELL: Yes, your Honor. In fact, the
22 defendant never even did his cost share, as we know, and was
23 essentially not entitled to any of the grant money that he
24 spent.
25 THE COURT: There was his contribution later, wasn't
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there some money?
Sentence
46
MR. EVERDELL: I think after the grant was suspended
there was a contribution by the defendant.
THE COURT: That went to outstanding bills.
MR. RUBINSTEIN: That money was probably extended.
That's the whole purpose. It increases your budget.
MR. EVERDELL: Your Honor, the government told the
defendant that in order to comply with the cost share he had to
make payments to the government and that's the payment that was
made, but I believe this was after --
THE COURT: That's more than the cost share --
MR. EVERDELL: I'm sorry. He did not make that
payment.
THE COURT: The $70,000.
MR. EVERDELL: You are talking about the $70,000
loan --
THE COURT: There is some statement in these papers
that he gave 70,000 after the closing period.
MR. EVERDELL: That $70,000, which I believe
Mr. Rubinstein was saying was done between July 27 -- June 27
of 2003 and August of 2003 was after the suspension.
THE COURT: What was that used for?
MR. EVERDELL: One moment, your Honor.
Your Honor, I believe my understanding is there were
outstanding invoices at the time that the $70,000 was used to
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47
1 pay the outstanding invoices. It was not actually used to pay
2 the government any of the cost share amount. So that didn't
3 translate --
4 MR. RUBINSTEIN: You never pay the government the cost
5 share. You put the money in so you take the money out and
6 spend it. 'I'hat' s the concept. The money
7 THE COURT: It doesn't go to the government. It goes
8 to the budgeted items during the period of the grant. Before
9 it was suspended --
10 MR. EVERDELL: I think that is the point, your Honor.
11 It wasn't before the grant was suspended. The grant was
12 suspended on June 27, 2003.
13
14
THE COURT: To keep CASI going.
MR. EVERDELL: But under the guideline rules, if the
15 fraud, if the misappropriation is discovered by a government
16 agency, that is the point at which you start you cut off
17 people from getting credit from paYments they make later. And
18 as I think I outlined in the government's letter to the Court,
19 that date predates the suspension date because we had testimony
20 from Hope Snowden who testified that when she was getting
21 revised budget submissions at the end of 2002 and the beginning
22 of 2003, she noticed there were serious discrepancies in the
23 budget numbers and that raised red flags to her that there may
24 be some problem with the appropriation of these funds and that
25 led to them calling it off.
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THE COURT: I think that's covered in my opinion.
MR. EVERDELL: That is the date of discovery and the
48
3 defendant is, in fact, not entitled to a credit for any funds
4 he m ~ y have given back at that point because the
5 misappropriation was discovered.
6 MR. RUBINSTEIN: That's not, your Honor -- I'll take a
7 look at your opinion. That's not the date of the discovery
8 from the standpoint that the defendant put monies back because
9 he thought that it was discovered he did something wrong. The
10 bottom line is, he didn't think he did anything wrong. That's
11 the whole concept of the discovery is that we don't want
12 somebody to run back and put money in after they find out that
13 their theft has been discovered.
14 This is a misappropriation case and he did not feel --
15 he was a he then that he had done anything wrong. And it's
16 his mental process, not their mental process, because the whole
17 concept is, hey, .if you get caught stealing, at that point,
18 when you give it back, it's not the same as if you did this
19 voluntarily because you realized you did something wrong and
20 you wanted to make amends before it was detected. Sol think
21 that they have the wrong person that has to be aware of when
22 there is something wrong here.
23 THE COURT: I see that this section, subsection of the
24 commentary, subsection II says, in a case involving government
25 benefits, entitlement program paYments, losses shall be
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1 considered to be something obtained from unintended recipients
2 or diverted to unintended uses. The problem I'm having is that
3 there is more than one statute -- the statute deals in terms of
4 fraud in one case and intentional misapplication in another.
5 And it does seem to me that benefits obtained by unintended
6 recipients deals with intentional misapplication of funds
7 diverted to unintended uses. The second part of this note to
8 the guidelines is more difficult to apply in intentional
9 misapplication of funds in terms of showing that it was an
10 intentional misapplication. All the evidence in the case kind
11 of shows that when confronted with misapplying the funds, he
12 would say things like, my mother has got the money or something
13 el$e, I'm working on it, they are going to come along, and the
14 ladies down there at the program love me and everything is
15 going to be all right. Never does he make a statement, at
16 least to these parties, the hell with rules, I'm taking the
17 money. They owe it to me for my research.
18 I find it difficult to apply the guidelines in this
19 case. Maybe the guidelines make it a situation that didn't
20 occur to the drafters of the guidelines. It's not the usual
21 case, as I understand it.
22 Are there other cases of this sort that either party
23 is relying on involving the intentional misapplication -- are
24 there other casesinvolving the intentional misapplication of
25 funds as opposed to fraud, embezzlement?
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MR. EVERDELL: I looked for some cases that talked
50
2 about loss amount in sentencing. I didn't find anything very
3 helpful in that regard. What I was going with was literally
4 what I got fr8ffi the guidelines.
5 But I still don't know why it's difficult to apply
6 diverted to unintended uses in this case, that prong of the
7 guidelines, special rules for government benefits, because that
8 seems to me to be the definition of misapplication. You're
9 taking funds and applying them for unintended uses, unintended
10 in this case by the people who gave out the grant money, NIST.
11 And unintended in the sense that they gave out the money with
12 lots of rules attached to it, that they made clear to the grant
13 recipients and those were the intended uses of money, that is,
14 expenditures that followed the grant spending rules. And
15 anything that did not follow the grant spending rules was an
16 unintended use of that grant money. I think that was made very
17 clear to the defendant in this case and, from the testimony, to
18 all grant recipients, that things like the kickoff meeting and
19 other things like that. I think that is actually the
20 appropriate part of the guidelines to be applying in this case,
21 that the money that was spent, contrary to grant spending
22 rules, was diverted for an unintended use and that that
23 constitutes a loss.
24 Now, your Honor raised some difficulties you had with
25 the calculations for certain things and whether overbudget
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1 expenses should count or should not. We have, at least, I
2 think, provided a more simplistic and one that benefits the
3 defendant way of thinking about this, which is just looking at
4 the unbudgeted categories. Those are clearly cases, money that
5 was spent contrary to the grant rules because there was
6 absolutely nothing in the budget that spoke to it. These are
7 monies that were expended without any reference to the grant
8 rules whatsoever.
9 Now, defendant can argue that these things arguably
10 benefited the research in some way. Perhaps they did, but
11 that's not the standard that we need to operate with because
12 that would sweep in every single expenditure. There would be
13 no loss in any of these types of cases if that's the way we
14 have to look at it. If you look at the unbudgeted categories
15 and you apply to unintended uses, being diverted contrary to
16 the grant rules, that provides a framework for the loss amount
17 that's appropriate in this case.
18 MR. RUBINSTEIN; Your Honor, I think that this case is
19 outside the heartland because I don't think anybody envisioned
20 a case where somebody got a grant, spent all their time and
21 energy on that grant, bought equipment in furtherance of the
22 grant. There is no suggestion here. As a matter of fact, Lide
23 even testified that Dr. Karron met all the benchmarks, and your
24 Honor said something that I have to take opposition to,
25 suggesting that nothing came of this research.
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THE COURT: No. Saying that the project wasn't
52
2 completed, so I suppose that they didn't get their money's
3 worth in that sense.
4 MR. No. Because the government gets
5 their money's worth since they didn't have a financial benefit,
6 no matter what, and that the whole concept was that if
7 something was developed, Dr. Karron and CASI would keep all the
8 profits for themselves. Society would benefit. They were
9 doing research on a cutting edge. We have to go back seven
10 years ago. Now it's commonplace. But they were dealing with
11 the concept of -- I hope I pronounce this right -- topological
12 imaging that they use today in many medical factions.
13 I submit to the Court and the government a paper that
14 was submitted for publication, citing work that was submitted
15 to a medical journal, citing this work because, in fact, that
16 was the whole purpose of this research. That's why the grant
17 was given, to develop this concept, at a time where they use
18 computers half the size of this room. Today they probably
19 could use a laptop and get the same information. I know I have
20 it here. Just a second, your Honor.
