USA v KARRON 07 CR 541 Rent and Riley Testimony

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76K9KARA Arraignment

1

1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

2 --------------------- -------x

3 UNITED STATES OF AMERICA,

4 v. 07 CR 0541 (RPP)

5 DANIEL B. KARRON,

6 Defendant .

7 ------------------------------x

8 New York, N.Y.

June 20, 2007

9 2:30 p.m.

10

Before:

11

HON. ROBERT P. PATTERSON, JR. ,

12

Dis t r i c t Judge

13

14 APPEARANCES

15 MICHAEL J . GARCIA

United Sta tes Attorney for the16 Southern Dis t r i c t of New York

CHI T. STEVE KWOK

17 Ass i s t an t United Sta tes Attorney

18 RON RUBINSTEINAttorney fo r Defendant

19

20

21

22

23

24

25

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300



770AAKARA

1 ten and $20,000.

Arraignment

17

2 MR. KWOK: Your Honor, i f I may, I mean t he se

3 computers t h a t we ' re t a lk ing about a re no t j u s t your ord ina ry

4 l ap top computers . They a re very h igh powered super computers

5 p r imar i l y used fo r research and o ther purposes . I don ' t know

6 whether it's even cos t e f f e c t ive or even t ec h ni ca ll y f e as ib le

7 to download o r make a copy of every th ing on these hard dr ives

8 with t e raby tes of memory.

9 To the ex ten t , again , t ha t t he re i s any record a t a l l

10 in those computers I be l ieve the government 's a l ready produced

11 a hard copy p r i n t out of those account ing records . The r e s t I

12 am not sure what Mr. Rubins te in i s r e f e r r ing to in these

13 computers . But as fa r as records go r e l a t i ng to t h i s case t ha t

14 th e government in tends to r e ly on those have a l l been turned

15 over to d ef en se c ouns el.

16 MR. RUBINSTEIN: The defense i s t h i s case i s very

17 s imple . He d i dn ' t i n t en t iona l ly do anything wrong, if he d id

18 anything wrong a t a l l . So showing a l l t ha t he d id fo r th e

19 money i s going to be pa r t of th e defense to show th e ju ry t ha t

20 he had no i n t en t ion of doing anything improper. This man even

21 a f t e r th e g ran t was s topped cont inued working on

22 THE COURT: I don ' t th ink t h a t f l i e s , Mr. Rubins te in .

23 I th ink you c an ' t go in to a defense t h a t shows a l l th e good

24 th ings he d id and a l l the t h ings t ha t he did . The ques t ion i s

25 whether o r no t t he se funds were misappl ied and t ha t i s the

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



770AAKARA

1 i s sue .

Arraignment

18

2 I agree t ha t you have to have a record to be ab le to

3 show t ha t they weren ' t mis ap plie d b ut I th ink I haven ' t heard

4 anything so fa r . Maybe you can educate me, bu t I haven ' t heard

5 anything so fa r t ha t i nd ica tes t ha t we should do more than see

6 whether t he re ' s more than a f inanc ia l record t h a t you requi re

7 or any r ebu t t a l of th e case t ha t t h i s app l i ca t ion of funds i s

8 going i s to be produced.

9 MR. RUBINSTEIN: There ' s also e-mai l s r e l a t i ng to th e

10 grant , your Honor, and those documentat ion a re important fo r

11 the defense . The government - - I 'd ask your Honor t ha t the

12 government provide us with a de t a i l list ou t l in ing the $390,000

13 t ha t they now claim was inappropria te ly spent by Dr. Karron and

14 then a t l e a s t we have an idea what documents re la te to t ha t .

15

16

THE COURT: They 'v e p roduced those to you?

MR. RUBINSTEIN: No, they have no t shown us any list

17 of where th e al leged missing money i s .

18 THE COURT: Maybe you ought to go and have a persona l

19 consul ta t ion with Mr. Kwok and maybe he can show them to you.

20 That would be the bes t way.

21 MR. KWOK: I'll be glad to do t ha t , your Honor.

22 Again, I th ink your Honor has it exac t ly r i gh t . The government

23 i s no t contending t ha t , fo r example, some of the money, fo r

24 example, t ha t th e government contends was misappl ied was used

25 fo r example to renovate Dr. Karron ' s apartment . We a re no t

SOUTHERN DISTRICT REPORTERS, P.C.(212) 805 -03 00



770AAKARA Arraignment

19

1 sa yin g e ve ry cent towards the renovat ion was spent out of

2 government funds. Dr. Karron d id spend some of h is own money

3 as pa r t of t ha t home renovat ion. But t ha t doesn ' t take away

4 from the fac t t ha t the government funds were i ndeed mi sapp li ed

5 toward home renovat ions . So I don ' t know what the records t ha t

6 Mr. Rubinstein had in mind

7 THE COURT: He i s saying some of the home was used and

8 as na of f ice .

9 MR. KWOK: That ' s ac tua l ly qu i t e i r r e l evan t under the

10 ru le s of the grant because even i f it was indeed used as an

11 of f i c e you cannot pay ove rhead expenses using gran t money.

12 Grant" money can only be used fo r d i r e c t and research expense

13 and it i s c lea r r en t i s not used fo r th ose items.

14 THE COURT: Not r en t but what about f ix ings up the

15 of f i c e so t ha t i f t ha t - - o r b rin gin g e l e c t r i c i t y o r b rin ging

16 in high powered computers in to the of f i c e .

17 MR. KWOK: That ' s a lso disal lowed and the reason i s

18 s imp ly bec au se t he re i s an approved budget . Every i tem t ha t

19 . Dr. Karron was allowed to use was l i s t e d in t h a t budget and i f

20 you dev ia te from t ha t budget you f i r s t have to seek p re

21 approval to do t ha t and a t no po in t d id Dr. Karron rece ive

22 tha t .

23

24

25

THE COURT: Renovation was a budgeted i tem?

MR. KWOK: I t was not al lowed.

THE COURT: Any renovat ion of the of f i ce was a


(212) 805-0300



770AAKARA

1 budgeted i tem?

Arraignment

20

2 MR. KWOK: I don ' t be l ieve any of it was. We a re only

3 al lowed to pay, fo r example, to h i re sc i en t i s t s and research

4 personne l and to buy a spec i f i ed number of computers fo r your

5 research . But to renovate you r a pa rtment o r of f i c e to ea t out

6 which i s another i tem t ha t Dr. Karron spent money on o r to even

7 pay fo r In te rne t se rv ices they a re spec i f i ca l l y disal lowed

8 under th e terms of th e gran t . And another b ig i tem i s back

9 ren t , and t ha t i s also c le a r th at you a re not supposed to pay

10 ren t or mortgage under th e g ra nt .

11 MR. RUBINSTEIN: The government wants th e gran t to be

12 wri t t en in gran i t e . The f a c t of the mat te r i s t ha t these

13 gran t s they have modif ica t ions a l l th e t ime. P eop le spen d

14 money, as long as they ' re spending it l eg i t ima te ly t ha t ' s an

15 i s sue a t t r i a l .

16 THE COURT: But, Mr. Rubins te in , it's very c le a r th at

17 if t he re ' s a g ran t it'll have term s to it and you can argue it

18 but they are not binding. There can be modif ica t ions and the

19 ju ry wi l l make a determinat ion.

20 When wi l l you have your l e t t e r t h a t you wish to

21 produce to Mr. Kwok?

22 MR. RUBINSTEIN: I'll have t ha t in a week from

23 t omor row which i s which i s the f i r s t of August.

24

25

THE COURT: When can we hear the reply?

MR. KWOK: How about a week.


(212) 805-0300



788rkarc



2 ------------------------------x

3 UNITED STATES OF AMERICA

1

4 v . 07 Cr. 541 (RPP)

5 DANIEL B. KARRON,

6 Defendant.

7 - - - - - - - - - - - - - - ~ - - - - ~ - - - - - - - - - - x

Conference

8 New York, N.Y.

August 8, 2007

9 4:15 p.m.

10 Before:

11 HON. ROBERT P. PATTERSON, JR.

12 Dis t r i c t Judge

13

APPEARANCES

14

15

MICHAEL J . GARCIA

16 United Sta tes Attorney for theSouthern Dis t r i c t of New York

17 One St. Andrews Plaza

New York, New York 10007

18 CHI T. STEVE KWOK

Assis tan t United Sta tes Attorney19

20 RONALD RUBINSTEIN, ESQ.

Attorney fo r Defendant

21 Rubinstein.& Corozzo,PC

260 Madison Avenue22 New York, NY 10016

(212) 679-1844

23

24

25


(212) 805-0300



7A9JKARC Conference

19

1 cla im i s look, h e r e ' s what we found, an a u d i t t h a t i n s t e a d o f

2 charging only r e s e a r c h s a l a r i e s o f a ss o c i a te s o r wha te ve r u nd er

3 t h e g r a n t , t h e language o f t h e g ra n t, y o u ' r e making o t h e r

4 charges and t h o s e amount t o 300 an d 75 ,0 00 o r whatever and h e r e

5 it i s , and h e r e they a r e .

6 I d o n ' t s e e on t h e i r c a s e t h a t t h e r e i s any

7 e x c u l p a t o r y evidence t h a t you could f i n d i n t h e computer

8 because t h e i s s u e i s whether t h e expenses were a p p r o p r i a t e o r

9 n o t , and t h e defense would be t h e y ' r e - - t h e o n l y d e f e n s e which

10 you say i s t h e defense t h e y ' r e s e e k i n g t o make i s t h a t look, we

11 gave you t h e s u b s t a n t i a l e q u i v a l e n t and we d i d n ' t i n t e n d t o do

12 a n y t h i n g wrong, you g o t t h e b e n e f i t o f t h e r e s e a r c h . The

13 r e s e a r c h produc t i s good. We s p e n t t h e money s l i g h t l y

14 d i f f e r e n t l y . I d o n ' t know how b i g your r e n t was and g o t t h i s

15 r e s u l t .

16 I d o n ' t s e e how anything can be Brady m a t e r i a l . It

17 j u s t d o e s n ' t seem t o f i t i n t o t h e Brady c o n t e x t .

18 MR. RUBINSTEIN: Your Honor, t h e s e n o t e s would show if

19 t h e r e was a d i n n e r t h a t t h e y 'r e cla iming, what was d i s c u s s e d a t

20 t h e d in n e r . I understand one o f t h e government 's w i t n e s s e s i n

21 t h i s c a s e i s Dr. K a r r o n ' s former accountant who was p r i v y and

22 aware o f a l l of t h e s e documents and what have you, and i f I ' m

23 n o t a b l e t o cross-examine t h i s w i t n e s s based upon documen ts

24 t h a t she was aware o f t h a t , I could use t o show t h e j u r y what

25 h e r t h i n k i n g was and what h e r j o b was and why she f i l e d t h i s


(212) 805-0300



7A9JKARC

1 aud i t .

2

3

45

20

Conference

THE COURT: She i s th e a ud ito r?

MR. RUBINSTEIN: She i s the aud i to r .

THE COURT: She i s h is accountant?

MR. RUBINSTEIN: His accountant , yes . She i s , what I

6 unders tand - - I could be mistaken - - she i s th e s t a r witness or

7 one of the s t a r witnesses fo r the government. All of these

8 i tems we a re t a lk ing about - -

9

10 witness .

11

THE COURT: I don ' t know i f she i s a s t a r , but a

MR. RUBINSTEIN: She i s a t l e a s t a s ign i f i c an t

12 w itness . A dditiona lly , ap paren tly the government i s c la iming

13 today t ha t if I could put the p ieces toge ther, I may be

14 mistaken, i s going to say she advised Dr. Karron no t to do

15 ce r ta in t h ings , a l l r ight?

16 So these records became very important because she i s

17 pr ivy to a l l of th ese r ec ord s. Nothing was concealed from her ..

18

19

THE COURT: She i s probably pr ivy to e ve ry th in g.

MR. RUBINSTEIN: Yeah. How a re we going to examine

20 her? Are we going to be s tuck with her word because we ' re not

21 going to have the records?

22 The government says they ' re not aware of any. Sure

23 t hey ' r e no t aware of any because they ' re very happy with t h i s

24 cookie cu t t e r approach and they want to look a t anyth ing in th e

25 computers. The only th ing they have i s what the defense handed


(212) 805-0300



RUBINSTEIN & COROZZO, LLPCOUNSELORS AT LAW

RONALD RUBINSTEIN 260 MADISON AVENUE

22ND FLOOR

NEW YORK, N.Y. 10016

JOSEPH R. COROZZO

BRIANA L. HERMAN

TELEPHONE 12125 545-8777

FAX (212) 679-1844

November 29, 2007

Re: NIST Cooperative Agreement No.: 70NAB1H3050

Dear Dr. Karron:

On N ovember 28, 2007, I spoke with Assistant United States Attorney Steve Kw ok inregards to the above entitled matter. According to NIST, there appears to be a balance of $54,500available. The government believes we misread the letter and the funds are actually not available.

I advised AUS A K wok that the funds w ere legitimately earned and if available I wouldencourage you to obtain the funds and M r. Clark advised me that the government's consent wasnot necessary

I further suggest you place the funds in my escrow account to be used for expenses in thecriminal case.

Very truly yours,

An 6 2 . AgorrlyRon Rubinstein koRUBINSTEIN & COROZZO, LLP

Attorney for Defendant

260 Madison AvenueNew York, New York 10016(212) 545 — 8777



I UNITED STATES DEPARTMENT OF COMMERCE

National Institute of Standards and Technology

4."'$41.1s , Gaithersburg, Maryland 201399-

Mr. Peter Ross

Compu ter Aided Surgery, Inc.300 Eas t 33rd Street, Suite 4N

New Y ork, New Y ork 10016

RE: N1ST Cooperative Agreement No.: 70NAN B 1113050

Dear Mr. Ross:

The above referenced cooperative agreement ended on September 30, 2004 with a

balance in the grant account totaling $:54,500. We want to be sure our records agree with

yours before we proceed to &obligate these funds.

If there were additional claims made against the. account. please so indicate and we will

proceed to deobligat.e the remaining balance and finalize the closeout of this project.

You may submit the requested information to me via E-mail at the address noted below.

If we do not hear from you by November 30, 2007, we will assume that the intbrmation

we have is correct and will proceed to deobligate the. remaining funds in the grant

aecoUnt.

Sincerely yours.

.ames M. Brow'mng,Grants Specialist

GAIVIDIDA/CFO/NIST

100 Bureau Drive, MS 1650

Gaithersburg. MD 20899-1650

Phone: 301-975-8088

FAX: 301-840-5976

[-mail: james.browningliktist.g,ov

C: I leather Manton

Grant File



1862ZKAR1

1 UNI TED STATES DI STRI CT COURT1 SOUTHERN DI STRI CT OF NEW YORK 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x23 UNI TED STATES OF AMERI CA, New Yor k, N. Y.3

4 v. S2 07 CR 541 ( RPP)45 DANI EL B. KARRON,56 Def endant .67 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x788 J une 2, 20089 9: 30 a. m.9

10

10 Bef ore:1111 HON. ROBERT P. PATTERSON, J R. ,1212 Di st r i ct J udge131314 APPEARANCES1415 MI CHAEL J . GARCI A15 Uni t ed St ates At t orney f or t he16 Sout hern Di st r i ct of New Yor k16 BY: STEVEN KWOK 17 CHRI STI AN EVERDELL17 Assi st ant Uni t ed St ates At t or neys1818 RUBI NSTEI N & COROZZO, LLP19 At t orneys f or Def endant19 BY: RONALD RUBI NSTEI N2020 Al so Present : Rachel Ondr i k, U. S. Dept . of Commerce21 Ki r k Yamat ani , U. S. Dept . of Commerce222324

25 SOUTHERN DI STRI CT REPORTERS, P. C.( 212) 805- 0300



35

8627KAR2 Openi ng - Mr . Ever del l

1 wi t nesses come i n and t hey t el l t hei r st or y i n chr onol ogi cal

2 or der and i t ' s al l wr apped up neat l y i n an hour . I nst ead, t he

3 pr oof i s goi ng t o come t o you i n bi t s and pi eces, because each

4 wi t ness knows hi s or her own smal l port i on of t he l arger

5 pi ct ur e of t hi s case. So, thi s openi ng st at ement i s my chance

6 t o gi ve you an overvi ew, a r oad map, t hat I hope wi l l hel p you

7 underst and t he evi dence t hat ' s t o come.

8 So, what wi l l t he evi dence i n t hi s case show? You

9 wi l l l ear n t hat i n 2001 t he def endant and hi s company, Comput er

10 Ai ded Sur ger y, I ncor por at ed, or CASI , appl i ed f or and r ecei ved

11 a $2 mi l l i on gr ant f r om t he f eder al gover nment t o pay f or hi s

12 r esear ch i n comput er i magi ng. Now, t hi s part i cul ar gr ant was

13 supposed t o l ast f or t hr ee year s, wi t h t he $2 mi l l i on bei ng

14 di sbur sed i n i nst al l ment s over t hat t hr ee- year t i me per i od.

15 As you mi ght expect , wi t h such a l arge amount of

16 t axpayer money i nvol ved i n t hi s ki nd of grant , t he f eder al

17 gover nment has cer t ai n r ul es t hat t he r eci pi ent must f ol l ow

18 when he r ecei ves t hi s ki nd of money and what he can spend t he

19 money on. You wi l l hear what t hose r ul es are, but t he mai n

20 r ul e i s si mpl e and st r ai ght f or war d and i t ' s t hi s: You must

21 spent gr ant f unds on your research. That means t hat t he grant

22 money must be spent on t hi ngs t hat di r ect l y i mpact and f ur t her

23 t he r esear ch. The f unds cannot be used t o pay f or t hi ngs such

24 as r ent and ut i l i t i es f or your of f i ce space. Those cost s ar e

25 j ust t he cost of doi ng busi ness. Ever y company has t hose, and

SOUTHERN DI STRI CT REPORTERS, P. C.

( 212) 805- 0300



36


1 t hey are not covered under t he grant . And i t means t hat t he

2 f unds cannot be used t o pay f or personal expenses l i ke meal s or

3 per sonal debt s. Those are not r esear ch cost s, and t hey are not

4 cover ed ei t her . And you wi l l al so hear t hat i n order t o keep

5 t r ack of t he gr ant money t he gover nment r equi r es t he grant

6 r eci pi ent t o submi t a budget t hat out l i nes what you ar e

7 spendi ng your grant money on. Al l t he cat egor i es of expenses

8 ar e l ai d out - - sal ar y, t r avel cost s, equi pment cost s - - and

9 agai n t he r ul e i s si mpl e, you must st i ck t o your budget . That

10 means i f you t el l t he gover nment you are goi ng t o spend t he

11 grant money f or cer t ai n t hi ngs, t hen you must spend t he gr ant

12 money f or t hose t hi ngs; and i f you want t o make any si gni f i cant

13 changes t o your budget , you must get appr oval i n wr i t i ng.

14 Now, t hose ar e t he r ul es i n a nut shel l , and t hey ar e

15 basi c, s i mpl e and easy t o unders t and, and you wi l l hear t hat

16 t hese r ul es were r epeat ed f or t he def endant on sever al

17 di f f er ent occasi ons by gr ant of f i ci al s. You wi l l al so hear

18 t hat t he def endant was gi ven t hese r ul es when he r ecei ved t he

19 grant and si gned a f orm acknowl edgi ng t hat he under st ood t hose

20 r ul es, and you wi l l al so hear t hat t he def endant was t ol d t i me

21 and t i me agai n by gr ant of f i ci al s and by hi s own empl oyees t hat

22 he coul d not use t he gr ant f unds t o pay f or t he t hi ngs he

23 want ed t o pay f or. But t he evi dence wi l l show t hat t he

24 def endant r ef used t o l i st en t o t hem and went ahead and used t he

25 gr ant money as he want ed.


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37


1 And how di d he mi sspend t hi s money? Wel l , t o gi ve you

2 j ust one exampl e, l adi es and gent l emen, you wi l l hear the

3 def endant set up hi s company, CASI , i n t he l i vi ng r oom of hi s

4 own apar t ment i n Mi dtown Manhat t an, and t he evi dence wi l l show

5 t hat when CASI r ecei ved i t s f i r st i nst al l ment of $150, 000 i n

6 gr ant f unds, t he f i r st t hi ng t he def endant di d was t r ansf er

7 $75, 000 of i t , hal f of i t , t o hi msel f and used i t t o pay f or

8 per sonal debt s l i ke hi s credi t car d bi l l s. And t hen he used

9 t hose same f unds t o pay hi msel f sever al t housand dol l ars i n

10 r ent payment s f or CASI ' s use of hi s l i vi ng r oom, despi t e t he

11 f act that he was st i l l l i vi ng i n hi s apar t ment and despi t e t he

12 f act t hat he had been t ol d speci f i cal l y on mul t i pl e occasi ons

13 t hat r ent was not an al l owabl e expense under any ci r cumst ances.

14 The def endant ' s mi suse of t he gr ant f unds does not end

15 t her e. You wi l l al so hear t hat he used gr ant f unds t o pay f or

16 so- cal l ed equi pment , el ect r oni c gadget s l i ke a GPS t r acki ng

17 devi ce and a di gi t al camera and househol d i t ems l i ke a bl ender

18 and shoe r ack, i t ems t hat had not hi ng what soever to do wi t h hi s

19 r esear ch. And you wi l l hear t hat t he def endant used gr ant

20 f unds t o pay f or t housands of dol l ars wort h of dent al and other

21 cosmet i c medi cal pr ocedur es. And you wi l l al so hear about how

22 t he def endant adamant l y r esi st ed ef f or t s of ever yone around hi m

23 t o convi nce hi m t hat he was spendi ng money on t hi ngs t hat

24 weren' t al l owed and t o f i x what he had done bef ore.

25 For exampl e, you wi l l l ear n t hat t he def endant hi r ed a


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38


1 bookkeeper t o go t hrough t he company' s books and r ecords i n

2 connect i on wi t h t he f i r st year audi t of hi s company, and when

3 t hat bookkeeper recl assi f i ed cer t ai n expenses and changed t hem

4 f r om gr ant expenses t o nongr ant expenses accor di ng t o t he

5 r ul es, t he def endant went back i nt o t he books and changed t hem

6 r i ght back agai n so t hat he coul d be sure t hat gr ant f unds

7 coul d be used t o pay f or t hem.

8 The end r esul t of al l t hi s, l adi es and gent l emen, i s

9 t hat t he def endant has been char ged i n a one count i ndi ct ment

10 wi t h cr i me of mi sappl yi ng gover nment gr ant f unds.

11 So, how i s t he gover nment goi ng t o pr ove i t s case t o

12 you? Here i s how:

13 You wi l l hear t est i mony f r om t wo of t he government

14 of f i ci al s t hat wer e assi gned t o admi ni st er t he def endant ' s

15 gr ant , and t hey wi l l expl ai n t o you what t he r ul es of t he gr ant

16 are and whi ch expenses you can and cannot use grant f unds t o

17 pay f or. And t hey wi l l t el l you how t hey spoke t o t he

18 def endant on numerous occasi ons bot h i n per son and on t he phone

19 and t ol d hi m over and over agai n t hat he coul d not use gr ant

20 f unds t o pay f or t hi ngs such as r ent and ut i l i t i es and other

21 nonal l owabl e expenses. And you wi l l hear f r om t wo audi t ors who

22 l ooked at t he company' s books, and t hey wi l l t el l you t hat when

23 t hey l ooked at t he company' s expenses and separ at ed out t he

24 expenses t hat were al l owabl e under the gr ant f r om t he expenses

25 t hat wer e not al l owabl e under t he gr ant , t hey f ound t hat


( 212) 805- 0300



38


1 bookkeeper t o go t hrough t he company' s books and r ecords i n

2 connect i on wi t h t he f i r st year audi t of hi s company, and when

3 t hat bookkeeper recl assi f i ed cer t ai n expenses and changed t hem

4 f r om gr ant expenses t o nongr ant expenses accor di ng t o t he

5 r ul es, t he def endant went back i nt o t he books and changed t hem

6 r i ght back agai n so t hat he coul d be sure t hat gr ant f unds

7 coul d be used t o pay f or t hem.

8 The end r esul t of al l t hi s, l adi es and gent l emen, i s

9 t hat t he def endant has been char ged i n a one count i ndi ct ment

10 wi t h cr i me of mi sappl yi ng gover nment gr ant f unds.

11 So, how i s t he gover nment goi ng t o pr ove i t s case t o

12 you? Here i s how:

13 You wi l l hear t est i mony f r om t wo of t he government

14 of f i ci al s t hat wer e assi gned t o admi ni st er t he def endant ' s

15 gr ant , and t hey wi l l expl ai n t o you what t he r ul es of t he gr ant

16 are and whi ch expenses you can and cannot use grant f unds t o

17 pay f or. And t hey wi l l t el l you how t hey spoke t o t he

18 def endant on numerous occasi ons bot h i n per son and on t he phone

19 and t ol d hi m over and over agai n t hat he coul d not use gr ant

20 f unds t o pay f or t hi ngs such as r ent and ut i l i t i es and other

21 nonal l owabl e expenses. And you wi l l hear f r om t wo audi t ors who

22 l ooked at t he company' s books, and t hey wi l l t el l you t hat when

23 t hey l ooked at t he company' s expenses and separ at ed out t he

24 expenses t hat were al l owabl e under the gr ant f r om t he expenses

25 t hat wer e not al l owabl e under t he gr ant , t hey f ound t hat


( 212) 805- 0300



39


1 hundr eds of t housands of dol l ar s of government money had been

2 spent on expenses t hat were ei t her not i n t he budget or were

3 unr el ated t o t he r esear ch t hat t he gr ant was supposed t o f und.

4 And you wi l l al so hear f r om t hr ee peopl e who worked

5 f or t he def endant at CASI , hi s company. They wi l l t el l you

6 what i t was l i ke t o work wi t h t he def endant , how he r ef used t o

7 l i st en t o t hei r advi ce about what he coul d spend t he gr ant

8 money on, how he changed t he bookkeepi ng ent r i es i n t he CASI

9 books and r ecords t o make sur e t hat cer t ai n expenses were

10 cl assi f i ed as r esear ch- r el ated expenses so t hat they coul d be

11 pai d f or wi t h gr ant f unds, and how he t ol d t hem he t hought he

12 coul d do what he pl eased wi t h t he grant money.

13 Fi nal l y, you wi l l be seei ng a number of document s t hat

14 wi l l show you t he f r aud i n cl ear bl ack and whi t e. I n

15 par t i cul ar you wi l l see an anal ysi s of t he def endant ' s per sonal

16 bank account and t he bank accounts of CASI , and you wi l l see

17 how vi r t ual l y 100 percent of CASI ' s i ncome was f r om t he gr ant

18 f unds and how t hose f unds went t o pay f or al l of t he

19 nonal l owabl e expenses t hat I ment i oned bef ore.

20 Now, bef ore I si t down, l adi es and gent l emen, I woul d

21 l i ke you t o do t hr ee t hi ngs dur i ng t he cour se of t hi s t r i al :

22 Fi r st , pay cl ose at t ent i on t o what t he wi t nesses have

23 t o say, and pay cl ose at t ent i on t o t he exhi bi t s t hat ar e

24 i nt r oduced i nt o evi dence.

25 Second, l i st en ver y car ef ul l y t o J udge Pat t er son' s


( 212) 805- 0300



47

8627KAR2 Openi ng - Mr . Rubi nst ei n

1 t hat t hey' r e compl ai ni ng about . And when t hey say t hat he i s

2 not al l owed t o spend money on r ent , wel l , t hat ' s i n t he

3 or di nar y cour se, t hat ' s i n t he r ul es, we concede t hat . But

4 t hey al so, t he gr ant admi ni st r at or s, coul d adj ust t he r ul es.

5 Because t he concept of r ent , as t he gover nment suggest ed i n

6 t hei r openi ng, i s t hat most compani es, t hey' r e doi ng di f f er ent

7 t hi ngs, so t he r ent , i t ' s har d t o at t r i but e r ent t o one

8 speci f i c t hi ng i f t hey ar e wor ki ng on t hr ee or f our pr oj ect s.

9 Her e CASI was wor ki ng on one pr oj ect . The el ect r i c ut i l i t i es

10 went up doubl e, we are goi ng t o show you, i n t he t i me t hat t he

11 gr ant was i n oper at i on.

12 And what di d Dr . Kar r on do? He di d ever yt hi ng he

13 coul d i n hi s power t o make t hi s pr oj ect work. And he hi r ed

14 account ant s. He hi r ed bookkeepers , he hi r ed account ant s, and

15 he hi r ed an accountant who was pai d, Ms. Hayes. She i s t he

16 st ar gover nment wi t ness, hi s account ant , hi s account ant who

17 i mproper l y wore t wo hat s because she al so became t he audi t or

18 f or t he pr oj ect , and she i s supposed t o be submi t t i ng t he audi t

19 budget , t he audi t , af t er t he f i r st year . Wel l , t he f i r st year

20 ended Sept ember 30, 2002. You know when Ms. Hayes got t hat

21 budget i n? I n J une of 2003. She got some ext ensi ons.

22 So, i n t he end Ms. Hayes, who was pai d by Dr . Kar r on,

23 was r eal l y not worki ng f or hi m, she was worki ng f or t he

24 gover nment .

25 And I submi t t o you you are goi ng t o f i nd out t hat bad


( 212) 805- 0300



48

8627KAR2 Openi ng - Mr . Rubi nst ei n

1 audi t s ar e not cri mi nal . Ther e ar e speci f i c l egi t i mat e

2 pat hways out l i ned i n t he r ul es t o r esol ve audi t pr obl ems

3 wi t hout maki ng i t cr i mi nal , and a gr ant reci pi ent who i s

4 at t empt i ng t o r esol ve a di f f er ence of opi ni on may have

5 di f f er ent pr ocedur es. Dr . Kar r on says I ' m ent i t l ed t o t hese

6 f r i nge benef i t s because al l of my empl oyees ar e ent i t l ed t o

7 t hese f r i nge benef i t s.

8 They want t o say he i s not ent i t l ed. They t al ked

9 about medi cal . Yes, t her e wer e speci f i c medi cal expenses, but

10 he has a r i ght to negot i at e t hese t hi ngs ci vi l l y. And even i f

11 t hey don' t agr ee wi t h hi m ci vi l l y, i t doesn' t mean t hat i t was

12 cr i mi nal . Because t he j udge i s goi ng t o t el l you what t he l aw

13 i s, and I am not goi ng t o t r espass on hi s pr ovi nce, but you are

14 goi ng t o f i nd t hat Dr . Karr on never i nt ended t o commi t a cr i me.

15 And what I ' m goi ng t o show, what he di d i n hi s own convol uted

16 way i s goi ng t o pr ove t o you beyond a r easonabl e doubt t hat he

17 never i ntended t o commi t a cr i me.

18 He had f our di f f er ent col or checks f or each di f f er ent

19 company t hat he had t hat was r el ated t o t hi s. He t hen scanned

20 ever y si ngl e document , ever y si ngl e document he ever came i n

21 t ouch wi t h. He di dn' t hi de anyt hi ng. I cal l upon t hem t o

22 pr ove. They sai d i t , t hat he changed r ecords. He scanned

23 ever y si ngl e document he had, and t hey were i n t he comput er ,

24 and he hi d not hi ng, not hi ng. How do you st eal when you keep

25 r ecor ds? Thi s i s a ma and pa sci ence oper at i on st ore. I t ' s a


( 212) 805- 0300



51

862ZKAR3 Openi ng - Mr . Rubi nst ei n

1 MR. RUBI NSTEI N: So t hat t el l s you how si gni f i cant t he

2 manual i s. And I submi t t o you t hat t her e came a t i me t hat he

3 di d st ar t . They di d pr epar e a manual . I t was af t er t he gr ant

4 was suspended, but t hey di d pr epare a manual . And al l t he

5 i t ems, whi ch t he f r i nge benef i t s, t hey wer e budget ed f or

6 110, 000 a year , t hey spent l ess t han $110, 000 a year . Most of

7 t he empl oyees t hat Dr . Kar r on had, who wer e f ul l - t i me

8 empl oyees, were col l ege prof essor s and peopl e at academi a who

9 had t hei r own heal t h i nsurance. So t hey di dn' t need t he

10 benef i t . But i f someone needed t he benef i t , he gave chi l d care

11 t o a bookkeeper .

12 They t al k about t he r ent . I submi t t o you t hat

13 doesn' t pr ove any cr i mi nal i t y. Most of t he r ent t hat was pai d

14 t o Dr . Kar r on was r ent t hat was due hi m pr i or t o t he gr ant .

15 They j ust di dn' t have t he money so t hey di dn' t , t hey di dn' t pay

16 i t .

17 And al so t her e' s l i t t l e quest i on t hat he coul d' ve

18 got t en per mi ssi on t o have t he r ent , because i t wasn' t what they

19 cal l an i ndi r ect expense any more, because i t was t he onl y

20 expense f or t hat pr oj ect . And t her e was no at t empt t o hi de

21 t hat t hese checks were wr i t t en f or r ent . I t ' s on t he memo of

22 t he checks. Does he i ntend t o commi t a cr i me i f he does t hat ?

23 Part of t hi s $500, 000 t hey' r e t al ki ng about are on

24 sal ar i es, sal ar i es of ot her peopl e t hat t hey di sal l owed. The

25 government or der , di sal l owed. Why? He had a manager , an


( 212) 805- 0300



58

862ZKAR3 Li de - di r ect

1 appl i cant can draw.

2 Q. Now what , i f anyt hi ng, does t he gr ant - -

3 THE COURT: I n whose i s name i s t he bank account?

4 THE WI TNESS: I ' m sor r y?

5 THE COURT: I n whose name i s t he bank account ?

6 THE WI TNESS: The bank account i s i n t he name of t he

7 f or pr of i t company. Thank you.

8 THE COURT: The f or prof i t company.

9 THE WI TNESS: Cor r ect . The money must f l ow t o a

10 company t hat i s f or pr of i t . I t cannot f l ow, f or exampl e, t o a

11 uni ver si t y.

12 Q. And what , i f anythi ng, does t he gr ant reci pi ent have t o

13 cont r i but e t o t he cost s of t he r esear ch?

14 A. A si ngl e appl i cant must pay al l of t he i ndi r ect cost s and

15 can cont r i but e t o t he di r ect cost s.

16 Q. What ar e t hese di r ect ver sus i ndi r ect cost s?

17 A. Di r ect cost s ar e t hose f unds t hat go di r ect l y t o t he

18 r esear ch, such as i ndi vi dual sal ar i es or equi pment needed t o

19 per f or m t hat r esear ch.

20 Q. How about i ndi r ect cost s?

21 A. I ndi r ect cost s are t hi ngs t hat woul d be spr ead over al l of

22 t he act i vi t i es of that company, such as f aci l i t i es, rent ,

23 el ectr i c i t y, l egal f ees, secretar i al support , admi ni str at i ve

24 suppor t , l ooki ng f or ot her f undi ng, t hat sor t of t hi ng.

25 Q. So i f a grant has t he cost shar ed r equi r ement , where does


( 212) 805- 0300



73

8637KAR1

1 UNI TED STATES DI STRI CT COURT

1 SOUTHERN DI STRI CT OF NEW YORK

2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

2

3 UNI TED STATES OF AMERI CA, New Yor k, N. Y.

3

4 v. S2 07 CR 541 ( RPP)

4

5 DANI EL B. KARRON,

5

6 Def endant .

6

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

7

8

8 J une 3, 2008

9 9: 20 a. m.

9

10

10 Bef ore:

11

11 HON. ROBERT P. PATTERSON, J R. ,

12

12 Di st r i ct J udge

13

13

14 APPEARANCES

14



15 MI CHAEL J . GARCI A

15 Uni t ed St ates At t orney f or t he

16 Sout hern Di st r i ct of New Yor k

16 BY: STEVEN KWOK

17 CHRI STI AN EVERDELL

17 Assi st ant Uni t ed St ates At t or neys

18

18 RUBI NSTEI N & COROZZO, LLP

19 At t orneys f or Def endant

19 BY: RONALD RUBI NSTEI N

20

20 Al so Present : Rachel Ondr i k, U. S. Dept . of Commerce

21 Ki r k Yamat ani , U. S. Dept . of Commerce

22

23

24

25


( 212) 805- 0300



87

8637KAR1 Li de - di r ect

1 A. I hel ped devel op some of the r ul es and r egul at i ons, and I

2 have f ol l owed t hem i n al l of t he pr oj ect s t hat I manage.

3 Q. What ar e a gr ant ee' s obl i gat i on under t hat pr ogr am wi t h

4 r espect t o t hei r budget ?

5 A. Thei r obl i gat i on i s t hat t hey adher e t o t he budget and al l

6 of t he r ul es and r egul at i ons i n t hese document s.

7 Q. Ar e t here ci r cumst ances under whi ch t hey can devi at e f r om

8 t he budget ?

9 A. Yes, t her e are. For any gi ven budget year , f or t he amount

10 of money al l ocat ed t o t hat year, t hey can move up t o 10 per cent

11 f r om one cat egory t o anot her as l ong as t hose cat egor i es exi st

12 i n t he budget .

13 Q. What i f t hey want t o move money t hat exceeds t he 10 per cent

14 annual budget amount ?

15 A. They must ask f or per mi ssi on and get wr i t t en pr i or appr oval

16 bef ore t he new budget i s aut hor i zed.

17 Q. What i f t hey want t o add a new cat egory al t ogether?

18 A. They must ask f or per mi ssi on and get wr i t t en pr i or appr oval

19 bef ore t hey add t hat cat egory.

20 Q. Ms. Li de, ar e or al appr oval s ever gi ven?

21 A. No.

22 Q. Ar e t her e si t uat i ons wher e grant ees can spend t he money

23 f i r st and seek appr oval af t er t he f act ?

24 A. I t i s t he except i on t o t he r ul e. That happens

25 occasi onal l y, but when t hat happens, any of t he money spent


( 212) 805- 0300



88

8637KAR1 Li de - di r ect

1 bef or e t he wr i t t en appr oval i s gi ven i s at t he gr ant ee' s r i sk.

2 Q. Now, ar e t her e cer t ai n pr i nci pl es t hat di ct at e whet her ATP

3 wi l l pay f or cer t ai n expenses or not ?

4 A. Yes, t her e are, and t hose are al l i n t hese document s.

5 Q. What are some of t hose basi c r ul es?

6 A. Basi cal l y ATP wi l l not pay i ndi r ect cost s f or si ngl e

7 appl i cant s, such as r ent , f aci l i t y r enovat i ons, l egal f ees,

8 admi ni st r at i ve cost s f or secretari es and t hat sor t of t hi ng,

9 whi ch i s spread over t he whol e company' s act i vi t i es.

10 Q. And do you pay f or expenses i ncurr ed bef ore t he st ar t of

11 t he grant progr am?

12 A. No, we cal l t hem sunk cost s, and nothi ng i ncur r ed bef ore

13 t he act ual st ar t dat e of t he pr oj ect can be charged t o t he U. S.

14 gover nment .

15 Q. How do gr ant ees know about al l of t hese r ul es t hat you j ust

16 descr i bed t o us?

17 A. They know about t hese r ul es i n t hese document s t hat ar e

18 exhi bi t s 1 t hr ough 4 t hr ough conf er ences t hat we gi ve, t hr ough

19 t el ephone advi ce t hat we al ways have avai l abl e, and t hrough a

20 ki ckof f meet i ng whi ch i s what i s pr esent ed i n Exhi bi t 4.

21 Q. What i s a ki ckof f meet i ng?

22 A. A ki ckof f meet i ng i s a meet i ng bet ween t he grant ee and t he

23 proj ect management t eam at NI ST wher e we go t hrough al l of t he

24 r ul es and r egul at i ons, ask i f t her e are any quest i ons, and make

25 sur e t hat t he gr ant ee under st ands t he r esponsi bi l i t i es of bei ng


( 212) 805- 0300



122


1 A. Ear l y i n t he pr oj ect t her e wer e some mi nor changes t o

2 basi cal l y per sonnel and equi pment .

3 Q. And what , i f anyt hi ng, di d you di scuss wi t h t he def endant

4 about t he t opi c of r ent ?

5 A. Rent i s an unal l owabl e cost . He - -

6 THE COURT: No.

7 MR. RUBI NSTEI N: Obj ect i on, your Honor . I t ' s not

8 responsi ve.

9 THE COURT: What di d you say t o t he def endant about

10 rent ?

11 THE WI TNESS: I t i s an unal l owabl e cost .

12 THE COURT: That came up i n t he conver sat i on?

13 THE WI TNESS: Yes, si r , i t di d.

14 THE COURT: Al l r i ght .

15 Q. Now, Ms. Li de, what di f f er ence woul d i t have made i f t he

16 apart ment was used, i n part , as an of f i ce?

17 A. ATP does not pay r ent , so i t woul d make, make no

18 di f f er ence.

19 Q. Di d you expl ai n t hi s t o t he def endant ?

20 A. Yes.

21 Q. What , i f any, was hi s r esponse?

22 A. That i n - - f or t hi s gr ant s, t her e wer e uni que ci r cumst ances

23 and i t shoul d be consi der ed.

24 THE COURT: Can you t el l us, approxi mat el y, when t he

25 conver sat i on t ook pl ace?


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123


1 THE WI TNESS: Very cl ose t o t he begi nni ng of t he

2 pr oj ect , cer t ai nl y r i ght af t er the begi nni ng of t he 2002.

3 That ' s t he best of my r ecol l ect i on.


5 Q. And what di d you say t o hi m i n r esponse t o t hat?

6 A. That ATP does not pay r ent ; i t i s an unal l owabl e cost . He

7 coul d pr opose t hi s t o t he gr ant s of f i cer and see what woul d

8 happen, but t hat i t was - - i t has never been done.

9 Q. What , i f any, ot her cat egori es di d you di scuss i n your

10 conver sat i ons wi t h t he def endant ?

11 A. One of the other maj or cat egori es was r enovat i ons t o t he

12 exi st i ng space, because t he comput ers were maki ng t he space

13 ext r emel y hot , and we di scussed i mprovi ng t hat space wi t h

14 addi t i onal el ect r i ci t y. And, once agai n, t hat i s a capi t al

15 i mprovement , whi ch ATP does not pay f or .

16 Q. Di d you t el l t hat t o t he def endant ?

17 A. Yes.

18 Q. What , i f anythi ng, di d you t al k about wi t h t he def endant

19 about t he equi pment ?

20 A. Equi pment must st ay wi t hi n t he amount on t hi s budget , and

21 any change i n t he amount of equi pment needed, any changes i n

22 maj or purchases woul d have t o be appr oved i n wr i t i ng bef ore

23 t hat coul d occur .

24 Q. And what , i f anyt hi ng, di d you di scuss wi t h t he def endant

25 about f r i nge benef i t s?


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178

8637KAR3 Li de - cr oss

1 THE COURT: I s t hat DDD?

2 MR. RUBI NSTEI N: Fi ve Ds, your Honor .

3 THE COURT: Fi ve Ds, as i n dog.

4 MR. RUBI NSTEI N: 3501 f i ve Ds.

5 Your Honor , t he government hasn' t provi ded t hese

6 document s t o t he j ur y, your Honor .

7 THE COURT: I under st and.

8 MR. RUBI NSTEI N: I know, but t he j ur y i s l ooki ng.

9 THE COURT: You won' t have i t t her e i n your books.

10 What ' s your quest i on on t he document ?

11 Q. Yes. Does t hat r ef r esh your r ecol l ect i on of di scussi ons

12 about New Yor k st at e, at t empt i ng t o get New Yor k st ate f undi ng?

13 A. Even wi t hout that e- mai l , I acknowl edge t hat CASI was

14 t r yi ng t o get other f undi ng.

15 Q. And you sai d somethi ng about t hat t hey had i ndi cat ed t hey

16 want ed t o open an of f i ce i n downtown Manhat t an, cor r ect ?

17 A. That ' s what I r ecal l Dr . Kar r on t el l i ng us, yes.

18 Q. And i n f act you ar e aware t hat i t was vi r t ual l y i mpossi bl e

19 t o f i nd of f i ces i n downt own Manhat t an af t er 9/ 11/ 01, cor r ect ?

20 A. I honest l y t hought - - I recal l some di scussi on on per haps

21 r ent woul d be cheaper and i t woul d be easi er , and t here were

22 al so other of f i ces bei ng consi der ed.

23 Q. And one of t hem was at CUNY.

24 A. Corr ect .

25 Q. And i n f act di d you l earn t hat CUNY want ed $1 mi l l i on i n


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179

8637KAR3 Li de - cr oss

1 r ent to r un t he CASI pr oj ect out of t hei r f aci l i t y?

2 A. I di d not know t hat .

3 Q. Di d you i nqui r e of Dr . Kar r on at any t i me what happened t o

4 t he f aci l i t y at CUNY?

5 A. Act ual l y t he quart er l y r epor t s r eport ed t hat t hey wer e

6 st i l l l ooki ng f or space, and al t hough i t hadn' t come t hr ough

7 yet i t was st i l l a possi bi l i t y, and t hat document at i on

8 i ndi cat ed t o us t hat he was st i l l pur sui ng ot her l ab space.

9 Q. And you came i n cont act wi t h t hi s Mr . Or t hwei n, corr ect ?

10 A. Corr ect .

11 Q. You met hi m personal l y?

12 A. Corr ect .

13 Q. And you had a number of t el ephone cal l s wi t h hi m, cor r ect ?

14 A. Corr ect .

15 ( Cont i nued on next page)

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



199

863zkar4 Li de - cr oss

1 A. Yes.

2 Q. And i ndi r ect - - and t he r eason f or t hat i s t hat i f a

3 busi ness i s f unct i oni ng, t hey may have other cust omer s and

4 other work and t hey don' t appl y t o cost s, di vi de up t he cost s

5 of t he r ent between a number of di f f erent cust omers?

6 A. I s t hat a quest i on, si r ?

7 Q. Yeah.

8 A. Or st at ement ?

9 Q. I t ' s a quest i on.

10 A. No. The r eason act ual l y f or a si ngl e company payi ng i t s

11 own i ndi r ect cost i s because t he U. S. Congr ess set up t he

12 Advanced Technol ogy Progr am as a cost shar i ng progr am, and t hey

13 want ed t he government t o shar e t he r i sk. But t hey al so want ed

14 t o know t hat t he f or pr of i t company had somethi ng at r i sk al so.

15 So i t ' s by st at ut e, t he ATP st at ut e, whi ch i s par t of t he

16 Omni bus Trade Bi l l of 1988 est abl i shed t hat , and t hat was t he

17 r eason f or i t .

18 Q. I n f act , t her e' s a 3. 61 copay, ri ght ? I s t hat so t hat t he

19 per son has t o put up a copay?

20 A. No si r . No, si r . The onl y r equi r ement , accor di ng t o t he

21 ATP st atut e f or a si ngl e company, i s t hat they pay t hei r own

22 i ndi r ect cost s. They can al so pr opose t o pay some of t he

23 di r ect cost s, whi ch i n CASI ' s case was t he case.

24 Q. And t hey coul d r equest t hat ATP per mi t t hem t o pay some

25 i ndi r ect cost s and appr ove t hat , cor r ect ?


( 212) 805- 0300



256

863ZKAR6 Snowden - di r ect

1 MR. EVERDELL: Yes, your Honor . Underst ood.

2 Q. Al l r i ght , Ms. Snowden, l et me ask you t hi s quest i on. You

3 sai d he cont act ed you, i s t hat r i ght ?

4 A. Yes.

5 Q. Di d you t wo have a di scussi on?

6 A. Yes.

7 Q. What quest i ons di d he ask you, i f any, dur i ng t hat , t hose

8 conver sat i ons?

9 A. Was he al l owed t o pay f or r ent and ut i l i t i es, wi t h t he ATP

10 f ederal f unded gr ant .

11 Q. And r ent f or what , rent and ut i l i t i es f or what ?

12 A. For the condo i n whi ch t he - - at t hi s poi nt I guess CASI ,

13 t he company, was bei ng housed.

14 Q. And whose condo was t hat ?

15 A. Dr . Karr on' s condo.

16 Q. And what was your response t o t he quest i on, can r ent and

17 ut i l i t i es be pai d f or wi t h ATP f unds?

18 A. No, t hey' r e unal l owabl e cost s.

19 Q. And why i s r ent not , and ut i l i t i es not al l owabl e cost ?

20 A. For one t hi ng, they' r e consi der ed i ndi r ect cost s, and

21 t hey' r e - - i ndi r ect cost s f or us i s gener al and admi ni st r at i ve

22 cost s l i ke wat er , el ect r i ci t y, heat , somet hi ng t hat ATP and

23 f ederal f unds we do not pay f or .

24 Q. Now, somet hi ng l i ke r ent s and ut i l i t i es be an al l owabl e

25 expense under t he gr ant r ul es i f t he onl y pr oj ect t hat t he


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1 grant was r eci pi ent was worki ng on was t he proj ect that was

2 f unded by t he ATP money?

3 A. No.

4 Q. I t woul dn' t make any di f f erence?

5 A. I t makes no di f f er ence at al l .

6 Q. What i f t he def endant was l i vi ng i n t he apart ment wher e t he

7 company was housed, woul d t hat make any di f f erence whet her

8 grant money coul d be used f or r ent ?

9 A. No, not at al l .

10 Q. Al l r i ght . Now, t ur ni ng t o your conver sat i ons wi t h t he

11 def endant , di d he cont act you or di d you cont act hi m?

12 A. He cont act ed me.

13 Q. And why - - oh, wi t hdr awn, your Honor . Di d you t wo have a

14 conver sat i on?

15 A. Yes.

16 Q. And what di d you t al k about ?

17 A. He had t he same conver sat i on - - quest i on as Lee Gurf ei n.

18 Q. Whi ch was what ?

19 MR. RUBI NSTEI N: Can we est abl i sh a t i me, your Honor ,

20 wi t h t hese conver sat i ons?

21 THE COURT: Yes. Appr oxi mat el y when di d t hese

22 conver sat i ons t ake pl ace, appr oxi matel y?

23 THE WI TNESS: Oh, t hi s i s - - t hey f i r st st ar t ed t aki ng

24 pl ace bef or e t he ki ckof f . So t hat ' s i n Oct ober of 2001.

25 THE COURT: Thi s i s about t he r ent ?


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1 THE WI TNESS: Thi s i s about t he r ent and ut i l i t i es.

2 Thi s i s r i ght af t er he was t ol d t hat he - - he r ecei ved t he

3 document s t hat he woul d be r ecei vi ng t hi s f eder al f und, and

4 t hen i t cont i nued.

5 THE COURT: Al l r i ght . Then t he next conver sat i on you

6 sai d t hat was wi t h Gur f ei n. What about t he conver sat i on

7 wi t h - -

8 THE WI TNESS: They - -

9 THE COURT: - - Dr . Kar r on?

10 THE WI TNESS: They bot h woul d cal l me, j ust - -

11 THE COURT: Same t i me?

12 THE WI TNESS: Yeah. No, l i ke a di f f er ent day. Li ke

13 Lee woul d cal l me one day, and t hen Dr . Kar r on woul d cal l me

14 anot her day and ask t he same exact quest i on.

15 THE COURT: They both were al l i n Oct ober ?

16 THE WI TNESS: No. Some wer e i n Oct ober, and t hen

17 l at er on af t er t he ki ckof f , t hey cont i nued t o cal l me and ask

18 me t he same exact quest i ons.


20 THE WI TNESS: Okay.

21 Q. Al l r i ght . Agai n, j ust t o cl ar i f y t he conver sat i ons wi t h

22 t he def endant , we di scussed your conver sat i ons wi t h Lee

23 Gerf ei n, but what di d you t wo di scuss, you and t he def endant ?

24 A. We di scussed r ent and ut i l i t i es.

25 Q. And what speci f i cal l y di d t he def endant ask you?


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1 A. He asked me were t her e al l owabl e cost , and I t ol d hi m over

2 and over agai n, no. He al so - - we had a conver sat i on about - -

3 dur i ng t hi s t i me was 9/ 11, and t he St ate of New Yor k had t ol d

4 t hem t hey woul d gi ve hi m some space. And I guess, I don' t know

5 what agr eement t hey had, but si nce 9/ 11 t hey r esci nded t he

6 of f er . So, ther ef or e, he was i nsi de of hi s apar t ment . I sai d

7 I under st and t hi s, but I ' m sor r y; unf or t unat el y, f eder al

8 f undi ng gr ant s, we do not pay f or r ent and ut i l i t i es, so

9 t heref ore, t he answer was no, t i me and t i me agai n.

10 Q. And about how many t i mes were you cont act ed about thi s?

11 A. Numerous t i mes. Bet ween Lee and Dr . Kar r on, t hey woul d t ag

12 t aki ng t eam. They woul d both cal l me and ask t he same

13 quest i ons l i ke a day apar t , and t hey woul d consi st ent l y get t he

14 same exact answer .

15 Q. What answer was t hat ?

16 A. They were unal l owabl e cost s and, no, you can not use

17 f eder al f unds.

18 Q. Di d you ever t el l t he def endant or Lee Ger f ei n t hat r ent

19 and ut i l i t i es wer e al l owabl e expenses under t he ATP f unds?

20 A. Never.

21 Q. Di d you ever approve any r ent or r ent payment r equest s f r om

22 t he def endant or anybody at CASI ?

23 A. No, never .

24 Q. Al l r i ght . Asi de f r om cal l i ng you wi t h quest i ons, wer e

25 t her e any r esour ces avai l abl e t o t he def endant to i nst r uct hi m


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1 I NDEX OF EXAMI NATI ON

2 Exami nat i on of : Page

3 BETTI J OYCE LI DE

4 Di rect By Mr . Kwok . . . . . . . . . . . . . 86

5 Cross By Mr . Rubi nstei n . . . . . . . . . . 151

6 Redi rect By Mr. Kwok . . . . . . . . . . . . 231

7 Recross By Mr . Rubi nst ei n . . . . . . . . . 243

8 HOPE DENI SE SNOWDEN

9 Di rect By Mr . Everdel l . . . . . . . . . . . 249

10 GOVERNMENT EXHI BI TS

11 Exhi bi t No. Recei ved

12 1 . . . . . . . . . . . . . . . . . . . . 85

13 2 . . . . . . . . . . . . . . . . . . . . 86

14 3 . . . . . . . . . . . . . . . . . . . . 86

15 4 . . . . . . . . . . . . . . . . . . . . 86

16 10 . . . . . . . . . . . . . . . . . . . 111

17 10A . . . . . . . . . . . . . . . . . . . 112

18 10B . . . . . . . . . . . . . . . . . . . 113

19 11 . . . . . . . . . . . . . . . . . . . 114

20 12 . . . . . . . . . . . . . . . . . . . 115

21 13 . . . . . . . . . . . . . . . . . . . 116

22 14 . . . . . . . . . . . . . . . . . . . 116

23 41 . . . . . . . . . . . . . . . . . . . 136

24 31 . . . . . . . . . . . . . . . . . . . 137

25 32 . . . . . . . . . . . . . . . . . . . 137


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1 33 . . . . . . . . . . . . . . . . . . . 138

2 34 . . . . . . . . . . . . . . . . . . . 139

3 35 . . . . . . . . . . . . . . . . . . . 139

4 36 . . . . . . . . . . . . . . . . . . . 139

5 30 . . . . . . . . . . . . . . . . . . . 141

6 21 . . . . . . . . . . . . . . . . . . . 144

7 22 . . . . . . . . . . . . . . . . . . . 145

8 23 . . . . . . . . . . . . . . . . . . . 147

9 24 . . . . . . . . . . . . . . . . . . . 147

10 25 . . . . . . . . . . . . . . . . . . . 148

11 26 . . . . . . . . . . . . . . . . . . . 149

12 DEFENDANT EXHI BI TS


14 A . . . . . . . . . . . . . . . . . . . . 221

15 B . . . . . . . . . . . . . . . . . . . . 230

16

17

18

19

20

21

22

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8647KAR1



2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

2


3

4 v. S2 07 CR 541 ( RPP)

4


5

6 Def endant .

6

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

7

8

8 J une 4, 2008

9 9: 20 a. m.

9

10

10 Bef ore:

11


12


13

13

14 APPEARANCES

14






16 BY: STEVEN KWOK



18




20



22

23

24

25


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303

8647KAR1 Snowden - di r ect

1 of f i ce, of cour se I have t o di scuss i t wi t h my super vi sor

2 Mar i l yn Gol dst ei n.

3 Q. What sor t s of t hi ngs di d t he def endant di scuss wi t h you i n

4 t hese subsequent cont act s?

5 A. Subsequent cont acts wer e basi cal l y about coul d he use

6 f eder al f unds t o pay f or r ent and ut i l i t i es.

7 Q. So, i s t hi s a si mi l ar t opi c as bef or e?

8 A. Exact si mi l ar . I t ' s t he exact t opi c.

9 Q. And what was your r esponse t o hi m on t hose occasi ons t hat

10 he t al ked t o you?

11 A. I t was al ways no. No mat t er what he sai d, how he sai d i t

12 t o me, i t ' s no, t hese are t axpayer s money and we do not use

13 t hat t o pay f or r ent and ut i l i t i es.

14 Q. Di d you hear f r omanybody el se f r om CASI af t er t he ki ckof f

15 meet i ng?

16 A. Yes.

17 Q. Who di d you hear f r om?

18 A. Dr . Kar r on and Lee Gurf ei n.

19 Q. And how di d Lee Gur f ei n cont act you?

20 A. He cal l ed me.

21 ( Def endant pr esent )

22 Q. And what i f anyt hi ng di d you di scuss wi t h Lee Gur f ei n?

23 A. The same t hi ng, about cal l s, coul d he use t he f ederal f unds

24 t o pay f or r ent and ut i l i t i es.

25 Q. And what i f anyt hi ng was your r esponse t o Mr . Gur f ei n?


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8647KAR1 Snowden - di r ect

1 A. No. Agai n and agai n, absol ut el y not .

2 Q. Al l r i ght , Ms. Snowden. Di d t her e come a t i me when t her e

3 were amendment s t o t hi s grant , t he CASI ATP grant ?

4 A. Yes.

5 Q. And i f you can pul l out i n f r ont of you t he f ol der s t hat

6 are i n evi dence, Gover nment ' s Exhi bi t s 22, 23, 24, 25 and 26.

7 A. OK.

8 Q. Have you had a chance t o l ook at t hose document s?

9 A. Yes.

10 Q. Do you r ecogni ze t hose document s?

11 A. Yes.

12 Q. What ar e t hose document s?

13 A. These ar e amendments t o t he awar d.

14 Q. And over what course of t i me wer e t hese amendments

15 submi t t ed and appr oved?

16 A. I ncl udi ng t he or i gi nal document t hat he si gned t o accept

17 t he grant , Oct ober 2001 t hrough J une 2003.

18 Q. Were t hese amendment s act ual l y appr oved by NI ST?

19 A. Yes, t hese are al l approved amendment s, yes.

20 Q. I n general , what ki nds of changes were made t o t he grant as

21 a r esul t of t hese amendment s?

22 A. Admi ni st r at i ve changes and a budget change.

23 Q. Why don' t you t ake a l ook at Government Exhi bi t 22. I f you

24 can di spl ay t hat as wel l . Do you see t hat document ,

25 Ms. Snowden?


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864ZKAR4 Snowden - cr oss

1 Q. I r ead cor r ect l y f r om t hat document ?

2 A. I agr ee t hat you r ead t hem cor r ect l y f r omt he document .

3 Q. Thank you.

4 THE COURT: And t hat t hat par agr aph, as I under st and

5 i t , i s par t of t he gover nment f or m t hat i s submi t t ed - -

6 THE WI TNESS: Yes.

7 THE COURT: - - t o t he gr ant ee t o f i l l out .


9 THE COURT: So i s t here any di sput e about t hat , Mr .

10 Rubi nst ei n? I j ust - -

11 MR. RUBI NSTEI N: Not at al l .

12 THE COURT: What ?

13 MR. RUBI NSTEI N: None at al l . I j ust want ed t o

14 show - -

15 THE COURT: I don' t see any di sput e bet ween you and

16 t he wi t ness, so pl ease go ahead.

17 BY MR. RUBI NSTEI N:

18 Q. Now Dr . Kar r on, di d t here come a t i me he r equest ed t hat - -

19 can I have t hat document , back, ma' am, t hat 3504 t hat I gave

20 you?

21 ( Handi ng)

22 Q. Now, i n t hese di scussi ons t hat you had wi t h Dr . Karr on

23 about , r ent and ut i l i t i es asi de, di d you say anyt hi ng el se

24 ot her t han no, when he asked you about t he grant money cover i ng

25 r ent and ut i l i t i es?


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864ZKAR4 Snowden - cr oss

1 A. I sai d no.

2 Q. Di d you di scuss t hi s wi t h Mi ss Gol dst ei n, t he super vi sor - -

3 A. Yes.

4 Q. - - t he f act that Ms. Gol dst ei n advi sed you t hat i f CASI got

5 commerci al space and i f t hey made a l ease i n t he name of t he

6 grant ATP, DMT, t hat t hat woul d be an accept abl e expense?

7 A. No, i t ' s not an accept abl e expense.

8 Q. No, no. Di d you have t hat di scussi on wi t h Ms. Gol dst ei n?

9 Di d you - - di d Ms. Gol dst ei n t el l you t hat ?

10 A. No.

11 Q. Di d you ever tel l Dr . Kar r on t hat , why don' t you i ncr ease

12 your sal ar y and pay i t out of your sal ar y, t hi s r ent f i gur e?

