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See and Believe
Trial Transcript
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2280
1
2 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
3 - - - - - - - - - - - - - - X
4
UNITED STATES OF AMERICA, : CR 96 1016(S-1)
5
v. : U.S. Courthouse
6 Uniondale, New York BRUCE W. GORDON, WHO'S WHO
7 WORLD WIDE REGISTRY, INC., :
STERLING WHO'S WHO, INC.,
8 TARA GARBOSKI, ORAL FRANK OSMAN, LAURA WEITZ, ANNETTE
9 HALEY, SCOTT MIChaveLSON, : STEVE RUBIN, and MARTIN
10 REFFSIN, :
TRANSCRIPT OF TRIAL
11 Defendants. : February 2, 1998
12 - - - - - - - - - - - - - - X 9:30 o'clock a.m.
13
14 BEFORE:
15 HONORABLE ARTHUR D. SPATT, U.S.D.J. 16
APPEARANCES: 17 For the Government: ZACHARY W. CARTER
18 United States Attorney One Pierrepont Plaza
19 Brooklyn, New York 11201
By: RONALD G. WHITE
20 CECIL SCOTT
Assistant U.S. Attorneys
21 For the Defendants: NOR MAN TRABULUS, ESQ.
22 For Bruce W. Gordon
170 Old Country Road, Suite 600
23 Mineola, New York 11501
24 EDWARD P. JENKS, ESQ.
For Who's Who, Sterling
25 332 Willis Avenue
Mineola, New York 11501
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2281
1
GARY SCHOER, ESQ.
2 For Tara Garboski
6800 Jericho Turnpike
3 Syosset, New York 11791
4 ALAN M. NELSON, ESQ.
For Oral Frank Osman
5 3000 Marcus Avenue
Lake Success, New York 11042
6
WINSTON LEE, ESQ.
7 For Laura Weitz
319 Broadway
8 New York, New York 10007
9 MARTIN GEDULDIG, ESQ.
For Annette Haley
10 400 South Oyster Bay Road
Hicksville, New York 11801
11
JAMES C. NEVILLE, ESQ.
12 For Scott Michavelson
225 Broadway
13 New York, New York 10007
14 THOMAS F.X. DUNN,
For Steve Rubin
15 150 Nassau Street
New York, New York 10038
16
JOHN S. WALLENSTEIN, ESQ.
17 For Mart in Reffsin 215 Hilton Avenue
18 Hempstead, New York 11551
19
Court Reporter: Owen M. Wicker, RPR
20 United States District Court
Two Uniondale Avenue
21 Uniondale, New York 11553
(516) 292-6963
22
23 Proceedings recorded by mechanical stenography, transcript
produced by computer-assisted transcription.
24
25
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2282
1 (Case called.)
2 MR. WHITE: Your Honor, before the jury comes in
3 I wanted to ask the Court's permission if we could
4 interrupt the testimony again of Agent Rosenblatt and put
5 on a couple other witnesses. Among the ones I told the
6 defense attorney would be in here today, two witnesses
7 have to leave town tonight, they are in from out of town,
8 and I would imagine if we wait until we finish
9 Mr. Rosenblatt they may not get on today.
10 THE COURT: Yes.
11 MR. WHITE: Thank you.
12 (Jury enters.)
13 THE COURT: Good morning, members of the jury.
14 Please be seated.
15 Again, my compliments. It was 9:30 on the nose
16 when we got the signal. Of course for a few days you were
17 here even before 9:30, that's even better than 9:30, but
18 I'll settle for 9:30.
19 I have distressing news for you. You will not be
20 here on Friday. I would like to have you here on Friday,
21 you know that because I like to keep the trial going and I
22 like your company besides. But try as I could, I could
23 not arrange my schedule to do away with all the other
24 cases that I already put on for Friday that are clamoring
25 for my attention while I'm busy for this trial.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2283
Rieger-direct/Scott
1 So we'll not be working on this trial on Friday.
2 You may make arrangements to go to work.
3 All right. You may proceed.
4 MS. SCOTT: Thank you, Your Honor.
5 The government calls Rita Rieger.
6 R I T A R I E G E R , having been first duly sworn by
7 the Clerk of the Court, was examined and testified as
8 follows:
9 THE WITNESS: My name is Rita Rieger,
10 R-I-E-G-E-R.
11 THE COURT: Members of the jury, I told you that
12 we will interrupt from time to time to take another
13 witness. This is one of the occasions we are
14 interrupting. Mr. Rosenblatt, as you remember, was on the
15 stand.
16 DIRECT EXAMINATION
17 BY MS. SCOTT:
18 Q Good morning, Ms. Rieger.
19 Can you tell us where you live?
20 A Folsom, California.
21 THE COURT: How do you spell that?
22 THE WITNESS: F-O-L-S-O-M. Outside Sacramento.
23 THE COURT: Okay.
24 BY MS. SCOTT:
25 Q And what do you do for a living?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2284
Rieger-direct/Scott
1 A I'm a pharmacist.
2 Q What does your job involve?
3 A Interpreting prescriptions, returning medications and
4 dispensing them with information to the patient.
5 Q How long have you been doing that?
6 A Since 1959.
7 Q Have you ever been contacted by a company called
8 Who's Who Worldwide?
9 A Yes, I have.
10 Q And did you eventually purchase a membership from
11 them?
12 A Yes, I did.
13 Q Can you tell us approximately when you were first
14 contacted by them?
15 A I think it was 1993.
16 Q And how were you contacted?
17 A By telephone at work.
18 Q How many times were you contacted?
19 A More than once, and I can't be sure -- I can't be
20 sure of the total number of times.
21 Q How is it that y ou remember you were contacted at
22 work?
23 A Because it is unusual to be approached about a
24 business proposition of any kind at work.
25 Q Do you remember the name of the person who called
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2285
Rieger-direct/Scott
1 you?
2 A I thought he said his name was Michavel.
3 Q What happened in the course of your conversations
4 with him?
5 A I believe the first time he called, it was not a good
6 time to talk because of the flow of our business, and I
7 asked him if he could call me back and he did.
8 Q And when you -- did you eventually --
9 MR. LEE: Your Honor, I have an objection.
10 THE COURT: Objection to which, the last
11 question?
12 MR. LEE: As to statements of someone that may
13 qualify as hearsay unless there is a foundation laid for
14 that foundation coming in.
15 THE COURT: Well, you will have to identify who
16 this was.
17 MS. SCOTT: Your Honor, I believe it has been
18 established that the call came from Who's Who Worldwide or
19 at least that the person identified themselves as
20 representing Who's Who Worldwide.
21 THE WITNESS: That's correct.
22 THE COURT: They did?
23 THE WITNESS: Yes, they did.
24 THE COURT: All right. Overruled.
25 BY MS. SCOTT:
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2286
Rieger-direct/Scott
1 Q Now, did you eventually have a conversation with this
2 person?
3 A Yes, I did.
4 Q What happened in that conversation?
5 A Well, this individual told me that I had been
6 nominated by a known benefactor.
7 THE COURT: You say the name of the person who
8 spoke to you was Michavel?
9 THE WITNESS: That's as I recall it.
10 THE COURT: You don't know the last name or any
11 other name for the person?
12 THE WITNESS: I can't retrieve that information.
13 It's in moving boxes. I have it written down or I can't
14 find it.
15 THE COURT: And you don't remember where it is?
16 THE WITNESS: No, Your Honor.
17 THE COURT: Come up, Counsel.
18 (Side bar.)
19 THE COURT: Since I assume this is going to be
20 similar testimony by a number of witnesses, how do you
21 propose to get it in although it is from Who's Who
22 which is a defendant in the case. You have to identify
23 somebody who said this who would be authorized or at least
24 in the course of whose employment they would make that
25 statement. Can't be just a person named -- who is
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2287
Rieger-direct/Scott
1 Michavel.
2 MS. SCOTT: Your Honor , this is a typical call
3 from an unknown person to sell a product and I think most
4 of the witnesses will not be able to remember the name of
5 the person they spoke with. What we'll be able to offer
6 is documents they received as follow up to the telephone
7 calls.
8 THE COURT: You better offer the documents --
9 well, I assume you are offering this under 801(d)(2).
10 MR. WHITE: Yes, as both a corporate admission
11 and as a co-conspirator statement, Your Honor.
12 THE COURT: But you have to identify somebody.
13 You can't say I'm from Who's Who Worldwide and I confess
14 to four murders. That will not fly with me.
15 Let's look at the rule.
16 MR. WHITE: Okay.
17 THE COURT: The rule says, because this is going
18 to be repetitious and we might as well iron it out right
19 now.
20 The rule says statements that are not hearsay, if
21 th e statement is not hearsay if, subdivision (2), a
22 statement is offered against a party and is a statement by
23 the party's agent -- who am I talking to, the both of you.
24 MR. WHITE: Yes.
25 MS. SCOTT: Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2288
Rieger-direct/Scott
1 THE COURT: Within the scope of the agency or
2 employment made during the existence of the relationship,
3 or a statement by a co-conspirator of a party.
4 Now, let's look at what the law is on this agent
5 and employees. (Perusing.)
6 According to the authoritative test,
7 Weissenberger's on Federal Evidence, did I tell you that
8 was authoritative before?
9 MR. WHITE: Yes, I did.
10 THE COURT: The proponent of the vicarius
11 admission must establish a foundation that demonstrates
12 that the declarant at the time of the making of the
13 sta tement wasn't an employee or the agent of the party
14 against whom the statement was offered. For example,
15 statements made after the employment has concluded do not
16 qualify.
17 Now otherwise you meet the rule, but I'm unsure
18 about whether some -- a party we don't know about, not
19 identified that that's within 801(d)(2). You say you have
20 some corroborating material.
21 MS. SCOTT: We have exhibits which have been
22 received in connection with this deal she made on the
23 telephone, this witness.
24 MR. WHITE: Your Honor, there are two different
25 issues. With respect to the corporate admission, I think
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2289
Rieger-direct/Scott
1 even if we don't identify the person yet, we can, but even
2 if we don't yet, the circumstances suggest the facts that
3 form the foundation,. In other wo rds, someone calls up,
4 identifies themselves, at least she remembers only part of
5 the name, says they are from Who's Who Worldwide, conduct
6 a discussion which is toward the view of purchasing a
7 membership. He tells the customer all the things we'll
8 subsequently know who are the basic sales pitch of Who's
9 Who. The customer consummates a transaction, the customer
10 gives the credit card number and shortly thereafter
11 receives confirmation in the mail.
12 THE COURT: You are talking very rapidly and you
13 are losing me.
14 MR. WHITE: I'm sorry.
15 THE COURT: My mind, as I told you a number of
16 times which apparently you don't believe, my mind doesn't
17 work as fast as you do.
18 MR. WHITE: Your Honor, this is the first time
19 during the entire trial you asked me to slow down.
20 THE COURT: Then join the crowd.
21 So under your theory, if a janitor picked up the
22 phone and called this lady and said I want to sell you a
23 trip to the moon or give you a trip to the moon if you buy
24 this, do you think this will be admissible?
25 MR. WHITE: No, Your Honor, but the fact it is
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2290
Rieger-direct/Scott
1 followed up in the normal course but he takes her credit
2 card number, she gets an invoice, she gets certain things,
3 that suggests the regularity of it, that was someone who
4 was authorized to make the sale. I would add as well on
5 this one there are internal company documents, documents
6 this customer does not see that identifies the person who
7 made the sale.
8 MR. JENKS: Except how will he get them in? I
9 will not stipulate to them and not in the regular course
10 of business. You should have someone from Who's Who
1 1 Worldwide.
12 THE COURT: You have to talk like a technician.
13 Right now I have doubt whether this call from an unknown
14 person will satisfy the rule. You are using this for the
15 most incriminating material. This is the real substance
16 of the case and I'll not allow it at this time unless you
17 show who this is.
18 MR. WHITE: Your Honor, let me back up further.
19 On this particular one, the internal paperwork of the
20 company indicates that the salesperson who spoke to
21 Ms. Rieger was Scott Michavelson, one of the defendants.
22 She just remembers the guy as "Michavel."
23 THE COURT: You better lay a foundation by
24 bringing that material in. If you want to bring this
25 conversation in, I'm telling you now I will not allow it
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2291
Rieger-direct/Scott
1 unless you identify who it wa s.
2 MR. WHITE: You are talking on the corporate
3 admission theory?
4 THE COURT: On either admission, corporate or
5 individual. They are individuals also, they can make
6 admissions.
7 MR. WHITE: Your Honor, I don't think it is
8 necessary that the person has to specifically, you know,
9 identify who they are to you.