21 THE COURT: I'm not taking issue with that,
22 Mr. Rubinstein. I am not taking issue with that. It never
23 came to fruition with the commercialization of the process, as
24 far as I know.
25. MR. RUBINSTEIN: They are talking about the amount
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53
1 that Dr. Karron received and the figure that we started out
2 with from -- as to salary, it seemed to me that that figure, as
3 I cited in my submission of October 17, on page 3 first of
4 all, they have 129,850 in loans. This is at 110, Government
5 Exhibit 110, 38 through 40 of 44, the second portion of 110.
6 They show 129,850 loans to Dr. Karron. We dispute one, and I
7 have backup for it, a $750 check that was really for Scott Alba
8 that was advanced from defendant out of his own money. Then
9 December 30, '02, 15,000 check that's for reimbursement.
10 Doesn't say anywhere on that check where it says loan, we
11 reduced those numbers.
12
13
THE COURT: Why do you say that shouldn't. be
MR. RUBINSTEIN: Because that was a partial
14 reimbursement. There is nothing on that check --
15 THE COURT: If he writes a check and it says partial
16 reimbursement on it, isn't that reimbursement for loans taken?
17 MR. RUBINSTEIN: It's partial reimbursement because
18 the medical expenses that were on the credit cards --
19 THE COURT: What's partial reimbursement of expenses
20 taken? I don't know what you're talking about.
21 MR. RUBINSTEIN: Out-of-pocket expenses that he paid
22 on the MasterCard that's in evidence. They never give him
23 credit for the monies that we have the documentation that we
24 submitted to the Court, and I have additional documentation
25 showing -- not only showing that these bookkeeping entries gave
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.1 back 67 -- $75,000 that was given back by salary paychecks that
2 he never gets credit for. It seems to me when they came up
3 with the figure that they used for his salary, they included
4 the 60,000 of rent. I mean, they have never said --
5
6
THE COURT: I don't think it did.
MR. RUBINSTEIN: If you look at pages 38 through 40 of
7 Exhibit 110, the one that ends in 44 --
8
9
THE COURT: 1 and --
MR. RUBINSTEIN: The second half of 110 has 38 of 44.
10 The beginning part says
11
12
THE COURT: 38 of 44, yes.
MR. RUBINSTEIN: We have 38 of 44, 39 of 44, 40 of 44.
13 It starts out on the top of 38 saying, Dr. Karron's loans. I
14 have the check that I submitted as part of it on the $15,000
15 loan. It doesn't say anything about loan. Here she puts DPK
16 loan, but there is nothing on the check to indicate loan.
17 There are other checks that do say loan. So why --
18
19
20
21
THE COURT: Which one is that?
MR. RUBINSTEIN: Just above the line for loan repay.
THE COURT: I see it. I see that.
MR. RUBINSTEIN: This is 9/12/02, check 10451, it's
22 II written to Dr. Karron.
23
24
25
THE COURT: Can I see the check?
THE COURT: It's a check payable to Dr. Karron. It
SOUTHERN DISTRICT REPORTERS, p.. C.
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1 says something. It's deposited. It isn't salary. Why isn't
2 it a loan?
3 MR. RUBINSTEIN: Why is it a loan? It's a
4 reimbursement. It doesn't say a n ~ ~ h e r e what it is, but they
5 classified it as a loan.
6
7
THE COURT: I would, too, if I see it paid to him.
MR. RUBINSTEIN: They have other checks, your Honor,
8 where it says loan on it.
9
10
THE COURT: Where does it show as reimbursement?
MR. RUBINSTEIN: It doesn't show on that check. We
11 understand it's on the check stub.
12 THE COURT: Reimbursement for what? It's a round sum.
13 It sounds rather strange to be a reimbursement.
14 MR. RUBINSTEIN: This comes out of the Quick Books,
15 you will recall, your Honor, the computer-generated software
16 that they had, s6 it's in that software.
17
18
19
20
21 15,000
22
THE COURT: For 15,000 round dollars?
MR. RUBINSTEIN: You have to have an invoice
THE COURT: You never have a reimbursement like that.
MR. RUBINSTEIN: He had a number of items. He took
THE COURT: It just happens to add up to 15,000. It's
23 very strange. Let's see the backup.
24 l ~ . RUBINSTEIN: Your Honor, if you can give us a
25 short recess. Dr. Karron came with the computer. He forgot to
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56
1 bring the power supply. We could generate it right here. We
2 have it in the computer. If he can recess
3
4
THE COURT: Doesn't show rent, does it?
MR. RUBINSTEIN: Yes. He has everything in the
5 computer in the Quick Books that are in the computer. We don 't
6 need --
7 THE COURT: This doesn't show that the amounts taken
8 for rent were part of the salary computation.
9 MR. RUBINSTEIN: What I'm saying, Judge, I was trying
10 to add up the numbers to get to her number. And the only way I
11 could do that was by throwing in the 60,000 for salary so that
12 if, in fact, his salary is accurate, which he has --
13 THE COURT: I've got to get this sentence completed.
14 We can take a five-minute recess, if that's what you want.
15 Take a five-minute recess then, but I don't think it's going to
16 make much difference.
17
18
19
20
MR. RUBINSTEIN: All right, Judge.
(Recess)
THE COURT: Mr. Rubinstein.
MR. RUBINSTEIN: Your Honor, Dr. Karron purchased the
21 necessary part -- actually, I gave him my credit card -- and
22 the machine is booting up. We should have it momentarily.
23 MR. KWOK: Your Honor, while we are waiting, if the
24 Court pleases, we could go to talk about the 3553(a) factors,
25 which is another major factor.
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57
Sentence
THE COURT: I want to deal with the computation. Then
2 we can deal with the 3553(a) factors.
3 When will you be ready, Mr Rubinstein?
4 MR. RUBINSTEIN: Your Honor, do y o ~ have a computer
5 screen that we can plug into to show you that would be more
6 efficient to show you?
7
8
THE COURT: No, I don't have one here.
MR. KWOK: Your Honor, just to save time on this, I
9 think that what they are trying to print out is the Quick Books
10 ledger, which is not in evidence, which is not authenticated,
11 which is a document that witness after witness have
12 testified --
13
14 out.
15
THE COURT: I don't know what he's trying to print
MR. RUBINSTEIN: It doesn't have to be in evidence for
16 the purposes of sentencing, your Honor.
17
18
THE COURT: What are you trying to print out?
MR. RUBINSTEIN: We are trying to print out the backup
19 to that $15,000 check to show your Honor that, in fact, that is
20 not a loan; was, in fact, a reimbursement.
21 THE COURT: I am. not going to make the findings on
22 that issue. I am going to make the findings on the basis that
23 Mr. Everdell suggested. And taking the amounts in the other
24 categories that are not included in the budget and making the
25 adjustments he talked about, giving the defendant credit for
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1 the utilities and all. It seems to me that the amount of the
2 loss, pursuant to guideline 2Bl.1, is more than $120,000.
3 Isn't that your correct conclusion, Mr. Everdell?
4 MR. EVERDELL: Yes, your Honor, that's sorrect, more
5 than 120,000 adding ten points to a base offense of 6.
6 THE COURT: I think that's borne out by the figures
7 with adjustments that you pointed oUL, Mr. Rubinstein, as the
8 total loss to the -- which should be computed, intended loss
9 which should be included for guideline calculation purposes,
10 which makes a total lossof 16 levels.
11 MR. RUBINSTEIN: Your Honor, I think your Honor has to
12 consider the credits against whatever loss your Honor has--
13
14
15 the
THE COURT: I don't think there are any credits --
MR. RUBINSTEIN: Your Honor, I submit that under
that the amount of salary that they have calculated is
16 not supported by any documentation they submitted.
17 THE COURT: In that tabulation I agree with you, that
18 the entry includes salary and loans as they calculated it, but
19 it doesn't make much difference because the 80,000 odd dollars
20 that the defendant was entitled to redistribute are
21 incorporated in the equipment --
22
23 figures
24
25
MR. RUBINSTEIN: I submit, your Honor, under their
THE COURT: Other entries.