13 A. Never.

14 Q. Di d Dr . Kar r on advi se you at any t i me t hat t he r ent moni es

15 t hat wer e bei ng pai d were bei ng pai d f or a t i me per i od bef ore

16 t he ATP grant , and i t was back r ent owed?

17 A. No.

18 Q. So i t was your underst andi ng, when you spoke t o Dr . Kar r on,

19 t hat he was t al ki ng about cur r ent r ent whi l e he was r ecei vi ng

20 f unds f r om ATP?

21 A. I t was t o my under st andi ng t hat he was aski ng t o pay f or

22 cur r ent , cur r ent - - use cur r ent f unds t o pay f or r ent , and t he

23 cur r ent f unds wer e di r ect cost s. You can not use - - you can' t

24 use ATP money. Once he r ender ed ser vi ces and he had a pay

25 check at t he end of t he day, he coul d do what ever he want ed.


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8647KAR5

1 Gover nment Exhi bi t i n t hi s t r i al , and i t i s si gned J une 3,

2 2008, New Yor k, New Yor k, on behal f of t he Uni t ed Stat es by

3 Steve Kwok, and on behal f of Dani el B. Kar r on by Ronal d

4 Rubi nst ei n, Esqui r e. "

5 Your Honor , t he gover nment moves f or t he admi ss i on of

6 t hi s st i pul at i on and t he exhi bi t s ment i oned t her ei n.

7 MR. RUBI NSTEI N: No obj ect i on.

8 THE COURT: No obj ect i on? Let me have a copy of t he

9 st i pul at i on, pl ease.

10 Government ' s Exhi bi t s 80, 81, 90 and 100, and Exhi bi t s

11 101, 102, 103, 104 and 104A are admi t t ed i n evi dence pur suant

12 t o st i pul at i on t o t he par t i es.

13 DEPUTY COURT CLERK: 104A or 120A?

14 THE COURT: I ' m sor r y. 104 and 120A. They are

15 admi t t ed i nto evi dence. Thank you.

16 ( Gover nment ' s Exhi bi t s 80, 81, 90, 100, 101, 102, 103,

17 104, 120A r ecei ved i n evi dence)

18 ( Gover nment ' s Exhi bi t 900 r ecei ved i n evi dence)

19 MR. KWOK: The government cal l s Bel i nda Ri l ey.

20 BELI NDA RI LEY,

21 cal l ed as a wi t ness by t he government ,

22 havi ng been dul y sworn, t est i f i ed as f ol l ows:

23

24 DEPUTY COURT CLERK: Pl ease st at e you name, and spel l

25 you f i r st and l ast name sl owl y f or the r ecor d, pl ease.


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8647KAR5

1

2 THE WI TNESS: My name i s Hazel Ri l ey, H- A- Z- E- L

3 R- I - L- E- Y, but I go by Bel i nda.

4 DI RECT EXAMI NATI ON

5 BY MR. KWOK:

6 Q. Good af t ernoon, Ms. Ri l ey.

7 A. Good af t ernoon.

8 Q. Wher e do you wor k?

9 A. Depart ment of Commerce, Of f i ce of I nspect or Gener al , t he

10 At l ant a r egi on.

11 Q. What ' s your j ob t i t l e?

12 A. Assi st ant r egi onal i nspect or gener al f or audi t s, At l ant a

13 r egi on.

14 Q. I s t hat a super vi sor y posi t i on?

15 A. Yes, i t i s .

16 Q. How l ong have you been a supervi sor ?

17 A. For about t wo years.

18 Q. What do you do i n your cur r ent j ob?

19 A. I super vi se several empl oyees, and I pl an audi t s and other

20 dut i es assi gned.

21 Q. What di d you do bef or e you became a supervi sor ?

22 A. I was an audi t or r evi ewi ng government gr ant s or government

23 programs.

24 Q. You were an audi t or wi t h whi ch depar t ment ?

25 A. The Depar t ment of Commerce, Of f i ce of I nspect or General ,


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8647KAR5 Ri l ey - di r ect

1 si nce J une of ' 97.

2 Q. What were your dut i es and r esponsi bi l i t i es when you were an

3 audi t or wi t h t he Depar t ment of Commerce?

4 A. To audi t commerce programs, wor k up commerce grant s, under

5 t he var i ous agenci es.

6 Q. What di d you do bef ore t hen, bef ore you j oi ned t he commerce

7 depar t ment?

8 A. I was a r evenue agent wi t h I RS f or about 11 years.

9 Q. Can you gi ve us a t i me f r ame i f you r emember ?

10 A. I st ar t ed i n Sept ember of ' 86 and l ef t i n J une of ' 97.


12

13

14

15

16

17

18

19

20

21

22

23

24

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864ZKAR6 Ri l ey - di r ect

1 Q. And what di d you do as an agent wi t h t he I RS?

2 A. For t he f i r st - - I audi t ed i ndi vi dual t ax r et ur ns,

3 cor por at e t ax r et ur ns, exci se t ax r et ur ns.

4 Q. Ms. Ri l ey, what ' s your educat i onal backgr ound?

5 A. I have a bachel or s of - - I have a B. A. i n account i ng, a

6 B. A. i n account i ng i nf ormat i on syst ems, a Bachel or of Sci ence

7 i n Comput er Sci ence Progr ammi ng Opt i on, and I am a cer t i f i ed

8 CPA.

9 Q. How di d you become a cer t i f i ed CPA, what - -

10 A. Cer t i f i ed Publ i c Account ant .

11 Q. What does CPA st and f or ?

12 A. Cer t i f i ed Publ i c Account ant .

13 Q. How di d you become cer t i f i ed?

14 A. I t ook a CPA exam at t he t i me, I t hi nk i t was a

15 t wo- and- a- hal f day t est t hat ' s l i ke 19 hour s, and you al so had

16 t o have f i ve year s f or gover nment t o become a CPA i n

17 account i ng.

18 Q. Mi ss Ri l ey, what , i f any, pr of essi onal r ecogni t i on have you

19 r ecei ved f or your account i ng and audi t i ng work?

20 A. I have t wo bronze medal s and a si l ver medal awarded f r om

21 t he Depar t ment of Commer ce.

22 MR. KWOK: Your Honor , government of f ers Bel i nda Ri l ey

23 as an exper t i n account i ng and audi t i ng pr ocedur es.

24 MR. RUBI NSTEI N: No obj ect i on, your Honor .

25 THE COURT: Al l r i ght . Ms. Ri l ey i s accept ed as an


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1 exper t i n account i ng audi t i ng pr ocedur es - - account i ng and

2 audi t i ng pr ocedur es.

3 BY MR. KWOK:

4 Q. Ms. Ri l ey, what ki nds of gr ant s does your of f i ce audi t ?

5 A. We audi t NI ST ATP gr ant s, whi ch i s Nat i onal I nst i t ut e of

6 Standar ds and Technol ogy Advanced Technol ogy Progr am, audi t s

7 f or r esearch. We audi t NTI A gr ant s i n t el ecommuni cat i ons. We

8 audi t EDA grant s, whi ch i s Economi c Devel opment Admi ni st r at i on,

9 what ever - - we can audi t any grant t hat one of our commerce

10 agenci es gi ve.

11 Q. Do al l grant s awar ded by t he Commer ce Depart ment get

12 audi t ed by t he Of f i ce of t he I nspect or Gener al ?

13 A. No.

14 Q. How does your of f i ce become i nvol ved?

15 A. Our of f i ce becomes i nvol ved by r equest f r om NI ST or i t

16 coul d be f r om t he hot l i ne cal l t hat says t hat t hey suspect an

17 or gani zat i on i s usi ng f r audul ent , doi ng f r audul ent act i vi t y.

18 Or we have a - - we r evi ew al l of t he NI ST ATP r esearch grant

19 awards submi t t ed by t he CPA f i r ms, and so i f dur i ng one of our

20 r evi ews someone sees suspi ci ous, we may audi t t hat award.

21 Q. How many audi t s have you handl ed si nce you j oi ned t he

22 depar t ment?

23 A. Probabl y about 10 or 15.

24 Q. How many t i mes have you t est i f i ed i n a cr i mi nal t r i al

25 bef ore i n connect i on wi t h your audi t i ng work?


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1 A. None.

2 Q. Ms. Ri l ey, di d t her e come a t i me when you became i nvol ved

3 i n audi t i ng an Advanced Technol ogy Progr am grant or ATP gr ant

4 awar ded t o a company known as CASI ?

5 A. Yes.

6 Q. Who was t he pr i nci pal i nvest i gator of t hat gr ant ?

7 A. Dan Kar r on.

8 Q. Do you see Dan Karr on i n t he cour t r oom her e t oday?

9 A. Yes, he' s over t her e.

10 Q. Coul d you descr i be an art i cl e of cl ot hi ng he' s weari ng?

11 A. He' s got gl asses - - he' s got on gl asses, a pony t ai l and i s

12 t hat a whi t e and gr een t i e?

13 MR. KWOK: Your Honor , may t he r ecor d r ef l ect t hat t he

14 wi t ness has i dent i f i ed t he def endant ?

15 THE COURT: Al l r i ght , t he r ecor d wi l l so r ef l ect .

16 Q. Ms. Ri l ey, how di d you become i nvol ved i n t he CASI audi t ?

17 A. The NI ST gr ant s of f i cer s sent a l et t er t o our - - t he Of f i ce

18 of I nspect or Gener al r equest i ng an audi t , and I was assi gned

19 t he audi t .

20 Q. What di d t hey ask you t o do?

21 A. To det er mi ne t he f i nanci al st at us of t he gr ant pr oj ect .

22 Q. And when was t hi s, approxi mat el y?

23 A. We r ecei ved r equest s i n May of 2003, approxi mat el y.

24 Q. What di d you do upon r ecei vi ng t hi s r equest ?

25 A. I cal l ed CASI t o schedul e an i ni t i al appoi nt ment f or t he


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1 audi t .

2 Q. Wher e di d you go t o conduct t hi s audi t ?

3 A. To t he CASI of f i ce apart ment .

4 Q. And where i s t hat ?

5 A. I n Manhat t an.

6 Q. You sai d apar t ment . How do you know i t was an apar t ment ?

7 A. Wel l , on some of t he vi si t s, Mr . Karr on woul d be get t i ng

8 out of bed t o answer the door because I woul d get t here ear l y

9 i n t he mor ni ng, 10: 00 o' cl ock, 9, 10: 00 o' cl ock, and he was a

10 l at e ni ght per son.

11 Q. And what was t he obj ect i ve of your vi si t ?

12 A. To det er mi ne t he f i nanci al st at us of t he gr ant cost .

13 Q. How do you get up t o speed on t he company' s f i nanci al

14 si t uat i on?

15 A. Okay. Pr i or - - by r evi ewi ng t he l edger s and i nvoi ces

16 pr ovi ded by CASI t o me. Pr i or t o goi ng t o t he - - pr i or t o

17 comi ng t o Manhat t an, I i nt er vi ewed t he NI ST gr ant s of f i ce

18 peopl e and r evi ewed t hei r gr ant f i l es concer ni ng CASI .

19 Q. As par t of t hat pr eparat i on, di d you t al k t o anyone at

20 CASI ?

21 A. Yes. At CASI I t al ked t o Dan Kar r on, t o J oan Hayes, t he

22 CPA t hat he pr ovi ded t o, Fr ank Spr i ng, a book keeper, t o Bob

23 Benedi ct , t he proj ect manager.

24 Q. And i s t hat consi st ent wi t h what you usual l y do?

25 A. Yes.


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1 Q. Your usual pr act i ce?

2 A. Yes.

3 Q. You ment i oned i nvoi ces. Can you t el l us how t hose i nvoi ces

4 r el ated t o what you do as an audi t or?

5 A. Wel l , we t r ace - - we' r e pr ovi ded j our nal ent r i es or

6 what ever , we' r e pr ovi ded a l i st of expense, expendi t ur es f or

7 award, we t r ace a sampl e of t hem, j ust t he support i ng voi ce or

8 cancel l ed check.

9 Q. And wer e you abl e t o f i nd t hose i nvoi ces at CASI ?

10 A. They pr ovi ded some i nvoi ces. The i nvoi ces at CASI had

11 been - - t he ori gi nal i nvoi ces had been scanned i nt o t he

12 comput er , and t he or i gi nal document s had been dest r oyed. And

13 so f or some of t he i nvoi ces, t here were mul t i pl e copi es and

14 some of t hem we had a hard t i me f i ndi ng or di dn' t f i nd.

15 Q. Di d t her e come a t i me whi l e you were conduct i ng t he audi t

16 t hat you spoke as t o an i ndi vi dual by t he name of J oan Hayes?

17 A. Yes.

18 Q. And what i s your underst andi ng as t o what J oan Hayes was

19 doi ng at CASI ?

20 A. She had done t he f i r st year audi t , t hey' r e r equi r ed t o have

21 an audi t by ATP, and she was - - I guess she was t here t o hel p

22 me wi t h my audi t or t o pr ovi de i nf ormat i on about t he CASI books

23 and r ecords or f or answer i ng quest i ons I mi ght have concer ni ng

24 t he books and r ecords.

25 Q. And what di d you do wi t h t he mat er i al s t hat J oan Hayes


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1 provi ded you?

2 A. I used, I used t hem as a sour ce of my audi t .

3 Q. And how l ong were you at CASI f or t hi s audi t ?

4 A. I t hi nk I got t her e on Wednesday and I l ef t Thur sday or

5 Fr i day of t he next week.

6 Q. Di d you pr epar e a r epor t af t er t he audi t ?

7 A. Yes. I pr epared a memo r eport , a shor t r eport .

8 Q. I f you coul d f i nd what ' s been mar ked f or i dent i f i cat i on as

9 gover nment exhi bi t 60 i n t hat pi l e t hat i s i n f r ont of you?

10 A. Oh, okay. 60.

11 THE COURT: What per i od of t i me di d you audi t ?

12 THE WI TNESS: I audi t ed t he t i me 10/ 1 - - Oct ober ,

13 Oct ober 1st , 2001 t hrough 6/ 30 - - 6/ 27, 2003.

14 Q. Do you have t hat document i n f r ont of you?

15 A. Yes.

16 Q. Government exhi bi t 60 marked f or i dent i f i cat i on? Do you

17 r ecogni ze t hat document ?

18 A. Yes.

19 Q. Who prepared t hat document?

20 A. I di d.

21 Q. And what i s i t ?

22 A. I t i s our memo r eport t hat was pr epared af t er t he J une 2003

23 vi s i t s .

24 Q. I s t hat t he vi si t you j ust r ef er r ed t o - -

25 A. Yes.


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1 Q. - - a moment ago?

2 A. Yes.

3 MR. KWOK: Your Honor , t he government of f ers exhi bi t

4 60?

5 MR. RUBI NSTEI N: I ' d l i ke a br i ef voi r di r e, your

6 Honor .

7 THE COURT: Yes, you may.

8 VOI R DI RE:


10 Q. Good af t ernoon, Ms. Ri l ey.


12 Q. Now, you pr epared t hi s r epor t f r om what document s?

13 A. Thi s r eport s wer e pr epared, my audi t , as a r esul t of t he

14 document s t hat Dr . Kar r on pr ovi ded dur i ng t hat J une vi si t .

15 Q. Dr . Kar r on or Ms. Hayes?

16 A. Dr . Karr on, J oan Hayes, Bob Benedi ct , t hey were al l t her e.

17 Mi ss Hayes was supposed t o be t he r epr esent at i ve l eadi ng me

18 t hr ough t he books and r ecor ds, and she was r epr esent i ng Dr .

19 Kar r on.

20 Q. Do you have copi es of t hose document s?

21 A. The document s - -

22 Q. That you used t o - -

23 A. Yes.

24 Q. - - creat e t hi s r epor t ?

25 A. Yes.


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1 Q. Wher e ar e t hey?

2 A. What - - my audi t r eport s, my audi t - -

3 Q. Your what?

4 A. I n my audi t f i l es. I t hi nk t he document t hat my r epor t ,

5 t hat t he r eport was cr eat ed f r om was pr ovi ded. I mean, what - -

6 my own - - I have my audi t r eport t hat I used t o pr epare t hi s.

7 Q. I n ot her words, do you make a r epor t or cr eat e some

8 wr i t i ngs t o show t hat you used t o put i nt o t hi s r epor t ,

9 Government ' s 60?

10 A. Yes.

11 MR. RUBI NSTEI N: May I approach t he government , your

12 Honor .


14 ( Pause)

15 Q. I s i t cor r ect , ma' am, t hat you used J oan Hayes' work papers

16 t o do your - - t hi s r epor t ?

17 A. I used t he wor k - - t he gener al l edger s, t he cash

18 di sbur sement regi st er s, t he - - what ever i nf ormat i on, t he books

19 t hat were prepared by - - some t hi ngs t hat J oan Hayes provi ded.

20 The books t hat were bei ng r epr epared by Fr ank Spr i ng. He

21 al so - - I al so t al ked t o hi m whi l e I was t her e, t o do - - t o

22 come up wi t h t he work paper s f r om t hi s r eport .

23 Q. Di d you cr eate any wor k paper s, ma' am?

24 A. Yes, I di d.

25 Q. Di d you cr eat e a general l edger?


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1 A. For t hi s r epor t ?

2 Q. Yes.

3 A. No. I mean no.

4 Q. You used J oan Hayes' - -

5 A. I di dn' t use J oan Hayes' audi t f or thi s as a, my - - t he

6 f i nal number f or t hi s r epor t .

7 Q. You t est i f i ed t hat you used J oan Hayes' i nf or mat i on,

8 cor r ect ?

9 A. I used J oan Hayes' - - I used i t , t he i nf or mat i on t hat J oan

10 Hayes - - t hat CASI under Kar r on had asked J oan Hayes t o pr ovi de

11 t o me f or t hi s audi t .

12 Q. Di d you i ndependent l y check what ever document at i on J oan

13 Hayes pr ovi ded f or you, t o you?

14 A. I di d sel ect a sampl e of the i nvoi ces t o t r ace t he sampl e

15 of t he l edger ent r i es t o t r ace t o t he i nvoi ces f or t hi s r epor t .

16 Q. I sn' t i t a f act that J oan Hayes had no gener al l edger ?

17 Ther e was no gener al l edger f or CASI ; i s t hat a f act ?

18 A. There were - - CASI used Qui ck Books, and so what ever t he

19 syst em of qui ck books t her e wer e - - t her e wer e - - t her e wer e

20 t hi ngs f or Qui ck Books.

21 Frank Spr i ng, I guess Frank Spr i ng was cr eat i ng a new

22 gener al l edger or a new l edger syst em or j our nal ent r y syst em

23 f or CASI at t he t i me I was t here.

24 When I cal l ed t o schedul e t he i ni t i al appoi nt ment ,

25 CASI coul dn' t meet wi t h me because t hey were i n t he process of


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1 r edoi ng t hei r books and r ecor ds, and so i t del ayed my vi si t f or

2 a coupl e of weeks t o gi ve t hem t i me.

3 When I ar r i ved, t he new books weren' t compl et ed yet ,

4 so t hey were goi ng t o be compl eted t he next day so I wai t ed

5 t i l l t he next day.

6 The - - I used t he r ecords t hat t hey pr ovi ded and,

7 i ncl udi ng J oan Hayes, what J oan Hayes had provi ded t o come up

8 wi t h t he number s f or t hi s. I di d not t ake J oan Hayes' r epor t

9 and copy t he number s t o come up wi t h t hi s.

10 Q. I n f act , you never - - do you have, ei t her f r om your own

11 work, f r om Frank Spr i ng' s - - he was a book keeper of some sor t ?

12 A. Yes.

13 Q. Or f r om J oan Hayes, a general l edger , ma' am?

14 A. I know I have some summar i es pr ovi ded di f f erent cat egor i es,

15 and I t hi nk t here are some l edgers t her e. I know I have t o - -

16 Q. Di d you do - -

17 A. Yes.

18 Q. - - a r econci l i at i on? Ther e wer e checki ng account s, wer e

19 t here not ?

20 A. Yes when I - - f or t he audi t ?

21 Q. Yes. There were checki ng accounts, CASI had a number of

22 checki ng account s, di d i t not ?

23 A. Yes.

24 Q. Di d you do a bank r econci l i at i on of t he var i ous bank

25 accounts of CASI ?


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1 A. For t hi s, f or t hi s audi t ?

2 Q. Ri ght .

3 A. No.

4 MR. RUBI NSTEI N: Your Honor , I obj ect .

5 MR. KWOK: Si debar , your Honor ?

6 THE COURT: Yes.


8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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1 ( At t he si debar)

2 MR. KWOK: Gr ounds?

3 MR. RUBI NSTEI N: The grounds - - t hese ar e some

4 summary, some document s t hat she doesn' t have, t hat she' s

5 unawar e of , and she came up wi t h t hese number s f r om wher e we

6 wi l l never never know because we don' t have ori gi nal sour ce

7 document s t o l ook at , j udge. She cl ear l y r el i ed upon ot her

8 peopl e' s wor k t o det er mi ne t he cost . I t ' s har d t o bel i eve t hat

9 someone coul d be an audi t or and not r econci l e bank accounts

10 t hat pr obabl y had l ess t han 500 checks i n t otal , f or t he per i od

11 t hat we' r e t al ki ng about .

12 MR. KWOK: Your Honor , we of f er her as an exper t

13 wi t ness under Federal Rul es of Evi dence 703. Under l yi ng

14 document s t hat an exper t r el y upon does not have t o be

15 admi ssi bl e. That ' s what audi t or s do, t hey don' t necessari l y

16 have t he underl yi ng document s. They go t o si t es t o l ook at t he

17 company books. They don' t necessar i l y t ake t hose document s

18 back wi t h t hem af t er t hey' ve compl et ed an audi t . I bel i eve

19 t hat ' s what happened i n t hi s case, t hat she wasn' t - - went t o

20 CASI t o l ook at t he books. She t r i ed t o ver i f y some of i t t o

21 have some conf i dence about t he accuracy of t he number s. She

22 i ssued a r epor t . I t doesn' t mean she t ook away t hose document s

23 and at t ached t hem as some sor t of at t achment t o her repor t .

24 She went t her e, saw t hi ngs, t al ked t o peopl e make some

25 det er mi nat i ons and i ssue a r epor t . The f act that she doesn' t


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1 have t he under l yi ng document s shoul d not be an i ssue, and she' s

2 an exper t . Under Rul e 703 t he under l yi ng document s - -

3 THE COURT: I ' m goi ng t o al l ow her t o t est i f y because

4 a audi t or does not have t o t ake t he r ecords wi t h t hem or copi es

5 of t he r ecords. They may have t o t ake copi es of port i ons t hat

6 t hey r el y on. But f or i l l ust r at i on pur poses, t he audi t or does

7 not have t o - - j ust has t o use gener al accept ed audi t i ng

8 methods t o ver i f y t he books and accounts of t he company.

9 MR. KWOK: I t hi nk t hat ' s exact l y r i ght .

10 THE COURT: I t ' s t he company, i t ' s t he company' s

11 account t hat t he audi t or i s ver i f yi ng.

12 MR. RUBI NSTEI N: Here he di dn' t have account s, J udge

13 wi t h al l due r espect , so t hat ' s why - -

14 THE COURT: I don' t know. I mean t hat ' s anot her

15 mat t er .

16 MR. KWOK: You can cr oss on i t .

17 MR. RUBI NSTEI N: I don' t want - -

18 THE COURT: They' r e supposed t o have an account ant ,

19 sor r y, as I under st ood i t .


21

22

23

24

25


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1 ( I n open cour t )

2 MR. KWOK: Your Honor , government of f er s government

3 exhi bi t 60.

4 THE COURT: Government 60 i s admi t t ed i n evi dence.


6 MR. RUBI NSTEI N: I obj ect t o t he - -

7 THE COURT: I unders t and. I haven' t r ead i t , so I

8 don' t know what i t i s. I t may be a val i d obj ect i on af t er I see

9 i t .

10 MR. KWOK: Do you st i l l have t he document i n f r ont of

11 you?

12 THE COURT: Di d you use your ordi nar y audi t i ng

13 pr ocedur es i n r evi ewi ng t he books of - -


15 THE COURT: CASI ?


17 THE COURT: What ever books you wer e present ed wi t h?

18 THE WI TNESS: Yes, yes.

19 THE COURT: Those i ncl uded t he r epor t of what was her

20 name, Mi ss Hayes?


22 THE COURT: And al so mat er i al s suppl i ed by t he book

23 keeper ?


25 THE COURT: Was t her e - - so, and t hey were i n l edger


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1 f orm so you coul d check t hem?

2 THE WI TNESS: Thi ngs were i n l edger f orms.

3 THE COURT: I see, al l r i ght .

4 MR. KWOK: Thank you, your Honor .

5 Q. Ms. Ri l ey, what ' s t he dat e of t hi s r epor t ?

6 A. J ul y 2003.

7 Q. Di r ect i ng your at t ent i on t o pages t hr ee and f our , l et ' s put

8 up page - - i f we coul d put t hem si de by si de.

9 Ms. Ri l ey, what ar e t he f i ndi ngs t hat you r eached i n

10 t hi s audi t r epor t ?

11 A. That , t hat CASI had not met t he mat chi ng cost shar e

12 r equi r ement ; t hat CASI had excess drawdowns of over $200, 000,

13 and t hat they had submi t t ed a - -

14 THE COURT: Sor r y, what was t he f i r st t hi ng you sai d?

15 THE WI TNESS: That t hey had not met t he mat chi ng

16 r equi r ement s of t he NI ST award.

17 THE COURT: Second.

18 THE WI TNESS: That t hey had excess drawdowns of over

19 $200, 000.

20 Q. And t he t hi r d?

21 A. The t hi r d, they had f i l ed i naccur at e f i nanci al st at us

22 r eport wi t h us.

23 Q. Ms. Ri l ey, l et ' s t ake t hi s one at a t i me now. What does i t

24 mean when you sai d t he company had not cont r i but ed mat chi ng

25 f unds?


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1 A. That t hey, t hey had not - - t hey had not cont r i but ed

2 anyt hi ng t o t he, t o t he NI ST award.

3 Q. What ar e t hey supposed t o do?

4 A. They were supposed t o cont r i but e 4. 57 percent of t he f unds.

5 MR. RUBI NSTEI N: I ' m sor r y, I di dn' t di gi t hear t hat .

6 A. Of t he pr oj ect cost .

7 MR. RUBI NSTEI N: I mi ssed t he per cent age, your Honor .

8 THE WI TNESS: The 4. 57 percent .

9 Q. And what i n f act happened?

10 A. They hadn' t cont r i but ed anythi ng t o t he cost , t he cost

11 shar e t o t he pr oj ect .

12 Q. And, Ms. Ri l ey, how di d you ar r i ve at t hi s concl usi on?

13 A. By r evi ewi ng t he, t he r ecor ds of what , and t r ansact i ons of

14 t he l edger s.

15 Q. The documents provi ded t o you by t he company?

16 A. Ri ght , t he document s pr ovi ded.

17 Q. The second i ssue you ment i oned was t he excessi ve drawdowns.

18 Can you expl ai n t o us what t hat means?

19 A. They had, t hey had - - t hey had r ecei ved NI ST gr ant f unds

20 t hat had been spent on CASI expenses i nst ead of t he pr oj ect

21 expenses. They - -

22 THE COURT: You dropped your voi ce, I can' t hear you.

23 You' l l have t o speak up.

24 THE WI TNESS: They had, t hey had - - t hey had drawn

25 down f unds f r om NI ST t hat were spent on CASI busi ness expenses


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1 or not al l owabl e NI ST pr oj ect expenses.

2 Q. I n ot her words, expenses not appr oved?

3 MR. RUBI NSTEI N: Obj ect i on, your Honor , t o - -

4 Q. Can you expl ai n what you mean by t hat?

5 THE COURT: Your obj ect i on' s sust ai ned, f orm of t he

6 quest i on, Mr . Kwok.

7 MR. KWOK: I apol ogi ze, your Honor .

8 Q. What do you mean by t hat ?

9 A. They had spent - - t he money had been spent on r ent or

10 ut i l i t i es or on t hi ngs t hat wer e not al l owed per t he gr ant

11 budget .

12 Q. And what i s t he approxi mat e si ze of t hi s excess dr awdown?

13 A. 205, 000.

14 Q. And agai n how were you abl e t o make t hat det ermi nat i on?

15 A. Fr om r evi ewi ng t hei r books, f r om t he l edger s - - f r om t he

16 books t hat were provi ded t o us by CASI .

17 Q. Fi nal l y, you ment i oned f i nanci al st at us r epor t s. Fi r st of

18 al l , what ar e f i nanci al st at us r epor t s?

19 A. Gr ant r eci pi ent s ar e r equi r ed t o submi t f i nanci al st at us

20 r eport s quart er l y t o i nf orm NI ST how t hey spent t he gr ant

21 moni es t hat t hey drew down f or t hat quar t er .

22 Q. And what type of i nf ormat i on are t hey supposed t o r epor t on

23 t hese f i nanci al st at us r epor t s?

24 A. Fi nanci al st atus r eport i ncl udes t he amount of matched

25 shar e t hey pr ovi de, and t he amount of cost spent wi t h t he NI ST


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1 gr ant pr oj ect .

2 Q. What was your audi t f i ndi ng about CASI ' s f i nanci al st atus

3 repor t s?

4 A. They r epor t ed t he drawdown amounts t hey r ecei ved f r om NI ST,

5 not the expense of what t hey spent dr awdowns on.

6 Q. Can you - -

7 A. Not t he cost . They di dn' t - - t hey di dn' t r epor t how t hey

8 spent t he grant moni es.

9 Q. What , i n f act , di d t hey r epor t ?

10 A. They r epor t ed t he drawdown, t he moni es t hey r ecei ved.

11 Q. Any ot her i ssue wi t h t he f i nanci al st at us r epor t s?

12 A. They r epor t ed a mat ch share. They di d not gi ve a mat ch

13 share.

14 Q. And how were you abl e t o make t hose det ermi nat i ons?

15 A. By r evi ewi ng t he f i nanci al st at us r epor t s.

16 Q. I s t hat what you do as an audi t or?

17 A. Yes.

18 Q. Ms. Ri l ey, what , i f any, r ecommendat i ons do you make i n

19 your audi t r eport ?

20 MR. RUBI NSTEI N: I obj ect t o t hat , your Honor .

21 Q. I f you coul d di r ect us t o t he page of t he document ?

22 A. I t ' s on page f i ve.

23 THE COURT: I don' t see t he r el evance of t hat .

24 MR. KWOK: Your Honor , t he audi t r epor t cont ai ns a

25 r ecommendat i on or ser i es of r ecommendat i ons.


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1 THE COURT: The - -

2 MR. RUBI NSTEI N: That ' s what I obj ect ed t o, J udge.

3 THE COURT: That ' s what he obj ected t o, t he

4 r ecommendat i on par t .

5 MR. RUBI NSTEI N: 60.

6 MR. KWOK: The r el evance, t he r el evance i s - -

7 THE COURT: I don' t want t o hear your argument i n

8 f r ont of t he j ur y.

9 MR. KWOK: Coul d we have a si debar ?

10 THE COURT: I ' l l have i t at t he si debar i f you want t o

11 hal f i t . I t seems t o me i t ' s - -


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2 MR. KWOK: Your Honor , t hi s audi t r eport i s t he f i r st

3 of I bel i eve t hr ee audi t repor t s t hat t hi s audi t or pr epar ed.

4 She made a ser i es of r ecommendat i ons i n her f i r st audi t r eport ,

5 and t hen l at er on she went back t o t he company t o audi t t he

6 books f or a second t i me. And I ' m i nt endi ng t o show t hat t he

7 r ecommendat i ons t hat she made t he f i r st t i me were not

8 under t aken even si x mont hs l at er when she went back t o t he

9 company.

10 THE COURT: That has nothi ng t o do wi t h whet her or not

11 t hi s man i mpr operl y used - -

12 MR. KWOK: I t goes t o hi s i nt ent , i t goes t o hi s

13 i nt ent because t he f i r st r epor t t ol d hi m what was wr ong, and

14 when si x mont hs l at er she came back, t he same t hi ng st ays t he

15 same. I t goes t o hi s i nt ent .

16 MR. RUBI NSTEI N: I submi t , your Honor, i t doesn' t go

17 t o hi s i nt ent t hat he - - t he audi t report r ecommendat i on. He

18 hi r ed a separat e accountant who submi t t ed r esponses t o Ri l ey,

19 t o argue t he i ssue of her f i ndi ngs, as t o her number of

20 f i ndi ngs. So I submi t i t doesn' t go t o hi s i nt ent , and t hey

21 know i t . They have t hi s, one of t he exhi bi t s.

22 THE COURT: Why can' t you deal wi t h i t i n ot her ways

23 i nst ead of deal i ng wi t h t he r ecommendat i ons, whi ch i nvol ves

24 suspensi on, whi ch doesn' t seem t o me t o be r el evant t o t he

25 i ssue i n t he i ndi ct ment . Why can' t you r ai se t he i ssue about


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1 whether t hi s r epor t and i t s r ecommendat i ons were, were provi ded

2 t o Mr . , Dr . Kar r on, and whet her she had f ur t her di scussi ons

3 wi t h hi m. And t hey had anot her audi t , et cetera, and you can

4 get i nt o what t he subj ect mat t er i s of t hose i t ems at t hat

5 t i me, not get i nt o t he r ecommendat i on of suspensi on by - -

6 MR. KWOK: The wi t ness i s act ual l y not goi ng t o

7 answer , I don' t bel i eve, t hat I r ecommended t he gr ant s be

8 suspended. She i s goi ng t o say, I t ol d hi m t hat he needs t o

9 amend hi s f i nanci al st atus r eport and make t he cost - -

10 THE COURT: But you asked f or t he r ecommendat i on. She

11 i sn' t bei ng asked what she t ol d hi m.

12 MR. KWOK: Okay, can I ask t hat?

13 THE COURT: The f orm of your quest i on.

14 MR. KWOK: Okay. I under st and. Thank you, your

15 Honor .


17 MR. RUBI NSTEI N: Your Honor , i t ' s past f our .

18 THE COURT: Yeah, wel l , l et ' s j ust l et hi m get t hi s

19 quest i on i n.

20 MR. RUBI NSTEI N: Sure.


22

23

24

25


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2 THE COURT: Ref r ame your quest i on, Mr . Kwok.

3 MR. KWOK: Yes, your Honor .

4 Q. Ms. Ri l ey, what , i f any, act i ons di d you suggest the

5 company under t ake t o i mpr ove t he negat i ve audi t f i ndi ngs i n

6 t hi s r epor t ?

7 MR. RUBI NSTEI N: Obj ect i on, your Honor .

8 THE COURT: What act i ons? I ' l l al l ow i t .

9 The j ur y i s i nst r uct ed t o di sr egard anythi ng about

10 negat i ve or possi bl y, what have you.

11 What act i ons di d you t ake wi t h r espect t o Dr . Karr on

12 and CASI af t er you made t hi s r eport ? Di d you pr ovi de hi m wi t h

13 a copy?

14 THE WI TNESS: Oh, t hi s r epor t ? Yes, we pr ovi ded a

15 copy of t hi s r epor t t o CASI .

16 THE COURT: And what act i on di d you t ake t her eaf t er?

17 Q. What act i ons di d you ask t hat t he company t ake?

18 A. We asked t hat t hey r ei mbur se NI ST f or the f unds drawn down

19 i n excess of t he f ederal amount , and we asked t hat t hey pr ovi de

20 cor r ect ed f i nanci al st at us r epor t s f or the per i od of 2002 and

21 f or - - and f i nanci al st at us r epor t s f or t he 2003 year .

22 Q. Af t er you i ssued t hi s audi t repor t , what , i f any, f ur t her

23 i nvol vement di d you have wi t h CASI ?

24 A. We went - - we di d a - - we di d anot her audi t i n December of

25 2003.


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1 Q. Why do you do another audi t i n December of 2003?

2 A. Wel l , we had al ways pl anned on i ssui ng - - t hi s i s a shor t

3 r eport , our repor t s nor mal l y are l onger , and pr ovi de mor e

4 i nf ormat i on i n quest i oned cost s, so we al ways pl anned on

5 i ssui ng another r eport . But CASI had obt ai ned another CPA f or

6 t he audi t when we were r eady t o go back, and so - - i t cr eat ed

7 new books and r ecor ds, and so we had another si t e vi si t .

8 Q. Appr oxi mat el y, how much t i me passed bet ween t hi s second

9 vi si t and t he i ssuance of t hat r epor t ?

10 A. The second - - t he r eport was i ssued i n J ul y, and t he second

11 vi si t was i n December 2003, so about f i ve mont hs.

12 Q. Now, by t hi s t i me had CASI undert aken any of t he act i ons

13 t hat you suggest ed?

14 A. They had - -


16 THE COURT: I t hi nk t hi s may be a good poi nt t o

17 suspend f or t he day, sor r y. But I ' m awar e of obl i gat i on, ot her

18 obl i gat i ons t hat I have t o car r y out and have t o be car r i ed out

19 by t he at t orneys. So I t hi nk we bet t er suspend t en mi nut es

20 af t er f our . Thank you f or bei ng so pr ompt t hi s morni ng. I

21 hope you get of f t o a good st ar t t omorr ow at 9: 30, and we' l l

22 see you.

23 I hope you get cof f ee and cooki es or what ever t hey

24 serve you.

25 ( J ur y exi t s t he cour t r oom)


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1 ( I n open cour t ; j ur y not pr esent )

2 THE COURT: Oh, di d you gi ve Ms. - - al l r i ght , you can

3 st ep down.


5 THE COURT: I s t her e anyt hi ng el se t o t ake up? How

6 l ong wi l l wi t h t hi s wi t ness t ake?

7 MR. KWOK: I bel i eve approxi mat el y 45 mi nut es t o an

8 hour .

9 THE COURT: I t ' s awf ul l ong. Go ahead. I ' m j ust

10 t r yi ng t o move t hi s al ong.

11 MR. KWOK: I under st and, but as I t ol d your Honor we

12 bel i eve t hat we may be abl e t o move t hi s case a l i t t l e bi t .

13 Whi l e we' r e here, shoul d we addr ess t he obj ect i on t hat

14 Mr . Rubi nst ei n j ust made?

15 THE COURT: Yes, you bet t er .

16 MR. KWOK: I t ' s our posi t i on t hat t hat goes t o hi s

17 i nt ent , as Ms. Ri l ey t est i f i es she suggest ed a number of

18 act i ons t hat the company under t ake, i ncl udi ng payi ng back t he

19 money. And f i ve mont hs l at er she went back t o i ssue t he more

20 f ul some r epor t , and at t hat t i me i t was st i l l out st andi ng. So

21 I under st and part of def ense' s argument i s t hey di d ever ythi ng

22 t hey coul d t o r emedy t he si t uat i on, and t hat ' s si mpl y not the

23 case. And i t goes t o t he def endant ' s st at e of mi nd. And i f he

24 i nt ends t o argue t hat t here were some ot her peopl e i nvol ved who

25 wer e advi si ng t he def endant , he can cr oss on t hat . But t hat


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1 seems to be a maj or pr i mary i ssue i n t hi s case and we shoul d be

2 al l owed t o have t he wi t ness t est i f y t o t hat , i n f act .

3 THE COURT: Wel l , t est i f y t o what went on. I f ol l ow

4 your argument . But i s t her e any t est i mony about whet her

5 t her e - - f unds wer e avai l abl e f or t he r epayment s t hat t he

6 gover nment want ed?

7 MR. KWOK: Wel l , I bel i eve t here' s goi ng t o be

8 t est i mony t hat al l - - t he CASI money comes f r om t he NI ST gr ant ,

9 and t he company had promi sed t o put some cost shar e wi t hi n, i n

10 t he pr oposal and i t was never pai d.

11 THE COURT: 280, 000 i s a l ot more t han t he cost share.

12 I t ' s a l i t t l e har d t o pay 280, 000 and meet your cost shar e t oo.

13 They - -

14 MR. KWOK: But t he wi t ness, I bel i eve, i s goi ng t o

15 t est i f y t hat t he company has pai d zer o, t hat - -


17 MR. KWOK: Had not pai d back anyt hi ng, even af t er t he

18 i ssuance of her r epor t , not t he f ul l amount , j ust not hi ng at

19 al l . I bel i eve t hat ' s goi ng t o be t he t est i mony, and I t hi nk

20 t hat goes t o t he i nt ent i onal mi sappl i cat i on of gr ant f unds.

21 THE COURT: They have f unds; t he company have f unds?

22 MR. KWOK: The company does not have i ndependent

23 sour ces of f unds, t hat ' s t he Gover nment ' s posi t i on. However ,

24 t he r eason t hey di dn' t have f unds i s because t hey mi sspent al l

25 t hose f unds t hat t hey had al r eady dr awn down, so i t ' s not - -


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1 THE COURT: How does i t go t o t he i ntent ?

2 MR. KWOK: Wel l , i t goes t o t he i nt ent because t hey

3 di dn' t even t r y t o put i n t he cost shar e t hat t hey had pr omi sed

4 t he government t hat t hey woul d.

5 THE COURT: They di dn' t have any f unds, how coul d t hey

6 do i t ?

7 MR. KWOK: Wel l , I bel i eve Mr . Karr on - - Mr .

8 Rubi nst ei n el i ci t ed t est i mony f r om some wi t nesses t hat at some

9 poi nt i n t i me t he def endant mor t gaged, t ook out a second

10 mor t gage of hi s apar t ment to r epay $60, 000.

11 THE COURT: I s t he apar t ment owned by CASI ?

12 MR. KWOK: No. I t was owned by Dr . Kar r on per sonal l y.

13 THE COURT: The grant was t o CASI , was i t not ?

14 MR. KWOK: I t was. But i f Mr . Rubi nst ei n, as he t r i ed

15 t o el i ci t f r om some of t hese wi t nesses, t hat at some poi nt i n

16 t i me he, al t hough af t er t he per i od al l eged on t he f ace of t he

17 i ndi ct ment , he t ook out a second mor t gage on hi s home t o t r y t o

18 pay back some of t hat money t hat he mi sappl i ed, t o suggest t hat

19 he t r i ed t o r emedy t he si t uat i on, he put s t hat i ssue squar el y

20 at pl ay and we shoul d be al l owed t o count er t hat suggest i on.

21 THE COURT: Oh, but you' r e maki ng a cl ai m t hat - - I

22 don' t know what you' r e maki ng. I don' t know t he nat ur e of the

23 f ul l case, but you can' t j ust - - t he gover nment made t he gr ant

24 not t o Dr . Kar r on, but t he government made t he gr ant t o CASI .

25 MR. KWOK: That ' s cor r ect , your Honor . But t he r eason


( 212) 805- 0300



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1 t he company di d not have f unds was because i t had been al r eady

2 mi sspent al l t hose f unds.

3 THE COURT: That ' s al l r i ght , but t hey overspent .

4 MR. KWOK: I ' m sor r y?

5 THE COURT: They di d, t hey overspent .

6 MR. KWOK: I nt ent i onal l y mi sspent . The onl y basi c

7 poi nt I ' m t ryi ng t o el i ci t f romt hi s wi t ness i s t he def endant

8 knew about t hese probl ems. He under t ook some of t he r emedi al

9 act i ons t hat she r ecommended; namel y, t o r evi se t he f i nanci al

10 st atus r eport t hat we saw t o corr ect t he cost shar e amount t hat

11 t hey f al sel y r eport ed t o t he gover nment wher e t hey di dn' t pay

12 anyt hi ng t hey had r eport ed t hat t hey had pai d t en' s of

13 t housands of dol l ars, but t hey never pai d t hat money back, and

14 t hat ' s an i nt egr al par t of what went on at t he company, t hat - -

15 THE COURT: They di dn' t have t he f unds t o pay i t back.

16 They spent i t .

17 MR. KWOK: But t hey cont i nued t o dr aw - - act ual l y,

18 t hey - - I , I don' t t hi nk t hat ' s qui t e t r ue, because t he company

19 cont i nued t o dr awdown ATP money.

20 THE COURT: But you have t o convi nce me - - I ' l l have

21 t o hear i t - - you' l l have t o convi nce me pr ompt l y t hat

22 argument , but - -

23 MR. KWOK: As I sai d a moment ago, I bel i eve Mr .

24 Rubi nst ei n had suggest ed i n t he past t wo days t hat at some

25 poi nt i n t i me Dr . Kar r on t ook out a second mort gage on hi s home


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1 t o t r y t o pay back t he money t hat he - -

2 THE COURT: Tel l me wher e, show me i n t he r ecor d. I

3 don' t recal l hi m sayi ng t hat i n t hi s case on t r i al . I f he - -

4 maybe one of your cohor t s does. I don' t remember hi m sayi ng

5 t hat . I ' m awar e of t he f act that t her e was a mor t gage, but - -

6 MR. KWOK: We wi l l go get t he t r anscr i pt .

7 THE COURT: I ' m not sure about t hi s whol e t heor y of

8 t hi s evi dence pr ovi ng t he - - bei ng admi ssi bl e. So you bet t er

9 have somet hi ng f or me i n t he mor ni ng.

10 MR. KWOK: We wi l l do t hat . And - -

11 THE COURT: I n wr i t i ng so I can r ead i t , or t oni ght i f

12 you want t o r ead t he cases t hat you' r e r el yi ng on.

13 MR. KWOK: Very wel l , your Honor . And i n t he

14 al t er nat i ve, I wi l l go back t o r evi si t the t est i mony t hat I

15 i nt end t o el i ci t and maybe we can avoi d t he whol e probl em by

16 j ust movi ng qui ckl y t hr ough t he audi t report s wi t hout dwel l i ng

17 t oo much on t he r ecommendat i on por t i ons of t he r epor t , because

18 t here' s ot her ways we can show what we need t o show.

19 THE COURT: I ' m havi ng t r oubl e wi t h t hi s whol e t heory

20 t hat t he f ai l ur e t o r epay may be evi dence of hi s i nt ent i n

21 mi sspendi ng t he money.

22 MR. KWOK: Even i f - -

23 THE COURT: I ' m havi ng t r oubl e wi t h t hat , so you' l l

24 have t o gi ve me cases, maybe Mr . Rubi nst ei n' s of f i ce can t oo,

25 si nce he' s got hi s assi st ant her e t oday.


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1 MR. RUBI NSTEI N: We have anot her quest i on t hat mi ght

2 hel p t hat , J udge, but t hat ' s when we f i ni sh wi t h t hi s f i r st .

3 I t ' s more i n t he housekeepi ng natur e.

4 MR. KWOK: I wi l l do some r esear ch and t r y t o gi ve

5 your Honor case l aw.

6 But t he onl y other poi nt I woul d make on t hi s poi nt i s

7 t hat even i f i t does not go t o hi s i nt ent , i t goes t o t he basi c

8 f act s of what happened t o t he money. She' s goi ng t o - -

9 THE COURT: I t doesn' t go t o basi c. What ever happened

10 t o t he money, happened t o t he money. There may be, t here may

11 be cl ar i f i cat i on as t o. But t he conver sat i ons wi t h Dr . Kar r on

12 don' t have anyt hi ng t o do wi t h what happened t o t he money, as I

13 unders t and i t . I mean, she may have got t en f ur t her , f ur t her

14 materi al s f r om t he new audi t or , t he new account ant s or what

15 have you, but I ' m havi ng t r oubl e wi t h t he, t hi s el ement of t he

16 case.

17 MR. KWOK: We' l l submi t a l et t er t o t he Cour t .

18 THE COURT: I don' t know t he ot her wi t nesses you have.

19 MR. RUBI NSTEI N: Your Honor, i n order t o f aci l i t ate

20 what your Honor suggest ed of hopef ul l y hel pi ng t he Cour t i n

21 r esol vi ng t he i ssue, t her e i s a car d t hat t he secur i t y t ook

22 t hat permi t s us t o use t he i nt ernet , and we woul d need a - -

23 i t ' s a Spr i nt PCS car d t hat - - i n ot her wor ds, t hey don' t l et

24 you br i ng i n a comput er t hat gi ves you access t o t he i nt er net ,

25 but act ual l y t hat woul d be - -


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1 THE COURT: Why do we need t he i nt er net ?

2 MR. RUBI NSTEI N: We want t o be abl e t o go i nto West l aw

3 and, you know, do some r esearch and st uf f .

4 THE COURT: Oh- - don' t - - bet t er not do i t here,

5 t hat ' s al l .

6 MR. RUBI NSTEI N: Okay, J udge. Thank you.

7 THE COURT: Al l r i ght . Ar e we al l done?

8 MR. KWOK: Yes, t hank you.

9 ( Adj our ned t o J une 5, 2008 at 9: 30 a. m. )

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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3 HOPE SNOWDEN



6 Redi rect By Mr. Ever del l . . . . . . . . . . 435


8 BELI NDA RI LEY

9 Di rect By Mr . Kwok . . . . . . . . . . . . . 462



12 47 . . . . . . . . . . . . . . . . . . . 325

13 40, 40A, 41, 41A, 42, 42A, 43, 43A, 44, 45 and333

14 48 . . . . . . . . . . . . . . . . . . . 340

15 2000 and 2001 . . . . . . . . . . . . . . 451

16 [ Exhi bi t s ] * [ r ecei ved] . . . . . . . . . . . 461

17 900 . . . . . . . . . . . . . . . . . . . 461

18 60 . . . . . . . . . . . . . . . . . . . 477



21 F . . . . . . . . . . . . . . . . . . . . 433

22

23

24

25


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2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

2


3

4 v. S2 07 CR 541 ( RPP)

4


5

6 Def endant .

6

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

7

8

8 J une 5, 2008

9 9: 20 a. m.

9

10

10 Bef ore:

11


12


13

13

14 APPEARANCES

14






16 BY: STEVEN KWOK



18




20



22

23

24

25


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865ZKAR1


2 THE COURT: We have sever al mat t er s t o t ake up.

3 MR. RUBI NSTEI N: Fi r st of al l , I want t o t el l t he

4 Cour t that Dr . Kar r on i s her e. I pi cked hi m up and dr ove hi m

5 her e mysel f , as I promi sed your Honor I woul d. He' s doi ng

6 somet hi ng - -

7 THE COURT: He' s here?

8 MR. RUBI NSTEI N: Yes, he i s. I br ought hi m her e.

9 Much t o my chagri n, I pi cked hi m up and deposi t ed hi m. But

10 he' s maki ng a cal l f or me now, so he' s - - he consent ed t o be

11 excused dur i ng t he l egal , any l egal argument s we make her e.

12 THE COURT: You consent t o hi s absence?

13 MR. RUBI NSTEI N: Yes, your Honor .

14 THE COURT: For t hese argument s? Al l r i ght , t hank

15 you.

16 Now, we had some i ssues about whether t he Gover nment ' s

17 Exhi bi t 2, 000, and 2, 001 were 3500 mat er i al t hat were not

18 produced t o t he def endant .

19 MR. RUBI NSTEI N: Yes, your Honor . And t he r eason f or

20 t hat i s t hat when I was cr oss- exami ni ng - -

21 THE COURT: I t came up i n cr oss as a r esul t of your

22 cross- exami nat i on.

23 MR. RUBI NSTEI N: Yes, because I had never been

24 provi ded wi t h t hose document s, so I was t ot al l y unaware.

25 THE COURT: Why i s i t 3500 mat er i al ?


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1 MR. RUBI NSTEI N: Wel l , j ust as al l t he ot her f i nanci al

2 st at ement r evi si ons was 3500 mat er i al t hat was t urned over of

3 t hi s wi t ness.

4 THE COURT: I t ' s not a f i nanci al st at ement , as I r ead

5 i t . But why i s i t 3500 mat er i al ?

6 MR. RUBI NSTEI N: I t ' s t he same as - - i t was a r evi sed

7 f i nanci al stat ement . The wi t ness t est i f i ed t hat she had

8 r ecei ved f i nanci al st at ement - - i n ot her wor ds, I showed t hat

9 t he f i nanci al st atement s t hat t he gover nment had i n evi dence

10 were submi t t ed August 13t h, 2003. The wi t ness sai d t hat she

11 had seen ear l i er ones. We di dn' t have any ear l i er ones. We

12 had t he ones August 13t h, and I - - and she sai d she had t hem i n

13 her f i l e. So obvi ousl y t he gover nment has a whol e f i l e t hat

14 t hey never t urned over, never made avai l abl e ei t her on Rul e 16

15 or under 3500 materi al as t o t hi s wi t ness, and t hen t hey

16 i nt r oduce i t . And i t ' s my f aul t because I was doi ng somet hi ng

17 el se at t he t i me, and I shoul d' ve known when t hey came up wi t h

18 a number l i ke 2, 000, t hat ' s what got my i nt erest , i t was a new

19 number sequence i n t hi s case and - -

20 THE COURT: Wel l , l et me hear f r om t he government .

21 MR. EVERDELL: Wel l , your Honor , a f ew t hi ngs. I

22 t hi nk your Honor' s r i ght , I don' t see how t hese are her

23 st atement s. These are r evi sed f i nanci al r eport s t hat somehow

24 she r ecal l s seei ng, so I don' t see how t hese become her pr i or

25 st at ement s.


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1 THE COURT: Wel l , t hey' r e proposed - - what were t hey

2 exact l y? They' r e pr oposed f i nanci al st at ement r evi si ons, i s

3 t hat what t hey are?

4 MR. EVERDELL: These were t hese f i nanci al st at us,

5 quar t er l y f i nanci al st at us r epor t s.

6 THE COURT: Fi nanci al , pr oposed f i nanci al st atus

7 repor t s.

8 MR. EVERDELL: Ri ght .

9 THE COURT: Whi ch wer e not approved.

10 MR. EVERDELL: Ther e, as t he wi t ness t est i f i ed, t her e

11 was some di scussi on about pr oposed f i nanci al st atus r eport s

12 wi t h t he def endant . And she r ecal l s seei ng t hese and havi ng

13 ot her , other pr oposed r evi sed f i nanci al st at us r epor t s t hat she

14 saw i n t he gr ant f i l e. So t hese, I don' t thi nk, ar e her

15 st at ement s. And pl us t he f act t hat I bel i eve t he i ssue i s

16 wai ved as wel l because def ense counsel di dn' t obj ect when I

17 showed i t t o hi m and onl y came up af t er t he f act , so.

18 THE COURT: Wel l , t hese are not st at ement s by her or

19 do t hey cont ai n st atement s by her? I f t hey' r e wi t ness

20 st at ement s, I have a probl em. I r emember t her e was some

21 not at i on on one of t hem as I r ecol l ect .

22 MR. EVERDELL: There was some are ar i t hmet i c not at i ons

23 and t her e was a not at i on down at t he bot t om of one of t hem,

24 t hat ' s cor r ect . I ' m not sur e i f i t came out whose t hose wer e.

25 THE COURT: Hers, I bel i eve - -


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1 MR. EVERDELL: Yeah.

2 THE COURT: - - i s t he t est i mony.

3 MR. EVERDELL: I n addi t i on, your Honor , f or t he 3500

4 mat er i al we wr ote a l et t er t o def ense counsel sayi ng t hat ,

5 because di scovery was so vol umi nous i n t hi s case, t hat i f we

6 had al r eady pr ovi ded i t i n di scover y, we wer en' t goi ng t o

7 pr ovi de i t agai n at separate 3500 mater i al . We di d pr ovi de a

8 copy of t he gr ant f i l e i n di scover y, and you know, I mean - -

9 THE COURT: You di d provi de t he grant f i l e? I t hought

10 t hey were i ncl uded.

11 MR. EVERDELL: I t woul d have. Your Honor , I conf ess

12 t hat when we t r i ed t o l ook t hr ough t he di scover y l ast ni ght t o

13 see i f we can see t hese exact document s t hat we showed

14 yest er day, t he di scover y copy, t he Bates st amped di scovery

15 copy, I conf ess we coul dn' t f i nd t hem i n t he Bates st amped

16 di scover y copy.

17 The i ssue i s t hat t he gr ant f i l e was copi ed sever al

18 years ago when t he agent s went t o D. C. t o copy t he gr ant f i l e,

19 t hat was what we produced. And, appar ent l y, t hese were not

20 copi ed, f or whatever r eason.

21 The agent s at t he t abl e had her own copy of t he grant

22 f i l e t hat she r equest ed some, a l i t t l e bi t l at er , j ust because

23 t he copy port i on t hat we pr oduced was - - i t wasn' t organi zed as

24 ef f ect i vel y as she woul d have l i ked i t t o be, so she j ust

25 r equest ed another copy of i t . That ' s what we wer e usi ng


( 212) 805- 0300



500

865ZKAR1

1 yest erday when I was t ol d of t hese document s. So I had assumed

2 t hat because we had pr oduced t he gr ant f i l e, t hat t hose

3 document s wer e al so i ncl uded i n t he gr ant f i l e. Appar ent l y, i n

4 my r evi ew of t he di scover y l ast ni ght , I don' t see t hem.

5 But I r ai se i t t hat , you know, t hi s onl y came up on

6 cr oss- exami nat i on as t he def endant was t r yi ng t o apparent l y

7 maki ng i t seen l i ke Ms. Snowden wasn' t doi ng her j ob pr operl y.

8 I hadn' t i nt ended t o br i ng t hese t o t he j ur y' s at t ent i on at

9 al l . And pl us t hi s i s a conver sat i on she had wi t h t he

10 def endant hi msel f , so t hi s i sn' t real l y any gr eat sur pr i se on

11 t he par t of the def endant . She' s t est i f yi ng about di scussi ons

12 she had wi t h hi m about addi t i onal r evi si ons t o t he f i nanci al

13 st at us r epor t s. So t hi s i sn' t r eal l y a gr eat sur pr i se t o hi m

14 or shoul dn' t have been. So whi l e I admi t I t hi nk because of

15 t he r evi ew of di scover y l ast ni ght I can' t say f or cer t ai n t hat

16 t hese par t i cul ar t wo document s were t ur ned over t o t he

17 def endant i n di scover y, I don' t thi nk t hi s i s any gr eat

18 surpr i se t o t he def endant . And gi ven t he natur e of how t he

19 document s came up and t he f act t hat def ense counsel di dn' t

20 obj ect when we f i r st t r i ed t o i nt r oduce t hem, I don' t t hi nk

21 t hi s i s - - shoul d be an i ssue.

22 THE COURT: He di dn' t obj ect unt i l af t er t hey wer e

23 admi t t ed i n evi dence.

24 MR. EVERDELL: Cor r ect , your Honor .

25 THE COURT: I don' t know what t he l aw i s on t hat ,


( 212) 805- 0300



501

865ZKAR1

1 under t hose ci r cumst ances.

2 MR. RUBI NSTEI N: Your Honor , I woul d have no probl em

3 i f your Honor want ed t o gi ve a l i mi t i ng i nst r uct i on t hat Rul e

4 3500 r equi r es t he gover nment t o t ur n over al l t he materi al

5 about - - t hat a part i cul ar wi t ness who was goi ng t o t est i f y and

6 t hat , you know, and i t wasn' t done as t o Exhi bi t 2, 000 and

7 t hat ' s - -

8 THE COURT: Those document s were over l ooked? I s t hat

9 what you want ?

10 MR. EVERDELL: Your Honor, I don' t - - unt i l yest erday

11 when t hi s i ssue came up, I don' t t hi nk we knew t hat t hose

12 document s, t hose not at i ons were Hope Snowden' not at i ons. We

13 saw t hem i n t he gr ant f i l e because i t l ooked l i ke t hese wer e

14 r evi si ons and we want ed t o, because t he i ssue came up on

15 cross- exami nat i on, i t was cl ear that t her e wer e ot her revi si ons

16 t o t he f i nanci al st at us r epor t s. And so we t hought , okay, t hi s

17 i s a copy of t he gr ant f i l e, we t hought we pr oduced t he gr ant

18 f i l e so we' r e goi ng t o i nt r oduce t hese ' cause we don' t want i t

19 t o l ook as i f Hope Snowden wasn' t doi ng her j ob, whi ch i s

20 cl earl y what t he - -

21 THE COURT: Tel l i ng t he t r ut h i s - -

22 MR. EVERDELL: Wasn' t t el l i ng t he t r ut h, whi ch i s

23 exact l y what the def ense counsel was I t hi nk t r yi ng t o do wi t h

24 t hat cross- exami nat i on. So i t was done i n good f ai t h. I don' t

25 t hi nk a l i mi t i ng i nst r ucti on t o t hat ef f ect i s appr opr i at e


( 212) 805- 0300



502

865ZKAR1

1 her e. Pl us t he i ssue of wai ver , I mean t hese wer e t hi ngs t hat

2 we showed t o t he def endant and he di d not obj ect t o i t . He had

3 t he oppor t uni t y t o r evi ew t hem bef or e I el i ci t ed t hem f r om t he

4 f r om t he wi t ness, so.

5 MR. RUBI NSTEI N: That ' s not exact l y accur ate, your

6 Honor . They di dn' t gi ve me a copy. They di dn' t hand me a

7 copy.

8 THE COURT: They - -

9 MR. RUBI NSTEI N: They - -

10 THE COURT: They di d show t hem t o you, Mr - -

11 MR. RUBI NSTEI N: No. They of f ered t o show t hem and I

12 di d not l ook at t hem. I t ' s my f aul t .

13 THE COURT: I saw t hem show t hem t o you.

14 MR. RUBI NSTEI N: I di dn' t l ook at - -

15 THE COURT: Whet her you exami ned t hem i s anot her

16 i ssue.