10 THE COURT: You don't, but I do.
11 MR. LEE: Judge, I think --
12 THE COURT: You show me a case that says an
13 unknown person calls up and makes these statements for a
14 corporation. Show me a case like that. I'm not going to
15 allow it.
16 MR. WHITE: Wait, Your Honor. It's not so much
17 that the person is unknown. I thought Your Honor's
18 objection, Your Honor's identification where it was
19 lacking was we haven't shown that the person had authority
20 to do that.
21 THE COURT: That's only part of it. I don't even
22 know who this person is. It's an unknown person. You
23 will have this unknown person making all of these
24 admissions? Not with me you're not. Especially when you
25 say you can identify the person.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2292
Rieger-direct/Scott
1 MR. WHITE: But Your Honor I think when a person
2 calls up under those circumstances, the circumstances
3 suggest that they were authorized to do that. If, for
4 example, they called up and then nothing ever happened,
5 this person was lied to and nothing ever happened, you
6 might suggest maybe the person was unauthorized, maybe
7 they were the janitor as you said.
8 But where the sale is actually consummated, where
9 the person is following a script and then the normal
10 business paperwork confirming the sale is received by the
11 customer, I think all the cir cumstances suggest that the
12 person was authorized.
13 THE COURT: I don't see any circumstances at this
14 point that anybody -- it's not a question only of
15 authorization, it's a question of identification of a
16 person. This could be a complete stranger calling up, and
17 I'm sure it isn't, but I don't know who this is and I'm
18 not going to allow it, period.
19 MR. WHITE: But, Your Honor, is it not also from
20 the face of it a co-conspirator's statement? In other
21 words, what she --
22 THE COURT: Not an unknown person it isn't.
23 MR. WHITE: But, Your Honor, it's not unknown
24 yet. It is someone named Michavel who is a salesman at
25 Who's Who Worldwide.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2293
Rieger-direct/Scott
1 THE COURT: Who said he was a salesman for
2 Barbara Walters Worldwide. I don't know who he is.< BR>
3 MR. WHITE: She would testify that he called up
4 to sell her a membership, and that's what it is.
5 THE COURT: Mr. White, let's not prolong this.
6 You've heard my ruling and there is nothing you've told me
7 that will change it. You have to identify those people.
8 If you want their conversations to come in you will have
9 to identify them.
10 MR. JENKS: Further, Judge --
11 THE COURT: You want to talk me out of it?
12 MR. JENKS: No.
13 THE COURT: I see.
14 MR. JENKS: I'm going to make the next
15 objection. He's going to try to introduce the witness
16 with corporate documents and receipts, which I assume is
17 the next part of this witness' testimony. Unless those
18 corporate documents, records and receipts are shown to be
19 made within the regular course of business of Who's Who
20 Worldwide Registry, Inc., and it was the regular course of
21 business of Who's Who Worldwide to maintain and keep the
22 records, I object to the documents as hearsay.
23 He has to have a document custodian to introduce
24 the documents. The mere fact she got a bill in the mail
25 is not indicative of anything.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2294
Rieger-direct/Scott
1 THE COURT: We will see when they are offered.
2 MR. NELSON: Your Honor, if I might. Alan
3 Nelson.
4 Your Honor, I have a separate objection to raise
5 as it relates to my client Frank Osman.
6 THE COURT: Good. I might consider it and rule
7 otherwise on the whole thing if you talk me out of it.
8 MR. NELSON: That's not my intention, Judge.
9 Mr. Osman has alleged to have been a member of
10 the conspiracy from up to a period of time in November of
11 1992 and not to agree to join the conspiracy up until
12 November of 1994. These documents based upon a review of
13 the documents indicate they were prepared sometime in 1993
14 when he would not have been a member of the conspiracy.
15 THE COURT: So what?
16 MR. NELSON: I object to their admission as it
17 relates to him.
18 THE COURT: Overruled. He can go out of the
19 conspiracy, come back and join it for one hour and be
20 criminally liable for everything.
21 MR. NELSON: Not unless he adopts what prior
22 happened.
23 THE COURT: No, if he knowingly and willfully
24 joined the conspiracy, not for an hour, for a minute.
25 MR. NELSON: I understand, but the government
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2295
Rieger-direct/Scott
1 would have to demonstrate he reentered with knowledge.
2 THE COURT: I understand, willingly,
3 intentionally, knowingly, any other words? If he knew
4 what this conspiracy is, the criminal purpose and joins it
5 at 12:01 and leaves at 12:03, he's in.
6 MR. WHITE: Your Honor, here's what I propose we
7 do. Your Honor, I was going to try to think how we would
8 proceed now. For virtually every witness the government
9 intends to call there is internal paperwork of the firm
10 that identifies the person they spoke to even if they
11 don't recall what their name was.
12 As Mr. Jenks said, we would have a document
13 custodian or employee who could identify that paperwork
14 and it was prepared in the ordinary course of business.
15 Obviously we don't have that person here today
16 because we weren't anticipating that person.
17 Unfortunately what we'll have to do, if it is all right
18 with Your Honor, go back to Mr. Rosenblatt and get that
19 witness, bring her or him in, we'll have him identify
20 tho se documents and then we'll put on these people and so
21 that even if they don't remember who they spoke to there
22 is some paperwork that indicates they did speak to a Who's
23 Who salesperson.
24 Will that, in Your Honor's view, satisfy?
25 THE COURT: Depends what the papers say, yes. I
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2296
Rieger-direct/Scott
1 think if they identify the name of the salesperson
2 sufficiently by circumstantial evidence to be that person,
3 yes, I think that would be sufficient.
4 MS. SCOTT: One other question, Your Honor.
5 Because we have three people here from out of town, would
6 it be possible to offer these documents subject to
7 connection when that person -- when the document custodian
8 comes in because we have three people here and we can get
9 them out and not interfere with the court day. It would
10 just, I think, be in the interest of some efficiency to do
11 it that way.
12 THE COURT: Well, unless there is consent by the
13 defendants, I wouldn't let you do that.
14 MR. LEE: Your Honor, by the way, they are
15 proffering this evidence on two grounds, co-conspirator
16 and agency. If Your Honor finds whatever they put on as
17 evidence to establish as a foundation for the agent of a
18 corporation and if Your Honor rules that it is
19 insufficient, it's my position also there is not enough
20 here preliminarily to show The existence of a
21 conspiracy to let it in even under the other rule. So I
22 want to heads up put them on notice of that because they
23 may need another break.
24 MR. NEVILLE: There is another problem here. She
25 says she remembers the person as Michavel. Apparently
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2 297
Rieger-direct/Scott
1 there is internal documents that show Scott Michavelson
2 showing the documents at that time. There were two other
3 people, first name Michavel working at this place, and
4 secondly -- whose first names were Michavel, and secondly,
5 according to a good faith understanding of how this
6 business worked, Scott Michavelson may have indeed spoken
7 to this women but not necessarily the first call that was
8 made. The first person who may have made the call may not
9 have been there and Scott Michavelson followed up. So
10 there is another attenuation there that I don't think
11 those documents help to cure.
12 THE COURT: You can make those objections at the
13 time. I disagree. You better have your agents come in
14 and call right away. Get Agent Rosenblatt and get another
15 person in here.
16 MR. WHITE: You mean the document custodian.
17 THE COURT: A custodian -- doesn't have to be the
18 custodian, it could be anybody who can recognize the
19 documents made in the regular course of business by Who's
20 Who.
21 MR. WHITE: We intend to do that, just further on
22 down the road. We didn't anticipate that.
23 THE COURT: In the absent of the consent by the
24 defendants, I will not let you put documents in subject to
25 connection.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2298
Rieger-direct/Scott
1 MR. WHITE: Okay.
2 THE COURT: Take this witness off the stand, put
3 Mr. Rosenblatt on and bring this witness back.
4 MR. WHITE: That's what I propose.
5 THE COURT: Go out and get the people. What are
6 they doing, sitting here and watching?
7 MR. WHITE: No, Your Honor, they are doing
8 something.
9 THE COURT: Let them do something.
10 (End s ide bar.)
11 THE COURT: Members of the jury, we'll interrupt
12 the testimony of this witness. We'll put the witness back
13 on later.
14 We'll now revert back to the original witness who
15 was here, Mr. Rosenblatt; is that correct?
16 MR. WHITE: Correct, Your Honor.
17 THE COURT: All right. Let's go.
18 Don't go too far, Ms. Rieger. Don't go back to
19 Sacramento.
20 Sir, you are still under oath.
21 THE WITNESS: Yes, Your Honor.
22 (Continued.)
23
24
25
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2299
Rosenblatt-cross/Wallenstein
1 A N D R E W R O S E N B L A T T , having been
2 previously sworn by the Clerk of the Court, was examined
3 and testified as follows:
4 CROSS-EXAMINATION
5 BY MR. WALLENSTEIN: (Continued).
6 Q Good morning, Mr. Rosenblatt.
7 A Good morning.
8 Q Let me call your attention to the collection
9 information statement, that would be the 433-A forms,
10 particularly Government's Exhibit 404 and I believe 405
11 and 406 as well.
12 Are you familiar with those documents?
13 A I don't have them in front of me but I know the
14 documents you're referring to.
15 Q Are you aware that the Internal Revenue Service
16 publishes a form entitled "how to prepare a collection
17 information statement"?
18 A I'm not aware of that.
19 Q I show you what has been marked as Defendant's
20 Exhibit L (handing.)
21 THE COURT: For Identification?
22 MR. WALLENSTEIN: For Identification, yes.
23 BY MR. WALLENSTEIN:
24 Q Mr. Rosenblatt, do you recognize that document as a
25 copy of an IRS form?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2300
Rosenblatt-cross/Wallenstein
1 A It appears to be a copy of an IRS publication 1854.
2 Q And that's headed "how to prepare a collection
3 information statement," correct?
4 A Yes, it is.
5 MR. WALLENSTEIN: Your Honor, I would offer that
6 as Defendant's Exhibit L.
7 THE COURT: Any objection?
8 MR. WHITE: Yes, Your Honor. May I have a brief
9 voir dire?
10 THE COURT: Surely.
11 (Continued.)
12
13
14
15
16
17
18
19
20
21
22
23
24
25
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2301
Rosenblatt-voir dire/White
1 VOIR DIRE EXAMINATION.
2 BY MR. WHITE:
3 Q Mr. Rosenblatt, next to the publication number you
4 read, what does it say?
5 A Revision, 9/95.
6 Q What does that mean?
7 A That would be the date that this came into
8 pub lication, this revision.
9 Q I'm sorry, finish your answer.
10 A This revision came in on 9/95, September of 1995.
11 Q So this document was not effective until 9/95?
12 A That's correct.
13 MR. WHITE: Your Honor, I would object.
14 THE COURT: Sustained. Three counts involving
15 the collection information statements have dates of
16 September 16, 1991, July 8, 1993, and December 29, 1993.
17 This document was revised in 1995.
18 (Continued.)
19
20
21
22
23
24
25
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2302
Rosenblatt-voir dire/White
1 CROSS-EXAMINATION
2 BY MR. WALLENSTEIN: (Continued.)
3 Q Mr. Rosenblatt, do you know if there was a prior
4 revision of this, a revision?
5 A I have no idea.
6 Q By the way, in the course of your analysis of the
7 financial records of Who's Who Worldwide and in particular
8 those relating to the accounting records, did you review
9 the records for 1990, 1991, 1992, 1993 and 1994?
10 A Yes.
11 Q And do those records reflect payments made by Who's
12 Who Worldwide Registry, Incorporated, to Martin Reffsin or
13 M. Reffsin & Company?
14 A I'm sure they do, yes.
15 THE COURT: Do you want to pull that microphone
16 closer to you, Mr. Rosenblatt.
17 (Witness complies.)
18 BY MR. WALLENSTEIN:
19 Q Mr. Rosenblatt, let me show you what has already been
20 placed in evidence as Government's Exhibit 652.
21 Would you take a look at page 31 of that
22 document. That's the Who's Who general ledger for
23 December 31, 1990; is that correct?
24 A Yes.
25 Q And would it be a fair statement that that document
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
230 3
Rosenblatt-cross/Wallenstein
1 reflects all of the transactions of -- financial
2 transactions of Who's Who for the period ended December
3 31, 1990?
4 A Yes.
5 Q And would you take a look down -- there are four
6 categories of payments on this page, correct?
7 A Yes, there are.
8 Q And the last one, account number 5016, I believe that
9 number is?
10 A I believe it is 601.
11 Q It could be. This is a bad copy. It says
12 professional fees, correct?
13 A Yes.
14 Q And there are seven entries to Reffsin & Co. and
15 M. Reffsin & Company, correct?
16 A Yes.
17 Q And would it be a fair statement that the total of
18 those items is $5,913?
