UNITED STATES DISTRICT COURT

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

_________________

United States of America, )

) No. 2:18-cr-00422-DJH

Plaintiff, )

)

vs. ) Phoenix, Arizona

) September 28, 2023

Michael Lacey, et al., ) 8:49 a.m.

)

Defendants. )

_____________________________ )

BEFORE: THE HONORABLE DIANE J. HUMETEWA, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS

JURY TRIAL - DAY 14, A.M. SESSION

Official Court Reporter:

Jennifer A. Pancratz, RMR, CRR, FCRR, CRC

Sandra Day O'Connor U.S. Courthouse, Suite 312

401 West Washington Street, Spc 42

Phoenix, Arizona 85003-2151

(602) 322-7198

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

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UNITED STATES DISTRICT COURT

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A P P E A R A N C E S

For the Government:

UNITED STATES ATTORNEY'S OFFICE

By: Kevin M. Rapp, Esq.

Andrew C. Stone, Esq.

Peter S. Kozinets, Esq.

Margaret W. Perlmeter, Esq.

40 N. Central Avenue, Suite 1800

Phoenix, AZ 85004

UNITED STATES DEPARTMENT OF JUSTICE

By: Austin Berry, Esq.

1301 New York Avenue NW, 11th Floor

Washington, DC 20005

For Defendant Lacey:

LIPTSITZ GREEN SCIME CAMBRIA, LLP

By: Paul J. Cambria, Jr., Esq.

42 Delaware Avenue, Suite 120

Buffalo, NY 14202

For Defendant Spear:

KESSLER LAW OFFICE

By: Eric W. Kessler, Esq.

6720 N. Scottsdale Road, Suite 210

Scottsdale, AZ 85253

FEDER LAW OFFICE, PA

By: Bruce S. Feder, Esq.

2930 E. Camelback Road, Suite 160

Phoenix, AZ 85016

For Defendant Brunst:

BIRD MARELLA BOXER WOLPERT NESSIM DROOKS

LINCENBERG & RHOW PC

By: Gary S. Lincenberg, Esq.

Gopi K. Panchapakesan, Esq.

1875 Century Park E, Suite 2300

Los Angeles, CA 90067

For Defendant Padilla:

DAVID EISENBERG, PLC

By: David S. Eisenberg, Esq.

3550 N. Central Avenue, Suite 1155

Phoenix, AZ 85012

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A P P E A R A N C E S (Continued)

For Defendant Vaught:

JOY BERTRAND, ESQ., LLC

By: Joy M. Bertrand, Esq.

P.O. Box 2734

Scottsdale, AZ 85252

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UNITED STATES DISTRICT COURT

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I N D E X

WITNESSES FOR THE DIRECT CROSS REDIRECT RECROSS

GOVERNMENT:

Carl Ferrer

By Mr. Lincenberg 10

E X H I B I T S

NO. DESCRIPTION REC'D

886-a

8

5364

5427

5459

5443

5415

Attachment, Answer

DOJ-BP-0002711454

LOI re Sale of Membership Interest in

Dartmoor Holdings, 12/29/2014

DOJ-BP-0001862566 - DOJ-BP-0001862576

04.16.15 Backpage - Restructuring and Sale

of Business

DEFENSE 006132-006142

04.22.15 Loan Agreement ($525,700,000.00)

(Backpage US Operations)

(Vermillion/Shearwater/Atlantische)

DEFENSE 015986-016050

04.22.15 Loan Agreement ($77,005,592.50)

(UGC Foreign Operations)

(Vermillion/UGC)

DEFENSE 016869-016217

04.22.15 Purchase and Sale Agreement

(Vermillion/UGC)

DEFENSE 016699-016829

04.22.15 Membership Interest Purchase

Agreement (U.S.)

(Vermillion/Dartmoor/Atlantische)

DEFENSE 016469-016599

23

76

83

87

89

89

89

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UNITED STATES DISTRICT COURT

5

1214-a

5474

6196

Attachment, First Loan Modification

Agreement, USAO-BP-025442 - USAO-BP-025454

12.29.15 Forbearance Agreement (Backpage US

Operations) (Atlantische/Shearwater)

DEFENSE 016371-016378

06.09.16 Email from C. Ferrer to M. Gage re:

"The note(s)"

DOJ-BP-0002741887

93

95

97

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UNITED STATES DISTRICT COURT

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P R O C E E D I N G S

(Proceedings resumed at 8:49 a.m.)

(Jury not present.)

THE COURT: Good morning, and please be seated.

I just wanted to say that -- and we do have all of our

jurors present.

I just wanted to say with regard to that Exhibit 6025,

I believe, I reviewed the prior record and what my statement

was in response to Mr. Panchapakesan raising it. I did tell

you that you could ask questions about that exhibit but that it

wouldn't be admitted. But, again, I point out that I do

believe that the second page of that is already admitted as

4 -- 474, I think.

So did you have an opportunity to look at that?

MR. LINCENBERG: Is the Court referring to look at the

subsequent redactions that government counsel had requested and

agreed to?

THE COURT: Well -- your microphone needs to be on.

I'm referring -- I'm referring to that exhibit and

I -- and I told you that you could ask questions about it but

that because of the references that are in there to the Dart

litigation, the complaint being filed and so on, that it would

likely not come in.

But you both together looked at redactions, and I

don't -- I didn't hear the government object to it, and again,

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UNITED STATES DISTRICT COURT

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I say that I do believe the second page of that document is in

evidence at 474.

MR. LINCENBERG: 474 seems to be the lead-up --

THE COURT: Yes.

MR. LINCENBERG: -- to it.

THE COURT: Yes.

MR. LINCENBERG: Right. And then so it -- we're

looking at --

THE COURT: The first page, which has that big

redaction flag on it.

MR. LINCENBERG: Right. And we were seeking to admit

6025 because it contains the further email.

THE COURT: Mr. Rapp?

MR. RAPP: Okay. Wait a minute.

THE COURT: All right. Mr. Rapp?

MR. RAPP: Yeah. So the only -- we got the

redactions, and the only issue we had with the redactions is

the protected speech portion of that because that is clearly a

veiled reference to the Dart litigation.

THE COURT: Well, it is, in the context of the full

email, all related to the Dart litigation. But I think, as

we've discussed before, it's a fair point with regard to if

Mr. Ferrer or the others who are charged here had a thought

that this was protected speech.

Here, this relates to whether or not the credit card

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UNITED STATES DISTRICT COURT

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companies were operating with that in mind or not. But --

MR. RAPP: Right. So I think that's our problem, is

that what they're trying to suggest is that Visa is taking the

position that they have protected speech, and so that would --

and they'd be offering that for the truth. And that is, you

know, how do they -- how does Mr. Ferrer know that Visa is

taking some type of position that allowing Backpage to use

Visas for processing somehow suggests that Visa believes that

this is protected speech?

I think that there's a lot of layers to that, and I

just think it's a very confusing statement, and it really is

Backpage who's trying to take the position that this is

protected speech because of the Dart litigation and perhaps

other litigation. And so that's why we think it's confusing

and it's -- it's within the context of the Court's previous

orders.

THE COURT: Well, again, it's -- there are different

points to this. I think what I'll permit Mr. Lincenberg to do,

if he wishes to, he can refer to that first redacted page, but

it won't come in just because of the multiple redactions that

would need to be made to it.

But you certainly can ask about it, as I think you

have already.

MR. LINCENBERG: Right. We already covered that.

THE COURT: But it won't come in. So let's move

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forward.

And let's bring up --

MR. LINCENBERG: Your Honor --

THE COURT: Can we have our witness --

MR. LINCENBERG: We have another issue.

THE COURT: Okay. Let's take that up in the break.

All right. Let's have our witness take the stand and

bring our jury in.

All rise for the jury.

(Jury present.)

THE COURT: All right. Please be seated.

And the record will reflect the presence of our jury.

The witness is on the stand.

And while it is on my mind, members of the jury, as I

told you earlier this week, we were looking like we were headed

towards a government shutdown. We, of course, will not know

that until over the weekend.

But, again, we will be in court session -- if that

does occur when we have a break next week, assuming there

continues to be a shutdown, we'll still have trial the

following Tuesday. There are going to be some impacts. We are

in a government building, and so there will likely be light

government staff, although the court will be operating.

So all this to say there won't be likely a kiosk open

for coffee or lunch. You may have to bring your own lunch. Of

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CARL FERRER - CROSS-EXAMINATION

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course, the restaurants outside will probably be open. But do

be prepared for that in any event.

Certainly, if the Jury Administration Office calls you

and tells you not to come, then you should not come. But

otherwise, we'll expect to be here. We are all essential,

apparently. You are the most essential to this process.

So let's move forward, Mr. Lincenberg.

MR. LINCENBERG: And, Your Honor, we should probably

note there's not going to be air conditioning.

THE COURT: No. Please, let's dispel the rumor. We

will be in an operational building.

MR. LINCENBERG: I'd like to have placed before the

members of the jury and the witness Exhibit 885 which is in

evidence. And to give everybody frame of reference, that was

an October 6th, 2015 --

THE COURT: Can you -- let's --

MR. LINCENBERG: Can you hear me?

Is that better?

THE COURT: Yes.

CARL FERRER,

called as a witness herein by the Government, having been

previously duly sworn or affirmed, testified as follows:

CROSS-EXAMINATION (Continued)

BY MR. LINCENBERG:

Q. Exhibit 885 relates to October 6th, 2015, and this deals

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CARL FERRER - CROSS-EXAMINATION

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with Bank of Montreal requests for information about Website

Technologies' responses to AML request. So I'd like to just

walk through this exhibit with you.

So, first of all, if we look at the top, at the top

there's an email from Mr. Brunst to you and your CFO, Nathan

Kopecky, saying: This is what I sent to BMO a few months back

asking about WT business.

Do you see that?

A. I do.

Q. All right. Then let's look lower. And lower we're

referring to the August 2015 time frame with responses for BMO.

Do you see that?

A. I do.

Q. Okay. And then if we look down, for example, on the page

where it's on the screen, Website Technologies, there was a

bullet: Please explain their business.

And that was, as you understood it, part of the email

from BMO, correct? BMO being Bank of Montreal.

A. Yes.

Q. Okay. And then in capital letters was information that you

had supplied as an explanation of Web Technologies' business.

Is that right?

A. Would you say that again?

Q. Yes. The capital part here, which is the response to the

explanation, had been information that you had forwarded to be

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CARL FERRER - CROSS-EXAMINATION

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provided to Bank of Montreal providing an explanation of

Website Technologies' business. Is that correct?

A. No. It's not correct.

Q. What is not correct about that?

A. Jed Brunst is writing this to BMO in August of 2015, so

those are his words.

Q. So the words in capital are, you're saying, words that were

typed in by Mr. Brunst?

A. Yes.

Q. So where it says, for example, that Website Technologies is

a service company to Backpage.com, those are Mr. Brunst's

words?

A. Well, it says more than that.

Q. I'm going to get into the rest of it. Let's pause with

that.

A. You're --

Q. Those are Mr. Brunst's words?

A. That WT is a service company is there, and so is to

Backpage.com.

Q. All right. And then where it talks about also providing

services to Univision, what was Univision?

A. Univision is a licensee that we set up a classified site to

run on their URL, but it's actually all of the -- just the

Backpage content that's repurposed in the Univision domain.

Q. So --

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CARL FERRER - CROSS-EXAMINATION

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A. Any transactions -- I'm not done.

Any transactions that come through Univision, though,

will say Backpage.com on the credit card statement.

Q. So did Website Technologies also provide services to

Univision?

A. We did.

Q. All right. And did Website Technologies provide services

to other independent third-party licensees of Backpage?

A. Well, actually, that's incorrect. I misspoke. I believe

the licenses are actually from Backpage.com to these companies

and not Website Technologies.

Q. Okay. So is it your testimony, then, that this information

here which you say Mr. Brunst drafted is false? Or inaccurate?

Is that your testimony?

A. Let me read it one more time.

What you had said was false that Website Technologies

was providing the software, when in fact Backpage.com had the

license agreement with Univision and other independent

third-party licenses, so in that aspect is not correct.

Q. You said what I said is false. I'm asking you if what is

written here in the large typed letters is accurate in terms of

what the company has set up for -- to handle IT development and

maintenance.

A. It's inaccurate in that Website Technologies is just a

shell company that's -- Backpage.com is depositing funds into

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CARL FERRER - CROSS-EXAMINATION

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the Website Technologies company.

Q. So that's inaccurate?

A. It's -- it's another case of it's not transparent.

Q. Okay. So I think the way you described it in your earlier

testimony is that it was accurate but that it's -- it's not,

we'll use your term today, transparent. It's not providing

more information.

A. Well, it's not -- it is -- there's parts of it here that

you might -- you could argue --

Q. I'm not arguing. I'm asking you, is there anything in this

statement that is inaccurate as stated?

A. And I stated it is -- it is not transparent.

Q. Okay. Does "not transparent" mean that it is -- let's use

your term -- technically accurate but further information could

have been provided?

A. Seems like a good description.

Q. Okay. Now, let's move to Exhibit -- let me just ask one

more question about that exhibit.

So if the bank had a concern about whether or not

Website Technologies was affiliated with Backpage, certainly

this email explanation noted that Website Technologies had an

affiliation with Backpage. Right?

A. This response that Jed Brunst wrote does suggest an

affiliation with Backpage.com. It's listed there.

Q. All right. Let's explore further this testimony you've now

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CARL FERRER - CROSS-EXAMINATION

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given that Jed Brunst drafted this language.

So, first of all, is that something that you ever told

the government in any of your interviews?

A. What I am saying --

Q. Yes or no? I'm asking about what you told the government.

Is that something you ever told the government in any

of your 30 interviews?

A. I think it's clear in the emails and the exhibits that we

went through the government.

Q. Sir, please answer my question.

A. So --

Q. I'm asking what --

A. I am answering you.

Q. No, you're not.

MR. LINCENBERG: Your Honor, I move to strike.

