good morning this is the court i'm james laughlin and i'm here on behalf of the a felon matt machan with me is timothy scott who's representing the color of codefendant anthony milan and as we indicated in the letter we filed a few weeks ago our plan is  using twenty percent of investors money to pay telemarketers and using the remainder to fund their own leverage lifestyles that was the crime was alleged in the indictment given its allegations that indictment can't fairly be read  as charging a scheme to defraud that did not depend on the appellant company being a sham but the trial evidence establish that the company was actually a real legitimate business with ongoing business activities highly qualified employees in true business goals the government's argument the government therefore presented a different fraud theory a closing argument to the jury and that theory was that the appellant's use the investors money for different business purposes th they had regionally intended by financing the completion of independent movies but purportedly not doing so using a particular type of bridge loan under this fraud theory the company wasn't as the indictment alleged a complete sham that was designed only to fleece the investors out of their money so what did the evidence show as to how much of the investors money was used to invest in companies rather than to either pay the commission of the telemarketers or to fund the court lavished unquote lifestyle of the defendants well and mr scott will talk about the speech flaws with the government's financial analysts but their analyst broke it down they attributed about little under forty percent of the total money is being used for so called personal expenses of the of power which of course is a far cry from the eighty percent of the indictment alleged was used for personal expenses because again the indictment allege twenty percent was used for commissions and the remainder i e eighty percent was used for personal expenses so that everybody what do we make of the word virtually in the indictment when they say  points where the indictment says that virtually no money was spent beyond the movie beyond the mat and virtually no money was spent on bridge loans now i think the virtually means what it plainly means almost no the trial of ins however showed that at least with the two main movies that were the focus of the trial beyond the math and the devil inside three hundred sixty three thousand dollars under even under the government's flawed accounting at least three hundred sixty two thousand dollars that's ten percent of the invested money was spent on these movies i don't see any plain language in terms of trying to get to forty percent because you just said only forty percent was spent on lavish lifestyle twenty percent for commission forty percent on that was last at least forty percent and you just said only ten percent was spent on the film right and that's what happened that's what happened the other thirty percent according to the government's reference for for business expenses and it's the government had throughout the crowd tried to create this impression that we're calm the stuff moving money and that's all that matters for moving money ignoring the fact that this is a business you have overhead expenses you're hiring very talented people you're putting in an editing basically you can edit a movie you are spending money on promotional material so so that's when the other thirty percent that isolated thirty percent activity thirty percent is as it were over the head of the business yes thirty percent overhead no no not now i don't that not all i mean i guess it had been t define overhead i mean overhead i can pick things up as the basics of rent utilities stuff like that and that's certainly a component of that but there's also the salaries and so on invoice hours and keep in mind we as we laid out in the brief they're hiring really high quality people w who work at paramount m g m who worked on oscar nominated movies they are you hiring talented people to make this business work merely so the also the government's evidence is then showing that about ten percent of the investors money is actually going to these loans now the rest of the money is spent on other things twenty percent on commission forty percent on money to the defendants and thirty percent to employees overhead and so on that's that's the evidence that's if you that's different than what was alleged which was this was the sole purpose of engaging the scheme and we've seen schemes like this before the sole purpose is to put put telemarketers in a room to make completely false promises for a business that doesn't exist to take the money entirely and convert it to personal use and that's not what the evidence showed then that's when the government started moving in this direction of focusing more on like the details of well money was loaned to be on the mat but it wasn't a bridge fund well and then you know it was pointed out that even the indictment alleges the bridge fund loans can be loans for finishing or completing movies just the financial breakdown that is to say if the indictment had said they do this telemarketing saying you're going to make a heck of a lot of money what is it ten to twelve percent and we're going to  invest some of it in films maybe ten percent of your money and thirty percent are going to go to salaries and overhead forty percent are going to come to us twenty percent are going to so that's the underlying reality and they're promising hey we're going to make this  say that these promissory notes were somehow to guarantee that their money would be used in a very narrow way they were investing the company in the company shifted positions shifted direction when mark udall are making maybe i mean my question isn't clear i mean they're the charge here is fraud so the description to the investors doesn't match what's actually being done even according to the evidence is the description of what's being done under the government's evidence numbers are correct then i don't think it's necessarily fraud