17 MR. RUBI NSTEI N: I conceded t hat , J udge.


19 MR. RUBI NSTEI N: I conceded t hat f r om t he out set , f r om

20 yest er day, t oday. I ' m not suggest i ng t hey di dn' t of f er i t t o

21 show me t hem, okay. And as I sai d, I was l at e i n maki ng t he

22 obj ect i on. You know, j ust as t he def endant ' s not ent i t l ed t o a

23 per f ect t r i al , he' s not ent i t l ed t o a per f ect l awyer .

24 THE COURT: I want t o see t hose document s, but I want

25 t o - - and t hen I want t o consi der what t o do. Because I t hi nk


( 212) 805- 0300



503

865ZKAR1

1 i t ' s acknowl edged t hat t he t wo document s were appar ent l y not at

2 t he di scover y mat er i al s t ur ned over .

3 Now whet her , whether t he di scover y mat er i al s - - and I

4 t hi nk t he wi t ness t est i f i ed, I may be wr ong, t hat t he

5 handwr i t t en not at i ons on t he document were her s. So I suppose

6 t hey coul d be consi der ed pr i or st atement s of a wi t ness.

7 MR. EVERDELL: Your Honor , I mean t he wr i t t en

8 st atement s t her e wer e not t he subj ect of t est i mony. The

9 t est i mony was - -

10 THE COURT: That ' s t r ue.

11 MR. EVERDELL: - - was di d she i n f act have di scussi ons

12 wi t h t he def endant about addi t i onal r evi sed f i nanci al st at us

13 report s.

14 THE COURT: They weren' t t he subj ect of her di r ect

15 t est i mony.

16 MR. EVERDELL: Cor r ect .

17 THE COURT: She was r esponded t o on cr oss- exami nat i on.

18 MR. EVERDELL: Exact l y. I di d not i nt end t o get i nt o

19 t hi s at al l unt i l Mr . Rubi nst ei n was, appar ent l y, t r yi ng t o

20 t est her cr edi bi l i t y and I f el t l i ke t hi s was somet hi ng I

21 needed t o address on r edi r ect .

22 The i ssue r eal l y was di d she have di scussi ons wi t h t he

23 def endant about addi t i onal r evi sed f i nanci al st at us r epor t s,

24 whi ch she t est i f i ed t o bef ore I even i nt r oduced t he document s.

25 She sai d, yes, I had di scussi ons wi t h hi m; yes, t her e wer e


( 212) 805- 0300



504

865ZKAR1

1 f ur t her r evi si ons. I was si mpl y t r yi ng t o f i nd document ar y

2 evi dence because t he def ense counsel was t r yi ng t o - - was

3 aski ng t he wi t ness, di d you make any not es. She sai d yes. So

4 I l ooked t o see i f we had evi dence of t hi s, and i t appears

5 t her e was. Now, i t ' s t r ue t hat t hese wer e not - - apparent l y

6 wer e not tur ned over i n di scover y, but - -

7 THE COURT: I t hi nk you mi sspoke about any not es. But

8 what he asked her was i f t her e had been any other f i nanci al

9 st at us r epor t s i n bet ween t he t wo, t he f i nanci al st at us r epor t

10 of t he f i r st one and t he so- cal l ed r evi sed one of 8/ 13

11 somethi ng or ot her .

12 MR. EVERDELL: That ' s cor r ect , your Honor .

13 THE COURT: Wel l , I want t o consi der t hi s and see

14 what , i f anythi ng, shoul d be done about i t .

15 MR. EVERDELL: And your Honor , addi t i onal l y - -

16 THE COURT: Now l et ' s - - we' ve got a j ur y wai t i ng

17 her e. We got anot her probl em.

18 Mr . J ur or number ei ght wi l l not be i n, Mr . Naveen

19 spr ai ned hi s ankl e and has di f f i cul t y wal ki ng and wi l l not be

20 i n t oday, so we' l l have t o r epl ace hi m.

21 Al l r i ght . Now, t her e' s another i ssue we have t hat

22 came at t he end of the day, r i ght?

23 MR. KWOK: That ' s cor r ect . I wi l l not pr ess t hat l i ne

24 of quest i oni ng, your Honor .

25 THE COURT: Not r ef er t o i t i n summat i on ei t her ; not


( 212) 805- 0300



505

865ZKAR1

1 make t hat ar gument i n summat i on.

2 MR. KWOK: Cer t ai nl y. But t he onl y other t hi ng I want

3 t o f l ag f or t he Cour t , I bel i eve your Honor now has a pr oposed

4 new st i pul at i on whi ch I wi l l r ead i nt o t he r ecor d bef or e we

5 cal l t he wi t ness.

6 THE COURT: Al l r i ght . Ot herwi se are we r eady?

7 MR. KWOK: The gover nment i s r eady.

8 MR. RUBI NSTEI N: Def ense i s r eady, your Honor . I f I

9 can j ust r un out and so I don' t have t o r un out l at er .

10 THE COURT: Maybe I shoul d t oo.

11 MR. EVERDELL: Shoul d we get t he wi t ness , your Honor ?

12 THE COURT: You bet t er have t he wi t ness r eady.

13 ( Recess)

14 THE COURT: Pl ease be seat ed.

15 Al l r i ght , we' r e br i ngi ng i n t he j ur y.

16 ( J ur y ent er i ng)

17 THE COURT: Good mor ni ng. Pl ease be seat ed. Good

18 morni ng, l adi es and gent l emen.

19 THE J URY: Good mor ni ng.

20 THE COURT: Mr . Mont eagudo r ecei ved a message f r om

21 Mr . Naveen J ohn, j ur or number ei ght . He sprai ned hi s ankl e

22 yest er day and cannot wal k t hi s morni ng, and as a r esul t he wi l l

23 not be i n t oday. And, accor di ngl y, I ' m goi ng t o ask Ms. Chang,

24 t he f i r st al t er nat e j ur or , t o t ake hi s pl ace as j ur or number

25 ei ght and we' l l pr oceed wi t h t he t r i al , and I guess we' r e st i l l


( 212) 805- 0300



506

865zkar1

1 on t he di r ect exami nat i on wi t h Ms - -

2 MR. KWOK: Ms. Ri l ey, your Honor .

3 THE COURT: I ' m sor r y.

4 MR. KWOK: Ms. Ri l ey.

5 THE COURT: Ms. Ri l ey, yes.

6 MR. KWOK: May I pr oceed?

7 THE COURT: Ms. Ri l ey, you' r e r emi nded you' r e st i l l

8 under oat h. The j ur y i s r emi nded t hat on t he succeedi ng day

9 when t he wi t ness t akes t he st and, I ' m obl i ged, as a mat t er of

10 cour t pr ocedur e, t o r emi nd t hem t hey' r e st i l l under oat h.

11 Pl ease.


13 BELI NDA RI LEY,


15 havi ng been pr evi ousl y swor n, t est i f i ed as f ol l ows:


17 BY MR. KWOK:

18 MR. KWOK: Your Honor , bef ore I proceed wi t h t he

19 di r ect exami nat i on, I woul d l i ke t o r ead a pr oposed st i pul at i on

20 i nt o t he r ecor d.

21 THE COURT: Al l r i ght , si r .

22 MR. KWOK: Uni t ed Stat es of Amer i ca versus Dani el B.

23 Kar r on, def endant S2 07 Cr i m. 542. I t i s her eby st i pul ated and

24 agr eed by and among t he Uni t ed Stat es of Amer i ca by Mi chael J .

25 Gar ci a, Uni t ed St at es At t or ney f or t he Sout her n Di st r i ct of New


( 212) 805- 0300



507

865zkar 1 Ri l ey - di r ect

1 Yor k, St eve Kwok and Chr i st i an Ever del l , Assi st ant Uni t ed

2 St at es At t orneys of counsel , and def endant Dani el B. Kar r on, by

3 and wi t h t he consent of hi s at t orney Ronal d Rubi nst ei n,

4 Esqui r e, paragr aph t hr ee of Government exhi bi t 900 i s amended

5 t o r ead as f ol l ows: The document s marked as government exhi bi t

6 0 are t he cr edi t card st atement s f or the Ameri can Expr ess car ds

7 of Comput er Ai ded surgery, I nc. CASI , and Dani el B. Karr on, t he

8 def endant , f r om i n or about Oct ober 2001 t o i n or about Apr i l

9 of 2003.

10 I t i s f ur t her st i pul ated and agr eed t hat gover nment

11 exhi bi t 90 and t hi s st i pul at i on mar ked f or i dent i f i cat i on as

12 government exhi bi t 900A, may be r ecei ved i n evi dence as

13 gover nment exhi bi t s at t r i al , and i t i s si gned New Yor k, New

14 Yor k, J une 5t h, 2008 on behal f of t he Uni t ed St ates by St eve

15 Kwok and on behal f of Dani el B. Karr on, Ronal d B. Rubi nst ei n,

16 Esqui r e.

17 THE COURT: Al l r i ght , Gover nment ' s exhi bi t 90 i s

18 admi t t ed i n evi dence. I t hi nk Government ' s exhi bi t 900 was


20 THE DEPUTY CLERK: Thi s i s 900A?

21 THE COURT: Excuse me. Government ' s exhi bi t 900A i s


23 ( Government ' s Exhi bi t 900A r ecei ved i n evi dence)


25 BY MR. KWOK:


( 212) 805- 0300



508


1 Q. Good morni ng, Ms. Ri l ey.

2 A. Good mor ni ng.

3 Q. Bef or e we broke yest erday you ment i oned you went back t o

4 CASI t o do a second audi t ; i s t hat ri ght ?

5 A. Yes.

6 Q. When di d you go back t o t hat , t o do t hat second audi t ?

7 A. I n December of 2003.

8 Q. So how l ong was t hat between your f i r st audi t and t hi s

9 t i me?

10 A. About f i ve mont hs.

11 Q. Wher e di d you go t o conduct t hi s second audi t ?

12 A. To hi s account ant , Mel Spi t z' s of f i ce i n Manhat t an.

13 Q. I n conduct i ng your second audi t , what mater i al s di d you

14 exami ne?

15 A. I exami ned t he books and r ecor ds pr ovi ded by Mel Spi t z.

16 Q. So are t hese mat er i al s t hat you exami ned f or t he second

17 audi t di f f er ent or t he same f r om t he mat er i al s you r el i ed on

18 t he f i r st t i me?

19 A. I t was di f f er ent l edger s. The i nvoi ces or what ever woul d

20 been t he same, but t he l edger s were new.

21 Q. Di d t her e come a t i me when you compl et ed t hi s second audi t ?

22 A. Yes.

23 Q. When was t hat , approxi mat el y?

24 A. I t hi nk t he r eport was pr obabl y i ssued i n Febr uar y or

25 Mar ch 2004.


( 212) 805- 0300



509


1 Q. And what per i od di d your second audi t cover?

2 A. I t cover ed t he per i od 10/ 1, 2001 t hr ough J une 27t h, 2003.

3 THE COURT: What dat e i n 2003?

4 THE WI TNESS: J une 27th, when t he awar d was suspended.

5 Q. Di d you i ssue a r epor t af t er t he second audi t ?

6 A. Yes.

7 Q. Ms. Ri l ey, i f you coul d t ake a l ook at t he st ack of

8 document s i n f r ont of you. I bel i eve t her e' s one marked f or

9 i dent i f i cat i on gover nment exhi bi t 61?

10 A. Yes.

11 THE COURT: 61 f or i dent i f i cat i on?

12 MR. KWOK: That ' s cor r ect , your Honor .

13 THE COURT: I t ' s not admi t t ed i n evi dence yet , l adi es

14 and gent l emen.

15 Q. Do you r ecogni ze t hi s document , Ms. Ri l ey?

16 A. Yes.


18 A. I di d.

19 Q. And what i s i t ?

20 A. I t ' s t he dr af t repor t t hat we i ssued as a r esul t of t he

21 December 2003 r evi ew of CASI ' s r ecords.

22 Q. I s t hat t he r epor t you j ust r ef er r ed t o?

23 A. Yes.

24 MR. KWOK: Government of f er s exhi bi t 61.

25 MR. RUBI NSTEI N: Your Honor , except f or concl usi ons, I


( 212) 805- 0300



510


1 have no obj ect i on, your Honor .

2 THE COURT: Exhi bi t 61 i s admi t t ed i n evi dence. I t ' s

3 kept i n t he r egul ar cour se of busi ness by t he agency; i s t hat

4 cor r ect ?

5 THE WI TNESS: I ' m sor r y, what?

6 THE COURT: Thi s r eport i s kept i n t he r egul ar cour se

7 of busi ness by t he Of f i ce of I nspect or Gener al ?


9 THE COURT: And i t ' s t he r egul ar cour se of busi ness t o

10 keep t hese, t hi s r epor t - -


12 THE COURT: - - i n i t s r ecords?


14 THE COURT: Al l r i ght , I ' l l al l ow i t .


16 THE COURT: Exhi bi t 61 i s admi t t ed i n evi dence.


18 Q. Now, Ms. Ri l ey, I di r ect your at t ent i on t o page seven of

19 t hat document . I f you coul d put that up on t he scr een.

20 THE COURT: What I have i s page seven - - Mr - - I don' t

21 have a page seven t o t hat document , 61. I have - - I have i n

22 61 - -

23 MR. KWOK: You have t o keep f l i ppi ng t o - - t he i ni t i al

24 pages don' t have number s on i t , and t hen t here are l i t t l e one,

25 l i t t l e t wo, and t hen - -


( 212) 805- 0300



511


1 THE COURT: Those ar e mar ked draf t .


3 MR. KWOK: Yes.

4 THE WI TNESS: I t ' s a dr af t r epor t .

5 THE COURT: I t ' s not a f i nal r eport .

6 THE WI TNESS: Ri ght . The f i nal - -

7 MR. KWOK: I can - - I ' m happy t o expl ai n t hat at

8 si debar.

9 THE COURT: Not you expl ai n i t , l et t he wi t ness

10 expl ai n i t .

11 MR. KWOK: Okay. I wi l l l ay some f oundat i on, your

12 Honor .

13 THE COURT: She' s t he wi t ness , not you.

14 Q. Ms. Ri l ey, can you expl ai n t he di f f er ence bet ween a dr af t

15 r epor t and a f i nal r epor t ?

16 A. Yes. We i ssue t he dr af t - - we i ssue a dr af t r epor t and

17 gi ve t he gr ant ee an opport uni t y t o r espond t o our f i ndi ngs and

18 any er r or s we may have i n our number s, our wordi ngs or any - -

19 and t hen we i ssue a f i nal r eport and i ncl ude t hei r r esponse t o

20 our dr af t r epor t .

21 Q. Thank you.

22 THE COURT: So you want page seven of t he draf t r epor t

23 t hat ' s accompanyi ng t he - -

24 MR. KWOK: Yes.

25 THE COURT: - - t hat i s at t ached t o exhi bi t 61?


( 212) 805- 0300



512


1 MR. KWOK: That ' s cor r ect , your Honor , page seven of

2 t he dr af t repor t , exhi bi t 61, we' r e j ust wai t i ng f or i t t o be

3 up on t he scr een. Can we bl ow t hat up.

4 Q. Ms. Ri l ey, what are t he f i ndi ngs t hat you r eached?

5 MR. RUBI NSTEI N: I obj ect t o t hi s. Ther e' s no

6 f oundat i on.

7 THE COURT: Obj ect i on over r ul ed.

8 A. We det ermi ned t hat t he government was - - we f ound t hat t he

9 government - - t he r ef und was due t he f ederal government of

10 $582, 000, approxi mat el y.

11 Q. Now, i f we coul d go t wo pages af t er t hat . I t ' s appendi x

12 one, page one of ei ght . What are some of t he exampl es of t he

13 f unds t hat you di sal l owed?

14 A. Funds t hat wer e used t o pay f or r ent , i nt er net - -

15 MR. RUBI NSTEI N: I can' t hear t he wi t ness, your Honor .

16 I ' m sorr y.

17 THE COURT: I ' m sor r y, I ' m sor r y?

18 MR. RUBI NSTEI N: I can' t - - I coul dn' t hear t he

19 wi t ness.

20 THE WI TNESS: I ' m sor r y.

21 THE COURT: I t hi nk you' r e t oo - - I t hi nk you' r e t oo

22 cl ose - - Rober t i s not her e t o.

23 THE WI TNESS: Oh, i f I si t back, i s t hi s bet t er ?

24 MR. RUBI NSTEI N: Thank you.

25 THE COURT: I t ' s bet t er i f you speak up.


( 212) 805- 0300



513




3 THE WI TNESS: I t sounds l oud t o me. Okay.

4 Moni es t hat wer e spent f or r ent s, i nt er net - -

5 THE COURT: Keep t al ki ng i nto t he mi ke. As soon as

6 you st ar t t ur ni ng l ooki ng around t o t he Cour t Repor t er your

7 voi ce gets muf f l ed.


9 A. For r ent , i nt er net , ut i l i t i es, and cer t ai n ot her CASI

10 expendi t ur es.

11 Q. And I di r ect your at t ent i on t o page ei ght now of the

12 r eport , t he one page pr evi ous t o t he one we j ust l ooked at .

13 Di r ect i ng your at t ent i on t o t he t hi r d f ul l par agr aph. What

14 f i ndi ng di d you make t her e?

15 A. That on Oct ober 26 CASI r ecei ved gr ant f unds of 100 and - -

16 THE COURT: Oct ober 26 of what year ?

17 THE WI TNESS: Oh, of 2001, CASI r ecei ved grant f unds

18 of $150, 000, and t hey i mmedi at el y wr ot e Dr . Kar r on a check f or

19 $75, 000 as an advance on sal ary and pai d back r ent of $2, 000 a

20 mont h f or the per i od, J anuar y 2000 t hrough September of 2000,

21 whi ch was pr i or t o t he award of t he grant .

22 Q. And what di d you concl ude about these ser i es of

23 t r ansact i ons?


25 THE COURT: I t hi nk you need - -


( 212) 805- 0300



514


1 MR. KWOK: Your Honor - -

2 THE COURT: Obj ect i on - - I t hi nk you need a f oundat i on

3 quest i on, Mr . Ever del l . Fi r st , di d she - - was t hi s based on

4 any - -

5 MR. KWOK: Cer t ai nl y, your Honor .

6 THE COURT: On what di d she base t hi s concl usi on.

7 Q. Ms. Ri l ey, bef or e you conduct ed t hi s audi t , di d you have

8 occasi on t o r evi ew t he t erms and condi t i ons of t he ATP gr ant ?

9 A. Yes, I di d.

10 Q. And what di d you concl ude about these ser i es of

11 t r ansact i ons?

12 A. The r ent woul d be an i ndi r ect cost , whi ch woul d be

13 unal l owabl e on t hat , but t hat was al so pr i or t o t he awar d so i t

14 woul d not be al l owed.

15 THE COURT: Robert , woul d you f i x t he mi ke so i t ' s i n

16 t he r i ght spot her e. We' r e havi ng t r oubl e hear i ng her voi ce.

17 J ust so she get s up t o i t cl ose and t hen i t ' s al l - -

18 THE WI TNESS: Do I need t o si t back?

19 THE DEPUTY CLERK: She' s al so got - - l ooki ng at

20 document s so i t ' s sor t of har d. She' s up cl oser . I t ' s okay.

21 Keep - -


23 THE DEPUTY CLERK: Ri ght wher e you are. I ' m goi ng t o

24 move your wat er r i ght her e.



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515


1 THE DEPUTY CLERK: You shoul d be okay. I t ' s okay.

2 Q. I ' m sorr y, can you cont i nue wi t h t he answer ? The quest i on

3 was, what di d you concl ude about t he ser i es of t r ansact i ons?

4 A. That t he r ent payment s were - - woul d have been preaward

5 cost and not al l owabl e, but t hey wer e al so i ndi r ect cost s t hat

6 t hey woul d not have been al l owabl e cost s. And t he advance, we

7 don' t , we don' t - - we consi der ed t hi s l i ke t hat he used i t as a

8 per sonal l oan account . You' r e not - - you don' t , you don' t pay

9 advance sal ary out of gr ant cost .

10 Q. I f you coul d speak up, Ms. Ri l ey, t hat woul d be ver y

11 hel pf ul .

12 A. Okay.

13 Q. Ms. Ri l ey, do you know whether t he gr ant - - t he def endant

14 gave a wr i t t en r esponse t o your audi t report ?

15 A. Yes, he di d.

16 Q. And how do you know t hat ?

17 A. Because i t was sent t o me, or t o our of f i ce.

18 Q. And di d you i ssue a f i nal r epor t af t er r evi ewi ng t he

19 def endant ' s r esponse?

20 A. Yes, we di d.

21 Q. I ' m showi ng you what i s next i n t he pi l e, I bel i eve, mar ked

22 f or i dent i f i cat i on government exhi bi t 62. Do you know what

23 t hat i s?

24 A. Yes.

25 Q. What i s i t ?


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516


1 A. I t ' s our f i nal repor t t hat we i ssued.

2 Q. Who prepar ed t he document ?

3 A. I di d.

4 MR. KWOK: Gover nment of f ers exhi bi t 62.

5 MR. RUBI NSTEI N: Same l i mi t ed obj ect i on, your Honor ,

6 as t o opi ni ons of t hi s wi t ness.

7 THE COURT: Thi s i s kept i n t he r egul ar cour se of

8 busi ness by t he agency.

9 THE WI TNESS: Yes, si r .

10 THE COURT: Al l r i ght . I ' l l al l ow i t , 62 i n evi dence.


12 Q. Ms. Ri l ey, af t er t hi s audi t r epor t , exhi bi t 62, di d you

13 conduct a t hi r d anal ysi s of CASI ' s bank account s?

14 A. Yes, I di d.

15 Q. What di d you do?

16 A. Af t er I was pr ovi ded t he bank account r ecor ds f or the, f or

17 t he year - and- a- hal f per i od of t he gr ant , and I schedul ed out

18 t hem, t he checks by payee, amount , date, and t he el ect r oni c

19 f unds t r ansf ers were t aken f r om t he bank st atement s.

20 Q. What bank are we t al ki ng about ?

21 A. Chase.

22 Q. And t hese bank st at ement s bel onged t o what per son or what

23 ent i t y?

24 A. CASI .

25 Q. Di d you al so r evi ew t he bank st at ement s of Dr . Kar r on


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517


1 per sonal l y?

2 A. Yes, I di d.

3 Q. How about Dr . Kar r on st at ement s?

4 A. Yes, t he Amer i can Expr ess st atement s f or t he CASI busi ness

5 account and f or one of t he account s f or Donal d Karr on onl y.

6 Q. Di d you r evi ew any i nvoi ces?

7 A. Yes, t her e were some i nvoi ces.

8 Q. Di d CASI have one account or mul t i pl e account s?

9 A. There were f our CASI busi ness account s.

10 Q. And how di d you t r eat t hese mul t i pl e accounts i n your

11 anal ysi s?

12 A. I n my anal ysi s - -

13 THE COURT: What ki nd accounts ar e we t al ki ng about?

14 THE WI TNESS: Checki ng.

15 THE COURT: Checki ng account s. Ther e were f our

16 checki ng accounts?

17 THE WI TNESS: Yeah, yeah. There may have been - -

18 yeah, t her e were f our checki ng accounts, and t hen a personal

19 account had a savi ngs account and a per sonal account .

20 Q. And how do you t r eat CASI ' s mul t i pl e busi ness accounts?

21 A. I t r eated t hem as one bank account .

22 Q. And why di d you do t hat?

23 A. Because al l - - t he maj or i t y of t he deposi t s wer e f r om t he

24 NI ST ATP gr ant , and t here was a l ot of t r ansf er s between t he

25 accounts.


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1 Q. Now, i n t er ms of t he i nf or mat i on t hat you r el i ed on, how

2 does t hi s anal ysi s di f f er or t he same f r om your , t he mat er i al s

3 you r el i ed on i n your audi t r epor t s?

4 A. The audi t r eport I r el i ed on t he whatever books and r ecords

5 or l edger s t hat wer e pr ovi ded by CASI . For the anal ysi s of t he

6 checki ng account , I was r el yi ng j ust on t he checks.

7 Q. Ms. Ri l ey, I ' m showi ng you - - i n, f r ont of you t he box

8 marked al r eady i n evi dence as gover nment exhi bi t 80.

9 THE COURT: I ' m conf used, Mr . Kwok. I f we used t he

10 exhi bi t numbers , I ' d be much happi er, but when you f ai l t o use

11 t he exhi bi t number s I t hi nk i t ' s conf usi ng and not cl ear t o t he

12 j ur y what t he wi t ness i s t al ki ng about .

13 MR. KWOK: I wi l l use t he exhi bi t number . I

14 apol ogi ze, your Honor .


16 Q. I ' m di r ecti ng your at t ent i on, Ms. Ri l ey, to exhi bi t 80,

17 whi ch i s t he box i n f r ont of you, i f you coul d st and up?

18 THE COURT: Exhi bi t 80 i sn' t admi t t ed i n evi dence.

19 MR. KWOK: I t ' s by st i pul at i on, your Honor .

20 THE COURT: Oh, al l r i ght .

21 A. Okay. Yes.

22 THE COURT: And what does exhi bi t 80 consi st of so

23 t hat you don' t - - we know what we' r e t al ki ng about ?

24 THE DEPUTY CLERK: Move t hose f ol ders.

25 BY MR. KWOK:


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519


1 Q. Ms. Ri l ey, what i s exhi bi t 80?

2 A. 80 - - exhi bi t 80 i s Dr . Kar r on' s per sonal checki ng account s

3 and savi ngs account .

4 Q. How about government exhi bi t 81?

5 A. 81 i s t he busi ness checki ng account s, t he f our busi ness

6 checki ng accounts.

7 THE COURT: Four checki ng?

8 THE WI TNESS: Yes, si r . I t ' s t hr ough - - t her e i s a

9 CASI busi ness account , and t hen t here' s NI ST pr oj ect busi ness

10 account , and t hen t her e' s a CASI cor porat i on - - CASI has

11 changed i t s - - become an LLC Corporat i on, and t here' s, so

12 t her e' s al so a NI ST LLC corporat i on account .

13 Q. So, and what i s government - -

14 A. They wer e j ust changi ng di f f er ent ent i t i es.

15 Q. And what i s government exhi bi t 90, 90?

16 A. 90?

17 Q. I t ' s t o your r i ght ?

18 THE COURT: J ust so I ' m cl ear, i n 81 t her e ar e f our ,

19 t hose f our account s wer e i n 81, am I r i ght , Ms. Ri l ey?

20 THE WI TNESS: I ' m sor r y, what?

21 THE COURT: The f our accounts t hat you j ust ment i oned

22 t he CASI busi ness account , t he CASI LLC busi ness account , t he

23 NI ST - -

24 THE WI TNESS: NI ST - -

25 THE COURT: CASI NI ST accounts and CASI ' s NI ST LLC


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520


1 account - -


3 THE COURT: - - ar e al l par t of exhi bi t 81, i s t hat

4 cor r ect ?




8 Q. Now t ur ni ng t o exhi bi t 90 al r eady i n evi dence, what i s

9 t hat ?

10 A. Thi s i s t he Amer i can Expr ess st at ement s f or t he CASI

11 accounts.

12 THE COURT: I t ' s a what?

13 THE WI TNESS: Amer i can Express account .

14 THE COURT: I n t he name of ?

15 THE WI TNESS: I t ' s - - t her e are var i ous Amer i can

16 Express accounts and - -

17 THE COURT: I n whose name?

18 THE WI TNESS: The Computer Ai ded Surgery, and Dr - -

19 t her e' s one i n D. B. Karr on.

20 THE COURT: Dr . Karr on?


22 THE COURT: That ' s t wo.

23 THE WI TNESS: Oh, t hey' r e t he same. They' r e - -

24 t hey' r e var i ous account number s wi t h t he same name.

25 THE COURT: They' r e var i ous - -


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521


1 THE WI TNESS: Doct or D. B Karr on Computer Ai ded

2 Sur ger y, t her e i s an account number t hr ee - -

3 THE COURT: I coul dn' t under st and you.

4 THE WI TNESS: Doct or D. B. Kar r on Comput er Ai ded

5 sur ger y, t her e' s an account number 37834901721500, and al so

6 account 378349017217006.

7 THE COURT: And i n whose name i s t hat ?

8 THE WI TNESS: Doct or D. B. Kar r on, Comput er Ai ded

9 Sur ger y.

10 THE COURT: Any ot her accounts i n t he Amer i can

11 Express.


13 THE COURT: Exhi bi t 90?

14 THE WI TNESS: Al so f or Dr . D. B. Kar r on - -

15 THE COURT: I ' m sor r y?

16 THE WI TNESS: Anot her one under t hat same name i s

17 378349017216008.

18 THE COURT: I n t he name of ?

19 THE WI TNESS: Dr . D. B. Kar r on, Comput er Ai ded Sur ger y.

20 THE COURT: Any ot her s?

21 THE WI TNESS: There i s al so under Dr . D. B. Kar r on

22 Comput er Ai ded Surgery 378349017218004.

23 THE COURT: Any ot her s?

24 THE WI TNESS: These t wo - -



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522


1 THE WI TNESS: Thi s, t hese - - al so i n t hi s t her e are

2 sect i ons t hat ar e f or ot her peopl e l i ke f or Lee Gur f ei n wher e

3 i t ' s not - -

4 THE COURT: Tel l us whi ch ones you r evi ewed.

5 THE WI TNESS: Okay. So t hen al so t her e' s a per sonal

6 Dr . D. B. Kar r on f or 371543567491006, and one f or Dr . D. B.

7 Kar r on 372893053176002.

8 THE COURT: And what about t he ones f or t he ot her

9 peopl e you say are par t of 90?

10 THE WI TNESS: They' r e i n - - l et ' s see. They' r e i n

11 part of t he st atement .


13 THE WI TNESS: They' r e l i ke t he one, l i ke account

14 number Dr . D. B. Kar r on.

15 THE COURT: We can' t r emember t hose number s so you

16 have t o t el l us what you' r e doi ng.

17 THE WI TNESS: Okay. So i ncl uded i n some of t he

18 account s t her e' s a, f or Dr . D. B. Kar r on, Al i ci a Gur f ei n and

19 Char l es Desal a, cr edi t cards under the account number or t he

20 mai n account number .

21 THE COURT: You mean were separat e cr edi t car ds i ssued

22 under t he - -

23 THE WI TNESS: Under t he same bi l l i ng account number

24 t hey had - - yeah, t hey had t hr ee - - t hi s one cr edi t car d

25 account number had t hr ee separat e cr edi t car ds t hat appear ed on


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523


1 t hat bi l l f or t hat account number , so i t ' s associ at ed wi t h.

2 THE COURT: I see. Who are t hey at t r i buted t o?

3 THE WI TNESS: Al i ci a Ger f ei n and Char l es Desal a.

4 Q. Ms. Ri l ey - -

5 MR. KWOK: Sor r y, your Honor .

6 THE COURT: Anyt hi ng el se?

7 Q. Yes. Ms. Ri l ey, now I ' m showi ng you gover nment Exhi bi t

8 100. Do you r ecogni ze what t hat i s, al r eady i n evi dence?

9 A. Yes. I t ' s i nvoi ces f romDat avi si oi n.

10 Q. How about government Exhi bi t 101?

11 THE COURT: What are i nvoi ces f r om dat a bases?

12 THE WI TNESS: I nvoi ces f r om Datavi si oi n i s a - -

13 THE COURT: Dat avi si on.

14 THE WI TNESS: I t ' s a computer company.

15 THE COURT: Al l r i ght . Suppl i er of some sor t ?

16 THE WI TNESS: Yes, equi pment suppl y, equi pment per son.


18 Q. Gover nment Exhi bi t 101, do you have t hat document i n f r ont

19 of you?

20 A. Yes.

21 Q. Do you r ecogni ze i t ?

22 A. I t ' s i nvoi ces f r om Homef r ont Hardware.

23 Q. Ar e t hose i nvoi ces as wel l ?

24 A. Yes.

25 Q. How about government Exhi bi t 102 al r eady i n evi dence?


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1 A. 102, i nvoi ces f r om General Comput er Servi ce.

2 Q. Government exhi bi t 103 al r eady i n evi dence?

3 A. I nvoi ces f r om Si l i con Gr aphi cs I ncor por at ed.

4 Q. Gover nment Exhi bi t 104?

5 A. I nvoi ces f r om Si l i con Ci t y.

6 Q. Now, Ms. Ri l ey, bef ore I showed you t hose document s, had

7 you l ooked at t hose document s bef ore?

8 A. Yes.

9 Q. And what di d you do wi t h t hose document s?

10 A. I r evi ewed t he t hi ngs on t he document s and t r aced t hem back

11 t o t he sour ce r ecor ds. I al so i ni t i al ed and dat ed t hat I had

12 seen t hem.

13 Q. Di d you summar i ze t he i nf ormat i on i n t he bank r ecor ds, t he

14 Amer i can Express car d st at ement s and t he i nvoi ces, i n a summary

15 document ?

16 A. Yes, t hey' r e summar i zed i n my r evi ew of t he checks and bank

17 st at ement s.

18 Q. I ' m showi ng next what ' s been marked f or i dent i f i cat i on as

19 government Exhi bi t 110?

20 A. 110.

21 THE COURT: Okay.

22 Q. Do you r ecogni ze what t hat i s?

23 A. Yes.


25 A. I di d.


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525


1 Q. What i s t he summary of ?

2 A. I t ' s a summary of t he bank, anal ysi s of t he bank st atement s

3 and checks.

4 Q. Of ?

5 A. Of CASI , and t he f our bank accounts of CASI .

6 MR. KWOK: Government of f er s government Exhi bi t 110?


8 THE COURT: Let me j ust see. I want t o know exact l y

9 what i t i s. 110 i s t he summar y of whi ch exhi bi t s, t he 70 - -

10 does i t al so i ncl ude credi t car ds?

11 THE WI TNESS: Yes, si r , i t does.

12 THE COURT: So i t ' s 70 and 80. And what about - - and

13 81, i s t hat r i ght ?

14 THE WI TNESS: The cr edi t car ds are 90, and t he checks

15 wer e 81 - - t he checks wer e 81, r i ght . Checks are 81. So i t

16 i ncl udes 90, t he Ameri can, t he Amer i can Expr ess bi l l s and 81,

17 t he checks f r om t he f our bank account s.

18 THE COURT: 90 you mean?

19 THE WI TNESS: Yeah.


21 THE WI TNESS: No.

22 THE COURT: I ncl udes 90?

23 THE WI TNESS: 90 i s, what i s 90? Oh, yes, t he

24 Amer i can Expr ess - - yes, t he Amer i can Expr ess bi l l i s 90, 90

25 and 81.


( 212) 805- 0300



526


1 THE COURT: J ust 90 and 81, not 70, not 80.

2 THE WI TNESS: 70 i s - -

3 Q. I f I can ask t he next quest i on, I t hi nk i t woul d cl ear i t

4 up.

5 Ms. Ri l ey, di d you pr epare a separat e summary f or t he

6 i nf ormat i on cont ai ned i n gover nment exhi bi t 80?

7 A. Yeah, t he separat e, 80 - -

8 Q. What i s government exhi bi t 80?

9 A. Oh, yes, I di d. Dr . Karr on' s checks has a separat e

10 summar y.

11 THE COURT: Al l r i ght . 80 i s a separat e one. What i s

12 i n t hi s one, 110; what i s i ncl uded i n 110?

13 MR. KWOK: Let me ask t he wi t ness.

14 THE COURT: That ' s what I ' m aski ng t he wi t ness.

15 Q. Ms. Ri l ey, does government exhi bi t 110 i ncl ude government

16 exhi bi t 81, gover nment exhi bi t whi ch i s t he CASI bank account

17 st at ement , and government exhi bi t 90, whi ch are t he Amer i can

18 Express car d st at ement s?

19 A. Yes.

20 Q. And does what i s marked f or i dent i f i cat i on as gover nment

21 exhi bi t 111, i ncl ude a summary of government exhi bi t 80, whi ch

22 i s t he Chase Bank account st at ement s f or Dr . Kar r on,

23 per sonal l y?

24 A. Yes, pl us i t al so i ncl udes t he per sonal credi t car d

25 st at ement s t hat were i ncl uded i n 90 Amer i can Expr ess.


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527


1 MR. KWOK: Government of f er s - -

2 THE COURT: I ' m absol ut el y conf used as t o what i t

3 cover s. I don' t f ol l ow what she' s cover i ng i n each of t hese

4 exhi bi t s.


6 THE COURT: She doesn' t seem t o make i t cl ear .


8 THE COURT: 90 i s i ncl uded i n bot h, apparent l y.

9 Q. Ms. Ri l ey, why i s gover nment exhi bi t 90 i ncl uded i n both

10 summar i es?

11 A. Government exhi bi t 90 has busi ness cr edi t cards and i t ' s

12 st at ement s, and i t al so has a coupl e of per sonal cr edi t car d

13 st atement s. So t he busi ness cr edi t card st atement s are

14 i ncl uded, al ong wi t h exhi bi t 81, t he busi ness checks and

15 anal yzed, and t he personal cr edi t car d st atement s i n 90 are

16 i ncl uded wi t h t he personal bank account checks f or Dr . Kar r on

17 and i n Exhi bi t 110, 111 - - 111.

18 THE COURT: So i s t he st i pul at i on you' r e maki ng

19 bet ween Exhi bi t 110 and 111 i s t hat one i s f or personal r ecords

20 of Dr . Kar r on and t he other i s f or t he busi ness r ecor ds of - -

21 t hat or busi ness account s of CASI ?

22 THE WI TNESS: Yes, si r ; yes, si r .

23 THE COURT: Whi ch Dr . Kar r on may have had drawi ng

24 power over as a - -

25 THE WI TNESS: Ri ght .


( 212) 805- 0300



528


1 THE COURT: - - an execut i ve of CASI ?

2 THE WI TNESS: Yes, he di d have drawi ng power as an

3 execut i ve of CASI .

4 THE COURT: So whi ch i s whi ch, t he personal - - Dr .

5 Kar r on, per sonal l y, i s 110?


7 THE COURT: And CASI and Dr . Kar r on busi ness wi se i s

8 111; i s t hat r i ght ?

9 THE WI TNESS: No, Dr . Karr on per sonal i s 111, because

10 on t he per sonal - -


12 Q. Ms. Ri l ey, j ust to be cl ear , gover nment Exhi bi t 111, i sn' t

13 t hat Dr . Karr on' s - - summary of Dr . Kar r on' s personal expenses

14 as r ef l ect ed i n t he Ameri can Expr ess card st atement s and hi s

15 per sonal Chase Bank st at ement s?

16 A. Yes.

17 Q. And j ust t o be cl ear , i s gover nment Exhi bi t 110 a summary

18 of t he busi ness expenses as r ef l ected i n t he Chase Bank

19 st at ement s and t he bank expenses - - CASI ' s expenses as

20 r ef l ect ed i n t he Ameri can Expr ess cr edi t card st atement s.

21 A. Yes.

22 MR. KWOK: Gover nment of f er s 110 and 111.

23 THE COURT: 110 and 111 ar e admi t t ed wi t hout

24 obj ect i on.

25 ( Government ' s Exhi bi t s 110 and 111 r ecei ved i n


( 212) 805- 0300



529


1 evi dence)

2 Q. Now, Ms. Ri l ey - - Ms. Moussa, i f we coul d put up gover nment

3 Exhi bi t 110 on t he scr een, whi ch i s t he summary f or CASI

4 expenses. I f we coul d zoom i n on t he t op hal f of t he page.

5 Ms. Ri l ey, coul d you t el l us what t he col umn headi ngs

6 of your dat a base i ndi cat e?

7 A. Okay. The f i r st one t he I D i s j ust a number assi gned by

8 t he comput er . The descr i pt i on i s t he payee of the check. I t

9 was el ect r oni c f unds t r ansf er , t he i nf or mat i on f r om t he bank

10 st atement concer ni ng t he payee. The date i s f r om t he date

11 t hat - - t he dat e on t he bank st at ement t hat t he check was

12 cl eared. The - - and t he t otal of t he, of t he check. The check

13 memo ent r i es are f r om, are f r om - - i f t here was a check memo on

14 t he account , and f or some of t he account s i f I - - I may have

15 gone back t o one of t he l edger s f r om t he pr evi ous audi t t o get

16 a check, an ent r y t her e. But i t nor mal l y says per l edger i f i t

17 di dn' t come f r om t he check.

18 THE COURT: I ' m sor r y, what exhi bi t i s t hat f r om? I ' m

19 a st ep behi nd you al l .

20 MR. KWOK: What i s on t he scr een, your Honor , i s

21 government exhi bi t 110.

22 THE COURT: And t hi s i s not t he f i r st page, i t ' s - - oh

23 i t i s t he f i r st page.

24 THE WI TNESS: I t i s t he f i r st page.

25 THE COURT: But i t ' s cut of f , i s t hat t he pr obl em?


( 212) 805- 0300



530


1 THE DEPUTY CLERK: They bl ew up a sect i on of i t .

2 THE COURT: You can' t - - you' r e not - - you haven' t got

3 t he whol e page on t her e, because i t says bank t r ansf er , r i ght ?

4 MR. KWOK: That ' s cor r ect .


6 THE COURT: Al l r i ght . Okay.

7 MR. KWOK: Ms. Moussa, i f we coul d put up what i s

8 al r eady i n evi dence, pages f r om gover nment exhi bi t 81, whi ch i s

9 t he CASI bank st atement s. I f we coul d zoom i n on t he t op

10 check. May I approach, your Honor?

11 THE COURT: Thi s i s par t of what , 80?

12 MR. KWOK: Thi s i s exhi bi t 81. I t ' s not i n t he j ur y

13 bi nder s because i t ' s par t of vol umi nous bank r ecor ds, but i t i s

14 on t he scr een.


16 MR. RUBI NSTEI N: Coul d I j ust ask one quest i on, your

17 Honor ?

18 THE COURT: What f or ? You mean voi r di r e of some

19 sort ?

20 MR. RUBI NSTEI N: Yes.

21 MR. KWOK: I t ' s al r eady i n evi dence.

22 THE COURT: I t ' s a l i t t l e l at e.

23 MR. RUBI NSTEI N: Coul d I ask one quest i on, J udge? I t

24 may hel p l at er on.

25 THE COURT: Maybe I ' l l ask i t . Why don' t you come up.


( 212) 805- 0300



531


1 I hat e t o i nt er r upt .


3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



532



2 MR. RUBI NSTEI N: Each one of t hese accounts t hat she

3 ment i oned has a di f f er ent col or check. Showi ng i t up her e i s

4 i n bl ack and whi t e. I j ust want t o ask her what col or check i t

5 i s so t he j ur y wi l l know. That way t hey' l l know what account

6 i t comes f r om.

7 THE COURT: Whet her she knows what col or check?

8 MR. RUBI NSTEI N: She has t he or i gi nal .

9 MR. KWOK: We don' t - - your accountant di d - -


11 MR. KWOK: That ' s t he way i t ' s pr ovi ded t o us by t he

12 bank. I t ' s i n evi dence i n bl ack and whi t e.

13 MR. RUBI NSTEI N: Okay, al l r i ght .


15

16

17

18

19

20

21

22

23

24

25


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1 BY MR. KWOK:

2 Q. Ms. Ri l ey, do you r ecogni ze t he document s t hat are bei ng

3 di spl ayed on t he scr een t here?

4 A. Yes.

5 Q. What ar e t hey?

6 A. They are checks f r om t he Comput er Ai ded Sur gery checki ng

7 account .

8 Q. Who i s t he payee?

9 A. Dr . D. B. Karr on.

10 Q. For how much?

11 A. $2, 000.

12 THE COURT: Whi ch check ar e you t al ki ng about ?

13 Q. Can you t el l us t he check number ?

14 A. The t op check, 2977.

15 Q. What does i t say on t he memo l i ne?

16 A. Rent al of f i ce, 300 East 33r d St r eet , Sui t e 4N.

17 Q. How about t he handwr i t t en not at i on?

18 A. J anuar y 2000 r ent .

19 MR. RUBI NSTEI N: Excuse me?

20 THE WI TNESS: J anuary 2000 r ent .

21 Q. Can you t el l me how t hat i nf ormat i on i s r ef l ect ed on your

22 dat abase, Gover nment Exhi bi t 110.

23 A. Exhi bi t 110, on page 39 of 44. Exhi bi t 110, page 39 of 44.

24 MR. KWOK: I f we coul d zoom i n on t he bot t om port i on

25 of t he page.


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534


1 Q. Coul d you t el l us how t he i nf ormat i on we j ust l ooked at on

2 t he check i s r ef l ect ed her e?

3 A. OK. I t ' s under r ent on of f i ce. Under t he descri pt i on i t

4 has i n par ens i t ' s got Dr . Kar r on, and t he ot her t hi ng i s hi s

5 bank account number that t he check was deposi t ed i nto, hi s

6 per sonal account . I t showed t hat t her e was a t r ansf er i nt o hi s

7 checki ng account . And t he date of t he t r ansact i on was

8 10/ 26/ 2001.

9 Q. I s t hat t he same or di f f er ent f r om t he check we j ust l ooked

10 at ?

11 A. I t ' s t he same.

12 Q. What i s t he check number r ef l ect ed on t he dat abase?

13 A. 2977.

14 Q. I s t hat t he same check number as we j ust l ooked at ?

15 A. Yes. And t he memo i s r ent on of f i ce per general l edger,

16 f r om t he check memo, and i t ' s $2, 000. I t ' s t he amount f or

17 check number 2977.

18 Q. Now, I ' m showi ng you another page f r om Government Exhi bi t

19 81 whi ch i s t he CASI bank st at ement . Do you r ecogni ze t hi s

20 check?

21 A. Yes, i t ' s f r om t he CASI / NI ST checki ng account .

22 Q. What i s t he check number t her e?

23 A. 10325.

24 Q. And who i s t he payee?

25 A. D. Fer r and.


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1 Q. And do you see a si gnat ure t her e?

2 A. Yes, i t ' s Dr . Kar r on.

3 Q. Coul d you expl ai n t o us how t hi s i nf or mat i on i s r ef l ect ed

4 on your dat abase.

5 I f we coul d go back t o t he database, pl ease.

6 THE COURT: What i s t he amount of t he check?

7 Q. What i s t he amount of t he check?

8 A. $100. OK. Thi s i s on - -

9 Q. Coul d you di r ect us t o t he page of t he dat abase wher e t hat

10 check i s r ef l ect ed?

11 A. The check number was 10325 on page 37 of 44 on Exhi bi t 110.

12 MR. KWOK: Can we zoom i n?

13 MR. RUBI NSTEI N: We' r e st i l l on 110, are we?

14 THE WI TNESS: Yes, Exhi bi t 110, page 37 of 44.

15 Q. Wher e shoul d we be l ooki ng?

16 A. I n t he mi ddl e of t he page. I f you l ook, t he check number

17 i t ' s 10325, so i f you l ook under t he check number col umn i t ' s

18 down under - - yeah - - you see t he not at i on.

19 THE COURT: I ' m sor r y. She shoul d be doi ng t he

20 poi nt i ng out to what she i s t est i f yi ng. I t shoul dn' t be you,

21 Mr . Kwok. Al l r i ght ?

22 A. OK. The check number of 10325 f or cl eani ng of f i ce char ges

23 f or t he week endi ng 6/ 22/ 02 i n t he amount of $100. 10325 i s

24 t he check number. I t was f or cl eani ng of f i ces. The amount i s

25 $100, and t he pay payee Steve Korand, t hat ' s shown under t he


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536


1 descr i pt i on of t he col umn.

2 Q. I f we coul d l ook at t he r est of t he page. Under t he check

3 memo.

4 THE COURT: The r est of t he page of exhi bi t - - you are

5 maki ng a r ecor d, Mr . Kwok. The r ecor d has t o be cl ear as t o

6 what exhi bi t s you ar e r ef er r i ng t o at al l t i mes.

7 MR. KWOK: I apol ogi ze.

8 THE COURT: No one can r evi ew t he r ecord i f you don' t

9 ment i on t he exhi bi t number at al l t i mes.

10 MR. KWOK: I am st i l l l ooki ng at Gover nment Exhi bi t

11 110. I am st i l l l ooki ng at page 37 of 44.

12 Q. Now, di r ect i ng your at t ent i on t o t he t op port i on of t hat

13 page, what appears under t he check memo col umn?

14 A. The check memo i s i nf ormat i on t aken f r om t he memo sect i on

15 of t he check.

16 Q. What does i t say on t he check memo?

17 A. Oh, cl eani ng.

18 Q. And what di d you base t hat i nf ormat i on on?

19 A. Some of t he checks were based on, i f t hey di dn' t have - - i n

20 order t o i dent i f y t he check and what t he check was f or , on some

21 of t he checks I l ooked back at t he l edger s t hat I had got t en

22 f r om CASI ' s audi t s pr epar ed by ei t her Mel Spi t z or f or the

23 check r egi st er s I had got t en f r omt he J une audi t 2003.

24 Q. Ms. Ri l ey, I ' m showi ng you a check f r om Gover nment Exhi bi t

25 81 al r eady i n evi dence, whi ch i s t he bank account st at ement s


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537


1 f or CASI .

2 Can we put one by one up on t he scr een?

3 What i nf ormat i on i s r ef l ect ed - - what check number i s

4 t hat , f i r st of al l ?

5 A. 10330.

6 Q. And what i nf ormat i on i s next t o t he memo l i ne of t he check?

7 MR. RUBI NSTEI N: Sor r y. I mi ssed t he check number .

8 THE WI TNESS: 10330.

9 Q. And what i nf ormat i on i s r ef l ect ed next to t he memo l i ne of

10 t he check?

11 A. Cl eani ng of f i ce charges f or t he week endi ng 6/ 29/ 2002.

12 Q. Look at t he next check, st i l l Gover nment Exhi bi t 81. What

13 i s t he check number on t hat check?

14 A. 10325.

15 Q. What i s t he i nf ormat i on r ef l ect ed next t o t he memo l i ne?


17 Q. And di r ect i ng your at t ent i on t o t he upper l ef t - hand cor ner

18 of t he check, what does t hat say?

19 A. Comput er Sur ger y, I ncor por at ed, NI ST ATP DMT Progr am.

20 Q. Let t he r ecor d r ef l ect t hese ar e col or ed checks.

21 A. I thi nk t hey' r e col or ed, ar en' t t hey pi nk?

22 THE COURT: Do you know?

23 THE WI TNESS: Yeah, t hey' r e col ored.

24 Q. And who i s t he payee on t hat par t i cul ar check?

25 A. The payee i s D. Fer r and.


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1 Q. What ' s t he amount of t he check?

2 A. $100.

3 Q. Let ' s l ook at the next and f i nal check, st i l l Gover nment

4 Exhi bi t 81, par t of t he bank r eport s. What i s t he check number

5 on t hi s check?

6 A. 10509.

7 Q. How about t he upper l ef t - hand corner of t he check, what

8 does t hat say?

9 A. Comput er Ai ded Sur ger y, I nc. NI ST ATP DMT program.

10 Q. And who i s t he payee on t hat check?

11 A. D. Fer r and.

12 Q. For how much?

13 A. $100.

14 Q. And what i s t he i nf ormat i on r ef l ect ed next t o t he memo

15 l i ne?


17 Q. What ' s t he si gnatur e t hat appears on t hat check?

18 A. D. B. Karr on.

19 Q. Now, Ms. Ri l ey, a moment ago you ment i oned Amer i can Expr ess

20 car d st at ement s.

21 A. Yes.

22 Q. How i s t he i nf ormat i on on t he Amer i can Expr ess card

23 st atement s, whi ch i s Government Exhi bi t 90, r ef l ect ed on your

24 database?

25 A. The t r ansact i on of the credi t car d i s t aken f r om t he credi t


( 212) 805- 0300



539


1 car d i nvoi ce, but the t r ansact i on f or payi ng t he credi t car d

2 was pi cked up whenever I anal yzed t he CASI bank st at ement s.

3 THE COURT: What ?

4 THE WI TNESS: The payment of t he cr edi t car d was

5 al r eady i n t he dat abase because I had t hat i nf ormat i on when I

6 r evi ewed t he bank st at ement s, t he bank st at ement s and cancel ed

7 checks. So t he payment was al r eady i n t he database. I j ust

8 added t he t r ansact i ons, the pur chase t r ansact i ons f r om t he

9 credi t car d.

10 THE COURT: You j ust added t he i nf or mat i on about who

11 t he pur chaser was?

12 THE WI TNESS: And t he amount and t he dat e of t he

13 t r ansact i on.

14 THE COURT: I see. So t he t ot al payment f or t he

15 cr edi t car d i s al r eady i n t he database?


17 THE COURT: So, t hese wer e j ust i ndi vi dual - -


19 THE COURT: - - t r ansact i ons.

20 THE WI TNESS: Ri ght . And so t hat i t woul dn' t show as

21 a doubl e payment I handl ed t he cr edi t card, I t ook t he cr edi t

22 card payment s out of t he deposi t wi t hdr awal sect i on of t he

23 database.

24 MR. KWOK: May I appr oach, your Honor?

25 Q. Ms. Ri l ey, I j ust handed you pages f r om Gover nment Exhi bi t


( 212) 805- 0300



540


1 90, whi ch i s t he Amer i can Expr ess car d st atement s. I t ' s i n t he

2 j ury bi nder s. Now, coul d you show us an exampl e of how some of

3 t he i nf ormat i on i n t he document t hat I j ust handed you i s

4 r ef l ected on your dat abase, Government Exhi bi t 110.

5 A. OK. I f we go t o - - does ever ybody have 90?

6 Q. What page are you l ooki ng at i n your database, Ms. Ri l ey?

7 THE COURT: What page of 110 ar e you l ooki ng at ? I s

8 t hat what you' r e aski ng her ?

9 MR. KWOK: That ' s what I ' m aski ng t he wi t ness.

10 Q. What page of Gover nment Exhi bi t 110 are you l ooki ng at ?

11 A. Page 24 of 37 of Exhi bi t 110. Act ual l y - -

12 MR. KWOK: Your Honor , may I di r ect t he wi t ness' s

13 at t ent i on t o a par t i cul ar page?

14 THE COURT: Of 110?

15 MR. KWOK: Yes.

16 THE COURT: She sai d 24 of 37.

17 Q. I s t hat t he cor r ect page?

18 A. I don' t t hi nk so.

19 THE COURT: I t depends on what she i s compar i ng i t t o.

20 Q. Let me do i t t hi s way. Ms. Ri l ey can I di r ect your

21 at t ent i on t o page 29 of 44 of your dat abase. Do you have t hat

22 page?

23 A. Page 29 of 44? Yes.

24 Q. OK.

25 THE COURT: Exhi bi t 110.


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541


1 Q. 29 of 44, Exhi bi t 110, do you have t hat page?

2 A. Oh, you' r e r i ght , OK. I ' m sor r y. 29 of 44, yes.

3 Q. OK. Let ' s put your f i nger on t hat page, and l ook back at

4 t he Amer i can Expr ess card st at ement s t hat I j ust showed you.

5 I f we coul d have t hat up on t he scr een, pl ease.

6 Gover nment Exhi bi t 90.

7 THE COURT: What ar e you aski ng t o have put up on t he

8 scr een.

9 MR. KWOK: Gover nment Exhi bi t 90, t he st at ement f or

10 August 7, 2002.

11 THE COURT: Fi r st page?

12 MR. KWOK: Page 2.

13 Q. Now, l ooki ng at t he scr een, Ms. Ri l ey, and i f you coul d use

14 your poi nt er , what t r ansact i on i s r ef l ect ed f or J ul y 12, 2002?

15 A. I mi spl aced my poi nter .

16 MR. RUBI NSTEI N: Ar e t her e number s on t he bot t om of

17 t he page t hat I can' t see? OK. I have my r evi sed.

18 Q. OK. Ms. Ri l ey, what t r ansact i on i s r ef l ect ed - - what i s

19 t he f i r st t r ansact i on f or J ul y 12, 2002?

20 A. J ul y 12, 2002, t he Amer i can Expr ess shows a char ge t o Sam' s

21 Noodl e Shop i n t he amount of 29. 10. On page 29 of 44 - -

22 Q. Let ' s go t hrough t he Ameri can Express card st at ement s

23 f i r st . Let ' s t ur n t o t he next page of t he Amer i can Expr ess

24 car d st at ement , Gover nment Exhi bi t 90, page 3.

25 A. OK.


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542


1 Q. What t r ansact i on i s shown f or J ul y 22, 2002?

2 A. J ul y 22, 2002 t her e i s a charge t o Sam' s Noodl e Shop f or

3 23. 55.

4 Q. And i s t her e a char ge r ef l ected on t he same page,

5 Government Exhi bi t 90, page 3 of 7, f or August 7, 2002 t o t he

6 same vendor ?

7 THE COURT: What ' s your quest i on agai n?

8 Q. Di r ect i ng your at t ent i on t o J ul y 30, 2002, Ms. Ri l ey.

9 A. Oh, yes, on J ul y 30 t here i s Sam' s Noodl e Shop f or t he

10 amount of 19. 45.

11 Q. OK. Now, l et ' s t ur n back t o Government Exhi bi t 110 t hat we

12 j ust l ooked at , page 29 of 44. Can you t el l us how t he

13 i nf ormat i on t hat we j ust l ooked at i s r ef l ect ed on your

14 database?

15 A. I t comes t hrough t he dat e col umn t o J ul y.

16 MR. RUBI NSTEI N: Your Honor , excuse me. Ar e we on

17 page 24 or 29?

18 THE WI TNESS: 29 of 44.


20 A. On J ul y 12 t here i s a t r ansact i on t o Sam' s Noodl e Shop i n

21 t he amount of 29. 10, and on J ul y 22 t here i s a t r ansact i on t o

22 Sam' s Noodl e Shop of 23. 55, and on J ul y 30, Sam' s Noodl e Shop

23 i n t he amount of 19. 45.

24 THE COURT: So, how was t hi s cr edi t card pai d f or?

25 THE WI TNESS: I t ' s pai d f or out of t hi s account .


( 212) 805- 0300



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1 THE COURT: What account ?

2 THE WI TNESS: Out of one of t he CASI - - at t he CASI

3 account s. Thi s one - -

4 THE COURT: You t ol d us t her e are mul t i pl e CASI

5 accounts.

6 THE WI TNESS: Ri ght . But i n my dat abase t hey are

7 t r eated as one account , one bi g account , because t he deposi t s

8 come f r om NI ST, f r om one sour ce.

9 THE COURT: The deposi t s come f r om wher e?

10 THE WI TNESS: Fr om NI ST, t he ATP grant award. There

11 i s a l ot of i nt er account t r ansf er s, but f or t he most par t t he

12 deposi t s are comi ng f r om t he gr ant moni es.

13 MR. KWOK: I f we coul d put back up on t he scr een

14 Government Exhi bi t 90, t he Amer i can Express card st atement , t he

15 August 7, 2002 st atement , page 1. I f we coul d zoom i nt o t he

16 mi ddl e por t i on of t hat page t her e hi ghl i ght ed i n gr ay.

17 Q. What does t hi s st at ement show r egardi ng payment t o t he

18 out st andi ng cr edi t car d bal ance?

19 A. I t shows on J ul y 14, 1, 074. 91 was r ecei ved by Amer i can

20 Expr ess f r om CASI , and on J ul y 29 t hat Ameri can Expr ess

21 r ecei ved a payment of $2, 940. 01 f r om CASI .

22 Q. And wher e di d t he money come f r om t hat pai d of f t hese

23 cr edi t car d bal ances?

24 A. Fr om t he CASI / NI ST bank account s.

25 Q. How do you know t hat ?


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1 A. OK. Those t r ansact i ons are r ef l ect ed on page 3 of 44 of

2 Exhi bi t 110.

3 Q. Ar e you t al ki ng about Government Exhi bi t 110, Ms. Ri l ey?

4 A. Yes, Government Exhi bi t 110, page 3 of 44.

5 Q. And wher e are you l ooki ng?

6 A. Ki nd of t he mi ddl e of t he page, under t he payment s of t he

7 credi t car d.

8 THE COURT: Sorr y. What was t hat page agai n?


10 Q. Can you poi nt t hem out on t he scr een?

11 A. Yes. I t shows t hat Amer i can Expr ess el ect r oni c r emi t t ance

12 was made f r om t he CASI bank st at ement account on 7/ 15 i n t he

13 amount of $1, 074. 91 t o pay Amer i can Express, and t hat anot her

14 el ect r oni c r emi t t ance was made f r om t he account on J ul y 31,

15 2002 t o pay Amer i can Express i n t he amount of $2, 940. 01.

16 Q. Di d you base t hi s i nf ormat i on on t he Chase cr edi t car d

17 st at ement s of CASI ?

18 A. Thi s i nf ormat i on came f r om t he bank st atement s and t he

19 payment of t he bank st at ement s.

20 Q. Chase Bank?

21 A. Chase Bank.

22 Q. I am handi ng you a f ew pages f r om Government Exhi bi t 81,

23 t he CASI Chase Bank account st at ement s, whi ch i s al so i n t he

24 j ur y bi nder s. Di r ect i ng your at t ent i on t o t he J une 22 t o J ul y

25 22 st at ement per i od, page 3.


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1 MR. RUBI NSTEI N: Excuse me. What ar e t hose dates?

2 MR. KWOK: I ' m l ooki ng at Government Exhi bi t 81, t he

3 Chase st at ement s f or CASI , t he per i od f r om J une 22 t o J ul y 22,

4 page 3 of 4.

5 THE COURT: Let t he wi t ness poi nt t o t he area you are

6 r ef er r i ng t o.