THE COURT: All right. Let's -- again, let's set the

rules. Don't speak over one another.

And again, Mr. Ferrer, listen to the question, and if

you can answer it yes or no, do so, and then you can have an

opportunity to clarify later on.

THE WITNESS: Yes, Your Honor.

BY MR. LINCENBERG:

Q. Simple question: Is that something that you told the

government in any of your 30 meetings with them, that Jed

Brunst wrote it? Yes, no, I don't recall? Love an answer.

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CARL FERRER - CROSS-EXAMINATION

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A. I didn't feel it was necessary because it's -- it's in the

email.

Q. Okay. It's in the email that Jed Brunst --

A. Yes. It's clear as day that he wrote this email. This

isn't -- you know, I may have helped Jed Brunst, suggestions

and gave him a list of other licensees that Backpage had

licensed. But I did not write this email to BMO.

Q. Let's explore that point further. Let's look at

Exhibit 886, which is in evidence, if we can publish that.

All right. So, first of all, let's start from the

bottom of this email chain. So first we have an email that

appears to be the first email in this chain being from Ilona

Nicholls of Bank of Montreal to Mr. Brunst on October 6th at

7:11 a.m.

Do we see that?

A. Yes.

Q. And the subject is: Just need to update our files.

See that?

A. Yes.

Q. And then if we look down, we see one of -- that

Ms. Nicholls is saying: We see that we are receiving a number

of wires from overseas. We would like to know who are the

clients are that are paying through these two companies.

Do you see that?

A. Yes.

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CARL FERRER - CROSS-EXAMINATION

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Q. And then there's an answer that is in blue below.

Do you see that?

A. Yes.

Q. And is that something that Mr. Brunst drafted?

A. No. He asked for suggestions. I drafted it for him.

Q. Okay. So you drafted -- in there, for example, it says:

Borgun Bank is the acquirer for credit card transactions.

Do you see that?

A. Yes, I do.

Q. And then it talks about the sites include, and it lists a

whole bunch of different sites. And if we can flip to the next

page, there's some more, including Cracker and Backpage and

Trucker Jobs and so forth.

Do you see that?

A. I do.

Q. Okay. And then we see also it says: We would like a more

detailed description of what Website Technologies does.

Do you see that?

A. I do.

Q. And then the answer is -- talks about that you own Website

Technologies.

Do you see that?

A. Yes.

Q. All right. And then it talks about Website Technologies

provides the following services, and it goes through five

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CARL FERRER - CROSS-EXAMINATION

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different services.

Do you see that?

A. Yes.

Q. And who drafted that?

A. This would be -- I drafted it at the request of Jed Brunst.

Q. Okay. So this information about Website Technologies and

the URLs associated with them and what the services are was

drafted by you, correct?

A. It was drafted by me to help Brunst in his reply.

Q. Right. And let's move up the page to the email in the

string above that, which is Mr. Brunst forwarding to you,

saying: This is a question for the Bank of Montreal banker.

You should let her know that Website Technologies is owned by

you and not us.

Do you see that?

A. I do.

Q. Okay. So this is when Mr. Brunst gets a request from

Website -- from Bank of Montreal. He forwards it to you to

gather the information to answer the bank's questions.

Correct?

A. Not correct.

Q. All right. Let's move up to the top email.

So we have here -- I'm sorry.

First, you reply, draft: Here's a draft response to

BMO's request for information. Please help me edit for

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CARL FERRER - CROSS-EXAMINATION

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clarity. Answers in blue.

And the answers in blue are the answers below. Right?

A. That's right.

Q. The answers provided by you, correct?

A. This is a draft of --

Q. Were those the answers provided by you?

A. No.

Q. Okay.

A. This is a draft of answers that I want Jed Brunst to help

me with, and he's asking me, Carl, you're going to have to

reply to the bank because now you're the owner.

I don't know what to write. So I'm putting down ideas

to get help from Jed Brunst to say exactly what I need to say

to BMO so we don't lose this bank account. Like, this is a

crisis.

Q. All right. So you're putting -- when you say you're

putting down ideas, what you're writing down, if we can go back

to the bottom again, are the answers to the bank's questions.

Correct?

A. This is a draft.

Q. Right. It's a draft.

So let's go up to the top now, where you send this to

Mr. Brunst, and he says: Here are my suggested revisions.

Please edit them however you see or ignore them altogether,

just my thoughts.

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CARL FERRER - CROSS-EXAMINATION

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Do you see that?

A. I do.

MR. LINCENBERG: All right. And if I could place for

the witness's eyes only Exhibit 886 for identification. And

remember that there's an attachment -- 886-a? What did I --

886-a for identification.

BY MR. LINCENBERG:

Q. And I just pointed out, at 886 it says attached are some of

his suggestions to what you wrote.

Do you recall that?

A. Correct.

THE COURT: Let me confirm that -- I know 886 has been

admitted. I don't know about 886-a so let me confirm.

MR. LINCENBERG: It has not been.

THE COURT: It has not, okay. I just want to make

sure it's not on the screen then.

MR. LINCENBERG: No. That's why I indicated for

identification, for the witness's eyes only.

BY MR. LINCENBERG:

Q. And does this appear to be the edits that Mr. Brunst

provides to the answer?

A. I'm going to need some time to read this.

Q. All right. And if you'd like, by the way, we can put this

side by side to the answers that you drafted in 886 so that you

can compare them.

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A. You know, can you -- can you point out the differences?

Because it's going to take a long time.

Q. I'm going to point to some of the differences. I want to

first confirm -- the government introduced 886 without the

attachment, 886-a being the attachment. I'm going to move that

into evidence.

MR. LINCENBERG: Why don't I just move that into

evidence first and see if the government has an objection.

THE COURT: Well, he said it's going to take him some

time to review it. I don't know how many pages the document

is, so let him review it.

MR. LINCENBERG: Sure. And, Your Honor, it's -- and

for the jury, it's one page, basically.

THE COURT: Let him take some time.

MR. LINCENBERG: Okay.

THE WITNESS: Is it possible you could pull up so I

could see the page where -- thank you.

BY MR. LINCENBERG:

Q. There you go. Yep.

A. Thank you.

MR. LINCENBERG: I'm going to assist the witness. For

the witness's eyes only, I'm going to underline so he can see a

couple of the edits.

THE WITNESS: There appears to be a number of

differences here.

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BY MR. LINCENBERG:

Q. So let's go through them.

A. Okay. Yeah. I'll just say it's got a number of

differences.

Q. And I'd like to go through those.

MR. LINCENBERG: Your Honor, could we move --

MR. RAPP: But not until it's in evidence.

THE COURT: Yeah. You can ask some questions about

it, but --

MR. LINCENBERG: Well, I'd like to move it into

evidence so that the jury can follow along as we compare the

edits to what was --

THE COURT: Why don't you lay foundation a little bit

more for whatever this "a" is.

MR. LINCENBERG: Sure.

BY MR. LINCENBERG:

Q. Does this appear to be edits to the -- what you drafted?

A. It's really impossible to know what the edits are because

it's not like a Word doc that shows, you know, his version

versus my version. It's all just blended together.

Q. Let me ask the question again: Do these appear to be the

edits that Mr. Brunst provided which were attached to

Government Exhibit 886?

A. I have seen differences between what I suggested and what

Mr. Brunst has indicated in this attached doc.

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Q. Right. Those would be the edits, right?

A. What's that?

Q. Those would be the revisions, as you point out.

A. Yes. But they're impossible to determine --

Q. Okay.

A. -- without going word by word.

Q. Right. Well, we'll go through some of them.

MR. LINCENBERG: Your Honor, we'd move 886-a into

evidence.

MR. RAPP: Object on foundation. I don't know -- I

don't know who wrote what in this.

MR. LINCENBERG: The witness just --

THE COURT: Why don't you ask him.

BY MR. LINCENBERG:

Q. Well, your understanding is that 886-a were the edits that

were sent back to you by Mr. Brunst, correct?

A. I believe that this is the attachment with the information

that he wants me to reply to the bank with.

MR. LINCENBERG: Your Honor, we move 886-a into

evidence.

THE COURT: It may be admitted.

(Exhibit No. 886-a admitted into evidence.)

MR. LINCENBERG: If I can publish to the jury.

THE COURT: It may be published.

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BY MR. LINCENBERG:

Q. Let me make it clear.

Let's start -- I'm going to go through some of these.

You can point out others if you want. I'm not going to take

the jury's time on every little "a" versus "the." But let's

just start with some of these and have the jury follow along.

So, for example, on the right side of our screen here,

we have what you had drafted where you said Bank Frick in

Liechtenstein is the acquirer for credit card transactions.

And Mr. Brunst's edit as we see on the left side of the screen

is that Bank Frick in Liechtenstein is also an acquiring bank.

Do you see that?

A. Yes.

Q. So the edit there is that you had indicated that Bank Frick

was the acquirer. Mr. Brunst edited so that the bank would

know that it was one of the acquirers. Right?

A. Correct.

Q. Okay. And in here, you had indicated that Borgun makes --

or that, if you look at -- where is Borgun?

There we go. As we move back to -- good. As we move

back to page 1 of 886, you had provided an answer that Borgun

Bank is the acquirer for credit card transactions, and

Mr. Brunst had edited to say Borgun Bank is one of the

acquiring banks.

Do you see that?

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A. I do see it.

Q. Okay. So these are edits which are basically wordsmithing

to indicate a little more clarity to what you're writing. You

had written it's the acquiring bank and he said, well, we

should let them know there's more than one, so he said it's an

acquiring bank. Right?

MR. RAPP: Well, objection. Objection. Compound

question and confusing.

THE COURT: Sustained. Rephrase.

BY MR. LINCENBERG:

Q. Would you agree that that's just wordsmithing to add a

little clarity?

A. It's actually inaccurate.

Q. Okay.

A. And I can tell you --

Q. How is it inaccurate?

A. I can explain -- may I explain?

Q. Yeah. How is it inaccurate?

A. It's inaccurate because we only had one acquiring bank in

Iceland: Borgun. We only had one acquiring bank in

Liechtenstein: Bank Frick.

So I -- kind of like my version is more accurate.

Q. So you like your version better, but his edit under

Iceland: Just to note that Borgun Bank is one of the acquiring

banks used by Website Technologies.

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Right?

A. Borgun Bank is an acquiring bank used by Website

Technologies.

Q. Right. He doesn't say that it's -- that there's more than

one in Iceland. He says it's one of them. And then lower, for

example --

A. Well, wait a second. "One of them" implies multiple banks

in Iceland. And that means more than one.

Q. Where does it imply multiple banks in Iceland? He says

Borgun Bank -- it's discussing Iceland, and he's noting that

Borgun Bank is one of the acquiring banks used by Website. And

then under subpoint 2, for example, he says: Bank Frick is

also an acquiring bank.

Correct?

A. Okay.

Q. All right. Now, if we can put the matching descriptions

up -- I don't want to go through every "a" versus "the" in this

document. But are there any others that you see that are

substantive edits which you believe are inaccurate?

A. What are you referring to?

Q. I don't know. I don't see any substantive edits.

A. Then I'm going to need --

Q. I'm asking you if there's --

A. I'm going to need more time.

Q. All right. Then why don't we do this: If there's anything

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CARL FERRER - CROSS-EXAMINATION

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you want to add, you can talk to Mr. Rapp, and during redirect

you'll have an opportunity to go back to that. Okay?

A. You're asking me to find the differences. I'm certain I

can find the differences, but --

Q. Right.

A. -- to do that, I'm going to need more time.

Q. And so that's why I'm saying you'll have time to talk with

Mr. Rapp about this, and he can come back to it on redirect.

Okay. Let's move on. We can take this down.

Oh, I'm sorry. I wanted to go back to 886, at the

top -- we covered that. Okay. Let's move on.

Now, in the 2011 time period, you testified that there

were some attempts to sell Backpage. Correct?

A. Correct.

Q. All right. And at that time, the investment banking firm

of Duff and Phelps was retained to assist in that process.

Correct?

A. Correct.

Q. All right. And at that time, the Village Voice Media

Holding Companies was owned 38 percent by another investment

banking firm called Goldman Sachs. Correct?

A. I don't know that.

Q. You don't know the specific percentage?

A. I -- once again, they didn't share that information with

me. I'm not an owner.

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Q. So your testimony is that you did not know that Goldman

Sachs was a part owner of Village Voice Media Holding

Companies? Is that your response?

A. I learned it through the Nicholas Kristof column.

Q. And what about Alta, another investment bank? Were you

aware that they had owned 14 percent of the holding company at

that time?

A. I'm familiar with Alta. I guess, you know, the time frame,

when you say do I know these people, you got to ask what year

are we talking about.

Q. 2011. Let's just use 2011.

A. I think in 2011 I'm not aware of Alta.

Q. Okay. Now, the retention of Duff and Phelps, one of the

purposes was to help identify value for the company that was --

for Backpage, if it was going to be marketed to potential

buyers. Right?

A. I'm sorry.

Q. Did Duff and Phelps help in establishing a price that

Backpage would be offered to potential buyers?

A. I really can't answer that. It's a conversation that would

have occurred between Brunst and Duff Phelps. I mean, I'm not

aware who set the price.

Q. I didn't ask who set the price. I asked if Duff and Phelps

assisted in setting the price.

You testified to two PowerPoints --

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A. Well, that's -- that's a big difference. I don't know who

set the price. I don't know whether it was a number that

Brunst picked. What I know --

Q. You don't know if it's a number that anybody picked.

You're saying you don't know. Right?

A. I don't know.

Q. My question is not whether you knew or not. My question is

whether Duff and Phelps helped work in reviewing the financials

of Backpage to set a price.

You've testified to --

MR. RAPP: Wait. Objection. Foundation and now

we're -- we've got two different questions going on here.

THE COURT: Well, I think --

MR. LINCENBERG: Withdraw it.