MR. RUBINSTEIN: I submit under their figures, Judge,
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1 that they have added back the $60,000 rent. If you take a
2 look
3
4
THE COURT: There is no showing of that.
MR. RUBINSTEIN: There is, Judge. They hav2 not shown
5 you at all where they get the figure that they have in 114.
6 And I submit the only backup is on page 38, 39, and 40 of
.7 Exhibit 110 of 44 pages. And the only thing they have there is
8 a loan which they claim is $129,000, repaYment is 37,000.
9 Taking their best figures --
10
11
THE COURT: You haven-' t gotten any salary --
MR. RUBINSTEIN: Salary of 37,000 -- of, rather,
12 35,000, and you have to add the $60,000.
13 THE COURT: I've got to take into account on the
14 salary the figures that apply to withholding taxes, et cetera.
15 MR. RUBINSTEIN: Yes. I don't disagree with that,
16 Judge, but I submit that they have a $129,000 in a loan and
17 they don't show the repaYment of the 67,000.
18
19
THE COURT: RepaYment is right below it.
MR. RUBINSTEIN: No. They don't include it there.
20 The two checks that I submitted to the Court that I have copies
21 of with the backup showing
22 THE COURT: Those checks are after the close of the
-
23 period and were for, as I understand it, expenses incurred
24 thereafter.
25
MR. RUBINSTEIN: No, your Honor. We are talking about
S O U T H E ~ DISTRICT REPORTERS, P.C.
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1 two separate things. We are talking about, one is the salary
2 that is submitted in our letter of the 17th where we provide to
3 the Court check of August 2, '02, a year before the grant was
4 suspended, actually ten months before the grant was s u s p e ~ d e d
5 where you have -- that's in evidence --
6
7
THE COURT: Where are you reading?
MR. RUBINSTEIN: I'm looking at our letter of October
8 17, your Honor. And I am showing you what was previously
9 marked as Defendant's p6 in evidence, which shows --
10 THE COURT: You'll have to show me and you'll have to
11 show Mr. Kwok.
12
13 to it.
14
15
16
MR. RUBINSTEIN: Mr. Kwok has the page. He has turned
THE COURT: $5,000 check?
THE COURT: That shows the defendant had taken $61,918
17 in salary just below it.
18
19
MR. RUBINSTEIN: Right. And that
THE COURT: 61,000 plus 129,000. If that's the
20 government's figure, adds to more than $200,000, right?
21
22
23
MR. RUBINSTEIN: No, your Honor.
THE COURT: $187,000.
MR. RUBINSTEIN: The Court 1S commingling two
24 different concepts. One is they claim there is a loan
25 outstanding that they never gave him credit for anywhere of
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1 $75,000 that was taken in October of 2001. I think the date
2 was October 25 or 26 of 2001.
3
4
THE COURT: That's what the loan advances.
MR. RUBINSTEIN: It doesn't show the offset of that
5 loan. -What I'm showing your Honor is --
6 THE COURT: I know you had offsets for the loan. I
7 have given you credit for that and I have gone over your
8 figures in your letter and I've made calculations on the basis
9 of it. It shows me that there is still a net paYment due the
10 government on loans.
11 MR. RUBINSTEIN: But when you add that together with
12 the salary, it shows that Dr. Karron did not get his full
13 salary.
14
15
THE COURT: I agree he didn't.
MR. RUBINSTEIN: So he should have an offset under
16 guideline 2B1.1(3) (e) for credit against loss for services
17 rendered. He rendered the services, he was entitled to full
18 salary.
19
20
THE COURT: He got it in the form of loans.
MR. RUBINSTEIN: I submit, Judge, that it doesnit
21 compute -- that the loan calculation does not compute to what
22 they are saying and I submitted in my letter --
23
24 simple.
25
THE COURT: He got it in the form of loans. It's very
MR. RUBINSTEIN: Your Honor, in my letter I showed the
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Court --
62
Sentence
2
3 in loans
THE COURT: If you take the money from the corporation
4 MR. RUBINSTEIN: He took loans, but he paid it back
5 out of these salary
6
7
THE COURT: In part
MR. RUBINSTEIN: In part. So that left, your Honor, a
8 balance in a worst case -- in a best-case scenario for the
9 government of $24,765.81, and you have to add to that the
10 60,000 from the rent.
11
12
THE COURT: No, you don't. Add to it?
MR. RUBINSTEIN: They did, though. They have never
13 submitted how they arrived at their figure of the 200,488 in
14 the chart, 114.
15 THE COURT: All I have to do is use my best judgment
16 on the figures that are here. I exercised them arid I have read
17 your papers., and I've taken them under account and I have
18 somewhat struggled with them, I must admit that. I've
19 calculated his credits for salary not taken and offset that
20 against the loans. I still get the balance of loans due the
21 corporation from Dr. Karron of several thousand dollars.
22 Without taking into account in any way the rent he received of
23
24
25
$60,000.
MR. RUBINSTEIN:
see how that is possible.
(
In all due respect, Judge, I don't
Nobody has shown me to this point.
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1 The government hasn't proffered how they come to their figure.
2 I frankly don't comprehend it, but I think that even --
3 THE COURT: I think you've got to read salaries,
4 Dr. Karron's salaries, as salaries plus loans.
5
6
7
MR. RUBINSTEIN: I do, your Honor.
THE COURT: The loan entries.
MR. I ,do. I see an entry for $75,000 as
8 a loan and I don't see any salary -- I don't see the balance of
9 the two entries that I submitted to your Honor --
10 THE COURT: If he had taken the salary, you'd have a
11 worse situation because you then have the paYments due the
12 government for withholding that weren't made, social security
13 weren't made, the other paYments of taxes not made as a result
14 of taking less salary. The situation would be less if he had
15 taken all his salary. He would have a worse situation
16 confronting him.
17 MR. RUBINSTEIN: Do I understand that the Court 1S not
18 giving him credit for the $70,000 that he contributed in July
. 19 and August after the grant -- this is money that he took out of
20 a home equity loan, and I submitted the documentation to show
21 that.
22 THE COURT: I went into that earlier in front of you
23 with counsel and it was stated on the record, without any
24 exception taken, that those monies were for additional
25 expenditures that have been made between June 30 or June 23 and
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1 the date of payment of those amounts.
2 MR. RUBINSTEIN: But he should get credit for that.
3 These are expenses --
4 THE COURT: Depends on when the expenditures were made
5 and, as stated in open court and not objected to by you, these
6 were expenditures that occurred after the period of the audit.
7 MR. RUBINSTEIN: The audit, your Honor -- the audit
8 didn't occur
9 THE COURT: The audit didn't occur until later,
10 obviously, but books and records were reviewed as of the date
11 June 23, as I understand it, the date of suspension.
12 MR. RUBINSTEIN: He was unaware of that. As a matter
13 of fact, Judge, you may recall the testimony that he didn't
14 receive a copy of the audit until September, so he was totally
15 unaware of any discrepancies. He understood that the grant was
1 suspended because --
17 THE COURT: It doesn't matter whether he was aware of
18 it or not. It's irrelevant.
19 MR. RUBINSTEIN: I think, Judge, that the concept is,
20 when he's aware, because it's when he becomes aware whether or
21 not his intention in making compensation was motivated by a
22 guilty mind.
23 THE COURT: All I know -- I am going to take that into
24 account in connection with the 3553(a), but not taking the
25 guideline computation. I'm making the guideline computation as
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1 I've stated, and on that basis. And I'll hear from you further
2 on 3553(a).
3 MR. RUBINSTEIN: Yes, your Honor. I think that this
4 is a case that is very unusual in that Judge Rakoff used this
5 language in the case that I previously cited, and I have a copy
6 for the government and your Honor, Adelson. Unfortunately
'7
8
9 are --
10
THE COURT: You'll want your notes, won't you?
MR. RUBINSTEIN: Judge, Judge Rakoff said that there
THE COURT: It's a securities fraud case. What part
11 of the case do you want me to refer? I think I see a little
12 error in the opinion, but it's not -- the six or seven points
13 under the base level doesn't depend on the date of the offense.