7 A. The bank st at ement shows t hat on 7/ 15 t her e was an Amer i can

8 Expr ess el ect r oni c payment i n t he amount of 1, 074. 91 f r om t he

9 Chase bank account .

10 MR. KWOK: And i f you coul d zoom out f or a second.

11 Q. Di r ect i ng your at t ent i on t o t he upper r i ght - hand cor ner ,

12 under t he pr i mary account number , what i s t he t ext t hat ' s

13 under neat h t hat ?

14 A. I t says Comput er Ai ded Sur gery, I ncorpor ated, NI ST ATP DMT

15 Progr am.

16 Q. And di r ect i ng your at t ent i on now t o t he same exhi bi t ,

17 Gover nment Exhi bi t 81, but now we are l ooki ng at t he next

18 st atement per i od f r om J ul y 23 t o August 21, 2002, page 3 of 4.

19 Do you have t hat page, Ms. Ri l ey?

20 A. Sor r y. What page?

21 Q. J ul y 23 t o August 21, 2002, t hat peri od st atement ?

22 THE COURT: Wher e do I f i nd t he date?

23 MR. KWOK: I t ' s on t he upper r i ght - hand corner of

24 every page.

25 THE COURT: I see. J ul y what ?


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546


1 MR. KWOK: J ul y 23 t o August 21, 2002, t he st at ement

2 f or t hat account per i od.

3 THE COURT: J ust one second. So t hat ' s si x or ei ght

4 pages i n.

5 MR. KWOK: That ' s page 3 of 4. I t ' s t he page on t he

6 scr een.

7 THE COURT: J ul y 23, page - -

8 MR. KWOK: I t ' s actual l y page 10 on t he bot t om of t he

9 page.

10 THE COURT: Page 10 at t he bot t om r i ght - hand corner ?

11 MR. KWOK: Of t he page, yes.

12 THE COURT: Of t hat st at ement .

13 MR. KWOK: Of t hat st at ement , cor r ect .

14 Q. Do you have t hat page, Ms. Ri l ey?

15 A. Yes.

16 Q. Di r ect i ng your at t ent i on t o t he wi t hdr awal and debi t s

17 por t i on of t hat page, what ar e you poi nt i ng at , Ms. Ri l ey?

18 A. Thi s shows t he payment on 7/ 31, t he el ect r oni c r emi t t ance

19 t o Ameri can Expr ess of $2, 940. 01. That corr esponds t o t he

20 amount that we j ust l ooked at on t he Amer i can Express

21 st at ement .

22 Q. So, i s t hat t he same or di f f erent number t han t he one we

23 j ust l ooked at i n t he Amer i can Expr ess card st at ement

24 Government Exhi bi t 90?

25 A. I t ' s t he same number .


( 212) 805- 0300



547


1 THE COURT: Same account number .

2 THE WI TNESS: The payment .

3 THE COURT: Same - -

4 THE WI TNESS: - - payment .

5 Q. When you say same number , what number ar e you r ef er r i ng t o?

6 A. The same payment , t he J ul y 29 on t he Amer i can Express bi l l

7 shows t hat they r ecei ved $2, 940. 01 f r om CASI , and t he bank

8 st atement el ect r oni c r emi t t ance shows t hat t hi s bank account

9 pai d $2, 940. 01 t o Ameri can Expr ess.


11 Q. Now, Ms. Ri l ey, other t han summar i zi ng i nf ormat i on on your

12 databases, what el se di d you do i n your anal ysi s of t he bank

13 r ecor ds?

14 A. Cr eat ed char t s and gr aphs.

15 Q. I am showi ng you what ' s been marked f or i dent i f i cat i on as

16 Gover nment Exhi bi t 112 and 113. They are not yet i n evi dence

17 but marked f or i dent i f i cat i on. Do you have t hat i n f r ont of

18 you, Ms. Ri l ey?

19 A. Yes, I do.

20 Q. Do you r ecogni ze what t hey are?

21 A. Yes.

22 Q. And what ar e t hey?

23 A. They ar e pi e chart s t hat I cr eated f r om t he bank st atement s

24 of CASI .

25 Q. How di d you cr eat e t hese graphs?


( 212) 805- 0300



548


1 A. I used t he i nf or mat i on t hat was i n Exhi bi t 110, t he bank

2 r ecor ds, t o cr eat e t hese gr aphs.

3 MR. KWOK: The gover nment of f er s Exhi bi t 112 and 113.

4 THE COURT: No obj ect i on?


6 THE COURT: 112 and 113 ar e admi t t ed i nt o evi dence.


8 evi dence)

9 Q. Now, l et ' s t ake t hem one at a t i me, Ms. Ri l ey. Let ' s go

10 f i r st t o Gover nment Exhi bi t 112. What gr aph i s t hat of ?

11 A. Thi s i s a gr aph of the deposi t s i nt o t he CASI bank account s

12 f or t he per i od 10/ 1/ 2001 t hr ough 9/ 30/ 2002 whi ch i s t he f i r st

13 year of t he grant award.

14 Q. And what does t he pur pl e area r epr esent ?

15 A. I t r epr esent s t he deposi t s i nt o t he account f or the NI ST - -

16 f or t he grant money.

17 Q. Was t her e any ot her sour ce of f undi ng t hat ' s not f r om t he

18 ATP grant?

19 A. Ther e wer e a coupl e of mi nor deposi t s, but t hey were r eal l y

20 cr edi t , r ef unds t o other account s, so t hey wer e used as

21 of f set s, not as deposi t s. They wer e r ef und checks.

22 Q. Now, l et ' s go t hr ough Government Exhi bi t 113. Ms. Ri l ey,

23 what i s t hi s a gr aph of ?

24 A. The CASI busi ness account - - deposi t s i nt o t he CASI

25 busi ness account s f or t he per i od 10/ 1/ 2002 t hr ough 6/ 30/ 2003,


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1 whi ch i s t he ni ne mont hs of t he second year of t he award.

2 Q. What does t he purpl e area of the gr aph r epr esent?

3 A. Deposi t s of gr ant moni es r ecei ved by CASI .

4 Q. And how about that l i ne t hat ' s br eaki ng up t he ci r cl e?

5 A. Thi s i s mi scel l aneous ot her deposi t s i nt o t he account .

6 Q. Ms. Ri l ey, di d you pr epar e any addi t i onal gr aphs asi de f r om

7 t hese ones t hat we j ust l ooked at ?

8 A. Yes.

9 Q. What di d you prepar e?

10 THE COURT: What was t he amount of t hose ot her

11 deposi t s i nt o t he account ?

12 THE WI TNESS: The deposi t s f r om NI ST were $545, 000,

13 and t he mi scel l aneous deposi t s were l i ke 1200, 1500, somethi ng

14 r eal l y smal l .

15 THE COURT: Sor r y.

16 Q. Ms. Ri l ey, asi de f r om t hese gr aphs, di d you cr eat e any

17 addi t i onal char t s and gr aphs?

18 A. Yes.

19 Q. What di d you prepar e?

20 A. I anal yzed t he expendi t ur es f r om t he account s.

21 Q. I am showi ng you what have been marked f or i dent i f i cat i on

22 as Gover nment ' s Exhi bi t s 114 and 115. Do you have t hose i n

23 f r ont of you?

24 A. Yes.

25 Q. Do you r ecogni ze what t hey are?


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1 A. Yes, t hey ar e t he pi e char t s t hat I cr eat ed f or t he

2 anal ysi s of t he expendi t ur es.

3 Q. And what document s di d you l ook at t o cr eat e t hese graphs

4 and char t s?

5 A. Cancel ed checks and Amer i can Express st at ement s were t he

6 mai n source document s used t o cr eat e t hese.

7 MR. KWOK: Government of f er s Government ' s Exhi bi t s 114

8 and 115.


10 THE COURT: 114 and 115 ar e admi t t ed i nt o evi dence.


12 evi dence)

13 MR. KWOK: May we publ i sh t hat t o t he j ury?

14 THE COURT: You say t hese ar e expendi t ures?

15 THE WI TNESS: Yes, si r . For 114 and 115 I di d

16 anal ysi s and expendi t ur es.

17 THE COURT: Fi r st f or t he year ended Oct ober 10, 2002?

18 THE WI TNESS: OK. And t hat i s because of t he

19 br eakdown f or t he f r i nge benef i t s f or check pai d t o I RS f or

20 wi t hhol di ngs or what ever , t he br eakdown I had f or check and

21 f r i nge benef i t s, I had an anal ysi s f or t he year pr epar ed by one

22 of t he account ant s t hat I coul d r econci l e t he number s - - t he

23 check payment s t hr ough Oct ober 10. So, i t doesn' t - -

24 THE COURT: 114 and 115 ar e admi t t ed i n evi dence.

25 Q. Now, Ms. Ri l ey l ooki ng f i r st at Gover nment Exhi bi t 114,


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1 what i s t he pi e char t at t he upper l ef t - hand cor ner ?

2 A. The upper l ef t - hand corner pi e chart i s j ust a br eakdown of

3 t he budget , t he NI ST budget , gr ant budget t o CASI , and i t has

4 t he budget cat egor i es by amount .

5 THE COURT: Whi ch budget ?

6 THE WI TNESS: For t he year one CASI / NI ST ATP budget .

7 THE COURT: Appr oved t he f i r st one or t he subsequent?

8 THE WI TNESS: Amendment t o appr oved budget .

9 Q. So, st ayi ng wi t h t hat gr aph f or a second, j ust wal k us

10 t hrough an exampl e, f or exampl e, what subcont r act or shows.

11 A. Subcont r act or shows t hat t he NI ST- appr oved budget had a

12 budget of $250, 000 f or subcont r actor cost s f or year one f or t he

13 NI ST ATP grant awar d.

14 Q. How about , f or exampl e, Dr . Kar r on' s sal ar y, accor di ng t o

15 t he appr oved budget ?

16 A. The appr oved budget had al l owed - - Dr . Karr on' s sal ary f or

17 t he appr oved budget was $175, 000.

18 MR. KWOK: OK. Now l et ' s zoom back out . Let ' s t ur n

19 t o t he upper ri ght - hand cor ner of t he char t . I f we coul d zoom

20 t hat i n.

21 Q. What i s t hi s chart ?

22 A. Thi s chart shows accordi ng t o t he checks. The checks are

23 t he Amer i can Expr ess t r ansact i ons f r om t he CASI busi ness

24 account . Thi s i s a br eakdown by t he budget cat egor i es of how

25 t he checks were wr i t t en.


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1 Q. OK. And what i s t he yel l ow area of t hat chart ?

2 A. The yel l ow ar ea f or t he most part i s what i s l i mi t ed by t he

3 budget cat egory. I f i t was spent over budget , t hen t her e i s a

4 por t i on t hat ' s r ed and a por t i on t hat ' s yel l ow. I t ' s cost s

5 t hat ar e al l ocabl e t o t hose budget cat egor i es i n t he anal ysi s

6 of checks and Amer i can Expr ess t r ansact i ons. Li ke f or t he - -

7 Q. And what does t he r ed area of t he graph r epr esent ?

8 A. The r ed area r epr esent s cost s t hat wer e over budgets, t hat

9 wer e consi der ed i ndi r ect cost s and nonal l owabl e, l i ke dues and

10 subscr i pt i ons, l awyer s, and t he r ent pai d t o Dr . Karr on, was

11 not al l owabl e per t he budget .

12 MR. KWOK: Let ' s zoom i t back out . Let ' s t ur n t o t he

13 bot t om r i ght - hand cor ner of t he page.

14 Q. What i s t hat t he char t of ?

15 A. Ther e i s a 10 percent budget cat egory adj ust ment that ' s

16 al l owed by NI ST ATP.

17 Q. What i s a 10 per cent adj ust ment ? Can you expl ai n t hat ?

18 A. 10 per cent of t he budget amount can be r eal l ocat ed f r om say

19 subcont r act or cost s t o personnel expense, i f you have l ess

20 subcont r act or cost s t han you t hought .

21 So, t hi s i s t o show t hat $83, 000 whi ch coul d be

22 r eal l ocated bet ween t he budget cat egory i f t hat ' s t he onl y

23 t hi ng t hat made somethi ng unal l owabl e, but i t was over budget .

24 Q. Accor di ng t o t hi s char t , what i s t he t ot al of di sal l owabl e

25 amount f or year one of the gr ant per i od?


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1 A. Thi s one shows $268, 638.

2 Q. Let ' s zoom i t back out , and l et ' s f ocus on t he t abl e f or

3 now. What does t he t abl e show?

4 A. The t abl e shows t he budget cat egor i es compared t o t he

5 amount of money spent by CASI , and t he di f f erence bet ween what

6 CASI spent and what t he budget al l owed t o be spent , and t hen i t

7 shows t he per cent age di f f erence.

8 Q. Can you wal k us t hrough an exampl e of t hat .

9 A. Wel l , f or l i ke Dr . Karr on' s sal ar y t he budget was $175, 000,

10 CASI spent $200, 000 f or year one, a di f f er ence of $25, 488, f or

11 a di f f er ence of 14. 56 per cent over .

12 Q. OK. Let ' s zoom i t back out . Let ' s go back t o t he upper

13 r i ght - hand cor ner port i on of the page, t he pi e char t wi t h t he

14 r ed. Does t hi s char t t ake i nt o account t he l ack of any cost

15 shar e t hat you t est i f i ed about yest er day?

16 A. No, i t doesn' t have cost share.

17 Q. What woul d t hi s chart have l ooked l i ke i f t hat i nf or mat i on

18 had been r ef l ected on t he char t ?

19 A. Some of t he r ed number s mi ght be yel l ow i f some of t he cost

20 shar e had been r ef l ected.

21 Q. I ' m sorr y. Let me r ephr ase. I f you had i ncl uded i n your

22 chart t he absence of any cost share t hat you t est i f i ed about

23 yest er day, what woul d t hi s chart l ook l i ke?

24 A. I f I t ook i nt o consi der at i on t hat t her e was no cost shar e,

25 none of t he cost woul d be al l owabl e, and al l other cost s woul d


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1 be r ed.

2 Q. Let ' s go t o Government Exhi bi t 115. What i s t hi s a chart

3 of ?

4 A. Thi s i s a char t of t he same t ype i nf or mat i on f or year t wo

5 of t he award, t he ni ne mont hs of year t wo.

6 Q. Let ' s go t o t he f i r st gr aph, t he upper l ef t - hand cor ner .

7 Agai n, what i nf or mat i on i s r ef l ect ed on t hi s char t ?

8 A. Thi s i s t he expendi t ur es by budget cat egory i n t he NI ST

9 budget awar d.

10 Q. So, usi ng subcont r act or as an exampl e, what i s budgeted f or

11 year t wo?

12 A. $110, 000.

13 Q. Let ' s go t o t he f ul l page, t o t he upper ri ght - hand cor ner .

14 And once agai n, what i s t hi s a chart of f or year t wo?

15 A. Thi s i s t he expendi t ur es f r omt he CASI NI ST account s br oken

16 down by budget cat egory, f r om t he check account s and t he

17 Amer i can Express accounts.

18 Q. What i s r epr esented by t he r ed por t i on?

19 A. The r ed por t i on woul d be cost s t hat woul d be over t he

20 budget cat egory or maybe not al l owabl e because t hey are

21 i ndi r ect cost s.

22 Q. What ar e some of t hose exampl es?

23 A. The equi pment cost over budget here of $90, 169, suppl y

24 cost s over budget of $8, 800.

25 Q. Let ' s zoom i t back out and l ook at t he char t t o t he bot t om


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1 r i ght . What i s t he t ot al di sal l owed expense t hat you f ound f or

2 year t wo?

3 A. Accor di ng t o t hi s anal ysi s, i t woul d be $196, 504.

4 Q. Once agai n, what i s t hat l i t t l e por t i on t hat ' s a l i t t l e of f

5 t o t he si de?

6 A. I t ' s al l owed, t he 10 per cent rul e t hat you can al l ow,

7 al l owi ng f or 10 percent adj ust ment to t he budget categor i es,

8 t her e woul d st i l l be - - t her e woul d onl y be 50, 000 of t he

9 196, 000 t hat woul d be OK.

10 THE COURT: So wi t h t he adj ust ment i t woul d be

11 $146, 017.


13 Q. Now, Ms. Ri l ey, l et ' s go t o what ' s been marked f or - -

14 actual l y what i s al r eady i n evi dence as Government Exhi bi t 101.

15 Do you have t hat document i n f r ont of you?

16 A. 101?

17 Q. That ' s cor r ect .

18 MR. KWOK: I t ' s Gover nment Exhi bi t 101, your Honor .

19 Q. Do you have t hat document?

20 A. Yes.

21 Q. Do you r ecogni ze i t ?

22 A. Yes, i t ' s t he Homef r ont Hardware i nvoi ce.

23 Q. And di d you anal yze t hi s document i n t he cour se of your

24 anal ysi s?

25 A. Yes.


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1 Q. Were you abl e t o determi ne how t he bal ances r ef l ected on

2 t hese i nvoi ces wer e pai d f or?

3 A. Yes. They wer e pai d f or f r om t he CASI / NI ST bank account ,

4 or Ameri can Expr ess or except f or one t r ansact i on f or $301 t hat

5 was pai d f r om Dr . Karr on' s per sonal cr edi t car d account .

6 Q. Asi de f r om t hat , wer e t her e any i nvoi ces pai d f or f r om Dr .

7 Karr on' s personal account ?

8 A. Yes, one f or $301.

9 Q. Asi de f r om t hat , i s t her e anyt hi ng el se?

10 A. No, t he r est of t hem wer e pai d f or f r om t he CASI / NI ST

11 account .

12 Q. And how were you abl e t o make t hat det ermi nat i on?

13 A. I t r aced t he payment back t o my database of check payment s,

14 back t o t he bank st atement s, t o t he cancel ed checks, or t o t he

15 Amer i can Express st at ement t hat pai d t hem.

16 MR. KWOK: Your Honor , at t hi s t i me t he government

17 woul d l i ke t o r ead i nt o t he r ecor d anot her st i pul at i on mar ked

18 f or i dent i f i cat i on as Gover nment Exhi bi t 901.

19 THE COURT: Yes.

20 MR. KWOK: Uni t ed Stat es of Amer i ca v. Dani el B.

21 Karr on, def endant , S1 07 Cr i m. 541.

22 " I t i s hereby st i pul at ed and agr eed by and among t he

23 Uni t ed St at es of Amer i ca, by Mi chael J . Garci a, t he Uni t ed

24 St at es at t orney f or t he Sout her n Di st r i ct of New York, Steve

25 Kwok and Chr i st i an Ever del l , assi st ant Uni t ed St ates at t or neys,


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1 of counsel , and def endant Dani el B. Kar r on, by and wi t h t he

2 consent of hi s at t or ney, Ronal d Rubi nst ei n, Esq. t hat :

3 "1. The document marked f or i dent i f i cat i on as

4 Government Exhi bi t 120 i s an i nvent ory of i t ems sei zed on or

5 about J une 26, 2007 f r om 300 East 33r d St r eet , Apar t ment 4N,

6 New Yor k, New Yor k, pur suant t o a sei zure war r ant i ssued by t he

7 Honorabl e Dougl as F. Eaton, Uni t ed St ates magi st r ate j udge of

8 t he Sout her n Di st r i ct of New Yor k.

9 "2. The i t em marked f or i dent i f i cat i on as Gover nment

10 Exhi bi t 112 cor r esponds t o i t em 79, GPS system, i dent i f i ed i n

11 Government Exhi bi t 120.


13 Exhi bi t 122 corr esponds t o i t em 20, Sony Cyber shot camer a

14 DSC- F707, i dent i f i ed i n Gover nment Exhi bi t 120.


16 Exhi bi t 123 cor r esponds t o i t em 23, I nf ocus LCD pr oj ect or wi t h

17 mount , i dent i f i ed i n Government Exhi bi t 120.


19 Exhi bi t 124 cor r esponds t o i t em 18, pr oj ect or scr een,

20 i dent i f i ed i n Government Exhi bi t 120.


22 Exhi bi t 125 cor r esponds t o i t em 75, shoe r ack, i dent i f i ed i n



25 Exhi bi t 126 cor r esponds t o i t em 37, Ki t chen Cl assi cs bl ender by


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1 War i ng, i dent i f i ed i n Gover nment Exhi bi t 120.


3 Exhi bi t 127 cor r esponds t o i t em 46, Large STABI LA bubbl e l evel ,

4 i dent i f i ed i n Gover nment Exhi bi t 120.


6 Exhi bi t 128 cor r esponds t o i t em 36, Dust Bust er , i dent i f i ed i n


8 "10. The i t em mar ked f or i dent i f i cat i on as Gover nment

9 Exhi bi t 129 cor r esponds t o i t em 82, f ol di ng l adder , i dent i f i ed

10 i n Gover nment Exhi bi t 120.


12 Exhi bi t 130 cor r esponds t o i t em 41, Por t er cabl e r echargeabl e

13 t ool set , i dent i f i ed i n Gover nment Exhi bi t 120.


15 Exhi bi t 131 corr esponds t o i t ems 38 and 39, Por t er cabl e Ti ger

16 Saw qui ckcharge and t wo bat t er i es and charger f or i t em 38,

17 i dent i f i ed i n Government Exhi bi t 120.

18 "13. The i t ems marked f or i dent i f i cat i on as

19 Gover nment Exhi bi t 132 cor r espond t o i t ems 42 and 74, set of

20 t hr ee r echar geabl e f l ashl i ght s wi t h char ger s, and set of t wo

21 r echar geabl e f l ashl i ght s wi t h char ger s, i dent i f i ed i n


23 "I t i s f ur t her st i pul at ed and agr eed t hat Gover nment

24 Exhi bi t s 120 and 121, 122, 123, 124, 125, 126, 127, 128, 129,

25 130, 131, 132 may be r ecei ved i n evi dence as Government ' s


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1 Exhi bi ts at t r i al . "

2 Si gned and dated, si gned on behal f of t he Uni t ed

3 Stat es by Steve Kwok, and on behal f of Dani el B. Kar r on by

4 Ronal d Rubi nst ei n, Esqui r e.

5 MR. RUBI NSTEI N: What was t hat exhi bi t , si r ?

6 MR. KWOK: I t ' s marked f or i dent i f i cat i on as


8 THE COURT: That ' s t he st i pul at i on number?


10 THE COURT: Wel l , I wi l l have t o have t he st i pul at i on,

11 a copy of t he st i pul at i on, t o r ead of f t he exhi bi t s.

12 Oh, I see i t .

13 Al l r i ght . Exhi bi t s 120, 121, 122, 123, 124, 125,

14 126, 127, 128, 129, 130, 131 and 132 are r ecei ved i n evi dence.

15 And Exhi bi t 901 i s r ecei ved i n evi dence.

16 ( Government ' s Exhi bi t s 120, 121, 122, 123, 124 and 125

17 r ecei ved i n evi dence)

18 ( Government ' s Exhi bi t s 126, 127, 128, 129, 130, 131

19 and 132 r ecei ved i n evi dence)


21 MR. KWOK: Your Honor , may we publ i sh t hese i t ems t o

22 t he j ur y?


24 MR. KWOK: Your Honor , may I go t hrough t he i t ems one

25 by one, j ust read of f t he exhi bi t number?


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2 MR. KWOK: Government Exhi bi t 120, Government Exhi bi t

3 122.

4 MR. RUBI NSTEI N: Can I see t hat when you hol d i t up,

5 pl ease, Mr . Kwok?

6 MR. KWOK: Government Exhi bi t 123. Government Exhi bi t

7 124 i s t he scr een on t he f l oor . Government Exhi bi t 125.

8 Government Exhi bi t 126. Government Exhi bi t 127. Government

9 Exhi bi t 128. Government Exhi bi t 129. Government Exhi bi t 130.

10 MR. RUBI NSTEI N: Can I see t hat , pl ease?

11 MR. KWOK: Gover nment Exhi bi t 131 and Gover nment

12 Exhi bi t 132.

13 BY MR. KWOK:

14 Q. Ms. Ri l ey, di d you r evi ew addi t i onal i nvoi ces i n t he cour se

15 of your anal ysi s?

16 A. Yes.

17 Q. I am showi ng you a document al r eady i n evi dence as

18 Government Exhi bi t 120A. Do you r ecogni ze what ' s al r eady i n

19 evi dence as Government Exhi bi t 120A, Ms. Ri l ey?

20 A. Yes, i t ' s an i nvoi ce f or Si l i con Ci t y.

21 Q. How are you abl e t o r ecogni ze i t ?

22 A. The company name i s at t he t op, and I have i ni t i al ed at t he

23 bot t om t hat I have seen i t .

24 Q. Now l et ' s st ar t wi t h t he f i r st page. What i s t he i t em

25 shown on t he f i r st page of t hat i nvoi ce?


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1 A. A t en f oot scr een f or $2, 315. 50.

2 Q. And what i s t he t otal amount of t hat i nvoi ce?

3 A. $2, 583. 05.

4 Q. And what i s at the bot t om port i on of t hat page?

5 A. At t he bot t om?

6 Q. That ' s cor r ect .

7 A. I t ' s Comput er Ai ded Sur gery, NI ST ATP DMT Progr am check

8 number 10220 pai d i n t he amount of $2, 583. 05.

9 Q. And what i s t he check number agai n f or t hat check?

10 A. 10220.

11 Q. Ms. Ri l ey, I am showi ng you a page f r om Gover nment Exhi bi t

12 81.

13 THE COURT: What account was t hat on?

14 MR. KWOK: Sor r y, your Honor .

15 THE COURT: 10220, what account i s i t drawn on?

16 THE WI TNESS: I t ' s shown on t he bot t om of t he page of

17 t he i nvoi ce.

18 THE COURT: What account was i t dr awn on?

19 THE WI TNESS: Fr om t he Comput er Ai ded Sur ger y NI ST ATP

20 DMT Pr ogram account .

21 Q. I am showi ng you a page f r om Government Exhi bi t 81. I t ' s

22 al r eady i n evi dence and i s marked as page 23 at t he bot t om

23 r i ght - hand cor ner of t he j ur y bi nder s. I f we coul d put t hat up

24 on t he scr een, page 23 of t he Chase st at ement s.

25 THE COURT: I ' m sor r y. I l ost t r ack. What ' s t he


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1 exhi bi t number?

2 MR. KWOK: I t ' s Gover nment Exhi bi t 81, your Honor .

3 THE COURT: Thank you.

4 MR. KWOK: And t he bot t om i s page 23 of t he j ur y

5 bi nder s.

6 Q. Do you have t hat page, Ms. Ri l ey?

7 A. Yes.

8 Q. Can you show us where check 10220 appear s on t hat page?

9 A. On t he bank st at ement i t appear s her e dat ed 6/ 07/ 2002 and

10 i t ' s i n t he amount of $2, 583. 05.

11 Q. Now st ayi ng on t he same page, f ocusi ng your at t ent i on t o

12 t he upper r i ght - hand corner port i on of the page, under neat h

13 pr i mary account number , what does t hat say?

14 A. Comput er Ai ded Sur ger y I nc. , NI ST ATP DMT program.

15 Q. Now l et ' s go back t o Gover nment Exhi bi t 120A, t he second

16 page. What are t he i t ems shown on t hat i nvoi ce?

17 A. A pr oj ect or and a l amp.

18 Q. And how much f or ei t her of t hose i t ems?

19 A. For $3, 482. 72.

20 MR. RUBI NSTEI N: I di dn' t hear .

21 A. 3, 482. 72.

22 THE COURT: Whi ch exhi bi t i s on t he board?

23 MR. KWOK: Exhi bi t 120A i s on t he board, your Honor ,

24 page 2.

25 Q. What i s t he shi ppi ng cost ?


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1 A. $35.

2 Q. And what i s t he amount mi nus t he shi ppi ng cost ?

3 A. The t otal amount i s $3, 482. 72 wi t hout t he shi ppi ng cost .

4 Q. And l et ' s l ook at t he bot t om port i on of t he same page. I

5 amst i l l st ayi ng wi t h Gover nment Exhi bi t 120A, page 2. What i s

6 r ef l ect ed on t he bot t om por t i on of that page?

7 A. OK. The f i r st Comput er Ai ded Sur gery, I nc. name, check

8 number 10127, of $35 pays t he shi ppi ng, t he $35 shi ppi ng. And

9 t he next check number 10114 f or $3, 482. 72 on 3/ 29/ 2002 pays f or

10 t he pr oj ector and t he l amp.


12

13

14

15

16

17

18

19

20

21

22

23

24

25


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1 Q. And can you r ead of f t he check number s once agai n?

2 A. 10114 and 10127.

3 Q. Now, l et ' s go back t o gover nment exhi bi t 81 now, whi ch i s

4 t he Chase Bank account st atement s. Di r ect i ng your at t ent i on t o

5 page 19 of t he j ur y bi nders, do you have t hat check?

6 A. Yes, on t he bank st at ement . On check number 10114 dated

7 4/ 11, f or $3, 482. 72.

8 Q. Now about f or check number 10127?

9 A. 10127 i s f or $35, and i t i s al so on 4/ 11.

10 Q. Let ' s zoom out on t hat page. And once agai n di r ect i ng your

11 at t ent i on t o t he upper r i ght - hand corner of t he page, what does

12 t hat say?

13 A. I t ' s f or t he checki ng account Comput er Ai ded Sur gery

14 I ncorpor ated, NI ST ATP DMT pr ogr am account .

15 Q. Do you know what NI ST ATP DMT st ands f or ?

16 A. Nat i onal I nst i t ut e of St andards and Technol ogy, Advanced

17 Technol ogy Progr am, Di gi t al Morse Theor y.

18 MR. RUBI NSTEI N: J udge, I can' t hear her .

19 A. I ' m sor ry.

20 MR. RUBI NSTEI N: I don' t know i f anybody el se i s

21 havi ng a pr obl em, but she drops her voi ce.

22 THE COURT: J ust - -


24 THE COURT: Don' t be shy, j ust speak up.

25 THE WI TNESS: Nat i onal I nst i t ut e of St andards and


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1 Technol ogy, and Advanced Technol ogy Progr am, Di gi t al Morse

2 Theory.

3 Q. Thank you, Ms. Ri l ey. I f you coul d keep your voi ce up.

4 Let ' s go back t o t he i nvoi ces, government Exhi bi t

5 120A, page t hree. Can we zoom i n on t he t op of t hat page.

6 What i t em i s r ef l ect ed on t hi s i nvoi ce?

7 A. A Garmi n St r eet Pi l ot , a GPS.

8 Q. How much i s t hat ?

9 A. For $979. 99.

10 Q. How about i ncl udi ng shi ppi ng and t axes?

11 A. $25 shi ppi ng, i t ' s $1, 004. 99.

12 Q. And what appears on t he bot t om of t hat page? Let ' s zoom i t

13 back out .

14 A. That , t hat i t i t was pai d wi t h - - f r om t he Comput er Ai ded

15 Sur ger y NI ST ATP DMT program account , check number 10598 f or

16 1, 004. 99 on 11/ 11, 2002.

17 Q. Let ' s go back now t o government exhi bi t 81, whi ch i s agai n

18 t he Chase Bank st at ement s f or t he CASI account , page 25 of t he

19 j ur y bi nder s.

20 THE COURT: I don' t - - page 25 i n t he j ur y bi nder ?


22 THE COURT: What ' s t he exhi bi t number ?

23 MR. KWOK: Exhi bi t number 81, your Honor .

24 THE COURT: And what page of 81?

25 MR. KWOK: I t ' s page 25 of t he j ury bi nder s on t he


( 212) 805- 0300



566


1 bot t om of t he page.

2 THE COURT: Page 25 of t hat exhi bi t ?

3 MR. KWOK: That ' s cor r ect .


5 Q. Do you see t hat check on t hi s page, Ms. Ri l ey?

6 A. Yes. Check 10598 f or on 11/ 25 f or $1, 004. 99.

7 Q. Now, l et ' s go back t o t he i nvoi ce government , Exhi bi t 120A,

8 t he l ast page. What i t ems are shown on t hi s i nvoi ce,

9 Ms. Ri l ey?

10 A. Okay. Thi s i nvoi ce t o Dat avi si on has a di gi t al camer a wi t h

11 accessor i es.

12 Q. And how much al t oget her f or t hose i t ems?

13 A. $1, 519. 95

14 Q. And whose handwr i t i ng i s t hat on t he bot t om of the page, i f

15 we coul d show t hat ?

16 A. Okay. I t ' s my handwr i t i ng. I t says HBR. I t ' s sayi ng t hat

17 t he Amer i can Expr ess t r ansact i on was on 9/ 20 of ' 02.

18 Q. And how much i s t hat t r ansact i on?

19 A. Amer i can Expr ess i s goi ng t o be - - $1, 519. 95.

20 Q. Okay. Now di r ect i ng your at t ent i on now t o government

21 exhi bi t 90, 90, l ooki ng at t he st at ement , t he cl osi ng dat e?

22 THE COURT: Hol d on a second.

23 MR. KWOK: Government exhi bi t 90, your Honor ?

24 THE COURT: I have t o swi t ch books here. Al l r i ght

25 exhi bi t 90. What page?


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567


1 MR. KWOK: I ' m showi ng you - - what page i s t hat , ?

2 I t ' s page f i ve of ei ght , exhi bi t 90.

3 THE DEPUTY CLERK: Fi ve of ei ght ?

4 MR. KWOK: Exhi bi t 90. I ' m l ooki ng at t he st atement

5 wi t h cl osi ng date of Oct ober 8t h, 2002, page f i ve of ei ght .


7 Q. Okay. Ms. Ri l ey, di r ect i ng your at t ent i on t o Sept ember

8 20t h, 2002.

9 A. Ther e i s an Amer i can expr ess t r ansact i on t o Dat avi si on f or

10 $1, 519. 95.

11 Q. I s t hat t he same amount or di f f erent f r om t he amount we

12 l ooked at i n gover nment exhi bi t 120A, t he i nvoi ce j ust now?

13 A. I t ' s t he same amount .

14 Q. And st i l l l ooki ng at t hat page, st i l l gover nment exhi bi t

15 90 - -

16 THE COURT: Let me j ust see - - I ' m sor r y, I mi ssed her

17 expl anat i on.

18 Q. Ms. Ri l ey, can you - -

19 THE COURT: I have t he wr ong page up now. Let ' s see

20 where we are. Thi s i s what page? I have f i ve of ei ght . What

21 page shoul d I be on?

22 MR. KWOK: I t ' s page f i ve of ei ght f or t he st atement

23 wi t h cl osi ng date Oct ober 8, 2002.

24 THE COURT: I don' t have t hat . That ' s not - -

25 MR. KWOK: We coul d hand up an ext r a copy.


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568


1 THE COURT: There i s more t han 1 f i ve of ei ght . Al l

2 r i ght , okay. Go ahead.


4 Q. Di r ect i ng your at t ent i on agai n, Ms. Ri l ey, t o Sept ember

5 20t h, 2002, what does t hat show?

6 A. The Amer i can Express shows t he t r ansact i on payment t o

7 Datavi si on of $1, 519. 95.

8 Q. And how does t hat amount compare t o t he amount we j ust

9 l ooked at i n government exhi bi t 120A?

10 A. I t ' s t he same amount that ' s on t he i nvoi ce t o Dat avi si on.

11 Q. And st i l l st ayi ng wi t h t hat page, gover nment exhi bi t 90,

12 page f i ve of ei ght , what i s t he sect i on headi ng j ust above t hat

13 l i st of t ransacti ons?

14 A. Oh, Expo t r ansact i ons f or Dr . D. B. Karr on.

15 MR. KWOK: One moment , your Honor .

16 THE COURT: Thi s i s an Amer i can Expr ess charge?


18 THE COURT: We don' t have how i t ' s pai d f or yet , do

19 we?

20 MR. KWOK: I ' m sor r y?

21 THE WI TNESS: Thi s i s - -

22 THE COURT: We don' t know how t he cr edi t , t he Amer i can

23 Expr ess card cr edi t account was pai d f or , do we?

24 MR. KWOK: Okay.

25 Q. Ms. Ri l ey, can you show us how t hat out st andi ng cr edi t car d


( 212) 805- 0300



569


1 bal ance i s pai d f or .

2 A. Okay, l et ' s see. Okay, i t shoul d show up i n t he - - next

3 mont h' s payment s.

4 Q. Can I di r ect your at t ent i on t o gover nment exhi bi t 110, t he

5 data base?

6 A. Yes.

7 ( Pause)

8 Q. Di r ect i ng your at t ent i on t o page, government exhi bi t 110,

9 page t hr ee of 37. What i nf or mat i on i s r ef l ect ed f or Oct ober

10 18t h, 2002?

11 A. That an Ameri can expr ess el ect r oni c r emi t t ance $5, 736. 51.

12 THE COURT: Fr om what account?

13 THE WI TNESS: Fr om t he CASI busi ness account , or t he

14 busi ness account s f r om t he CASI bank.

15 THE COURT: CASI busi ness, what account? You sai d

16 t here were more t han one, di dn' t you?

17 THE WI TNESS: Yes. I t ' s f r om t he - - t hi s r epor t

18 doesn' t i dent i f y i t .


20 THE WI TNESS: Thi s r eport doesn' t i dent i f y t he

21 speci f i c account , but i n my - - I have a note i n my data base, I

22 know whi ch one i t ' s f r om. I t ' s f r om t he - - i t ' s f r om one of

23 t he CASI busi ness account s.

24 Q. And how i s t hi s account f unded, Ms. Ri l ey?

25 A. From t he NI ST deposi t s.


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570


1 Q. Does i t have any sour ce of f undi ng f r om anywher e el se?

2 A. J ust a smal l - - a smal l a mi scel l aneous, smal l amount f r om

3 somewhere el se.

4 MR. KWOK: No f ur t her quest i ons, your Honor .


6 MR. RUBI NSTEI N: Good t i me t o t ake a l i t t l e r ecess.

7 THE COURT: Let ' s t ake t he mor ni ng break and come

8 back.

9 ( Recess)

10 THE COURT: Al l r i ght , l et ' s br i ng i n t he j ur y. I s

11 Dr . Karr on here? You want t o cal l Dr . Karr on? No one' s goi ng

12 t o go out af t er hi m?

13 MR. RUBI NSTEI N: Aye aye, si r .

14 THE COURT: You got an ass i st ant .

15 MR. RUBI NSTEI N: He' s doi ng somethi ng el se, J udge.

16 THE COURT: He has no author i t y.

17 MR. RUBI NSTEI N: He' s not admi t t ed t o t he Ci r cui t ,

18 J udge.


20 THE COURT: Al l r i ght , pl ease be seated.


22

23

24

25


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571

865zkar3

1 THE COURT: Mr . Rubi nst ei n, cr oss- exami nat i on.

2 CROSS EXAMI NATI ON


4 MR. RUBI NSTEI N: Thank you, your Honor .

5 Q. Good morni ng, Ms. Ri l ey.

6 A. Good mor ni ng.

7 Q. Now, you are worki ng f or t he OI G' s of f i ce?

8 A. Yes, s i r .

9 Q. And how l ong have you - - are you worki ng t her e?

10 A. Si nce J une of ' 97.

11 Q. And pr i or t o t hat , you were an I nternal Revenue Agent?

12 A. Yes, I RS.

13 Q. I RS?

14 A. Yes.

15 Q. And how l ong were you wi t h I RS?

16 A. From ' 86 t o ' 97.

17 Q. Now, di d you do f i el d audi t s or - -

18 A. Yes.

19 Q. - - wor k i nsi de?

20 A. Fi el d audi t s.

21 Q. And when di d you meet peopl e f r om t he f ederal gover nment on

22 t hi s case f or t he f i r st t i me, I mean peopl e at t he pr osecut i on

23 t abl e her e, f i r st t i me?

24 THE COURT: Ar e you r ef er r i ng t o - - one person' s f r om

25 t he agency, Mr - - ar e you r ef er r i ng t o her ?


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572

865zkar 3 RI LEY - CROSS

1 MR. RUBI NSTEI N: Wel l , l et ' s st ar t wi t h her .

2 Q. Do you know t he l ady seat ed i n t he mi ddl e?

3 A. Yes.

4 Q. And who i s she?

5 A. Rachel Ondr i k.

6 Q. And t he gent l eman at t he end?

7 A. Ki r k Yamatani .

8 Q. And on t hi s case i n deal i ng wi t h t hi s ATP gr ant t o CASI ,

9 when di d you meet ei t her or both of t hem f or t he f i r st t i me?

10 A. I don' t - - I don' t - - I ' m not sure.

11 Q. Was i t i n t he year 2003?

12 A. I ' m not sur e i f i t was 2003, 2004.

13 Q. Was i t i n 2008?

14 THE COURT: She sai d she was not sur e whet her i t was

15 2003 or 2004.

16 Q. Wel l , do you have anyt hi ng t hat coul d r ef r esh your

17 r ecol l ect i on as t o when you met t hese peopl e f or t he f i r st

18 t i me?

19 A. For t hi s case, I don' t know - - I ' m not sur e - - I ' m not sur e

20 when t hat woul d be.

21 Q. Al l r i ght . When i s t he - - bef ore you came here t o

22 t est i f y - - you' r e f r om anot her st at e, cor r ect?

23 A. Yeah, I ' m f r om At l ant a, At l ant a r egi on.

24 Q. Okay, f r om t he At l ant a r egi on. When di d you come here t o

25 t est i f y on t hi s case?


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573


1 A. For t hi s?

2 Q. Yeah.

3 A. I came - - you mean f or t hi s week f or t he t r i al or - -

4 Q. No. When di d you come f r om At l ant a, Georgi a, r i ght ;

5 At l ant a, Geor gi a, r i ght ?

6 A. For t he t r i al , I came Monday.

7 Q. Bef ore you came Monday, were you her e i n preparat i on f or

8 your t est i mony on t hi s t r i al ?

9 A. Yes.

10 Q. And when di d you come f or t he f i r st t i me f or your

11 prepar at i on f or t hi s t r i al ?

12 A. That I ' d have t o l ook back. I ' m not sur e.

13 Q. Wel l , was i t a mont h ago, t wo weeks ago?

14 A. For pr epar at i on f or t he t r i al , i t woul d' ve pr obabl y been

15 maybe t he end of Apr i l .

16 Q. And you st ayed; you di dn' t commute back and f or t h t o

17 At l ant a, Geor gi a, cor r ect ? Di d you commut e back and f or t h

18 whi l e you wer e pr epar i ng f or t hi s t r i al ?

19 A. Yes.

20 Q. And how l ong di d you st ay when you came somet i me i n Apr i l ?

21 A. For a day.

22 Q. And t hen you woul d go back?

23 A. Yes.

24 Q. And t hen you woul d come back agai n?

25 A. Yes.


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574


1 Q. For anot her day?

2 A. Yes.

3 Q. About how many t r i ps, day t r i ps di d you make, ma' am?

4 A. I t hi nk maybe t hree.

5 Q. And di d you have t el ephone cont act wi t h ei t her t he agent

6 t hat you poi nt ed - - t he agent s you poi nt ed out or anybody i n

7 t he U. S. At t or ney' s Of f i ce?

8 THE COURT: When?

9 Q. Bet ween Apr i l when you st ar t ed comi ng her e?

10 A. Yes.

11 Q. And how of t en woul d you have cont act ?

12 A. Wel l , Ki r k and Rachel work i n t he same of f i ce I do.

13 Q. Okay. So you woul d see t hem i n At l ant a?

14 A. I f we al l happened t o be i n t hat day.

15 Q. Wel l , di d you have an i nt ervi ew wi t h t hem, wi t h Ki r k and

16 Rachel on Apr i l 22nd, 2008?

17 A. I coul d have. I ' m - -

18 Q. Wel l , woul d meet wi t h you i n At l ant a, Geor gi a or woul d t hey

19 meet wi t h you her e i n New York?

20 A. For t r i al pr ep?

21 Q. For t r i al pr ep.

22 A. I t woul d - - i t - -

23 THE COURT: What was your answer ?

24 A. For - - how do we def i ne t r i al prep? I mean, I can meet at

25 ei t her - - I mean f or t r i al pr ep, I woul d come up and meet wi t h


( 212) 805- 0300



575


1 Steve.

2 Q. Mr . Kwok, t he Assi st ant U. S. At t or ney, cor r ect ?

3 A. Yes.

4 Q. When you met wi t h Rachel di d you - -

5 MR. RUBI NSTEI N: Let me j ust appr oach t he Gover nment

6 f or a moment , your Honor .

7 Q. When di d you meet Mr . Kwok f or t he f i r st t i me?

8 A. I ' m not sur e.

9 Q. Was i t pr i or t o 2008?

10 A. Pr i or t o 2000 - - I ' m not sur e when I met hi m.

11 Q. Now, you, as member of t he Of f i ce of t he I nspector General ,

12 you' re i n t he c i vi l por t i on of t hat of f i ce, cor rect ?

13 A. I ' m i n t he audi t port i on of t hat of f i ce.

14 Q. And i s t hat ci vi l or cr i mi nal end?

15 A. Nei t her . I t ' s - - I do - - I nor mal l y do audi t s.

16 Q. And t he t wo agent s her e ar e?

17 A. I nvest i gat or s.

18 Q. I nvest i gat or s. I n t he cri mi nal di vi si on?

19 A. Yes - - wel l , what ever , ci vi l or cri mi nal .

20 THE COURT: I s t her e a cr i mi nal di vi si on and ci vi l

21 di vi si on?

22 THE WI TNESS: No, no. Ther e' s onl y - - t her e' s - - t hey

23 handl e - - I t hi nk - - I under st and t hey handl e bot h.

24 Q. You under st and t hey' r e cal l ed speci al agent s, cor r ect ?

25 A. Yes.


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576


1 Q. So you under st and t hat they have t he power t o ar r est

2 peopl e, cor r ect ?

3 A. Yes.

4 Q. Now, I asked you yest er day on t he voi r di r e i f you had any

5 document s t hat you used i n pr epar i ng your r eport i n J ul y of

6 2003, t he f i r st report t hat you pr epared her e?

7 A. Yes.

8 Q. And di d you have any documents?

9 A. Yes.

10 Q. Di d you r evi ew t hose document s bet ween yest erday and t oday?

11 A. Yes.

12 Q. Do you have t hem wi t h you?

13 A. Um, I - - my comput er . I don' t have a pr i nt ed copy of t hem.

14 Q. Wel l , di d you pr i nt a copy out i n 2003, i n J une or J ul y of ,

15 or August of 2003, whi l e you wer e pr epari ng your f i r st audi t ?

16 A. I had pr i nt ed copi es of the document s. Yes, I got pr i nt ed

17 copi es of t he documents somewhere.

18 THE COURT: On t he comput er , t he comput er document s;

19 i s t hat what you' r e sayi ng? Or ar e you t al ki ng about t he

20 document s you - - any document s you i nspected at t he of f i ces of

21 CASI ?

22 THE WI TNESS: I ' ve got ei t her - - some of t he document s

23 I have ar e computer documents and some of t he documents I have

24 have been pr i nted.

25 THE COURT: By?


( 212) 805- 0300



577


1 THE WI TNESS: By - - I don' t know i f i t was by me or by

2 CASI , I mean because i t was 2003.

3 THE COURT: Were t hey pr i nt ed by comput er - - out of

4 t he comput er ?

5 THE WI TNESS: They were pr i nt ed, and I had comput er

6 r ecords t hat were provi ded by CASI , copi es of some comput er

7 r ecords and some of t hem were pr i nted and some of t hem were

8 not .

9 THE COURT: So some of t hem were pr i nted of f CASI ' s

10 comput er ?

11 THE WI TNESS: Poss i bl y some.

12 THE COURT: Some were pr i nt ed of f your comput er ?

13 THE WI TNESS: Possi bl y, yes.

14 THE COURT: Wel l , not poss i bl y.


16 THE COURT: Yes or no?

17 THE WI TNESS: Yes, yes. I t coul d be at t he - - i t

18 coul d be ei t her one. I mean - -

19 THE COURT: I ' m - - not possi bl y. Yes or no.

20 THE WI TNESS: Of f t he t op of my head, I don' t r emember

21 whi ch document s were pr i nt ed and gi ven t o me or whi ch document s

22 I got back t o At l ant a.

23 THE COURT: They were ei t her pr i nted - -


25 THE COURT: - - of f t he CASI ' s computer - -


( 212) 805- 0300



578



2 THE COURT: Or of f your s?

3 THE WI TNESS: Or me.


5 MR. KWOK: Coul d we have a si debar, your Honor ?

6 THE COURT: No, you can not .


8 Q. Now, so you di d have what ' s cal l ed t he hard copi es of i t ems

9 t hat were on t he comput er , cor r ect ?

10 A. Some of - -

11 THE COURT: She' s answer ed t hat .

12 A. Yes.

13 Q. And where are t hose har d copi es t hat you obt ai ned i n t he

14 summer of 2003?

15 A. They' r e i n t he audi t f i l e.

16 Q. And wher e i s t he audi t f i l e?

17 A. Here.

18 Q. Al l r i ght . And have you t ur ned t hat over t o t he

19 Pr osecut or?

20 A. The audi t f i l e?

21 Q. Ri ght .

22 A. I pr ovi ded copi es of t he document s t hat we had f r om CASI t o

23 hi m.

24 Q. And i t ' s f ai r t o say you di d not have a gener al l edger ,

25 cor r ect ?


( 212) 805- 0300



579


1 A. I had what ever document s t hat CASI - - I guess i t depends

2 how you' r e def i ni ng gener al l edger t her e. The t hi ng t hat

3 t hat - -

4 Q. You' r e sayi ng - -

5 THE COURT: Let t er her f i ni sh her answer .

6 A. The number , t he numbers t hat - - t he number t hat you' r e

7 r ef err i ng t o came f r om t he books and r ecor ds pr ovi ded t o me by

8 CASI ' s r epr esent at i ve Frank Spr i ng, J oan Hayes, Bob Benedi ct .

9 Dr . Kar r on was aware of t he document s t hat t hey provi ded, and

10 t here' s, t her e' s summar i es by budget cat egory of expenses.

11 Those numbers wer e t aken f r om, f r om t he - - I guess i t woul d be

12 t he l i ke t he pr of i t l oss st at ement .

13 Q. The summar i es?

14 A. Summar i es.

15 Q. Ri ght?

16 A. Wel l , i t ' s - - ther e' s al so - - because we used di f f er ent

17 r ecords f or 2003, t hey may not have been pr i nted. They may

18 st i l l be on a di sk somewher e.

19 Q. You' r e a CPA, are you not , ma' am?

20 A. Yes.

21 Q. And you know what a gener al l edger i s, do you not ?

22 A. Yes.

23 Q. And t el l t he j ur y what a gener al l edger i s?

24 A. A gener al l edger i s t he l edger of account s and how t he

25 cost s are cat egor i zed by t he account i ng syst em.


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1 Q. Does a general l edger ref l ect ever y t r ansact i on made by t he

2 or gani zat i on?

3 A. Yes, i t shoul d.

4 Q. I t shoul d?

5 THE COURT: Shoul d.

6 Q. And i f t her e are changes made or adj ust ment s, somet i mes

7 t here are adj ust ment s because - -

8 A. Yes, t her e are adj ust ment s.

9 Q. - - somethi ng i s mi ssed or some i ncome i s mi ssed, cor r ect ?

10 A. Yes.

11 Q. Wher e woul d t hose adj ust ment s be r ef l ect ed?

12 A. They woul d be r ef l ect ed i n t he general l edger , but t hey

13 shoul d al so be car r i ed f or war d t o t he pr of i t and l oss

14 st at ement s.

15 Q. Now, you never saw a gener al l edger her e, cor r ect ? What

16 you j ust descr i bed, di d you ever see t hat at any t i me f r om J une

17 of 2003, t o t oday?

18 A. I ' ve got t en t he, whatever t he Qui ck Book r ecords t hat t hey

19 provi ded t o me.

20 Q. You know t hat t hei r recor ds t hat t hey pr ovi ded t o you were

21 summar i es; you j ust t est i f i ed t o t hat , cor r ect ?

22 THE COURT: Obj ect i on.

23 THE WI TNESS: But i t ' s some of t he - -

24 THE COURT: One quest i on you' r e aski ng. That ' s a

25 doubl e quest i on. Ask your si ngl e quest i on, Mr . Rubi nst ei n, so


( 212) 805- 0300



581


1 i t ' s cl ear what she' s bei ng asked and what she' s answeri ng t o.

2 Q. I s i t a f act that what you were suppl i ed were summary

3 char t s?

4 A. I was pr ovi ded summar i es, but I al so saw t he support f or

5 t he summar i es.

6 Q. You made copi es of t hose suppor t f or t he summary?

7 A. I don' t know t he - - I don' t r emember . I t hi nk t hat t her e

8 shoul d be somewher e, but I don' t r emember speci f i cal l y.

9 Q. Do you r ecal l - - you met wi t h a man named Mark Spi t z,

10 cor r ect - - Mel Spi t z?

11 A. Mel Spi t z, yes.

12 Q. And he was i nt r oduced t o you as t he new audi t or f or CASI

13 LLC?

14 A. Yes.

15 Q. Cor r ect ? And you met hi m somet i me i n December of 2003,

16 r i ght ?

17 A. Yes.

18 THE COURT: I t hought we' r e t al ki ng about J une, J ul y

19 2003, Mr - -

20 MR. RUBI NSTEI N: We wer e.

21 THE COURT: So now we' r e movi ng t o December . Okay. I

22 j ust want - -

23 MR. RUBI NSTEI N: Two year s l at er .

24 THE COURT: Al l r i ght , okay. So she' s ori ent ed al l

25 r i ght .


( 212) 805- 0300



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1 MR. RUBI NSTEI N: Wel l get her back t o J ul y, J udge.

2 We' l l get her back t o At l ant a t oo.

3 THE COURT: I hope we' r e f i ni shed wi t h J ul y.

4 Q. Di d Mr . Spi t z pr ovi de you wi t h t wo comput er di sks?

5 A. He provi ded me wi t h new books and r ecords.

6 Q. Di d he pr ovi de you wi t h - -

7 A. I don' t remember i f t here were t wo di sks or not .

8 Q. Wel l , di d you l ook at what he had provi ded you wi t h?

9 A. Yes, I di d.

10 Q. Di d t hey - - di d what Mr . Spi t z pr ovi ded you wi t h cont ai n a

11 general l edger?

12 A. He pr ovi ded expenses by budget cat egory as - - I don' t - - I

13 don' t r emember i f i t was necessar i l y - -

14 THE COURT: Was i t i n t he f orm of a proposed gener al

15 l edger or a gener al l edger of any sor t , or i s i t j ust pr oposed,

16 a summar y of - -


18 THE COURT: - - t he t ot al expense; whi ch was i t ?

19 THE WI TNESS: Yes, he provi ded - - he provi ded us a

20 gener al l edger and he provi ded summar i es of expenses.

21 Q. And di d you ut i l i ze hi s document s, i n any way, i n cr eat i ng

22 t he f i nanci al r ecor ds t hat you r el i ed upon?

23 A. Yes.

24 Q. And we have bef ore us i n evi dence Exhi bi t 110 and 111. Ar e

25 you - - do you r ecal l what t hose are, ma' am?


( 212) 805- 0300



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1 A. 110, okay. Yes.

2 Q. And when di d you cr eat e t hose exhi bi t s 110 and 111 t hat ' s

3 i n t he books t hat we al l have, t he j ur ors and what have you?

4 A. I n 2004 or - - yeah 2004, 2005.

5 Q. I sn' t i t a f act , ma' am, t hat you creat ed t hem i n

6 prepar at i on f or t hi s t r i al ?

7 A. I creat ed t hem at t he r equest f r om t he r equest of

8 i nvest i gat i ons.

9 Q. Pardon?

10 A. I cr eat ed t hem at t he r equest of i nvest i gat i ons.

11 THE COURT: Who i nvest i gat i on?

12 THE WI TNESS: Fr om Rachel or Ki r k provi ded me wi t h t he

13 r ecords I had subpoenaed.


15 THE WI TNESS: From t he, f r om our i nvest i gator s t hey

16 had subpoenaed t he checks, cor r oborated t hi s f r om t he banks,

17 t he subpoenaed checks.

18 Q. And, i n f act , you di d t hat i n May of 2008, about a week or

19 t wo bef or e - - a week bef or e t he t r i al s t ar t ed, r i ght ?

20 A. No. These wer e cr eat ed - - t hi s, t he data base was cr eat ed

21 pr i or t o t hat . I was st i l l - - di d some anal ysi s on t he account

22 because i t had been cr eat ed.

23 THE COURT: When was t hi s r ecor d or i gi nal l y cr eat ed

24 t hat you' r e t al ki ng about her e i n t he comput er , 2004, 2003,

25 2005?


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1 THE WI TNESS: I t was cr eated - - i t was cr eat ed i n

2 t wo - - I ' m not - - because - - I ' ve got a coupl e dat a bases. I t

3 was cr eat ed somet i me i n 2004, 2005. I woul d have t o l ook back

4 and see t he exact - - l ook at my t i me, l ook t o see t he exact

5 t i me i t was cr eat ed.

6 THE COURT: That ' s sat i sf act ory. Now go ahead.

7 Q. Now, di d you exami ne t he CASI , pr i or t o t hem r ecei vi ng you

8 or any member , t o your knowl edge, of t he Of f i ce of The

9 I nspect or Gener al - -

10 MR. KWOK: Obj ect i on.

11 Q. - - exami ne CASI pr i or t o t hem r ecei vi ng t he act ual grant on

12 Oct ober 1st - -


14 Q. - - 2001?

15 THE COURT: Obj ect i on t o t he f orm of t he quest i on i s

16 sust ai ned. You' r e not aski ng f or her knowl edge, so - -

17 MR. RUBI NSTEI N: Okay.

18 THE COURT: Pl ease.

19 Q. I s i t a - - does t he - -

20 MR. RUBI NSTEI N: Wel l , she i s an expert , your Honor .

21 She was qual i f i ed as an exper t .

22 THE COURT: Not an exper t on t hat , not on when ot her

23 peopl e mi ght have done t hi ngs.

24 Q. Di d you exami ne, on behal f of NI ST, CASI pr i or t o t he

25 gr ant i ng, pr i or t o t hem r ecei vi ng t he gr ant ?


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1 THE COURT: Bef ore t hey r ecei ved t he grant , di d you

2 exami ne - - have anyt hi ng t o do wi t h CASI ?

3 THE WI TNESS: No, no.

4 THE COURT: Okay.

5 Q. I t ' s a f act t hat under - - you' r e gover ned by Ti t l e 15, CFR

6 14, cor r ect ?

7 A. For t he gr ant , yes.

8 Q. Yes?

9 A. Yes.

10 Q. And as par t of your r esponsi bi l i t y of t he Of f i ce of t he

11 At t or ney Gener al , t he pr i nci pal of f i cer of t he r eci pi ent of t he

12 gr ant i s eval uat ed f or f i nanci al responsi bi l i t y, cor r ect?


14 THE COURT: By t he At t or ney General ?

15 Q. No, by t he Of f i ce of t he I nspect or Gener al .


17 THE WI TNESS: They submi t - - yeah. They - -


19 THE WI TNESS: That doesn' t come t o me. That goes t o

20 anot her sect i on of t he or gani zat i on.

21 Q. I sn' t i t a f act t hat the key of f i ci al s ar e exami ned as t o

22 t hei r f i nanci al responsi bi l i t y?

23 THE COURT: Do you know t hat ?

24 THE WI TNESS: They' r e - -

25 THE COURT: Do you have any knowl edge of t hat ?


( 212) 805- 0300



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1 THE WI TNESS: They do a backgr ound check bef or e t hey

2 gi ve t he awards I thi nk, yeah.

3 THE COURT: You t hi nk?

4 THE WI TNESS: Yeah, t hey have a sect i on f or NI ST

5 gr ant s f i l e, t hey have backgr ound i nf or mat i on, f i nanci al st uf f .

6 THE COURT: You' r e not i nvol ved i n t hat ?

7 THE WI TNESS: I ' m not i nvol ved i n t hat .


9 Q. But you' r e f ami l i ar wi t h t he f act t hat under t hat sect i on,

10 t he quest i on of whet her or not OI G r evi ews t he appl i cant as t o

11 t hei r r esponsi bi l i t y and as t o t hei r honest y and t hei r

12 f i nanci al stabi l i t y - -


14 Q. - - i s t he of f i ci al s , corr ect ?


16 THE COURT: Do you have any knowl edge - - obj ect i on - -

17 I t hi nk t hi s i s not t he r i ght wi t ness f or thi s, Mr . Rubi nst ei n.

18 MR. RUBI NSTEI N: J udge, t hey want Dr . Kar r on t o know

19 ever y l i ne i n t hi s st at ut e.

20 THE COURT: I don' t want t o have an argument i n f r ont

21 of t he j ur y of t hi s sor t . I f you want to r ai se i t , you can

22 r ai se i t at t he si de bar, but you can pr obabl y get a

23 st i pul at i on.

24 Q. Ar e you f ami l i ar wi t h Chapt er Ei ght of 15 CFR, 14?

25 A. What i s i t t al ki ng about ?


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1 THE COURT: I f you want t o put t he - - i f you want t o

2 put somethi ng f r om t he Code of Federal Regul at i ons i n, you can

3 put i t i nt o evi dence. Let ' s not wast e our t i me wi t h t hi s

4 wi t ness on t hi s subj ect .

5 MR. RUBI NSTEI N: I ' d l i ke t o mar k i t t hen f or

6 i dent i f i cat i on at t hi s t i me as def endant ' s AAA.