THE COURT: Yes. The foundation had been laid

previously. Unless I'm hearing things differently, I thought

the witness testified he didn't know what was going on at that

time, so let's move forward.

MR. LINCENBERG: But he testified differently. He

testified that he didn't set the price.

BY MR. LINCENBERG:

Q. Sir, you testified extensively on direct examination, for

example, about a Duff and Phelps presentation, which was

Exhibit 120 that the government moved into evidence. Correct?

A. We did work together on that presentation.

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Q. And then you testified later about a PowerPoint that Duff

and Phelps had prepared in, I believe it was September of 2011.

Correct?

A. Yes, but none of that talks about price --

MR. LINCENBERG: Move to strike after "Yes."

THE COURT: Yes, it may be stricken and the jury will

disregard.

BY MR. LINCENBERG:

Q. So let's look at Exhibit 655, which you testified about --

well, first, 655 is an email in March of 2011. And it's an

email up top from Mr. Brunst to you and copy to Mr. Spear.

Correct?

And was this around the time that Duff was hired?

A. I believe Duff Helps -- Duff Phelps was hired in 2011.

Q. And let's look at Exhibit 120 in evidence. Let's first

look at the table of contents. If we go to the table of

contents.

So 120 is a September 2011 management presentation.

Correct?

A. Correct.

Q. And we look at -- go to the table of contents. There we

go.

So this presentation, this was part of the materials

that Duff had prepared to assist in selling Backpage, correct?

A. That's my understanding.

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CARL FERRER - CROSS-EXAMINATION

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Q. Okay. And the table shows some of the different categories

that are part of this presentation, correct?

A. Correct.

Q. And let's just look at a few of the slides. Let's look at

the slide -- actually, let's keep this on the screen and get

back to it for a moment.

During that time period, were you providing

information about different, for example, vendors for Duff and

Phelps?

A. At Jed Brunst's request, I sent them to Jed.

Q. Right. And were you also gathering five-year projections?

A. I was requested to write a five-year projection, an

aggressive one, yes.

Q. And did you provide information about expansion ideas in

Europe?

A. I did.

Q. And you testified -- you sort of snuck in the word

"aggressive" a moment ago. And you testified on direct

examination that Jed Brunst and Mr. Spear were, quote,

extremely aggressive in the requests for higher projections.

Do you recall that?

A. I do.

Q. All right. And was the trial the first time -- we can take

this down.

Was the trial the first time that you had ever told

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CARL FERRER - CROSS-EXAMINATION

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that to the government?

A. No. I'm certain.

Q. So you're certain that that was in some of the 30

interviews that you had with the government, that Mr. Brunst

was extremely aggressive in requests for higher projections?

A. I'm certain that I described Mr. Brunst as -- and Scott

Spear as aggressive in projections, and with Mr. Brunst in

particular, collections of money.

Q. We're going to get to collections. All right.

So you're certain you described that he was extremely

aggressive in connection with these revenue projections. Fair?

A. Say that again one more time. Sorry.

Q. I'll move on. It was asked and answered.

All right. And let me just bring back up the email

that I had up on the screen, 655.

And we see here where it says in March of 2011, if you

could spend some time and start putting together -- oh, begin

putting five-year projections together, which include your

expansion ideas. If you could spend some time and get your

thoughts together for a call.

Do you see that?

A. Yes, I do see it.

Q. And is this email the type of language that you referred to

as extremely aggressive? Yes or no?

A. The aggressiveness is not -- it occurs with the other

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CARL FERRER - CROSS-EXAMINATION

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emails and meetings.

Q. All right.

A. They're not happy with the projections I give.

Q. All right. So then when you say others, you'd agree, this

email does not suggest some extreme aggression, correct?

A. No. There's -- the context would be in the future meetings

that occur after this email.

MR. LINCENBERG: Okay. Let's move to Government

Exhibit 498 for identification, and show the witness the cover

page.

BY MR. LINCENBERG:

Q. So do you recall Duff preparing a lengthy memorandum in

detail to be used in connection with meetings with potential

purchasers of Backpage?

A. Can I see more --

Q. Sure.

A. -- pages of this?

Q. And I'll represent to you this is a 71-page document, but

maybe flip to the next page and blow this up a little bit,

so...

A. Can I see some of the other pages, please?

Q. Sure.

But before we move to the other pages, if we can go

back, you recall that the Confidential Information Memo is

based on information provided by Backpage. You see that? It's

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CARL FERRER - CROSS-EXAMINATION

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being delivered on behalf of the company by Duff to a limited

number of parties who may be interested in pursuing a

transaction.

Does that help jog your memory?

A. I have to tell you, I don't recall ever seeing this

document. I think it just went to the owners.

Q. Let's go to the next page. Table of contents. Summaries,

investment considerations, business overview, strategy, and so

forth.

Does that help refresh your memory?

A. Can we see some actual pages?

Q. Sure. Let's keep going.

Executive summary.

A. Can I see additional pages, please?

Q. Sure.

A. Okay.

Q. You keep flipping some of the pages.

A. Okay. I recognize the content on these pages.

Q. In fact, you provided a lot of content to Duff to --

because they were looking for information about Backpage in

connection with potential sale, correct?

A. I thought that content went to Scott Spear and Jed Brunst.

They gave it to Duff Phelps.

Q. Okay. Fair enough.

And by the way, if we notice -- we're looking at one

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CARL FERRER - CROSS-EXAMINATION

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of the pages, looks like it's the cover page. You see there's

three different Bates numbers?

A. Yes, I do.

Q. And isn't it true that Backpage produced this document in

response to three different requests, one being the Arizona

grand jury?

A. I believe so.

MR. LINCENBERG: All right. Your Honor, we would move

this document into evidence on the same basis, 901, that the

government moved documents into evidence with Mr. Ferrer

whether he recalls seeing them or not.

MR. RAPP: Well, I don't -- I don't have an objection

to the authenticity. I have an objection to the fact that it

is 50 pages of hearsay and it's got -- it has pages that are

violative of the Court's previous order.

MR. LINCENBERG: So, Your Honor, if there's any pages

violative, it can be redacted. This is a government's exhibit.

If they had anything needing to be redacted, they could have

redacted it. And it relates to completeness because the

government put PowerPoints by Duff, and this is the lengthy

document --

Is this too loud?

THE COURTROOM DEPUTY: It's coming in and out.

THE COURT: You're going in and out.

MR. LINCENBERG: Liliana's suggesting I switch this.

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Sorry.

Testing. You have to switch it. There.

THE COURT: I'm going to sustain the objection not

only on the grounds that the government said, but I just heard

the witness say he didn't recognize the document. He

recognized some of the content in the pages he looked at.

MR. LINCENBERG: I'd like --

THE COURT: He did not recognize -- he's never seen

the document, so I'm going to sustain the objection.

MR. LINCENBERG: Well, Your Honor, the government

introduced a lot of exhibits that he said he never saw, but

they were 901, and these were documents he produced.

THE COURT: I sustained the objection. And further,

if there's redactions to be made, then they should have been

made prior to any motion to admit.

So sustained.

BY MR. LINCENBERG:

Q. All right. Well, let me just, without publishing the

document, ask -- you said that there's some information you

recognize in here. Let me go through some of the pages and see

if you recognize some of this information in Government

Exhibit 498 for identification.

So --

MR. RAPP: Judge, I'll object to the extent he intends

on reading from this document that is not in evidence in an

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effort to see if he recognizes it.

THE COURT: Well, let's see what the questions are

first.

BY MR. LINCENBERG:

Q. All right. Let's turn to page 17. And if you can look at

the section under Rigorous Quality Control and tell us if you

recognize that.

MR. RAPP: Right. So now he's just reading from the

document.

THE COURT: Well, Mr. Ferrer can read whatever that

content is, but not Mr. Lincenberg.

MR. RAPP: Very well.

THE COURT: And he can say if he recognizes it or not.

THE WITNESS: So what was the question?

BY MR. LINCENBERG:

Q. Do you recognize this content?

A. I recognize the language is how we would later use to

describe moderation.

Q. Okay. And was this language accurate or inaccurate?

I'm not looking for --

A. Well, I guess --

Q. -- a narrative. Just, was it accurate or inaccurate?

THE COURT: Don't speak over one another, again,

please.

MR. LINCENBERG: Your Honor, he hadn't spoken yet.

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THE COURT: He was.

THE WITNESS: It's -- it's really talking about -- you

asked me is it accurate or inaccurate, and I guess I really

can't answer that. It would be misleading for me to say yes or

no. So I -- I'd need to explain.

BY MR. LINCENBERG:

Q. Let's look at page 18.

Is the section -- take your time to read the section

on Proactive Regulatory Philosophy, and tell us if -- first, if

you drafted it.

A. I did not draft this.

Q. Do you know who did?

A. I did not write this.

Q. Do you know who did?

A. Oh, do I know who did?

Q. Know.

A. The date again is 2011?

Q. Right.

A. I'm not sure.

Q. Okay. And did you -- does this refresh your memory of

having read this Confidential Information Memorandum?

A. You mean this slide?

Q. Yeah. Does it help refresh your memory of having reviewed

the document that Duff was using in connection with helping to

sell the company?

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A. It doesn't.

Q. All right. Let's look at page 20. Company Overview.

Do you recognize that language?

A. I -- I don't recognize this language.

Q. Okay. Let's look at page 25.

Do you recognize this Ad Volume and Revenue By

Category?

A. I recognize this because we would use this in PowerPoints

when seeking buyers and investors.

Q. And when you say you would use this language elsewhere, you

would use language, for example, disclosing that 93, 94 percent

of --

MR. RAPP: I'm going to object. He's reading from --

BY MR. LINCENBERG:

Q. -- revenue was in the Adult category?

MR. RAPP: He's reading from a document that's not in

evidence.

THE COURT: Sustained.

BY MR. LINCENBERG:

Q. Sir, in disclosures to potential buyers, did you -- and the

Duff documents that you did review, disclose that 93.40 percent

of revenue from Backpage was in Adult categories?

A. Yes, we did.

Q. That wasn't concealed from potential buyers, right?

A. It's buried in the PowerPoints.

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Q. Okay. And when you say "buried in the PowerPoints," is the

suggestion -- well, one of the potential buyers in that time

period was a company called Craig Capital. Correct?

A. Correct.

Q. Pretty sophisticated firm, as far as you understood?

A. I wasn't too familiar with firms and buyers, so I have a

hard time knowing -- being able to answer that.

Q. Okay. And is the suggestion about it being buried, is it

your understanding that a potential buyer would not review all

of even a PowerPoint before spending hundreds of millions of

dollars on a purchase?

A. No. I believe they would review it, and we did disclose

it. We even said plausible deniability.

MR. LINCENBERG: Move to strike the other stuff that

Mr. Ferrer wants to add that he said and have him focus just on

the question that I asked.

THE COURT: What is the part that you want stricken?

MR. LINCENBERG: The plausible deniability part that

he's throwing in.

THE COURT: All right. The jury will disregard that

portion of his testimony.

BY MR. LINCENBERG:

Q. Sir, isn't it true that where this phrase that you used,

plausible deniability, was used was because you understood that

a customer who might go on any adult site might not want it to

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CARL FERRER - CROSS-EXAMINATION

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reflect on their credit card statement what that site is?

A. I -- I don't understand that question.

Q. Let me try to help you understand it.

Let's say somebody is -- Playboy's not published

anymore, but let's say somebody is subscribing to Playboy, but

they don't want on their credit card statement $36 to Playboy

or Hustler or Penthouse. So the description is one that would

give them plausible deniability if their girlfriend or wife or

whoever might look at it.

Isn't that what plausible deniability referred to?

A. Not in this case. It's -- because the credit card

transactions at this time would have said Backpage.com.

Plausible deniability meant that we had the veneer of a general

classified site even though 93.4 percent of our revenue was in

adult.

Q. When you say "the veneer," every one of these credit card

applications disclosed that they were related to Backpage.

Right? Every one of these payment processing applications.

Right?

A. Yes.

Q. And it doesn't take a brain surgeon to know that Backpage

was all over Google as being in the adult category. Correct?

A. Well, I -- I don't know what you're asking.

Q. I'll withdraw the question.

Let me direct your attention to Exhibit 120-a in

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evidence and ask that that be published.

Now, 120-a was a government exhibit that you testified

to, and this is an email in September of 2011 from Jacob

Rapp -- I'm assuming no relationship to Mr. Rapp.

MR. RAPP: Nope.

BY MR. LINCENBERG:

Q. -- from Jacob Rapp at Duff and Phelps -- we'll take his

answer. Even though it's not under oath, we'll accept it --

from Jacob Rapp at Duff and Phelps to Carl Ferrer.

Do you see that?

A. I do.

Q. And this was Duff and Phelps communicating to you asking

you to send to Duff and Phelps the latest version of the

PowerPoint. Right?

A. That's what it states.

Q. Okay. And we can take that down.

And Duff and Phelps is asking you for the latest

version because you were involved in editing, reviewing, and

providing information. Correct?

A. I am involved because I'm working for Mr. Brunst.

Q. So -- okay.

So you're involved because you're working for

Mr. Brunst. Is -- let me ask you the question that I asked you

again.

Is Duff and Phelps, to your understanding, emailing

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you to send them -- well, let me ask you this: Why do you

think Duff and Phelps was emailing you to ask you for the

latest version of the PowerPoint, Exhibit 120?

A. I don't know. They -- I mean, clearly Jed Brunst is the

boss. Maybe he didn't respond promptly.

Q. But your testimony was that Mr. Brunst created that

PowerPoint. Right?

A. Which PowerPoint are we referring to?

Q. Exhibit 120. If we can put Exhibit 120 on the screen.

You testified on direct examination that Mr. Brunst

created this PowerPoint.

A. I'm saying that Mr. Brunst is responsible for the content

in this PowerPoint and I am working for him to help put it

together. And we're on -- I believe that was Version 6, so

we've gone back and forth several times, several versions.