19 A (Perusing.) Around $6,000.
20 Q Okay.
21 Now, would you take a look at what is in evidence
22 as Government's Exhibit 658-B, and can you identify that
23 doc ument for us?
24 A The general ledger of Who's Who Worldwide Registry,
25 Inc., for the period ending December 31, 1992.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2304
Rosenblatt-cross/Wallenstein
1 Q Okay.
2 And would you look, please, at page 41.
3 A Yes, I have it.
4 Q And do you see a category there, account number 7262,
5 labeled "accounting"?
6 A Yes, I do.
7 Q And there are a number of fees paid to Reffsin &
8 Company there as well, correct?
9 A Yes.
10 Q Would it be a fair statement that the total of those
11 payments is approximately $26,000?
12 A Yeah.
13 Q And let me now show you what is in evidence as
14 Government's Exhibit 660.
15 Can you identify that document for us?
16 A It's the general ledger of Who's Who Worldwide
17 Registry, Inc., for the period ending December 31, 1993.
18 Q And would you take a look, please, at page 38.
19 A Yes.
20 Q Do you see the fourth account number there labeled
21 "accounting"?
22 A Yes, I do.
23 Q Those are all entries payable to M. Reffsin &
24 Company?
25 A Yes, that's correct.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2305
Rosenblatt-cross/Wallenstein
1 Q And would it be a fair statement that the total of
2 those is approximately $25,000?
3 A Yes.
4 Q And would it also be a fair statement that those
5 appear to be monthly payments?
6 A Yes.
7 Q Gie volume of the Who's Who Worldwide financial
8 records as they existed at any particular time and the
9 state of those records particularly in 1993 and 1994 as
10 kept by Maria Gaspar, would you have an estimate based on
11 your experience and based also on your own analysis of the
12 fig ures as to how long it would take an accountant to do a
13 monthly bank record or a monthly report on these records?
14 A I would have no way of knowing.
15 Q Would it be a fair statement it would probably take
16 at least a day?
17 A I would have no way of answering.
18 THE COURT: Excuse me a minute.
19 (An unrelated matter was taken by the Court.)
20 THE COURT: I must apologize. That was a
21 telephone call from the Chief Judge of the Second
22 Circuit. The United States Court of Appeals. There are
23 three circuits, the lowest court, me, and then there is an
24 appellate court, the circuit court which reviews my
25 decision and then as you know there is the United States
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2306
Rosenblatt-cross/Wallenstein
1 Supreme Court. Well, this judge who called me is the
2 Chief Judge of the Second Circui t, one of the greatest
3 judges in the United States. His name is Ralph Winter,
4 and he has asked me to sit there for a couple of days in
5 the circuit court, which of course when he asks me to sit
6 there, I don't want to go there, but the answer is yes, of
7 course. When would you like me to go? He said how about
8 May 7th and 8th, I said fine. I haven't the slightest
9 idea what I'm doing the 7th and 8th, but that's what I'll
10 be doing.
11 I'm sorry for keeping everybody waiting.
12 MR. WALLENSTEIN: Now you know precisely what
13 you'll be doing the 7th and 8th of May.
14 BY MR. WALLENSTEIN:
15 Q Now, Mr. Rosenblatt, let me direct your attention to
16 Government's Exhibit 1500 in evidence and that document is
17 an analysis of Bruce Gordon's loan account for Who's Who
18 in 1994; is that correct?
19 A Yes.
20 Q And that document was created by you after your
21 analysis of the financial records; is that correct?
22 A Yes.
23 Q Would it be fair to say that what you did in coming
24 up with your bottom line of $406,160 was to take the
25 opening balance of the $265,000 and change, adding in
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2307
Rosenblatt-cross/Wallenstein
1 those numbers you felt should have been loans to Bruce
2 Gordon during 1994, subtracting a couple of credits for
3 payments and reclassifications, and coming up with that
4 bottom line number, correct?
5 A Well, this is based on the corporate records.
6 Q I mean, that's what you did. You took the additions,
7 took the subtractions and came up with that bottom number
8 of $406,000; is that correct?
9 A That's correct.
10 Q And would it be fair to say that in Exhibit 1404
11 which you also have in front of y ou, that document is the
12 analysis -- withdrawn.
13 That document is what you called Bruce Gordon's
14 additional taxable income; is that correct?
15 A Yes.
16 Q That's your opinion, correct?
17 A Yes.
18 Q And that document reflects in the column for 1994, an
19 indication that in 1994 Who's Who Worldwide Registry paid
20 $141,025 for Bruce Gordon's personal expenses and you're
21 calling that "income," is that correct?
22 A That's correct.
23 Q And would it be fair to say that $141,000 number is
24 the net of Exhibit 1500, and by that I mean you took the
25 $406,000 ending balance on Exhibit 1500 and subtracted the
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2308
Rosenblatt-cross/Wallenstein
1 $265,000 beginning balance, the difference being $141,025?
2 A That's correct.
3 Q So all of the additions you made during 19 94 and all
4 of the subtractions you made during 1994, really net out
5 to $141,000 worth of Mr. Gordon's personal expenses paid
6 by Who's Who in 1994; is that correct?
7 A That's correct.
8 Q Would you look at the item on 1500 now, on the item
9 dated June 30, 1994. That's an item from an adjusting
10 journal entry, correct?
11 A There are several June 30th items.
12 Q Well, the big one.
13 A Okay. 166,000?
14 Q Yes.
15 A Yes.
16 Q And that is an item which came from an adjusting
17 journal entry, and your description of it is to add in the
18 balance from the other loan and exchange account number
19 1202, correct?
20 A Yes.
21 Q Would it be fair to say by putting that item in that
22 fashion in this analysis, you increased the amount of
23 personal expenses paid by Who's Who for Bruce Gordon in
24 1994 by that amount, 1 66,000 and change?
25 A Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2309
Rosenblatt-cross/Wallenstein
1 Q And so if that item were not there, if that $166,000
2 were not an increase in his loan account for '94, the net
3 loan account for 1994 would be a negative number, about
4 $25,000 or $24,000, correct?
5 A Yes.
6 MR. WALLENSTEIN: May I have a moment, Your
7 Honor?
8 THE COURT: Yes.
9 MR. WALLENSTEIN: Thank you.
10 BY MR. WALLENSTEIN:
11 Q I want to take you back to Exhibit 658.
12 A 658-B?
13 Q Yes. Specifically page 7.
14 That's the general ledger ending December 31,
15 1992.
16 A Yes.
17 Q Specifically page 7 of that document. There's an
18 entry there in account 1201. Almost at the bottom of that
19 account there are three entries, Joyce Grossman, Richard
20 Grossman and Ri chard Grossman. And those are the checks
21 for $156,000 reflecting the $313,000 payment to the
22 Grossmans which was $400,000 net of taxes, correct?
23 A Yes.
24 Q And I assume at this point you are thoroughly
25 familiar with that transaction?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2310
Rosenblatt-cross/Wallenstein
1 A I think so.
2 Q There are three checks there, and would it be fair to
3 say that that was because Joyce Grossman's check was
4 ultimately returned to Who's Who and replaced with a
5 second Richard Grossman check?
6 A That's correct.
7 Q So that the net effect was to pay $313,000 which was
8 the total of the two $156,000 checks; is that correct?
9 A Yes. There were two checks, each one for $156,000.
10 Q Now, is it fair to say, however, that the third
11 check, the return check from Joyce Grossman was not sh own
12 on the books as a return check until 1993?
13 A It's not reflected here. I would assume the entry
14 would have been made in 1993.
15 Q Correct.
16 But what I'm saying is, based upon your analysis
17 of the books, do you know that it was in fact credited in
18 1993?
19 A I don't recall.
20 Q Do you recall that the check -- withdrawn.
21 At this point in time, going back now to page 7
22 of Exhibit 658, when we have three checks carried on the
23 books, they are all receivables, correct?
24 A That's correct.
25 Q And that is really an asset of the corporation?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2311
Rosenblatt-cross/Wallenstein
1 A Yes.
2 Q At the point where Joyce Grossman returns that check,
3 if the check is simply voided out, all you need to do is
4 make an entry to correct that and reclassify it, correct?
5 A Rephrase that, please?
6 Q Fine.
7 In 1992, Who's Who issues three checks. One to
8 Joyce Grossman and two to Richard Grossman, each in the
9 amount of $156,000 and change, correct?
10 A Yes.
11 Q At the end of the year all three of those checks are
12 still carried on the books, correct?
13 A Yes.
14 Q And in January of 1993, Who's Who gets back the
15 uncashed check from Joyce Grossman.
16 Do you recall that?
17 A Yes.
18 Q And rather than reversing the check, voiding it out
19 in the checkbook and reversing the journal entry, that
20 check is deposited into the Who's Who account, correct?
21 A Yes.
22 Q Would it be fair to say that that then increases
23 whatever account is numbered "cash in bank or cash on hand
24 --" correct?
25 A Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2312
Rosenblatt-cross/Wallenstein
1 Q -- And reduces the loan and exchange balance?
2 A Yes.
3 Q So by taking the check back and putting it in the
4 bank you've basically done the same thing as a simple
5 reversal of the bookkeeping entry, but you've done it in a
6 little more complicated fashion; is that correct?
7 A The result is the same.
8 Q Maybe next time I can simplify the question.
9 In January of 1993, Richard Grossman writes two
10 checks to Who's Who, one for $200,000 and one for $35,000
11 with some change, correct?
12 A I don't remember the specific dates, but yes.
13 Q And those are both deposited in a Who's Who cash
14 account, they go into the bank, correct?
15 A Yes.
16 Q And thereby create a debit to the cash in bank or
17 cash on hand account, increasing that account, correct?
18 A Yes.
19 Q And they then reduce the loan and exchange account,
20 correct?
21 A Well, they went to reduce Bruce Gordon's loan and
22 exchange account.
23 Q And that's how they were carried on the books,
24 correct?
25 A No, they were originally put into the loan and
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2313
Rosenblatt-cross/Wallenstein
1 exchange, other accounts.
2 Q But that is still a loan and exchange account.
3 At some point the accountant then comes along and
4 straightens all of these out; is that correct?
5 A Yes.
6 Q What you calculated to be Mr. Gordon's additional
7 income, did you reduce your calculation by that $235,000
8 payment?
9 A No.
10 Q Now, let me draw your attention to --
11 MR. WALLENSTEIN: Judge, I'm sorry. May I have a
12 moment?
13 THE COURT: Surely.
14 MR. WALLENSTEIN: Thank you, Your H onor. I have
15 no further questions for Mr. Rosenblatt at this time.
16 THE COURT: All right.
17 (Continued.)
18
19
20
21
22
23
24
25
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2314
Rosenblatt-cross/Trabulus
1 CROSS-EXAMINATION.
2 BY MR. TRABULUS:
3 Q Good morning, Mr. Rosenblatt.
4 If you recall I'm the attorney for Mr. Gordon, as
5 I'm sure you've noticed throughout the trial as you've
6 been watching.
7 Mr. Rosenblatt, you've indicated that you've been
8 a revenue agent for 26 years?
9 A Approximately.
10 Q You've stated that you are a technical assistant to
11 the district counsel in Brooklyn, correct?
12 A Technical advisor.
13 Q Technical advisor.
14 Are you the only technical advisor to the
15 district counsel in Brooklyn or are the re others?
16 A I'm the only one.
17 Q Let's talk about the things you've done as a revenue
18 agent in the audit or examination division.
19 Is it fair to say what you've primarily done was
20 to conduct audits?
21 A That's correct.
22 Q And approximately how many audits have you conducted?
23 A A lot. I wouldn't even be able to put a number on
24 it.
25 Q Procedurally, what is the outcome of an audit?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2315
Rosenblatt-cross/Trabulus
1 A We are trying to determine whether the proper tax is
2 paid and --
3 Q Perhaps my question was not sharp enough. But the
4 question is, the end product of an audit, is there a name
5 for the determination that you make?
6 A A revenue agent's report.
7 Q Okay.
8 Now, the revenue agent's report in the case of an
9 audit, you mak e represents your own conclusions as a
10 result of the audit; isn't that correct?
11 A That's correct.
12 Q And what type of review can that report then be
13 subject to, what is the next level of review if the
14 taxpayer disagrees with you?
15 A Supervisory review.
16 Q Is that the appeal? Is that by an appeals officer?
17 A No, it's a review by my supervisor.
18 Q Let's say as a result of that review -- withdrawn.
19 What would the result of that review be? Would
20 that be another report or an informal decision by the
21 supervisor?
22 A It might be the offer of an informal conference by
23 the supervisor.