7 THE COURT: Show i t t o t he government and - -


9 THE COURT: Gi ve i t t o t he Cl er k and I ' l l have i t

10 mar ked.

11 MR. RUBI NSTEI N: I marked i t , J udge.


13 MR. RUBI NSTEI N: I marked i t .

14 THE COURT: They Code of Feder al Regul at i ons,

15 par agr aph ei ght , 14, i s t hat cor r ect ?

16 MR. RUBI NSTEI N: Your Honor , i t ' s chapt er ei ght .

17 THE COURT: What have you mar ked i t as?

18 MR. RUBI NSTEI N: AAA.

19 THE COURT: Def endant ' s AAA?

20 MR. RUBI NSTEI N: Yes. I t ' s chapt er ei ght , r ef er r i ng

21 t o page f i ve, your Honor .

22 THE COURT: J ust chapter ei ght , page f i ve?

23 MR. RUBI NSTEI N: And chapt er ni ne.

24 THE COURT: Not par agr aph 14.

25 MR. RUBI NSTEI N: Chapt er ni ne, page seven.


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1 THE COURT: I ' m sor r y, I di dn' t hear t hat .

2 MR. RUBI NSTEI N: Chapter ni ne, page seven.

3 THE COURT: Ei ght code of Federal r egul at i ons, chapt er

4 ni ne, page seven; i s t hat cor r ect ?

5 MR. RUBI NSTEI N: Your Honor - -

6 THE COURT: We coul d do t hi s out si de t he presence of

7 t he j ur y.



10 Q. As par t of your responsi bi l i t y as a member of t he Of f i ce of

11 t he I nspect or Gener al , you' r e pr ovi ded wi t h al l of t hese 15 CFR

12 sect i ons, cor r ect?


14 THE COURT: Obj ect i on sust ai ned. Now l et ' s get ahead

15 wi t h t hi s. I t doesn' t bear on t hi s wi t ness' t est i mony. Come

16 on.

17 MR. RUBI NSTEI N: J udge, t hey put on t he board - -


19 MR. RUBI NSTEI N: - - 15 CFR.

20 THE COURT: You coul d put up on t he board CFR t oo.

21 Al l you got t o do i s move i t i nt o evi dence.

22 MR. RUBI NSTEI N: I t ' s i n evi dence, J udge. Coul d you

23 put Exhi bi t 4 - -

24 THE COURT: What i s i n evi dence?

25 MR. RUBI NSTEI N: Exhi bi t 4, Government ' s exhi bi t 4.


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1 THE COURT: Al l r i ght . I f i t ' s al r eady i n evi dence,

2 t hen why are we marki ng t hi s other t hi ng f or?

3 MR. RUBI NSTEI N: Because i t ' s onl y r ef er enced i n

4 Exhi bi t 4. Thi s i t page 11, your Honor .


6 MR. RUBI NSTEI N: 7 or 11, l et me see.

7 THE COURT: Do you want t o have i t mar ked i n evi dence,

8 of f er i t i n evi dence.

9 MR. RUBI NSTEI N: Pardon, J udge?

10 THE COURT: Look, we' r e i nterr upt i ng t he

11 cr oss- exami nat i on her e. Let ' s get t hi s t hi ng movi ng. We' ve

12 had a hal f - hour of exami nat i on and we haven' t yet got t en t o

13 anythi ng about t hi s wi t ness' t est i mony. Let ' s get on.


15 Q. When were you f i r st cont acted about t he audi t of t he - -

16 r evi ew what was al l owabl e f or CASI Corpor at i on, CASI , I nc. ?

17 A. End of Apr i l - - appr oxi matel y May of 2003.

18 Q. And who not i f i ed you?

19 A. Our of f i ce got a r equest f r om NI ST gr ant s of f i ce t o do an

20 audi t , t o r evi ew t he f i nanci al st at us of CASI .

21 Q. And di d you - - and di d you speak t o a person f r om NI ST,

22 per sonal l y?

23 A. I spoke t o Hope and t o B. J . , Hope Snowden, and who i s t he

24 gr ant s of f i cer , and B. J . Li de, who was t he pr ogr am of f i cer .

25 Q. And di d - -


( 212) 805- 0300



590


1 THE WI TNESS: I t hi nk J ane Or t hwei n, who i s al so a

2 pr ogr am of f i cer .


4 THE WI TNESS: And t o J ane Or t hwei n, who i s al so a

5 pr ogr am of f i cer .

6 THE COURT: Who? What ' s t he ot her name?

7 THE WI TNESS: B. J . Li de and J ane Or t hwei n, I t hi nk

8 i t ' s O- r - t - h- w- e- i - n.

9 THE COURT: And i s t her e a t hi r d per son?

10 THE WI TNESS: I coul d' ve t al ked t o one of Hope' s

11 super vi sors , whi ch - -


13 THE WI TNESS: Mar i l yn.

14 Q. Di d you have a meet i ng wi t h t hese peopl e i n per son or over

15 t he t el ephone or what ?

16 A. I had a meet i ng wi t h t hem i n person.

17 Q. Al l t hr ee of t hem?

18 A. Yes.

19 Q. And di d you subsequent l y - - who i s Wi l l i am F. Bedwel l ?

20 A. He was t he r egi onal I nspect or Gener al f or At l ant a at t he

21 t i me.

22 Q. And di d he assi gn you t o i nvest i gat e t he expenses of CASI ?

23 A. He woul d' ve pr ovi ded t he audi t ass i gnment when t he audi t

24 st ar t ed i n May of 2003.

25 Q. And when di d t he audi t act ual l y st ar t ?


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1 A. Wel l , when I got t her e when, when our of f i ce deci ded t o

2 per f or m t he audi t , I cal l ed t o r equest a meet i ng wi t h Dr .

3 Karr on, wi t h CASI r epr esent at i ves, and t hey wer e r edoi ng t he

4 books.

5 THE COURT: What ' s t he dat e? Al l we need i s t he dat e

6 when, t hat ' s al l , t hat ' s al l he asked.

7 THE WI TNESS: I don' t know - - okay. I don' t - - i n May

8 of 2003. I don' t know t he speci f i c dat e.

9 Q. Di d you have t hat - - i s t hat cal l ed an ent r ance conf er ence?

10 A. We had t he ent r ance conf erence on J une 18t h when I ar r i ved

11 i n New Yor k.

12 Q. And who di d you meet wi t h?

13 A. Dr . Kar r on and Bob Hayes and J oan Benedi ct , and I don' t

14 r emember Fr ank Spr i ng was t her e or not .

15 Q. And t hat was at - - you met wi t h t hem at the headquar t ers of

16 CASI ?

17 A. Yes.

18 Q. Corr ect ? And CASI - - what organi zat i on had r ecei ved t he

19 gr ant f r om NI ST, t he ATP gr ant f r om NI ST?

20 A. I t hi nk i t was Comput er Ai ded Sur gery, I ncorpor ated.

21 Q. And you ascer t ai ned t hat Dr . Karr on was t he pr i nci pal

22 of f i cer of t hat cor por at i on?

23 A. Yes.

24 Q. Were you aware, when you began t he audi t , what t he of f i ci al

25 name of CASI was?


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1 A. I t was at one t i me CASI , Comput er Ai ded Sur gery I nf ormat i cs

2 Cor por at i on, and so t hey pr ef er r ed t o be cal l ed CASI . So

3 t hat ' s normal l y t he name t hat I used f or t hem.

4 Q. Were t hey i ncorpor ated; was i t t hen as CASI , I nc?

5 A. Oh, I t hi nk i t coul d have been, yes. Maybe.

6 Q. Wel l , ar e you aware whet her or not at any t i me t hey changed

7 t hei r name f r om CASI , I nc. t o CASI LLC?

8 A. Yes, t hey had changed t hei r name t o CASI LLC.

9 Q. Now, when you went t o t he l ocat i on at 300 East 33r d St r eet ,

10 apart ment , i t was apart ment 1N, cor r ect ?

11 A. I t hi nk t hat ' s t he addr ess.

12 Q. And you had made an appoi nt ment bef ore you got ther e?

13 A. Yes.

14 Q. And when you ar r i ved - - appr oxi mat el y, what t i me di d you

15 get t her e?

16 A. I don' t r emember i f t hat was a morni ng or eveni ng. I had

17 come over f r om - - I had t aken t he t r ai n f r om D. C, and I don' t

18 r emember i f I went - - i f i t was i n t he morni ng appoi nt ment or

19 eveni ng appoi ntment or af t ernoon appoi ntment .

20 Q. And f or sure J oan Hayes was t here, cor r ect ?

21 A. Yes, I t hi nk J oan Hayes was t here.

22 Q. Bob Benedi ct was t her e?

23 A. Yes.

24 Q. And Dr . Kar r on was t her e?

25 A. Yes.


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1 Q. Now, were t here other peopl e pr esent when you ar r i ved

2 ther e?

3 A. Yes. I t hi nk pr obabl y J i m Cox was t here, and maybe Mat

4 Rot hman.

5 Q. And t hey were i dent i f i ed t o you as empl oyees of CASI ?

6 A. Yes.

7 Q. They were - - you were i nf ormed t hey were worki ng on t he ATP

8 pr oj ect ?

9 A. Yes.

10 Q. And when di d you - - had you t al ked t o J oan Hayes pr i or to

11 your vi si t on J une 18, 2001?

12 A. I don' t r emember speci f i cal l y i f I tal ked t o her . I coul d

13 have and, i n schedul i ng t he appoi nt ment , because t hey were

14 t r yi ng t o r edo t he books, and so we had r eschedul ed. So I ' m

15 not sur e who I - - i f I spoke di r ect l y wi t h Dr . Kar r on f or t hat

16 or i f I t al ked t o one of hi s r epr esent at i ves.

17 Q. And how l ong di d t hi s vi si t t ake, thi s f i r st vi si t ?

18 A. I t st ar t ed I t hi nk pr obabl y on Wednesday of one week and

19 t hrough Thursday or Fr i day t he next week.

20 Q. Now t hi s - - what room di d you meet t hese t hree peopl e i n,

21 Dr . Karr on, Bob Benedi ct - -

22 A. At CASI ' s, at t he CASI , Dr . Kar r on' s apart ment , CASI

23 of f i ce, t hat , t he f i r st meet i ng?

24 Q. Yes.

25 A. Okay. The f i r st meet i ng was t her e at t he busi ness.


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594


1 Q. At t he busi ness. And i t was i n t he busi ness sect i on of t he

2 apar t ment ?

3 A. I t was i n t he l i vi ng r oom, I guess t he l i vi ng r oom of t he

4 apart ment , t he busi ness.

5 Q. You say l i vi ng r oom. Was t her e, were t her e couches i n

6 ther e?

7 A. No, t here were comput ers i n t here.

8 Q. Were t her e f ur ni t ur e t hat you woul d expect t o f i nd i n what

9 woul d commonl y be cal l ed a l i vi ng r oom?

10 A. No.

11 Q. And, approxi mat el y, how many comput ers were t her e?

12 A. I t hi nk t her e wer e f our .

13 Q. And how l ar ge were t hey?

14 A. They were, they were l arge. I mean, t hey - - I know a

15 coupl e of t hem had t wo moni t or s. I don' t remember i f al l f our

16 of t hem had t wo moni t ors.

17 Q. And were t her e work areas f or peopl e t o work at t hat had

18 smal l er comput ers?

19 A. Ther e wer e - - t her e wer e - - I , I don' t r emember . Ther e

20 was, t her e wer e - - I don' t r emember t he si ze of al l t he

21 computer s.

22 Q. But t here was al so a bedr oom t her e, corr ect ?

23 A. Yes.

24 Q. And - -

25 MR. KWOK: Obj ect i on, r el evance.


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1 THE COURT: I wi l l al l ow t he quest i on. I ' l l al l ow t he

2 quest i on. I s t her e a bedr oom i n t he apar t ment ?

3 THE WI TNESS: Oh, I ' m sor r y. Yes.

4 Q. I ' m goi ng t o show you what ' s bei ng marked as def endant ' s

5 BBB f or i dent i f i cat i on?

6 THE COURT: 3 B' s?

7 MR. RUBI NSTEI N: 3 B' s, yes, your Honor .

8 Q. And ask you i f you r ecogni ze what i s depi ct ed i n t hat

9 document ?

10 MR. KWOK: Your Honor , may we approach t o l ook at i t ?

11 THE COURT: There are f our - - i t ' s more t han one

12 pi ct ur e.


14 THE COURT: Si x pi ct ures.

15 THE WI TNESS: Yeah, i t ' s - - i t ' s t he CASI of f i ce

16 apar t ment s.

17 Q. Thank you.

18 THE COURT: Al l of i t , t he ent i r e apart ment ?

19 THE WI TNESS: I t ' s t he sect i on t hat was known as t he

20 l i vi ng r oom of t he apar t ment , woul d have been t he l i vi ng r oom

21 sect i on of t he apart ment .

22 THE COURT: Pi ct ur es of t he part of t he l i vi ng r oom?

23 THE WI TNESS: Yeah, i t ' s t he - - i t ' s a smal l l i vi ng

24 r oom. I t has comput er desks around i t .

25 THE COURT: Let ' s get on wi t h t hi s, Mr . Rubi nst ei n,


( 212) 805- 0300



596


1 i nst ead of - -

2 MR. RUBI NSTEI N: Yes, J udge.

3 THE COURT: Let ' s move i t on. We' ve got t o get t o t he

4 t est i mony and what she' s t est i f i ed about , now l et ' s move i t

5 al ong.

6 MR. RUBI NSTEI N: We of f er t hi s i n evi dence.

7 THE COURT: We' ve been here al most 45 mi nutes on t hi s

8 cr oss- exami nat i on.

9 MR. RUBI NSTEI N: The government t ol d me t hey wer e

10 goi ng t o be 45 mi nut es l ong.

11 THE COURT: Let ' s move i t al ong.

12 MR. RUBI NSTEI N: I want t o of f er BBB i n evi dence.

13 MR. KWOK: No obj ect i on.

14 THE COURT: No obj ect i on? BBB i s r ecei ved i n

15 evi dence.

16 ( Def endant ' s Exhi bi t BBB r ecei ved i n evi dence)

17 MR. RUBI NSTEI N: Put t hi s on t he El mo, pl ease.

18 THE COURT: I guess you have t o - - you have t o move i t

19 si deways t oo f or t he j ur y t o get any i dea. That ' s upsi de down.

20 Q. Now, you see t he scr een i n t he bot t om as you f ace t he

21 pi ct ur e on t he bot t om r i ght por t i on; you see what ' s depi ct ed

22 t here?

23 A. Yes.

24 Q. Pardon?

25 A. The scr een, yes.


( 212) 805- 0300



597


1 Q. And di d you see t hat scr een i n t he apar t ment ?

2 A. I don' t r ecal l i f I saw t he screen or not . They di d a

3 pr esent at i on, but I was t hi nki ng i t was on t he moni t or ,

4 comput er moni t or s, but I don' t recal l i f I saw.

5 Q. And di d you see i n t he, i n 120A t hey presented an exhi bi t

6 t hat sor t of l ooked l i ke t hi s i t em over her e, a l amp wi t h a

7 pr oj ect i on; di d you see t hat ?

8 A. At t he apar t ment ?

9 Q. At t he apar t ment .

10 A. I don' t recal l i f I saw t hat at the apar t ment .

11 THE COURT: Wel l , when you i dent i f i ed t hi s as Dr .

12 Kar r on' s apar t ment , does i t l ook l i ke t he apar t ment at t he t i me

13 t hat you vi ewed i t i n J ul y 2003; i s t hat a f ai r r epr esent at i on

14 of t he apart ment and equi pment i n i t at t he t i me i n J ul y 2003?

15 THE WI TNESS: I t , i t had a - - i t had - - I don' t

16 r emember t he - - i f I saw t he scr een, but t he ot her st uf f i s

17 probabl y so.


19 THE WI TNESS: The other , t he r est of i t pr obabl y.

20 THE COURT: Not probabl y.

21 THE WI TNESS: Oh, yeah.

22 THE COURT: You know when t hi s pi ct ure was t aken?


24 THE COURT: Al l r i ght . Wel l , does i t - -



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598


1 THE COURT: Ther ef ore, t hat ' s why I ' m aski ng you t he

2 quest i on.

3 THE WI TNESS: Yes. I t l ooks - - yeah, but I was - -

4 THE COURT: Not t he apar t ment i t sel f , t he equi pment i n

5 i t .

6 THE WI TNESS: Um, yes, t hey had si mi l ar - - t hey woul d

7 have had - - except f or t he - - I don' t know about t he - - I don' t

8 r emember about t he scr een - - but i t had - - di d have comput ers

9 l i ke t hat and t hi ngs under t he deck and al l t he t hi ngs.



12

13

14

15

16

17

18

19

20

21

22

23

24

25


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8657KAR4 Ri l ey - cr oss


2 Q. And t her e was shel vi ng around t he r oom?

3 A. Ther e was shel f i ng.

4 Q. And i t wasn' t f or kni ckknacks, r i ght ? I t was f or

5 comput er - r el ated i t ems, cor r ect ?

6 THE COURT: That cal l s f or a concl usi on. Let ' s go

7 ahead.

8 Q. Wel l , you as t he audi t or, wer e you i nt er est ed i n

9 det ermi ni ng whet her or not gover nment money was spent on

10 comput er - r el at ed i t ems?

11 A. They had a budget f or equi pment .

12 Q. Now, were you at t he apar t ment when t he - - t he prosecutor

13 r ead t o you a whol e l i st of i t ems t hat wer e sei zed. Wer e you

14 present when t he i t ems were sei zed?

15 A. No.

16 Q. At t hat meet i ng i n J une of 2001 wi t h J oan Hayes and Bob

17 Benedi ct , who di d you under st and Bob Benedi ct was?

18 A. J une of - -

19 Q. J une of 2003 when you were conduct i ng your audi t .

20 A. He was t he proj ect manager .

21 Q. And whi l e you were i n t he - - whi l e you were at CASI , were

22 you provi ded wi t h any document at i on?

23 MR. KWOK: Ti me f r ame, your Honor .

24 A. Document at i on f or what ?

25 MR. KWOK: Ti me f r ame.


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1 THE COURT: Ti me f r ame.

2 MR. RUBI NSTEI N: When she was at t he apar t ment .

3 THE COURT: Whi ch are you t al ki ng about ? J ul y?

4 MR. RUBI NSTEI N: I sai d J une, J udge.

5 THE COURT: Al l r i ght . I n J une.

6 MR. RUBI NSTEI N: Fi r st I sai d 2001 and t hen I sai d

7 2003.

8 THE COURT: I don' t want t o hear t hat . I want t o hear

9 her gi ve some t est i mony t hat ' s accur ate and st r ai ght .

10 THE WI TNESS: He sai d document s.

11 Q. Any f i nanci al st atement s?

12 A. I was gi ven what ever t he Qui ck Book r ecor ds were t hat t hey

13 provi ded t o me.

14 Q. Who i s t hey?

15 A. Probabl y J oan Hayes, Bob Benedi ct , Frank Spr i ng, Dr .

16 Karr on. I don' t know who speci f i cal l y handed me t he

17 i nf ormat i on.

18 Q. Was t he i nf ormat i on r eady f or you, or di d t hey have t o

19 pr i nt i t out f r om one of the comput er s?

20 A. They wer e st i l l i n t he pr ocess of r edoi ng t he second set of

21 books.

22 THE COURT: Di d t hey hand i t out t o you or not ?

23 THE WI TNESS: They gave me some of i t i n computer and

24 some of i t i n har d copy.

25 Q. And were you shown t he syst em t hat was used by t he


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1 pr i nci pal - - by t he peopl e at CASI t o keep t hei r r ecor ds?

2 A. Yes.

3 Q. And i n f act every check was scanned i nto t hi s syst em,

4 cor r ect ?

5 A. Yes, t hey scanned i n checks and i nvoi ces.

6 Q. And t he checks, i nvoi ces and backup, cor r ect ?

7 A. Yeah, t he i nvoi ces woul d be t he backup. They scanned i nt o

8 t he comput er and dest r oyed t he or i gi nal i nvoi ce.

9 Q. And i n your audi t of r evi ewi ng whenever a check was i ssued

10 and cashed was t here an i nvoi ce t hat backed up t hat par t i cul ar

11 i t em?

12 A. I don' t remember speci f i cal l y what i t l ooked l i ke, what

13 t hat r ecor d l ooked l i ke.

14 Q. I ' m not aski ng you what t he r ecord l ooked l i ke, ma' am.

15 A. You' r e aski ng me i f t here was a check backi ng up t he

16 i nvoi ce at t ached t o each i nvoi ce.

17 Q. Ri ght .

18 A. I don' t remember speci f i cal l y i n t he i nst ance of CASI i f

19 t hey had copi es of checks and copi es of i nvoi ces at t ached t o

20 each ot her. I t ' s possi bl e, but I don' t speci f i cal l y r ecol l ect

21 i f t hey di d or not .

22 Q. Wel l , i f t hey had an expense t hat t hey wr ot e a check f or

23 and t her e was no i nvoi ce as a backup, woul d you make a note of

24 t hat as an audi t or ?

25 A. Yes.


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1 Q. And i n f act i n t hi s case you made no notes of mi ssi ng

2 i nvoi ces t o mat ch wi t h checks, cor r ect ?

3 A. Ri ght , I don' t t hi nk so, r i ght .

4 Q. Now - -

5 A. For t he sampl e r evi ewed.

6 Q. That was t he f i r st r evi ew, t he sampl e r evi ew, cor r ect ?

7 A. Both of t hem- - yes, t hey woul d have sampl e r evi ew.

8 Q. Di d you ask quest i ons of Dr . Karr on?

9 A. Yes.

10 Q. And di d you ask hi m f or speci f i c i nf or mat i on?

11 A. Yes.

12 Q. And gi ve us an i l l ust r at i on of somethi ng you asked Dr .

13 Karr on f or.

14 THE COURT: I f you r emember .

15 A. Wel l , I know I asked hi m what t he empl oyees di d. That ki nd

16 of i nf ormat i on? I mean - -

17 Q. Di d he r espond t o you?

18 A. Yes.

19 Q. Di d he r espond t o any quest i on you asked hi m?

20 A. I t hi nk so.

21 Q. Di d he of f er t o l et you use t he - - excuse me one second - -

22 and di d t hey act ual l y show you on a comput er scr een document s

23 t hat had been st ored i n t he comput er - -

24 A. Yes, yes.

25 Q. - - t o show t he expenses t hat were i ncurr ed and t he backup


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1 why i t was l egi t i mat e? Ri ght ?

2 A. They showed, document s - -

3 MR. KWOK: Obj ect i on t o f or m.

4 Q. Wel l , backup t o expl ai n what the expense was f or .

5 THE COURT: Over r ul ed. Coul d I hear t he quest i on

6 back.

7 ( Recor d r ead)

8 THE COURT: I t doesn' t sound l i ke a compl et e answer .

9 THE WI TNESS: Ther e was an obj ect i on, so I di dn' t know

10 i f you - -

11 A. They showed document s. They showed copi es of i nvoi ces t hat

12 t hey had scanned i nto t he comput er .

13 Q. Now, you used as a st ar t i ng poi nt - - di d you use as a

14 st ar t i ng poi nt f or your audi t what was t he schedul es of t he

15 most r ecent l y approved budget?

16 A. Yes.

17 THE COURT: What you wer e t ol d was t he most r ecent l y

18 appr oved budget .

19 THE WI TNESS: Yes, what I was t ol d was t he most

20 r ecent l y appr oved budget . I t hi nk i t was amendment 2.

21 Q. And i n f act when you were i n t he apar t ment - - wi t hdr awn.

22 You became aware dur i ng t he cour se of your audi t t hat

23 t her e were cer t ai n expenses at t r i but abl e t o work t hat had been

24 done i n t he apart ment , shel vi ng and i nst al l at i on of wi r i ng and

25 t hi ngs of t hat nat ur e, cor r ect ?


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1 A. Yes. Yes.

2 Q. Di d you see when you were i n t hat apar t ment anyt hi ng t hat

3 you woul d descr i be as const r uct i on?

4 A. The shel ves and t he desks, t he t abl es.

5 THE COURT: Were t hey under const r uct i on?

6 THE WI TNESS: No, t hey weren' t under const r uct i on at

7 t he t i me.

8 Q. The shel ves and t he desks. And i s i t f ai r t o say t hat you

9 di sal l owed t hat expense?

10 A. Yes.

11 Q. And are you f ami l i ar wi t h - - and on what basi s di d you

12 di sal l ow t hat expense?

13 A. I t wasn' t al l owabl e per t he budget .

14 Q. Equi pment was al l owabl e, was i t not ?

15 A. I di dn' t quest i on t he equi pment amount up t o t he budget

16 cat egory.

17 Q. Wel l , ar e you aware t hat under t he cat egory of equi pment

18 you are permi t t ed t o do a cer t ai n amount of what you woul d cal l

19 si t e pr epar at i on?

20 A. They st i l l had mor e cost - - t he equi pment was st i l l over

21 t he budget wi t hout t hat cost , so sayi ng whet her t hat was

22 al l owabl e or not al l owabl e was i r r el evant as t o whet her i t

23 woul d be qual i f i ed as al l owabl e equi pment cost s.

24 Q. The money was spent - - i n ot her words, ar e you sayi ng now

25 t hat whatever changes were made, physi cal changes were made t o


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1 t he apart ment , wer e made f or t he benef i t of t he pr ogr am f or

2 car r yi ng out t he pr oj ect ?


4 THE COURT: I di dn' t hear her say t hat .

5 Q. Wel l , are you f ami l i ar wi t h t he f act that under equi pment

6 you are permi t t ed - - " ATP f unds may, however , be used f or

7 const r uct i on of exper i ment al research and devel opment

8 f aci l i t i es t o be l ocat ed wi t hi n a new or exi st i ng bui l di ng,

9 pr ovi ded t he equi pment or f aci l i t i es ar e essent i al f or car r yi ng

10 out the pr oj ect . I f such cost s ar e pr oposed, i ncl ude bel ow and

11 pr ovi de j ust i f i cat i on. " Ar e you f ami l i ar wi t h t hat ?

12 A. Yes.

13 Q. And sal ar i es, you r evi ewed t he sal ari es, di d you not ?

14 A. Yes.

15 Q. And what was your - - you di sal l owed sal ar i es, di d you not ,

16 as par t of you comi ng t o t hi s hal f a mi l l i on dol l ar f i gur e,

17 r i ght ?

18 A. Whi ch f i gur e are we t al ki ng about now?

19 Q. Sal ar i es.

20 A. Ar e we t al ki ng about the J ul y r epor t or t he December

21 report ?

22 Q. I n your t est i mony di d you say t hat you di sal l owed - -

23 THE COURT: No, you' ve got t o gi ve her some t i me

24 f r ame, Mr . Rubi nst ei n.

25 Q. Wel l , how about di d t her e come a t i me t hat you i n your


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1 eval uat i on and anal ysi s of CASI , t hat you eval uat ed t he

2 sal ari es t hat wer e bei ng pai d?

3 A. Yes.

4 Q. And when was t hat ?

5 A. I n t he December 2003 r evi ew.

6 Q. And at t hat t i me di d you make a det ermi nat i on as t o how

7 much sal ary was appr ovabl e?

8 A. Yes.

9 Q. How much sal ary was budgeted f or CASI f or t he f i r st year ,

10 Oct ober 1, 2001 t o Sept ember 30, 2002, t he f i r st year of t he

11 gr ant ?

12 A. I woul d have t o l ook back at some document at i on t o know t he

13 speci f i c number .

14 Q. Pardon? Do you have anyt hi ng t hat - -

15 A. Dr . Kar r on' s sal ary was budget ed 175, 000, and t he ot her

16 empl oyees' sal ar i es were budgeted at 150, 000.

17 Q. And how much of Dr . Kar r on' s $175, 000 sal ary di d you al l ow?

18 A. I t hi nk 85 per cent of i t . I s t hat r i ght ?

19 THE COURT: You l ook at t he papers and t el l us. Don' t

20 say you t hi nk.

21 MR. KWOK: Your Honor , I don' t know whet her

22 Mr . Rubi nst ei n i s aski ng per t he audi t or per t he bank r ecor ds

23 anal ysi s.

24 MR. RUBI NSTEI N: I ' m aski ng her audi t , what she

25 al l owed.


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1 THE COURT: Whi ch audi t ?

2 MR. RUBI NSTEI N: I n any audi t .

3 THE COURT: 2004? J ul y 2003? Whi ch audi t ? The f i nal

4 audi t ? The one t hat went up on t he board?

5 Q. Wel l , di d your number s change bet ween your f i r st audi t and

6 your second audi t ?

7 A. The f i r st - - t he number s - - t he number on t he f i r st audi t

8 di dn' t get t hat det ai l ed. The shor t r epor t number of t he

9 205, 000 number came f r om t he r evi sed books, how much t hat CASI

10 sai d i t spent f or the NI ST pr oj ect , excl udi ng t he expenses t hat

11 i t had f or CASI , t he di f f er ence bet ween t hat and t he deposi t s.

12 So, t hat number di dn' t come f r om an anal ysi s of t he speci f i c

13 budget cost categor i es. The December r eport , af t er I met wi t h

14 Mel Spi t z, was an anal ysi s of t he speci f i c budget cat egori es,

15 si nce Dr . Kar r on t ol d me he had addi t i onal new r ecor ds.

16 Q. Do you want t o l ook at the appendi x t o your dr af t r epor t

17 t hat ' s i n evi dence, whi ch i s Exhi bi t - -

18 A. Ri ght . And t hat one says - -

19 THE COURT: Wai t . Wai t unt i l he gi ves you t he

20 exhi bi t .


22 Q. 61. I ' m sorr y. 62. Appendi x 1, page 2 of 8. Does t hat

23 r ef r esh your recol l ect i on of how much of Dr . Karr on' s appr oved

24 sal ary you di sal l owed t o come t o your f i gur e of over $500, 000?

25 A. I t hi nk 15 per cent .


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1 Q. Pardon?

2 A. 15 per cent . The chi ef t echni cal of f i cer , r i ght ?

3 Q. And t hat was based on an hour l y comput at i on?

4 A. That was based on an est i mat e of t i me spent on ot her

5 act i vi t i es ot her t han t he NI ST gr ant .

6 Q. What act i vi t i es was t hat?

7 A. The busi ness of CASI .

8 Q. I s i t a f act t hat CASI had no other busi ness?

9 A. CASI was a busi ness t hough.

10 Q. But t hei r onl y pr oj ect was t he ATP pr oj ect ?

11 A. Ri ght , but t her e woul d st i l l be expenses associ at ed wi t h

12 t he exi st ence of t he busi ness.

13 Q. When t he budget was appr oved, i t was appr oved f or $175, 000,

14 cor r ect , sal ar y?

15 A. Corr ect .

16 Q. And was t her e any i ndi cat i on of how many hours Dr . Kar r on

17 woul d spend i n order t o ear n hi s $175, 000 on t hi s ATP pr oj ect ?

18 A. I don' t remember i f t hey speci f i cal l y had t i me sheet s or

19 not .

20 Q. Di d you det ermi ne how many hour s a week Dr . Karr on wor ked

21 on t he ATP grant?

22 A. The sal ar y, t he hour s don' t - - i t doesn' t necessar i l y

23 mat t er t he hour s. I t ' s per cent of t i me worked.

24 Q. Wel l , what about Mr . Gur f ei n, was he budget ed f or sal ary?

25 A. Yes.


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1 Q. How much was he budget ed f or sal ar y?

2 A. I don' t r ecal l . I don' t have a copy of the budget i n f r ont

3 of me.

4 Q. So you overr ul ed ATP t hat aut hor i zes $175, 000 f or Dr .

5 Kar r on, cor r ect ?


7 THE COURT: Obj ect i on sust ai ned t o t he f orm of t he

8 quest i on.

9 Q. I n f act , does i t r ef r esh your r ecol l ect i on t hat Mr . Gur f ei n

10 was t o r ecei ve $100, 000 annual sal ary?

11 THE COURT: Does t hat r ef r esh your r ecol l ect i on?

12 A. I f I coul d see a copy.

13 Q. Why don' t you l ook at t he same page. See i f i t ref r eshes

14 your r ecol l ect i on. He was t he chi ef oper at i ng of f i cer ,

15 cor r ect ?

16 A. Yes.

17 Q. Di d t hat r ef r esh your r ecol l ect i on of what Mr . Gur f ei n' s

18 sal ary was?

19 A. You sai d t hat i t was $100, 000 accor di ng t o t he budget .

20 Q. And di d you al l ow $100, 000 i n cost s f or Mr . Gur f ei n?

21 A. J ust because i t ' s al l owabl e i n t he budget cat egor y doesn' t

22 make i t al l owabl e - -

23 THE COURT: The quest i on i s di d you or di dn' t you.

24 THE WI TNESS: I - -

25 THE COURT: Yes or no?


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1 THE WI TNESS: I don' t have t he i nf ormat i on here t o

2 t el l how much was al l owabl e.

3 THE COURT: What does your r epor t say r i ght on t he

4 f r ont page?

5 THE WI TNESS: I t says how much.

6 THE COURT: Page 2 of 8 on t he appendi x.

7 THE WI TNESS: Ri ght . I t says how much i s quest i oned;

8 i t doesn' t say how much was al l owed.

9 THE COURT: Wel l , when you say i t ' s quest i oned, i sn' t

10 t hat you di sal l ow i t subj ect t o t hei r comi ng back t o you t o

11 show t hat i t was appr opr i ate?

12 THE WI TNESS: J ust because t her e i s a budget cat egory

13 wi t h an al l owabl e amount , t hat means t hey al l ow up t o t hat

14 amount i f appl i cabl e t o t he NI ST pr oj ect or par t of t he NI ST

15 pr oj ect cost . I t doesn' t mean you ar e ent i t l ed t o t hat amount

16 of money no mat t er what .

17 Q. I t doesn' t mean you ar e not ent i t l ed t o i t ei t her , cor r ect ?

18 A. I f i t ' s al l owabl e i n t he NI ST ATP gr ant cost i t ' s al l owabl e

19 up t o t hat amount . J ust because you have an amount i n a budget

20 f or an expense doesn' t mean you are ent i t l ed t o t hat amount i f

21 you di dn' t have al l owabl e cost s f or t hat amount .

22 Q. I f you have a budget f or $100, 000 f or equi pment and you

23 spend $100, 000 on equi pment f or your pr oj ect , i s t hat OK?

24 A. I f i t ' s a NI ST ATP pr oj ect equi pment .

25 Q. Wel l , her e t her e i s onl y one pr oj ect , cor r ect ?


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2 Q. I n your audi t di d you f i nd t hat CASI was doi ng any other

3 pr oj ect ot her t han t he NI ST ATP pr oj ect ?

4 A. They were worki ng on t he NI ST ATP proj ect . They may - -

5 t hey al so had been t r yi ng t o get other awards.

6 Q. For t hi s pr oj ect .

7 THE COURT: Obj ect i on. Do you know what t hey wer e

8 f or , other awar ds?

9 THE WI TNESS: Onl y t he one t hat kept comi ng up f r om

10 t he St at e of New Yor k t hat di dn' t happen.

11 Q. They want ed t o get f unds f r om t he Stat e of New Yor k t o add

12 t o t hi s NI ST ATP pr oj ect , cor r ect ?


14 THE COURT: Obj ect i on sust ai ned.

15 Q. How much of Mr . Gur f ei n' s $100, 000 sal ary di d you di sal l ow?

16 A. 25 per cent .

17 Q. So, t hat woul d be $25, 000, corr ect ?

18 A. Yes.

19 Q. I f he got 100, 000, i t woul d be 25, 000?

20 A. Yes.

21 Q. And on what basi s di d you r educe hi s sal ary by 25 percent ?

22 A. Because of t he dut i es t hat he di d.

23 Q. He spent onl y 75 percent of hi s t i me on NI ST ATP proj ect s,

24 i s t hat your t est i mony?

25 A. Wel l , t he t hi ngs t hat Mr . Gur f ei n was doi ng wer e not


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1 necessar i l y t hi ngs f or t he r esear ch, t hey wer e t o cont i nue t he

2 pr oj ect . So, t hey wer en' t necessar i l y al l al l owabl e NI ST

3 pr oj ect expendi t ur es f or gr ant pur poses.

4 Q. Wel l , i sn' t i t a f act t hat Mr . Gur f ei n' s sal ar y was

5 appr oved on t he basi s t hat onl y 75 percent of hi s t i me woul d be

6 devot ed t o t he NI ST pr oj ect ?

7 A. Ri ght . And so when he car r i ed i t out then he woul dn' t have

8 had - -

9 Q. Ar e you aware of t hat , ma' am?

10 THE COURT: Do you know what t he si t uat i on was i n

11 t erms of how hi s sal ary was comput ed - -

12 THE WI TNESS: I have t o see t he budget .

13 THE COURT: - - f or t he budget ?

14 THE WI TNESS: I know i t was a per centage of whatever

15 hi s sal ary was was al l owabl e.

16 Q. I am aski ng you, ma' am, whet her or not when you made t he

17 det er mi nat i on and you put i n your r epor t t hat $25, 000 - - t hi s

18 i s r eadi ng f r om appendi x A, page 2 of 8 pages, i t says, $25, 000

19 of t he 71, 550 i s quest i oned f or t he chi ef oper at i ng of f i cer due

20 t o 25 per cent of hi s t i me and sal ar y bei ng al l ocated t o

21 non- NI ST act i vi t i es. Cor r ect?

22 A. That ' s what i t says, yes.

23 Q. So, t hat he i s supposed t o i nvest 75 per cent of hi s t i me t o

24 a NI ST acti vi t y, accor di ng t o your cal cul at i on, ri ght ?

25 A. Yes.


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1 Q. But i sn' t i t a f act t hat t he budget speci f i cal l y appr oved

2 by NI ST ATP provi ded t hat Gur f ei n was onl y t o spend 75 per cent

3 of hi s t i me on t he pr oj ect ?

4 A. So, i t had 75 per cent of hi s sal ary t i mes t hat came up wi t h

5 a l ower number t han a hundr ed percent of hi s sal ary t hat was

6 al l owed f or t he budget .

7 THE COURT: What ar e you sayi ng?

8 THE WI TNESS: Wel l , i f hi s - - I don' t r emember. But

9 i f hi s sal ary was $100, 000 a year , and NI ST al l owed 75 per cent

10 of t hat as NI ST ATP f or t he budget , t hen 75 t i mes a hundred

11 woul d be $75, 000 of hi s sal ary coul d be r ei mbur sed by t he NI ST

12 proj ect cost s, and t he ot her 25, 000 woul d be pai d by CASI .

13 THE COURT: Let me ask you a quest i on. What di d you

14 under st and t he budget $100, 000 t o be payi ng hi m? Di d you

15 expect i t t o be f or 75 per cent of hi s t i me?

16 THE WI TNESS: 75 per cent of t he t i me, t he sal ar i ed

17 amount .

18 THE COURT: That ' s what i t was i n t he budget .

19 THE WI TNESS: That ' s what t he budget woul d al l ow i f he

20 devot ed t hat much t i me t o t he pr oj ect , yes.

21 THE COURT: Now, so i f he spent 75 per cent of hi s t i me

22 on t he budget , why wasn' t he ent i t l ed t o t he f ul l amount of t he

23 $100, 000?

24 THE WI TNESS: No, not worki ng on t he budget . But t he

25 NI ST budget mul t i pl i es i t out acr oss t hat says $100, 000, t i mes


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1 75 per cent of hi s t i me, so t hat woul d be $75, 000 t hat NI ST

2 woul d r ei mbur se of t he sal ary t hat he was pai d. I ' m not sur e

3 i f hi s sal ary was $100, 000. Whatever hi s sal ary was, t i mes 75

4 per cent of t he t i me, t hen NI ST woul d pay t hat amount .

5 I s t hat how t hat ' s wr i t t en? I don' t - -

6 THE COURT: I s t hat how what i s wr i t t en?

7 THE WI TNESS: The budget .

8 THE COURT: So, you are j ust accept i ng what Mr . - -

9 THE WI TNESS: No, I ' m sayi ng how i t ' s wr i t t en.

10 THE COURT: Wel l , you ar e t he one we' r e aski ng how

11 i t ' s wr i t t en, not hi m.

12 THE WI TNESS: OK, I need a copy of t he budget t o see.

13 THE COURT: Wel l , you bet t er exami ne a copy of t he

14 budget bef ore you st art answer i ng quest i ons.

15 THE WI TNESS: OK.

16 THE COURT: Thi s i sn' t hypot het i cal st uf f .


18 THE COURT: Do you underst and?



21 MR. RUBI NSTEI N: Why don' t we t urn t o Gover nment

22 Exhi bi t 10B.

23 THE COURT: Do you have a copy bef or e you?




( 212) 805- 0300



615


1 Q. Have you r evi ewed t hat , ma' am?

2 A. Yes. Wher e i s t he t hi ng t hat - - thi s i s - - wher e i s t he

3 t hi ng t hat i ncor por at es t hi s par t of t he awar d or of t he

4 budget ? Because f or amendment 2 what i t shoul d say i s i f hi s

5 annual sal ary i s $100, 000, t hen 75 percent of t hat woul d be

6 $225, not $300, 000, so t hi s shoul d be mul t i pl yi ng t hi s acr oss.

7 I t hi nk t hese are pr epared by I t hi nk CASI and submi t t ed.

8 THE COURT: 10B?


10 THE COURT: I s submi t t ed by t hem?

11 THE WI TNESS: I s submi t t ed by CASI t o NI ST.

12 THE COURT: Where i s what t he awar d appr oved, t he

13 budget t hat t he award approved? Do we have t hat exhi bi t ?

14 MR. KWOK: I t ' s Gover nment Exhi bi t 22, I bel i eve, your

15 Honor .


17 DEPUTY COURT CLERK: Gover nment 22.

18 THE COURT: 22.

19 MR. RUBI NSTEI N: Your Honor , I dr aw. I f you l ook

20 at - -

21 THE COURT: She i s l ooki ng at 22 now. Let ' s st ay wi t h

22 what she i s l ooki ng at and t hen you can ask a quest i on.

23 THE WI TNESS: Ther e shoul d be somet hi ng t hat breaks

24 down t he expenses by year s.

25 MR. RUBI NSTEI N: Can I ask a quest i on, your Honor ?


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616


1 THE COURT: She hasn' t answered t he quest i on yet .

2 THE WI TNESS: Ther e shoul d be - -

3 THE COURT: Thi s i s t he budget t hat was approved.

4 THE WI TNESS: Ther e shoul d be somet hi ng t hat breaks

5 down f or t he year one t hat l ooks si mi l ar t o t hi s, t hat br eaks

6 down by year one, year t wo, year t hr ee, i nst ead of j ust al l

7 t hr ee t oget her , and i t shoul d - -

8 THE COURT: I don' t f ol l ow what you' r e sayi ng. But

9 now you can see t hat t hey r equest ed f or the t hr ee years

10 $1, 330, 000, l ooki ng at 10B - -


12 THE COURT: - - f or personnel .

13 THE WI TNESS: And t hen l ooki ng at page 2 of t hi s

14 exhi bi t , t he t hr ee year t ot al i s $1, 075, 000.

15 THE COURT: So, t here was some adj ust ment made.

16 THE WI TNESS: Yes, t her e i s some adj ust ment .

17 THE COURT: But you don' t know what adj ust ment was

18 made.

19 THE WI TNESS: Mat hemat i cal l y t hi s shoul d show - - t he

20 annual sal ary i s $100, 000. I t shoul d be t hr ee t i mes a 100, 000,

21 t i mes 75 percent , and t hat woul dn' t be $300, 000, so t her e i s a

22 mathemat i cal t hi ng t here.

23 Q. Ar e you aware t hat t he $325, 000 al l ocat i on f or sal ary and

24 wages was of f an amended budget t hat i ni t i al l y had $375, 000

25 t hat was appr oved?


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617


1 A. Yes.

2 THE COURT: You ar e?

3 THE WI TNESS: Wel l , I know t hat t hi s budget was

4 adj ust ed, and t hey had moved some money t o consul t i ng t o pay

5 f or Geor ge Wol ber g.

6 THE COURT: What ?

7 THE WI TNESS: They moved some money f r om payrol l cost

8 t o consul t i ng cost s or subcont r act i ng cost t o pay f or Wol ber g.

9 THE COURT: I ' m t r yi ng t o have you t el l us what you

10 wer e l ooki ng at - -

11 THE WI TNESS: Oh.

12 THE COURT: - - whi ch al l owed you t o deduct or di sal l ow

13 Mr . El i sha Gol dber g' s sal ar y i n t he amount of $25, 000. That ' s

14 what I ' m aski ng you t o show us, what you were r el yi ng on t o do

15 t hat . Now, woul d you show i t t o us.

16 THE WI TNESS: OK. The suppor t i ng document t hat shows

17 t he br eakdown of cost s by year , t hat l ooks si mi l ar t o 10B, has

18 si mi l ar per sonnel , f r i nge benef i t s, t r avel , i t br eaks down t he

19 cost as a year one, year two, year t hr ee, i nst ead of a t ot al

20 cost . On t hi s i t says l i ke Lee Gur f ei n, $100, 000 annual

21 sal ary, per cent age of t i me on pr oj ect i s est i mated, t he

22 budget ed i s est i mat ed t o be 75 per cent , and so t hat shoul d not

23 be $300, 000, i t shoul d be i t shoul d be 225. Pl us

24 mat hemat i cal l y i t ' s not r i ght .

25 THE COURT: Al l r i ght . Wel l , we have t o t ake - -


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618


1 THE WI TNESS: But t her e i s some ot her document .

2 THE COURT: You bet t er st udy your document s, and we

3 bet t er t ake a l uncheon br eak. I t ' s t en af t er one, so t he j ur y

4 i s excused unt i l t en af t er t wo. And t he par t i es ar e i nst r uct ed

5 t hey are not to t al k t o t he wi t ness dur i ng t he br eak.

6 ( Luncheon r ecess)


8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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619


1 AFTERNOON SESSI ON

2 2: 05 p. m.

3 ( J ur y not pr esent )

4 MR. KWOK: Your Honor , may we j ust r ai se one qui ck

5 i ssue wi t h t he cour t - -

6 THE COURT: Yes.

7 MR. KWOK: - - bef ore we cal l i n t he j ur y? I bel i eve

8 t he wi t ness j ust now was r ef err i ng t o some work paper s or ot her

9 mat er i al s t hat she used t o assi st her i n conduct i ng her audi t .

10 I bel i eve she i s r ef er r i ng t o t hat box of document s t her e whi ch

11 we j ust got on Monday. I t l ooks l i ke mat er i al s t hat she

12 gat her ed t o assi st her i n her work. We haven' t l ooked at i t .

13 Def ense hasn' t l ooked at i t . But i f she i s r ef er r i ng t o and i f

14 she want s t o l ook at t hat t o assi st her , I was wonder i ng i f

15 anyone had any obj ect i on t o gi ve t hat to t he wi t ness.

16 MR. RUBI NSTEI N: J udge, I suggest ed t o Mr . Kwok t hat I

17 woul d have no probl em i f she r evi ewed i t and showed us whi ch

18 document she was goi ng t o r el y upon. I don' t want t o have

19 another 2000 si t uat i on.

20 THE COURT: Do you want t o r ecal l her and have her

21 come back, have another wi t ness? The j ur y i s al r eady i nqui r i ng

22 about wher e we are i n t hi s case, how many mor e wi t nesses, how

23 l ong.

24 MR. KWOK: We can t ake t hat out of order .

25 THE COURT: Wel l , bot h l awyers have t o agr ee.


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620


1 MR. KWOK: We have our next wi t ness here who i s Lee

2 Gur f ei n. We can t ake hi m f i r st , and i n t he meant i me we can

3 have t he pr i or wi t ness revi ew t he box of document s she was

4 r ef er r i ng t o.

5 MR. RUBI NSTEI N: I t sounds al l r i ght . I am j ust goi ng

6 t o use t he f aci l i t i es f or a second.

7 THE COURT: Let ' s cal l t he j ur y i n.


9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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621


1 ( J ur y pr esent )

2 THE COURT: Ladi es and gent l emen, Ms. Ri l ey want s t o

3 r evi ew her per sonal f i l e i n or der t o gi ve you an answer t o t he

4 quest i on t hat was pendi ng, so she i s subj ect t o r ecal l f or t hat

5 quest i on and cont i nued cr oss- exami nat i on. I n order t o save

6 t i me, we have anot her wi t ness.

7 Wi l l t he cl er k swear i n t he wi t ness, pl ease.

8 ELI SHA GURFEI N,


10 havi ng been dul y sworn, t est i f i ed as f ol l ows:

11 DEPUTY COURT CLERK: St at e your name, spel l your f i r st

12 and your l ast name sl owl y f or t he r ecord, pl ease.

13 THE WI TNESS: El i sha Gur f ei n, E- L- I - S- H- A. Last name

14 G- U- R- F- E- I - N.

15 THE COURT: Pl ease pr oceed, Mr . Everdel l .


17 BY MR. EVERDELL:

18 Q. Good af t ernoon, Mr . Gur f ei n.


20 Q. Wher e do you wor k?

21 A. I cur r ent l y work at New York Uni ver si t y and Wi l l i am

22 Pat t er son Uni ver si t y.

23 Q. What do you do at t hose uni ver si t i es?

24 A. I t each.

25 Q. What do you t each?


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622

8657KAR4 Gurf ei n - di r ect

1 A. I t each economi cs and f i nance at Wi l l i am Pat t er son, and I

2 t each cour ses on natur al r esour ces at New Yor k Uni ver si t y.

3 Q. How l ong have you t aught at t hose uni ver si t i es?

4 A. For a f ew years.

5 Q. What di d you do bef or e you were a t eacher ?

6 A. I had a company of my own i n commodi t y t r adi ng.

7 Q. How l ong di d you do commodi t i es t r adi ng?

8 A. Oh, wi t h my own company about 20 years and bef or e t hat f or

9 t en.

10 Q. And bef ore you were a commodi t i es t r ader , what di d you do?

11 A. I worked f or t he def ense i ndust r y. I worked f or a company.

12 The name of t he company was Fur k & El mer .

13 Q. What di d you do f or t hat company?

14 A. I was i nvol ved i n get t i ng - - pur sui ng gover nment cont r act s

15 f or t he company.

16 Q. How l ong di d you do t hat f or?

17 A. Ten year s.

18 Q. What i s your educat i onal backgr ound?

19 A. I have a bachel or ' s degree i n mat hemat i cs, and I have an

20 MBA wi t h a speci al t y i n f i nance.

21 Q. And you ment i oned government cont r act s. Coul d you expl ai n

22 t hat a l i t t l e bi t mor e.

23 A. Wel l , I was i nvol ved i n t r yi ng t o obt ai n gover nment

24 cont r act s f or t he company, but most l y t he Def ense Depar t ment

25 and ot her agenci es of t he government .


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623


1 Q. Mr . Gur f ei n, di d t here come a t i me when you met a man named

2 Dani el Karr on?

3 A. Yes.

4 Q. Do you see Mr . Karr on i n t he cour t r oom t oday?

5 A. Yes.

6 Q. Coul d you pl ease poi nt hi m out and descr i be an ar t i cl e of

7 cl ot hi ng.

8 A. He i s si t t i ng i n t he cour t r oom wi t h a pl ai d shi r t .

9 MR. EVERDELL: Let t he r ecor d i ndi cat e t hat he has

10 i dent i f i ed t he def endant .

11 THE COURT: The r ecor d wi l l so i ndi cat ed.

12 Q. How di d you f i r st meet t he def endant?

13 A. A mutual acquai ntance some t i me back, probabl y i n 2000

14 r oughl y, I ' m not sur e.

15 Q. Was t hat t he f i r st t i me you met hi m?

16 A. Yes.

17 Q. Di d t here come anot her t i me when you met hi m?

18 A. Yes.

19 Q. When was t hat r oughl y?

20 A. I n t he spr i ng or ear l y summer of 2001.

21 Q. And what was t he r eason f or t hat second meet i ng?

22 A. Dr . Karr on t ol d me t hat he was goi ng t o pur sue a gr ant f r om

23 t he Depar t ment of Commerce and t hat he i ndi cat ed t o me t hat

24 because I had background i n government cont r act s and i n

25 busi ness, he asked me t o hel p hi m wr i t e t hat pr oposal .


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624


1 Q. And was he appl yi ng f or t he gr ant on behal f of hi msel f or a

2 company?

3 A. On behal f of a company.

4 Q. What company was t hat ?

5 A. CASI .

6 Q. What ' s CASI st and f or?

7 A. Comput er Ai ded Sur ger y, I nc.

8 Q. And what was t he def endant ' s posi t i on at CASI ?

9 A. I bel i eve he was t he owner and pr esi dent .

10 Q. What grant was he appl yi ng f or?

11 A. He was appl yi ng f or an ATP grant wi t h NI ST.

12 Q. Do you r ecal l what NI ST i s?

13 A. The Nat i onal I nst i t ut e of St andards and Technol ogy.

14 Q. And what was your under st andi ng of why t he def endant asked

15 you t o hel p wi t h t he gr ant wr i t i ng pr oposal ?

16 A. Because of my f ami l i ar i t y wi t h government cont r act i ng and

17 wi t h wr i t i ng pr oposal s f or gover nment cont r act s.

18 Q. Di d you and t he def endant di scuss whet her you woul d have

19 any cont i nui ng r ol e - - oh, sor r y.

20 Di d you t wo di scuss what your r ol e wi t h t he company

21 woul d be i f you were t o r ecei ve a grant ?

22 A. Yes.

23 Q. What di d you di scuss?

24 A. I was t o be t he busi ness manager i n t he event of an award.

25 Q. And what woul d t he busi ness manager do?


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625


1 A. Basi cal l y be r esponsi bl e f or al l nont echni cal i ssues.

2 Q. Woul d t hose i ncl ude budget i ng i ssues?

3 A. The pur chasi ng of equi pment , hi r i ng of peopl e, t he

4 budget i ng, var i ous ot her f i nanci al mat t er s.

5 Q. Were you goi ng t o have any ot her r ol e wi t h CASI besi des

6 managi ng t he grant f unds?

7 A. Yes, I was t o be at t empt i ng t o obt ai n addi t i onal f unds f or

8 CASI t hat woul d be suppl ement al t o t he f unds comi ng f r om NI ST.

9 Q. Addi t i onal f unds?

10 A. Yes.

11 Q. And how much of your t i me was goi ng t o be spent on

12 nonf undr ai si ng?

13 A. Wel l , 75 per cent was t o be f or CASI di r ect l y on t he gr ant ,

14 and 25 per cent was t o be f or other f undr ai si ng, at t empt i ng t o

15 get more f unds, whi ch was par t of t he grant s r equi r ement , by

16 t he way.

17 Q. How l ong di d t he gr ant wr i t i ng pr ocess t ake, t he pr oposal

18 wr i t i ng pr ocess?

19 A. Several mont hs. I can' t r emember exact l y, but sever al

20 mont hs.

21 Q. Dur i ng t hat t i me di d you become f ami l i ar wi t h t he f i nanci al

22 t erms of t he gr ant and what const i t ut ed pr oper and i mproper

23 expendi t ur es?

24 A. Yes.

25 Q. How di d you do t hat ?


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626


1 A. Wel l , t he package t hat we r ecei ved f r om NI ST spel l ed out

2 t he var i ous r equi r ement s and t he qual i f i cat i ons of t he gr ant .

3 Q. Was t hat t he proposer ' s package?

4 A. Yes, t he pr oposer ' s package, cor r ect .

5 Q. And di d you r evi ew t hose mater i al s dur i ng t he t i me of t he

6 gr ant wr i t i ng pr ocess?

7 A. Yes.

8 Q. And what di d t hose materi al s say about al l owabl e ver sus

9 unal l owabl e cost s?

10 A. Wel l , i t def i ned what was al l owed and what woul d not be

11 al l owed i n worki ng on t he gr ant .

12 Q. What sor t s of t hi ngs were t hose?

13 A. Wel l , i t i ndi cat ed t hat al l di r ect cost s woul d be al l owed

14 pr et t y much, but t here were cer t ai n i t ems t hat were not t o be

15 al l owed l i ke rent , ut i l i t i es, account i ng, l egal , ot her s I can' t

16 r emember .

17 Q. Di d you ever di scuss t hese r ul es wi t h Dr . Karr on whi l e you

18 were prepar i ng t he proposal ?

19 A. Yes.

20 Q. How many t i mes woul d you di scuss t hese spendi ng r ul es?

21 A. At var i ous t i mes, numer ous t i mes, but at var i ous t i mes

22 under di f f er ent condi t i ons or what ever par t i cul ar i t em we wer e

23 di scussi ng.

24 Q. Di d you di scuss any part i cul ar cost s wi t h t he def endant

25 dur i ng t hat per i od?


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627


1 A. Yes. We di scussed at t he t i me of t he wr i t i ng t he pr oposal

2 t he wr i t i ng cost s, t he var i ous cost s associ at ed wi t h t hat .

3 Q. Can you be more speci f i c?

4 A. Wel l , I mean t here were var i ous cost s t hat we had. I n

5 par t i cul ar , t her e wer e cost s f or t r avel t o Gai t her sbur g wher e

6 NI ST was l ocat ed, t her e wer e some host t r avel cost s, t here were

7 mot el s what ever , f ood, what ever we expended t hat way, whi ch

8 actual l y at t he t i me I was l ayi ng out t hat money. And Dr .

9 Karr on and I di scussed t hat .

10 Q. You had some di scussi ons about t hose cost s?

11 A. Yeah.

12 Q. What was t he nat ur e of t hose di scussi ons?

13 A. Dr . Kar r on sai d we wi l l t r y and see i f we can get t hose

14 t hi ngs pai d, and you wi l l get your money back and so f or t h.

15 Q. What i f anyt hi ng di d you say t o hi m?

16 A. I sai d, you know, t hey' r e not al l owabl e, t hose cost s ar e

17 not al l owabl e, so, you know, l et ' s not wor r y about i t . Because

18 t her e wasn' t t hat much money t o begi n wi t h, but

19 not wi t hst andi ng, t hey wer en' t al l owed.

20 Q. Al l r i ght . Mr . Gur f ei n, di d CASI event ual l y r ecei ve an ATP

21 gr ant .

22 A. Yes.

23 Q. And how much money was aut hor i zed?

24 A. My memory says $2. 1 mi l l i on, but I coul d be of f by a l i t t l e

25 bi t .


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628


1 Q. And how was t hat money goi ng t o be di sbur sed?

2 A. I n pr ogr ess payment s over a t hr ee- year per i od.

3 Q. Di d you i n f act have any cont i nui ng i nvol vement wi t h CASI

4 af t er t he grant was awarded?

5 A. Yes.

6 Q. What was t hat i nvol vement ?

7 A. I was t aken on as t he busi ness manager .

8 Q. How l ong wer e you t he busi ness manager ?

9 A. For one year .

10 Q. St ar t i ng when and endi ng when?

11 A. St ar t i ng Oct ober 1, 2001, endi ng Sept ember 30, 2002.

12 Q. Were you pai d anythi ng f or t hi s j ob?

13 A. Yes.

14 Q. How much wer e you pai d?

15 A. I was pai d $100, 000.

16 Q. Mr . Gur f ei n, di d t her e come a t i me when you met wi t h peopl e

17 at NI ST af t er t he gr ant was awarded t o di scuss t he gr ant ?

18 A. Yes.

19 Q. About when was t hat ?

20 A. Appr oxi mat el y a mont h or so af t er t he award.

21 Q. When was t he awar d?

22 A. The award was ef f ect i ve Oct ober 1, 2001. We were advi sed

23 of i t on Oct ober 4, 2001.

24 THE COURT: For t he $100, 000, was t hat a f ul l - t i me

25 j ob?


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629


1 THE WI TNESS: The $100, 000 was f or 75 percent of my

2 t i me.

3 THE COURT: So, you spent 75 per cent on busi nesses

4 other t han CASI , i s t hat cor r ect ? I mean 25 per cent - -


6 THE COURT: - - on busi nesses of yours ot her t han CASI .

7 THE WI TNESS: Yes, si r . But t he 25 percent was al so

8 on CASI ' s behal f - -

9 THE COURT: Yes.

10 THE WI TNESS: - - i n pur sui ng ot her f unds.

11 THE COURT: I see. Al l r i ght . Sor r y, Mr . Ever del l .

12 MR. EVERDELL: That ' s al l r i ght , your Honor .

13 Q. So, you ment i oned t he meet i ng you had wi t h t he NI ST peopl e

14 af t er t he grant was awarded.

15 A. Sorr y?

16 Q. You ment i oned a meet i ng you had wi t h NI ST peopl e af t er t he

17 grant was awar ded.

18 A. Yes.

19 Q. About when di d t hat t ake pl ace agai n?

20 A. About a mont h or so, maybe a l i t t l e more t han a mont h af t er

21 t he awar d.

22 Q. Di d t hat meet i ng have a name i n par t i cul ar?

23 A. That was r ef er r ed t o as a ki ckof f meet i ng.

24 Q. What was t he ki ckof f meet i ng?

25 A. Wel l , i t was a meet i ng t o essent i al l y r est at e t he r ul es,


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1 t he ground r ul es, what was expect ed of us, what t hat agency was

2 al l about , namel y t he NI ST agency, what t he r eport i ng of t he

3 f undi ng woul d be, what t he r epor t i ng of pr ogr ess woul d be, what

4 was al l owed, what was not al l owed, under what condi t i ons woul d

5 we have t o appl y f or a change t o t he budget t hat was approved.