Q. I see. Okay.

So now it's not that Mr. Brunst created but he's

responsible for it. Is that your latest and best testimony?

MR. RAPP: I'm going to object to that. I'm not sure

his testimony was how the defense counsel --

MR. LINCENBERG: Move to strike the editorializing.

If he has an objection, he can state it.

THE COURT: Well, I'm going to move to strike the

question as improper. And let's move on.

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BY MR. LINCENBERG:

Q. Okay. So if we go back to Exhibit 120-a, is your testimony

that Duff and Phelps is asking you to send the latest version

of the PowerPoint that Mr. Brunst is creating?

MR. RAPP: Yeah, so this isn't 120. This is 120-a.

MR. LINCENBERG: This is 120-a, yeah.

THE COURT: Is this in evidence?

MR. LINCENBERG: Yes.

THE COURT: Let's try to be precise in reciting the

exhibits.

MR. RAPP: Yeah. The objection is he's misstating the

contents of the email.

THE COURT: Let's -- in the first instance, let's be

precise in citing to the exhibit number for the record.

Okay. Let's move forward. Go ahead.

BY MR. LINCENBERG:

Q. Okay. So 120-a, your testimony is that Mr. Rapp from Duff

and Phelps is emailing you for a PowerPoint that Mr. Brunst

created? Is that your testimony?

A. I think it might be the opposite. Can I see the whole

email, please?

Q. Sure.

The whole email talks about --

A. Yeah. I think it's the opposite. I'm -- from Carl Ferrer

to Jacob Rapp. "Can you send me the latest version of the

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PowerPoint."

So Jacob has it. I need to send a slide or two --

Q. "To our attorneys"?

A. -- to our attorneys.

Q. So he's going back and forth with you about the PowerPoint.

A. No, he's not. What's going on here is that an attorney has

asked me to get a slide or two and so I'm asking for it.

Q. And this is -- and as part of the process, you were

reviewing every word in that PowerPoint, right?

A. What?

Q. You were reviewing every word in that PowerPoint, right?

A. I did -- well, review. I don't have control of the content

in the PowerPoint, but I did read it. The PowerPoint that we

used for the sales presentations.

Q. Right.

A. It's --

Q. Okay. So let's go back to Exhibit 120 and move to page 14.

So page 14 is discussing regulatory approach. You see

that?

A. I do see that.

Q. And part of the PowerPoint is saying, quote/unquote, one of

the good guys.

Do you see that?

A. I see it.

Q. And it discusses cooperation, for example, with law

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enforcement and gives some examples of thank yous from

different police departments.

Do you see that?

A. I do.

Q. And it discusses ongoing cooperation, correct?

A. It has the words "ongoing cooperation."

Q. Okay. And it notes that Backpage has received hundreds of

appreciative emails, letters, and calls from law enforcement

officials around the country for its proactive assistance.

Do you see that?

A. I see it.

Q. And was that accurate?

A. Yes. We received a lot of emails saying thank you for

replying to the subpoena.

Q. Well, you received a lot of emails above and beyond saying

thank you for replying to a subpoena, right?

A. Yes. We -- we deliberately sought public feedback so that

we could use it in PowerPoints like these.

Q. I see. Okay.

All right. Let's look to slide page 15. This is

talking about the Adult category, and the PowerPoint is noting

that listing for female escorts represents the vast majority of

the category's traffic. Right?

A. Correct.

Q. Openly disclosing to any potential purchaser the nature of

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Backpage's categories, that female escorts are some 80 percent

of the traffic. Correct?

A. I would agree.

Q. Okay. And Slide 12, Adult.

And noting for any potential purchasers that

93.4 percent of the total paid ads are in the Adult category,

openly disclosing that. Correct?

A. Correct.

Q. And Slide 26.

Key considerations, noting that Backpage is simply an

intermediary and the subject matter being advertised on its

sites can be found in numerous newspapers, magazines,

et cetera, on Google, Microsoft, Yahoo, and so forth.

Do you see that?

A. I see it.

Q. And do you believe that to have been an accurate statement?

A. Once again, it's difficult for me to answer yes or no

because it would be misleading.

Q. Okay. We can take that down. Thank you.

All right. I'd like to move to Exhibit 763 in

evidence and have that published.

So just to remind us where we're at with this, this is

a May 6th, 2014, email from Mr. Brunst to you, copying

Mr. Larkin. Is that right?

A. That's correct.

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Q. Okay. And it has in here -- well, let's go down the email

so that you see it all. If we can flip to the other pages.

So preceding this was an email from you on May 5th to

Mr. Brunst. Correct? And you provided certain information; is

that right?

A. It's a long email.

Q. Right. Well, let me focus you on, under Long-Term Strategy

and Growth Plans, for example, you discussed monetizing the

consumer of content.

Do you see that?

A. I do see that.

Q. Okay. And this was something that you had drafted as part

of your discussion of long-term strategy and growth plans. Is

that accurate?

A. Can I see the -- who this email went to?

Q. Yes. It looks like it's addressed to Jed.

Do you see that?

A. Yeah. I see it's addressed to Jed.

And what's above? It says "Nathan would be helpful."

I wanted to see --

Q. Sure. That's, I believe, Mr. Brunst's reply, but we can go

back up to the first page.

Okay? So there's two emails in this string. The

first is information that you're providing to Mr. Brunst about

strategy and growth plans, and I just focused on one of the

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CARL FERRER - CROSS-EXAMINATION

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items; and then Mr. Brunst's reply. Fair?

A. Where does Mr. Brunst reply?

Q. Mr. Brunst emailing you back. "Carl."

A. Oh. Got it. All right.

Q. This was an exhibit that you reviewed with the government

prior to your testimony, right?

A. Yep. I got it. I just needed to refresh my memory.

Q. All right. And so just to have you confirm, this is

information that you're providing on your -- the different

plans for the company and projections, including one that I'm

going to highlight just as an example, monetize the consumer of

content. Is that right?

A. This is an email where I was requested to come up with

every possible revenue-growing strategy --

MR. LINCENBERG: Your Honor, I'm going to move to

strike. It's nonresponsive.

THE COURT: I'll have the answer stricken.

Maybe you can ask a clearer question, because it's --

it was fairly long and somewhat confusing. So just go ahead

and ask a new question.

BY MR. LINCENBERG:

Q. Sir, were you providing information to Mr. Brunst about the

strategy and growth plans of Backpage?

A. I did send this email.

Q. Okay. And Mr. Brunst replied, right?

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A. He did reply.

Q. And if we can go up and just -- just to make it bigger,

let's just have page 1 here.

And Mr. Brunst's reply is: Carl, these are all good

but need some reorganization -- some organization. For each

revenue initiative, you should be explicit in describing the

revenue opportunity and why you believe it will be successful.

Right?

A. That's what it states, correct.

Q. So he's basically asking you, can you organize it a little

better and give it a little more detail. Right?

A. No. He wants to know how much money.

Q. Well --

A. Describe the revenue opportunity.

Q. Right.

A. And he wants to know the sales strategy to accomplish it.

Q. Okay. Well, what he asks in the email is some organization

and be explicit in describing the opportunity and why you think

it's going to be successful.

Right?

A. To -- that's what it states. What he means is projections.

That's what revenue -- describing the revenue opportunity means

how much revenue.

Q. Right.

A. And when could it come in.

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Q. So he's not coming up with this idea, if we go back to what

you wrote to him on page 2, of -- I'm just taking one as an

example. He's not telling you monetize the consumer of

content. He's just saying, if that's part of your strategy,

give us the projections and better organize your thoughts. Is

that right?

A. This strategy is something that Jim Larkin and I discussed,

so I'm listing -- this is one of the ideas that the company is

discussing.

Q. Okay. And he's responding by saying, spell it out in a

little more detail and better organization. Right?

A. And the sales strategy.

Q. All right. Let's look at Exhibit 500 in evidence.

Now, Exhibit 500, just to bring the jury back to where

we were at, was an exhibit you testified to on your direct

examination, and there's an email from BDO to Mr. Brunst on the

top. There's a reply from Mr. Brunst to BDO with updated

forecast.

Do you see that?

A. I see that.

Q. And you're not on this email, right?

A. Correct.

Q. You never saw it until you discussed it with the prosecutor

in reviewing what documents he wanted to have admitted into

evidence through you; is that fair?

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A. Yes.

Q. Okay. And were you aware that BDO -- you recall BDO is the

accounting firm?

A. Yes, it is.

Q. And BDO had been an accounting firm that was doing a lot of

work in 2015 assisting in setting up corporate structures and

the sale of the company to you; is that right?

A. Yes.

Q. Okay.

A. The sale's already occurred, and Jed's working with BDO.

Q. Right. And they also assisted with the sale, right?

A. I think they did, yes.

Q. And were you aware at the time that you testified about

this that BDO needed to understand the value of the loan to you

in order to properly value Mr. Larkin's estate? Were you aware

of that?

A. Could you state that again?

Q. Yeah.

BDO at this time, in November of 2015, was making

inquiries because they needed to understand the value of the

loan, of the seller's loan to you, in order to properly value

Mr. Larkin's estate.

MR. RAPP: Objection. Foundation.

MR. LINCENBERG: I'm asking if he's aware of it.

THE COURT: Sustained.

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BY MR. LINCENBERG:

Q. Did you have any conversations about the purpose of BDO's

inquiry that you testified about?

MR. RAPP: Same objection.

THE COURT: Sustained. I think it's vague.

MR. LINCENBERG: I'm sorry?

THE COURT: It's vague. The question you asked is

vague.

BY MR. LINCENBERG:

Q. Looking at this email that you testified about, in

connection with this, did you ever have conversations with

Mr. Brunst about the purpose of BDO's inquiry to him?

A. I don't recall any conversation regarding the purpose of

this email.

Q. Okay. And in the email, Mr. Brunst writes: Per the

revised projection, the operating margin does increase over

time. Expenses as a percentage of revenue decline. But the

business needs to support a dramatically increased volume of

content and users as the result of ads becoming free to post.

And expenses over the projection period have been reduced, but

margins will never return to the previous levels unless a

highly automated global payment option like Visa is available,

allowing for free ads to become paid ads.

Do you see that?

A. I do.

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Q. And you understand that to be Mr. Brunst advising the

accounting firm that because of the credit card problems, the

value of the entity is likely to be reduced?

A. Are you asking me if that's my understanding now --

Q. Yes.

A. -- from --

Q. Yes.

A. -- having read this email?

Q. Yes.

A. Yeah, Backpage is a sinking boat. And the loan isn't

worth, you know, 10 percent of the balance.

Q. Okay.

A. It's a half -- over a half a billion dollar loan.

Q. Anything else?

A. No.

MR. LINCENBERG: Your Honor, I'd move to strike

everything after yes.

THE COURT: All right. It may be stricken, and the

jury will disregard.

MR. LINCENBERG: Now, we can pull this off the screen.

THE COURT: But in fairness, Mr. Lincenberg, you

prompted by saying, is there anything else? So maybe next time

don't do that.

MR. LINCENBERG: Okay. Okay.

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BY MR. LINCENBERG:

Q. Now, sir, as of the time of the sale in April of 2015, I

think you testified the business was doing quite well.

Correct?

A. Prior to the sale in 2015, yes. All-time records.

Q. All-time records.

You had a seven-figure income in 2014, correct?

A. I don't know exactly, but I -- probably, yes. Probably.

Q. And did you see the purchase of Backpage at a time when it

was just coming off a year of all-time high sales as an

opportunity for you to increase your personal income even more?

A. Yes.

Q. And in connection with the decision of whether to purchase

Backpage, you consulted with professionals, correct?

A. These are not my professionals. These are -- so I did not

consult with my own professionals.

Q. Did you have an attorney named Larry Shosid, who was

reviewing all of the documentation and counseling you in

connection with the purchase?

A. Well, that was Jim Larkin's attorney, and he recommended I

use him.

Q. Okay. So the answer is yes, that you followed his

recommendation in a referral of an attorney?

A. It's -- he was a company attorney. He worked for the

Dallas Observer too. And I was advised to use him.

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Q. Who owned the Dallas Observer in 2018 -- in 2015?

A. Well, I'm speaking of his work Shosid maybe had done prior,

so in 2015, I believe it's an employee-led management group.

But Shosid worked for the Observer prior to the sale of the

papers.

Q. Okay. So you're not suggesting that in 2015, when you

retained Mr. Shosid, that he was representing Mr. Larkin at

that time, are you?

A. I'm saying that this is the -- Larkin's former attorney

that he suggested that I use, strongly suggested, and I didn't

question it.

Q. You could have hired any attorney you wanted to help you in

the sale, right?

A. That's not my impression.

Q. Your impression is that in your decision to make a purchase

for $600 million, that you were forced to use an attorney that

the seller was suggesting you might want to contact?

A. That I was forced to use an attorney? They always hired

all the attorneys.

Q. Well, did --

A. I didn't hire the attorneys. They hired --

Q. Is it your testimony that Mr. Larkin hired Larry Shosid to

represent you?

A. No. My testimony is, is that Larkin told me to use Larry

Shosid.

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Q. Did you ask Mr. Larkin for referrals?

A. I don't recall whether I asked or he just told me. I think

he just told me.

Q. Just told you, you use this attorney?

A. Yes.

Q. Okay. And because he told you to, that's who you hired to

represent you in a negotiation where he was the seller and you

were the buyer? Is that your testimony?

A. Yes. And I was familiar with Shosid because we had him do

some other work for us in Dallas that involved Backpage. So

I -- to really -- well, that's it.

Q. And you viewed -- I believe your previous testimony was

that in 2014, Backpage's revenues were somewheres over a

hundred million. The number that comes to mind is maybe

120 million for the year, 130 million. Right? Somewheres in

that neighborhood?

A. Somewhere in that neighborhood.

Q. All right. And this was an opportunity of -- for you to be

the CEO and owner of a company with over a hundred million

dollars in annual revenue without putting down any money up

front. Correct?