because the what matters is the particular representations and the intent made at the time they were made because i think the jury's verdict reflected this this is a business that went over three or four years and the focus of the company changed over time so i think i will agree with your honor if there was a certain if there was a certain point where the government proved that the appellant's were making a representation to an investor that we do x when at that time they knew they didn't do x and they got the money then yes that would be fraud i don't think our position has been that they never did that throughout the for the entire process of th appellant anthony milan what i wanted to discuss this morning was the opinion testimony that the government was permitted to offer through what it described as a fraud examiner as well as the summary exhibits that it was permitted to enter into evidence and actually sent back to the jury room the first question in the government's first defense of this kind of evidence was to claim that it was late opinion testimony a financial opinion testimony i suppose under federal of evidence seven a want to there's two problems with that under seven to one the first is that under seven hundred one a lay opinion testimony has to be rationally based on the perception of the witness this court case last clear that rationally based on the perception of the witness cannot include relying on out of court hearsay this court said that in lloyd as well as the re is vera case let's assume you're right that it was wrong for to be introduced this way question we have is that prejudice can use you know a lot of time and you spend the time explain why it would have made a difference had they gone through and done a dauber hearing and all that was in a day what's the difference well i guess so there's two parts that the question is could she i guess one  way to put that question is could she have qualified as an expert anyway and then the other is what was the harm of what actually happened in trial so i'll try to address both quickly in terms of the daubert i guess i would concede that at some level she would be able to qualify herself or be qualified as a forensic accountant if she's a c p a she has that training and so on and so forth and that's fair as far as it goes but whether she could have withstood the rigors of daubert for these particular opinions i think is a different matter entirely in the reason for that is that she she you some what we would describe as an orthodox methodology is for example at fourteen seventy cross examination revealed that she employed part of a presumption of guilt methodology for example if there were purchases made at costco where it could have been computer screens you know could have been muffins or it could have been a big screen t v if she couldn't tell which way a broke she would categorize it as quote unquote for the benefit of the defendants so if in doubt she would characterize it as personal use and sort of describe that to the jury is tantamount to theft from the investors and so that that she was asked specifically is there some sort of protocol or some sort of recognized  procedure in the field of accounting where you can do that your categories based on any standardized procedures or things that are there are recognized in the field of counting the answer to all those were no this was essential the categories of her own creation that was prepared for trial so that that's a long way of saying in a short way i don't think that her opinions themselves would have withstood d'albert now what's the actual harm of the way it unfolded in trial and there's a couple answers to that the first is that this really did go to the heart both of the government's case that they indicted as well as the defense that the defense was good faith as my colleague argued this was a legitimate business they were trying to do right by investors they were trying to make money for everyone now if one accepts as true the opinion the fundamental with pinion that defendants essentially used almost one and a half million dollars out of three million and change for their own purposes that does great violence to that good faith defense and we would argue unfairly because of this questionable methodology and relying on the out of court hearsay i think it's also worth bearing in mind that this wasn't just an ordinary witness this was somebody who was closely aligned with the united states attorney's office we didn't present this is as as a vouching case but it raises some of the similar concerns that she is imbued with the inherent credibility and the gravity of the united states attorney's office she was an employee of that office for twenty some years in she was also presented with the trappings not just of the government but of expertise the government went through her training experience and continued education and then these things are presented as if is if they were objective numbers when in fact they were financial opinions in terms of harmlessness again this was a close case the government started with in one thousand count indictment they were able to eventually to get eleven of those even to the jury and then of those eleven counts the jury acquitted on eight and and only convicted on three so i think it respectfully strains the government's credibility for them to say that guilt was overwhelming i think the jury  results in the jury verdict say otherwise well you know and it does it does seem to me however that if this case had been indicted basically in alignment with what was proven at trial that we've got a fraud here i mean they're promising bernie madoff or terms or excess of bernie madoff returns twelve to thirteen percent and they're investing a very small percentage of the money and somebody who could possibly have made money that's just that's just fraud well in i don't is maybe we got a problem with variance it may be wrong we have with evidence but if it is as i have just described that's fraud if it is and if it was charged that way so i guess the way that i would respond to that