24 Q Let us say that the taxpayer is dissatisfied with the
25 result of the informal review or the review by the
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2316
Rosenblatt-cross/Trabulus
1 supervisor. What would be the next level of review?
2 A The case is set up unagreed, then it can go to the
3 IRS individual.
4 Q When you say "agreed," you say unagreed set of facts?
5 A Unagreed.
6 Q Unagreed, I'm sorry.
7 Then it would go to the IRS appeals process, and
8 who is that?
9 A Well, actually a 30-day letter is issued which gives
10 the taxpayer or his representative 30 days to file an
11 appeal and then it goes to the IRS appeals division which
12 is out here in Hempstead, I believe.
13 Q And the IRS appeals division, who works there?
14 A Other IRS employees.
15 Q And they basically can review a determination made by
16 a revenue agent; is that correct?
17 A That's correct.
18 Q And they can change it; is that correct?
19 A Yes.
20 Q And has it ever happened that any of your audits have
21 been changed as a result of a supervisory review th at
22 you've mentioned before?
23 A No.
24 Q Has it ever happened that any of them have been
25 changed as a result of an appeal?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2317
Rosenblatt-cross/Trabulus
1 A Yes.
2 Q Now, let us say that the result of the appeal is not
3 satisfactory to a taxpayer or they disagree with it, what
4 is the taxpayer's recourse at that point?
5 A Generally the case is issued a statutory notice of
6 deficiency and they would have to go to tax court to fight
7 it.
8 Q There's a certain time period within which they have
9 to start a case in tax court with a petition in order to
10 review the determination.
11 A Yes.
12 Q So that would be yet a fourth place after the
13 supervisory level, the appeals level -- a third place,
14 excuse me.
15 Now, the tax court could also make a
16 determination concerning the taxpayer's contentions; is
17 that correct?
18 A Yes.
19 Q And the tax court, that would be a proceeding in the
20 tax court would be a civil proceeding, would that not be
21 the case?
22 A Yes, it is.
23 Q And in that civil proceeding is it your understanding
24 that the taxpayer bears the burden of proof in showing
25 that the Internal Revenue Service was wrong?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2318
Rosenblatt-cross/Trabulus
1 A Yes.
2 Q And the decisions of the tax court are published, are
3 they not?
4 A Yes, they are.
5 Q And in fact, some of the factors that you were
6 testifying to concerning whether or not a loan is a loan
7 were taken from decisions of the tax court in that kind of
8 case; is that correct?
9 A Yes, it is.
10 Q Cases in which the taxpayer had the burden of proving
11 that the IRS was wrong?
12 A Yes.
13 Q Now, I think you testified that you yourself had been
14 involved as an IRS agent in determining whether or not to
15 treat loans as loans or things that had been claimed to be
16 loans as really being loans or else being salary-type
17 payments or something of that sort; is that true?
18 A Yes.
19 Q When you had done that is that in the connection of
20 audits?
21 A Yes, it was.
22 Q And it was always in connection with an audit as
23 opposed to a criminal investigation; is that correct?
24 A I believe so.
25 Q Other than this case?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2319
Rosenblatt-cross/Trabulus
1 A I believe so.
2 Q And in doing that -- withdrawn.
3 Are you aware of any case, any of the criminal
4 cases or crim inal investigations on which you work, other
5 than this one, in which the issue came up whether or not a
6 loan was truly a loan, that you worked on?
7 A I can't really recall it being an issue in a criminal
8 case.
9 Q So your entire experience, in terms of that
10 particular issue, has been working on audits in civil
11 proceedings where ultimately the taxpayer would bear the
12 burden of proof in showing that the IRS was wrong; is that
13 correct?
14 A I believe so.
15 Q Now, in this case are you aware whether any audit was
16 ever done by the IRS of the returns of Who's Who Worldwide
17 Registry, Inc.?
18 A I'm not aware of any.
19 Q As far as you know there was no such audit?
20 A Not to my knowledge.
21 Q How about Mr. Gordon's returns for the years 1991
22 through 1994, the period you've been talking about. Are
23 you aware as to whe ther or not the IRS ever conducted an
24 audit?
25 A I don't believe there was a civil audit.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2320
Rosenblatt-cross/Trabulus
1 Q Now, I think you testified on Friday or maybe it was
2 Thursday that if there had been a disclosure to Agent
3 Gagliardi, that Mr. Gordon had an ownership interest in
4 Who's Who Worldwide, there would have been a referral to
5 the examination division or the audit division, whatever
6 it was called at that point. Do you recall giving that
7 testimony in substance?
8 A Yes.
9 Q And you also recall hearing as Agent Gagliardi
10 testified here that at a certain point in time he had
11 become aware of a newspaper report which indicated that
12 Mr. Gordon was an owner or the owner of Who's Who
13 Worldwide. Do you recall hearing that?
14 A I believe that's when th e arrests were made in 1995.
15 Q Now, following that are you aware of any civil audit
16 or referral for a civil audit of Mr. Gordon's returns?
17 A I'm not aware of it.
18 Q Now, in this particular case, in terms of what you
19 did, did you yourself do the same things you would have
20 done for an audit?
21 A No.
22 Q Did you decide what information would be obtained?
23 A No.
24 Q When did you first look -- withdrawn.
25 When did you first begin your work on this case?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2321
Rosenblatt-cross/Trabulus
1 A I received a letter from the U.S. Attorney's Office
2 requesting my assistance in preparation for and testimony
3 in trial, if needed. I believe it was September of 1997
4 after Labor Day, I believe.
5 Q And that was after, as far as you understand it, an
6 indictment that ha d already been returned against
7 Mr. Gordon and Mr. Reffsin; is that correct?
8 A Absolutely.
9 Q Now, in connection with that, let me ask you, we've
10 seen a bunch of charts here, did you yourself prepare
11 those charts?
12 A I prepared some of them and others were prepared at
13 my direction and they were reviewed by me.
14 Q Did you decide which charts to prepare?
15 A For the most part, yes.
16 Q Did you -- was there or were there any charts that
17 were not prepared that you considered preparing?
18 A No.
19 Q Did you have any discussions with Mr. White or with
20 anybody else in his office or with possibly an IRS agent
21 such as Agent Jordan concerning what charts to prepare?
22 A Yes, we had discussions.
23 Q Did anybody suggest that any charts not be prepared?
24 A No.
25 Q Now --
OWEN M. WICKER, RPR OFFICIAL C OURT REPORTER
2322
Rosenblatt-cross/Trabulus
1 A Excuse me. I may have suggested certain things.
2 Q Now, the bank records that you reviewed in this case,
3 who was it who decided which bank records you would
4 review?
5 A I do.
6 Q Now, one of your charts referred to a Republic
7 National Bank account of Who's Who Worldwide?
8 A There's a lot of bank accounts and a lot of charts.
9 You would have to show me.
10 Q Referring to Government's Exhibit 837.
11 I'm showing you 837 which is in evidence and I'm
12 referring to this particular bank account.
13 A Yes.
14 Q Did you review --
15 MR. WHITE: Excuse me, Mr. Trabulus. May I just
16 see what you are showing the witness?
17 MR. TRABULUS: Sure (indicating.)
18 MR. WHITE: Do you want the easel? Might that
19 help?
20 MR. TRABULUS: It might help. Thank you.
21 BY MR. TRABULUS:
22 Q Mr. Rosenblatt, I'm pointing to this box on the
23 exhibit which says Who's Who Worldwide Registry Inc.,
24 Republic Bank for Savings.
25 Did you review the bank records of that account?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2323
Rosenblatt-cross/Trabulus
1 Do you recall?
2 A I've looked at all bank records.
3 Q Do you know whether they are in evidence in this
4 case?
5 A I would think they are.
6 Q Do you know what exhibit they are?
7 A No.
8 Q Do you recall whether or not -- let me ask you about
9 this chart.
10 I think you testified in response to some
11 questions by Mr. White that the general ledger is a
12 picture of all the accounts, not a picture, but it shows
13 all the accounts of a corporation and the trial balance is
14 a snapshot of the status of the general ledger as of a
15 particular point in time. Do you recall that?
16 A Yes.
17 Q And does this chart represent a snapshot at a
18 particular point in time?
19 A It's a period of time.
20 Q And is it true that it covers a period of time and it
21 doesn't show everything that happened with regard to each
22 one of the accounts here; is that correct?
23 A It doesn't show every transaction, no.
24 Q For example, do you recall whether or not during this
25 period of time any monies came out of Who's Who Worldwide
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2324
Rosenblatt-cross/Trabulus
1 to pay taxes?
2 A Taxes to who?
3 Q To the Internal Revenue Service, payroll taxes, state
4 taxes.
5 A I'm sure, yes.
6 Q Do you recall whether there's a check here shown to
7 Who's Who Worldwide Registry Inc., Republic Bank for
8 Savi ngs, for -- there's shown here a transfer of
9 $560,000.
10 Do you recall whether at any point after that
11 transfer, within that same general time period, any checks
12 were written from Who's Who Worldwide Registry Inc.,
13 Republic Bank for Savings to various taxing authorities to
14 pay taxes?
15 A Do I recall specifically? No. But I would expect
16 that checks would have been written on it.
17 Q Would you take a look at the Republic Bank for
18 Savings documents which are in evidence --
19 MR. TRABULUS: Mr. White, do you have them?
20 MR. WHITE: Tell me what exhibit it is.
21 MR. TRABULUS: You tell me. I wasn't able to
22 find them.
23 BY MR. TRABULUS:
24 Q Mr. Rosenblatt, I'll show you 780-C which is a Marine
25 Midland Bank statement.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2325
Rosenblatt-cross/Trabulus
1 Is that a document that was used in preparing
2 this chart?
3 A Yes, it is.
4 Q Does that reflect some of the transfers to the Who's
5 Who Worldwide Registry Inc., Republic Bank for Savings
6 account?
7 A (Perusing.) I can't see the numbers, I'm sorry.
8 Q Okay.
9 This says $560,000 and it may be an aggregate
10 figure. Did you prepare this chart?
11 A I reviewed it. Yes, there are three items, debits to
12 the Marine Midland Bank account, $360,000, $100,000 and
13 another $100,000, total of 560.
14 Q So that is in evidence.
15 Is it correct that the documents showing the
16 transfer to Who's Who Worldwide Registry, Republic Bank
17 for Savings are in evidence?
18 A Yes.
19 Q And I'm going to ask you again, are the records of
20 the Who's Who Worldwide Registry, Republic Bank for
21 Savings account themselves in evidence?
22 A You would have to give me the exhibit.
23 MR. TRABULUS: Mr. White, are we prepared to,
24 rather than going through all the exhibits in evidence,
25 just acknowledge that they are not.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2326
Rosenblatt-cross/Trabulus
1 MR. WHITE: The document -- let me look at the
2 chart. The document reflecting the transfer from Sterling
3 Marine Midland to Who's Who Republic Bank for Savings is
4 what Mr. Trabulus just showed Mr. Rosenblatt. There is
5 not a document in evidence reflecting the mirror image of
6 that transaction from Republic for Savings.
7 BY MR. TRABULUS:
8 Q Well, Mr. Rosenblatt, I'm not just asking about the
9 mirror image, I'm actually referring to the records of
10 that account, the Republic Bank for Savings account. Have
11 you ever seen them?
12 A There's a lot of bank accoun ts, a lot of records, a
13 lot of corporations. I really can't say with certainty.
14 Q Did you participate in any decision or discussion
15 with either Mr. White, Ms. Scott, Agent Jordan as to which
16 bank records should and which bank records should not be
17 introduced in evidence?
18 A No.
19 Q Did you look at any bank records which, to your
20 knowledge, are not in evidence and utilized those in
21 preparing any of these charts or forming any opinions?
22 A Not to my knowledge.
23 Q So if the Who's Who Worldwide Registry Republic Bank
24 for Savings bank records are not in evidence, you didn't
25 look at them; is that fair to say?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2327
Rosenblatt-cross/Trabulus
1 A It's possible I did look at them.
2 Q But they are not in evidence?
3 A That I don't know, if they are in evidence. I f we
4 have them it's possible that I looked at them.
5 Q If you have them you would have looked at them
6 without regard whether or not they were introduced in
7 evidence?
8 A It's possible at the time I looked at them I didn't
9 know what would have been put in evidence or not.
10 Q Do you know if they would have been put in evidence
11 if you looked at them?
12 A I have no idea.
13 Q Do you know whether they reflected tax payments to
14 the IRS?
15 A I don't recall.
16 Q If they reflected tax payments to the IRS, do you
17 believe that may be one of the reasons they are not put in
18 evidence?
19 A I would have no way of knowing that.
20 Q Now, you've been asked a great deal about loans. Is
21 it fair to say it is not at all unusual for a corporation
22 to make a loan to a shareholder?