A. Correct.

Q. Okay. You described it on your direct examination

testimony as, quote, a plan to put the company in your name.

Do you recall that?

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A. I do.

Q. Okay. Was that your plan?

A. No. It's a plan that the sellers put together so that we

could expand banking opportunities with a new UBO. And I

viewed it as a good plan and that I'd be an employee,

essentially.

Q. Well -- well, you'd be an owner.

A. Well, I would be the public-facing owner, but I was assured

by the owners that they would set up layers of company --

companies to protect me from being the owner, that they would

make it look like a Dutch company owned it.

Q. Well, there was a Dutch company that was established,

correct?

A. Yes, there was. Multiple Dutch companies.

Q. And some 10, 15 percent of the revenue in that time period

was from international, outside of the U.S. sales, right?

A. What year are you referring to?

Q. Well --

A. Because it wouldn't have been 15 percent in 2015.

Q. Let me ask you this: Of the $600 million price, about

500 million was for purchase of the U.S. company and somewheres

under -- a little bit under a hundred million was for purchase

of the overseas company. Right?

A. Correct. It was two loans equaling $600 million.

Q. Right. Right.

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And the structures of the company were structures that

were prepared by the corporate attorneys and BDO for a variety

of reasons, correct?

A. The structure was created by Jed Brunst and his attorneys

and BDO.

Q. So it's your testimony -- do you have firsthand knowledge

that Jed Brunst put together the corporate papers -- let me

strike that.

Is Mr. Brunst, to your knowledge, licensed, for

example, to practice law in the Netherlands?

A. I'm not talking about law. What I'm talking about is I --

Q. I'm asking a question.

A. -- didn't speak to BDO. That's --

What's your question?

Q. My question is, is it your understanding that Mr. Brunst is

a licensed lawyer in the Netherlands?

A. He is not.

Q. Okay. And was it your understanding and desire that the

companies be created in a manner which would maximize your tax

benefits, for example?

A. That would be one of the goals.

Q. Okay. Now, sir, if the earnings at the time -- let's just

call it about $125 million. The company was then purchased at

about four times earnings. Right?

A. I think that's incorrect.

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Q. Four and a half -- more than four. Between four and five

times earnings, correct?

A. I thought the number was more like six, which is really

high for a site that has adult content.

Q. So it's your testimony that a company which is purchased at

$600 million with a high margin and has $125 million of

revenue, that that multiple is high?

A. It is extremely high because the content is female escorts,

and it's high reputational risk. Very high.

Q. And over the past few years, the company had made tens of

millions of dollars off that revenue. The margins were high,

right?

A. The margins were high, but the multiple should have been

three, but there was no negotiation on the price. It was

600 million, sign it. There -- I never was able to negotiate

ever on the price.

Q. So you were handcuffed. You had no ability to say, I'm

negotiating to buy this company. I think the price should be

400 million.

You couldn't speak those words?

A. I was handcuffed by my own greed because I wanted to keep

my salary because it was very good.

Q. Okay. Now, you had testified about an agent that you were

negotiating with in connection with this. When you used this

term "agent," was that Don Moon?

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A. Yes.

Q. Okay. And when you were interviewed 30 times -- let's

confine it to the 10 or 12 interviews where there were reports

written up.

Did you ever, when you were talking about Don Moon,

just say, "I spoke to the agent"? Or did you say, "I spoke to

Don Moon"?

A. I don't remember.

Q. Did you have discussions with the prosecutors in which you

discussed that when you testify on direct examination about Don

Moon, don't use his name, just call him agent?

A. I'm not sure I recall. I always referred to him as the --

representing the sellers.

Q. Isn't it true, sir, that you intentionally came into court

and referred to him as an agent because you had discussions

about not advising that he was both a lawyer and a board member

of Village Voice Media Holdings?

A. What's the question again?

Q. My question is, isn't it true that you had discussions with

the prosecutors about intentionally referring to him as an

agent instead of by his name or as a board member or as a

lawyer helping the company because they asked you to avoid

those words?

A. Yeah. What I can say is, is that I referred to him as a

Village Voice Media board member.

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Q. Right. In all of your interviews, you never once used this

term "agent" that you were using conveniently in your direct

examination, right?

A. I think I called him Don Moon.

Q. Okay.

MR. LINCENBERG: All right. I'd like to place before

Mr. Ferrer Exhibit 1049-b in evidence. Ask that it be

published.

First show Mr. Ferrer the cover page in order to

orient himself, and then I'm going to ask that we turn to -- I

think it's Slide 6.

BY MR. LINCENBERG:

Q. I want to focus you on -- focusing you in on 1049-b, this

is a June 24th -- June 2014 PowerPoint.

MR. LINCENBERG: Let's just show Mr. Ferrer the next

page to help orient him.

BY MR. LINCENBERG:

Q. It starts with Company History. You recall testifying

about this document?

Let me -- let me move to page 6. That was a pie chart

that the prosecutor had specifically asked you about.

Do you recall that?

A. Yes, I do.

Q. All right. Now, on the left-hand side is a pie chart about

ads. Do you recall that? Focus in on Ads by Category

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Breakdown.

And do you recall testifying that this pie chart is an

attempt to create that veneer of a general classified site when

it shows 47 percent of the ads posted as being in Jobs, but we

know the vast majority of these postings are feeds?

Do you recall that testimony?

A. Yes.

Q. And so you testified in that sense that this is rather

deceptive. Right?

A. Correct.

Q. So this PowerPoint in 2014 that is going to be presented to

a potential buyer, your testimony is it was deceptive in the --

this pie chart. Right?

A. I'm not sure what the purpose of this PowerPoint was for.

Q. We'll get to that.

Is it your testimony that this is deceptive? That was

your testimony, right?

A. Yes, and --

Q. Okay.

A. -- can I explain?

Q. No.

Now, what -- are any of these figures inaccurate?

A. They are.

Q. Okay. And point to one which is inaccurate.

A. I can point to more than one.

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Q. Let's start with one of them. Please point to one of them

that's inaccurate.

A. Let's start with this one (indicating).

Q. Okay. So your testimony is that the pie chart which says

that 47 percent of the ads were in the Jobs category is

inaccurate. That's your testimony?

A. My testimony is, is that it includes feeds and is therefore

inaccurate.

Q. And do you know who provided the information that led to

the creation of this pie chart?

A. I ran a report that provided this information.

Q. Okay.

A. And that report included both feeds which are user

generated -- are the -- machine generated and user generated to

give the impression that we have a lot of job ads.

Q. All right. So you're saying it would have been more

accurate if you broke the Jobs category down by what's user

generated versus non-user generated. Is that what your

testimony is?

A. Correct.

Q. All right. And if we go to the other side of the pie

chart, this is noting that a high percentage, here it says

91 percent, are -- of transactions by category breakdown are

Adult Entertainment. Right?

A. Correct.

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Q. All right. And so if we go back and look at the two pie

charts on the page next to each other, would it be fair to say

that nobody is concealing that adult entertainment makes up a

vast bulk of the company's transactions?

A. Correct.

Q. All right. And the party that was -- that was

purchasing -- the party that entered into negotiations to

purchase the company was you, correct?

A. There was no one else to take it over.

Q. So you weren't deceived by this, were you?

A. Oh, no. I knew.

THE COURT: Mr. Lincenberg, do you need more time on

this exhibit?

MR. LINCENBERG: I can break right now, Your Honor.

THE COURT: All right. Members of the jury, we will

take our morning recess for 20 minutes, the standard time. And

again, just remember the admonishment. And we will start in 20

minutes and so just be prepared to come in at that time.

Please all rise for the jury.

(Jury not present.)

THE COURT: All right. You wanted to raise something

with me, Mr. Lincenberg?

MR. LINCENBERG: Yes. Yesterday we were using what's

been marked as GLCF 37, Mr. Ferrer's comments about money

laundering and those different issues.

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And we supplied to the Court last night, I believe,

the proffer agreement. I would also mention one other thing

that I think should be supplied to the Court. Actually, two

points I wanted to make additionally. I don't know if the

Court -- I mean, it came in late. I don't know if the Court

had a chance to look at it.

THE COURT: Oh, yes. I'm looking at GLCF 37.

MR. LINCENBERG: All right. So the argument was that

the government had objected to our use of that because it was a

part of comments being sent to an attorney, Jim Grant. And

they claimed it was privileged and that it was -- they also

argued it was in the context of something different.

And the Court had asked, first of all, to see the key

document that was part of that docket entry. I don't remember

the number. 180-1.

THE COURT: Can you speak up? You're --

MR. LINCENBERG: Yes.

THE COURT: Thank you.

MR. LINCENBERG: And I wanted also to note for the

Court a couple of more points. First, the government doesn't

have standing to assert privilege. Second, the government had

opposed our motion to dismiss for invasion of the privilege

with regard to a whole slew of different communications that

they had discussed with Mr. Ferrer.

THE COURT: Well, let's get to the exhibit.

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MR. LINCENBERG: Okay.

THE COURT: Focus on the exhibit.

MR. LINCENBERG: Second, the ruling in this court is

that the privilege doesn't exist.

And third is that Mr. Ferrer also was part of a joint

defense agreement which had explicitly provided that any client

signatory who enters into a cooperation agreement with the

government or who testifies as a witness in any criminal

proceeding arising from the case consents to any other

signatory, using for defense purposes any information or

material contributed by the client or by his attorney. This

specifically permits use of contributed information or material

in cross-examining the witness and permits the presentation of

their information or material by the defense at any point of

the proceedings.

So this is a document. It's his prior statements. It

is directly contradictory to his testimony, and we would like

to be able to use that for impeachment of this witness.

THE COURT: Well, I must be missing something,

Mr. Ferrer [sic]. You yesterday said that this was a part of a

filed docket, and that was not the case. At least we explored

it, and it was an exhibit to that, so that's point 1.

MR. LINCENBERG: It was a part of -- it was a part of

a document that was filed.

THE COURT: Well, you gave me the wrong docket number

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then.

MR. LINCENBERG: Yeah. I believe it was filed

ex parte. I'm looking to Mr. Panchapakesan. And I thought it

was -- 801 is the opposition.

Anyways, if I gave the Court the wrong information,

I -- then I was mistaken in terms of the docket entry. I

understood it was a -- I think Docket 180-1.

THE COURT: And that was wrong.

MR. LINCENBERG: Okay. And so then we provided to the

Court the key part of that filing, which was the proffer

agreement. That filing was --

THE COURT: What is the docket number of that filing?

MR. LINCENBERG: 180.

THE COURT: 180, as I recall, was a disqualifying

motion by the government. So I'm not sure what you're looking

at. I don't know.

But in any event, what I can tell you, looking at this

exhibit, looking at it last night, this looks like work

product, number one. And it also, as I mentioned, doesn't have

any, to this point, that I can see -- there's an authenticity

issue here because there's strikeouts and there's really no

description as to who created the document and whose statements

are in there. Although it does refer to Mr. Ferrer's comments,

I don't know who's putting those in. I don't really know what

this document is about.

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So that's -- that's --

MR. LINCENBERG: Well, I can answer that.

THE COURT: That's problematic. So unless you can

give me whatever it is that this was filed with, then I'm not

going to be able to permit you to move to admit it or to use it

in that fashion, because as I said, I don't know who it is that

is putting these redlined comments in, and I don't know who it

is that is making these strikeout versions in, but it clearly

looks to me like a work in progress, not a statement under

oath. So...

MR. LINCENBERG: So a couple of responses. First, we

noted that CF 36, GLCF 36, is -- and I'm going from memory --

an email from I think Ferrer to Jim Grant, which attached 37.

Second, Mr. Ferrer can authenticate that these are his

comments. He's the one who made them. If he wants to deny

that those are his comments or claim that they were out of

context, he can state that.

What we have is a document that is clearly statements

made by him, and if he wants to say, well, I was drafting and I

was revising and whatever excuses he wants, he can do that.

That's the weight and the give and take of impeachment

cross-examination.

THE COURT: I'm waiting to hear from the government.

MR. RAPP: Oh. I'm happy to answer.

Well, first, the exhibit's just a mess. I mean, it's,

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as the Court has identified, it's all strikeouts. It's not

even clear who wrote what in this thing, and then there's just

a lot of like legalese. It even cites to Posner, legislate by

prosecution. This all sounds like the Backpage attorneys'

line.

What really is of concern, though, is what

Mr. Lincenberg is not telling the Court, is where did he get

this? How did he get this? Because if he got it from Jim

Grant, Jim Grant was Mr. Ferrer's personal attorney.

And of course, we tried to -- I think the defense gave

the Court last night a proffer agreement where he waived the

privilege and the like. And we tried to assert that in this

case, and Judge Logan, in Document -- Doc 345, said: Ferrer is

bound by the JDA and he executed during his tenure with

Backpage, and based on the Court's in camera review this --

he's slightly right on the 180. It's some kind of declaration

from Jim Grant, who filed it ex parte. We've not even seen it.

But in any event, Judge Logan did find that Mr. Ferrer

was bound by this JDA in 345, so we can't even get these

documents. And it's just like I said yesterday, they have used

this JDA as a shield, and then now they're going to try to use

it as a sword with just a mess of a -- an exhibit that they

won't even tell the Court how they got it, which would be

interesting. And I note that Mr. Grant is on their exhibit

list -- or their witness list, so maybe he'll come in and tell

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us how he provided this to them.

MR. LINCENBERG: So in response, Your Honor, first of

all, this document --

THE COURT: Reply. You're replying, so this is the

last word, and then we can take our break, our 10-minute break

now.

MR. LINCENBERG: Your Honor, first of all, the fact

that this exhibit is -- if you want to call it a mess, I mean,

Ferrer created it. Whether it's messy or not, it has --

THE COURT: I don't know that.

MR. LINCENBERG: That's because you haven't allowed me

to impeach him with it and ask him about it.