6 Q. And who at t ended t hi s meet i ng f r om CASI ?

7 A. Dr . Karr on and I at t ended t hat meet i ng.

8 Q. And who at t ended f r om NI ST?

9 A. Wel l , Hope Snowden, who was t he grant admi ni st r at or

10 at t ended, as di d J ayne Or t hwei n and B. J . Li de, and t here mi ght

11 have been some other peopl e. I t hi nk maybe Mar i l yn Gol dst ei n,

12 and I t hi nk even t he di r ect or mi ght have popped i n f or a l i t t l e

13 bi t , Mar k St anl ey. I r emember shaki ng hi s hand. That ' s al l I

14 r emember .

15 Q. Those ot her peopl e t hat you ment i oned - - Hope Snowden,

16 J ayne Or t hwei n, B. J . Li de - - who ar e t hey?

17 A. Hope Snowden was a grant admi ni st r at or .

18 Q. Was she on t hi s part i cul ar gr ant wi t h CASI ?

19 A. Yes, yes. B. J . and J ayne were supervi sor y management t ype

20 per sons who were more i nvol ved i n t he t echni cal aspect s, as

21 wel l as t he busi ness but i n t he over al l aspect s of t he gr ant .

22 Q. And what happened at t he ki ckof f meet i ng?

23 A. How do you mean?

24 Q. Di d t he peopl e at NI ST have any di scussi ons wi t h you at

25 t hat meet i ng?


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631


1 A. Yes, t hey t ol d us what t hey expect ed of us.

2 Q. And how di d t hey i mpar t t hat i nf ormat i on t o you?

3 A. There was a present at i on made t o us.

4 Q. I want you t o t ake a l ook at what ' s al r eady i n evi dence as

5 Gover nment Exhi bi t 4, whi ch i n t he f ol der i n f r ont of you, one

6 of t hose t wo f ol der s.

7 A. Yeah.

8 Q. Di spl ay t he f i r st page.

9 A. I see i t .

10 Q. Do you r ecogni ze what t hat i s?

11 A. Yes.

12 Q. What i s t hat ?

13 A. That was part of t he pr esent at i on made t o us at t he

14 ki ckof f meet i ng.

15 Q. What di d t hat pr esent at i on i nvol ve?

16 A. That pr esent at i on i nvol ved a st atement of what t he ATP

17 pr ogr am was and what our r esponsi bi l i t i es woul d be i n r eport i ng

18 and so f ort h.

19 Q. What i f anythi ng wer e you t ol d about t he r esponsi bi l i t i es

20 concer ni ng t he budget ?

21 A. Wi t h r espect t o t he budget?

22 Q. Yes.

23 A. Wel l , one of t he t hi ngs we t al ked about was i f we were more

24 t han a cert ai n percent age f r om t he budget ed numbers, t hen we

25 had t o appl y f or per mi ssi on t o do t hat .


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865ZKAR5 Gurf ei n - di r ect

1 BY MR. EVERDELL:

2 Q. And how di d t hat per mi ssi on come?

3 A. That woul d be i n wr i t i ng.

4 Q. What , i f anythi ng, were you t ol d about spendi ng out si de t he

5 budget ?

6 A. That i t coul d be al l owed, but i t woul d have t o be appr oved.

7 Q. What about di r ect ver sus i ndi r ect cost s, wer e you t ol d

8 anyt hi ng about t hat?

9 A. Ri ght . I mean we were abl e pret t y much t o spend on

10 i ndi r ect - - I ' m sor r y - - on di r ect cost s i n a most gener al way,

11 but i ndi r ect cost s wer e gener al l y not al l owed.

12 Q. What were t hose t hi ngs covered at t hi s meet i ng?

13 A. Wel l , agai n, t he r ent , t he ut i l i t i es, account i ng, l egal ,

14 maybe some other i t ems. I can' t r ecal l .

15 Q. Now, ar ound t he t i me when t he grant was awar ded and t he

16 ki ckof f meet i ng occur r ed, di d you have any di scussi ons wi t h Dr .

17 Karr on about any part i cul ar expendi t ur es?

18 A. Wel l , agai n l eadi ng up t o t he award, we had di scussed

19 var i ous of t hose i t ems t hat were not al l owed. Agai n, we

20 di scussed t he pr oposal wr i t i ng cost s.

21 Q. What exact l y di d you di scuss about ?

22 A. Wel l , whether t hey woul d be al l owed and - - you know, i t was

23 I t hought pr et t y cl ear t hat we wer en' t al l owed, but he sai d

24 maybe we' l l get t hem al l owed. But I ' m not sure how t hat was

25 goi ng t o happen.


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1 Q. To your knowl edge, were any of t hose prepr oposal cost s ever

2 appr oved by NI ST peopl e?

3 A. Not t o my knowl edge.

4 Q. What ot her speci f i c expendi t ur es di d you di scuss wi t h t he

5 def endant ar ound t hi s t i me when t he grant was awarded?

6 A. Wel l , af t er t he awar d, we di scussed r ent and ut i l i t i es and

7 l egal and account i ng.

8 Q. Let ' s t al k about r ent s and ut i l i t i es f or a moment . What

9 was t he nat ur e of your di scussi ons about r ent and ut i l i t i es?

10 A. Wel l , we had, i n t he pr oposal , and as appr oved i n t he

11 gr ant , we had i ndi cated t hat we wer e goi ng t o be i nvol ved wi t h

12 t he Ci t y Uni ver si t y at Fi f t h Avenue and 34t h St r eet wi t h t he

13 gr aduate cent er ther e, t he comput er sci ence part of i t , wher e

14 we woul d have a f aci l i t y t her e, and t hat f aci l i t y woul d be a

15 company wi t h some suppor t st af f f r om gr aduat e st udent s or

16 what ever , who were i n t he comput er sci ence area.

17 Q. What happened wi t h r espect t o t hat f aci l i t y?

18 A. Wel l , i t was deci ded t hat we woul d not be usi ng t hat

19 f aci l i ty .

20 Q. Why not ?

21 A. I t hi nk Dr . Karr on had i ndi cat ed t hat the over head r at es

22 f or the peopl e t here was hi gh, and t hat i t was somethi ng t hat

23 woul d not be desi r abl e.

24 Q. So wher e di d CASI set up i t s busi ness l ocat i on?

25 A. We set up, basi cal l y, i n Dr . Karr on' s apar t ment .


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1 Q. And what , i f any, di scussi ons di d you have wi t h t he

2 def endant about r ent and ut i l i t i es wi t h r espect t o t he busi ness

3 space of CASI ?

4 A. Wel l , yeah, he f el t t hat - - I mean, he i ndi cat ed t o me t hat

5 t he r ent shoul d be pai d t o hi m by CASI , because t hat ' s where we

6 wer e doi ng al l t he wor k, and i t was essent i al l y an of f i ce

7 l abor at or y si t uat i on.

8 Q. Thi s was r ent f r om CASI to t he def endant ?

9 A. From CASI t o t he def endant , yes.

10 Q. And when t he def endant tol d you t hi s, what , i f anyt hi ng,

11 was your r eact i on?

12 A. Wel l , i t was cl ear t hat the r ul es, or t he gui del i nes gi ven

13 t o us by t he peopl e at NI ST sai d no, t hat ' s - - t hat was not

14 al l owed.

15 Q. And what , i f anyt hi ng, di d t he def endant r espond?

16 A. Wel l , he asked me t o see i f we can get i t approved. So I

17 wound up cal l i ng Hope Snowden at NI ST and aski ng her i f i t

18 coul d be appr oved.

19 Q. What , i f anythi ng, was her r esponse?

20 A. She sai d no.

21 Q. And what di d you do af t er you hear d no f r om Hope Snowden?

22 A. I r epor t ed t o Dr . Kar r on. And he sai d, wel l , we t al ked

23 about i t and he sai d, wel l , why don' t you go back and t r y

24 agai n. But under t he i dea t hat thi s i s a one gr ant company,

25 and so i t ' s cl ear t hat ever yt hi ng we do her e i s f or t hi s gr ant


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1 and t her e wer e no other f unds, and so t hat t her e' s no other

2 act i vi t y at t he moment . So t hat we coul d si mpl y - - you know,

3 i t woul d be, as he expr essed i t , appr opr i at e f or us t o get pai d

4 rent f or t hat f aci l i t y.

5 Q. And di d you, i n f act , cal l Hope Snowden agai n?

6 A. Yes, I di d.

7 Q. And di d you ask her t hat quest i on?

8 A. Yes, I di d.

9 Q. That way?

10 A. Wi t h r egard, wi t h r egar d t o i t bei ng a one gr ant oper at i on,

11 yes.

12 Q. And what was her r esponse?

13 A. She sai d no, we can' t - - we don' t appr ove t hat .

14 Q. And what , i f anyt hi ng, di d you do wi t h t hat r esponse?

15 A. I t ol d i t t o Dr . Kar r on.

16 Q. And what was hi s r esponse?

17 A. I don' t know. I t hi nk he was a l i t t l e none pl used by i t , I

18 don' t know exact l y. For t hat moment we dr opped i t at t he

19 moment at t hat poi nt .

20 Q. About how many t i mes di d you speak t o Hope Snowden about

21 t hi s i ssue of r ent ?

22 A. Wel l , cer t ai nl y t wi ce, maybe more, but cer t ai nl y t wi ce.

23 Q. And di d you - - di d Hope Snowden ever tel l you t hat r ent was

24 an al l owabl e expense?

25 A. No.


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1 Q. Di d you have any ot her di scuss i ons wi t h Hope Snowden about

2 ot her expense?

3 A. Yes. We di scussed ot her expenses. I t hi nk I pr obabl y

4 di scussed t he pr oposal cost s expense and ut i l i t i es. I t hi nk we

5 di scussed agai n si mi l ar t o t he r ent di scussi on.

6 THE COURT: Di d you ever t al k t o anyone besi des Hope

7 Snowden about t hese t hi s r ent and ut i l i t i es?

8 THE WI TNESS: I t ' s possi bl e. I mi ght ' ve di scussed - -

9 I mi ght have cal l ed her super vi sor , Mar i l yn Gol dst ei n, on a f ew

10 occasi ons.

11 THE COURT: And di d you get a - - what answer di d you

12 get ?

13 THE WI TNESS: Essent i al l y, no.


15 Q. And about how of t en di d you cal l Hope Snowden and t hese

16 ot her peopl e you ment i oned?

17 A. Wel l , at t he begi nni ng of t he gr ant per i od t hat I was

18 t here, I woul d cal l her t wo t i mes a week or so. As t i me went

19 on, I cal l ed her maybe t wo t i mes a mont h.

20 Q. Al l r i ght . Mr . Ger f ei n, do you know, appr oxi matel y, when

21 CASI r ecei ved i t s f i r st i nst al l ment of ATP gr ant money?

22 A. I ' ve been t r yi ng t o f i gur e t hat out . But I know i t was

23 ver y ear l y. I t was not ver y much af t er the not i ce of award.

24 The not i ce of award was Oct ober 4t h. I keep t hi nki ng i t was

25 r i ght af t er t hat , but I ' m not sur e.


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1 Q. Do you r ecal l how much was t r ansf err ed i nt o t he CASI bank

2 account?

3 A. Yes. $150, 000.

4 Q. And where di d t hat money go?

5 A. That money went i nto a CASI gener al account of some ki nd.

6 Q. Di d you - -

7 A. At Chase Bank.

8 Q. I ' m sorr y?

9 A. I t was at Chase Bank, I r ecal l t hat .

10 Q. Di d you ever have any di scussi ons wi t h t he def endant about

11 t hat i ni t i al t r ansf er of $150, 000?

12 A. Yes. He, he - - we had appl i ed f or, I bel i eve, or we had t o

13 appl y f or i t , and I t hi nk wi t h happi ness he t ol d me one morni ng

14 when I ar r i ved at hi s apar t ment t hat t he money came i n, t he

15 150, 000 came i n. And i n t he same sent ence I r ecal l he sai d,

16 and I ' ve t r ansf er r ed $75, 000 out of t he account .

17 Q. Di d he say why he di d t hat ?

18 A. Yes. He sai d he had some personal obl i gat i ons t o hi s

19 f ami l y, money owed t o hi s f ami l y, and he sai d t hat he had

20 cr edi t car d payment s t o make.

21 Q. Wi t h r espect t o hi s obl i gat i ons t o hi s f ami l y t hat you

22 ment i oned, di d you ever have any other di scussi ons wi t h hi m

23 about t hat t opi c?

24 A. Wel l , I mean i n t he cour se of wr i t i ng t he pr oposal , he had

25 al l owed t hat he had not had a - - been empl oyed i n any way, nor


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1 had any ot her gr ant money f or somet i me, and so t hat he had t o

2 r esor t t o credi t car ds and t o f ami l y hel p.

3 Q. And what i n par t i cul ar di d you - - di d he say what he was

4 spendi ng t he cr edi t car d money on?

5 A. Wel l , my sense was t hat f r om what t he di scussi ons were was

6 t hat he was spendi ng i t on j ust l i vi ng. He sai d he had t o

7 l i ve, and so he used hi s credi t car ds t o l i ve.

8 Q. When you hear d f r om t he def endant that he had t r ansf err ed

9 $75, 000 out of t he $150, 000, what , i f anyt hi ng, di d you say?

10 A. I t ol d hi m he coul dn' t do t hat .

11 Q. And what was t he def endant ' s r esponse?

12 A. He sai d, I have t o do i t .

13 Q. Di d he expand on t hat?

14 A. Wel l , he sai d he had no choi ce; he had t o get r i d of t hose

15 debt s he had and he was t aki ng t hose f unds at t he get - -

16 i ni t i al l y, he had t o j ust t ake t hose f unds i mmedi at el y.

17 Q. Di d you have any ot her di scussi ons wi t h t he def endant about

18 wher e t he grant money was bei ng deposi t ed?

19 A. Yes.

20 Q. What were t hose di scussi ons?

21 A. Wel l , I t ol d hi m t hat we had t o open up a separate account

22 f or t he gr ant so t hat we don' t have i t mi xed up wi t h any other

23 acti vi t i es of CASI , i f ther e wer e any.

24 Q. And what was t he def endant ' s r esponse t o t hat ?

25 A. Wel l , at f i r st he r ej ected t he i dea, I t hi nk sayi ng t hat i t


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1 was - - i t woul d j ust cost t oo much t o open up anot her account .

2 But I di dn' t - - I di dn' t under st and what t hat meant about t he

3 cost woul d be so gr eat . But I t ol d hi m i t was a r equi r ement of

4 t he grant t hat we had t o have a separ at e account .

5 Q. And was a separ at e account eventual l y opened?

6 A. Yes.

7 Q. Mr . Ger f ei n, when you accept ed t he j ob at CASI as busi ness

8 manager , what was your under st andi ng about who woul d have t he

9 aut hor i t y t o si gn checks f or t he company?

10 A. Our i ni t i al di scussi ons wer e t hat I was goi ng t o have sol e

11 r esponsi bi l i t y f or si gni ng checks. I t ol d hi m t hat , l ook,

12 t hat ' s okay, but t hi s i s your company and r eal l y t her e shoul d

13 be dual si gnat ure r equi r ement f or most checks. And we agr eed

14 t hat t her e woul d be dual si gnat ur e r esponsi bi l i t y, but anythi ng

15 under $250 coul d be si gned by one per son.

16 Q. I s t hi s i n f act t hat ar r angement you j ust descr i bed, i s

17 t hat i n f act what happened af t er t he gr ant was awarded?

18 A. No.

19 Q. How di d i t work i n pr act i ce af t er t he gr ant was awarded?

20 A. Wi t hi n one week exact l y on Oct ober 11t h, Dr . Kar r on sent a

21 note t o Hope Snowden sayi ng t hat , whi l e I had admi ni st r at i ve

22 r esponsi bi l i t y, I had no si gnat ur e or of f i cer r esponsi bi l i t y at

23 CASI .

24 Q. And what di d you under st and t hat t o mean?

25 A. That means t hat I was st r i pped of my abi l i t y t o cont r ol t he


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1 busi ness as I was t ol d I woul d have.

2 Q. Take a l ook at Government ' s exhi bi t 21 i n t he other f ol der

3 i n f r ont of you. Coul d we di spl ay t hat on t he scr een, page

4 t hr ee. I t ' s al so i n t he j ur y bi nder s.

5 A. Uh- huh. Yes.

6 Q. You see t hat document ?

7 THE COURT: I t ' s a l i t t l e hard t o see, but can you

8 r ead i t ?


10 THE COURT: I can' t , I can' t r ead i t .

11 THE WI TNESS: Her e' s my copy.

12 THE DEPUTY CLERK: J udge, he has a copy.

13 THE COURT: Al l r i ght . He was l ooki ng up t here, so I

14 was - -

15 Q. Act ual l y, he, i f you coul d bl owup exact l y what you bl ew up.

16 Mr . Ger f ei n, do you see t hat document ?

17 A. Yes.

18 Q. What i s t hat document ?

19 A. That document i s t he l et t er t hat Dr . Karr on sent to Hope

20 Snowden dat ed Oct ober 11t h, 2001 and i ndi cat i ng t hat I onl y had

21 t he admi ni st r at or r esponsi bi l i t y, but not t he si gnat ur e

22 aut hor i t y. And i t says her e, and i s not aut hor i zed t o si gn f or

23 t he cor por at i on.

24 Q. Where do you see t hat ?

25 A. Fr om t he t hi rd - - on t he r i ght s i de, thi rd l i ne f r om t he


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1 bot t om.

2 Q. And you see t he f i nal sent ence whi ch says, t he

3 aut hor i zat i on f or Mr . Ger f ei n t o commi t t he cor por at i on wi l l be

4 made by separ at e l et t er aut hor i zat i on i f t he need ari ses?

5 A. Cor r ect . I see t hat .

6 Q. Were you ever gi ven si gnat ory aut hor i t y f or t he company

7 whi l e you were worki ng at CASI ?

8 A. No.

9 Q. And what ' s t he dat e on t hi s l et t er ?

10 A. I ' m sor ry?

11 Q. What ' s t he dat e on t hi s l et t er ?

12 A. The dat e on t he l et t er above, Oct ober 11t h - - r i ght t her e,

13 yeah.

14 Q. And about how l ong af t er t he grant was awar ded was t hat

15 l et t er dat ed?

16 A. I t ' s dat ed - - wel l t he gr ant was - - not i f i cat i on of awar d

17 was Oct ober 4t h, and t hi s l et t er i s dat ed Oct ober 11t h. So

18 i t ' s exact l y one week af t er the not i ce of awar d.

19 Q. Al l r i ght . Mr . Ger f ei n, di d you have any f ur t her

20 di scussi ons wi t h t he def endant about spendi ng grant money af t er

21 t hat l et t er was submi t t ed?

22 A. About spendi ng grant money?

23 Q. About par t i cul ar expendi t ur es?

24 A. Sur e, I mean we di scussed var i ous t hi ngs t hat - - I mean Dr .

25 Karr on ki nd of l i ked equi pment . I mean he - -


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1 Q. Why di d you di scuss t he equi pment di scussi ons you had?

2 A. I n part i cul ar, we di scussed - - t her e wer e many i t ems of

3 di scussi on, but we di scussed some moni t ors t hat he bought t hat

4 wer e ver y expensi ve. I mean as moni t ors go, I t hi nk t hese

5 wer e, i f I r emember cor r ect l y, a coupl e t housand dol l ars a

6 pi ece. They wer e l ar ge, at t r act i ve, but I di dn' t t hi nk t hey

7 were necessar y, and t hey were not par t - -

8 MR. RUBI NSTEI N: Obj ect i on, move t o st r i ke.

9 A. They were not part of t he gr ant .

10 MR. RUBI NSTEI N: I move t o st r i ke what he t hought .


12 THE COURT: Obj ect i on sust ai ned, I guess.

13 Q. Ar e you - -

14 THE COURT: As t o what he t hought . You sai d you

15 t hought t hat you t ol d hi m t hey wer e not part of t he gr ant .


17 THE COURT: Go ahead, what . Di d you t el l hi m anyt hi ng

18 el se?

19 Q. I ' m sor r y, Mr . Ger f ei n, you ment i oned moni t or s i n

20 par t i cul ar ?

21 A. Ri ght .

22 Q. I s t her e any other pi eces of equi pment ?

23 A. They were not part of t he gr ant . Al so, t he poi nt t hey were

24 not part of appr oved gr ant .

25 Q. Al l r i ght , l et ' s - - what , i f any, di scussi ons di d you have


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1 wi t h def endant about t hese pi eces of equi pment not bei ng par t

2 of t he gr ant ?

3 A. Wel l , t hat , you know, he coul dn' t j ust buy anythi ng he

4 want ed; t hat he had t o do t hi ngs t hat wer e part of t he gr ant .

5 I f he want ed t o get somet hi ng t hat was not part of t he gr ant ,

6 he woul d have t o appl y f or a wr i t t en appr oval . And hi s

7 r esponse t o me was I ' m t he PI , meani ng I ' m t he pr i nci pal

8 i nvest i gat or , and I can do anythi ng I want . I sai d, you can' t

9 do anyt hi ng you want . And t hat went on and on. That , t hat

10 i nt erchange t ook pl ace a number of t i mes.

11 Q. Di d you appr ove or di sappr ove your sel f of these

12 expendi t ur es?


14 THE COURT: Obj ect i on sust ai ned. As I under st ood i t ,

15 hi s t est i mony i s t hat he di dn' t have appr oval aut hor i t y af t er

16 Oct ober 11t h.

17 MR. EVERDELL: I ' m sor r y, your Honor , I j ust meant not

18 wi t h r espect t o your appr oval , si gnat or y aut hor i t y, but di d you

19 t hi nk t hat t hese expendi t ur es - -

20 THE COURT: The quest i on i s whet her t hey came wi t hi n

21 t he gr ant or not , not whether he personal l y appr oved t hi ngs.

22 Thi s i sn' t a t r i al i n connecti on wi t h - -

23 MR. EVERDELL: Cer t ai nl y, your Honor .

24 THE COURT: - - per sonal appr oval s or di sappr oval s.

25 Q. When you sai d t hat t hese were not part of the grant , t hese


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1 expendi t ur es t hat you wer e t al ki ng t o t he def endant about , what

2 di d you mean by t hat?

3 A. Wel l , we had i ncl uded i n our pr oposal vari ous f i gur es,

4 i ncl udi ng f i gur es f or equi pment , and t he equi pment was

5 del i neat ed, and t he i t ems t hat we j ust t al ked about were not

6 i ncl uded. And when t hose i t ems were bei ng pur chased t hat were

7 not requi r ed by t he gr ant , or not appr oved by t he gr ant , I

8 shoul d say, t hen t hey r eal l y shoul d not have been bought .

9 Q. Di d you di scuss t hi s wi t h t he def endant ?

10 A. Yes, but - -

11 Q. What was hi s r esponse?

12 A. Wel l , f i r st of al l , i t was al ways af t er t he f act t hat I

13 f ound out t hat t hese t hi ngs were bought , because I di dn' t have

14 anyway of st oppi ng i t . And so I ' d come i n t here one day as an

15 exampl e, and t her e woul d be t hi s movi e si zed t heater - - t hese

16 t heater si ze movi e scr een goi ng up, pr oj ect i on scr een pr obabl y

17 as bi g as t hat , maybe bi gger, don' t know. And I sai d t o hi m,

18 what i s t hat al l about ? And he sai d, wel l , we need t hat . And

19 I sai d, f or what? And I j ust di dn' t under st and why we' d have

20 t o spend anot her f ew t housand dol l ar s when we - -

21 MR. RUBI NSTEI N: Obj ect i on t o what - - hi s f eel i ngs.

22 THE COURT: The j ur y i s i nst r uct ed t o di sr egard t he

23 l ast t hr ee or f our wor ds. What t he i ssue i s t hat , was t hat

24 amongst t he equi pment t hat was del i neat ed i n t he gr ant ?

25 THE WI TNESS: I t i s not . That equi pment was not


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1 i ncl uded i n t he gr ant .

2 Q. What was t he def endant ' s r esponse when you woul d t al k t o

3 hi m about t hese non- del i neated equi pment pi eces?

4 A. He sai d, we needed i t .

5 Q. Do you know what f unds were used t o buy t hese i t ems,

6 equi pment?

7 A. The onl y f unds we had were f unds f r om NI ST, ATP f unds. So

8 t here were no ot her f unds t hat I knew about t hat came i nto t he

9 company.

10 Q. How do you know t he onl y f unds you had were ATP f unds?

11 A. Wel l , because I had been t r yi ng t o get other f unds and I

12 had not been successf ul i n doi ng t hat .

13 THE COURT: Di d you r evi ew - - were you i n charge of

14 t he books and r ecords?

15 THE WI TNESS: Essent i al l y not . I mean, I shoul d have

16 been, but I had no cont r ol over i t .

17 THE COURT: What about t he bank account ?

18 THE WI TNESS: Same.

19 THE COURT: You di dn' t - -

20 THE WI TNESS: I had no cont r ol over i t .

21 THE COURT: You di dn' t r evi ew t he bank accounts?

22 THE WI TNESS: I di d, but I had no cont r ol over i t .

23 Q. Di d you have any di scussi ons wi t h t he def endant on t he

24 subj ect of f r i nge benef i t s f or medi cal expenses?

25 A. Yes.


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1 Q. And what were t he nat ur e of t hose di scussi ons?

2 A. The nat ur e of t hose di scussi ons wer e t hat t he, t he f i gur e

3 of 34 percent of an empl oyee' s gr oss sal ary was al l owabl e f or

4 medi cal and other expenses l i ke t hat , f r i nge benef i t s. And Dr .

5 Karr on was of t he opi ni on t hat , because he t ol d me so, t hat i f

6 i t was 34 per cent of t he t otal payrol l , t hat woul d be okay.

7 Q. What do you mean, i f i t was 34 percent of t he t otal ?

8 A. I f we di d not exceed 34 per cent of t he ent i r e payrol l as

9 opposed t o j ust 34 per cent of each i ndi vi dual , t hat woul d be

10 okay. So t hat i f one per son had, say, 20 percent and one

11 per son had 50 per cent , t he average woul d be l i ke 35 percent or

12 somethi ng cl ose t o t hat , so t hat woul d be okay.

13 THE COURT: Di d t he company have a benef i t pl an? Di d

14 t he company have a benef i t pl an?

15 THE WI TNESS: Not t hat I ever saw.

16 THE COURT: And how were f r i nge benef i t s admi ni st ered?

17 THE WI TNESS: They were very l oosel y ar r anged at t hat

18 t i me.

19 THE COURT: What do you mean by t hat ?

20 THE WI TNESS: Wel l , t her e was, t her e was an ass i gnment

21 gi ven t o an at t or ney t o gener ate a benef i t pol i cy, but t hat

22 never happened whi l e I was t her e.

23 THE COURT: But how - - you sai d t hey were l oosel y

24 admi ni st ered. Someone had t o document somet hi ng l i ke t hat .



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1 THE COURT: What woul d happen?

2 THE WI TNESS: Doctor' s bi l l , i f t he person woul d have

3 i nsur ance or the bi l l woul d be submi t t ed, but basi cal l y t he

4 company pai d f or i nsurance i n my case.

5 THE COURT: Was t her e i nsurance; t her e was heal t h

6 i nsurance?

7 THE WI TNESS: There was no - - t o my knowl edge, t her e

8 mi ght have been a pol i cy, but I can' t r ecal l . I do know t hat

9 i n my case i t was handl ed a l i t t l e bi t di f f er ent l y, but sti l l

10 i t was, t her e was no f ormal pol i cy.

11 THE COURT: What di d t hey do, pay t hem as t he bi l l s

12 came i n?

13 THE WI TNESS: I was covered by - - I was covered by an

14 i nsur ance pol i cy. I t hi nk Dr . Kar r on had one t oo. But I t hi nk

15 t her e wer e ot her bi l l s t hat he mi ght have had, as I r ecal l ,

16 t hat wer e pai d possi bl y di r ect l y. I real l y don' t know.

17 THE COURT: So t hat ' s what you mean by " l oosel y"

18 admi ni st ered.


20 THE COURT: I see.

21 BY MR. EVERDELL:

22 Q. Mr . Ger f ei n, di d t he def endant have any heal t h expendi t ur es

23 t hat you' r e aware about dur i ng t hi s per i od you worked wi t h

24 CASI ?

25 A. Yes, he had - - I t hi nk he had a l ot of heal t h expendi t ur es.


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1 I n part i cul ar , I r emember he had dent al expendi t ur es.

2 Q. How do you know he had dent al expendi t ures?

3 A. Wel l , of t en t i mes he asked me t o pi ck hi m up at t he dent i st

4 on my way i nt o t he of f i ce.

5 Q. And do you know what ki nd of dent al procedures he was

6 havi ng?

7 A. I n par t i cul ar , he had i ndi cat ed t hat he had a j aw

8 r econst r uct i on act i vi t y goi ng on wi t h t he dent i st .

9 Q. And di d you have any sense about why t he def endant was

10 havi ng hi s j aw - -

11 A. Based on hi s di scussi on wi t h me, and some ot her peopl e who

12 had such procedure, and t hat t hey were get t i ng a sex change

13 oper at i on, i t became cl ear t hat t hat j aw r econst r uct i on was f or

14 a sex change operat i on.

15 Q. And j ust t o r epeat , di d you see any wr i t t en pl an f or t he

16 empl oyees at CASI f or heal t h benef i t s?

17 THE COURT: Wai t . I don' t under st and. A dent i st

18 can' t - - doesn' t do a sex change oper at i on.

19 THE WI TNESS: Corr ect ; yes, si r .

20 THE COURT: You pi cked hi m up at t he dent i st .

21 THE WI TNESS: Ri ght , but - -

22 THE COURT: So al l you know i s t hat he had dent al

23 expenses.

24 THE WI TNESS: Ri ght . But based on hi s descr i pt i ons he

25 made of some ot her peopl e who he knew who had a si mi l ar


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1 pr ocedur e, and t hat was as t he cosmet i cs f or i n cont empl at i on

2 of a sex change operat i on.

3 Q. Al l r i ght . Mr . Ger f ei n, di d you ever see a wr i t t en pl an i n

4 pl ace f or CASI f or heal t h expendi t ur es?

5 A. I di d not .

6 Q. Mr . Ger f ei n, when you had di scussi ons wi t h t he def endant

7 about spendi ng, wher e woul d you have t hose conversat i ons?

8 A. Wel l , t ypi cal l y we woul d l eave t he of f i ce, whi ch was

9 usual l y ver y noi sy and poor l y vent i l ated, and we' d go t o a

10 cof f ee shop, one of sever al cof f ee shops acr oss t he st r eet .

11 Q. And when you had meet i ngs wi t h t he def endant , woul d you

12 schedul e meet i ngs or woul d you j ust show up?

13 A. Wel l , bot h. Somet i mes I j ust show up and somet i mes t hey

14 were schedul ed.

15 Q. When you di d schedul e meet i ngs, di d t he def endant al ways

16 at t end your schedul ed meet i ngs?

17 A. Very of t en not .

18 Q. Can you expand on t hat ?

19 A. Wel l , I woul d t r y t o see hi m on var i ous occasi ons havi ng t o

20 do wi t h budgetary t hi ngs and ot her mat t ers, and somet i mes I ' d

21 show up at the appoi nt ed t i me, l et ' s say 11: 00 o' cl ock and he

22 was ei t her sl eepi ng or he' s i n t he gym or what ever , but ver y

23 of t en he was not t her e.

24 Q. You say he was sl eepi ng; how do you know he' s sl eepi ng?

25 THE COURT: I don' t see t he r el evance of whether he' s


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1 sl eepi ng or not , Mr . Ever del l . You have t o - -

2 Q. As a - -

3 MR. EVERDELL: Your Honor , i f we coul d have a br i ef

4 si debar?

5 THE COURT: I f you got - - al l r i ght , go ahead t hen.

6 MR. EVERDELL: Al l r i ght .

7 THE COURT: You got a r el evant poi nt , but I j ust

8 want ed t o cal l your at t ent i on t o t he possi bl e l ack of

9 r el evance.

10 Q. How, i f anyt hi ng, di d t hi s, di d t hese - - di d t he

11 def endant ' s work habi t s i mpact your work?


13 THE WI TNESS: Ver y of t en i t was di f f i cul t t o - -

14 MR. RUBI NSTEI N: I have an obj ect i on.

15 THE COURT: I wi l l al l ow t he quest i on.

16 Q. How, i f any - -

17 A. Wel l , ver y of t en I woul d t r y t o meet wi t h hi m and - - wel l ,

18 one t i me I had an appoi ntment t o see hi m on a Sunday eveni ng

19 ' cause I coul d get hi s at t ent i on wi t hout i nt er f er ence, and I ' d

20 show up and I wai t f or an hour , and he di dn' t show up.

21 Q. Do you ever have any di scussi ons wi t h Dr . Kar r on about hi s

22 work habi t s?

23 A. Yes, I di d. I t ol d hi m t hi s i s not j ust accept abl e. I

24 used t o get f r ust r ated j ust showi ng up t i me and t i me agai n, and

25 he' d be out doi ng what he was doi ng.


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1 Q. Mr . Ger f ei n do you know someone named Mar garet Ferr and?

2 A. I know t he name Mar garet .

3 Q. Who i s Mar garet ?

4 A. Margar et was a cl eani ng l ady.

5 Q. And what di d you - - oh, di d you ever see her i n t he

6 apar t ment , Margar et?

7 A. Sure.

8 Q. How of t en?

9 A. I woul d guess once a week, but I ' m not real l y sur e.

10 Q. And what was she doi ng when you saw her i n t he apart ment?

11 A. She' d be cl eani ng di shes or t oi l et s or , you know, what ever ;

12 dust i ng, whatever a cl eani ng l ady does.

13 Q. Di d you ever see Margaret doi ng any of f i ce work, asi de f r om

14 cl eani ng, whi l e you wer e t her e?

15 A. Not when I was t her e.

16 MR. EVERDELL: One moment , your Honor .

17 Q. Mr . Ger f ei n, when di d you t ermi nat e your empl oyment at

18 CASI ?

19 A. I t ermi nated my empl oyment Sept ember 30t h, 2002.

20 Q. Why di d you l eave af t er onl y one year?

21 A. Wel l , Dr . Kar r on sai d he coul dn' t af f ord t o pay me t he

22 hundr ed t housand dol l ars a year . And he asked i f I woul d st ay

23 on at $50, 000 a year . And i t di dn' t t ake much t i me f or me t o

24 know t hat I woul dn' t st ay t her e ei t her way, at 100 or 50,

25 because my ment al heal t h was more val uabl e t han bei ng par t of


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1 t hat oper at i on.

2 MR. EVERDELL: Thank you. No f ur t her quest i ons.

3 THE COURT: Mr . Rubi nst ei n.


5 CROSS EXAMI NATI ON


7 Q. I n f act , Mr . Gur f ei n, you had a cont r act , di d you not ?

8 A. I di d.

9 Q. And your cont r act was f or one year , cor r ect ?

10 A. Corr ect .

11 Q. And at t he end of t he year were you of f ered a r enewal of

12 t hat cont r act ?

13 A. No.

14 Q. You were a member of t he board of di r ect ors, were you not ?

15 A. For one mont h.

16 Q. And - -

17 A. Appr oxi mat el y.

18 Q. Was t hat t he f i r st mont h?

19 A. That was - - no. I t was somet i me between J ul y and August ,

20 somethi ng l i ke t hat .

21 Q. J ul y and August of 2002?

22 A. Corr ect .

23 Q. And wer e you an of f i cer i n t he corpor at i on?

24 A. For about that one mont h. I was made an of f i cer of the

25 corpor at i on wi t hout my bei ng t ol d i n advance, and I r esi gned


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865ZKAR5 Gurf ei n - cr oss

1 t hat wi t hi n a mont h, r oughl y, of t he t i me t hat I had t hat ,

2 whi l e I t hat mai nt ai ned my posi t i on as t he busi ness manager.

3 Q. You r esi gned as member of t he board, cor r ect ?

4 A. Yes.

5 Q. Who el se was on t he board?

6 A. Dr . Kar r on, I t hi nk t her e was a Mr . Ber nst ei n I bel i eve who

7 was an at t orney, t here was Abe Karr on, who was Dr . Kar r on' s

8 br other. There were, t here pr obabl y was one other per son, I

9 t hi nk possi bl y Fr eder i ca Mi l l er at t or ney. I ' m not sur e. She

10 mi ght have been a member of t he board as wel l .

11 Q. And t hese - - di d you at t end any board meet i ngs?

12 A. That one. Oh, as a di r ect or or as a vi si t or ?

13 Q. At any t i me?

14 A. I t hi nk I at t ended t wo boar d meet i ngs i n t ot al , i f I

15 r emember cor r ect l y.

16 Q. And wher e were t he boar d meet i ngs hel d?

17 A. They wer e hel d at t he of f i ce of Mr . Ber nst ei n.

18 Q. And what t i me of day or ni ght ?

19 A. I t hi nk pr obabl y i n t he eveni ng.

20 Q. And you, when you wor ked at CASI , what were your wor k

21 hour s?

22 A. The work hours were pret t y var i abl e. They were up t o me.

23 And some days I worked at CASI ' s of f i ces l i ke t hr ee days a

24 week, maybe f our , maybe t wo, and t he r est of t he t i me I worked

25 at home. But remember I was t her e on 75 per cent of t he t i me.


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1 Q. When you came t o t he of f i ce, how l at e woul d you st ay on a

2 non- boar d member day?

3 A. I t var i ed.

4 Q. Wel l , what was t he l atest t hat you ever st ayed at t he

5 of f i ce when you were t he - - you wer e t he chi ef oper at i ng

6 of f i cer?

7 A. No, I was not .

8 Q. What was your t i t l e?

9 A. Busi ness manager , I t hi nk.

10 Q. How l ate di d you - - what ' s t he l atest you ever worked at

11 CASI t he year as t he busi ness manager?

12 A. Pr obabl y mi dni ght .

13 Q. And how of t en di d you do t hat ?

14 A. I don' t r emember .

15 Q. Mor e t han once?

16 A. Oh, sure.

17 Q. And you were asked t o i nvest money i n CASI , were you not?

18 A. I was.

19 Q. You were asked t o i nvest money by Dr . Kar r on' s br ot her , Abe

20 Kar r on, r i ght ?

21 A. I t wasn' t qui t e l i ke you' r e sayi ng.

22 Q. Wel l , were you asked t o i nvest $50, 000?

23 A. That ' s cor r ect .

24 Q. And when you were asked t o i nvest , when was i t ?

25 THE COURT: Coul d we have a date, Mr . Rubi nst ei n?


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1 Q. Was t hat ear l y on - -

2 A. Yes.

3 Q. - - your empl oyment , corr ect ?

4 A. Corr ect .

5 Q. I t was pr i or t o t he t i me t hat t he l et t er was gener at ed t o

6 Mar i l yn Gol dst ei n l i mi t i ng your f unct i ons?

7 A. No, i t was af t er t hat .

8 Q. When was i t ?

9 A. I don' t know t he dat e, but i t was af t er t hat .

10 Q. Were you a si gnat ory at one t i me on t he checki ng accounts?

11 A. Was I a si gnatory on t he checki ng account ? Di d I si gn

12 paper , document s at Chase t o do t hat at some poi nt? I t hi nk I

13 di d. Di d I ever si gn a check? No.

14 Q. How were t he checks cr eated?

15 A. How were t hey cr eated?

16 Q. Yeah. You got pai d, di dn' t you?

17 A. Yes.

18 Q. Pai d ever y week, corr ect ?

19 A. No.

20 Q. Got pai d ever y t wo weeks?

21 A. No.

22 Q. How of t en you get pai d?

23 A. Once a mont h.

24 Q. Each mont h?

25 A. Each mont h.


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1 Q. Now, you t ol d us about Dr . Kar r on i n t he f i r st mont h of t he

2 gr ant he t ook $75, 000 f or as a l oan f or hi s per sonal use,

3 cor r ect ?

4 A. Corr ect .

5 Q. Now, he was ear ni ng $175, 000 f or t he year , corr ect ?

6 A. Corr ect .

7 Q. And t hat comes out t o about $14, 000 and change a mont h?

8 A. Corr ect .

9 Q. Di d you know i f Dr . Kar r on t ook a check, a paycheck i n

10 November of 2001?

11 A. I don' t know.

12 Q. Do you know i f he t ook a paycheck i n December of 2001?


14 Q. Do you know i f he got a paycheck i n J anuar y of 2002?

15 A. I don' t r emember t hat .

16 Q. I sn' t i t a f act t hat t he f i r st paycheck t hat Dr . Kar r on got

17 was i n May of 2002?

18 A. I don' t know t hat .

19 Q. Wel l , as t he - -

20 THE COURT: The j ury i s t o draw no i nf erences.

21 Quest i ons onl y are what i s t he evi dence bef ore you. Don' t dr aw

22 any i nf er ences f r om t he quest i on.

23 Q. Now, t here wer e a number of peopl e who wor ked at CASI on

24 t hi s pr oj ect , wer e t her e not ?

25 A. Sever al , yes.


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1 Q. And what was t he or i gi nal budget f or sal ar i es?

2 A. For what ?

3 Q. For sal ar i es, f or t ot al sal ar i es?

4 A. I don' t r emember . I don' t r ecal l t hat of f hand.

5 Q. Let me show you an exhi bi t t o see i f i t r ef r eshes your

6 r ecol l ecti on?

7 THE COURT: What exhi bi t ?

8 Q. Okay. Af t er t he i ni t i al budget was submi t t ed, was t her e an

9 amendment , a r equest f or an amendment t o t he budget submi t t ed?

10 A. I ' m sor r y, coul d you r epeat t hat ?

11 Q. Yeah. Af t er t he i ni t i al budget was submi t t ed, you

12 submi t t ed a budget bef ore you r ecei ved t he f unds, corr ect ?

13 A. Yes.

14 Q. And t hat was t o get $800, 000 t he f i r st year , corr ect ?

15 A. Corr ect .

16 Q. And af t er - -

17 THE COURT: Tot al budget .

18 Q. For t he f i r st year ?

19 A. I bel i eve, I bel i eve 800, 000 sounds about r i ght . I t mi ght

20 have been a l i t t l e bi t more.

21 THE COURT: Budget . We' r e not t al ki ng sal ar i es at

22 t hi s poi nt . Budget .

23 MR. RUBI NSTEI N: No, t al ki ng t otal budget .

24 A. Yes.

25 Q. The f i r st year . And t hen t he t ot al you t ol d us was f or t he


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1 t hr ee years was about 2. 1 mi l l i on?

2 A. Corr ect .

3 Q. Now, i n Oct ober di d you f i l e f or a budget amendment , a

4 r evi si on ear l y on?

5 A. Yes.

6 Q. And I t ur n your at t ent i on t o exhi bi t - - do you have t he

7 exhi bi t s i n f r ont of you, si r ? I s t her e a book wi t h exhi bi t s

8 ther e?

9 A. Whi ch exhi bi t are you - -

10 Q. I ' m r ef er r i ng t o exhi bi t 22.

11 A. I don' t have such an exhi bi t .

12 MR. EVERDELL: One moment , your Honor .

13 MR. RUBI NSTEI N: I ' l l gi ve hi m my exhi bi t , your Honor.

14 MR. EVERDELL: Her e.

15 Q. Mr . Ger f ei n - -

16 THE COURT: The wi t ness has been handed exhi bi t 22.

17 Q. Di d you r evi ew t hat , si r ?

18 A. Whi ch pi ece of paper are you aski ng me t o l ook at ?

19 Q. The ent i r e exhi bi t .

20 A. Okay. I , I have an i dea what t hi s i s.

21 Q. Di d you have di scussi ons wi t h peopl e, ei t her Hope Snowden

22 or anybody at ATP about a r evi si on i n t he budget?

23 A. About a pr ovi si on i n t he budget ?

24 Q. No, a r evi si on?

25 A. Oh, yes. The chances are I di d, al t hough t hi s was


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1 submi t t ed - - we di d make a submi ss i on.

2 Q. And di d you prepare t he submi ss i on?

3 A. I bel i eve I di d. I can' t be 100 per cent sur e. But i f I

4 di d i t , I di d i t wi t h t he Dr . Kar r on. I mean, we cer t ai nl y

5 di scussed i t .

6 Q. Al l r i ght . And by l ooki ng at t hat document , does i t

7 r ef r esh your r ecol l ect i on as t o what the budget was f or t he

8 f i rst year?

9 A. Ri ght . I see t hat .

10 Q. And t here were submi t t ed r easons f or t he r equest f or

11 r evi si ons, cor r ect ?

12 A. Yes.

13 Q. As a mat t er of f act , t hi s was t he second r evi si on f or

14 budget ?

15 A. I don' t r ecal l that . I , I j ust don' t recal l whi ch r evi si on

16 i t was, i f t her e was a f i r st or second.

17 Q. Do you r ecal l submi t t i ng a r evi si on t o change your name

18 f r om Lee t o El i sha?

19 A. I f t here was such changes, I do not remember i t .

20 Q. Now, t he sal ar y - - di d you under st and, si r , as t he busi ness

21 manager , t hat you di d not need approval i f you changed a

22 cat egory by 10 per cent ?

23 A. Wi t hi n 10 per cent .

24 Q. Of t he gr ant ?

25 A. Yes.


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1 Q. So t hat you coul d add $80, 000 t o a cat egory as l ong as you

2 t ook 80, 000 away f r omt hat cat egor y, cor r ect ?

3 A. Um, t hat coul d be cor r ect . I can' t be sur e 100 per cent i f

4 t hat ' s cor r ect.

5 Q. Now, you t ol d us t hat you had heal t h i nsurance. You

6 act ual l y had a cont r act , cor r ect ?

7 A. Yes.

8 Q. And di d t hat pr ovi de f or heal t h benef i t s f or you?

9 A. I t hi nk so, but I can' t r emember exact l y. I don' t have i t

10 i n f r ont of me.

11 Q. Do you r ecal l who t he l awyer was who you ment i oned was

12 cont acted t o devel op a f r i nge benef i t manual ?

13 A. My best r ecol l ect i on - -

14 THE COURT: Pl an or manual ?

15 Q. Pl an or manual ?

16 A. My best r ecol l ect i on was Freder i ca Mi l l er .

17 Q. And do you know i f Fr eder i ca Mi l l er was pai d anythi ng t o do

18 t hi s work?

19 A. I have no i dea.

20 Q. Now, i n addi t i on t o t he - - your wi f e had separate coverage,

21 di d she not ?

22 A. My wi f e had separ at e cover age, yes.

23 Q. And CASI r ei mbur sed you f or your wi f e' s medi cal expense,

24 r i ght ?

25 A. Not our medi cal expense, our i nsur ance.


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1 Q. What ki nd of i nsurance?

2 A. I t was a gr oup i nsur ance, I t hi nk. I t was our por t i on of

3 t he gr oup i nsur ance.

4 Q. Gr oup i nsur ance cover i ng what ?

5 A. Cover i ng medi cal .

6 Q. And were you al so on t he medi cal pl an t hat CASI had f or i t s

7 empl oyees?

8 A. No.

9 THE COURT: Whose group medi cal wer e you t al ki ng

10 about ?

11 THE WI TNESS: My wi f e' s medi cal . My wi f e was par t of

12 a gr oup, and so - -

13 THE COURT: I see. Di f f er ent , separate gr oup?

14 THE WI TNESS: Agai n, t her e was no - - I must make a

15 poi nt . Ther e was no pol i cy, and Dr . Karr on sai d, okay, we' l l

16 j ust pay your medi cal i nsur ance. And t he way i t was set up,

17 t hat my wi f e woul d be cover ed under that as wel l .

18 Q. And t here wer e f r i nge benef i t s pr ovi ded f or i n your budget ,

19 were t her e not ?

20 A. Corr ect .

21 Q. And how much were t he f r i nge benef i t s pr ovi ded f or i n t he

22 CASI budget ?

23 A. I woul d have t o l ook t hat up. I don' t know t hat exact l y.

24 The f r i nge benef i t s wer e pr obabl y 34 percent of t he t otal

25 payr ol l . The payr ol l - - and t hat f i r st year says her e


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1 $325, 000. So f r i nge benef i t s shoul d have been 34 per cent of

2 what ever t hat number i s, whi ch shoul d be somethi ng over

3 $100, 000, I t hi nk.

4 Q. And do you see on - - so t hat was - - di d you argue wi t h Dr .

5 Karr on as t o whet her or not you - - your wi f e shoul d be

6 r ei mbur sed f or your medi cal i nsurance?

7 A. Ar gue? No, ther e was no argument . He - - t her e was never

8 an ar gument about t hat .

9 Q. Di d you say t o hi m, I don' t thi nk t hat ' s an al l owabl e

10 f r i nge benef i t ?

11 A. No.

12 Q. Di d you t hi nk i t was al l owabl e?

13 A. Based on t he, t he l oose pol i cy t hat he had est abl i shed, i t

14 was.

15 Q. What about ATP, di d you t hi nk t hat hi s l oose pol i cy

16 vi ol at ed t he ATP - -

17 A. I ' m not sur e how. I f i t was f or me, wi t hi n 34 per cent of

18 my, of my gr oss pay, i t was not vi ol at i ng, no.

19 Q. Was i t - - di d you know of any r ul e t hat suggest ed t hat the

20 f r i nge benef i t amount was r el ated t o an i ndi vi dual ' s gr oss pay?

21 A. Yes.

22 Q. Wher e, wher e i s i t t hat i t ' s - - wher e i s t he document t hat

23 suggest s t hat f r i nge benef i t s ar e i n di r ect pr opor t i on t o one' s

24 sal ary?

25 A. As f ar as - - I r emember readi ng t hat i n t he document s.


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1 Q. You had t hat di scussi on wi t h Dr . Karr on, di d you not ?

2 A. Yes. Wel l , we di scussed t he subj ect i n gener al , mor e wi t h

3 r espect t o hi s r equi r ement s f or medi cal t han mi ne. I was way

4 wi t hi n t he 34 per cent .

5 Q. And hi s vi ew was t hat i f you had f r i nge benef i t s f or the

6 company, what ever was ut i l i zed, as l ong as i t was a f r i nge

7 benef i t , anybody coul d use i t ?

8 A. I don' t under st and your quest i on.

9 Q. Di d you have a di scussi on wi t h Dr . Karr on as t o t he use of

10 f r i nge benef i t s?

11 A. Yes.

12 Q. And di dn' t he advi se you t hat i t was hi s unders t andi ng t hat

13 f r i nge benef i t s - - t hat he coul d ut i l i ze up t o what ever f r i nge

14 benef i t money was not used by ot her empl oyees t hat was

15 avai l abl e f or hi m?

16 A. He sai d t hat .

17 Q. And are you aware - - di d you have anyt hi ng t o do wi t h t he

18 quar t er l y f i nanci al st at ement s?

19 A. Yes.

20 Q. Di d you hel p prepar e t hem?

21 A. Yes.

22 Q. Wher e di d you get t he number s f r om t o put i nt o t he

23 quar t er l y f i nanci al st at ement s?

24 A. Those number s were t he aggregat e of what was i n t he monthl y

25 appl i cat i ons f or , f or t he var i ous pr ogr ess payment s. That ' s


( 212) 805- 0300



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1 where t hese numbers came f r om.

2 Q. Di d t hey come f r om act ual expenses?

3 A. No, t hey di d not .

4 Q. And who det ermi ned t hat t hat was t he proper number s, t hose

5 were t he proper number s t o use?

6 A. Wel l , t he f i r st t i me we went i n af t er Dr . Kar r on wi t hdr ew

7 t he $75, 000, and we had we had a di scussi on about t hat , about

8 how t hat $75, 000, f or exampl e, coul d be appl i ed t o di r ect - - on

9 t he di r ect char ges f or the gr ant , whi ch we coul dn' t possi bl y do

10 because i t wasn' t - - I mean t hat money was not spent on t he

11 gr ant . So Dr . Kar r on sai d j ust , okay, make i t t hat i t wor ks;

12 make sur e t hat , you know, you don' t r ai se any r ed f l ags and

13 j ust submi t t he number s t hat wi l l make i t work. And t hat ' s

14 what we di d.

15 Q. You ar e aware, si r , t hat Dr . Karr on pai d back t hat $75, 000

16 i n t hat f i r st year ; you' r e awar e of t hat ?

17 A. I am. But i t caused us gr eat pai n t o have t hat $75, 000

18 t aken out , so at t he end of ever y month we were down t o al most

19 zer o on t he bank account .

20 Q. And whenever you got down t o zer o, Dr . Kar r on woul d put hi s

21 own money i nt o t he company, cor r ect ?


23 Q. Wel l , how di d you get above zer o?

24 A. We got anot her progress payment .

25 Q. Di d you get a per sonal l oan f r om CASI dur i ng t hi s per i od?


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1 A. Di d I get a per sonal l oan?

2 Q. Yes.

3 A. Not t o my knowl edge.

4 Q. Di d you get a per sonal l oan f r om Dr . Kar r on dur i ng t hi s

5 per i od?


7 Q. You al so had a t el ephone i nst al l ed i n your house r el at ed t o

8 CASI busi ness wi t h t he ATP gr ant , di d you not?

9 A. Corr ect .

10 Q. And t hat t el ephone was pai d f or by CASI ?

11 A. Corr ect .

12 Q. And you used t hat phone st r i ct l y f or company busi ness?

13 A. Corr ect .

14 Q. Di d you have a cr edi t car d t o use f or CASI ?

15 A. I don' t r ecal l i f I had a cr edi t card. I f I di d, i t was

16 har dl y used. I n f act , I t hi nk I gave i t back t o hi m. I f I had

17 one, I gave i t back t o hi m.

18 Q. At what poi nt ?

19 A. Ri ght away. I mean i t was - - I , I , I can' t remember t he,

20 any cr edi t card bei ng of any subst ance.

21 Q. Di d you cal l anybody at ATP t o r eport t hat Dr . Kar r on had

22 bor r owed $75, 000?

23 A. I di d not .

24 Q. When you say t hat you were, t he company was shor t money,

25 t here was $800, 000 deposi t ed by ear l y Oct ober or by t he mi ddl e


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1 of Oct ober i nt o an account f or you t o dr awdown; i s t hat

2 cor r ect ?

3 A. I ncor r ect .

4 Q. Where was t he money t hat was gi ven by ATP, t he $800, 000,

5 how di d t hat - -

6 A. The $800, 000 came i n pi eces. The f i r st pi ece was 150, 000

7 and ever y mont h i n t he f i r st year af t er t hat i t was $60, 000.

8 We had t o appl y f or t hat money each mont h.

9 Q. Ar e you aware t hat you coul d have appl i ed f or t he f i r st - -

10 i n t he f i r st mont h f or t he whol e $800, 000?

11 A. I was not aware of t hat .

12 Q. So i f somebody f r om ATP had t est i f i ed her e at t he t r i al ,

13 you were unaware of t hat , cor r ect ?

14 A. I ' m unawar e of t hat .

15 Q. You were present at - - on November 8t h, 2001 at what ' s

16 cal l ed a ki ckof f meet i ng?

17 A. Yes. Yes, I was.

18 Q. And you went over r ul es and r egul at i ons wi t h t he peopl e - -

19 A. Yes.

20 Q. - - at NI ST?

21 A. Corr ect .

22 Q. And I t hi nk you t ol d us t hat you met Mark Stanl ey t her e?

23 A. I t hi nk I shook hands wi t h hi m at most .

24 Q. And di d Dr . Kar r on know Mark Stanl ey?

25 A. Yes.


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1 Q. And t hey had a cor di al comf ort abl e r el at i onshi p?

2 MR. EVERDELL: Obj ect i on.

3 THE COURT: Do you know? Wer e you pr esent ? Do you

4 r emember any of t hei r meet i ngs bef ore t he gr ant ?

5 THE WI TNESS: No, I was not .

6 Q. Wel l , di d Dr . Karr on or you di scuss t hese, thi s agr eement

7 agr eement s you had wi t h hi m as t o whet her or not an expense,

8 was a proper NI ST expense, you had a number of t hese di scusses,

9 cor r ect ?

10 A. Yes.

11 Q. And di d he advi se you t hat he woul d get t he approval

12 because NI ST l oved hi m and he bought i t ems bef ore he asked or

13 r ecei ved appr oval f r om NI ST?

14 A. I can' t hear what you' r e sayi ng.

15 Q. Di d he t el l you t hat - -

16 THE COURT: You bet t er get back t o t he mi cr ophone, Mr .

17 Rubi nst ei n, because I coul dn' t hear hal f t hat quest i on.

18 MR. RUBI NSTEI N: Sorr y.

19 Q. When you quest i oned t he pr opr i ety of cer t ai n expendi t ur es

20 by Dr . Kar r on, wi t hout pr i or appr oval , and i n f act t hat Dr .

21 Karr on t ol d you t hat he woul d get approval because NI ST l oved

22 hi m?

23 A. Yes, he sai d t hat .

24 Q. Di d you bi l l a, and be r ei mbur sed f or parki ng whi l e you

25 wer e a CASI empl oyee?


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1 A. Yes.

2 Q. And di d you al so bi l l f or t r avel ?

3 A. For mi l eage you mean?

4 Q. Yes.

5 A. I don' t r ecal l t he mi l eage. I recal l I thi nk par ki ng at

6 t he met er . Possi bl y t ol l s. I don' t r emember t hat . That ' s

7 possi bl e. But I don' t r ecal l mi l eage, al t hough t hat ' s possi bl e

8 t oo.

9 Q. Do you r ecal l r ecei vi ng an e- mai l f r om Dr . Kar r on

10 r equest i ng t hat you r epay cert ai n expenses t hat were not

11 approved by ATP?

12 A. I don' t r ecal l such an e- mai l .


14

15

16

17

18

19

20

21

22

23

24

25


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669

8657KAR6 Gurf ei n - cr oss


2 Q. Let me show you t hi s document and mark i t as - - i t ' s par t

3 of actual l y gover nment ' s 3507- S, at page 27 of 28 pages.

4 THE COURT: 3507 what ?

5 Q. Bef or e you t est i f i ed, di d you have an oppor t uni t y, si r , t o

6 go over e- mai l s t hat ei t her you sent or that were sent t o you?

7 A. No, not par t i cul ar l y, no.

8 Q. You ar e El i sha Gur f ei n and your e- mai l addr ess i s

9 egur f ei n@ear t hl i nk. net , r i ght ?

10 A. Corr ect .

11 Q. I s t hat cor rect, s i r?

12 A. Yes.

13 Q. I di r ect your at t ent i on t o page 28.

14 A. Page 28?

15 Q. Take a l ook at t hi s page her e.

16 THE COURT: Page what ?

17 MR. RUBI NSTEI N: I t ' s page 27, your Honor , and 28.

18 THE COURT: What ' s t he dat e?

19 THE WI TNESS: Thi s e- mai l was dat ed Febr uar y 1, 2003.

20 I don' t r ecal l ever r ecei vi ng t hi s e- mai l . Thi s i s mor e t han

21 si x mont hs or so af t er I l ef t . I don' t remember seei ng t hi s

22 e- mai l .

23 THE COURT: Who i s t he e- mai l f r om?

24 MR. RUBI NSTEI N: I t ' s f r om Dr . Karr on t o Mr . Gur f ei n.

25 And I woul d of f er thi s port i on of Gover nment ' s 3507- S.


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1 MR. EVERDELL: Obj ect i on, your Honor .

2 THE COURT: Sor r y?


4 THE COURT: I di dn' t hear t he st at ement .

5 MR. EVERDELL: He i s of f er i ng t he e- mai l i n evi dence.


7 Q. Wel l , i s i t a f act, si r , whi l e i n t he year you had wor ked

8 f or CASI you had char ged $2, 000 f or par ki ng?

9 A. I don' t r emember t hat number , no.

10 Q. Do you r ecal l chargi ng CASI $1, 589 f or t r avel ?

11 A. I don' t r ecal l t hat number ei t her .

12 Q. Do you r ecal l bei ng asked by Dr . Kar r on t o pr ovi de backup

13 and j ust i f i cat i on f or expenses t hat you had?

14 A. No.

15 Q. Now, t her e was, was t here not , i n t he budget that we are

16 t al ki ng about , $110, 500 appr oved f or f r i nge benef i t s, cor r ect ?

17 A. Show me wher e t hat i s.

18 Q. Do you st i l l have t hat Exhi bi t 22 i n f r ont of you?

19 A. Hol d on. What page i s t hat on here?

20 THE COURT: 22, i t ' s t he t hi r d page i n what he i s

21 aski ng about .

22 MR. RUBI NSTEI N: J udge, I t hi nk, wi t h al l due r espect ,

23 t he f our t h page i n.

24 THE WI TNESS: What page?

25 MR. RUBI NSTEI N: I f you l ook on page 4, or on page 3


( 212) 805- 0300



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1 as t he cour t sai d.

2 THE WI TNESS: I am l ooki ng f or a f i gur e of $110, 500.

3 I do not see t hat . Oh, yes, I do. Sor r y, I do see i t .

4 Q. Now, who was t he accountant f or CASI when you f i r st st ar t ed

5 worki ng t here?

6 A. J i l l Fel dman, I t hi nk.

7 Q. And di d you have cont act wi t h her ?

8 A. Br i ef .

9 Q. Was she r epl aced?

10 A. Yes.

11 Q. And who r epl aced her ?

12 A. J oan Hayes.

13 Q. Appr oxi mat el y when was t hat?

14 A. I t was l at er . I ' m not sur e exact l y when J oan came i nt o t he

15 pi ct ur e.