23 A Not unusual.
24 Q Indeed the c orporate tax returns even have a box
25 where that can be checked, indicating loans to
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 shareholders, right?
2 A There's a line on the balance sheet, loans to
3 shareholders.
4 Q So it is sufficiently common that the IRS in
5 preparing tax forms for corporations actually takes the
6 trouble to print out a special place to indicate that,
7 fair enough?
8 A Yes.
9 Q And it is not even unusual for a corporation which is
10 entirely owned by one person, not that I'm saying that
11 Mr. Gordon owned all of Who's Who Worldwide, but it's not
12 unusual for a corporation which has a sole shareholder to
13 make a loan to that shareholder; is that correct?
14 A That's correct.
15 Q And there's nothing wrong with that, is that correct,
16 that could be a loa n?
17 A Not on the face of it, no.
18 Q Now, we're talking about a C corporation in these
19 questions?
20 A Yes.
21 Q Can you tell the jury what a C corporation is and in
22 particular what it is in comparison to an S corporation?
23 A A C corporation is a corporation that pays tax on its
24 own basically. An S corporation or a subchapter S
25 corporation, does not pay tax and the items of income from
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 that corporation flow directly onto the shareholders
2 returns.
3 Q Let me see if I can encapsulate that.
4 When an S corporation earns money, gets taxable
5 income, that becomes taxable income to its shareholders
6 automatically at the same time. Is that fair to say?
7 A Yes.
8 Q It might be a little bit of an oversimplification but
9 ba sically that's the way it operates?
10 A Yes.
11 Q If a C corporation gets income, even if it is owned
12 by one person, one person owns all the shares, that income
13 does not represent taxable income to that individual
14 personally, is that correct, ordinarily?
15 A The taxable income of the corporation is the taxable
16 income of the corporation.
17 Q And not the individual?
18 A That's correct.
19 Q And the corporation itself pays taxes or could pay
20 taxes on it depending upon whether or not it has taxable
21 income?
22 A Yes.
23 Q Now, in 1991, what was the corporate tax rate? What
24 percentage rate did corporations pay taxes?
25 A I believe it was about 39 percent.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 Q And in 1992?
2 A I believe it stayed about the same.
3 Q 1993?
4 A Same, I believe.
5 Q 1994?
6 A I believe the same.
7 Q And what was the maximum rate for individuals in
8 those same time periods?
9 A I think possibly around 1990 or '91, I believe it
10 might have been 31 percent for individuals and then it
11 went to like 39.6 percent. My years could be a little
12 off.
13 Q Okay.
14 And with regard to when it went to 39.6 percent,
15 that would not be on all the income of an individual, just
16 the income above a certain amount; is that correct?
17 A That is correct.
18 Q Now, the 39 percent or whatever the number was for
19 corporations, was that on all the corporation's income or
20 just the amount over a certain amount?
21 A I believe it was the amount over -- I could be off,
22 it could be over 100,000 up to about 350,000, and then
23 beyond that I think the rate was just a s traight 34
24 percent.
25 Q Okay.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 MR. TRABULUS: Your Honor, I'm going to be a fair
2 amount longer. It's after 11.
3 THE COURT: All right.
4 Members of the jury, we'll take a ten-minute
5 recess. Please don't discuss the case. Keep an open
6 mind. Please recess yourselves.
7 (Recess taken.)
8 (Jury enters.)
9 THE COURT: You may proceed, Mr. Trabulus.
10 MR. TRABULUS: Thank you, Your Honor.
11 BY MR. TRABULUS:
12 Q Okay.
13 Mr. Rosenblatt, we were talking about the
14 different corporate and individual rates.
15 Now, is it fair to say that in this case if the
16 corporations and Mr. Gordon had treated the loans as
17 something else, the logical thing for it to have been
18 treated as was a salary, fair enough, is that t he
19 alternative?
20 A At that time, yes.
21 Q Okay.
22 If they had been treated as a salary, is it
23 correct that the corporations would have been entitled to
24 take a deduction for that purpose?
25 A Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 Q And is it correct that the corporations did not take
2 a deduction for that purpose?
3 A That's correct.
4 Q Now, you talked about various factors in determining
5 whether or not what is claimed to be a loan is truly a
6 loan.
7 Would one of those factors, whether I phrase it
8 the way you did or not, be what the tax consequences might
9 be?
10 A That's something I would definitely look at.
11 Q You would look at.
12 In this particular case you've made quite a few
13 computations, have you not?
14 A Ye s.
15 Q And do you know from your review of the records here
16 the total amount of corporate income tax paid to the
17 United States government by Who's Who Worldwide over the
18 four years, 1991 through 1994?
19 A I don't know.
20 Q Is there anything that might refresh -- excuse me.
21 When you say you don't know, did you ever seek to
22 find that out during the course of whatever work you did
23 in preparation for your testimony here?
24 A I never added them up. I mean, the tax returns
25 themselves would show what the corporations made.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 MR. TRABULUS: I would ask the government to
2 given me 415 and these are all in evidence, 415 which is
3 the 1990 return for Who's Who Worldwide, 416, the 1991
4 return, 417, the 1992 return and 418, the 1993 return.
5 Incidently, Mr. Rosenblatt, while the government
6 is doing that, are you aware whether Who's Who Worldwide
7 filed a 1994 return?
8 A I don't believe that was filed.
9 Q That related to the bankruptcy?
10 A I don't know why it wasn't filed.
11 Q Do you know who was -- withdrawn.
12 Do you have any idea who was in control of Who's
13 Who Worldwide during the period of 1995 when such a return
14 might have been filed?
15 A I believe the trustee was.
16 Q Do you know where the books and records of Who's Who
17 Worldwide were such as might have been needed to prepare
18 such a return? Do you know where they were at that point
19 in time?
20 A I couldn't say.
21 Q Mr. Rosenblatt, I'm handing you 415 through 418
22 inclusive in evidence.
23 Now, my questions to you before were 1991 through
24 1994, but the returns you have are 1990 through 1993 ; is
25 that right?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2334
Rosenblatt-cross/Trabulus
1 A Yes.
2 Q Okay.
3 Let's look at 415 which is the year 1990. That
4 was when Who's Who was a pretty new business; is that
5 correct?
6 A Yes.
7 Q And the taxable income was shown as $11,490; is that
8 correct?
9 A Yes.
10 Q And the tax is only $1,724; is that right?
11 A Yes, it is.
12 Q Now, did you determine that there were loans made by
13 the corporation or repayments made to Mr. Gordon made
14 during 1990?
15 A Yes.
16 Q Do you recall what they were?
17 A I believe it was approximately $62,000.
18 Q Now, if that had been taken as a tax deduction, how
19 would that have been reflected on the return? If that had
20 been treated as salary by the corporation, how would that
21 hav e been reflected on the return?
22 A It would have been a deduction on line 12,
23 compensation of officers.
24 Q And would there have ever been any taxable income as
25 a result?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2335
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1 A No, there would have been a loss.
2 Q There would have been a loss?
3 A That's correct.
4 Q And there would have been no tax paid?
5 A That's correct.
6 Q In that year; is that correct?
7 A That's correct.
8 Q And are you familiar with the term "tax loss carry
9 forward"?
10 A Yes.
11 Q Tell the jury what that is.
12 A When there is a net operating loss in conducting a
13 business, the taxpayer has the right to carry it back to
14 three prior years if they exist or forward, I believe at
15 that time for ten years.
16 Q So is it fair to say that if there had been a
17 treatment of this sixty-two odd thousand dollar amount of
18 loan to Mr. Gordon as salary, the corporation could have
19 benefited by that by getting a tax loss carry forward and
20 it might have been able to use in subsequent years when
21 operating a profit?
22 A That's correct.
23 Q Okay. Let's proceed to -- withdrawn.
24 The amount of the tax loss carried forward would
25 be the amount of this loan amount which we are now saying
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 would have been treated as salary, minus the taxable
2 income. Is that correct?
3 A That's correct.
4 Q So the taxable income, excuse me, the loan amount you
5 said was about $62,000, the taxable income was about
6 $11,400, was recorded as $11,490, so is it fair to say
7 there would have been a tax loss carried forward of
8 approximately $50,000?
9 A Yes, that's correct.
10 Q Let's proceed to 1991.
11 A Actually net operating loss?
12 Q I'm sorry, net operating loss.
13 The effect is the same. They would have been
14 able to carry it forward to another year and utilize it as
15 a deduction; is that correct?
16 A That's correct.
17 Q 1991, Exhibit 416.
18 And in that year taxable income of Who's Who
19 Worldwide was $14,707; is that correct?
20 A Yes.
21 Q And what were the loans that were made to Mr. Gordon
22 as claimed on the return in that year?
23 A Approximately $145,000.
24 Q That's based upon the computation that you made,
25 right?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2337
Rosenblatt-cross/Trabulus
1 A Yes.
2 Q Now, let's talk about the tax consequences if it had
3 been treated as salary.
4 Would that have resulted in net operating logs of
5 about $130,000?
6 A Yes, it would have.
7 Q So in 19 -- that would have also represented --
8 excuse me. That would have also resulted in a carry
9 forward; is that correct?
10 A Yes.
11 Q And that carry forward would have been added to the
12 carry forward for the preceding year?
13 A Yes.
14 Q So now we have 50,000 from the year before, 130,000
15 from this year, we are talking about a carry forward of
16 $180,000; is that right?
17 A Yes.
18 Q Okay. Let's go to 1992. That's Exhibit 417 in
19 evidence.
20 Now, Who's Who Worldwide is shown as doing much
21 better; is that correct?
22 A Yes, it is.
23 Q It has taxable income of $516,208; is that correct?
24 A Yes.
25 Q And it has, it paid tax of $175,511?
OWEN M. WICK ER, RPR OFFICIAL COURT REPORTER
2338
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1 A Yes.
2 Q That's its corporate income to the U.S. government?
3 A Yes.
4 Q That doesn't include any payroll taxes that it paid
5 or any other taxes that it paid as a result of having all
6 the employees it did; is that correct?
7 A That's correct.
8 Q So we're just talking about income tax?
9 A Just income tax.
10 Q Now, how much were the loans as you computed them to
11 Mr. Gordon in 1992?
12 A Approximately $237,000.
13 Q Okay.
14 Now, if they had been taken as salary in 1992,
15 that would have resulted in a deduction of, what did you
16 say $237,000?
17 A Yes.
18 Q Now, in 1992, the taxable income of Who's Who
19 Worldwide was big enough so that if the loans had been
20 treated as salary in the preceding years, Who's Who
21 Worldwide w ould have been able to take advantage of the
22 carry forwards; is that correct?
23 A Yes.
24 Q So we've got not only the $237,000, but we also have
25 $180,000, correct?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2339
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1 A Yes.
2 Q And the end result, if during those three years
3 Mr. Gordon's loans had been treated as salaried, the end
4 result would have been that the taxable income of Who's
5 Who Worldwide in 1992 would have been reduced by about
6 $407,000; is that correct?
7 A Approximately.
8 Q And instead of reporting a taxable income of
9 $516,208, it would have reported a taxable income of about
10 $109,000; is that correct?
11 A Yes.
12 Q What would the tax have been on that?
13 A Around 30, $40,000, in that area.
14 Q And the tax actually paid was $175,000?
15 A Tha t's correct.
16 Q And so Who's Who Worldwide itself would have paid,
17 let us say, approximately $140,000 less in taxes that
18 year?
19 A Approximately.
20 Q Let's go to 1993. That's Exhibit 418 in evidence.
21 A Yes.
22 Q In 1993, Who's Who Worldwide was doing quite well, it
23 made $1,286,588?
24 A Yes.
25 Q In taxable income?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2340
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1 A Yes.
2 Q Incidently there is nothing in your investigation to
3 indicate that any of the reported amounts of income for
4 Who's Who Worldwide Registry, Inc., or any of the
5 corporations was incorrect, other than perhaps they didn't
6 take deductions they could have according to your view of
7 what the loans were. Is that fair to say?
8 A I didn't conduct the investigation.
9 Q Okay.
10 But as far as you know, there's nothing to
11 indicate that this number is incorrect, that there was
12 more taxable income than that.
13 A No.
14 Q And Who's Who Worldwide paid $426,000 odd in federal
15 income taxes in 1993; is that correct?
16 A Yes, it is.
17 Q And what did you compute the loans to Mr. Gordon in
18 1993 as being?
19 A Approximately $132,000.
20 Q And in doing that, you did not treat any of the
21 amounts returned by Dr. Grossman as being a repayment of
22 the loan, did you?
23 A I believe that occurred in 1992, the adjustment.
24 Q In either year you did not include that, is that
25 correct, as reducing the amount of the loan, did you?