14 It depends on the maximum penalty for the offense. Here the
15 maximum penalty was ten years, so only six points are allowed.
16 If it were 20 years, it would be seven points. It has nothing
1'7 to do with the date of the offense. It has something to do
18 with the maximum penalty on the offense.
19 Give me something else.
20
21
MR. RUBINSTEIN: I have the language.
THE COURT: Tell me what you're relying on, because
22 he's probably right.
23 MR. RUBINSTEIN: I'll try and find it as I'm reading
24 it here, but I have the quote. There may be cases in which the
25 offense level determined under the guidelines substantially
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1 overstates the seriousness of the offense.
2 THE COURT: You can get that in securities cases
3 because of the number the people who lose as a result of the
4 fraud committed by the officials of the company. The stock is
5 publicly traded and, therefore, you have a number of
6 transactions involved, so you get tremendous losses, as you do
7 in this case, Adelson case. This is a different case.
8 MR. RUBINSTEIN: He was referring to that, Judge, and
9 you're absolutely right --
10
11
THE COURT: I'm fully aware -- I understand that.
MR. RUBINSTEIN: In this case, your Honor, it is a
12 unique case and the government cannot point to one case like it
13 because there is no case like it. And I think that the
14 guidelines overstate the seriousness of what happened here.
15 There is no question that the United States Government
16 afforded Dr. Karron an opportunity to do research. They had no
17 vested interest financially in the product of his research.
18 Even though he has a business background that dates back over
19 20 years, he was ill-equipped to handle these funds. And if
20 you could see the way he withdrew money, just the dates when he
21 did it, whether you call it a loan or a salary, you see he
22 functioned as if whenever he needed money he would take it.
23 So he didn't take a salary until April or May of 2002,
24 eight months into the grant. He takes his first salary check.
25 Before that he's taking loans. At the end of the year he winds
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1 up that he owes all this money that he had taken as a loan back
2 in October 2001, so they take it as salary at that time.
3 All his efforts and all his energies were devoted to
4 this project, to do the research that the government wanted to
5 be performed .for everybody in society's benefit. That's why he
6 got this grant. And when they say credit against loss in
7 2B1.1(e), they are talking about monies returned, fair market
8 value for the property returned and the services rendered.
9 There is no way to quantify what the value of what Dr. Karron
10 created at that time in this tqpographical imaging that's used
11 today in all kinds of surgeries and what benefit it was to the
12 nation and to the world.
13 I think that that takes this case out of the heartland
14 because he, as you know from everything said, he didn't get
15 involved here to benefit himself financially. He took the rent
16 money. He shouldn't have taken it. He owed debts, so he paid
17 the debt with the rent money. That was wrong. That was wrong.
18 I think that this case goes outside the heartland,
19 that your Honor should consider 3553 Title 18, U.S.C., and
20 consider giving him a nonguideline sentence. And I think that
21 because you sat through a trial with Dr. Karron and.you know
22 ail the evidence and the background and the way he was advised
23 by people not to do this, not to do that, and he, like a bowl
24 in a China shop, insisted on doing it his way, that is why
25 there is really a legitimate likelihood that if he had followed
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1 protocol and followed procedure that he would not have been
2 sitting here as a defendant in a criminal case.
3 It seemed that although the budget, which he
4 submitted. Remember, he submitted a budget. He put down
5 110,000 for equipment. That was what's accepted. He put down
6 for subcontractors, he put down 250,000. He found that he
7 could get students for free. Is he entitled to an offset or
8 consideration for that because he didn't spend the government's
9 money on subcontractors and got free employees to do a job?
10 There is no suggestion here that the equipment he
11 purchased he used for other items other than this project. The
12 government, by law, owned this equipment. Yes, at the end of
13 the day it was possible for a grant recipient to get possession
14 and benefit from that equipment, but, in reality, he was using
15 government money to buy government equipment which the
16 government took back. They not only.took back their equipment,
17 they took back everything, piece of equipment that he ,had,
18 whether they had any right to it or not, and they kept it.
19 So that's where he found himself in this case. So I
20 think when you look at the way he managed his money, he saved
21 the government considerable money on subcontractors. He saved
22 them, according to the government's own f i ~ J r e s , in the first
23 year $174,000 just on subcontractors. He got the work done,
24 but he didn't have to spend the money because he did something
25 he wasn't supposed to do. He wasn't supposed to have employees
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1 without approval and we had testimony of that.
2 And in the second year they revised the budget and
3 110,000 for subcontractors and he used 6100. You know from the
4 testimony here that there were numbers of people working in
5 that apartment on these computers, on this project. And the
6 wasn't billed for it. Why? Because he was using
7 students. Does the government get a benefit of that? They do.
8 That is why, your Honor, the mathematical
9 considerations of a strict guideline calculation doesn't apply
10 in this case because Dr. Karron, with good intentions, and good
11 intentions meaning that he wanted the research to work, because
12 that's all he cared about. Those were the good intentions. He
13 might have used improper means, but the intentions were there.
14 And he created a product which people built upon and T
15 have a manuscript that was submitted to the Elsevier Editorial
16 Systems for computer medical imaging and graphics. This is a
17 draft manuscript that wa$ submitted, hasn't been published yet,
18 but it may well be published in the near future. It cites ATP,
19 it cites Dr. Karron, and it shows that the work that he did may
20 have a significant value. So it's hard to say what the value
21 was, but I don't think anybody in this room could say that he
22 didn't do the research that he was contracted to do.
23 I think your Honor has to consider the 3553 and ask
24 yourself whether or not his background, this offense, his
25 character, is such that should cause your Honor to impose a
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1 nonguideline sentence.
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70
2 I think the fact that you're dealing with a man who
3 frankly has a lot of issues. He's not a man anYmore. He's, in
4 fact, legally a woman. I spoke to the BOP. Rather, my office
5 did. And he is and as the probation report says, he will be
6 treated as a woman and, if confined, he will go to a women's
7 prison. We submitted letters from people who know him. He has
8 a generous good side to him. He has no criminality in his
9 past, and I think that he will have no criminality in his
10 fu.ture.
11 His mother is incapacitated. She is in a home. They
12 are hopeful. He is now living in that house in Long Beach.
13 Amongst the things he lost here, he lost his home. He is
14 hopeful -- and I spoke to his brother about this. I have a
15 letter from his brother that wasn't included in the original
16 submissions. I am not going to burden the Court with it. He
17 says when his mother needed assistance in the slightest way,
18 the defendant was the one who was there because he was the
19 closest to where his mother was situated in Staten Island, and
20 he's hoping to be able to take his mother home, and he's
21 learning to work a ventilator because she needs that in order
22 to breathe, and that is the hope, that he can stay in the home
23 there.
24 So I would ask your Honor to consider under, all these
25 circumstances, to fashion a sentence that doesn't have
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1 confinement in a federal institution, that has house arrest,
2 that he could function from the home that he's presently
3 residing in Long Beach; and when his mother gets out, he can
4 assist her there, and provide for restitution out of his future
5 earnings, if he's able to earn anything.
6 He has been severely compromised in his profession.
7 He has been turned down for positions because this case
8 received a lot of notoriety. They talk about general
9 deterrence. This case has sent a shock wave through the
10 scientific community as to how they ought to comport themselves
11 when dealing with federal grant and federal monies.
12 There is no question that he will never be eligible
13 I don't say never, but, in all probability, will not be
14 eligible to any federal funding so that he could go ahead with
15 his research, which is his life's work, is to do scientific
16 research. And the question is what sentence would be
17 appropriate under all these circumstances, and I don't see that
,
18 based upon his background and characteristics that confinement
19 is necessary here based on his history and character, and I
20 think that that sort of sentence will be as much as necessary
21 and not more than is necessary as the cases seem to say what
22 punishment should be.
23 Dr. Karron would like to address you, your Honor, and
24 I know you'll afford him that opportunity.
25 THE COURT: Does the government want to say something
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1 first?
2
Sentence
KWOK: Yes, we do.
72
3 Your Honor, we spent a good part of the afternoon
4 arguing about loss amount, and rightly so, because the numbers
5 can be a little bit confusing. But the defendant's conduct,
6 when distilled to essence, it is very clear what he did.