THE COURT: But I guess that's a minor point at

this -- I don't know where this came from. So you have to tell

me where this came from, how it was produced, who created it.

And, again, it's -- it's actually -- it doesn't seem

like a final product to me because of all of the strikeouts,

and there's really no signature page.

So I don't know where this came from, who created it,

what it relates to, and so at this juncture, until you can give

me that, I'm not going to permit you to move it in or to ask

him about it.

All right. With that, we'll be on our break.

(Recess taken, 10:42 a.m. to 10:57 a.m.)

THE COURT: Please be seated. And let's go ahead and

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check on the jury.

(Jury present.)

THE COURT: All right. Please be seated.

The record will reflect the presence of our jury. The

witness is on the witness stand.

Mr. Lincenberg, you may continue.

MR. LINCENBERG: Thank you, Your Honor.

BY MR. LINCENBERG:

Q. Mr. Ferrer, I want to go back to the testimony that you

gave this morning about Mr. Brunst setting up the corporate

structures in connection with the sale.

Now, you recall that on May 10th of 2018, you had told

the government in an interview that DLA Piper, BDO, and

CorpAcq -- that's C-O-R-P, capital A-C-Q -- worked with Brunst

in setting up the corporate structure when Ferrer purchased

Backpage.

Do you recall that?

A. I don't recall it exactly, but that's accurate.

Q. Okay. Just so we're clear, let me place in front of you

Exhibit GLCF 4 for identification. And first to orient you,

we'll show you the first page.

MR. LINCENBERG: This is for the witness's eyes only.

GLCF 4.

And, Your Honor, may the court clerk put on the screen

for the witness's -- there we go.

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BY MR. LINCENBERG:

Q. So for your eyes only, you recall that -- does this help

refresh your memory and orient you to an interview you had on

May 10th, 2018, with various members of the government team,

including Mr. Rapp?

A. Yep. I see the date.

Q. Okay.

A. My name.

Q. And that's an interview memo that you reviewed, right?

A. I think I reviewed this.

Q. Okay. And the -- if we can now direct you to paragraph 138

of this memorandum, it's on page 18 of 20.

THE COURT: Mr. Lincenberg, just in -- because of

Mr. Ferrer's response that he thinks he interviewed, give him a

little bit of time to review the exhibit before him.

MR. LINCENBERG: Yeah.

THE WITNESS: I've reviewed 138 and a few items

underneath, but not this entire memo.

BY MR. LINCENBERG:

Q. Okay. Paragraph 138, the notes from the agents are

consistent with what you testified to here today, that DLA

Piper, BDO, and CorpAcq worked with Brunst in setting up the

corporate structure when Ferrer purchased Backpage. Right?

A. I believe so.

Q. Okay. Now let's take a look at GLCF 18. And if I can

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direct your attention to the first page, just to orient

ourselves.

This is a meeting you had with Mr. Rapp and some of

his colleagues on February 5th, 2019. This is the memorandum

of interview of that meeting. Right?

A. That's -- is correct.

Q. And it notes that during the meeting, you went through

memoranda of interviews that had been prepared from earlier

interviews.

Do you see that?

A. Yes, I do.

Q. Including the May 10th, 2018, interview which we just

showed you at GLCF 4. Right?

A. That's what it states.

Q. Okay. And then in connection with what was in

paragraph 138 of GLCF 4, you made changes to that, didn't you?

Let me direct your attention to page 21 of 24, paragraph 192.

Let me actually help orient you. If you look at

page 18, 18 -- sir, it may be easier for you to work with the

hard copy -- oh, it's on the screen, okay.

On page 18, we're now going through changes that you

made to the May 10th, 2018, memorandum of interview. Right?

A. It appears to be changes, yes.

Q. Okay. And it's going through different paragraphs. On

page 19 you see we're still dealing with the same memorandum of

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interview. On page 20. And then on to page 21.

A. Yes.

Q. Okay. And did you tell the agents in February of 2019 that

when you stated earlier that DLA Piper, BDO, and CorpAcq worked

with Brunst to set up the corporate structure, that you said to

change that and delete "worked with Brunst"?

Do you see that?

A. Yes.

MR. LINCENBERG: We can take this down.

Now I'd like to bring to -- I'd like to have published

to the jury and placed -- no, this is for identification. I'd

like to, for the witness's eyes, put up on the screen

Government Exhibit 8 for identification.

BY MR. LINCENBERG:

Q. Now, sir, let me ask you, in December of 2014, did you

review a letter of intent in connection with a possible

purchase of Backpage?

A. I did.

Q. And if we go to page 11 of Exhibit 8 for identification,

did you sign this letter of intent as buyer?

A. I did.

Q. All right. And do you recall there being a letter of

intent which laid out various provisions that the parties

intended to include in an eventual documented sale?

A. I do recall this document.

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MR. LINCENBERG: Your Honor, we move for the admission

of Exhibit 8.

MR. RAPP: No objection.

THE COURT: It may be admitted and published.

(Exhibit No. 8 admitted into evidence.)

MR. LINCENBERG: Thank you.

BY MR. LINCENBERG:

Q. We can go back to the first page just to show the jury.

This is what's called a nonbinding letter of intent,

December of 2014. And it identifies the various seller and

buyer contemplated parties. Is that right?

A. Correct.

Q. All right. And it was contemplated that it would be a

seller-financed sale, correct?

A. Yes.

Q. Meaning that the seller would lend you money to purchase

the company, correct?

A. Well, I'd define it a little differently. Because they

didn't give me the money, $600 million, and then I give it back

to them. They -- I signed a loan to give them monthly

payments.

Q. All right. Part of the arrangement would be a

seller-financed or loan -- if we want to call it loan --

agreement, where you would then pay back principal and

interest. Right?

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A. Correct.

Q. All right. And as part of loan agreements, is it your

experience, if there's loans from banks, that banks want

protections when there's loans?

A. Well, there's protection and then there's protection.

Q. Okay. So let's talk about protection.

So, for example, if you are buying a home, one of the

things we're familiar with is the bank, if they're going to

give you a loan, might want the home as collateral in case you

don't pay, for example. Right?

A. Right.

Q. And in business loans, sometimes the bank will want

additional protections such as, for example, a requirement of

reviewing financials as you're going through the period of the

loan. Is that your experience?

A. I've never experienced this before, personally, so this is

the first time.

Q. All right. And if we look at page 4, there's a provision

dealing with cash flow sweep. I want to focus on that, because

you mentioned this term, "cash flow sweep."

And in the letter of intent, was this defined as being

that the cash flow -- free cash flow is defined as the buyer's

EBITDA -- let's pause.

Do you understand EBITDA to mean earnings before

interest, tax, and depreciation and amortization?

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A. Correct.

Q. Defined as buyer's EBITDA for the previous four fiscal

quarters minus -- and it lists out four subpoints. Correct?

A. Correct.

Q. All right. And did you understand that this was a covenant

that was contemplated in this letter of intent, that after

Backpage paid different bills and so forth, that the lender was

entitled to receive monies towards whatever might be due in

that period of payment?

A. That's what it indicates.

Q. Okay. And did you understand that one of the purposes, for

example -- let's use a hypothetical -- that a lender might want

to assure, for example, that a buyer of a company is not just

going to be sending money over to some other entity that the

buyer has to conceal it from a lender. Right?

A. What was the question?

Q. Yeah. Whether you understood that one of the purposes of

having covenants and protections for a lender such as a cash

flow sweep is to make sure that if there -- if it's a

seller-financed deal or if it's a loan from a bank, lender

wants to make sure that that person can't just use money that

comes into the company for whatever purpose they want.

A. Well, you're asking me to have some expertise,

understanding this was the first transaction where I ever

bought a company that had covenants, so I'm not really familiar

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with what the norms of covenants are.

Q. Okay. Let's move on to what we have marked as Exhibit 6188

for identification, if we can show that to the witness, please.

Sir, do you recall that in connection with your

purchase of Backpage, that a company named BDO, this accounting

firm, did a valuation of Backpage?

A. Can I see more of the slides?

Q. Sure. We can give you a hard copy, too, but why don't we

try first --

A. Yeah.

Q. -- with going through some of the pages.

MR. LINCENBERG: Madam Clerk, did you provide a hard

copy? Thank you.

BY MR. LINCENBERG:

Q. Let us know when you've seen enough, and you're free to

look at --

A. How many pages are there?

Q. You have the hard copy.

A. Okay. All right.

The question?

Q. The question is, first of all, did you -- well, I think the

question was whether you recall that the accounting firm of BDO

prepared a Backpage valuation in March of 2015 in connection

with this sale transaction.

A. I recall that BDO was engaged to calculate a valuation of

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CARL FERRER - CROSS-EXAMINATION

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the IP so that you could value the IP between some transfer

between Curacao and the Netherlands. But, you know, I don't

recall receiving this actual document.

Q. Do you -- do you believe that -- I know it's eight years

later now, but do you believe that you received BDO's IP

valuation?

A. I don't believe I received it, and I don't really

understand it.

Q. Let me just ask you to look at Slide 7.

Did you have discussions with BDO to provide

information to use in connection with their preparing a

valuation report?

A. It says in bullet point -- the third bullet point,

discussions with Backpage management. And it is possible that

I did.

MR. LINCENBERG: Your Honor, I would move into

evidence Exhibit 6188 for identification.

MR. RAPP: Well, foundation as to the -- as to the

exhibit. What -- what's the source of this information? We

don't know anything about the source of the information.

THE COURT: Well, and I think the witness testified

that he never received it and he doesn't really understand it.

So based on that, I'll sustain the objection.

MR. LINCENBERG: I'd like to show the witness next

Exhibit 5364 for identification.

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BY MR. LINCENBERG:

Q. Sir, do you recognize 5364 as being a document prepared by

BDO involving the restructuring and sale of the business in

April of 2015?

A. Could I see additional slides?

Q. Yes.

A. I do recall seeing this slide.

MR. LINCENBERG: Your Honor, we would move 5364 into

evidence.

MR. RAPP: Right, but I'd still object on foundation

as to where the information came -- just because he saw it

doesn't mean it's admissible.

THE COURT: It's a multi-page document.

MR. LINCENBERG: Yes.

THE COURT: Let's lay some more foundation,

Mr. Lincenberg.

BY MR. LINCENBERG:

Q. Okay. So let's look at page 2.

Do you recall, for example, seeing charts which laid

out the current buyer structure?

A. I do -- I do recall seeing this slide.

Q. And was this slide prepared to document the buyer

structure? We can look at -- there's other buyer structures,

if you would like, on page 3 and 4. If we can go to page 3,

seller structure presale; page 4, seller structure presale;

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page 5, proposed structure.

THE COURT: Let him take some time to look at --

there's a lot of content on the page, so let him take some

time.

THE WITNESS: I -- I recall this document, especially

Slide 5, because it's sort of this -- putting Dutch companies

is sort of a way to conceal the ownership.

BY MR. LINCENBERG:

Q. So you believe that this proposed structure on Slide 5, you

specifically recall it because it was a way to -- you thought

that the structure was a way to conceal the ownership?

A. It was something that the sellers assured me could be done.

Q. And which sellers told you that this would be structured in

a manner to conceal the ownership?

A. Well, this was a Don Moon -- well, wait a second.

You know, we -- what I recall is running a press

release where we indicated it was the Dutch business that now

owned Backpage and that was -- I was requested to send that.

Q. But now you're veering off. I'm just asking you if you

recall who told you that this was intended to conceal the

ownership. If you don't recall, just indicate you don't --

A. I think it's just a collective understanding, and that's

why we're just adding so many companies here to this org chart.

MR. LINCENBERG: Your Honor, we would move this

exhibit into evidence.

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THE COURT: It may -- is there an objection?

MR. RAPP: No objection.

THE COURT: It may be admitted, and it may be

published.

(Exhibit No. 5364 admitted into evidence.)

MR. LINCENBERG: Thank you.

BY MR. LINCENBERG:

Q. So just going back to page 1, this was a document prepared

by the accounting firm BDO. Is that right?

A. Correct.

Q. Dealing with -- laying out in various chart forms the

different ownership structures, correct?

A. Correct.

Q. All right. So let's go back up to page 5, which you

testified was designed for deception. Here it's "proposed"

because the sale closed six days later, right?

A. What was the question again?

Q. Well, the date of the document was April 16th, and this

says "proposed"; but is it your understanding that this was, in

fact, the corporate structure, this complex structure of

different entities, Backpage Canada, the Netherlands

corporation, and so forth?

A. Yes. The -- well, the sale would occur six days later.

Q. Thank you.

Now, in the sale -- we can take this down.

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In the sale, did the ultimate owner of Backpage after

the sale become the Vicky Ferrer Family -- the Vicky Ferrer

Trust?

A. So it's my understanding that the trust holds Amstel, and

then Amstel has about 15 more companies below it, and that it

is -- so ultimately I think the Vicky Ferrer Family Trust holds

it.

Q. And was that something that Jim Larkin or one of the

sellers forced -- shoved down your throat to put it in family

trust, put it in a trust?

A. It was a suggestion that I do that, and Shosid agreed.

Q. Okay.

A. The attorney.

Q. Isn't it true that the reason you put it in this trust was

for estate planning and tax purposes?

A. For what?

Q. For tax purposes.

A. I -- I don't think it was tax purposes.

Q. When you say it was suggested and Shosid agreed, are you

testifying that the sellers suggested that you buy it in a

certain trust that they had no control over, that you put it in

a trust in your mother's name?

A. It -- I gave some options, and the recommend -- well, they

didn't really make a recommendation. I gave some options, and

Shosid recommended the trust.

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MR. RAPP: I'm just going to object here to the extent

this is some privileged communication between an attorney and

Mr. Ferrer.

THE COURT: Yes. Sustained.

BY MR. LINCENBERG:

Q. All right. So whatever these options were, I don't want to

go into if they were discussed with your attorney. Is that

what you were saying, these were options you discussed with

your attorney?