is to say no those are very good arguments to make and if the government had indicted that case and then proven that case well that would be a different matter entirely but for them to indict one version of the case and then as the evidence unfolds sort of pivot into the argument that the your honor just well that's that's what the variances and i guess what i would conclude with this to say that even though the let's say for the sake of argument that this is you know a close case as the variance maybe it's a girl maybe it's a construct of the men that maybe it's a fatal variance even if it falls short of that and i'm not saying it does i think it should but even if it fall somewhat short of that i think the fact that the government scrambled a bit or altered their approach a little bit and pivoted into this alternative argument whether that or not if nothing else suggests that this wasn't an overwhelming case for the government that this was a harmless error in that these opinions in the financial testimony that was that was set forth did you harm indictment charged a fraud which in its boils down to the fact that these defendants marketed a business that was engaged in providing short term bridge loans and funding to this movie beyond the mat they were telling investors that they were able to see twenty two was able to get thirty percent returns on a ninety day turnaround which made it a very profitable company it allowed them to then give those twelve percent returns to investors with seven investors testified at trial they each gave consistent testimony that that's what the defendants either directly or through their sales force represented to them that's what mattered to them they relied on those promissory notes on those statements and the best evidence of that the clearest is the marketing materials themselves the brochures have various statements about how the business is already engaged in short term bridge loans that they make thirty percent on their investment ninety day turnaround those are all false statements they they are they plainly are and when you are making false statements for the purpose of learning in investors and they depend on those statements if you don't do what you promised that on one sentence that's part of this indictment but the way that that team is described is exactly what the evidence proved that the defendants represented that victim's money would be used to provide short term bridge loan to individuals and companies in the entertainment industry for the purposes than issuing and or promoting movies and to fund a movie titled the on the mat the evidence at trial that the defendant defended match and agreed with is that this company made zero dollars in the form of interest from loans any types of loans bridges a lot of short term bridge loans finishing funds they mean you know dollars from making loans to missing getting back interest debt over the course of four years they continue to represent that this is what their before did and that is fraud and the calling it a complete sham versus a legitimate business that is not an important distinction quote legitimate business would not make this any less fraud for example if their business was actually engaged in a successful car sales business if you're representing to investors that you're getting these thirty percent returns but then you turn around and you are buying and selling cars you lied to investors to get their money and that is fraud so here the fact that they spend some portion of it on commissions some portion on it on restaurants and spas they didn't do what they promised to investors that's what the indictment alleges on in paragraph four of the indictment there are specific false representation set out and those were the exact false or presentations that were proven at trial through the investor testimony the brochures that were sent out the promissory notes that were sent out the employees that testified about how the defendants made false representations to investors how they actually spent the money going to restaurants and strip clubs and for one of the defendants wife's life the section that was the testimony at trial and so the fact that the exact percentage of how much of it now is when you press to that they're using it for the levers lifestyle you're saying that the salaries that they drew were spent on these things and the way the sentence is phrased as and this is paragraph to see three thirty of the indictment that the defense attorney read is that defendants match and know and use the remainder of the victim's money to find their own lavish lifestyle including paying themselves salaries of ten thousand to twelve thousand per month and using victim's funds to pay their personal bill right now ten thousand dollars twelve thousand dollars a month sounds like a lot of money but for someone who's a serious investor or financial person that's that's pocket change fraud examiner project for than it is that over forty three thousand dollars were spent on restaurants over the course of the four years of the company over four thousand dollars were spent on spas i do believe that that evidence  consistent with what is a legend in the indictment and that is that that these defendants first and foremost and not spend the money as they promise which is what really matters my problem and i'm not sure whether it amounts to a freedom of variance or a moment is this is clearly just not what it says here is that virtually none of the money was used for bridge loans right evidence the trial show that these defendants this company provided no bridge loans the producer of beyond the mat testified that even though there was some  one thing in the indictment and arguably at trial they were not successful in proving this sentence of the indictment however for purposes of what crime was alleged here the way that the for a scheme to defraud was defined which is making these specific false representations which are the false representations proven at trial that was established and showing that the defendant did indeed have and intended to fraud