7 This is not the case about someone forgetting to cross the Ts
8 or dot the I's. This is not the a case about a technical
9 violation. If it were, the government wouldn't have been able
10 to show intent, and the jury wouldn't have been able to return
11 a guilty verdict. And the jury in this case convicted the
12 defendant because the intent was clearly shown at
13 trial.
14 The defendant was repeatedly told to stop. The
15 government wasn't in this to trip someone up. The trial
16 testimony established that the people who administered the
17 grant wanted to succeed. That's why they kept telling him and
18 kept working with him to explain the rules to him time and time
19 again ad nauseam. Everyone of those times he could have
20 gotten himself out of the hole that he was digging, everyone
21 of those times he could have stopped. And none of what he did,
22 none of that money that he would spent would have even been
23 reported to the Department of Commerce, the inspector general's
24 office, much less prosecuted by our office, and, ultimately,
25 the case brought before your Honor.
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Of course, the defendant never stopped. He kept
73
2 misusing the yrant money. And not only that, he tried to muck
3 around, as Frank Spring testified, with the company's books to
4 hide his tracks. And Mr. Rubinstein just now talked about him
5 spending less money than he's allotted in the category of
6 subcontracting. And the reason that's so is because he could
7 use students so there was more money left so he could pay
8 himself.
9 So everything ultimately comes back to how he could
10 use the grant to benefit himself or his company that he owns,
11 CASI, time and time again.
12 In his e-mails to his friends he didn't mince words
13 about what he was doing. He was, in fact, brazen and open
14 about what he was doing.
15 THE COURT: I don't think there is any evidence that
16 he used the students so he could pay more money to himself.
17 MR. KWOK: There is evidence in the record that
18 equipment under $5,000 he would be able to keep at the end of
19 the day.
20 THE COURT: It may be that it benefited him, but I am
21 not sure from the evidence that he actually intentionally said,
22 I am going to use students rather than subcontract so I could
23 get money for myself. I don't think the record establishes
24 that.
25 MR. KWOK: Let me go to the larger point. The larger
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1 point is, when no one was looking, when he thought no one was
2 listening, in his e-mail to his friends, he was open about what
3 he was doing. In the e-mail to his friend,he said he wanted
4 to make a lease with his friend living in Connecticut, so he
5 could "make like I only keep a folding bed on 33rd Street. And
6 if ATP buys into this idea, then I can charge my rent on the
7 apartment to the grant and pay my mortgage." He said in
8 another e-mail that if the ATP people didn't agree with him he
9 would turn the grant into enough of a train wreck so the
10 government would be forced to negotiate with him and, quote,
11 find a liveable solution for all.
12 Now, certainly in that e-mail, after his crime was
13 detected, at no time did he show any remorse. He didn't take
14 any responsibility for his actions. Instead, he tried to
15 engage in, essentially, financial black mail of the government
16 to strongarm the government to accept his fait accompli because
17 he has misspent so much of the government's money. And this
18 kind --
19 THE COURT: I saw that that was what he might think
20 about doing. I don't think there is any evidence in the record
21 that he strongarmed or attempted to strongarm the government is
22 such.
23 MR. KWOK: 1 would submit to the Court that's what it
24 means when he ,says, I would make the grant enough of a train
25 wreck so that they can find a livable solution for all.
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THE COURT: That was one of two alternatives in that
75
2 e-mail that he mentioned, rather to pay more, I think more
3 money to cover the expenses or to make it a train wreck.
4 MR. KWOK: It's the government's view that those
5 e-mails, when you take them together, it shows the type of
6 brazenness, the type of arrogance that necessarily warrants
7 consideration under the 3553 factors because they go directly
8 to the seriousness of the offense.
9 Let me turli now to the defendant. Of course, none of
10 this conduct can be considered in a vacuum. It has to be
11 considered in the context of this defendant. And here, too,
12 the 3553 factors argue for a meaningful custodial guidelines
13 sentence.
14 This 1S not the case about someone who broke the law
15 because he was in dire straits where some sympathy might
16 appropriately be shown. This is not a food stamps case, this
17 is not a housing fraud Section 8 case where we also calculate
18 the loss under 2B1.1 where sometimes those mitigating
19 circumstances are present.
20 This is a defendant, who under the grant in year one
21 alone, is given an annual salary of $175,000, $175,000 in
22 taxpayer's money. That's a lot of money for a lot of people,
23 but not for this defendant because he kept misspending the
24 government's grant money to buy equipment that he knows he's
25 not supposed to buy.
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8AKMKARS Sentence
1 Of course, the defendant is a Ph.D. scientist from one
2 of the finest universities in the world. He did not have to
3 steal to put food on the table. He didn't have to steal to
1 " find a place to l i ~ e . But he did it anyway.
5 I think the defendant's characteristics under 3553
6 also argue for a custodial sentence within the guidelines.
7 Finally, your Honor, a guidelines sentence is
8 necessary in this case to serve the goal of the terms. Anyone
9 paying any attention to any public policy debate in the past
10 10, 20 years knows that one of the prime arguments opponents of
11 these government programs like to use is rampant, it is full of
12 fraud.
13 We know that's not true in this case because we have
14 ATP witnesses who testified that they keep a close eye on the
15 grant. In fact, they have these rules so that they can closely
16 monitor what the recipients are doing with government money.
17 But there is fraud and this is one such case. And it's the
18 government's view that when a clear-cut fraud case presents
19 itself, there has got to be a strong deterrence, as reflected
20 in a meaningful custodial sentence so that people who get this
21 money will know that you can't just walk away and apologize and
22 say, I shouldn't have done it.
23 Rather, as his business manager told him himself at
24 the time, you could go to jail for this, and that message
25 should be sent because it is the taxpayer's money, and for
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1 these programs to survive there must be a general deterrence
2 message that if you misspend the government money and you get
3 caught, you don't just get slapped on the wrist and let go.
4 For all of those reasons, because the defendant's
5 conduct is intentional and repeatedly so, because of the
6 characteristics of this defendant, and because of the need to
7 serve the goals of general deterrence, the government
8 respectfully urges the Court to impose a custodial sentence
9 within the guidelines range.
10 THE COURT: Dr. Karron, would you like to say
11 something at this time?
12
13
THE DEFENDANT: Yes, I would.
MR. RUBINSTEIN: Where should he make the statement
14 from, your Honor?
15 THE COURT: You can make it sitting there or standing,
16 whichever you wish or she wishes.
17
18
THE DEFENDANT: How much time do I have?
Your Honor, I'm deeply sorry for what I have done,
19 more sorry than I can convey with words. I have been doing
20 I wish to apologize to the Court and to ATP, to Mark Stanley,
21 who convinced me that I had a chance to win this grant, and to
22 people of the United States, who I feel like I'm working for
23 with this money.
24 I'm beginning to see that I violated their trust and
25 it disturbs me tremendously for anyone to even think that I
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1 could do that. And if, in fact, I did, then I will take
2 whatever punishment is appropriate. I can only state that I
3 can perhaps explain myself a little bit better and maybe
4 p r e ~ e n t other people from making the same mistakes I've made
5 because I understand, from having lived through it, how the
6 PIs, who receive large grants, think differently than the
7 accountants and the grant managers that are responsible for the
8 money.
9 And I feel terrible that B.J. and Jane, I got them ln
10 trouble. I got myself in a lot more trouble. My past five
11 years have been hell. I thought T knew what I was doing and T
12 recognize now that I really didn't know what I was doing.
13 I've spoken to other PIs, principal investigators, and
14 I've seen them making the same mistakes, and I've tried to help
15 them. And I know when somebody gives you $2 million, it's
16 like, holy cow, the government of the United States believes ln
17 me, they trust me, and they believe in my research. That's an
18 intense thing.
19 I believed, and I'll admit that I was wrong, that I
20 could use my salary to pay for everything that the grant
21 that's indirect on the grant. I didn't know how to keep track
22 of it. I didn't know that I should have taken a paycheck,
23 deposited it into my personal account, and then write a check
24 back to CASI, and CASI should have written a check back to the
25 grant. Then there would be no confusion that I seem to have in
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1 my wake.