16 Q. And what was her f unct i on as t he account ant f or CASI ?

17 THE COURT: Whi ch one? Hayes?

18 MR. RUBI NSTEI N: Hayes.

19 A. What was Hayes' f unct i on?

20 Q. Yeah. Di d she work under you? You were t he busi ness

21 manager ?

22 A. No, no. You have t o r emember al l my aut hor i t y was t aken

23 f r om me by Dr . Karr on. The i dea t hat I had any aut hor i t y over

24 anybody i s j ust f al l aci ous.

25 Q. That l et t er mer el y sai d t hat you coul dn' t si gn checks,


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1 r i ght ?


3 Q. You wer e get t i ng pai d a gr oss sal ary of $100, 000 a year ,

4 r i ght ?

5 A. Corr ect .

6 Q. And J oan Hayes was worki ng t here as an accountant , cor r ect ?

7 A. Corr ect .

8 Q. Di d you see her when you went t her e t o CASI ?

9 A. Sure.

10 Q. How of t en - - you sai d you woul d be t here l i ke t hr ee days a

11 week?

12 A. The quest i on i s how of t en was she t her e when I was t her e.

13 That var i ed.

14 Q. How of t en woul d you see her ?

15 A. She woul d be t her e dur i ng a cer t ai n t i me i nt er val . I

16 r emember seei ng her t her e more of t en t han ot her s but t hat was

17 l at er on. She st ar t ed showi ng up t her e l at er on, not ear l y i n

18 t he pr oj ect , not i n t he f i r st year anyhow.

19 Q. Wel l , when you say t he f i r st year , you mean 2001.

20 A. Wel l , Oct ober 1, 2001 unt i l September 30, 2002 when I was

21 t her e. That ' s t he f i r st year of t he gr ant .

22 Q. So, you di d not see her of t en when you were - -

23 A. Oh, I saw her very of t en t owards t he end of t hat per i od I

24 j ust ment i oned, but not at t he begi nni ng.

25 Q. Woul d you see her at al l ?


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1 A. Sure.

2 Q. I n t he begi nni ng?

3 A. She wasn' t on i n t he begi nni ng. J i l l Fel dman was on i n t he

4 begi nni ng.

5 Q. J i l l Fel dman l ef t ear l y i n 2002, di d she not ?

6 A. Yeah, I don' t r emember t he exact dat e.

7 Q. I s i t your under st andi ng t hat Hayes had pur chased J i l l

8 Fel dman' s pr act i ce?


10 THE COURT: Sust ai ned.

11 Q. Wel l , di d you obser ve - - by t he way, di d you have access t o

12 t he comput er at CASI ?

13 A. Di d I have access t o i t ?

14 Q. Ri ght .

15 A. What does t hat mean?


17 Q. Coul d you use t he comput er at CASI ?

18 A. Yeah, sur e.

19 Q. Were you aware t hat - -

20 THE COURT: You are t al ki ng about t he busi ness

21 comput er ?


23 Q. Were you aware t hat t hey had a progr am, sof t ware progr am

24 cal l ed Qui ck Books, i nst al l ed?

25 A. Yes.


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1 Q. And are you aware t hat t hat was pur chased pr i or to Oct ober

2 1, 2001, wi t h f unds of Dr . Kar r on?

3 A. I di d not know t hat .

4 Q. But you knew i t when you were worki ng t her e t hat t hi s Qui ck

5 Book syst em was i n ef f ect .

6 A. Yes.

7 Q. And al so were you aware t hat t her e was a pr ogr am i n ef f ect

8 t o scan al l document s i nto t hat same comput er syst em?

9 A. Yes.

10 Q. Di d you part i ci pate i n scanni ng document s i nt o - -

11 A. No.

12 Q. Di d you par t i ci pat e i n t hat Qui ck Book syst em gener at i ng

13 i t s own checks?

14 A. No.

15 Q. Di d i t ?

16 A. That i t gener ated i t s own checks? Di d I t ake par t i n t hat?

17 No.

18 Q. No, no, but di d t he syst em generat e a check?

19 A. I ' m sor ry?

20 Q. The Qui ck Book syst em, di d i t gener ate checks?


22 Q. I s i t f ai r t o say t hat Dr . Kar r on woul d have vi r t ual l y

23 every pi ece of paper t hat came i nt o t he CASI - -


25 Q. - - gr ant scanned?


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2 Q. Wel l , who di d you see scan document s i nto t hat comput er

3 syst em?

4 A. Dr . Kar r on f or t he most par t , and maybe some ot her peopl e.

5 Q. Wel l , Margaret Fer r and, di d you see her scan anythi ng?

6 A. No.

7 Q. As a mat t er of f act , how many peopl e were t he maxi mum t hat

8 were worki ng at CASI at 300 East 33r d St r eet at one t i me?

9 A. I can' t say f or sur e at t hi s poi nt . Wor ki ng f or CASI on

10 t he gr ant ?

11 Q. Yes.

12 A. Wel l , var i ous peopl e came and l ef t , so i t ' s a l i t t l e bi t

13 har d t o r eal l y know t hat number exact l y. I f you ask me how

14 many peopl e woul d be pr esent at any one t i me i n t hat l i vi ng

15 r oom? I woul d say probabl y maybe a maxi mum of si x or seven at

16 t he most . At most . But t hat was not t he usual .

17 Q. But you coul d have as many as t hat .

18 A. That woul d be t he absol ute maxi mum, seven maybe, probabl y

19 l ess.

20 Q. Wer e t her e al so vol unt eer s t hat Dr . Karr on had r ecr ui t ed t o

21 wor k on t hi s pr oj ect ?

22 A. I t hi nk he mi ght have had a gr aduate st udent or t wo l i ke

23 t hat .

24 THE COURT: Woul d your si x or seven i ncl ude t he

25 vol unt eer s, or ar e you excl udi ng t he vol unt eer s?


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1 THE WI TNESS: I don' t r ecal l , your Honor , seei ng a

2 group more t han - - except when t here was a si t e r evi ew wi t h

3 peopl e f r om NI ST, I don' t r ecal l seei ng mor e t han hal f a dozen

4 peopl e, maybe seven, at any one t i me.

5 Q. How about - - was Dr . Wol ber g t her e?

6 A. Rarel y.

7 Q. Was J i m Cox t her e?

8 A. Yes.

9 Q. Was Mat t Rot hman t here?

10 A. Yes.

11 Q. Scot t Al bi n?

12 A. Scot t Al bi n? Yes, but not al l at t he same t i me.

13 Q. And you sai d t here was a l i vi ng r oom. Was t her e any l i vi ng

14 r oom f ur ni t ur e i n t her e?

15 A. De mi ni mi s.

16 Q. I n f act i t was basi cal l y a comput er l ab, cor r ect ?

17 A. For t he most par t , cor r ect .

18 Q. Let me show you what has been mar ked as BBB f or

19 i dent i f i cat i on and al so mar ked CCC f or i dent i f i cat i on. I show

20 you t hese t wo pages of phot ogr aphs, and t hese are t he l et t ers.

21 Take a l ook at def endant ' s BBB f or i dent i f i cat i on.

22 A. Yes.

23 Q. Tel l me i f you r ecogni ze what ' s depi ct ed i n t hose

24 phot ographs.

25 THE COURT: The quest i on i s: I s i t a f ai r and


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1 accur ate r epr esent at i on?

2 THE WI TNESS: Yes, t hi s appear s t o be Dr . Kar r on' s

3 l i vi ng r oom as I r emember i t .

4 MR. RUBI NSTEI N: I woul d of f er BBB i nt o evi dence, your

5 Honor .

6 MR. EVERDELL: No obj ect i on.

7 THE COURT: BBB i s admi t t ed i n evi dence.

8 DEPUTY COURT CLERK: J udge, I t hi nk t hat ' s al r eady i n.

9 THE COURT: I t i s i n evi dence. I ' m sor r y.

10 MR. RUBI NSTEI N: No, i t wasn' t . I t was marked f or

11 i dent i f i cat i on.

12 THE COURT: I t hi nk t he government consent ed t o i t i n

13 evi dence. Go ahead.

14 MR. RUBI NSTEI N: CCC?

15 THE COURT: You had t hem up on t he boar d, di dn' t we?

16 Ar en' t t hese t he pi ct ur es we had up on t he scr een.

17 MR. RUBI NSTEI N: Oh, I ' m sor r y. She sai d she coul dn' t

18 t est i f y about i t , I t hi nk. Thank you, Rober t . You' r e r i ght .

19 I apol ogi ze.

20 THE COURT: Go ahead.

21 Q. You r ecogni ze what the phot ogr aphs are depi ct ed i n CCC?

22 A. Not al l of t he i t ems I do r ecogni ze i n CCC. I r ecogni ze - -

23 MR. RUBI NSTEI N: May I approach t he wi t ness?

24 A. I r ecogni ze t he bathr oom, not much el se. I never saw t hi s

25 si gn. I don' t r emember t hi s her e. I r emember t hi s. I


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1 r emember thi s t el ephone si t uat i on i n t he bathr oom, but I don' t

2 r emember anyt hi ng el se on t hi s page.

3 Q. Do you r ecal l anyt hi ng about Dr . Kar r on' s r oom i t sel f ?

4 A. Ther e were some comput er s i n t her e.

5 Q. That ' s hi s bedr oom.

6 A. Yes.

7 MR. RUBI NSTEI N: Let me publ i sh BBB f or t he j ur y.

8 Q. Now, st ar t i ng, si r , at the t op l ef t as we l ook at thi s

9 exhi bi t , what por t i on of t he ar ea r ef er r ed t o as t he l i vi ng

10 r oom was t hi s?

11 A. What does t hat mean?

12 Q. Wel l , do you see t hat l ar ge - - l et me poi nt t o i t - - I ' m

13 poi nt i ng t hi s at somet hi ng shown on t he r i ght hand - - t her e are

14 si x phot ogr aphs, cor r ect ?

15 A. Yes.

16 Q. I n t hi s exhi bi t ? Thi s i s on t he r i ght - hand si de, t he

17 mi ddl e phot ogr aph. Do you r ecogni ze what t hat i s?

18 A. That l ooks l i ke a screen, but I - -

19 Q. How about down her e on t he l ower r i ght ?

20 A. That l ooks l i ke a scr een.

21 Q. Was t her e a screen at t hat f aci l i t y?

22 A. Ther e was one i nst al l ed whi l e I was t her e.

23 Q. And who i nst al l ed i t ?

24 A. Abe Kar r on, to my knowl edge. I saw hi m i nst al l i t .

25 Q. And t hat was a scr een si mi l ar t o t he scr een t hat we have


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1 her e. I mean - -

2 A. Yes, f or a r oom t hat ' s about one quar t er the si ze or one

3 f i f t h t he s i ze.

4 Q. And t her e was al so a pr oj ect or si mi l ar t o t he pr oj ect or

5 r i ght over her e, cor r ect ?

6 A. Probabl y was, yeah.

7 Q. Do you r ecogni ze t hi s i t em t hat ' s i n evi dence as Gover nment

8 Exhi bi t 123?

9 A. Wel l , not expl i ci t l y, but I coul d have seen i t bef or e.

10 Q. OK. Now, were you ever present when present at i ons were

11 made by t he peopl e at CASI on t hi s ATP pr oj ect ?

12 A. Yes.

13 Q. And when pr esent at i ons were made, was t hat scr een ut i l i zed?

14 A. One t i me I was at such a presentat i on, yes.

15 Q. And who el se was present ?

16 A. Dr . Karr on and a whol e bunch of other peopl e, i ncl udi ng

17 J ayne Or t hwei n and B. J . L i de and some ot her peopl e.

18 Q. Ar e you aware - - ar e you aware t hat Dr . Kar r on woul d go

19 somet i mes t o New J ersey t o l ecture and was cal l ed upon t o

20 l ect ur e on t he ATP pr oj ect ?

21 A. New J er sey? Not t o my knowl edge.

22 Q. Anywhere.

23 A. I f i t happened, i t was on no r egul ar basi s t hat I knew

24 about .

25 Q. Now, goi ng t o t he t op pi ct ur e on t he l ef t , do you see, ar e


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1 t hose t wo comput er s?

2 A. Yes.

3 Q. And - -

4 A. Wel l , t hey' r e moni t ors, anyhow.

5 Q. Moni t ors. And are t hose t he moni t ors you di scussed bef ore,

6 t he ones t hat cost - -

7 A. I don' t t hi nk so.

8 Q. And t hese, do you see t hose shel ves?

9 A. Yes.

10 Q. Do you know who const r uct ed t hose shel ves?

11 A. No.

12 Q. Do you know what was cont ai ned on t hose shel ves?

13 A. Oh, var i ous books and r ecor ds, I t hi nk.

14 Q. By t he way, was t her e an i nst al l at i on of wi r i ng done i n

15 t hat r oom?

16 A. I n t he l i vi ng r oom?

17 Q. Ri ght .

18 A. An i nst al l at i on of wi r i ng?

19 Q. Ri ght .

20 A. Probabl y.

21 Q. Was t her e an i ncr ease i n t he ai r condi t i oni ng?

22 A. Ther e cer t ai nl y was.

23 Q. I t woul d get pr et t y hot i n t her e, woul d i t not ?

24 A. I t di d.

25 Q. Bet ween t he comput ers and al l t he peopl e?


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1 A. Yes.

2 Q. And was i t messy i n t her e?

3 A. Was i t what ?

4 Q. Messy.

5 MR. EVERDELL: Obj ect i on. Obj ect i on.

6 THE COURT: Obj ect i on sust ai ned. I don' t see t he

7 r el evance of t hat .

8 Q. Wel l , you t est i f i ed - -

9 THE COURT: Pl ease go ahead. No speaki ng obj ect i ons.

10 Ask anot her quest i on.

11 Q. Do you know a per son named Chr i s Wegner?

12 A. I met Chr i s Wegner .

13 Q. And are you awar e t hat Chr i s Wegner was a f or mer empl oyee

14 of CASI ?

15 A. I do.

16 Q. And ar e you awar e t hat when Chr i s Wegner was an empl oyee of

17 CASI pr i or - - wi t hdr awn - - t hat Chr i s Wegner had surgery

18 per f ormed and was pai d f or by CASI ?

19 A. That ' s possi bl e, yes.

20 THE COURT: Was t hi s dur i ng t he grant per i od or not i n

21 t he gr ant per i od? We' r e t al ki ng about t he gr ant per i od,

22 Mr . Rubi nst ei n.

23 Mr . Gur f ei n, are we t al ki ng about t he gr ant per i od?

24 THE WI TNESS: I don' t know when t hat was pai d f or , but

25 I don' t t hi nk i t was pai d f or dur i ng t he gr ant per i od.


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1 Q. But i t was cust omary f or CASI bef ore t hey got t he gr ant t o

2 have t hese - - t o pay f or empl oyee' s benef i t s, r i ght ?


4 THE COURT: You weren' t connect ed wi t h CASI unt i l t he

5 t i me - - you don' t have knowl edge of anyt hi ng - -

6 THE WI TNESS: No. I have knowl edge, but I t hi nk i t

7 was pr i or t o my bei ng wi t h CASI .

8 THE COURT: But you don' t have knowl edge of anythi ng

9 t hat happened bef ore you. You don' t have per sonal knowl edge of

10 anyt hi ng t hat happened bef ore you were at CASI .

11 THE WI TNESS: Cor r ect .

12 THE COURT: Do you have knowl edge of t hi s?

13 THE WI TNESS: Dr . - -

14 THE COURT: Per sonal knowl edge.

15 THE WI TNESS: Dr . Kar r on t ol d me t hat - -

16 THE COURT: No, al l r i ght . That ' s hearsay.

17 Q. When you were di scuss i ng wi t h Dr . Kar r on t he medi cal

18 expenses t hat you t est i f i ed t o bef or e, di d Dr . Kar r on i n

19 r esponse t el l you anythi ng about t he pol i ci es of hi s company?

20 A. He sai d t o me t hat i n t he case of Chr i s Wegner he got I

21 t hi nk i t was $10, 000 f r om some other f unds other t han NI ST

22 f unds t o pay f or t hat surgery. That ' s what he t ol d me.

23 Q. Di d he t el l you what hi s pol i cy was f or empl oyees and

24 f r i nge benef i t s and heal t h benef i t s pr i or t o get t i ng t he gr ant ?

25 A. Pr i or t o get t i ng t he gr ant ?


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1 Q. Ri ght .

2 A. No, he di dn' t t el l me what t he pol i cy was pr i or t o get t i ng

3 t he gr ant .

4 Q. Di d you ever ask hi m i f he ever charged any - - what ki nd of

5 f r i nge benef i t s he was accust omed t o payi ng pr i or t o get t i ng

6 t he gr ant ?

7 A. I n t he most gener al way I know t hat hi s pol i cy unwr i t t en

8 was very l oose.

9 Q. Now, were you i nvol ved i n t he hi r i ng of J oan Hayes?

10 A. No.

11 Q. Di d you have deal i ngs wi t h her i nvol vi ng any f i nanci al

12 document s?

13 A. Yes.

14 Q. Whi ch f i nanci al document s were t hose?


16 Q. You f i l ed I bel i eve t he quar t er l y f i nanci al st at ement s?

17 A. Yes.

18 Q. And di d Ms. Hayes provi de any of t he f i gur es t hat you

19 i ncor por at ed i n t hose f i l i ngs?

20 A. I don' t t hi nk so. I t ' s possi bl e, but I don' t r ecal l t hat .

21 THE COURT: Wher e di d you get t he f i gur es?

22 THE WI TNESS: Wel l , basi cal l y t he f i gur es wer e not

23 r epr esent at i ve of what was act ual l y spent but r epr esent at i ve of

24 what was r ecei ved f r om NI ST.

25 THE COURT: So wher e di d you get t he f i gur es?


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1 THE WI TNESS: Wel l , t he f i gur es f or t he quar t er l y

2 r eport s wer e basi cal l y a summat i on of dat a i n t he appl i cat i ons

3 made f or t he pr i or t hr ee mont hs t o NI ST f or the pr ogr ess

4 payment s, wher e we had t o r epor t what was done i n t he pr i or

5 mont h.

6 THE COURT: Wher e woul d you get t hose f i gur es?

7 THE WI TNESS: Wel l , t hose f i gures woul d agai n be

8 got t en f r om essent i al l y f r omwhat we r ecei ved as opposed t o

9 havi ng t he cor r ect f i gures, whi ch woul d have been what was

10 act ual l y spent di r ect l y on t he pr oj ect .

11 THE COURT: Wel l , what you r ecei ved was $150, 000 and

12 t hen mont hl y payment s of - -

13 THE WI TNESS: - - 60, 000.

14 THE COURT: - - 60 or 65.


16 THE COURT: So t hose don' t t el l you t he breakdown.


18 THE COURT: Does t he quar t er l y r epor t show a

19 breakdown?

20 THE WI TNESS: No, no breakdown of t he quar t er l y

21 report .

22 THE COURT: Let me see a quar t er l y r epor t .

23 MR. EVERDELL: Your Honor , Government Exhi bi t 40 f or

24 exampl e.

25 THE COURT: He has one. He has handed me one.


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1 Exhi bi t 21, the cover page. I see. But t hi s i sn' t one t hat

2 was f i l ed by you. Thi s i s an amendment t o t he f i nanci al

3 assi st ance r epor t .

4 THE WI TNESS: I apol ogi ze.

5 MR. EVERDELL: Your Honor, I t hi nk t hi s i s one.

6 THE WI TNESS: I ' m sor r y. Wr ong i t em.

7 THE COURT: Here i s one, Gover nment Exhi bi t 40. That

8 was al l egedl y f i l ed J anuary 10, 2002. And t hi s shows t he t ot al

9 amount r ecei ved and t he t ot al amount cont r i but ed by CASI - -


11 THE COURT: - - t o t hi s award. The t ot al amount of

12 f unds r ecei ved i n t hat quar t er and t he t ot al cont r i but i on

13 al l egedl y made by CASI .


15 THE COURT: Wher e di d you get t he f i gur e f or t he

16 amount t hat CASI cont r i buted?

17 THE WI TNESS: Wel l , CASI di dn' t cont r i but e anyt hi ng.

18 These numbers were backed i nt o essent i al l y t o make i t l ook

19 r i ght , because t hat ' s what I was t ol d t o do.

20 THE COURT: By whom?

21 THE WI TNESS: By Dr . Karr on.

22 THE COURT: That ' s t r ue f or t he next quar t er and next

23 quar t er ? Di d you f i l e a next quar t er ?

24 THE WI TNESS: I f i l ed f or t he f i r st quar t er , t he

25 second quar t er , t he t hi r d quar t er . The f our t h quar t er I don' t


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1 r ecal l f i l i ng because I was not t her e anymor e.

2 THE COURT: And t hey were done on al l t hree quar t ers

3 i n t he same f ashi on?


5 Q. Now, you were at CASI , were you not , i n Apr i l of 2002,

6 cor r ect ?

7 A. Yes.

8 Q. And are you aware t hat an amended f i nanci al st at us r eport

9 was f i l ed i n Apr i l of 2002?

10 A. I ' m not sur e I r emember t hat .

11 Q. Let me show you what ' s i n evi dence as Government Exhi bi t

12 2000. And I wi l l l eave 2001 up t here.

13 THE COURT: 2000 and 2001.

14 Q. Do you want t o r evi ew t hose document s, s i r ?

15 A. Yes.

16 Q. Do you r ecogni ze t hose document s?

17 A. Wel l , yes.

18 Q. And di d you f i l e t hose document s?

19 A. No, Dr . Karr on f i l ed t hem.

20 Q. And di d you assi st hi m i n pr epar i ng t hem?

21 A. Yes.

22 Q. And di d J oan Hayes assi st i n pr epar i ng t hem?


24 Q. Wel l , do you r ecal l t hat you were at t empt i ng t o get a

25 budget revi si on i n November of 2001, December 2001?


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1 A. A budget - -

2 Q. - - r evi si on.

3 A. Yes.

4 Q. And you were t al ki ng t o Hope Snowden about i t ?

5 A. Yes.

6 Q. And Hope Snowden at some t i me suggest ed you cal l J ayne

7 Or t hwei n t o di scuss t he changes?

8 A. I f r ankl y don' t recal l that , but i t ' s possi bl e.

9 Q. Wel l , l et me show you - -

10 THE COURT: We don' t want i t ' s possi bl e. You ei t her

11 r ecal l i t or you don' t recal l i t .

12 THE WI TNESS: I don' t r ecal l i t .

13 THE COURT: Anyt hi ng i s poss i bl e.

14 Q. Let me show you what ' s marked f or i dent i f i cat i on as

15 Def endant ' s DDD.

16 DEPUTY COURT CLERK: Def endant ' s BBB?

17 MR. RUBI NSTEI N: D, dog dog dog. See i f t hi s

18 r ef r eshes your r ecol l ecti on, si r .

19 MR. KWOK: May I see i t ?

20 THE WI TNESS: Now t hat I r ead i t , I f r ankl y don' t

21 r ecal l i t that wel l , but , yes, I see i t and - -

22 THE COURT: No, j ust what you r ecal l . I t ' s onl y bei ng

23 shown t o you i f i t r ef r eshes your r ecol l ect i on. Don' t r ead t he

24 document i nt o t he r ecor d. I f i t r ef r eshes your r ecol l ect i on,

25 say yes i t does r ef r esh your r ecol l ect i on.


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1 THE WI TNESS: I t does not . I don' t r ecal l t hi s.

2 Q. That i s an e- mai l t hat was sent f r omyou t o Dr . Karr on, was

3 i t not , on December 7, 2001?

4 MR. EVERDELL: Obj ect i on, your Honor . He sai d i t

5 doesn' t r ef r esh hi s r ecol l ecti on.

6 MR. RUBI NSTEI N: Wel l t hen I ' m of f er i ng i t i nt o

7 evi dence.

8 THE COURT: Wel l , wai t a mi nut es. December 7 - - he

9 can' t read i t unt i l i t ' s admi t t ed i nt o evi dence i n t he f i r st

10 pl ace.

11 MR. RUBI NSTEI N: Cor r ect .

12 THE COURT: But what you showed hi m was somet hi ng t hat

13 was submi t t ed somet i me i n Apr i l , and now you are t al ki ng about

14 December . Ther e i s no r el at i onshi p i n t he dates of your

15 quest i ons.

16 MR. RUBI NSTEI N: I t hi nk t here i s, J udge.

17 THE COURT: Wel l , you may t hi nk t here i s, but t hi s way

18 precedes t he dat e you were i nqui r i ng about by more t han t hree

19 mont hs.

20 MR. RUBI NSTEI N: J udge, t hi s i s an e- mai l sent by t hi s

21 wi t ness.

22 THE COURT: Look, i t may be, but you t ol d me t he dat e.

23 Now, I don' t want t o hear a speaki ng obj ect i on. Br i ng i t over

24 her e t o t he si de. Ther e i s an obj ect i on about i t , l et ' s get i t

25 cl ear ed up.


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2

3

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11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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2 MR. EVERDELL: Thi s i s t he document , your Honor .

3 THE COURT: I have no i dea.

4 MR. EVERDELL: The def ense counsel i s usi ng t hi s t o

5 t r y t o r ef r esh t he wi t ness' s r ecol l ect i on. He hasn' t had hi s

6 r ecol l ect i on r ef r eshed, so i t can' t be used f or t hat pur pose

7 any more. He can' t admi t i t i n evi dence because he doesn' t

8 r ecogni ze t he e- mai l . Ther e i s no way t o admi t t hi s i nt o

9 evi dence.

10 MR. RUBI NSTEI N: He does r ecogni ze t he e- mai l account .

11 I t ' s hi s account .

12 MR. EVERDELL: He says he doesn' t r emember i t .

13 MR. RUBI NSTEI N: No, he doesn' t r emember t hi s

14 document , t hi s e- mai l .

15 THE COURT: He doesn' t r emember i t , and he has

16 admi t t ed al r eady t hat he at t empt ed t o go above Hope Snowden on

17 one occasi on t o get an appr oval .

18 MR. RUBI NSTEI N: Ri ght . And, J udge - -

19 THE COURT: He has al r eady t est i f i ed t o t hat . Thi s

20 doesn' t add a t hi ng.

21 MR. RUBI NSTEI N: J udge, t he f act of t he mat t er i s t hat

22 t her e i s an ent i r e l i ne comi ng f r om Hope Snowden of t hese

23 negot i at i ons, al l t he whi l e she kept aski ng f or revi si ons.

24 THE COURT: He has al r eady t est i f i ed about t hat .

25 MR. RUBI NSTEI N: No, he di dn' t .


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1 THE COURT: Yes, he di d t est i f y about i t ,


3 Now, how much l onger ar e you goi ng t o be?

4 MR. RUBI NSTEI N: Probabl y hal f hour , 45 mi nut es.

5 MR. EVERDELL: Your Honor , my di r ect was how l ong?

6 THE COURT: Wel l . Sor r y, we wi l l have t o go on a

7 l i t t l e whi l e l onger.


9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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2 MR. RUBI NSTEI N: You do r emember at t empt i ng t o get a

3 budget r evi si on near t he end of 2001?


5 THE COURT: He has al r eady t est i f i ed about t hat . He

6 sai d yes he di d t r y t o get t hem. He sai d t hat sever al t i mes.

7 That ' s t he court ' s recol l ect i on. I t ' s t he j ury' s

8 r ecol l ect i on t hat gover ns.

9 Q. How many budget r evi si ons wer e submi t t ed between December

10 2001 and February 2002?


12 Q. You do r ecal l Hope Snowden - - havi ng conver sat i ons wi t h

13 Hope Snowden, cor r ect ?

14 A. Yes.

15 Q. And you r ecal l her aski ng you or CASI t o submi t r evi sed

16 budget r equest s?

17 A. Wel l , we di scussed changes i n t he budget , yes.

18 Q. And do you r ecal l pr epar i ng or par t i ci pat i ng i n t he

19 pr eparat i on of r evi sed budget ?

20 A. Yes.

21 Q. And di d you consul t wi t h J oan Hayes as t o t he f i gur es, t he

22 act ual f i gures t hat were expended by CASI dur i ng t he grant

23 per i od?

24 A. At whi ch poi nt ?

25 Q. Whi l e you were negot i at i ng wi t h Hope Snowden t o get a


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1 r evi sed budget .

2 A. At whi ch poi nt ?


4 Q. Wel l , at what poi nt were you negot i at i ng wi t h Hope Snowden?

5 A. I don' t r ecal l expl i c i t l y, but i t was ear l y on.

6 Q. At what poi nt i n your negot i at i on di d you consul t wi t h J oan

7 Hayes about what number s were t o be ut i l i zed?

8 THE COURT: I f you di d.

9 THE WI TNESS: I don' t r ecal l consul t i ng wi t h J oan

10 Hayes.

11 Q. Now, you had t est i f i ed bef ore t hat there were a number of

12 l awyer s associ ated wi t h CASI ?

13 A. Yes.

14 Q. And you sai d t here was a Mr . Bernst ei n?

15 A. Yes.

16 Q. You sai d t her e was a Ms. Mi l l er ?

17 A. Yes.

18 Q. And were t her e ot her at t orneys?

19 A. Those ar e t he onl y ones I r emember .


21 THE COURT: Those ar e t he onl y ones he r emember s.

22 Q. Di d you ever di scuss wi t h any of t hose at t orneys about t he

23 expenses t hat Dr . Kar r on was char gi ng t owards t he NI ST budget?

24 MR. EVERDELL: Obj ect i on, r el evance.



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1 A. I don' t r ecal l t hose di scussi ons on t hat poi nt .

2 Q. Di d you ever t al k t o Hope Snowden or anybody at ATP as t o

3 any speci f i c expense t hat Dr . Kar r on was chargi ng t o NI ST?

4 A. What ki nd of expense?

5 Q. Any ki nd of expense.

6 A. That ' s ver y br oad. I ' m t r yi ng t o - -

7 THE COURT: Di d you ever t el l hi m t hat he was spendi ng

8 money t hat was not pr ovi ded f or i n t he budget and at t r i but i ng

9 i t t o NI ST?

10 THE WI TNESS: I don' t r ecal l t hat conver sat i on.

11 Q. As a mat t er of f act , J oan Hayes was Dr . Kar r on' s per sonal

12 accountant , was she not ?

13 A. I don' t know t hat ei t her . I di dn' t know t hat .

14 Q. Ar e you aware of whet her or not J oan Hayes prepared Dr .

15 Kar r on' s per sonal t ax r et ur ns - -


17 Q. - - f or ' 99, 2000 and 2001?



20 THE COURT: He doesn' t know t hat .

21 Q. Di d you ever i n your di scussi ons wi t h Dr . Karr on about your

22 vi ew of what was al l owabl e and not al l owabl e, t el l hi m t hat i f

23 he di d i t hi s way he coul d wi nd up i n j ai l ?

24 A. I t ol d hi m t hat he can' t do j ust anythi ng he want ed t o do

25 l i ke he t hought he coul d. He t hought he coul d spend t he way he


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1 t hought he coul d spend and not necessar i l y t he way t he r ul es

2 sai d he coul d spend.

3 Q. Di d you ever say t o hi m, you know, I t hi nk you mi ght be

4 commi t t i ng a cr i me by doi ng what you' r e doi ng?

5 A. Maybe not i n t hose words but al ong t hose l i nes.

6 MR. RUBI NSTEI N: No f ur t her quest i ons, your Honor .

7 THE COURT: Any r edi r ect ?

8 MR. EVERDELL: Fi ve mi nut es, your Honor ?

9 THE COURT: Fi ve mi nutes, and t hat ' s i t , no more.

10 REDI RECT EXAMI NATI ON

11 BY MR. EVERDELL:

12 Q. Al l r i ght . Mr . Gur f ei n, you t est i f i ed on cross- exami nat i on

13 about a conver sat i on you had wi t h def endant ' s brot her Abe

14 Kar r on, i s t hat cor r ect ?

15 A. Yes.

16 Q. That conver sat i on r el at ed t o a possi bl e i nvest ment of

17 $50, 000 i n t he company?

18 A. Yes.

19 Q. Can you expl ai n more br oadl y what t he ci r cumst ances of t hat

20 conver sat i on were?

21 A. Thi s conver sat i on was about my havi ng t he - - t he

22 conver sat i on was about t he f act that my si gnatur e aut hor i t y was

23 t aken away, and I t hought t hat was a mi st ake, and hi s r esponse

24 was i f you i nvest $50, 000 i n t he company you can have t hat

25 r esponsi bi l i t y back. And I sai d I ' m not i nvest i ng $50, 000 i nt o


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8657KAR6 Gurf ei n - r edi r ect

1 t hi s company, i t i s t oo r i sky.

2 I n f act t hi s i s t he poi nt t o be made. One of t he

3 r easons f or get t i ng t he ATP gr ant i n f act i s because i t i s

4 gi ven t o r i sky vent ur es t hat have di f f i cul t y r ai si ng f unds i n

5 t he pr i vat e sect or , and t hat ' s one of t he pur poses and one of

6 t he cri t er i a f or get t i ng t he awar d. So, I t ol d hi m no, and I

7 of cour se di d not gi ve t he 50, 000, nor di d I get t he si gnatur e

8 aut hor i t y back.

9 Q. You t est i f i ed al so on cr oss- exami nat i on about some

10 quar t er l y f i nanci al r epor t s.

11 A. Yes.

12 Q. And I bel i eve you t est i f i ed t hat t he def endant tol d you t o

13 make i t wor k, i s t hat cor r ect ?


15 Q. Who act ual l y si gned t hose f i nanci al r eport s t hat wer e

16 submi t t ed?

17 A. Dr . Karr on.

18 Q. Di d you si gn t hose f i nanci al repor t s?

19 A. I di d not . I had no such aut hor i t y.

20 THE COURT: Ar e you aware of any cont r i but i ons t o t he

21 capi t al of CASI t hat were made by anyone ot her t han NI ST?

22 THE WI TNESS: No, I ' m not aware of any such

23 cont r i but i ons.

24 Q. You were al so asked about a scr een i n t he def endant ' s

25 apar t ment , i s t hat cor r ect ?


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8657KAR6 Gurf ei n - r edi r ect

1 A. Yes.

2 Q. You sai d you r ecal l ed when t hat was i nst al l ed?

3 A. Yes.

4 Q. Do you r ecal l how much was pai d f or t he i nst al l at i on?

5 A. I t hi nk Abe Karr on was pai d $3, 000 r oughl y f or t hat .

6 Q. And you sai d I bel i eve on cr oss- exami nat i on i n r esponse t o

7 quest i ons about t he def endant get t i ng cost s appr oved, t hat he

8 woul d be abl e t o do i t because NI ST l oved hi m?

9 A. Yes.

10 Q. Di d you ever have any conver sat i on wi t h t he def endant al ong

11 t hose l i nes?

12 A. Yes, i t was a const ant r ef r ai n: They l ove me, they' l l

13 appr ove i t .

14 MR. EVERDELL: One moment . No f ur t her quest i ons, your

15 Honor .

16 THE COURT: Wi t hi n t he scope, Mr . Rubi nst ei n.


18 RECROSS EXAMI NATI ON


20 Q. Let me show you what i s mar ked as Def endant ' s FFF f or

21 i dent i f i cat i on and ask you, number one, i f you r ecogni ze - -

22 MR. EVERDELL: Can I see i t ?

23 Q. - - t he si gnat ures on t hose document s.

24 MR. EVERDELL: Can I see t he document?

25 THE COURT: You have t o show i t t o t he government


( 212) 805- 0300



698

8657KAR6 Gurf ei n - r ecross

1 f i r s t .

2 MR. RUBI NSTEI N: I am, your Honor .

3 Q. Do you r ecogni ze Dr . Kar r on' s si gnat ur e on t hose document s,

4 s i r ?

5 I even have a copy f or your Honor .

6 A. I r ecogni ze hi s si gnatur e on t hese document s, yes.

7 Q. And do you r ecogni ze t he check - - t he name on t he check - -

8 checks?

9 MR. EVERDELL: Your Honor, I ' m goi ng t o obj ect t o

10 t hi s. Thi s i s cl ear l y goi ng t o be out si de t he scope of t he

11 r edi r ect .

12 MR. RUBI NSTEI N: That ' s what t hey asked on r edi r ect .

13 THE COURT: I asked i t .

14 MR. RUBI NSTEI N: That counts t oo, J udge.

15 THE COURT: I di d i t . I opened t hat door . Go ahead.


17 A. Yes, I see t hem.

18 THE COURT: Had you ever seen t hem bef or e?


20 MR. RUBI NSTEI N: We of f er Def endant ' s FFF - -


22 MR. RUBI NSTEI N: - - i nt o evi dence.

23 MR. EVERDELL: The wi t ness has never seen t hem.

24 THE COURT: He can' t authent i cat e t hem.

25 MR. RUBI NSTEI N: He has authent i cat ed t hem.


( 212) 805- 0300



699


1 THE COURT: He says t hey' r e Kar r on' s si gnat ur e, but he

2 has never seen t hem bef ore.

3 Next quest i on.

4 Q. You r ecei ved per sonal checks f r om Dr . Karr on, have you not?


6 THE COURT: You' r e not goi ng t o be abl e t o get t hem

7 i n. I f he has never seen t hese checks bef ore, you cannot get

8 t hem i n t hat way.

9 MR. RUBI NSTEI N: Let me ask i t t hi s way.

10 Q. Does t hat r ef r esh your recol l ect i on as t o whet her or not

11 you ever had a conver sat i on wi t h Dr . Karr on about hi m l oani ng

12 CASI money dur i ng t he grant per i od?

13 A. I do not r ecal l t hat .

14 Q. By t he way, t he cont r act t hat you si gned - -


16 THE COURT: Obj ect i on sust ai ned. That ' s out si de t he

17 scope.

18 MR. RUBI NSTEI N: Thi s i s not out si de, J udge. Wi t h al l

19 due r espect , can I ask t he quest i on?

20 THE COURT: The way you st ar t ed i t , you t al ked about

21 somet hi ng t hat was not i n t he scope, so you bet t er get i t i nt o

22 t he scope.

23 Q. When your author i t y was t aken away i n Oct ober of 2001, di d

24 you r esi gn f r om CASI ?

25 A. No.


( 212) 805- 0300



700


1 MR. RUBI NSTEI N: No f ur t her quest i ons.

2 MR. EVERDELL: No f ur t her quest i ons, your Honor .


4 J ur y i s excused unt i l 9: 30 t omorr ow morni ng.

5 MR. RUBI NSTEI N: J ust one moment . J ust one moment . I

6 j ust f ound somet hi ng t hat I j ust want t o - -

7 THE COURT: Come on, we can' t wai t f or t hi s.

8 MR. RUBI NSTEI N: I have one document . I t ' s goi ng t o

9 come out of t he comput er r i ght now.


11 Q. I sn' t i t a f act that Dr . Kar r on l oaned you $4, 000 on J ul y

12 3, 2002?



15 A. J ul y 3, 2002?

16 Q. Corr ect .


18 Q. I show you t hi s document .

19 THE COURT: Does t hat r ef r esh your r ecol l ect i on?

20 THE WI TNESS: Yeah, a l i t t l e bi t , but I r eal l y don' t

21 r ecal l . I don' t r ecal l t hi s or t he r eason f or i t .

22 Oh, here i s what i t says. I t says as a memo, " l oan

23 agai nst f r ozen sal ar y. " That ' s what i t says.

24 THE COURT: Do you r emember t hat ?

25 Q. So, you r emember i t now?


( 212) 805- 0300



701


1 A. Wel l , yeah, a l i t t l e bi t bet t er , yeah.

2 Q. Last quest i on. That r ef r eshes your r ecol l ect i on t hat i n

3 J ul y 2002 Dr . Karr on l oaned you $4, 000, corr ect ?

4 A. Corr ect .

5 THE COURT: How much?

6 THE WI TNESS: $4, 000.

7 MR. RUBI NSTEI N: No f ur t her quest i ons.


9 MR. EVERDELL: No f ur t her quest i ons, your Honor .

10 THE COURT: Excuse me?

11 MR. EVERDELL: No f ur t her quest i ons.

12 THE COURT: Al l r i ght . The j ur y i s excused. We wi l l

13 see you at 9: 30 t omor r ow mor ni ng.


15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



702



2 THE COURT: Now, we bet t er be i n here what t i me? Who

3 i s your next wi t ness?

4 MR. EVERDELL: Wel l , your Honor , we shoul d probabl y

5 di scuss - -

6 MR. KWOK: I t hi nk, your Honor , t omorr ow we wi l l - - i f

7 Mr . Rubi nst ei n has f ur t her cr oss- exami nat i on of our pr i or

8 wi t ness, Bel i nda Ri l ey, we can pr oceed wi t h t hat , and t hen t he

9 gover nment wi l l cal l i t s next wi t ness Frank Spr i ng.

10 THE COURT: Fr ank who?

11 MR. EVERDELL: Spr i ng.

12 THE COURT: How many mor e wi t nesses have you got ?

13 MR. EVERDELL: The cont i nuat i on of Ms. Ri l ey,

14 Mr . Spr i ng and Bob Benedi ct . And I ant i ci pate t hat Mr . Spr i ng

15 and Bob Benedi ct wi l l be a si mi l ar l engt h as Mr . Gur f ei n. I

16 can' t account f or cr oss, but t he di r ect wi l l be a si mi l ar

17 l engt h.


19 Do you have anyt hi ng el se t o come bef ore t he cour t ?

20 MR. RUBI NSTEI N: No, your Honor .

21 MR. KWOK: No, your Honor .

22 THE COURT: Al l r i ght . You bet t er be i n her e at 9

23 o' cl ock i f we have Ms. Ri l ey. Oh, I have a t el ephone

24 conf er ence at ni ne, so make i t 9: 15 as usual .

25 ( Tri al adj our ned t o J une 6, 2008 at 9: 15 a. m. )


( 212) 805- 0300



703



3 BELI NDA RI LEY

4 Di rect By Mr . Kwok . . . . . . . . . . . . . 506


6 ELI SHA GURFEI N



9 Redi rect By Mr. Ever del l . . . . . . . . . . 695




13 900A . . . . . . . . . . . . . . . . . . 507

14 61 . . . . . . . . . . . . . . . . . . . 510

15 62 . . . . . . . . . . . . . . . . . . . 516

16 110 and 111 . . . . . . . . . . . . . . . 528

17 112 and 113 . . . . . . . . . . . . . . . 548

18 114 and 115 . . . . . . . . . . . . . . . 550

19 120, 121, 122, 123, 124 and 125 . . . . . 559

20 126, 127, 128, 129, 130, 131 and 132 . . 559

21 901 . . . . . . . . . . . . . . . . . . . 559



24 BBB . . . . . . . . . . . . . . . . . . . 596

25


( 212) 805- 0300



704

8667KAR1



2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

2


3

4 v. S2 07 CR 541 ( RPP)

4


5

6 Def endant .

6

7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

7

8

8 J une 6, 2008

9 9: 15 a. m.

9

10

10 Bef ore:

11


12


13

13

14 APPEARANCES

14






16 BY: STEVEN KWOK



18




20



22

23

24

25


( 212) 805- 0300



705

8667KAR1

1 ( Tr i al r esumed; j ur y not pr esent )

2 THE COURT: Good morni ng. We have a note f r om a j uror

3 r ecei ved yest er day af t er noon t o J udge Pat t er son. "I ' d l i ke t o

4 speak wi t h you about my need t o f ol l ow up wi t h my medi cal

5 si t uat i on. Your t i me woul d be much appreci at ed. Thank you. "

6 I t hi nk t hi s i s J uror 7, Chr i st i ne Hul l . My

7 r ecol l ect i on i s t hat she di d not have an appoi nt ment dur i ng

8 j ur y sel ect i on but was t r yi ng t o get an appoi nt ment f or medi cal

9 f ol l owup, and I suggest ed she t r y and do i t af t er t he

10 schedul ed t r i al , but I don' t know t he nat ur e of her medi cal

11 f ol l owup. Of cour se i f i t ' s a l i f e- t hr eat eni ng di sease, I

12 woul d have pr obl ems. So, I guess we bet t er have her i n here

13 and l i st en t o her , and I wi l l deci de accor di ngl y.

14 We st i l l have t hr ee j ur or s. I f t hi s case goes over

15 t wo weeks, we wi l l pr obabl y l ose J ur or 1; and i f i t goes t hr ee

16 weeks, we l ose J ur or 8, t he f ormer al t ernat e J ur or 1. And who

17 knows what el se.

18 Now, how are we comi ng on t r i al ? There are t wo

19 wi t nesses t he gover nment has, i s t hat i t ?

20 MR. EVERDELL: Yes, your Honor . The gover nment af t er

21 we f i ni sh wi t h Ms. Ri l ey has t wo more wi t nesses. As I t hi nk I

22 i ndi cat ed yest er day, t hey ar e al ong t he l i nes of Mr . Gur f ei n i n

23 l ength. One wi t ness has some e- mai l s t hat we need t o i nt r oduce

24 t hr ough hi m. That ' s Frank Spr i ng. So t hat may t ake a l i t t l e

25 l onger j ust wi t h t he i nt r oduct i on of exhi bi t s, but i t woul d


( 212) 805- 0300



706

8667KAR1

1 t ake - - r oughl y al ong t he l i nes - - t he di r ect at l east wi l l

2 t ake r oughl y al ong t he l i nes of what i t t ook f or Mr . Gur f ei n.

3 THE COURT: Wel l , we have t o make progress here.

4 Let me say somet hi ng whi l e t hat subj ect i s up. I am

5 concer ned t hat t he government - - as I hear t he evi dence t hat ' s

6 comi ng i n, I ' m not sur e t hat so f ar anyway t he government has

7 shown an i nt ent i onal mi sappl i cat i on of the f unds of CASI .

8 Now, i f you ar e t al ki ng about t he gr ant f unds, t hat ' s

9 anot her mat t er , you may have somethi ng wi t h r espect t o

10 mi sappl i cat i on of gr ant f unds. I don' t know. I haven' t hear d

11 al l of t he evi dence.

12 For i nst ance, wi t h r espect t o t he scr een, CASI got t he

13 benef i t of t hat screen. I don' t t hi nk t hat can be consi der ed a

14 mi sappl i cat i on of f unds. And i f t he gover nment i s pr oceedi ng

15 i n t hat way, unl ess t hey show t hat t he cor porat i on di dn' t

16 benef i t i n any way by t he pur chase, I don' t t hi nk i t can be

17 consi der ed a mi sappl i cat i on of CASI ' s gener al f unds.

18 So, I don' t know what t he r est of t he evi dence i s, but

19 I ' d l i ke t o have a memorandum r eal l y by Monday morni ng

20 del i neat i ng, i f you wi l l , how you are goi ng t o go, because I

21 have t o char ge t he j ur y. Thi s i s a ver y di cey si t uat i on i f you

22 r ead cases i n t hi s area, because you have t o have knowi ng

23 i nt ent t o mi sappl y t he f unds, and i t ' s vi r t ual l y t he same as

24 conver si on. And I t hi nk t he l eadi ng case i s Mori set t e.

25 But you ought t o have somet hi ng by Monday t o show t hat


( 212) 805- 0300



707

8667KAR1

1 I shoul dn' t t hr ow t hi s case out .

2 By t he way, one of t he def ense exhi bi t s f or

3 i dent i f i cat i on was l ef t her e on t he bench, FFF. Maybe i t ' s

4 f our Fs or t hr ee Fs. Al l r i ght . Wel l , l et me get t hi s j ur or

5 i n. Rober t , can you ask Ms. Hul l t o come i n.

6 How much l onger do you t hi nk you are goi ng t o be wi t h

7 Ms. Ri l ey?

8 MR. RUBI NSTEI N: Poss i bl y most of t he morni ng, your

9 Honor .

10 ( J ur or pr esent )

11 THE COURT: Good morni ng, Ms. Hul l . You sai d you

12 want ed t o t al k t o me about your doct or' s si t uat i on.

13 J UROR: Act ual l y f or a coupl e of years I have been

14 deal i ng wi t h sever al probl ems, and I have some br ai n l esi ons

15 t hat t hey' r e t r yi ng t o di agnose whether i t ' s MS or some other

16 pr obl em goi ng on. And t hen af t er I sent my r epl y back t o t he

17 j ur y pool I got a r esul t f r om a mammogr am t hat I have

18 cal ci f i cat i ons i n one br east r equi r i ng bi opsy. So I ' m i n t he

19 pr ocess now of get t i ng some speci al i st t o l ook at t hat .

20 But t hi s br ai n t hi ng and t he vest i bul ar weakness i s

21 causi ng me t o be ext r emel y t i r ed. I get r eal l y exhaust ed, and

22 I f el t yester day I l i ke zoned out al most l i ke i f I ' m f al l i ng

23 asl eep or somet hi ng dur i ng t he pr ocess of wi t ness exami nat i on.

24 THE COURT: I di dn' t not i ce i t .

25 J UROR: You di dn' t ? I was st unned.


( 212) 805- 0300



708

8667KAR1

1 THE COURT: I may have been car r yi ng on.

2 J UROR: There are j ust t hose i ssues goi ng on, and I

3 f eel ver y f eel good about t he pr ocess, but I don' t know i f I

4 can f ul f i l l t hi s. I f I get an appoi nt ment to get the bi opsy

5 done, I wi l l have t o get i t t aken car e of .

6 THE COURT: Wel l , i f you have t o l eave f or t he bi opsy,

7 we wi l l accommodat e you.

8 J UROR: So, you don' t see me ki nd of spaci ng out over

9 her e or anythi ng? Because I ' m t r yi ng t o pay at t ent i on, but

10 i t ' s - -

11 THE COURT: I t hi nk i f you know you are goi ng t o be

12 excused i f t he bi opsy appoi nt ment i s made dur i ng t he t r i al ,

13 t hat you wi l l be excused - -

14 J UROR: OK, I wi l l t r y my best t o hang i n t here.

15 THE COURT: - - maybe you wi l l have an easi er mi nd.

16 MR. RUBI NSTEI N: Sounds good t o me, your Honor .

17 MR. KWOK: To t he government as wel l .

18 THE COURT: Al l r i ght . Thank you f or bei ng so f r ank

19 and br i ngi ng i t t o our at t ent i on. And i f you need a br eak,

20 j ust r ai se your hand and you can have a break.

21 J UROR: I appr eci ate i t , your Honor .

22 ( J ur or not pr esent )

23 MR. RUBI NSTEI N: We' r e shor t one def endant , your

24 Honor. I di dn' t pi ck hi m up t hi s mor ni ng, because he pr omi sed

25 me he woul d be on t i me. I do want t o say somet hi ng about


( 212) 805- 0300



709

8667KAR1

1 sl eepi ng j ur ors . I was on a j ur y, and t he t wo hardest t hi ngs

2 was st ayi ng awake - - t hese seats are so comf ort abl e you have no

3 i dea.

4 THE COURT: Ar e you sur e i t wasn' t t he j udge?

5 MR. RUBI NSTEI N: I t wasn' t t he j udge.

6 THE COURT: Somet i mes i t ' s t he at t orneys.

7 MR. RUBI NSTEI N: I t coul d have been. That coul d have

8 been.

9 J udge, can I make t he cal l t o my cl i ent ?

10 THE COURT: Sur e.


12

13

14

15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



710

8667KAR1


2 THE COURT: Good morni ng, l adi es and gent l emen. Thank

3 you f or bei ng so pr ompt . Al l r i ght , your next wi t ness.

4 You' r e r ecal l i ng Ms. Ri l ey?

5 MR. KWOK: Yes, your Honor .

6 BELI NDA RI LEY, r esumed.

7 THE COURT: You are r emi nded you are st i l l under oat h.


9 THE COURT: And t he j ury i s r emi nded I have t o do t hat

10 as a mat t er of cour t pr ocedur e. OK, t hank you. Cont i nue your

11 cross.


13 CROSS EXAMI NATI ON ( Cont i nued)


15 Q. Ms. Ri l ey, I bel i eve when we suspended your t est i mony you

16 wer e l ooki ng f or a r ecor d t o r ef r esh your recol l ect i on as t o

17 Mr . Gur f ei n' s sal ar y.

18 A. I was l ooki ng f or the r ecor d - - I t hought I was l ooki ng f or

19 t he r ecor d f or t he gr ant , f or t he 75 per cent , t o show t he

20 mul t i pl i cat i on t o det er mi ne t he al l owabl e por t i on of hi s

21 sal ary. Because t he r ecord you had had a hundr ed t housand

22 t i mes 75 per cent equal ed a hundr ed t housand, and t her e was a

23 mat hemat i cal err or . That shoul d have sai d - - wel l , I t hi nk t he

24 one I f ound sai d 133 t i mes 75 per cent was a hundr ed t housand,

25 whi ch I di dn' t check, but i t was t o show t hat t here was a


( 212) 805- 0300



711


1 mat hemat i cal er r or on t hat document .

2 Q. Mat hemat i cal er r or on what document ?

3 A. The budget document t hat was showi ng 100, 000 t i mes 75 i s a

4 100, 000. Because 100, 000 t i mes 75 per cent woul d be 75, 000 not

5 100, 000.

6 Q. Wel l , woul d $133, 333, comput e 75 percent to t hat , woul d

7 t hat comput e t o 100, 000?

8 A. I ' m not sur e. I was j ust t r yi ng t o show t hat i t was

9 i ncor r ect f or t hat , f or t he 100, 000, t hat i t wasn' t -- i t

10 shoul d be a mathemat i cal corr ect number . I di dn' t check t he

11 ot her document .

12 Q. Wel l , ar e you aware t hat t he budget was amended i n t hi s

13 case?

14 A. The budget was amended t o show - - yes, t he budget was

15 amended, but i t di dn' t have - - but t he amendment 2 di dn' t have

16 t hat par t i cul ar at t achment on i t .

17 Q. Wel l , I show you what ' s been marked as Def endant ' s Exhi bi t

18 H, whi ch i s a por t i on of Government Exhi bi t 33. Do you have

19 Exhi bi t 33?

20 THE COURT: For i dent i f i cat i on?

21 Q. Yeah, f or i dent i f i cat i on, your Honor ?

22 MR. RUBI NSTEI N: Yeah, f or i dent i f i cat i on, your Honor.

23 ( Def endant pr esent )

24 Q. Do you r ecogni ze t hat document t hat i s part of Exhi bi t 33

25 t hat ' s i n evi dence?


( 212) 805- 0300



712


1 A. Yes.

2 Q. I n f act , i n t he r evi sed budget f or t he f i r st year 2001 t o

3 2002 Mr . Gur f ei n' s sal ary as pr oj ect manager was r ai sed t o

4 $133, 333, and 75 per cent of t hat was l i st ed as t he cost t o t he

5 pr oj ect , $100, 000, cor r ect ?

6 A. Corr ect . So, i f Mr . Gur f ei n was act ual l y pai d $133, 000,

7 t hen t he 75 per cent woul d be appl i ed t o t he amount t hat he was

8 act ual l y pai d ver sus t he amount that was budgeted. He woul d be

9 al l owed up t o $100, 000 i f t hat was 75 per cent of t he amount he

10 was actual l y pai d.

11 Q. So, i n f act your cal cul at i on of deduct i ng par t of

12 Mr . Gur f ei n' s sal ary i n t he amount of $25, 000 was i ncorr ect .

13 A. On t he books and r ecor ds provi ded by Mel , Mr . Gur f ei n' s net

14 pay was $100, 000 t i mes 75 per cent , whi ch woul d be 75, 000. And

15 t he wi t hhol di ng port i on was separat ed i nt o t he f r i nge benef i t s

16 sect i on, and so t hat port i on of t he gr oss pay i s shown as an

17 adj ust ment i n t he f r i nge benef i t sect i on.

18 Q. When you say Mel , you mean Mr . Spi t z, cor r ect ?

19 A. Mr . Spi t z.

20 Q. But you di dn' t meet hi m unt i l t he l at t er par t of 2003,

21 r i ght ?

22 A. Ri ght . And t he December 2003 r epor t i s based on hi s books

23 and r ecords pr ovi ded by Mr . Spi t z.

24 Q. Di dn' t you t el l us yest er day t hat you r el i ed upon t he books

25 and r ecor ds t hat you r ecei ved f r om CASI and Ms. Hayes?


( 212) 805- 0300



713


1 A. For t he J une 2003 r epor t , t he shor t repor t , I r el i ed on t he

2 r ecords t hat were submi t t ed i n J une.

3 For t he December r epor t I r el i ed on t he books and

4 r ecor ds t hat were submi t t ed by Mr . Spi t z i n December .

5 On some of t he t hi ngs I mi ght have l ooked back t o see,

6 i f I needed addi t i onal cl ar i f i cat i on, how t hey wer e booked,

7 because t he check r egi st ers pr ovi ded by t he J une 2003 r ecor ds

8 wer e - - you know, I di dn' t quest i on whether Dr . Kar r on' s books

9 pai d t he per son t hat t hese checks wer e wr i t t en t o; i t was j ust

10 t he al l ocat i on of t he cost bet ween t he budget categori es.

11 Q. Ar e you sayi ng t hat t he r eport s t hat Mr . Spi t z pr esent ed t o

12 you wer e di f f er ent t han t he f i nanci al r eport s t hat you had

13 pr evi ousl y r ecei ved f r om CASI ?

14 A. Cer t ai n of t he budget cat egori es wer e di f f er ent . The

15 per sonnel categori es shoul d have been si mi l ar .

16 Q. Wel l , was i t ?

17 A. I di dn' t r econci l e bet ween t he t wo set s of books. I used

18 t he ones submi t t ed by Mr . Spi t z December 2003 f or t hat r eport .

19 The cost cl ai med on t he December 2003 r epor t r econci l es back t o

20 t he Mel Spi t z books.

21 Q. But t he bot t om l i ne i s now t hat you l ooked at Def endant ' s

22 Exhi bi t H f or i dent i f i cat i on, whi ch i s actual l y par t of

23 Government Exhi bi t 33, t aki ng t hat i nt o account , t hen i t was

24 appr opr i ate t o pay Mr . Gur f ei n $100, 000, corr ect ?

25 A. No, i t was appr opr i at e t o pay Mr . - - i t was appr opr i at e f or


( 212) 805- 0300



714


1 t he NI ST gr ant t o - - wel l , based on t hi s document , i f

2 Mr . Gur f ei n act ual l y worked 75 per cent of hi s t i me f or t he NI ST

3 gr ant , i t woul d be appr opr i at e t o pay hi m 75 per cent of hi s

4 sal ar y as al l owabl e cost .

5 THE COURT: At t r i but abl e t o t he NI ST grant .

6 THE WI TNESS: At t r i but abl e t o t he gr ant . I f he spent

7 75 per cent of hi s t i me worki ng on t he gr ant , wi t h al l owabl e

8 t hi ngs f or t he gr ant , t hen he woul d be ent i t l ed t o - - t he gr ant

9 woul d r ei mbur se f or up t o 75 per cent of hi s sal ary i f he spent

10 t hat much t i me wor ki ng.

11 I f he onl y spent 50 per cent of hi s t i me on al l owabl e

12 gr ant act i vi t i es, t hen even t hough t he budget woul d al l ow 75

13 per cent , he woul d have actual l y onl y spent 50 per cent , so he

14 shoul d onl y be r ei mbur sed 50 per cent of t he t i me.

15 Q. But i n your f i ndi ngs you f ound t hat he worked 75 per cent of

16 t he t i me and, t her ef or e, you at t r i but ed a $25, 000 r educt i on i n

17 al l owabl e expenses, cor r ect ?

18 A. My audi t al l ows f or 75 per cent of hi s t i me.

19 Q. Whi ch r educed hi s sal ary f r om $133, 333 t o $75, 000, cor r ect ,

20 accor di ng t o your cal cul at i ons?

21 A. No. Thi s woul d be t he gr oss sal ary. The 133 shoul d be t he

22 gr oss sal ar y, but i n my cal cul at i ons t he r ecor ds pr ovi ded i n

23 December 2003 had di vi ded t he sal ary i nto net sal ary, and t he

24 wi t hhol di ngs wer e i ncl uded as part of f r i nge benef i t s, and so

25 t hat comput at i on i s ki nd of i n t wo par t s. Par t of i t shows up


( 212) 805- 0300



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1 i n t he f r i nge benef i t s sect i on of t he r epor t , and par t of i t

2 shows up i n t he personnel sect i on of the r eport .

3 Q. But t he t otal comes out t o $25, 000, cor r ect ?

4 A. The t ot al adj ust ment comes out t o - - can I have a copy of

5 my December r epor t ?

6 Q. Why don' t you t ake a l ook at I bel i eve i t ' s Exhi bi t 62.

7 THE COURT: She hasn' t got copi es of her r epor t s i n

8 f r ont of her ?

9 Al l t he document s she had on di r ect , not j ust one.

10 By t he way, H i s not i n evi dence. Def endant ' s H i s

11 f or i dent i f i cat i on. You have not of f er ed i t i n evi dence,


13 MR. RUBI NSTEI N: I t hi nk i t ' s par t of - -

14 THE COURT: I know, but - -

15 MR. RUBI NSTEI N: Al l r i ght . We wi l l of f er H i nt o

16 evi dence, your Honor .

17 THE COURT: You say t hat , but t he government has t o

18 l ook at i t , makes sur e i t i s par t of i t , and I have t o l ook at

19 i t .

20 MR. RUBI NSTEI N: OK. I gave a copy t o t he government ,

21 your Honor, and I woul d of f er def endant ' s H i nt o evi dence.