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2341
Rosenblatt-cross/Trabulus
1 A No.
2 Q So how much -- withdrawn.
3 If the loan had -- if the loan amounts in 1993
4 had been shown as salary, do you know how much the tax
5 paid by the corporation would have been reduced?
6 A Approximately $50,000.
7 Q Do you know whether the rate at which the corporation
8 paid taxes was higher than the rate at which Mr. Gordon
9 would have paid taxes if he had reported these loans as
10 salary?
11 A Like I said before, I believe the rate was
12 comparable. I think the top rate was about 39 percent for
13 each.
14 Q Would you go back to Mr. Gordon's returns, and I'll
15 get them for you, and determine what the top rate, what
16 the rate would have been on the last dollar he got had
17 these loans been reported as salary. Can you do that?
18 A I believe it is 39.6 percent.
19 Q But the lower amount, the lower end of the scale, the
20 rate would have been lower for Mr. Gordon than for the
21 corporation; is that correct?
22 A Yes. I mean, actually the individual rate and the
23 corporate rate I believe both start at about 15 percent in
24 these years.
25 Q Is it fair to say that the amount by which Mr. Gordon
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2342
Rosenblatt-cross/Trabulus
1 paid less taxes by reason of reporting loans as loans, was
2 less than the amount that the corporations would have
3 saved, the corporation would have saved if it had reported
4 the loans as salary and taken a deduction as we've spoken.
5 A Can you rephrase that?
6 Q Sure.
7 We have the corporations taking -- we have, the
8 way things are, we have the corporation didn't take a
9 deduction, treated it as a loan and Mr. Gordon treated it
10 as a loan?
11 A Right.
12 Q As a result of that the corporation paid more taxes
13 than it would have if it had treated the loa ns as salary,
14 correct?
15 A Absolutely.
16 Q Now, I'm talking about the amount of that more, the
17 additional amount we're talking about, the difference
18 between what it would have paid, what it actually paid in
19 taxes and what it would have paid had it treated the loan
20 as salary. We'll call that figure A, all right?
21 A You want me to try to figure out what that is?
22 Q Yes, and I'd like you to compare it to the amount by
23 which Mr. Gordon would have paid more taxes if the loans
24 had been treated as salary by him, and I want to see which
25 is bigger. We'll call that the B figure.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2343
Rosenblatt-cross/Trabulus
1 A You will have to give me a couple minutes.
2 Q Sure.
3 Do you need a calculator?
4 A I think I can give an approximate number.
5 MR. TRABULUS: Okay .
6 A Go back to your last series of questions about the
7 tax returns themselves. Corporate taxes would have been
8 reduced by in 1990, approximately $1,700. In 1991,
9 approximately $2,000. In 1992, I believe the number was
10 about $140,000.
11 Q Yes, we had an approximation of about that.
12 A And then about 50,000 in 1993.
13 Q So we're talking about -- about $200,000?
14 A About $200,000.
15 Q Now, so if the corporation had treated these loans as
16 salary, they would have saved over the course of those
17 years about $200,000 in federal income taxes, right?
18 A Approximately, yes.
19 Q Now, let's compute how much more federal income taxes
20 Mr. Gordon would have had to have paid if he would have
21 treated the loans as salary.
22 Do you have all the exhibits you need?
23 A No, I believe --
24 Q Do you know his returns?
25 A 1405, the exhibit, the tax computation for
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2344
Rosenblatt-cross/Trabulus
1 Mr. Gordon.
2 Q Okay.
3 Now, 1405 has 1994 in it and it doesn't have 1990
4 in it (handing.)
5 A And I could also use the 1990 tax return.
6 Q For Mr. Gordon.
7 A For Mr. Gordon.
8 Q I'm giving you 408 in evidence, the 1990 return. So
9 let's leave 1994 aside since we don't have any return from
10 Who's Who for that period.
11 A I mean, the additional tax for 1990 based on
12 approximately $62,000 of income would have been in the
13 area of $20,000.
14 Q Okay.
15 A Then for 1991 we have about $45,000. For 1992,
16 approximately $74,000. And for 1993, $63,000. It's a
17 little over $200,000.
18 Q Not too different than the other number?
19 A Approximately the same.
20 Q And co ming into 1994, is it fair to say that there
21 would have been a similar result if Mr. Gordon had treated
22 the loans made to him as salary, and if the corporation
23 had filed a return, or corporations filed a return,
24 treating the loans as salary, the total amount of tax that
25 would have been paid would have been comparable to what
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2345
Rosenblatt-cross/Trabulus
1 would have been paid? I mean, as between the two of them,
2 comparable to what have been paid as treated as loans
3 across the two, that same general principle would have
4 applied?
5 MR. WHITE: Objection to the form of the
6 question.
7 THE COURT: Sustained as to form.
8 BY MR. TRABULUS:
9 Q Okay.
10 Is it fair to say because of the similarity of
11 the rates you've testified to in any given year, if money
12 is treated as a loan from a corporation to an individual
13 and the corporation doesn't get a deduction for salary,
14 the overall tax effect adding together the corporation's
15 tax and the individual's tax, is not going to be too
16 different than if it had been treated as a salary?
17 A I mean, in these years it wasn't because the income
18 rates -- both Mr. Gordon and the corporation would have
19 been in similar tax brackets. I can't say what the tax
20 bracket would have been for 1994 on the corporation, so I
21 couldn't make that comparison.
22 Q Okay.
23 Given similar tax brackets, the results would
24 have been comparable?
25 A Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2346
Rosenblatt-cross/Trabulus
1 Q Fair enough. Okay.
2 Now, before you mentioned that in the other
3 criminal investigations in which you've been involved
4 there weren't any other cases involving an issue as to
5 whether loans were really salary. Do you recall that?
6 A I recall that. I can't recall if there were.
7 Q Can you recall some of the other criminal cases on
8 which you did work?
9 A Yes.
10 Q In criminal tax fraud cases?
11 A Yes.
12 Q Were there cases in which a corporation would take a
13 deduction for a personal expense of an individual and the
14 individual would not report that personal expense as being
15 income?
16 A A criminal case?
17 Q Yes.
18 A Yes.
19 Q That's a pretty common type of tax fraud; is that
20 correct?
21 A Yes, one type.
22 Q That's one type.
23 There's nothing of that sort here. There's no
24 indication here that any corporation wrote off a personal
25 expense to Mr. Gordon; is that correct?
OWEN M. W ICKER, RPR OFFICIAL COURT REPORTER
2347
Rosenblatt-cross/Trabulus
1 A No.
2 Q It's not correct?
3 A No.
4 Q You're saying -- I'm limiting it with regard to the
5 loans. You maintain that with regard to the condominium
6 and so forth that was a personal expense?
7 A That's correct.
8 Q Leave that aside with regard to -- we'll get to that
9 later.
10 With regard to the loans and the American Express
11 account and so forth, is there any indication that any
12 personal expense of Mr. Gordon was written off by the
13 corporation?
14 A I believe there are indications. We did not charge
15 them, no.
16 Q So in other words, there is nothing that you regarded
17 as something that is worthy of being included in this
18 prosecution; is that correct?
19 MR. WHITE: Objection. He didn't determine what
20 is worthy of prosecut ion.
21 THE COURT: Sustained.
22 BY MR. TRABULUS:
23 Q What are some of the other types of criminal tax
24 frauds that you've worked on in other cases?
25 A The use of sham corporations, nominee corporations.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2348
Rosenblatt-cross/Trabulus
1 All different types of unreported income. Use of multiple
2 bank accounts.
3 Q And of course --
4 MR. WHITE: Objection. Can he finish the
5 answer?
6 BY MR. TRABULUS:
7 Q You may continue.
8 A Expenditure cases where people spent more than they
9 reported, and it was proved to be taxable income. Bank
10 deposits analyses where going to bank deposits it was
11 determined on additional income.
12 Q Okay. Multiple bank accounts. In your experience as
13 an auditor, have you encountered corporations which had
14 multiple bank accounts?
15 A Yes.
16 Q Is it fair to say it is typical for a corporation to
17 have multiple bank accounts?
18 A It's not unusual.
19 Q Not unusual at all; is that correct?
20 A Not unusual.
21 Q Are there business reasons why a corporation might
22 have multiple bank accounts that you are aware of?
23 A I mean, usually the biggest one is that there is a
24 regular operating account.
25 Q Are there other business reasons of which you are
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2349
Rosenblatt-cross/Trabulus
1 aware, sir?
2 A Yes.
3 Q For example, a business might want to have
4 relationships with multiple banks; is that correct?
5 A Yes.
6 Q Indeed is it not true that generally before one might
7 obtain financing from a bank, it's useful to have a
8 relationship with that bank as a depositor. Is t hat fair
9 enough?
10 A Generally, it is, yes.
11 Q Might there be issues relating to the degree of FDIC
12 insurance for an account?
13 A Sure.
14 Q So you can spread the risk among different banks; is
15 that correct?
16 A Yes.
17 Q And also get the benefit of that 100,000 insurance
18 spread out over several different accounts as opposed to
19 just a single account; is that correct?
20 A Yes, it is.
21 Q Have you ever audited the books of a business that
22 had merchant credit card accounts with banks?
23 A Yes.
24 Q And would it not be unusual for the corporation to
25 have a checking account with the same bank in which it had
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2350
Rosenblatt-cross/Trabulus
1 a merchant credit card account?
2 A No, that's not unusual.
3 Q Not unusual at all.
< BR> 4 A No.
5 Q In fact, it might be something that the merchant bank
6 might want the business to have with it?
7 A I can't answer that specifically.
8 Q In the course of auditing -- and none of these things
9 are unusual or criminal; is that correct? These can be
10 typical things we're talking about, right?
11 A They can be typical; they can be criminal.
12 Q But on their face there is nothing criminal about
13 them; is that correct?
14 A No.
15 Q And there are business reasons for them, right?
16 A They can be.
17 THE COURT: What is a merchant credit card
18 account?
19 THE WITNESS: That's where the merchant deals in
20 like Mastercard or Visa and they have an account set up to
21 handle all the transactions.
22 THE COURT: Is it a credit card account with the
23 bank through one of the credit card companies or is it
24 with the credit card company?
25 THE WITNESS: It's with the bank.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2351
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1 THE COURT: It's with the bank.
2 THE WITNESS: Yes.
3 THE COURT: But it's in the name of Mastercard or
4 something like that?
5 THE WITNESS: I'm not really sure.
6 THE COURT: Or is it in the name of X, Y, Z bank
7 credit card?
8 THE WITNESS: I'm not really sure.
9 BY MR. TRABULUS:
10 Q In terms of the function of a merchant credit card
11 account, would that be something that a corporation would
12 need to have in order to be able to accept payment by
13 credit card?
14 A I would think so.
15 Q And that's the function of it?
16 A Yes.
17 Q Now, you've been asked a fair amount about the
18 factors that the IRS considers in determining whether or
19 not a loan is tr uly a loan.
20 Is it fair to say that all of those factors are
21 various things that the IRS uses in trying to determine a
22 key question whether or not there was an intent to repay
23 the loan at the time the money was originally paid over to
24 the borrower?
25 A Yes, it is used to determine intent and whether
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2352
Rosenblatt-cross/Trabulus
1 something is really a loan.
2 Q Is it true, as you understood it, that is the key
3 factor whether or not there was an intent to repay at the
4 time the borrowing was made in terms whether something is
5 or is not a loan?
6 A Certainly is a key factor.
7 Q A key or the key?
8 A A key factor.
9 Q Not the key?
10 A I think it goes along with all the other items.
11 Q If someone were to borrow money and truly intend to
12 repay i t, can you conceive of any circumstances under
13 which the IRS would not consider that to be a loan?
14 A Yes.
15 Q Now, would those be situations in which there was no
16 ability to repay?
17 A Certainly.
18 Q Now, people borrow from gambling casinos to gamble,
19 are you familiar with that?
20 A Yes.
21 Q And they may intend to repay it; is that correct?
22 A I don't think the casino would take the money if they
23 didn't.
24 Q And is that -- does the IRS regard those loans as
25 loans even if it turns out that the person loses their
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2353
Rosenblatt-cross/Trabulus
1 shirt and can't repay it?
2 A It would depend upon all the facts and circumstances.
3 Q Well, given a genuine intent to repay. Yes or no,
4 sir?
5 A It would be considered a loan.
6 Q Now, peopl e borrow money to set up a business or to
7 go into business, correct?
8 A Yes.
9 Q For example, somebody might want to start a garment
10 business and borrow money to buy cloth, put it together,
11 and they wouldn't be able to repay it unless they were
12 successful to sell clothing?