2
79
Sentence
Seven years ago I didn't know about accounting. I've
3 always done contracts. I've never done grants. DARPA would
4 give me money. They didn't care what I did with it, as long as
5 I could produce the research that I said I could do. I never
6 understood that a grant, you do whatever you can, but it's how
7 you spend the money that's most important. I didn't know how
8 to spend this money. I didn't think that I was throwing it
9 away. I didn't think I was unduly enriching myself until a
10 couple of years later I realized, I took too much money.
11 I didn't want to take money unless I absolutely needed
12 it. It was like running a little business. The owner doesn't
13 take the money unless you need it. I didn't want to take
14 salary. I just wanted to take $2,000 at a pop for rent. I
15 thought I could charge it against salary. And at the end of
16. the day, I overdid it.
17 In the second year I thought I had made amends, but
18 the budget was wedged. I never thought that I would be impaled
19 on my own budget. When I wrote the budget I just needed to
20 fill something in to get the grant out the door by the
21 deadline. I asked a couple of ATP people, what is a reasonable
22 salary? They said, don't worry. In fact, it says, don't
23 worry, so I didn't worry. I was just going to do the research
24 and that was' it. I took a big advance so I could eliminate all
25 my personal and financial problems. I didn't want to have to
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1 worry about the money. I wanted to focus on the research. And
2 trying to run this project has destroyed my life. We kept the
3 research going after the project was suspended because the
4 research is ~ i n e . The grant doesn't tell me how to live. The
5 grant tells me how to spend the government's money.
6 But, anyway -- I'm getting lost.
7 I'm bullheaded. I'm boneheaded. My exwife said I
8 couldn't tell my friends from my enemies. That's really been
9 true in this adventure. I'm a strange person. I let people
10 come and go. I don't know. Just do whatever you want.
11 I had some brilliant students working on this project
12 who should have been on the payroll. I didn't put them on the
13 payroll. One, because either I was advising them on their
14 Ph.D., or they were already on some other payroll. This whole
15 issue of like, you know, do I take people and pay them more for
16 the same hours? ATP also said, don't do certain things, what I
17 understood I could do. I didn't understand.
18 I'm boneheaded. I'm also too bright for my own good.
19 When people told me that I could -- when I started thinking
20 that I could use Morse Theory in digital data, in discrete
21 picture data, pixelated data, everybody said you can't do that,
22 it'doesn't work. Morse Theory only works for continuum
23 mechanics, not where you have imagery.
24 But Jim Cox and I talked about it. I think I see a
25 way to do it. Despite everybody telling me, no, no, no, that's
SOUTHERN DISTRICT REPORTERS, P.C;
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1 not how you do it; this is how you do it. We persisted, and
2 for ten years we came up with digital Morse Theory and now it's
3 becoming part of the accepted panoply of topological image
4 processing.
5 If I listened to everybody telling me, no, no, no, you
6 can't do it, you can't do it, fine, I'll do something else.
7 When somebody says, you can't do it, I start blowing steam out
8 my nose. There has got to be a way to do it.
9 We did get the power approved. I did have long
10 discussions with B.J. and Jane about how we can fix this, how
11 we can change this, what needs to be done. I made regular
12 visits to Washington. I tried to keep in touch with my program
13 managers. They came and visited regularly. We were making
14 good scientific progress. But my attitude was, the hell with
15 the financing, as long as I kept records. I have all of the
16 source records. And give it to the accountant and she will
17 figure it out.
18 And, you know, I never thought -- we didn't have a
19 year's worth of running actuals to calculate a good budget.
20 And towards the end the accountant was telling me, this is an
21 unliveable budget. You can't do this project with this budget.
22 You need to put a lot more money in. And without coinvestors
23 and cofunding, you're going to get in trouble.
24 I thought that I could keep overhead minimal, take as
25 little salary as I could, take rent instead of salary, which is
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1 a colossal mistake. It is more of a mistake than even this
2 Court will understand. I have to pay tax twice on the money.
3 This is the stupidest thing imaginable. It's like the absolute
4 worst thing I can do. It inflated my income. The W2s and the
5 1099s from the grant show that I made $250,000. That's too
6 much. Because I took the same money, gave it back to the
7 company, and paid it again. It was spectacularly dumb.
8 The worst thing is, worst thing is that my business
9 managers, I really wish that -- we needed to get a new budget.
10 We needed to get a new budget approved. I think we were almost
11 at that point and then I screwed up.
12 I'm responsible for everything I've done. I took
13 responsibility. I kept records at the time I was doing it. I
14 didn't think I was committing -- I was defrauding the
15 government. I thought as long as I was doing good work, the
16 research is moving ahead, we are presenting at conferences, I'm
17 flying allover the country presenting. We are attracting
18 students, we are attracting' attention. That's what was
19 important. In the past five years all -- I have bean counters
20 going over and over and over. I'm still stuck in 2001 and
21 2003.
22 My career is over. My colleagues don't return my
23 phone calls. I've alienated my wife and daughter. I've had a
24 sex change operation. I am now going to live as a woman.
25 I didn't think -- I wanted my staff to be happy and
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1 healthy. I wanted Nicky Winter; the bookkeeper, I wanted her
2 to fix her teeth. I wanted to fix my teeth. I didn't waut to
3 have I wanted around me to be happy. And I wanted
4 them to know that the were available. I didn't
5 overspend the fringes.
6 After the grant was suspended I got a job with a
7 colleague and I was much happier working for him than trying to
8 manage my own grant. If I get out from underneath this I would
9 like to advise Mark Stanley in the ATP program, now TIP
10 program, what to look out for in PIs when you give them a lot
11 of money. What are the common misunderstandings that a
12 scientist will have when you give him a lot of money. My
13 colleagues at City College said, we win grants, but we have
14 almost no sale. I wanted to make my little company unique. I
15 wanted to do things different. I wanted to do things nicer,
16 better. I didn't know what to do and I didn't know what I was
17 doing, and I ended up with a train wreck.
18 Lee Gurfein, my business manager, wanted to lock me up
19 in a room and just give me a computer and let me out for air
20 and exercise. He didn't make any coinvestment. My brother
21 didn't have any signing authority until we had a contract with
22 him and he gave me some money. I did everything he wanted. I
23 did everything my accountant wanted me to do.
24 I did everything that Bob Benedict wanted me to do.
25 If he told me not to do something, I wouldn't do it. When he
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1 told me to stop paying the rent, it was getting to be a real
2 problem, I stopped. I had to understand why. I didn't get it
3 right. I made a mistRke. I never thought it would be this big
4 of a mistake. If I have to g8 to prison for it, then I'll go
5 to prison for it. I made a mistake. I didn't think -- I
6 hope -- I feel terrible that people feel I violated their
7 trust, and I'll never be able to recover that.
8 I want to finish the Joe Morse Theory. It has nothing
9 to do with money anYmore. It's something that needs to be
10 done. It's why ATP gave me the money. The research was more
11 important than the money, but I didn't know how to handle the
12 money. I think if I got a job as a grants manager, because I
13 needed a job, having made every mistake twice, I would know how
14 to prevent it. I have been advising other colleagues, that
15 kind of attitude is going to get you in real big trouble. I
16 have told them that, and they usually get really mad at me.
17 Other ATP grants, when I talk with them, I said, be
18 really careful, donIt have a certain mind-set. You are not
19 your grant. The grant funds certain activities, but don't put
20 your ego, and get more than one grant and have more than one
21 sponsor.
22 I thought I could do everything myself. I do
23 everything so hard and so intensely and so monomaniacally, so
24 bipolar that I usually get myself in trouble. This is the
25 worst trouble I've ever got myself in. I don't know. Maybe
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1 I've learned something from it. I tell people I made every
2 mistake twice. It's like if anybody knows the lessons of
3 managing federal and public money, so that everybody can look
4 at it and say, yeah, there is no problem with that, I think I
5 know how to do it.
6 I could probably pass the CPA exam now. Do I feel
7 comfortable defending what I did, knowing what I did in 2001
8 with what I know now in 2008? Absolutely not. I made a mess.
9 It was a big mess. But it was fixable. And I wasn't able to
10 fix it. It was too much of a mess, and I just wanted to focus
lIon the research, and I decided to do good work and maybe
12 something good would come out of it.