A. Yes.

Q. And so first, after the purchase, you became the owner.

You want to call it nominal owner, but you became the owner of

a $600 million company, right?

A. Of a what?

Q. $600 million company.

A. I became the owner of a $600 million debt that included the

company.

Q. Okay. You became an owner of a company that you agreed to

pay $600 million to purchase, correct?

A. Correct.

Q. And Mr. Gage was hired as your CFO around that time,

correct?

A. I think so. It might have been Nathan Kopecky. I'm not

sure at the time.

Q. And you operated the business out of your offices in

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CARL FERRER - CROSS-EXAMINATION

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Dallas. You continued to operate out of your offices in

Dallas, correct?

A. We operated it from the old newspaper office in Dallas.

MR. LINCENBERG: I'd like to place before the witness

Exhibit 5427 for identification.

And if we can show the witness his signature on

page 53, and then go back to the first page.

BY MR. LINCENBERG:

Q. So, sir, there were two loan agreements in connection with

the purchase, one involving the U.S. operations and a second

involving international operations, correct?

A. Correct.

Q. And you recognize your signature on 5427 for identification

as signing in connection with the loan agreement for the U.S.

operations?

A. Did you say I recognize my signature --

Q. Yeah.

A. -- on this document?

Q. Yeah.

A. On the previous slide?

Q. Yes.

A. I do recognize my signature.

Q. And this is an agreement that you entered into with the

sellers to purchase the U.S. operations, correct?

A. I signed a lot of papers put in front of me.

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MR. LINCENBERG: Your Honor, we would move 5427 into

evidence.

THE COURT: He hasn't answered the question.

MR. LINCENBERG: I know. But -- okay.

THE WITNESS: I'm sorry.

BY MR. LINCENBERG:

Q. Did you sign this document? Let's go back to page --

A. I did sign this document.

MR. LINCENBERG: Your Honor, we'd move 5427 for

identification into evidence.

MR. RAPP: Well, I'd object to the misstatement of the

evidence in terms of the sellers agreeing -- signing this

document. There's no other -- there's only one seller on this

document.

MR. LINCENBERG: Well, counsel can cross-examine on

that.

MR. RAPP: I don't have an objection to its admission.

THE COURT: It may be admitted.

(Exhibit No. 5427 admitted into evidence.)

THE COURT: And published.

Why don't you identify what -- because it's a

multiple-page document, identify specifically what pages you're

going to be discussing so that we all, and the jury included,

can note that.

MR. LINCENBERG: Right. And, Your Honor, for the

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CARL FERRER - CROSS-EXAMINATION

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moment we're just really looking to get the agreements in for

discussion later on. I'm not going to spend a lot of time with

these agreements.

THE WITNESS: Can I see the entire agreement?

MR. LINCENBERG: Sure. You want to -- could we give

the witness a hard copy?

Your Honor, while the witness is reviewing this,

advise the Court the next three --

THE WITNESS: There's --

MR. LINCENBERG: -- documents that we seek admission

of --

THE COURT: The next what?

MR. LINCENBERG: The next three documents that we will

seek admission of are 5459, the loan agreement for the foreign

operations; 5443, the purchase agreement for the foreign

assets; and 5415, purchase agreement for domestic assets.

I've advised Mr. Rapp that these are the next three

documents. He's indicated he has no objection. I can go

slowly through them or we can just seek their admission.

THE COURT: However you wish.

MR. LINCENBERG: We'd seek their admission.

THE COURT: Is there an objection to 5459?

MR. RAPP: No objection.

THE COURT: 5443?

MR. RAPP: No objection.

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THE COURT: 5415?

MR. RAPP: No objection.

THE COURT: All right. Those exhibits may be

admitted.

(Exhibit Nos. 5459, 5443, and 5415 admitted into

evidence.)

MR. LINCENBERG: Thank you, Your Honor.

BY MR. LINCENBERG:

Q. Now, sir, with regard to the post-sale time period, I

believe at one point in your testimony you said that Mr. Brunst

was the, quote, bill collector.

Do you recall that terminology?

A. I do.

Q. And as the, quote, bill collector, is what you mean that if

there were outstanding amounts that Backpage owed to the

seller, that he would follow up with one of your CFOs to

collect?

A. No. It meant more than that. And can I explain?

Q. We're going to get into things. You can explain later.

But for right now, just answer the question.

Did Mr. Brunst follow up with Mr. Gage at times, to

your knowledge, to -- with phone calls about collecting the

monies due?

A. He did. And he did more.

Q. Great.

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And did you understand that lenders generally monitor

loans to ensure that borrowers pay the amounts due?

A. Well, that -- I don't have firsthand knowledge or

experience, but that seems like common sense.

Q. And when you say common sense, it's also based on your

understanding of how people deal with banks. If monies don't

get paid on a loan, you're usually going to hear from the bank.

Right?

A. No, because, like, I don't hear from my bank about my

finances if I, you know, am late making a car payment.

So every loan is different and has a lot of -- more

covenants and requirements. This one had many.

Q. Yes. And you do hear from the bank not about whether

you're making a car payment, but you'll hear from the bank if

you have a home mortgage and it's not paid. You're going to

hear from the bank, right?

A. Yeah, but the bank is not going to require the covenants

that were required. I mean, it's like a mortgage and this loan

are like, there's no comparison. This loan, I'm not even

allowed to get a job anywhere else on the internet. There's so

many covenants.

MR. LINCENBERG: Your Honor, I'd move to strike

everything after the word "Yeah."

THE COURT: And the jury will disregard everything

after the answer "Yeah."

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BY MR. LINCENBERG:

Q. And during this late 2015 time period, I believe you

testified that Backpage had challenges meeting its payment

obligations. Correct?

A. We had lost all of our credit card processing. We went

from showing a profit to losing millions of dollars per month.

Q. Is that your way of answering yes?

A. Yes.

Q. And because of these challenges, you had discussions with

Mr. Brunst in particular about whether you could have a

forbearance agreement. Correct?

A. I wouldn't -- I wouldn't describe it that way.

Q. Okay. Did you enter into forbearance agreements in

connection with the seller-financed transaction? Did you enter

into forbearance agreements?

A. I did enter into forbearance agreements, because we were in

default.

Q. I didn't ask about because. I asked if you entered into

forbearance agreements.

A. We had to. Yep.

Q. Okay. I'd like to show you Exhibit 1214 in evidence.

So this was a government exhibit that they showed you

on direct examination. And does this appear to be an email

from Mr. Brunst to you in October of 2015 with the subject

matter: Loan modification -- interest only for October?

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Do you see that?

A. I do.

Q. And is the essence of the email that you had advised that

you couldn't pay the full amount due, and Mr. Brunst was

saying, all right, we'll agree to modify it. You can only pay

interest for that time period?

A. If you're asking me to agree to your summary, I'm going to

need to -- time to read this entire email.

Q. All right. Let me -- maybe it will be quicker if we just

go through the email.

So Mr. Brunst writes to you: Carl, this modification

is temporary and get us through October with interest only.

Do you see that?

A. I do.

Q. And deleting any requirement for principal payments. We

will have a revised note to you shortly.

Do you see that?

A. I do see it.

Q. All right. And by a "revised note," did you, in fact,

enter into a loan modification agreement to ease the burden on

Backpage because your revenues were not as strong in late 2015

due to the credit card challenges?

A. Yes. We went to an interest-only loan. Depends on the

loan, though. I'm not sure which loan you're referring to, the

500 million -- $525 million U.S. loan or the loan that's for --

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CARL FERRER - CROSS-EXAMINATION

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the other loan.

Q. Well, let's look at what we've marked as 1214-a, which is

an attachment to this.

Do you recognize Exhibit 1214-a as the first loan

modification agreement made and entered into as of October 23,

2015?

A. I do.

Q. All right. And let's go to the last page. This what was

attached was being sent for your signature, correct?

A. It appears so.

MR. LINCENBERG: Your Honor, we would move

Exhibit 1214-a into evidence.

MR. RAPP: No objection.

THE COURT: 1214-a may be admitted.

(Exhibit No. 1214-a admitted into evidence.)

THE COURT: And it may be published.

MR. LINCENBERG: Thank you. I'll just briefly publish

it. The first loan modification agreement.

BY MR. LINCENBERG:

Q. Let's just take a look at one more. Let's look at

Exhibit 5474 for identification.

Do you recall that in December of 2015, you signed a

forbearance agreement?

Let's maybe show him the last page of the exhibit. Is

that your signature?

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A. It is. Could you go back to the first page? I just want

to know whether it's the U.S. loan or the overseas loan.

Q. Do you see it says U.S. operations?

A. Thank you.

Q. Okay. And in December of -- and let me withdraw that.

Just for the members of the jury, do you understand a

forbearance agreement meaning that there's a new agreement in

which the sellers will forbear or not enforce all of the

original terms of the loan agreement?

A. Well, there's a little more detail than that, if I can

explain.

Q. I'll tell you what. I'm going to have you explain, but

maybe explain it in connection with this agreement.

MR. LINCENBERG: Your Honor, I would move 5474 into

evidence.

THE COURT: 5474?

MR. LINCENBERG: Yes.

MR. RAPP: No objection.

THE COURT: Okay. I'm one exhibit behind. I thought

we were still on 1214-a. So somehow I missed that.

MR. LINCENBERG: Your Honor, I believe you entered

into evidence 1214-a.

THE COURT: It's likely? Yes. Okay, yes. I thought

that we were still on the exhibit, I'm sorry.

So we are now on what? 5474?

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MR. LINCENBERG: 5474. We're moving forward to

December of 2015.

THE COURT: Yes. It may be admitted and it may be

published.

(Exhibit No. 5474 admitted into evidence.)

BY MR. LINCENBERG:

Q. So let's look at the recitals. So the recitals tend to

set -- in documents like these set forth sort of the background

of why you're entering into this agreement. Right?

Sir?

A. I'm sorry.

Q. These recitals are -- sort of set forth the lay of the

land, right? There's a loan agreement. Due to unanticipated

business circumstances, the borrower's experiencing cash flow

issues, and so forth. Right?

A. Generally, that's what I see.

Q. All right. And 1.3 talks about how one or more events of

default presently exist.

Do you see that?

A. Yes. That we're currently in default.

Q. And 1.4, borrower is asking lender to forbear from

exercising its rights.

Do you see that?

A. I do see that.

Q. And 1.5, lender, relying upon information provided by the

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borrower, is willing to forbear.

Do you see that?

A. I do see that.

Q. Okay. And then if we can go back to the agreement, the

agreement lays out the different provisions of it, forbearance

period and so forth. Right?

A. Correct.

Q. All right.

A. Can I -- can I explain now? You said I could explain.

Q. Well, I don't want just a narrative. If you want to

explain anything in connection with these recitals, go ahead.

A. Yeah, okay.

Can you blow up 1.1, this area?

Q. Yes.

A. You might remember the original note was $525 million, and

it's now 530 million, because principal and interest have been

accumulating. And this loan, despite this period of -- long

period of time that's gone by, it's actually getting bigger.

Q. Okay.

A. And so when you asked me about forbearance agreements, you

know, they come in many forms. And this one is not incredibly

helpful given that we don't have MasterCard and Visa.

Q. Okay. Thank you, sir.

Let's move on to 6196 for identification.

Sir, during June of 2016, that was a time period where

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Michael Gage was working as your CFO; is that right?

A. Correct.

Q. All right. And do you recognize 6196 as an email from you

to Mr. Gage where you're asking him for an accounting of the

two loans?

A. Yes.

Q. And --

MR. LINCENBERG: Well, Your Honor, we'd move 6196 into

evidence.

THE COURT: Yes.

MR. LINCENBERG: May we publish?

THE COURT: It may be admitted and it may be

published.

(Exhibit No. 6196 admitted into evidence.)

BY MR. LINCENBERG:

Q. So this is just a simple email. Mr. Gage, as your CFO, is

keeping track of the accounting for payments made to Cereus

Properties as payments on the loan, right?

A. You're asking me if Michael Gage is keeping track of the --

Q. Yes.

A. -- of the loans and the loan payments? Yes, he is.

Q. And do you recall that a lot of the communication about

loan payments and forbearance and so forth was between

Mr. Brunst and Mr. Gage? Do you recall them having frequent

communications about that?

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A. Not all. Some are direct with me.

Q. Right. So when you say "not all," is the answer yes, you

recall there being a lot of communications between Mr. Brunst

and Mr. Gage?

A. Now you're fading out, or I'm losing my hearing.

Q. I'll withdraw it. And I'll try to pull the mic -- I'm not

sure where to hold it. That's better.

A. Yeah.

Q. You can hear it okay?

A. Yep.

Q. All right. I'm just going to hold it for the last 10

minutes this morning.

THE COURT: Well, I was planning on going until the

quarter after the hour.

MR. LINCENBERG: Okay. For the next -- that's fine.

Then I'm going to try and clip it in the middle. Maybe I

should clip it to my lip.

BY MR. LINCENBERG:

Q. Now, sir, did you understand that Mr. Brunst, as part of

his duties, also dealt with auditors?

A. Yes.

Q. All right. And, for example, through 2012, the accounting

firm Deloitte was the auditor who was reviewing Backpage's

books, right?

A. That's correct.

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Q. Deloitte, for the members of the jury, one of the Big 4

independent accounting firms, right?

A. I believe it is.

Q. And did -- did you have any view at any time that Deloitte

was not performing their role properly?

A. Did I ever --

Q. Let me rephrase it.

Looking back, was it your view at the time that

Deloitte was performing their role properly?

A. At the time --

MR. RAPP: I'm going to object on foundation.

THE COURT: Sustained.

BY MR. LINCENBERG:

Q. You were the person in 2012 who was overseeing the

operations of Backpage, right?

A. Correct.

Q. And the -- you had some interaction yourself, limited, but

some interaction with Deloitte, correct?

A. I did.

Q. All right. In fact, the -- and as we sit here today, you

don't recall any issues of concern between the auditor,

Deloitte, and Backpage, do you?