13 A That might be.
14 Q And they might have pie-in-the-sky agreements and not
15 have a reasonable way of distributing it and it still
16 would have been a loan if they intended to repay it and go
17 along with it?
18 A There are a lot of bad business people who make bad
19 decisions.
20 Q You mean people who are not skilled in making their
21 decisions?
22 A People who were poor in making decisions.
23 Q It might depend upon something that might happen
24 after the time the loan was made, right?
25 A Yes.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2354
Rosenblatt-cross/Trabulus
1 Q Could there be loans that are really loans even
2 though the amount of the loan keeps on getting bigger and
3 bigger and while repayments are being made? In other
4 words, you can have a situation where there is a loan
5 getting bigger and bigger and smaller partial portions of
6 it are being repaid and portions of it are getting bigger
7 and bigger?
8 THE COURT: Slow down, Mr. Trabulus. I lost you
9 in the beginning of the sentence and these things are not
10 easy to comprehend to begin with. When you give these
11 questions so rapidly, I have trouble following it. I'm
12 sure the jurors don't but I have a problem following it.
13 MR. TRABULUS: I'll repeat it.
14 BY MR. TRABULUS:
15 Q In this case, by your computation, the amount of the
16 loan to Mr. Gordon, the outstanding balance got bigger as
17 time went by, right?
18 A Yes.
19 Q And also you've indicated that there were certain
20 repayments which were shown?
21 A Very minor payments.
22 Q Well, you term them as minor?
23 A Yes.
24 Q So you have a situation by your calculation there
25 were some repayments but a balance getting bigger; is that
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2355
Rosenblatt-cross/Trabulus
1 right?
2 A Yes.
3 Q Can you have a true loan in a situation like that?
4 A In this situation.
5 Q Not this situation. That type of situation. When I
6 say not this situation, I don't mean the situation with
7 Mr. Gordon, but that type of situation where the balance
8 keeps on getting bigger and there may be some repayments.
9 Is that precluded from being a true loan?
10 A No.
11 Q In fact, the national debt is a true loan, is it not?
12 A Yes.
13 Q And it has gotten bigger and bigger, right?
14 A Yes, it has.
15 Q And there were repayments along the way?
16 A Yes.
17 Q And there were borrowings in order to make the
18 repayment?
19 A Yes.
20 Q And that's a true loan?
21 A Yes.
22 Q Supposedly this one will get smaller, this is the
23 first one in 30 years, is that so?
24 A Hopefully.
25 Q Now, is it correct that on the books of Who's Who
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2356
Rosenblatt-cross/Trabulus
1 Worldwide the amount by which Dr. Grossman repaid Who's
2 Who Worldwide was shown as a reduction in the loan balance
3 from Mr. Gordon?
4 A The amount that he repaid Who's Who is approximately
5 235,000. Mr. Gordon's loan account was reduced by, I
6 believe it was 313,000.
7 Q Were there subseq uent entries that you are aware of
8 relating to that transaction after the $313,000 reduction?
9 A I don't recall.
10 Q Well, if there were such subsequent entries, could
11 they have effected the net result of the reduction?
12 A Yes.
13 Q So is it possible there were subsequent adjustments
14 you were not aware which resulted from the total reduction
15 of being $236,000?
16 A It's possible.
17 Q Now, if that were so, would that be consistent with
18 Mr. Gordon having borrowed from Dr. Grossman to repay
19 Who's Who Worldwide?
20 A Based on the testimony of Dr. Grossman, the money was
21 loaned to Who's Who, not to Bruce Gordon.
22 Q Well, Dr. Grossman sent a check; is that correct?
23 A Yes.
24 Q It said loan, did it not?
25 A Yes, it did.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2357
Rosenblatt-cross/Trabulus
1 Q He testified that he did not specifically discuss
2 with Mr. Gordon whether the loan was being to Mr. Gordon
3 or to Who's Who?
4 A That's not what I recall.
5 Q Regardless of the testimony which is a matter of
6 record and will speak for itself, would such an
7 arrangement be consistent with a loan having been made --
8 withdrawn.
9 Would such an arrangement we've talked about be
10 consistent with Dr. Grossman having made a loan to Bruce
11 Gordon and Bruce Gordon having used the proceeds of the
12 loan to repay a portion of his obligation to Who's Who
13 Worldwide, just the financial arrangement?
14 A I don't understand your question.
15 Q Okay.
16 The way it was reflected on the books of the
17 corporation, leaving aside whether the $313,000 amount was
18 correct or subsequently adjusted, the way it was reflected
19 on the book s of the corporation, would that be consistent
20 with a loan by Dr. Grossman to Bruce Gordon and the
21 proceeds of that loan being used to reduce Mr. Gordon's
22 loan obligation to Who's Who Worldwide?
23 A You have to break down your question.
24 Q Okay.
25 A I'm not following it.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2358
Rosenblatt-cross/Trabulus
1 Q Okay.
2 The books of the corporation reflect payments to
3 Dr. Grossman and Joyce Grossman, correct?
4 A Yes.
5 Q And they apparently reflect in some way the payment
6 to Joyce Grossman was reversed; is that correct?
7 A Yes.
8 Q But they don't show a reversal of the payment to
9 Dr. Grossman; is that correct?
10 A Yes.
11 Q And it's also correct that in some respect an amount
12 which is associated with the amount of the payment to
13 Dr. Grossm an, after taxes, is shown as a credit against
14 Mr. Gordon's loan balance to the corporation; is that
15 correct?
16 A Yes.
17 Q And we'll leave aside for a minute whether or not it
18 correctly shows the number or whether it shows it as too
19 much, okay.
20 A Okay.
21 Q But just keeping that in mind, is it not correct that
22 the way it is shown in the books of the corporation would
23 be consistent, would be consistent with Dr. Grossman
24 having borrowed monies, excuse me, withdrawn. Would be
25 consistent with Dr. Grossman having made a loan to Bruce
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2359
Rosenblatt-cross/Trabulus
1 Gordon and Bruce Gordon utilizing the proceeds of that
2 loan to pay down his obligation to Who's Who Worldwide?
3 A The IRS has no control over how the entry is made on
4 the books.
5 Q I did n't ask you that.
6 A They can make any entry they want.
7 MR. TRABULUS: Move to strike.
8 THE COURT: Motion granted --
9 Q And --
10 THE COURT: Do you want me to rule on that or you
11 just want to hear the witness continue?
12 MR. TRABULUS: You ruled on it.
13 THE COURT: Well, I didn't complete the
14 statement.
15 You will have to slow down, Mr. Trabulus. You're
16 now talking over my answers.
17 MR. TRABULUS: I'm sorry, Your Honor.
18 THE COURT: -- Which is inadvertent on your part,
19 I'm sure, in your desire to proceed, especially when it is
20 in these complicated matters which you have gotten down to
21 a science here.
22 Do you want me to strike that answer?
23 MR. TRABULUS: Yes, Your Honor.
24 THE COURT: I strike the answer. The jury is
25 instructed to disregard it.
OWEN M. WICKER, RPR OFFICIAL COURT RE PORTER
2360
Rosenblatt-cross/Trabulus
1 There, I got it in.
2 MR. TRABULUS: I'm sorry, Your Honor. I did not
3 mean to interrupt Your Honor.
4 THE COURT: Okay. Go ahead.
5 BY MR. TRABULUS:
6 Q Mr. Rosenblatt, can you answer the question? The
7 entry on the books of Who's Who, would they be consistent
8 with a loan by Dr. Grossman to Mr. Gordon and Mr. Gordon
9 utilizing the proceeds of that loan to pay down his loan
10 obligation to Who's Who?
11 A Yes.
12 Q Now, if there were such a repayment in the amount of
13 $236,000, how would that have affected your computation of
14 the outstanding loan balance to Mr. Gordon for the years
15 1992, 1993 and 1994?
16 A (Perusing.)
17 Q I'm going to withdraw the question and come back to
18 that.
19 I think you testified that the $313,000, there
20 was a $313,000 entry which you regarded as reflecting a
21 credit to Mr. Gordon's loan balance which was shown in
22 1992. Is that correct?
23 A Yes.
24 Q And the testimony was that the money was returned in
25 1993, is that correct, the checks show that -- that
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2361
Rosenblatt-cross/Trabulus
1 Dr. Grossman wrote a check to Who's Who in 1993; is that
2 correct?
3 A Yes, there were two checks.
4 Q He also testified that when he received the money
5 originally there were no strings attached; is that
6 correct?
7 A I believe so.
8 Q So there was nothing which obligated him to make that
9 loan which he did in 1993, right?
10 A Not that I'm aware of.
11 Q According to his testimony.
12 A Right.
13 Q Now, the general ledger for 1992 which reflects this
14 $313,000 entry in 1992, do you recal l when that was
15 prepared according to that general ledger?
16 Do you have it there?
17 A I believe so (perusing.)
18 Q Does it have a date at the top of it?
19 A December 31, 1992.
20 Q What is under the clip?
21 A June 25, 1993.
22 Q So that would suggest that the general ledger itself
23 was either printed or in some respect prepared in 1993,
24 after the fact that the repayment occurFF0000; is that right?
25 A After the money came back from Dr. Grossman, right.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2362
Rosenblatt-cross/Trabulus
1 Q Yes. If what came back was $236,000, it wouldn't be
2 correct to record a credit for $313,000, would it?
3 A No.
4 Q Unless there was some sort of offsetting entry in
5 some other account, is that correct, that would make it
6 all right?
7 A That's correct.
8 MR. TR ABULUS: Bear with me a moment, Your
9 Honor.
10 THE COURT: Yes.
11 MR. TRABULUS: Thank you.
12 BY MR. TRABULUS:
13 Q On page six of the general ledger, 658-B, there is a
14 $313,086.20 entry. Is that the entry you were referring
15 to previously as being a credit to the Bruce Gordon loan
16 account?
17 A Yes, it is.
18 Q Is there also on the next page offsetting entries to
19 another account called "loans and exchanges, other"?
20 There are two entries to Richard Grossman for
21 $156,543.10 each?
22 A There are two payments, I don't know if that was part
23 of the same entry.
24 Q So those two payments to Dr. Grossman and the payment
25 to the credit to Bruce Gordon at that point would wash, if
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2363
Rosenblatt-cross/Trabulus
1 you add up the numbers?
2 A I don 't know if it was the same entry he made.
3 Q Can you check the dates? Excuse me, can you check
4 the numbers?
5 In other words, if you add up the $156,543.10 and
6 double it, does that equal the amount of the credit to
7 Bruce Gordon?
8 A I can't answer that question yes or no.
9 Q It's just a question of addition. Do you have a
10 calculator?
11 A I don't need a calculator.
12 The entry to the loan account is dated December
13 31, 1992, and it is to record payroll of 12/92 in the
14 amount of $313,000.
15 The two checks you are talking about to
16 Dr. Grossman are dated December 18, 1992 and December 24,
17 1992. The total amount is the same, yes.
18 MR. TRABULUS: Your Honor, if you could bear with
19 me another moment.
20 THE COURT: Yes.
21 MR. TRABULUS: Thank you.
22 BY MR. TRABULUS:
23 Q Now, Mr. Rosenblatt, the $313,0 00 some-odd thousand
24 entry that equals the amount on the two checks to
25 Mr. Grossman, Dr. Grossman, it indicates, does it not,
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2364
Rosenblatt-cross/Trabulus
1 it's to record payroll?
2 A Yes, it does.
3 Q So it doesn't indicate that it is in repayment of the
4 loan, does it, although it may appear in that account
5 for the time being?
6 A That's correct.
7 Q And the payments to Dr. Grossman, did you hear they
8 were -- withdrawn.
9 From your review of the books and records of the
10 corporation, were the payments to Dr. Grossman shown as
11 salary?
12 A Yes.
13 Q And that would be payroll in the amount of the
14 $313,000 odd shown in the Bruce Gordon loan account; is
15 that correct?
16 A Well, I think the salary shown on the 1992 corporate
17 return is $400,000.
18 Q And then the checks by which the salary was paid are
19 reflected in the two sets of entries we've been talking
20 about, correct?
21 A Yes.
22 Q And they are not the full $400,000 amount because
23 there were separate amounts taken out for payroll
24 deductions, correct?
25 A That's correct.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2365
Rosenblatt-cross/Trabulus
1 Q Withholding and so forth?
2 A Yes.
3 Q And did you look to the 1993 general ledger to see
4 whether or not there were any entries there relating to
5 the moneys paid in 1993 by Dr. Grossman to Who's Who
6 Worldwide?
7 A I don't recall.
8 Q Okay. We'll come back to that.
9 Now, I think you indicated that one of the
10 factors that gets considered in determining whether or not
11 a loan is a loan or something else might b e the purpose
12 for which the monies are spent; is that correct?