13 If I need to go to jail, I'll go to jail. I would
14 like to finish what I started. I would like to help the ATP
15 program in the sense that I can probably smell fraud brewing in
16 the mind-sets of the PIs. Because I have a sense now of what
17 this entails, particularly in small startups, very small
18 startups. That's what ATP wanted to fund, and they should
19 continue to do it, but they need special supervision. When I
20 was doing SBIR grants, they have special supervision for SBIR
21 grants because the PIs don't always know what they are doing.
22 I don't have a home to go to. My mom is going to die
23 soon. I want to bring her home to die.
24
25
Am I wandering off too far?
THE COURT: I couldn't hear you.
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8AKMKARS Sentence
THE DEFENDANT: Am I wandering off too far or am I
86
2 becoming incomprehensible?
3 My mom is going to die soon. She is on a ventilator.
4 She is on a feeding tube. I'm only trying to bring her home,
5 with my family's consent, so that she is at least home, because
6 that's where she always wanted to be. After she passes on, we
7 are going to have to sell the house anyway because of the bills
8 from the nursing home. If I have to go to prison, I would like
9 to at least see her through.
10 I'm taking classes now on ventilator care, so at
11 least -- we have three shifts of nurses at the house running a
12 ventilator. I need to be able to cover them. My Ph.D. is
13 sufficiently medical, and I have enough insight on how to run a
14 ventilator that I need a lot of training so I don't screw up,
15 because I think I know what I'm doing, and Mondays are usually
16 my days to go get training.
17 I pre-separated from paying myself rent because I
18 thought I wanted to take rent as I needed it and not use
19 salary, and just use my salary line to pay utilities and
20 telephone and the legal cost, the bills to Pennie & Edmonds. I
21 tried to keep a green check and a burgundy check. Green checks
22 were nonprogram, burgundy was program.
23 But we didn't set up the account before we got the
24 first paYment from ATP. I took too much money at the
25 beginning, and I tried to put it back. The way I tried to put
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1 it back. Now I just did it all wrong. I thought it didn't
2 matter where I spent the money out of. I just give ATP a stack
3 of receipts.
4 I tried to keep good records. I got consumed with
5 recordkeeping. It's like I was telling it's like I got
6 buried in receipts that I lost and I never added them up. I
7 just took pictures of them and filed them under each day and
8 let the accountant deal with it. She got lost.
9 I think the best thing I can do for my country is
10 prevent me from happening again. I don't know that I will ever
11 personally handle big federal projects, but I think I can be of
12 value to the program, particularly since they are going to be
13 gun shy to giving money to small grant recipients. And I feel
14 terrible because Mark really believed in me, the program
15 director.
16 If there is something that can be done with me to help
17 the program, I would do it any way I can. I'm happy to lecture
18 and explain how to get yourself in trouble with more money than
19 you can deal with. I don't know whether that would help. I
20 didn't believe that I really misspent money until I finally had
21 to really, really study exactly what I did, like a third person
22 did it, and I admit I took too much money.
23 But I didn't not do research. I didn't advance the
24 state of the art. The big problem is that I spent so much time
25 being an amateur accountant that I couldn't be a professional
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1 scientist.
Sentence
88
2 If you can find it in your heart to -- I'm sorry. I'd
3 like this to be over and I would like to move on. If I can
4 help, I will. If making me an example by spending a few years
5 will prison to help, that's what I need to do. If making me an
6 example and I can prevent other people from getting the
7 boneheaded mind-set that I have, maybe my experience is more
8 valuable in some other setting.
9
I would like to finish the research. And the program
10 would actually -- they are horrified of what's happened, but I
11 think there is a reason why they never completely shut down the
12 grant. They just want me to clean up my act. If we could
13 finish the program with somebody else running it, that's fine,
14 too. My boss at A ~ P could administer it for me.
15 Having worked in a big federal defense contractor, I
16 see how they do it. If I had spent a couple of years working
17 in a large corporation, perhaps I would see how these are done.
18 I have never done that. I now know more about grants
19 management than I care to.
20 I don't know what else to say. I'm really sorry. I
21 didn't try to hide it from anybody. And people call up and
22 say, what's going on? I say, I have been convicted of stealing
23 from the grant. If that's what I did, then I did it, but I
24 never kept it a secret. I took pictures of everything I did.
25 I kept records to hang myself, because I never thought I would
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1 be hanging. I have never thought I would be impaled.
2 I'm redundant and I'm repetitive and I forget what I
3 say, and I'm a disaster. I really am. I will be late for my
4 own funeral. If I do something too fast, I always forget
5 something, screw something up.
6 I apologize to the Court for keeping you this late and
7 for everything else that I've done in the past.
8 Thank you, your Honor.
10 As I said, under the guidelines, the Court's findings
11 are that the base offense level for this violation for Title 18
12 Section 666 is found under 2Bl.l. The base offense level under
13 subsection (a) (2) of that guidelines is 6. Because more than
14 $120,000 was lost through inappropriate expenses, 10 points are
15 added. Making that decision the Court looked to guideline note
16 which applies to 2F. The guideline note that applies to grants
17 is federal grant under guideline commentary (f) (2) (ii). At
18 that guideline of 16, the guidelines calls for a sentence of 21
19 to 27 months in prison.
20 Turning to 18 3553(a) of Title 18, the Court, as the
21 Court must, consider any guidelines sentence as a result of the
22 Booker decision, the Court must take into account the history
23 and circumstances of the offense, history and characteristics
24 of the defendant. The defendant here has no prior record.
25 And addressing the Court he said that he's never
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1 before had the responsibility before of handling a federal
2 grallt and dealt with contracts in the past. Those are
3 contracts, I gather, to perform specific services for a fee,
4 which is a little different than a federal grant. Both of
5 those circumstances relate to the circumstances of the offense
6 and the history and characteristics of the defendant.
7 But the Court must also impose a sentence which is
8 sufficient but not greater than necessary to comply with the
9 purposes set forth in subparagraph 2 of 3553(a), and that is
10 the need for the sentence imposed to reflect the seriousness of
11 the offense, to promote respect for the law, and to provide a
12 just punishment for the offense; B, to afford adequate
13 deterrence to criminal conduct of other persons, and to protect
14 the public from further crimes of the defendant -- C, to
15 protect the public from further crimes of the defendant; and,
16 D, to provide the defendant with needed educational and
17 vocational training, medical care, or other correctional
18 treatment in the most effective manner.
19 I don't believe that it would be necessary to protect
20 the public from further crimes of the defendant that would
21 serve to ameliorate the penalty imposed under the guidelines.
22 I have some difficulty with this case because
23 delineating the intent of the defendant is difficult for me.
24 It is true that the loss is at least $120,000, but the
25 defendant's intent in causing that loss is something that the
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1 Court has been concerned about.
2 And, on the other hand, the Court has to consider a
3 sentence that affords adequate deterrence to criminal conduct
4 and the government gives these grants, they are placing a lot
5 of trust in the grantee. It's important that the grantee not
6 intentionally misapply the funds.
7 It's clear to me that there was an intentional
8 misapplication of the rent money. The defendant was told time
9 and time again not to use the rent funds for rent or for
10 utilities. That's what the record here substantiates. That's
11 a lesser sum than the sum found in the guidelines.
12 Under the circumstances, it seems to me as the first
13 offense that the Court should not impose a sentence that is
14 heavy as the guideline and, yet, impose a sentence that
15 provides deterrence to other people. I am going to vary the
16 sentence pursuant to Section 3553(a).
17 I am going to impose a sentence of 15 months under
18 zone C of the guidelines, one half of the term to be served in
19 prison and one half of home confinement, eight months'
20 imprisonment, and the remainder in home confinement.
21 The term of supervised release is three years,
22 restitution in the amount of $120,000. That's required, I
23 guess. And a special assessment of $100. I think I'm right on
24 the split sentence, that if it falls in the 12 category, I can
25 give the split sentence.
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MR. KWOK: Section 5C1.1, section D.
MR. EVERDELL: Yes, your Honor, I believe it is
92
3 correct. It has to be a one-for-one ratio.