they knew that these representations were false yet they continued making them and investors continue to rely on them to put in three point three million dollars and over the course of this company this company did not aren't any profits their only money coming in was investor money yet they continue telling them year after year that they had this ongoing business of bridge loans which was just false there's nothing in the record to suggest that there was any profit from bridge loans or any type of loans to movies and that is fraud at the end of the day investors  small percentage of investors who did receive interest back however as the evidence at trial showed that was really taking investor money from some investors and giving it to others some point a law firm instructed the defendants that that that was illegal so they stopped doing that only it's a very small percentage of investors got some money back the large majority lost all of their investment and one to this point about that one sentence focus the rowing in on just one sentence at the indictment this point was not emphasized in the government's brief but that this court and ward for example stated that we have declined to find a constructive amendment however when the indictment simply contains superfluously specific language describing alleged conduct irrelevant to the defendant's culpability under the political statute and i believe that's what this falls under is that there is a specific sentence in the indictment about how this money was spent that is not an element of the crime  here perhaps the government did not meet the burden of us of proving beyond a reasonable doubt that that's how the funds were misspent but what was clearly proven is that these representations were false the investors relied on them they had the intent to defraud auditor which who introduces series of charts reflecting the movement of funds among business and personal accounts and the court there found that the particular witness was not required to be certified as an expert because the witness testified about his own personal investigation in his capacity as an auditor in accordance with federal rules of evidence that no one although the witness in that case might have been eligible to be certified as an expert the district court testifies about how many checks were written to leave aton and they put that on a chart of how many checks were written towards mortgage absolutely i call this type two and says myself but here the witness was did not have personal knowledge about some of these things the witness said oh i read a three o two where this other person said this so based on that which is not personal knowledge do you have any authority that supports what happened in this case where the witness did not have personal knowledge was relying on other people to then take that testimony or that information and then categorize it so here what i think it's important to break down what exactly the witness which which she explained as she looked at the bank records three bankers boxes full of bank records she became familiar with the bank statements of this company and she categorize things into various categories based only on the information on that information she had in front of her the notations on the checks for example if it was a debit card transaction that mr millen was using she would call that payment to mr mellon or if a check was made out to john smith and john smith was an employee that was considered an employee payment so yes there were certain facts that she had she learned throughout the investigation that were important to her categorization and a witness to this fraud and yet she was not i didn't think my point was that good but i would i  us i guess my question is is that it's a little unusual in my experience to have someone not designated as an expert to then rely on out of court information and then testify experts because they testify quote only about their perception of an event or about late pinions or outing of rising out of those perceptions regardless of any special training or experience they may possess and again this is the rationally based requirement of seven to one is that if i satisfied in these are the types of cases with friends and authors because they get their direct there they have a understanding about the company that's different from the jury and that they spend so much time with the records themselves so they were not themselves involved personally and they don't necessarily know all the names of the employees but they do have become they are able to form an opinion that is rationally based says i'm making this conclusion based on what i read in a three o two it's one thing to say i read all the checks here the number of checks i want to volunteer the number checks they want to circuit city here the number check someone here no issues there what's different in this case and  se direct me to any case anywhere that says it's ok for that same person to them or lie on what a three zero two says when an agent tells them to do and to come in and base their testimony based on what and out of course statement and still be true to his lay testimony i do think the distinction is and you know an out of court statement versus just the facts of for example costco is a store and this witness knows that if a three zero two said costco's a store that doesn't make one i don't think that's what they're complaining about here though other than the cases where that have held that this type of forensic auditor or testimony gets to come in other than those types of cases i don't have a specific case that would address that exact issue but i do think the aubry case is very similar where that testimony came in and the summary charge that go with it came in even though it relied in part on quote the investigation you know if if if her testimony can't come charts may be a problem but as we pointed out there are seven separate reasons why this is harmless error pleading the jury instruction and the fact that there's now an hour but i want to focus on this question as to if she