A. My interaction was very limited to where it just focused on

sponsor ads. So I'm not really aware if they understood

everything else about the business.

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Q. So you're saying you don't really know, but you don't

recall any problems there?

A. I don't recall any problems.

Q. All right. And after 2013, the accounting firm, BDO,

performed the audits; is that right?

A. You know, I misspoke earlier. Can I correct my testimony?

Q. Sure.

A. I became aware that Deloitte dropped the company. I

thought it was reputational risk reasons. And that's when we

started to work with BDO.

Q. Right. So you don't recall any problems with Deloitte, but

at some point they just, for reputational reasons, did not want

to continue as the auditor. Is that a fair summary?

A. Yeah, that was my understanding.

Q. All right. 2013, BDO starts performing the audits, right?

A. Yes.

Q. And BDO is also a huge international accounting firm,

right?

A. Correct.

Q. All right. Independent, correct?

A. I'm not a CFO. But I know they're a reputable firm.

Q. Okay. Let me show you 5487 for identification. We're not

going to go through every year, but --

Let's actually -- let's skip it and go up to 2009.

Let's look at 5489 for identification.

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Now, do you recall that one of the things that

Deloitte would prepare during the time period they were

auditors was a consolidated financial statement for both the

holding company and the subsidiaries?

A. I do not.

Q. Okay. Then we'll skip 5489 and move forward.

Now, you testified that -- you testified to a

conversation that you had with Mr. Brunst in San Francisco.

Do you recall that?

A. I do.

Q. And I believe you placed it as having taken place in 2015.

Is that right?

A. That -- that is inaccurate. That was in 2012.

Q. Okay. So in 2012, I believe you said that the conversation

was one in which you were expressing a desire to remove the

adult sections like craigslist had and operate a business and

that that business might be a $20 million company at that

point. Was that the gist of the discussion?

A. Your summary's only partially true. So can I explain?

Q. Well, as to the part that I mentioned, that part of it was

your testimony?

A. I'm -- you just --

Q. You can add whatever else you want to talk about --

A. No, I'm not trying to add.

Q. -- on redirect.

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A. Sorry.

Q. Let me break it down.

A. Yes.

Q. So your memory now is in 2012 you had a conversation with

Mr. Brunst in San Francisco, right?

A. I remember very well.

Q. And one of the topics that you discussed was you were

saying that you had a desire to get out of the adult ad part of

the business, correct?

A. So that is false.

Q. Did you have a conversation in which you indicated that --

about, quote, getting rid of the escort section and still

having a $20 million business?

Were those the words that you used in your

September 21st testimony?

A. I did, but that wasn't our desire. We were forced to.

Q. Okay. So whether you were forced to or your desire, you

discussed in 2012 going to get rid of the adult section.

Correct?

A. I was asked to --

Q. Correct? Was that part of the discussion?

A. Yes.

Q. All right. And during that conversation, Mr. Brunst said:

If you want to close the adult section, go ahead.

Right?

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A. Oh, absolutely not.

Q. Okay. And Mr. Brunst, in fact, never objected to your

closing the adult section if that's what you wanted to do.

Correct?

MR. RAPP: I'm going to object to this. It's -- the

question is hearsay so --

THE COURT: Overruled. He can answer if he recalls if

he never objected.

BY MR. LINCENBERG:

Q. You can either indicate it's correct or you can deny it.

A. That is incorrect characterization.

Q. Okay. Now, sir, when you pled guilty in this courthouse in

2018, you entered into an agreement with the government that

you hoped would provide greater leniency --

MR. RAPP: Objection.

BY MR. LINCENBERG:

Q. -- to you at the end of this matter, correct?

MR. RAPP: These questions have been asked and

answered.

THE COURT: I'll permit a little leeway for

Mr. Lincenberg.

BY MR. LINCENBERG:

Q. Is that correct?

A. I'm sorry, could you ask the question again?

Q. Yes. You entered into an agreement in 2018 with these

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CARL FERRER - CROSS-EXAMINATION

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prosecutors in the hopes that if you worked with them, helped

them in a case against other people, that they would help you

get a lenient sentence. Is that correct?

MR. RAPP: Same objection.

THE COURT: He can answer. Overruled.

THE WITNESS: It is not the only reason, but I was --

I am hopeful.

BY MR. LINCENBERG:

Q. I'm going to go through a lot of your reasons. Let's do

them one at a time.

Let me place before you Exhibit 5994-1 for

identification, which is entitled Cooperation Agreement -- or

Cooperation Addendum.

MR. LINCENBERG: Madam Clerk, it might be helpful to

give him a hard copy. I think we can work with the screen,

but...

BY MR. LINCENBERG:

Q. So first, sir, if you look at page 6, is that your

signature on April 5th of 2018?

A. Yes, it is.

Q. All right. And if we go back to page 2, is there a section

entitled Cooperation Required?

A. Is there a question?

Q. Yes. Is there a section entitled Cooperation Required?

A. There is a section.

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Q. All right. And did that section require you to cooperate

with all attorneys or just the prosecutors?

MR. RAPP: I'm going to object to that as vague. All

attorneys?

MR. LINCENBERG: Defense attorneys.

THE COURT: How about you break it up in two

questions.

MR. LINCENBERG: Sure.

BY MR. LINCENBERG:

Q. Did that section require you to cooperate, quote/unquote,

with defense attorneys?

A. I -- I don't see that. Are we talking about my own defense

attorneys?

Q. No. With me and the attorneys at this table, the prior

attorney for Mr. Larkin. Did this require you to cooperate

with us?

A. It does not.

Q. All right. And, in fact, in paragraph a, it says: If

requested by the United States --

You understand the United States to mean these

prosecutors, correct?

A. Correct.

Q. If requested by the United States, you shall meet with

representatives of the United States at any reasonable time and

place.

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Correct?

A. Correct.

Q. And if we go down to page 3, paragraph 2, subpoint b, under

Additional Agreements, your agreement provides that if the

United States, meaning the prosecutors, move the Court for a

downward departure from the sentencing guidelines --

I'm going to pause for a moment. Do you see where

I've read the first half of that sentence?

A. Yes.

Q. And this reference to sentencing guidelines, did you

understand that there's a law that sets forth guidelines to

guide a judge in sentencing an individual? Did you understand

that?

A. I don't really understand this. I had my attorneys, my own

defense attorneys, work on this plea agreement.

Q. Well, when you stood before the judge and pled guilty, the

judge specifically asked you if you understood all of the parts

of the agreement, correct?

A. Well, I understand that that's what it says, but I'm not

really familiar with some of this language.

Q. So, sir, as you sit here today, having been involved in a

federal criminal case for five years, is it your testimony

under oath that you don't know what the sentencing guidelines

are?

A. I don't know what it means for a downward sentencing

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CARL FERRER - CROSS-EXAMINATION

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guideline. I presume less.

Q. And when the judge asked you if you understood the

agreement that you were entering into and you said yes, is it

your testimony now that you understood that the agreement said

this but you didn't understand what it meant? Is that what

you're telling us here today?

A. No. What I'm saying is, is that you're asking me like a

question that I would want to consult with my attorney and I

did consult with my attorney, and I'm sure that he explained it

to me at the time; but as I sit on the stand today, you're

asking me questions that sound like I should -- I don't know.

You know, I'd rather have somebody like yourself very familiar

with sentencing guidelines.

Q. And, in fact, the judge made sure that you consulted with

your attorney by asking you not only do you understand this,

but did you consult with your attorney to make sure you

understood it, right?

A. I did. Yes.

Q. And this is a pretty important paragraph in your agreement,

correct?

A. Yes.

Q. And, in fact, what the paragraph provides is that if the

prosecutors decide that you have substantially assisted them,

that they will make a motion pursuant to Section 5K1.1 of the

sentencing guidelines. Correct?

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A. I don't see the word "substantial," and so I'm just not

sure I understand your summary. I'm looking for it. I just

have to cooperate.

Q. So it's your statement today that you had no understanding

that Section 5K1.1 is a provision which provides that if you

substantially assist the government, that they have discretion

to make a motion? Is that your testimony today?

A. That's really complicated, you know. I don't understand.

Q. So you just don't know?

A. I don't know what you're asking --

Q. Okay.

A. -- of me.

Q. And did the paragraph also provide that if the United

States, meaning the prosecutors, determine that you have

provided further cooperation within one year following

sentencing, the United States may also move for a further

reduction of your sentence?

A. That's what it states.

Q. Right. And what it states allow you to understand that

you -- that the prosecutors, in their sole discretion, would

decide whether to recommend leniency or not. Correct?

A. No. I -- oh, recommend, okay.

Q. Yes.

A. But ultimately it's the decision of the judge.

Q. Yep. Recommend. Is that right?

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A. Recommend, but there's no promises.

Q. Right.

Right? Is that your understanding?

A. My understanding is recommend but there's no promises.

Q. Got it. You've got your lines down. Recommend but no

promises.

Now, sir, further, you understood that the judge can

only consider this departure below the sentencing guidelines if

the United States, in its sole discretion, decides to make that

motion recommending leniency. Correct?

A. Can you show me where that is in this document?

Q. I just read it. Under Section 2b, twice it says: The

United States shall in good faith consider moving the Court to

depart downward from the sentencing guidelines. And below it

says: If the United States determines that you've provided

cooperation.

Do you see that on the bottom of page 3? It's on your

screen.

A. Yeah, but you're not reading it completely. You're

paraphrasing.

Q. Let's read it all. I'm going to read the entire paragraph.

Prior to the defendant's sentencing, the United States

shall in good faith consider moving the Court to depart

downward from the sentencing guidelines, and if applicable,

impose a sentence below the level established by law as the

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CARL FERRER - CROSS-EXAMINATION

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110

minimum sentence, pursuant to Section 5K1.1 of the sentencing

guidelines and 18 USC 3553(e), respectively.

If the United States determines that the defendant has

provided further cooperation within one year following

sentencing, the United States may also move for a further

reduction of his sentence pursuant to Rule 35 of the Federal

Rules of Criminal Procedure.

Did I read that entire paragraph, sir?

A. You did.

Q. Okay. Let's move down to paragraph 3.

THE COURT: Was there a question? I thought there was

a question about it that you wanted --

MR. LINCENBERG: There was a question, and he

answered, and then he said, "but you're not reading the entire

paragraph."

THE COURT: Okay.

MR. RAPP: Well, he misstated his -- what it said.

MR. LINCENBERG: I did not misstate anything, and I

move --

MR. RAPP: Yes, you did.

MR. LINCENBERG: -- to strike the argument.

THE COURT: Stop, stop, stop. Don't talk over one

another.

I thought there was a prior question that prompted you

to read it.

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MR. LINCENBERG: Uh-huh. And he said, "Yes, but

you're not reading the whole thing."

THE COURT: All right. So, all right. Let's move

forward. Ask your next question and let's move on.

BY MR. LINCENBERG:

Q. Let's move down to paragraph 3.

Paragraph 3 sets forth what happens if you breach this

agreement to help the government. And subpoint "a" provides

that if the defendant fails to comply with any of the

defendant's obligations or promises set forth in the plea

agreement or this addendum, the United States may -- let me

pause.

Sir, did I read that correctly?

A. Yes.

Q. And then let's look at number 1.

In its sole and absolute discretion, declare any

provision of the plea agreement and this addendum null and

void, without giving the defendant any right or option to

withdraw from the plea agreement, this addendum, or the plea of

guilty.

Is that an accurate reading of that?

A. Yes, it is.

Q. So you understand that if the prosecutors believe that you

go sideways on them, that they've got a lot of power to, say,

rip up your agreement? You understand that?

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112

A. Yes.

Q. If you don't even show up for a meeting when the

prosecutors demand that you show up, that could be, under the

earlier paragraph we read, a breach of the agreement. Right?

A. But I had to cancel meetings.

Q. Okay. So they decided not to -- so far they've decided not

to do that because you're continuing to substantially assist

them and you rescheduled the meetings you canceled. Right?

A. Correct. I had a plumbing disaster in the house.

Q. Okay. And, in fact, if there's a breach of the agreement,

then the prosecutors can recommend any sentence up to and

including the statutory maximum sentence. Correct?

A. Correct.

Q. And if they determine in their, quote, sole and absolute

discretion, close quote, that you have breached this assistance

agreement, then they can prosecute you or reinstate prosecution

of you for any and all crimes committed by you notwithstanding

the statute of limitations, the Speedy Trial Act, or any

constitutional restrictions in bringing later proceedings.

Correct?

A. That's what it states.

Q. And, in fact, if you go sideways on them, they can use in

any manner, in any proceeding, any evidence provided by you

before or after execution of this agreement. Correct?

A. I'm going to need a minute to reread this so that it

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CARL FERRER - CROSS-EXAMINATION

UNITED STATES DISTRICT COURT

113

conforms to your summary. Because what -- we're on item 3-3?

Q. Uh-huh.

THE COURT: Well, why don't we permit the witness to

do that while we take our lunch break.

So members of the jury, again, do not come to any

conclusions. Do not research or discuss any of the matters

discussed so far in trial. Just simply have a good 45-minute

break. We'll return promptly at 1:00.

With that, all rise for the jury.

(Jury not present.)

THE COURT: All right. Mr. Ferrer, you may step down.

And we will be on our 45-minute lunch break.

(Lunch recess taken, 12:14 p.m.)

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114

C E R T I F I C A T E

I, JENNIFER A. PANCRATZ, do hereby certify that I am

duly appointed and qualified to act as Official Court Reporter

for the United States District Court for the District of

Arizona.

I FURTHER CERTIFY that the foregoing pages constitute

a full, true, and accurate transcript of all of that portion of

the proceedings contained herein, had in the above-entitled

cause on the date specified therein, and that said transcript

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 29th day of

September, 2023.

s/Jennifer A. Pancratz

Jennifer A. Pancratz, RMR, CRR, FCRR, CRC

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