4 THE COURT: One has to be imprisonment, the other has
5 to be home confinement.
6
7
MR. EVERDELL: That's correct.
THE COURT: That's to enable defendant to take care of
8 his mother as soon as possible.
9 Three years of supervised release. There will also be
10 a $100 assessment as provided by the law. The conditions of
11 supervised release are: The defendant shall not commit another
12 federal, state, or local crime; shall not illegally possess a
13 controlled substance; shall not possess a firearm or
14 destructive device. Mandatory drug testing is suspended due to
15 the Court's determination that defendant poses little risk of
16 future substance abuse. The defendant shall cooperate in the
17 collection of DNA as directed by the probation officer.
18 Standard conditions of supervision 1 through 13 will
19 also apply with the following special conditions: Defendant
20 shall provide the probation officer with access to any
21 requested financial information; defendant shall not incur new
22 credit charges or open additional lines of credit without
23 approval of the probation officer unless the defendant is in
24 compliance with the installment schedule, installment payment
25 schedule.
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8AKMKARS Sentence
1 Defendant is to report to the nearest probation office
2 within 72 hours of release from custody and be supervised in
3 the district of his residence. $100 will be due immediately.
4 That's the special assessment. The restitution shall be in the
5 amount of $120,000, payable to the clerk of the United States
6 District Court for disbursement to Julie Weiblinger, U.S.
7 Department of Commerce, National Institute of Standards and
8 Technology, Advanced Technology Program Receivables Group, 100
9 Bureau Drive, Mail Stop 1624, Gaithersburg, Maryland
10 20899-1624.
11 The restitution shall be paid in monthly installments
12 of 10 percent of gross monthly income over the period of
13 supervision to commence 30 days after the date of release from
14 custody, and the defendant shall notify the U.S. Attorney's
15 Office for this district within 30 days of any change of name
16 or residence address that occurs while any portion of the
17 restitution remains unpaid.
18 If the defendant is engaged in BOP non-UNICOR program,
19 the defendant shall pay $25 per quarter towards the
20 restitution. However, if the defendant participates ln the
21 BOP's UNICOR program as a grade 1 through 4,the defendant
22 shall pay 50 percent of her UNICOR earnings to any financial
23 penalties, consistent with Bureau of Prisons regulations of 28
24 CFI Section 45.11. The factors in 18 United States Code
25 Section 3664(f) (2) were considered ln formulating the payment
II
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1 schedule.
Sentence
94
2 There will be no fine ln this case ln view of the
3 restitution requirements.
4 I gather you want to have a voluntary surrender,
5 Mr. Rubinstein?
6 MR. RUBINSTEIN; Yes, your Honor. I was wondering, if
7 it's possible, I don't know how it works. Is it possible to do
8 the home confinement first and then the incarceration
9 afterwards? So this way if they can get his mother home,
10 because her life expectancy isn't that long.
11 THE COURT; It seems to me that it could. I don't see
12 anything under the section that says it couldn't. It certainly
13 surprises me.
14 MR. EVERDELL; I'm sorry to interrupt, your Honor. I
15 do have a different case with Judge Kaplan where he did allow
16 that very thing to happen. If that precedent counts for
17 anything, I believe there is a precedent in the Southern
18 District for doing this.
19 THE COURT; I am going to do it that way. So the home
20 confinement period wil.l start. You better see that the
21 defendant sees the probation officer in the next 24 hours, Mr.
22 Rubinstein.
23 MR. RUBINSTEIN: Absolutely. I will go there
24 tomorrow.
25 THE COURT; We will make arrangements for home
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1 confinement to start. If you have home confinement, there will
2 have to be a telephone wi t..hQl.lt call forwarding in the residence
3 in which the defendant would be located because they have to
4 know that he's not leaving the premises during the period of
5 home confinement. Home confinement is not to interfere with
6 religious services or emploYment, but it will require the
7 defendant to be home in the evening and nonworking hours part
8 of the day.
9
10
11
12
MR. RUBINSTEIN: And medical, your Honor?
THE COURT: What?
MR. RUBINSTEIN: And medical.
THE COURT: Of course, he can attend medical
13 appointments for himself and his mother.
14 There will be no call forwarding or call waiting or
15 modem attached to the telephones. It's clear that he is
16 serving his term of home confinement without any further
17 investigation by the probation office.
18 MR .. RUBINSTEIN: Your Honor, would your Honor
19 consider -- first, on the restitution, did your Honor say how
20 that's to be paid?
21
22
23
THE COURT: Yes, I did. 10 percent of gross pay.
MR. RUBINSTEIN: Is that without interest?
THE COURT: I leave that to the greater, higher
24 authorities. I believe that interest does run.
25 MR. RUBINSTEIN: Would your Honor
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Sentence
THE COURT: I believe interest runs. But it can start
2 after the period of incarceration.
3 MR. RUBINSTEIN: Your Honor, I believe that the
4 defendant wishes to appeal this matter. That's what I've been
5 informed. In view of that, I wonder if your Honor will
6 consider releasing him pending the appeal. He is going to be
7 on house arrest for seven and a half -- I'll reserve the right
8 to make that application.
9 THE COURT: He can appeal, butI don't see where you
10 can appeal, but is that beneficial to your situation for me to
11 suspend the imposition of sentence pending the appeal?
12 MR. RUBINSTEIN: I would like to serve the house
13 arrest portion while his mother is alive.
14 THE COURT: I can't break it up, I don't believe,
15 under the statute.
16 MR. RUBINSTEIN: I'll have to consider it, Judge. We
17 will go to probation tomorrow. As far as the house arrest, we
18 don't have a problem with s t a r t i n ~ that immediately.
19
20
21
22
THE COURT: Make an expedited appeal.
MR. RUBINSTEIN: File an expedited appeal?
THE COURT: All right.
MR. RUBINSTEIN: Thank you very much, your Honor.
23 Good night.
24
25
MR. KWOK: A few things, your Honor.
If the government could request the Court to give an
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97
1 oral pronouncement of his forfeiture order. There is a
2 forfeiture allegation in the indicLment.
3 THE COURT: Is forfeiture required here? I didn't see
4 t h ~ t in the presentence report.
5 MR. KWOK: It is not reflected in the presentence
6 report, but, as your Honor might recall, there was an order by
7 stipulation between the parties where we seized the proceeds
8 from the sale of defendant's apartment. And so if we could
9 forfeit that in partial satisfaction of the restitution
10 obligation.
11
12
THE COURT: You can submit a forfeiture order, yes.
MR. RUBINSTEIN: The marshals are holding those funds,
13 if that's what the government is talking about.
14 THE COURT: I have to make an order with respect to
15 it. The marshals already have it.
16 MR. KWOK: But the order the Court signed says that
17 the money will be held with the U.S. Marshals pending further
18 order of the Court. We will certainly submit an order to
19 release those funds.
20
21
22
THE COURT: So ordered.
MR. KWOK: Thank you.
Also, just one last matter. Because this is a second
23 superseding indictment, the government moves that the
24 underlying indictments be dismissed.
25 THE COURT: That's granted. I am sure there is no
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1 opposition to that.
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98
2 MR. RUBINSTEIN: No opposition,your Honor.
3 THE COURT: You have ten days to file a notice of
4 appeal, Dr. Karron. All you have to do is write a letter to
5 the Court, United States District Court, 500 Pearl Street, New
6 York, New York, and say, I wish to appeal and that will
7 preserve your appeal, but you have to do it within the ten-day
8 period because, otherwise, the Second Circuit will say you
9 waived your right to appeal by not filing that letter within
10 the ten-day period.
11
12
You understand me? You're nodding yes.
If you want to appeal, you just write the letter
13 within ten days and that preserves your right. If you don't
14 w r i t ~ it in the ten-day period, you lose your right to appeal.
15 If you don't have funds for an appeal, the Court of Appeals
16 will decide on it for you to handle your appeal free of charge.
17 MR. RUBINSTEIN: What they do, Judge, in reality, is,
18 they assign trial counsel free of charge. I had that
19 experience with Judge Kaplan, who was mentioned once today
20 already.
21 000
22
23
24
25
(212) 805-0300

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