her testimony can't command because she really should have been qualified as an expert given the nature of her testimony she's got charge that accompany her testimony that she's prepared to some degree using her judgment as to well this expenditure looks as though it's for personal stuff do those charges also have to stay out because it would come out because her testimony has to come out i don't think so not necessarily because i think hurt in some part her testimony just explains the procedure used for the summary charts the jury then had i do not i believe that her testimony here had no there is no expertise required for what she did which is to just read a notation on a check and then debit and credit that goes back to with the key issue is whether the money was used on the bridge loans and the undeniable facts at trial is that none of them were used on bridge loans and that there was independent testimony from the lauren appall and from  brian coyne about how much money was actually given to be on the mat and the devil inside and that by itself establishes the government's fraud theory that a very very small percentage of all of us are funds are actually used as promised on the money closing argument by  right answer yes that's correct that's a page seven hundred eighty two question there was never any money coming to see twenty two capital from its funding of bridge loans right answer that's correct the industry changed the defendant himself admitted that there was no money coming in from bridge loans during this entire course of four years of the business and where do we get the testimony as to what money was were being paid to the defendants in terms of their salaries where's that where's that evidence coming from the defendant himself isn't anything wrong when you promise investors that their money is actually going to go into this bridge loan model but instead you're using it to pay yourself salaries to pay commissions examiner as to the ten percent goes off to these loans that are not bridge loans but the other ninety percent are spent on commissions on salaries to themselves and to expenses i mean to that that evidence spending of the money for example charles fries talking about how dependent no one took him out to lunches dinners and strip clubs and claim them as a business expense of pam won't last as testified that match and told her that he spent investor money in the slight liposuction and she confronted the defendants about their improper spending so various other witnesses at trial established that these defendants were using the money in appropriately the on the mat was a form of bridge loans and i don't think the defendant said that specifically but the there was an expert from the industry who came in and testified that those could be characterized as bridge loans i would also clarify that when the defendant said that he was drawing a ten thousand dollar salary that he explicitly said that was for a period of several months and then he stopped and then essentially dropped that down to a subsistence level salary going forward so it's just it's not true to suggest that they were taking even ten thousand dollar salaries for any extended period of time the truth was that evidence that was admitted at trial showed that they lived very modest not lavish lifestyles very modest vehicle them i don't think there was a dispute that mr makin's wife got liposuction but i think that sort of begs the question of did he take a you know a modest salary and then spend it is you know what he felt he had earned his salary that don't know is the short answer so what i was going to say is that the answer to his honour's question is there a case that says that you can rely on hearsay and out of stuart out of court statements either in a seven to one opinion testimony or in a briefs all of the leading treatises that just quite clearly you can't rely on hearsay in rendering either opinion testimony or one thousand and six testimony this isn't just a matter of what the government calls categories what this is is subset of testimony about the meaning and the conclusions behind the numbers to say that an expenditure at costco is for the benefit of a defendant is really making a qualitative judgment that they are misusing funds and that the other centrally they're stealing funds whether an opinion like that should be permitted at all is one question after the rigors of adalbert examination and full and robust expert disclosure but to do it under the guise of lay opinion testimony is a different matter entirely there must have been some reason that the government wanted to avoid a doubter hearing it in the full trappings of expert witness testimony the two thousand amendments to seven one make clear that you can't do this this maneuver of dressing up expert testimony in lay clothing and then doing an end around around albert and i would just finish by saying that the prejudice i think in a way has sort of been demonstrated in our conversations here this morning i would suggest that sort of hovering above all of us are are these pipe charts and these representations about forty percent was spent on this and twenty percent was spent on this it's what matters to people whether they be judges whether they be jurors you know how was the money spent and were they pocketing this much where they pocketing that much in you know what were they spending it on that was really a fundamental question and i wholeheartedly disagree with the government that there was there was not any evidence beyond diski government witness to try to sort out that question you can take a smattering here about whether they went to this restaurant or a comment about whether they went to the strip club but the heavy lifting the overwhelming evidence not in terms of guilt but in terms of how the government tried to prove their case came from this one forensic accountant with unproven methodology and without compliance with the rules of evidence so i think the harm is is the charts and the numbers and the finances we've been talking about this very morning so thank you very much