13 A Yes.
14 Q And ordinarily, except in a situation where as a
15 condition of one's job you need to wear a certain type of
16 uniform such as a police officer or possibly a nurse,
17 expenditures of clothing are not deductible by the person
18 who wears the clothing; is that correct?
19 A That's correct.
20 Q Now, in this case we've seen a certain amount of the
21 loans were used to purchase clothing; is that correct?
22 A Yes.
23 Q And some to pay for the leasing of an automobile?
24 A Yes.
25 Q And in terms, if somebody were running a business
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2366
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1 such as a coal mine where they never had any dealing with
2 other business people and basically dealing with
3 employees, there might n ot be a business purpose for
4 wearing special clothing or driving expensive cars; is
5 that correct?
6 A I can't answer that.
7 Q How about in a business which by the nature of the
8 business would put the president of the business in touch
9 with the chairman or chairwoman of top corporations, could
10 there be a business purpose there to somebody having
11 expensive clothing?
12 A And having the corporation pay for it?
13 Q No, not having the corporation take a deduction for
14 it, but just in terms of a business purpose. There is no
15 claim that it is deductible by the corporation or by the
16 individual, but just there might be some business benefit
17 to the corporation in having the employee or the president
18 be able to drive a fancy looking car or wear expensive
19 clothing in a situation where the business itself takes
20 the president into contac t with people such as the Prime
21 Minister, perhaps the Prime Minister of Lithuania or the
22 sub republics of Russia, could there be a business purpose
23 why such a president would have to wear nice clothing?
24 A I don't see where the President or the Prime Minister
25 of Lithuania will be looking at your clothing labels.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2367
Rosenblatt-cross/Trabulus
1 I've never heard of that before.
2 Q Let's say you are going to a business meeting with
3 the chairman of the board of a large corporation. You
4 wouldn't want to drive up to the meeting in a 1986 Chevy,
5 would you?
6 A Unless the chairman of the board of that company is
7 parking your car, I don't think it would matter.
8 Q What if you were taking a person on a drive?
9 MR. WHITE: Objection, Your Honor.
10 THE COURT: Overruled.
11 BY MR. TRABULUS:
12 Q You can answer.
13 A I don't know what the question is.
14 Q Could you conceive of a business reason why somebody
15 who is basically running a business, which among other
16 things is selling prestige to people, why they themselves
17 might want to be driving a fancy car and wear fancy
18 clothing in a business context? I'm not saying it should
19 be deductible, but there should be reasons in the
20 corporation's interest.
21 A People like to impress themselves and hopefully by
22 impressing themselves it will impress others, if that's
23 what you're getting at.
24 Q Would it seem unusual to you or the head of a
25 business which was selling itself as something which was
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2368
Rosenblatt-cross/Trabulus
1 their top executives and was designed to impress people
2 wi th its prestige, to show up at business meetings in
3 cheap suits or wearing a car that wasn't a luxury car?
4 Would that seem a bit odd?
5 A No.
6 Q Would it seem desirable -- do you think there could
7 be a business purpose to such a corporation having an
8 entertainment facility that had artwork in it that was of
9 a luxurious and expensive character?
10 A What do you mean by an entertainment facility?
11 Q A penthouse.
12 A In this case?
13 Q First, not in this case, and then we'll get into this
14 case. Something like a penthouse. Could there be a
15 business reason for having luxurious accommodations?
16 A Corporations do things like that, yes.
17 Q If assuming, just for the sake of discussion, there
18 was a period of time Mr. Gordon was actually living there,
19 could there be a business reason why it would be to the
20 advantage of a corpora tion for Mr. Gordon to be able to
21 show people who he was entertaining on a business purpose
22 or purposes that he was successful and had expensive
23 accommodations, an expensive place to live?
24 A Again, that goes into wearing the expensive suits and
25 things. If you are trying to impress people, people do a
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2369
Rosenblatt-cross/Trabulus
1 lot of things to impress others.
2 Q Is it unusual in your experience that people who are
3 high up in corporations that deal with other corporations
4 or other -- have business contacts with other people, is
5 it unusual for them to be well dressed, to pay a lot of
6 money for clothing?
7 A If they pay it out of their own pocket, there's
8 nothing wrong with it.
9 Q I'm not talking about whether they pay it out of
10 their own pocket. Is it unusual fo r people who are top
11 executives of corporations to spend a lot of money on
12 clothing or cars?
13 MR. WHITE: Objection, Your Honor.
14 THE COURT: On what ground?
15 MR. WHITE: On relevance.
16 THE COURT: Overruled.
17 A That's why there are luxury cars out there. That's
18 why there are 2,000 suits, because people buy them.
19 Q Do you believe that there could be business reasons
20 that it could benefit their business if they dress that
21 way and impress people that way, that they can convey an
22 aura of success? Could that benefit the business too?
23 A I'm sure other people could look at him and say well,
24 he's successful in that way, yes.
25 Q So if the person didn't have the money to buy those
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2370
Rosenblatt-cross/Trabulus
1 things himself and a loan was made to him or her for doing
2 that, could there be a business reason for that loan?
3 A It could also be a reason for increasing the person's
4 salary and let him pay it out of his salary.
5 Q Okay. Let's talk about Mr. Gordon's salary and what
6 would have happened if it could have been increased.
7 I think the evidence here is that Mr. Gordon had
8 a tax liability of somewhat over 3.5 million dollars
9 resulting from earlier years, is that correct, and there
10 is a chart which shows that?
11 A Yes, it is.
12 Q Just to run through that chart a bit, that's Exhibit
13 823. The actual income taxes were $809,000 some-odd; is
14 that correct?
15 A I don't have the chart in front of me.
16 Q Okay.
17 The actual taxes were a little bit over $809,000,
18 almost $810,000; is that correct?
19 A Yes.
20 Q And there were penalties of $660,000 some-odd?
21 A Y es.
22 Q And there was interest of 1.8 million dollars also;
23 is that correct?
24 A Yes.
25 Q And there were additional penalties under another
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2371
Rosenblatt-cross/Trabulus
1 section of the IRS code of $254,000?
2 A Yes.
3 Q So of the 3.5 million dollars, approximately 2.7
4 million dollars was interest and penalties; is that
5 correct?
6 A Yes, it is.
7 Q Now, let's say that all of a sudden, let's stop
8 talking about Mr. Gordon. Let's take somebody who has a
9 3.5 million dollars tax liability in the abstract and they
10 have a corporation which has unlimited funds and they pay
11 him 3.5 million dollars so he can pay his tax liability,
12 okay.
13 A Okay.
14 Q Does that result in additional taxable income to the
15 individual?
16 A Sure it does .
17 Q The 3.5 million dollars of additional taxable income;
18 is that correct?
19 A That's correct.
20 Q So at the current maximum individual rates, what
21 would that be, approximately?
22 A About 40 percent of that.
23 Q So we're talking about well over $1,000,000?
24 A 1.4 million dollars, I think.
25 Q So if somebody were to take from a corporation an
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2372
Rosenblatt-cross/Trabulus
1 amount necessary to satisfy a 3.5 million dollars tax
2 liability, they would immediately incur another tax
3 liability of 1.4 million dollars; is that correct?
4 A Yes.
5 Q And if they didn't have the money to pay that, they
6 would incur interest and perhaps penalties on it; is that
7 correct?
8 A Yes.
9 Q As time went on?
10 A Sure.
11 Q And at what rate would th at interest and penalty
12 accrue?
13 A No, they probably wouldn't be penalties.
14 Q The interest?
15 A The interest I believe is at 9 percent now.
16 Q There were previous years at a higher rate?
17 A In the '80s they were much higher.
18 Q And that was at a time when that interest would
19 accrue on Mr. Gordon's tax liability, because the taxes
20 were from 1981 through 1986; is that right?
21 A Yes.
22 Q At that time was the interest as high as 20 percent?
23 A I believe it was. I don't know for how long a
24 period, but it was definitely. The bank accounts at that
25 time also paid 15 percent.
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2373
Rosenblatt-cross/Trabulus
1 Q Now, you've testified concerning the collateral
2 agreement which is in evidence; is that correct?
3 A Yes.
4 Q And I think you testified that the collateral
5 agreement picked up for its purposes in Mr. Gordon's
6 income the income of corporations that he either
7 controlled or directly or indirectly controlled or owned;
8 is that correct?
9 A Yes.
10 Q Now, you prepared a chart --
11 MR. TRABULUS: Bear with me a moment.
12 Sorry, Your Honor.
13 THE COURT: That's all right.
14 MR. TRABULUS: I think a Post-it note came
15 loose.
16 While I'm looking for it --
17 BY MR. TRABULUS:
18 Q The chart I'm referring to is one that analyzed what
19 the effect would have been on Mr. Gordon's obligations
20 under the collateral agreement if what you've maintained
21 was income had been included; is that correct?
22 A Yes.
23 Q Now, in the course of doing that, you did not take
24 into account the effect of any income of any corporation
25 that he directly or indirectly o wned or controlled; is
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2374
Rosenblatt-cross/Trabulus
1 that correct?
2 A That's true.
3 Q You deliberately left that out. You indicated that
4 on the chart itself; is that right?
5 A Yes.
6 Q Did you discuss with Mr. White whether or not you
7 should leave that out?
8 A No, that was my decision.
9 Q Was that your decision?
10 A That was my decision.
11 Q Did you do this because you found any ambiguity in
12 the collateral agreement as to the circumstances or the
13 amount at which corporate income should be picked up?
14 A No.
15 MR. TRABULUS: Exhibit1525.
16 Q Now, before we get into the chart, the collateral
17 agreement provides the taxpayer's proportionate share --
18 withdrawn.
19 The collateral agreement provides that
20 Mr. Gordon's proportion ate share on the income of closely
21 held corporation that he either directly or indirectly
22 controls is to be included, that may be a little bit of an
23 oversimplification; is that correct?
24 A Basically, yes.
25 Q As you read that, if Mr. Gordon owned 75 percent of
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2375
Rosenblatt-cross/Trabulus
1 the corporation, that would mean that 75 percent should be
2 taken into account?
3 A Yes.
4 Q If he controlled all of it what would that mean?
5 Should he take 100 percent even if he owned maybe 75
6 percent of it?
7 A I would have gone conservative and used 75 percent.
8 Q What if he owned none of it and controlled all of it,
9 should any of it have been picked up?
10 A I don't know.
11 Q So there's some questions about the terms of the
12 collateral agreement that can't be an swered exactly?
13 A Well, I've never seen one of them before so I'm not
14 going to discuss it.
15 Q This is the very first collateral agreement you've
16 ever seen?
17 A Yes.
18 Q Well, based upon your familiarity -- withdrawn.
19 In the course of doing audits and examinations,
20 you've never, ever seen a collateral agreement?
21 THE COURT: That's what he just said. Next
22 question.
23 MR. TRABULUS: Sorry, Your Honor.
24 BY MR. TRABULUS:
25 Q Are you familiar with the different types of
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
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1 provisions that get included in collateral agreements?
2 A No.
3 Q So you don't know whether or not the provision about
4 picking up the income of a closely held corporation is
5 always included in the collateral agreement?
6 A I would not k now -- I would have no way of knowing.
7 Q Is it fair to say if in preparing this chart, 1525,
8 you had taken into account in some percentage income of
9 Who's Who Worldwide, the amount of the payments that you
10 would have shown as being subject to being payment by
11 Mr. Gordon would have been greater than what was shown
12 here. He would have had to have paid more.
13 A Yes.
14 Q There can be times, can there not -- withdrawn.
15 MR. TRABULUS: Your Honor, this might be a good
16 time for lunch.
17 THE COURT: Yes.
18 Members of the jury, we'll recess for lunch.
19 Please recess. Do not discuss the case among yourselves
20 or with anyone else. Come to no conclusions.
21 We'll recess until 1:30.
22 Have a nice lunch.
23 (Jury exits.)
24 THE COURT: How much more do you have with this
25 witness, Mr. Trabulus?
OWEN M. WICK ER, RPR OFFICIAL COURT REPORTER
2377
Rosenblatt-cross/Trabulus
1 MR. TRABULUS: At least another hour.
2 THE COURT: Will you conclude this witness,
3 Mr. White, before you get to the next one?
4 MR. WHITE: Yes.
5 THE COURT: All right.
6 MR. LEE: Your Honor, I have an application.
7 THE COURT: Pardon?
8 MR. LEE: I believe the government is endeavoring
9 to bring in a custodian of business records. Could we
10 know who that is so we can prepare for cross-examination.
11 MR. WHITE: Ms. Springer.
12 THE COURT: 1:30.
13 (Luncheon recess taken.)
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HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
Continued - Afternoon Session