22 THE COURT: Any obj ect i on?


24 THE COURT: Def endant ' s H i s i n evi dence.

25 ( Def endant ' s Exhi bi t H r ecei ved i n evi dence)


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1 A. OK. For t he chi ef oper at i ng of f i cer $25, 000 i s quest i oned,

2 pl us a per cent age on page 4 of 8 wher e i t says $8, 466 i s

3 quest i oned f or payr ol l f or t he chi ef oper at i ng of f i cer and

4 chi ef t echni cal of f i cer ' s sal ary - -

5 THE COURT: J ust sl ow down.

6 A. OK. The addi t i onal amount quest i oned f or t he gr oss sal ary

7 i s i ncl uded i n t he $8, 466.

8 Q. Now t hat you have r evi ewed Def endant ' s H, Government

9 Exhi bi t 33 - - wi t hdr awn.

10 Now, you are an i ndependent audi t or f or t he of f i ce of

11 t he i nspect or gener al , cor r ect ?

12 A. Yes.

13 Q. I t ' s your r esponsi bi l i t y t o make sur e t he number s t hat you

14 submi t ar e cor r ect , r i ght ?

15 A. Yes.

16 Q. And you have access, do you not , t o al l t he r ecords of t he

17 NI ST ATP gr ant , corr ect ?

18 A. Yes.

19 Q. And you had access t o what ' s i n evi dence as Gover nment ' s

20 33, cor r ect ?

21 A. Yes.

22 Q. And by l ooki ng at Government ' s 33 i n def endant ' s H, whi ch

23 i s par t of i t , i s i t f ai r t o say t hat i t was an er r or on your

24 par t t o deduct $25, 000 as al l owabl e expenses on behal f of

25 Mr . Gur f ei n t he chi ef oper at i ng of f i cer ?


( 212) 805- 0300



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1 A. No.

2 Q. And on what basi s do you say t hat ?

3 A. Thi s adj ust ment i s based on a sal ar y pai d t o Mr . Gur f ei n,

4 75 per cent of the act ual sal ar y pai d.

5 Q. What was t he act ual sal ary pai d?

6 A. I t hi nk i t was around 125, 000.

7 Q. I sn' t i t accor di ng t o t he document that I showed you

8 $133 - -

9 THE COURT: Let ' s not have what you t hi nk. Go t o your

10 document s and t el l us.

11 MR. RUBI NSTEI N: She has Exhi bi t H t here i n f r ont of

12 her , your Honor .

13 THE COURT: I under st and.

14 MR. RUBI NSTEI N: Can you l ook at Exhi bi t H?

15 THE COURT: You asked her . She sai d i t was act ual

16 sal ary pai d. Thi s i s a concl usory document . She has conduct ed

17 an audi t ; she di d t he bank r ecords; she di d t he other r ecords.

18 She can l ook at t hose t o deter mi ne what t he act ual sal ary pai d

19 was.

20 MR. RUBI NSTEI N: Absol utel y.

21 Q. What was t he act ual sal ary pai d t o Mr . Gur f ei n, ma' am?

22 A. The act ual sal ary was appr oxi mat el y $122, 000.

23 Q. And what ' s 25 per cent of $122, 000?

24 A. That was t he gross sal ary. The net sal ary was $100, 000. 75

25 per cent of t he $100, 000 i s t he $25, 000 adj ust ment .


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1 Q. I sn' t i t 25 per cent of t he gr oss, ma' am, t hat you t ook of f ?

2 A. The addi t i onal por t i on, the gr oss, i s i n t he f r i nge

3 benef i t s number of t he $8, 466.

4 Q. I sn' t i t a f act t hat your audi t f ound t hat Mr . Gur f ei n was

5 t o be pai d $100, 000, ma' am? That was t he f i ndi ng of your audi t

6 t hat you j ust sai d you got f r om Mr . Spi t z, t hat hi s gr oss

7 sal ary was $100, 000 - -

8 A. Hi s net sal ary was $100, 000. The r emai nder was i ncl uded i n

9 t he f r i nge benef i t br eakdown by Mr . Spi t z.

10 Q. Fri nge benef i t s ar e consi der ed par t of sal ar y?

11 A. The wi t hhol di ngs were accounted f or i n t he books t hat way.

12 Q. Wel l , wi t hhol di ng i s a f r i nge benef i t , cor r ect ?

13 A. The cost s her e shoul d be t he - - t he annual sal ary shoul d

14 i ncl ude t he wi t hhol di ngs as par t of i t i n t he budget .

15 THE COURT: So i t ' s wi t hhol di ng, not f r i nge benef i t s

16 t hat account s f or t he di f f er ence?

17 THE WI TNESS: Yes, wi t hhol di ngs. But i n t he books and

18 r ecor ds pr ovi ded, t he wi t hhol di ngs wer e i ncl uded as a f r i nge

19 benef i t number , and so i n my audi t adj ust ment I i ncl uded t hem

20 where t hey were i ncl uded f or the books I was pr ovi ded.

21 Q. But when you t al k about f r i nge benef i t s l i ke heal t h

22 i nsur ance and vacat i on, t hat ' s not i ncl uded i n t he per son' s

23 sal ary , i s i t ?

24 A. I n t he br eakdown t hat I was pr ovi ded - - I i ncl uded t hese

25 number s where Mr . Spi t z had i ncl uded t he accrual f or the cost .


( 212) 805- 0300



719


1 Q. Ma' am, you are an audi t or, cor r ect ?

2 A. Yes.

3 Q. You ar e f ami l i ar wi t h account i ng pr i nci pl es?

4 A. Yes. Wi t hhol di ngs woul d not be par t of t he f r i nge

5 benef i t s. But i n t he audi t - -

6 THE COURT: But t hey were i n t he books, i s t hat what

7 you' r e sayi ng?

8 THE WI TNESS: They were i n t he books, and so I

9 adj ust ed wher e t hi ngs were i n t he books.

10 Q. I t ' s your t ake- home pay pl us your wi t hhol di ng t hat makes up

11 f or your sal ar y, cor r ect ?

12 A. Corr ect .

13 Q. I mean i f I get $1, 000 a week sal ar y and I ' m i n t he 28

14 per cent bracket , on t he books i t shows t hat I had $1, 000 t hat I

15 had t o pay t axes on, cor r ect ?

16 A. Can you r epeat t hat ?

17 Q. Your t axes are wi t hhel d i f you are a sal ari ed empl oyee,

18 cor r ect ?

19 A. Corr ect .

20 Q. So t hat i f you make $1, 000 a week and you are i n l et ' s say

21 t he 30 per cent br acket , you get a net check of $700 a week.

22 A. Corr ect .

23 Q. Ri ght?

24 A. Corr ect .

25 Q. And t hose moni es t hat wi t h wi t hhel d ar e pr oper l y i n f r i nge


( 212) 805- 0300



720


1 benef i t s, cor r ect?

2 A. The money f or wi t hhol di ng are part of your gr oss sal ary and

3 ar e of t en account ed f or i n t he f r i nge benef i t s sect i on.

4 THE COURT: But t hey' r e not par t of your - -

5 He asked you about f r i nge benef i t s. Ar e wi t hhol di ng

6 t axes deduct ed, f r om an audi t i ng poi nt of vi ew, pr oper as

7 f r i nge benef i t s?

8 THE WI TNESS: As an audi t i ng poi nt of vi ew we nor mal l y

9 adj ust t hem where t hey were cl ai med by t he per son doi ng t he

10 books. I n t hi s i nst ance t hey wer e cl ai med under f r i nge

11 benef i t s, and so we adj ust ed t hem under what t hey were cl ai med.

12 We di dn' t adj ust per sonnel cost t o i ncl ude t he f r i nge

13 benef i t s because t hey - - i t was act ual l y consi der ed harder to

14 expl ai n t hat way, but . . .

15 Q. Do you have a schedul e of t he act ual checks t hat were

16 r ecei ved by Mr . Gurf ei n, ma' am?

17 A. Yes.

18 Q. Wher e i s t hat schedul e?

19 A. My dat abase.

20 THE COURT: Exhi bi t ?

21 MR. KWOK: I bel i eve i t ' s Government Exhi bi t 110, your

22 Honor .

23 THE COURT: Exhi bi t 100, i s t hat what you' r e r ef er r i ng

24 t o, Ms. Ri l ey?

25 DEPUTY COURT CLERK: I t hi nk t hey sai d 110.


( 212) 805- 0300



721


1 THE COURT: 110? And 111?

2 MR. RUBI NSTEI N: And can you t el l us what page?

3 THE COURT: Ms. Ri l ey, you have a way when I ask you

4 f or a yes or no answer , i nst ead of gi vi ng me a yes or no

5 answer , you gi ve me an expl anat i on.

6 THE WI TNESS: OK.

7 THE COURT: Same goes - - gi ve a yes or no answer .

8 Then i f t hey ask f or an expl anat i on, gi ve t he expl anat i on. But

9 when you answer i t t hat way, no one knows whet her you ar e

10 answer i ng yes or no somet i mes. Maybe t hey don' t underst and

11 you.


13 THE COURT: OK. Now, l et ' s f i nd t he pages t hat have

14 Mr . Gur f ei n' s sal ary. Can you hel p us t her e?

15 MR. KWOK: Can we di r ect t he wi t ness t o a page?

16 THE COURT: Yes.

17 MR. RUBI NSTEI N: Pl ease.

18 MR. KWOK: Coul d I di r ect your at t ent i on t o page 36 of

19 44 i n Gover nment Exhi bi t 110.


21 Q. Ar e you l ooki ng at t hat page, ma' am?

22 A. I do.

23 Q. And you have a t otal of t he net amount of Mr . Gur f ei n' s

24 sal ary?

25 A. That shows t hat - -


( 212) 805- 0300



722


1 Q. Do you see t he t op of t he page, ma' am?

2 A. Sor r y. What page was t hat ?

3 Q. Pardon?

4 A. What page?

5 Q. I t ' s 36 of 44 i n Exhi bi t - - ma' am, coul d you l ook at t he

6 t op of t hat page, page 36 of 44.

7 A. Yes.

8 Q. And i s t hat a schedul e of Mr . Gur f ei n' s net , t he checks

9 t hat wer e act ual l y wr i t t en t o Mr . Gur f ei n?

10 A. No, i t was a check t hat I had - - t he database I had

11 cr eated, so I had t hought t hat t he net checks shoul d be t her e.

12 Q. Pardon?

13 A. I t ' s t he dat abase t hat I had ent er ed al l t he checks f r om

14 Dr . Kar r on.

15 Q. So, t hat ' s not a Spi t z document .

16 A. No, t hat ' s not Spi t z document s.

17 Do we have Spi t z?

18 Q. Wel l , f r om t he checks t hat you saw f r om CASI t hat you put

19 i n t hi s exhi bi t t hat ' s i n evi dence, what i s t he t ot al amount of

20 net pay r ecei ved by Gur f ei n?

21 A. $70, 000 i n checks wr i t t en.

22 Q. Not 100, 000, r i ght ?

23 A. No.

24 Q. You j ust t est i f i ed under oat h t hat i t was 100, 000 t hat he

25 r ecei ved i n net sal ar y, cor r ect ?


( 212) 805- 0300



723


1 A. Accor di ng t o t he r ecor ds pr ovi ded by Mel Spi t z. So, t her e

2 mi ght have been some adj ust ed j our nal ent r i es.

3 Q. But not accor di ng t o t he r ecords you pr ovi ded.

4 A. Wel l , t hey wer e j ust based on t he checks wr i t t en.

5 Q. Your s i s based on t he actual checks.

6 A. The act ual checks wr i t t en t o hi m.

7 Q. And you have t hose checks, do you not , or copi es of t hose

8 checks?

9 A. Yes, I do.

10 Q. I mean you have access t o any bank st at ement and copi es of

11 any checks t hat were wr i t t en, cashed on any account i n t hi s

12 case, cor r ect ?

13 A. Wr i t t en on - -


15 THE COURT: Obj ect i on over r ul ed.

16 Q. You have aut hori t y t o subpoena - - i f you di dn' t get t he

17 act ual r ecor ds f r om CASI , you can subpoena a bank, Chase Bank,

18 r i ght , t o get the r ecor ds t hat they have, r i ght ?

19 A. We' r e t al ki ng about bank r ecords f or CASI ?

20 Q. Tal ki ng about t he checks - -

21 A. The checks f or CASI .

22 Q. The checks of CASI .

23 A. Yes.

24 Q. And di d you do a bank r econci l i at i on on t he checks t hat

25 were drawn agai nst t he f our CASI accounts t hat you ment i oned


( 212) 805- 0300



724


1 yest erday?

2 A. Yes.

3 Q. And i s i t f ai r t o say t hat t he schedul e t hat you have her e

4 on page 36 of 44 of Exhi bi t 110 was comput ed on t he basi s of

5 your anal ysi s of t hose checks?

6 A. Yes.

7 Q. So, now do you concede t hat your number bef or e of $100, 000

8 i n net pay t o Mr . Gur f ei n was i naccur ate?

9 THE COURT: Net pay?

10 MR. RUBI NSTEI N: Yeah, t hat ' s what she sai d, t he

11 100, 000 was t he net pay.

12 THE COURT: Di d you say t hat ?

13 MR. RUBI NSTEI N: Or somethi ng l i ke 122, 000.

14 THE WI TNESS: Net pay, yes, based on Mr . Spi t z' s

15 r ecor ds.

16 THE COURT: Wel l , what was t he net pay t hat you put i n

17 your books, i n your audi t ?

18 THE WI TNESS: Fr om my audi t t he net pay was $100, 000.

19 THE COURT: But yet your audi t says t hat he onl y got

20 70, 000 on page 36 of 44.

21 THE WI TNESS: I t says t hat 25 percent of t he - -

22 THE COURT: Wel l , 36 of 44 says what?

23 THE WI TNESS: 36 of 44 says 70, 000 was net pay.

24 THE COURT: Ri ght .

25 THE WI TNESS: And t hat came f r om t he act ual deposi t .


( 212) 805- 0300



725


1 THE COURT: Ri ght . And your audi t r epor t says net pay

2 was 100, 000?

3 THE WI TNESS: Wel l , t hey are f r om di f f er ent sour ces.

4 The audi t repor t i s f r om Mr . Spi t z' s r ecor d, so i t may have

5 adj ust i ng j our nal ent r i es.

6 THE COURT: I don' t f ol l ow. Why woul d you use

7 Mr . Spi t z' s r ecord when you have your own r ecord of what i t i s?

8 THE WI TNESS: Because I di dn' t cr eate t hem unt i l

9 l at er , unt i l af t er t he audi t was done.

10 THE COURT: You di dn' t cr eat e what?

11 THE WI TNESS: Thi s r ecord, t he 36 of 44, unt i l af t er

12 t he audi t was done. I di d not anal yze t he cancel ed checks

13 unt i l asked t o by i nvest i gat i ons.


15 THE WI TNESS: So t hey were done at di f f erent t i mes.

16 THE COURT: So, i t ' s your t est i mony t hat based on your

17 unders t andi ng of Mr . Spi t z' s r ecords t her e was a $25, 000

18 over payment t o Mr . Gurf ei n.


20 THE COURT: But when you act ual l y checked t he r ecords

21 l at er af t er t he audi t was done, and you f ound out i n f act i t

22 wasn' t 100, 000.


24 THE COURT: So, t he 100, 000 det ermi nat i on by you was

25 i ncor r ect - -


( 212) 805- 0300



726



2 THE COURT: - - based on t he r ecor ds.

3 THE WI TNESS: Based on t he cancel ed checks, yes.


5 Q. So, i s i t f ai r t o say t oday, J une 6, 2008, t hat the

6 di sal l owance of t he $25, 000 i n sal ary of Mr . Gur f ei n was an

7 er r or i n t he cal cul at i ons?


9 THE COURT: Obj ect i on sust ai ned. I t ' s not f ai r t o say

10 t hat . I t was based on an i ncor r ect concl usi on possi bl y.

11 MR. RUBI NSTEI N: OK, i ncor r ect concl usi on.

12 THE COURT: But based on t he r ecords - - but cor r ect

13 under t he r ecor ds t hat she had r ecei ved f r om Mr . Spi t zer or

14 what ever hi s name i s.

15 Q. That ' s an accept abl e audi t i ng t echni que, ma' am, t o use t he

16 r epr esent at i ve of t he t axpayer , thei r r ecor ds?

17 A. Yes.

18 Q. That ' s an accept abl e audi t i ng pr i nci pl e?

19 A. Yes, we use t hei r r ecords.

20 Q. I s t hat an audi t ? Ther e ar e pr i nci pl es of audi t i ng, ar e

21 t her e not , ma' am?

22 A. Yes.

23 Q. And i s i t your t est i mony t hat you do not do any i ndependent

24 eval uat i on of r ecords submi t t ed t o you?

25 A. I sampl ed cer t ai n t r ansact i ons i n Mr . Spi t z' s books.


( 212) 805- 0300



727


1 THE COURT: I s an audi t a r evi ew of t he r ecor ds of t he

2 company you' r e r evi ewi ng on accor di ng t o what t hey say, or does

3 an audi t or have t o go back t o t he under l yi ng r ecords t o

4 det ermi ne what t he t r ut h i s?

5 THE WI TNESS: We t est t he r ecor ds t hat t hey provi de

6 us, and i f we t hi nk t hat they do a f ai r and accur at e

7 r epr esent at i on of t he expenses, t hen we st ar t our audi t usi ng

8 t hei r r ecor ds and make adj ust ment s.

9 So, i n t hi s case I woul d have l ooked at t he r ecor ds

10 pr ovi ded f r om Mr . Spi t z, det er mi ned t hat NI ST onl y agr eed t o

11 pay 75 per cent of what Mr . Gur f ei n' s sal ary was, and so my

12 audi t adj ust ment woul d be t he books showed he was pai d 100, 000

13 he was onl y ent i t l ed t o ATP r ei mbur sement of 75 per cent of

14 t hat , so CASI woul d have pai d 25, 000 t o Mr . Gur f ei n and NI ST

15 woul d have pai d t he 75, 000 t o Mr . Gur f ei n based on Mr . Spi t z' s

16 r ecor ds.

17 Q. And Spi t z' s r ecords show t hat t he gr oss, accordi ng t o you,

18 was 100, 000, cor r ect ?

19 A. The net sal ary was 100, 000.

20 Q. Do you have t hose r ecor ds her e?

21 A. Mr . Spi t z' s r ecor ds?

22 Q. Yes, t hat you say t hat Spi t z sai d t hat t he net sal ar y was

23 $100, 000.

24 A. Yes.

25 THE COURT: Do you have t he r ecor ds here?


( 212) 805- 0300



728


1 THE WI TNESS: I have comput er copi es.

2 THE COURT: A comput er copy of Mr . Spi t z' s r ecords?


4 THE COURT: But not i n f r ont of you.

5 THE WI TNESS: Not i n f r ont of me.

6 Q. And you di dn' t use Spi t z' s f i gur es f or Exhi bi t 110,

7 cor r ect ?

8 THE COURT: For exhi bi t - -

9 MR. RUBI NSTEI N: 110, t he one she i s t al ki ng about .

10 THE COURT: She sai d t hat 110 was cr eat ed af t er t he

11 December audi t .

12 MR. RUBI NSTEI N: But i f she - -

13 Q. I f you di dn' t use t hese f i gur es i n 110 f or your audi t , how

14 are t hey r el evant t o t hi s case?

15 A. Si nce t hey were t he - -

16 THE COURT: Wel l , t hat ' s not a good quest i on f or her

17 t o answer . That ' s not a quest i on f or her .

18 MR. RUBI NSTEI N: Al l r i ght . Wel l , I ' m not goi ng t o - -

19 THE COURT: You can ar gue t hat on summat i on.

20 MR. RUBI NSTEI N: I have gone f ar enough on t hi s i ssue.

21 Q. The bot t om l i ne, ma' am, i s t hat bet ween Mr . Gur f ei n and Dr .

22 Kar r on, you di sal l owed a t ot al of $71, 550, r i ght ?

23 THE COURT: Based on Mr . Spi t z' s r ecor ds. I s t hat

24 r i ght ?

25 THE WI TNESS: Yes, f r om Mr . Spi t z and Dr . Kar r on,


( 212) 805- 0300



729


1 yes - - I mean f or Gur f ei n and Dr . Karr on.

2 Q. And Spi t z' r ecor ds i ndi cat ed t hat Dr . Karr on wasn' t

3 ent i t l ed t o a hundr ed per cent of hi s $175, 000 sal ar y?

4 A. The NI ST budget al l ows t hat a sal ar y can be up t o. I t ' s

5 not i n st one t he al l ocat i ons of t i me worked. These ar e

6 est i mates of per cent age of pr oj ect ed t i me on pr oj ect .

7 Q. The budget per mi t t ed $175, 000 f or Dr . Karr on, cor r ect ?

8 A. The budget woul d have per mi t t ed a hundr ed per cent of t he

9 t i me f or Dr . Karr on i f he spent a hundr ed per cent of hi s t i me

10 worki ng on t he ATP proj ect .

11 Q. How many hour s a week i s he supposed t o wor k on t he ATP

12 pr oj ect t o j ust i f y hi s $175, 000 sal ar y?

13 A. He i s a sal ari ed empl oyee, so i t doesn' t amount t o hour s.

14 I t i s t he per cent age of t i me wor ked. So, i f he wor ks - -

15 THE COURT: Not i f s. What were you t ol d by

16 Mr . Spi t z' s r ecor ds?


18 THE COURT: What di d Mr . Spi t z t el l you? What di d

19 Mr . Spi t z' s r ecor ds - - what di d he t el l you?

20 THE WI TNESS: Mr . Spi t z' s r ecords woul d have shown a

21 hundr ed per cent of hi s t i me. Wel l , i f Spi t z' s r ecor ds - - j ust

22 had t ot al sal ar y.

23 Q. Pardon?

24 A. Mr . Spi t z' s r ecords showed net sal ary under t he personnel

25 sect i on.


( 212) 805- 0300



730


1 Q. So, you r el i ed upon Mr . Spi t z' s r ecor ds f or Gur f ei n, but

2 you di dn' t rel y upon Mr . Spi t z' s r ecor ds f or Dr . Kar r on?

3 A. No, t he - - Dr . Kar r on i s t he CEO of CASI and i s al so car i ng

4 about t he pr oj ect. Mr . Gur f ei n' s r esponsi bi l i t i es i ncl uded

5 f undr ai si ng and pr oj ect managi ng, st r at egi c pl anni ng. Dr .

6 Karr on woul d have made - - as owner of CASI and i nterest ed i n

7 t he pr oj ect - - woul d have had di scussi ons wi t h Mr . Gur f ei n

8 concer ni ng t hose i ssues, and t hose i ssues, si nce t hey ar e not

9 al l owabl e cost s, t he t i me he woul d have spent di scussi ng t hose

10 ki nds of i ssues woul d not be al l owabl e charges t o t he ATP

11 pr oj ect .

12 So, he di dn' t r eal l y - - he r eal l y wasn' t spendi ng a

13 hundr ed per cent of hi s t i me, and so as audi t ors , based on

14 i nt er vi ews - -

15 THE COURT: How di d you deter mi ne he wasn' t spendi ng a

16 hundred percent of hi s t i me?

17 THE WI TNESS: Based on - -

18 THE COURT: For t hi s audi t r eport .

19 THE WI TNESS: Based on - - j ust on what - - t hat i t ' s a

20 company, I guess prof essi onal j udgment .


22 THE WI TNESS: Prof essi onal j udgment . Knowi ng t he t ype

23 of busi ness, knowi ng t hei r requi r ement s, t hat a hundr ed percent

24 of t he t i me f or t he CEO i s not on j ust pr oj ect t i me.

25 THE COURT: I t wasn' t based on anyt hi ng t hat Mr . Spi t z


( 212) 805- 0300



731


1 or Dr . Kar r on t ol d you or anyt hi ng of t hat sor t ? I t ' s j ust

2 pr of essi onal j udgment .

3 THE WI TNESS: Ri ght . And I had asked Dr . Kar r on about

4 t hi ngs, var i ous empl oyees, and, you know.

5 THE COURT: And what ?

6 THE WI TNESS: And obser ved t hi ngs t hat peopl e di d.

7 THE COURT: You mean your observat i ons dur i ng t he

8 audi t ?

9 THE WI TNESS: Yeah, and t hi ngs di scussed dur i ng t he

10 audi t .

11 Q. So, i t ' s your t est i mony t hat i f I ' m a sal ar i ed - - i f a

12 per son i s a sal ar i ed empl oyee, and t hey work 80 hours a week on

13 one pr oj ect , and t hey spend t wo hour s of t hat 80 hour s on

14 non- di r ect act i vi t i es, you ar e goi ng t o deduct par t of t hei r

15 sal ary as an al l owabl e expense?

16 A. As a NI ST- r ei mbur sabl e expense f or - - they' r e bei ng

17 r ei mbur sed f or - - yes.

18 I f t hey' r e not wor ki ng on t he NI ST pr oj ect , and t hei r

19 dut i es ar en' t rel at ed t o t he NI ST pr oj ect , t hen onl y t he

20 por t i on t hat ' s r el at ed t o t he pr oj ect cost i s al l owabl e.

21 Q. Wel l , what i f t hey had t wo j obs, t hey had a NI ST j ob and at

22 ni ght t hey t aught at some uni ver si t y, and now t hey onl y work 40

23 hour s a week?




( 212) 805- 0300



732


1 Q. I s i t f ai r t o say t hat you ar e not t he l ast wor d on what ' s

2 al l owabl e and what ' s not al l owabl e i n t he OI G' s of f i ce?

3 A. Dur i ng r esol ut i on of t he audi t ?

4 Q. I n t he whol e process t hat a company can di spute your

5 i nt er pr et at i ons, cor r ect?

6 A. Cor r ect , i t goes t hr ough a r esol ut i on pr ocess.

7 Q. And ar e you part of t hat r esol ut i on pr ocess?

8 A. Yes.

9 Q. Do you make t he f i nal deci si on at t hat resol ut i on pr ocess?

10 A. The gr ant s of f i ce makes t he f i nal deci si on.

11 Q. The gr ant s of f i ce?

12 A. Um- hum.

13 Q. The gr ant s of f i ce of what?

14 A. NI ST ATP.

15 Q. So t hey have a r i ght i n t he f i nal r esol ut i on t o appr ove any

16 of t hese expenses, corr ect ?

17 A. Yes, t hey do.

18 Q. Now, you t al ked about f r i nge benef i t s. Di d you make any

19 det er mi nat i on i n your audi t as t o ot her f r i nge benef i t s ot her

20 t han t he payr ol l t ax, t ax wi t hhol di ng? Di d you make any

21 det er mi nat i ons as t o any ot her f r i nge benef i t s, whet her they

22 wer e al l owabl e or not?

23 A. Yes.

24 Q. Because act ual l y you are maki ng a det ermi nat i on i n your

25 anal ysi s of what i s al l owed, cor r ect ?


( 212) 805- 0300



733


1 A. Yes.

2 Q. As di st i ngui shed f r om what i s al l owabl e.

3 A. I make t he det er mi nat i on f or what i s al l owabl e.

4 Q. Wel l , di d you r evi ew any mat er i al s t o determi ne what was an

5 appr opr i at e f r i nge benef i t f or t he CASI or gani zat i on?

6 A. What i s your - - I don' t under st and t hat quest i on.

7 Q. Di d you r evi ew anyt hi ng t o det ermi ne i n your mi nd what

8 f r i nge benef i t s woul d be, l i ke l et ' s say medi cal , what medi cal

9 f r i nge benef i t s shoul d be al l owabl e?

10 A. Yes.

11 Q. And what di d you r evi ew?

12 A. He had some ki nd of pl an document I t hi nk f r om ' 96 t hat

13 di dn' t ment i on t hese ki nds of benef i t s.

14 THE COURT: What di d you say?

15 THE WI TNESS: He had a document t hat di dn' t ment i on - -

16 I don' t t hi nk i t ment i oned f r i nge benef i t s or ment i oned al l of

17 t hese.

18 THE COURT: Sor r y. What ? I can' t hear you.

19 THE WI TNESS: He had a pl an document or an of f i ce

20 pol i cy document .

21 THE COURT: Whi ch was i t ?

22 THE WI TNESS: Of f i ce pol i cy. That ' s t he onl y document

23 t hat I r evi ewed t hat ment i oned - - t hat was i n ef f ect dur i ng t he

24 per i od of t he gr ant .

25 THE COURT: That ' s what you wer e gui ded by here?


( 212) 805- 0300



734


1 THE WI TNESS: And I r evi ewed - - wel l , I r evi ewed t he

2 expense r ecords, t he l edger r ecords.

3 THE COURT: Pr ovi ded t o you by?

4 THE WI TNESS: Mel Spi t z, Mr . Spi t z.

5 THE COURT: Go ahead. What el se?

6 THE WI TNESS: Everyt hi ng el se was t he l og.

7 THE COURT: What ? The l og?

8 THE WI TNESS: Yeah, t he cr i t er i a t hat was pr ovi ded

9 by - -

10 THE COURT: What cr i t er i a?

11 Q. What cr i t er i a?

12 A. Wel l , ATP gui dance or whatever cr i t er i a woul d have t o do

13 wi t h f r i nge benef i t s.

14 Q. I sn' t t he company' s pol i ci es, even i f t hey' r e not wr i t t en,

15 aren' t t hey t o be consi dered i n maki ng t hat det er mi nat i on what

16 t he pr act i ce i s of t hat or gani zat i on?

17 A. I t di dn' t ment i on t hose ki nds of benef i t s i n t he pol i cy

18 t hat I saw.

19 THE COURT: The of f i ce pol i cy.

20 THE WI TNESS: I n t he of f i ce pol i cy.

21 Q. That ' s not t he quest i on.

22 A. OK.

23 Q. You say you saw a document f r om 1996, cor r ect ?

24 A. I t was an ol d document . I ' m not sur e. I don' t r ecal l t he

25 exact year but i t was - -


( 212) 805- 0300



735


1 Q. Di d you ask - -

2 THE COURT: Thi s document , what i s i t ? What ar e we

3 t al ki ng about ? Ar e you t al ki ng about t he of f i ce pol i cy manual ?

4 I s t hat what you mean by t he document , Mr . Rubi nst ei n?

5 MR. RUBI NSTEI N: That ' s what she i ndi cat ed.

6 THE COURT: Al l r i ght . But l et ' s be sure we are

7 t al ki ng about what we' r e t al ki ng about .

8 Q. The document t hat you say t hat you saw, di d you di scuss

9 whet her or not that was st i l l i n ef f ect i n t he year 2003 when

10 you di d t he audi t ?

11 A. They were r evi si ng i t i n 2003.

12 Q. And di d t hey advi se you t hey were r evi si ng i t ?

13 A. Yes, t hat t hey wer e r evi si ng i t .

14 THE COURT: And who gave you t he document ?

15 THE WI TNESS: I don' t know i f I have a copy. I don' t

16 know t hat they had f i ni shed - - I don' t thi nk I got a copy. I ' m

17 not sur e I have a copy of t hat document .

18 THE COURT: Whi ch document ?

19 THE WI TNESS: The r evi sed document .

20 THE COURT: I ' m not aski ng you about t he r evi sed

21 document . Who handed you t he document that you di d see?

22 THE WI TNESS: I don' t r ecal l . I t hi nk I got t hat one

23 i n J une, but I don' t recal l speci f i cal l y.

24 THE COURT: When? Fr om whom i s what I asked, not

25 when.


( 212) 805- 0300



736


1 THE WI TNESS: I don' t know whom.

2 THE COURT: I asked f r om whom.

3 THE WI TNESS: I don' t r emember .

4 THE COURT: Li st en t o t he quest i on bef ore you answer ,

5 and t r y and gi ve a yes or no answer , pl ease.

6 THE WI TNESS: I don' t r emember whom.

7 THE COURT: OK.

8 Q. Now, you were i nf ormed t hat t hey were worki ng on a r evi sed

9 manual , i s t hat cor r ect ?

10 A. Yes.

11 Q. And were you advi sed t hat t he r evi sed manual woul d have t he

12 f r i nge benef i t s t hat wer e i n pl ace i n CASI f r om bef or e t he

13 gr ant ?


15 Q. That t he r evi sed - -

16 THE COURT: Quest i on wi t hdr awn. Star t over agai n,


18 Q. You had di scussi ons t hat t hey were worki ng on a r evi sed

19 manual , cor r ect , i ncl udi ng f r i nge benef i t s?

20 A. Yes, I knew t hat t hey wer e r evi si ng t hei r manual .

21 Q. And di d you quest i on as t o what pol i ci es had been i n ef f ect

22 pr i or t o t he ATP gr ant ?

23 THE COURT: For get about t he r evi sed manual now. He

24 i s aski ng you di d you ask what pol i ci es wer e i n ef f ect pr i or t o

25 t he ATP gr ant . Di d you ask t hat quest i on?


( 212) 805- 0300



737


1 THE WI TNESS: I don' t r ecal l .

2 Q. I s i t a f act t hat under t he audi t i ng pr ocedur e you can

3 i nqui r e as t o f r i nge benef i t s such as medi cal , as t o what t he

4 company' s pol i cy was and what i t had done pr evi ousl y?

5 A. That i s one consi der at i on.

6 THE COURT: Sor r y. What ?

7 THE WI TNESS: Yes. Yes.

8 Q. And di d you i nqui r e of anyone - - wel l , di d you i nqui r e of

9 Dr . Kar r on what t he pr act i ce of CASI was pr i or t o get t i ng t he

10 ATP gr ant as t o f r i nge benef i t s?

11 A. I don' t r ecal l .

12 Q. Wel l , l et me show you what ' s been marked f or i dent i f i cat i on

13 as Def endant ' s L and ask you i f you have ever seen t hat

14 document bef or e.

15 A. I don' t r ecal l seei ng t hi s document bef ore.

16 Q. Now, di d you r evi ew t he cont r act of Mr . Gur f ei n when you

17 wer e r evi ewi ng hi s sal ary?

18 A. Yes.

19 Q. And l et me show you what ' s been marked f or i dent i f i cat i on

20 as Def endant ' s K.

21 THE COURT: 3505 what ?

22 MR. RUBI NSTEI N: I t ' s i n 3505. I t doesn' t have a

23 l et t er but i t ' s bef or e C. 3505, I guess i t must be i n t he B

24 part .

25 Q. I s t hat a document t hat you r evi ewed whi ch was a CASI


( 212) 805- 0300



738


1 document , ma' am?

2 A. Yes.

3 Q. As a mat t er of f act , you had a copy of t hat , di d you not?

4 A. Yes.

5 Q. As a mat t er of f act , you t ur ned your copy over t o t he

6 pr osecut i on yest er day, cor r ect ?

7 A. Yes.

8 MR. RUBI NSTEI N: We of f er Def endant ' s K i nto evi dence.


10 THE COURT: Def endant ' s K i s admi t t ed i nto evi dence.

11 Can I see a copy?

12 MR. RUBI NSTEI N: I gave you one, J udge.

13 ( Def endant ' s Exhi bi t K r ecei ved i n evi dence)

14 THE COURT: Thi s i s an empl oyment agreement - -


16 THE COURT: - - bet ween Mr . Gur f ei n and Comput er Ai ded

17 Sur ger y, dat ed as of Oct ober 1, 2001, si gned on December 26,

18 2001.

19 Q. And t hi s was pr ovi ded t o you as par t of t he audi t , cor r ect ?

20 A. Yes.

21 Q. To show - - wel l , I wi l l wi t hdr aw t hat . Thi s cont r act

22 pr ovi des f or f r i nge benef i t s, does i t not ?

23 A. Sor r y. What ?

24 Q. Thi s document pr ovi des f or f r i nge benef i t s?

25 A. Yes.


( 212) 805- 0300



739


1 Q. And wi l l you r ead t o t he j ur y what t he f r i nge benef i t s

2 provi ded by CASI were.

3 A. On page 3, t he execut i ve wi l l be ent i t l ed t o par t i ci pat e i n

4 al l benef i t pl ans or pr ogr ams of t he company cur r ent l y i n

5 exi st ence or t o be est abl i shed, i ncl udi ng medi cal , dent al , l i f e

6 i nsur ance, ret i r ement , pensi ons, vacat i ons, si ck l eave and

7 hol i days.


9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



740

866zkar 2 Ri l ey - cr oss


2 Q. Thank you. Now, you al so - - you al so di sal l owed cer t ai n

3 sal ar y of ot her peopl e, i s t hat cor r ect ?

4 A. Yes.

5 Q. And you di sal l owed sal ary of Abe Kar r on?

6 A. Yes. Wel l - -

7 THE COURT: I ' m sor r y, are you changi ng your - -

8 A. Abe di dn' t have sal ar y.

9 THE COURT: She say Abe di dn' t have a sal ar y.

10 Q. Di d Abe r ecei ve any moni es f r om CASI ?

11 A. For t he pr oj ect i on, pr oj ect or .

12 THE COURT: For what ?

13 THE WI TNESS: He di d, t he pr oj ector and t he scr een.

14 He di dn' t have - - wasn' t sal ar i ed.

15 THE COURT: I f you answer f i r st yes or no, t hat hel ps.

16 THE WI TNESS: Oh, sor r y.

17 Q. And t hat was an al l owabl e expense, cor r ect ?

18 A. I ' m sor r y, what ?

19 Q. That was al l owabl e?

20 A. What was al l owabl e?

21 Q. The money pai d t o Abe Karr on?

22 THE COURT: What di d you say?

23 THE WI TNESS: What money pai d t o Abe Kar r on?

24 Q. The t housand dol l ar s and change?

25 A. I t hi nk t hat was quest i oned under equi pment , maybe.


( 212) 805- 0300



741


1 Q. Di d you al l ow or di sal l ow t hat amount ?

2 THE COURT: Were any of t hese al l owed or di sal l owed or

3 were t hey quest i oned, any of t hese expenses?

4 What was your r ol e her e? Were you di sal l owi ng or were

5 you r ecommendi ng or were you quest i oni ng; what were you doi ng?

6 THE WI TNESS: We - -

7 THE COURT: You.

8 THE WI TNESS: Yes. We quest i oned, we quest i oned t he

9 cost and r ecommend t hat i t be di sal l owed.

10 THE COURT: Okay.

11 Q. And you r ecommended i n t hi s r epor t t hat over $500, 000 woul d

12 be di sal l owed, cor r ect ?

13 A. Corr ect .

14 THE COURT: Thi s i s t he December r epor t ?

15 MR. RUBI NSTEI N: The audi t was i n December - -

16 actual l y, i t was f i l ed I bel i eve i n Mar ch of 2004.

17 Q. I s t hat cor r ect , Ms. Ri l ey?

18 A. Corr ect .


20 Q. Now, t her e was an empl oyee Mi ss Wi nt er ?

21 A. Yes.

22 Q. And di d you al l ow or di sal l ow par t of her sal ar y?

23 A. Di sal l ow.

24 Q. And how much of her sal ary was di sal l owed.

25 A. 25 per cent , appr oxi matel y.


( 212) 805- 0300



742


1 Q. What basi s was - - Ms. Wi nter was a bookkeeper at CASI

2 cor r ect ?

3 A. Corr ect .

4 Q. And on what basi s was 25 per cent di sal l owed?

5 A. On t he basi s t hat she al so kept t he books f or t he busi ness

6 CASI , and so she, she worked on - - so NI ST woul d r ei mbur se her

7 t ot al sal ar y.

8 THE COURT: I coul dn' t hear you.

9 THE WI TNESS: NI ST woul d onl y r ei mbur se t he por t i on of

10 t he t i me t hat she worked f or NI ST.

11 THE COURT: I see. And t he r est was f or t he

12 cor por at i on?

13 THE WI TNESS: Theor y Cor porat i on.

14 THE COURT: Theor y?

15 THE WI TNESS: Theor y Cor porat i on.

16 Q. Wasn' t her j ob as a bookkeeper f or CASI ?

17 A. Yes.

18 Q. Weren' t empl oyee sal ar i es i ncl uded i n t he budget?

19 A. Onl y t he port i on of t he t i me t hat woul d be at t r i but abl e t o

20 NI ST work woul d be r ei mbur sed by t he grant .

21 Q. But t here was onl y one pr oj ect goi ng on at CASI , cor r ect ?

22 A. Cor r ect , but - -

23 Q. So 100 percent of her t i me was bei ng spent on CASI - r el ated

24 i t ems, cor r ect , ATP r el at ed i t ems?

25 A. No.


( 212) 805- 0300



743


1 Q. You al so - - she al so had some f r i nge benef i t s, di d she not?

2 A. Yes.

3 Q. What ki nds of f r i nge benef i t s di d she have?

4 A. Medi cal expense and chi l d care.

5 Q. And you di sal l owed her chi l d car e, cor r ect ?

6 A. Corr ect .

7 Q. That was a f r i nge benef i t of CASI , cor r ect ?

8 A. Corr ect .

9 Q. And you deci ded t hat - -

10 THE COURT: Was i t i n t he manual or not?

11 THE WI TNESS: I t was not i n t he manual . That was

12 pr ovi ded t o me or i gi nal l y.

13 THE COURT: Were you gi ven anot her one l at er?

14 THE WI TNESS: J ust t he one t hat I was - - j ust t he

15 r evi sed one I j ust r ecei ved now.

16 THE COURT: You wer e, you wer e gi ven t hat ?

17 THE WI TNESS: No, no. Thi s i s - - no, I wasn' t gi ven

18 t he r evi sed manual .

19 THE COURT: You wer e gi ven t he r evi sed manual ?

20 THE WI TNESS: No, I di d not , di d not r ecei ve t he

21 r evi sed manual .

22 THE COURT: Then why di d you answer yes?

23 THE WI TNESS: I j ust got i t - - I sai d yes, j ust now, I

24 r ecei ved t he r evi sed manual .



( 212) 805- 0300



744


1 THE WI TNESS: Because I j ust got t hi s r evi sed manual ,

2 yes. Not t he t i me of t he audi t .

3 THE COURT: I di dn' t - - I ' m aski ng you about what you

4 di d at t he t i me you di d i t .

5 THE WI TNESS: Yeah, I di d not r ecei ve t he r evi sed

6 manual at t hat t i me.

7 THE COURT: Al l r i ght . So on t he i nf ormat i on you had,

8 you deci ded t o not al l ow chi l d car e?


10 THE COURT: Okay.

11 Q. Di d you di scuss wi t h anybody, wi t h Dr . Karr on, as t o t he

12 f r i nge benef i t pol i cy r el at ed t o chi l d car e f or Mi ss Wi nt er ?


14 THE COURT: That r evi sed manual i sn' t i n evi dence, i s

15 i t ?


17 THE COURT: You' r e r el yi ng on somethi ng t hat ' s not

18 even i n evi dence yet .

19 THE WI TNESS: Oh, okay.


21 THE WI TNESS: Al l r i ght .

22 THE COURT: Let ' s get i t t oget her .





( 212) 805- 0300



745


1 THE COURT: Obj ect i on - - obj ect i on sust ai ned. I don' t

2 know what , what you' r e obj ect i ng t o. I t may have been my

3 r emar ks, so maybe.

4 MR. KWOK: No, I ' m obj ect i ng t o t he - -

5 THE COURT: I ' l l sustai n i t , I ' l l sustai n t hat al so.

6 MR. RUBI NSTEI N: You want t o st r i ke your r emarks, your

7 Honor?

8 THE COURT: Wel l - -

9 Q. Now, CASI wr ote checks f or r ent , corr ect ?

10 A. Corr ect .

11 Q. Now, r ent i s or di nar i l y not per mi t t ed as a di r ect cost ,

12 cor r ect ?

13 A. Corr ect .

14 Q. I n a si t uat i on wher e t he sol e - - and t he r eason, i s t he

15 r eason f or t hat because normal l y a busi ness i s conduct i ng other

16 busi nesses ot her t han t he gr ant pr oj ect and, t her ef or e, i t ' s

17 har d t o at t r i but e what port i ons woul d be appl i cabl e?

18 A. I t ' s - - i t woul d need t o be i n t he budget .

19 Q. Ther e' s ot her s - - ther e' s a pr ovi si on f or ot her s i n t he

20 budget , cor r ect ?

21 A. Corr ect .

22 Q. And you coul d i ncrease t hat cat egory by up t o 10 per cent of

23 t he 800, 000 i n t he f i r st year , cor r ect ?

24 A. Corr ect .

25 Q. Now, but goi ng wi t h t he - - so t hat i s an i ssue t hat - -


( 212) 805- 0300



746


1 act ual l y whet her somet hi ng i s an i ndi r ect or a di r ect cost i s

2 somet hi ng t hat coul d be negot i at ed wi t h t he gr ant of f i ces,

3 r i ght ?


5 Q. Wel l , i n t he audi t r esol ut i on you coul d negot i ate whet her

6 or not t hat woul d be a di r ect cost as opposed t o an i ndi r ect

7 cost ?

8 A. Rent woul d be consi dered an i ndi r ect cost .

9 Q. Gener al l y speaki ng, r i ght ; i s t hat cor r ect?

10 A. Corr ect .

11 Q. But t he CFR t hat you' r e governed by says t hat you deal on a

12 case- t o- case basi s?

13 A. Corr ect .

14 Q. Now, l et ' s assume f or t hese quest i ons t hat t he r ent was, i n

15 f act , not al l owabl e; i t was i n f act an i ndi r ect cost , okay.

16 Fol l ow t hat ?

17 A. Not al l owabl e - - yes.

18 Q. I ' m assumi ng t hat you' r e cor r ect , okay?

19 A. I ' m cor rect .

20 Q. The r ent at t r i but abl e t o t he ATP gr ant woul d st art when?


22 A. St ar t ?

23 Q. Yeah, when woul d i t st art ? I f r ent was pai d - -

24 A. I f r ent was al l owabl e?

25 Q. No, no. I f i t was pai d, i t was an expense. I t ' s not


( 212) 805- 0300



747


1 al l owabl e, i t ' s an expense t hat ' s pai d, but not al l owabl e.


3 Q. Let me ask you - -

4 THE COURT: I don' t under st and t he quest i on.

5 Q. Let me ask you t hi s, was t here - -

6 THE COURT: I don' t under st and t he quest i on. Ref r ame

7 t he quest i on.

8 Q. Okay. When you st ar t ed t o audi t CASI , di d you ascer t ai n

9 what t he f i nanci al condi t i on of CASI was bef or e t he gr ant

10 st ar t ed i n Oct ober of 2001?

11 A. Yes.

12 Q. And i s i t f ai r t o say t hat CASI Cor por at i on was i n debt i n

13 excess of bet ween 100 and $200, 000 at t hat t i me?

14 A. I don' t know how much t hey were i n debt .

15 Q. Wel l , i n f act - -

16 THE COURT: You don' t know whether t hey wer e i n debt ?

17 THE WI TNESS: They were i n debt . I don' t know t he

18 amount .

19 Q. And CASI , pr i or t o t he ATP gr ant , was i n f act payi ng r ent

20 t o Dr . Kar r on f or use of t hat port i on of t he apar t ment at 300

21 East 33r d St r eet?

22 THE COURT: Bef or e t he grant?

23 MR. RUBI NSTEI N: Bef ore t he grant .

24 THE COURT: I s t hat your knowl edge?

25 THE WI TNESS: No. My knowl edge i s t hey t ook - - t hey


( 212) 805- 0300



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1 pai d t hemsel ves ni ne mont hs of back r ent when t hey f i r st got

2 t he check, CASI , pai d, took - -

3 Q. Go ahead.

4 A. The back - - t hey pai d, t hey pai d back r ent wi t h t he f i r st

5 drawdown of NI ST f unds f or ni ne mont hs, $18, 000.

6 Q. And t hey l i st ed, t hey l i st ed what mont hs t he r ent was f or ,

7 cor r ect ?

8 A. Corr ect .

9 Q. I mean, t her e i s a memo on each check, r i ght ?

10 A. Yes. Now t her e i s.

11 Q. Pardon?

12 A. Yes.

13 Q. And t he memo says what mont h t hat $2, 000 check was payment

14 f or ?

15 A. Yes.

16 Q. Now, di d you do any - -

17 THE COURT: To whom was t he check payabl e?

18 THE WI TNESS: Dr . Kar r on.


20 THE WI TNESS: Dr . Kar r on.

21 Q. And i f he r ecei ved r ent money, t hen he woul d have t o r epor t

22 t hat as i ncome on hi s t ax r et ur n, cor r ect ?

23 THE COURT: Obj ect i on - -


25 THE COURT: - - sust ai ned.


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1 Q. Wel l , are you aware - - di d you exami ne Dr . Karr on' s t ax

2 r et ur ns - -


4 Q. - - as par t of t hi s audi t ?

5 THE COURT: As part of t he audi t , di d you l ook at hi s

6 t ax r et ur ns?

7 THE WI TNESS: I don' t r ecal l i f I have hi s t ax r et ur ns

8 or not .

9 Q. When, when was t he l ast - - wel l , i f you' r e cor r ect that - -

10 so t he f i r st ni ne checks, $18, 000 was pai d f or an expense t hat

11 was i ncur r ed pr i or t o t he gr ant , ri ght ?

12 A. Corr ect .

13 Q. And i t woul dn' t mat t er i f you cal l ed i t r ent or you bought

14 a pi ece of equi pment unr el ated t o t he gr ant pri or t o t he gr ant ,

15 i t was an expense t hat he - - i t was a debt t hat he was payi ng

16 of f , cor r ect?

17 A. Corr ect .

18 Q. Now, he woul d be ent i t l ed, woul d he not , t o i ncr ease hi s

19 sal ary under the r ul es by as much as 10 percent wi t hout pr i or

20 appr oval ?

21 A. Sal ary woul d pr obabl y need t o be pr i or appr oval . The

22 per sonnel sal ar i es t ot al may not need pr i or appr oval .

23 Q. May?

24 A. But woul d need - - t he - - i f he were usi ng t he 10 per cent

25 r ul e f or - - and you had addi t i onal sal ar i es of 10 per cent . But


( 212) 805- 0300



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1 f or a speci f i c sal ar y, you know, i f t hi ngs, i f t hi ngs changed

2 wi t h t he named peopl e, t hat ' s supposed t o get an appr oval f r om

3 t he gr ant peopl e.

4 Q. I sn' t he al l owed t o get 10 per cent of t he $800, 000 t o use

5 wi t hout any budget appr oval f or any l i ne i t em t hat had al r eady

6 been est abl i shed; i sn' t t hat t he r ul e?

7 A. He can r eal l ocat e t en per cent of t he l i ne i t ems i f i t ' s - -

8 i f i t ' s al l owabl e NI ST cost , at t r i but abl e t o t he gr ant .

9 Q. Hi s sal ar y was al l owabl e, cor r ect ?

10 A. At t he amount t hey appr oved.

11 Q. But he coul d, under the 10 per cent rul e, he coul d i ncr ease

12 t hat sal ar y, cor r ect ?

13 A. I ' m not sur e about t hat .

14 Q. He coul d i ncrease - - coul d he i ncr ease equi pment ?

15 A. Equi pment he coul d.

16 Q. Coul d he i ncrease f r i nge benef i t s?

17 A. Fr i nge benef i t s, al l owabl e f r i nge benef i t s t o t he - - i t

18 woul d be abl e t o i ncr ease.

19 Q. That payment - - by t he way, Dr . Kar r on had, you sai d he had

20 f our account s, r i ght ?

21 A. Four checki ng account s.

22 Q. Four checki ng account s. And he had a di f f erent col ored

23 check f or each checki ng account , cor r ect ?


25 Q. You saw t he checks, di d you not ?


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1 A. I saw copi es of t he checks.

2 Q. They were not i n col or?

3 A. No.

4 Q. These r ent checks wer e pai d out of t he CASI , I nc. account ,

5 cor r ect ?

6 A. I don' t r ecal l , but t hat coul d be t r ue.

7 Q. Now, you have a schedul e as t o t he r ent checks, do you not ?

8 THE COURT: Were t hese checks t o t he l andl ord? Rent

9 checks, was t her e a l andl or d her e or i s i t - - or i s i t a - -

10 MR. RUBI NSTEI N: Wel l , Dr . Kar r on was t he l andl ord,

11 your Honor .

12 Q. Now, whi ch - -

13 THE COURT: I don' t know. The wi t ness t hen shoul d

14 t est i f y, Mr . Rubi nst ei n.


16 Q. You have t hi s on t he schedul e i n t he 3500 mat er i al ,

17 cor r ect ? And I di r ect your at t ent i on t o 3500 t en - - 110, page

18 39 of 44?

19 MR. KWOK: Your Honor , I bel i eve t hat ' s gover nment

20 Exhi bi t 110.

21 MR. RUBI NSTEI N: Yeah, gover nment exhi bi t . I ' m sor r y,

22 J udge.

23 THE COURT: Bef ore you get i nt o t hat , j ust so we' r e

24 cl ear , Ms. Ri l ey, was t hi s creat ed af t er your - - was t hi s

25 document 110 cr eat ed af t er your audi t was, December , was


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1 cr eat ed?


3 THE COURT: Af t er t he r epor t was cr eat ed?


5 THE COURT: Al l r i ght . So you know, approxi mat el y,

6 when i t was cr eat ed?

7 THE WI TNESS: The dat a base was cr eated i n 2004, 2005

8 but thi s speci f i c document was cr eated on May 28. I t ' s got t he

9 date on her e.

10 THE COURT: I see.

11 Q. Now, by l ooki ng at that document , ma' am, coul d you use t hat

12 t o r ef r esh your r ecol l ect i on as t o how - - t he r ent was $2, 000 a

13 mont h, cor r ect ?

14 A. Corr ect .

15 Q. And by l ooki ng at t hat document , can you t el l t he j ur y how

16 many payment s were made of $2, 000 pr i or t o t he st ar t of t he

17 grant on Oct ober 1?

18 THE COURT: How many payment s wer e made?

19 Q. Yeah, at t r i but abl e t o r ent t hat was f or per i ods pr i or t o

20 t he st ar t of t he gr ant of J anuar y - - of Oct ober 1, 2001?

21 THE COURT: Do you have a page t o r ef er t o?

22 MR. RUBI NSTEI N: Yes. I t ' s page 39 of 44. i n exhi bi t ,

23 government Exhi bi t 110, your Honor .


25 Q. Do you have t hat , ma' am?


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753


1 A. Yes.

2 THE COURT: By t he way, what i s GL?

3 THE WI TNESS: The gener al l edger , one of t he gener al

4 l edger s.

5 Q. And by r evi ewi ng t hat document , how many of t he r ent

6 payment s were made af t er f or t i me per i ods af t er Oct ober 1st ,

7 2001, st ar t - -

8 A. Af t er - - how many checks were made f or t he per i od st ar t i ng

9 Oct ober 1, 2001?

10 Q. When t he grant st ar t ed.

11 A. When t he grant st ar t ed, how many payment s were made, af t er

12 t hat?

13 Q. Ri ght .

14 A. There' s 21 payment s made dur i ng t he grant per i od and ni ne

15 payments - -

16 Q. 21?

17 A. - - f or per i ods pr i or t o t he - -

18 Q. Dur i ng t he grant per i od - - excuse me, ma' am. Di d you say

19 dur i ng or bef or e t he gr ant per i od?

20 A. 21 t hat wer e pai d dur i ng t he gr ant per i od, and ni ne were

21 made f or a per i od pr i or t o t he grant award.

22 Q. I sn' t i t a f act t hat the - - i f you st ar t at the, wher e i t

23 says r ent on of f i ce, 30 det ai l ed r ecor ds, cor r ect ?

24 A. Yes.

25 Q. And you st ar t out , t he f i r st check was t o pay t he r ent owed


( 212) 805- 0300



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1 f or J anuar y, 2000, cor r ect ?

2 A. Corr ect .

3 Q. And you f ol l ow down t he next number of checks, t here i s a

4 t ot al of ni ne checks t hat wer e at t r i but abl e t o r ent owed f r om

5 2000, cor r ect ?

6 A. Yes.

7 Q. And t hen t hat ' s al l pr i or t o t he gr ant , cor r ect ?

8 A. The ni ne, t he ni ne - - t he f i r st ni ne wer e pr i or to t he

9 gr ant .

10 Q. And t hen you have t he next check i s J anuar y ' 01, goi ng down

11 t o t he bot t om of t hat page?

12 THE COURT: Wai t a mi nut e. Af t er t he f i r st ni ne

13 checks dated Oct ober 26, 2001?


15 THE COURT: The next check i s 11/ 9, not J anuar y.

16 MR. RUBI NSTEI N: No, your Honor . I f your Honor l ooks

17 at det ai l s f or the check, t hey have - - t hey show t he dat e

18 t hat - - f r om t he memo as t o what per i od. We concede i t was

19 pai d af t er t he gr ant . But t hi s, t hese expenses wer e f or - -

20 were owed f r om 2000.

21 THE COURT: I under st and. You' ve cover ed t hat . But

22 t hen you ski pped t hi s Oct ober 26 t o J anuary, and t her e were

23 payments made i n November and i n December whi ch you omi t t ed i n

24 your quest i on. You sai d i t was t he next check.

25 MR. RUBI NSTEI N: I am goi ng by t he, t he checks i n t he


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1 schedul e, your Honor . Ther e' s - -

2 THE COURT: I ' m goi ng by t he checks i n t he schedul e

3 t oo, page 39 of 44.

4 MR. RUBI NSTEI N: Ri ght . The f i r st - -

5 THE COURT: So l et ' s f r ame your quest i on proper l y.


7 Q. The f i r st check t hat was pai d was f or J anuary 2000' s r ent ,

8 cor r ect ?

9 A. Yes.

10 Q. The next check was Febr uar y 2000' s r ent ?

11 A. Yes.

12 Q. Next i s March 2000 r ent ?

13 A. Yes.

14 Q. And Apr i l 2000 r ent ?

15 A. Yes.

16 Q. Then May 2000' s r ent ?

17 A. Yes.

18 Q. J une 2000' s r ent ?

19 A. Yes.

20 Q. J ul y 2000 r ent ?

21 A. Yes.

22 Q. August 2000 r ent ?

23 A. Yes.

24 Q. Sept ember 2000 r ent , cor r ect ?

25 A. Corr ect .


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1 Q. Okay. So t hose are ni ne checks t hat wer e wr i t t en af t er t he

2 gr ant , but pai d f or expenses i ncur r ed bef ore t he gr ant ,

3 cor r ect ?

4 A. Corr ect .

5 Q. Now, t hen you have t he next check i s f or J anuar y r ent 2001,

6 cor r ect ?

7 A. Corr ect .

8 Q. Febr uary r ent , 2001?

9 A. Corr ect .

10 Q. March r ent , 2001?

11 A. Corr ect .

12 Q. Apr i l r ent , 2001?

13 A. Corr ect .

14 Q. We' l l t ake December out . Then J une r ent , 2001?

15 A. Corr ect .

16 Q. May r ent , 2001?

17 A. Corr ect .

18 THE COURT: But what dat e - - t hat ' s what you' r e

19 r eadi ng of f i s t he dat e on t he expl anat i on, i s t hat cor r ect ?

20 MR. RUBI NSTEI N: Cor r ect , your Honor .

21 THE COURT: Wel l , when were t he checks wr i t t en?

22 MR. RUBI NSTEI N: Checks were wr i t t en i n Oct ober ,

23 November , December and J anuar y - - Oct ober, November ,

24 December 2001, af t er t he grant .

25 THE COURT: I s t hat corr ect , Ms. Ri l ey?


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1 THE WI TNESS: The checks - - t hi s i s t he dat e t he

2 checks cl ear ed t he bank on t hi s dat e.

3 THE COURT: Excuse me?

4 THE WI TNESS: The checks cl eared t he bank. These

5 woul d have been t he t i mes t he checks cl ear ed t he bank.

6 THE COURT: When were t he checks - - yes or no, wer e

7 t he checks wr i t t en i n November , December , and J anuar y?


9 THE COURT: Ther e wer e checks wr i t t en i n November wer e

10 at t r i but ed on t he check t o payabl e f or t he J anuar y 1st r ent ?


12 THE COURT: Al l r i ght . And si mi l ar l y - -

13 Q. So i s i t f ai r t o say t hat 18 of t hese $2, 000 checks wer e

14 wr i t t en t o pay f or expenses t hat occur r ed pr i or t o t he gr ant ?

15 A. Yes.

16 Q. That woul d come t o a t ot al of $36, 000?

17 A. Ri ght .

18 Q. Corr ect ?

19 A. Yes.

20 Q. Okay. Fr i nge benef i t s wer e budgeted f or a $110, 000, i s

21 t hat cor r ect , accor di ng t o t he budget ?

22 A. Fri nge benef i t s - -

23 Q. Do you have t he budget , ma' am?

24 A. Fri nge benef i t s wer e f or - -

25 MR. KWOK: Your Honor , may I hand up t he budget t o t he


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1 wi t ness?

2 THE COURT: You may.

3 MR. KWOK: Gover nment exhi bi t 22.

4 ( Handi ng)

5 Q. Have you exami ned exhi bi t 22, ma' am?

6 A. For year one?

7 Q. Year one.

8 A. $110, 000 i s t he budget f or f r i nge benef i t s.

9 Q. And how much f r i nge benef i t s were expended by t he busi ness?

10 A. I don' t have t he, t he year one amount expended. The year

11 one - - wher e i s t he - -

12 Q. You want t o l ook - -

13 A. Wher e i s t he - -

14 Q. You want t o l ook at exhi bi t 62?

15 A. Less t han $110, 000.

16 Q. Par don? You want t o l ook at exhi bi t - - maybe t hi s wi l l

17 hel p you, exhi bi t 62. There i s an appendi x number t hr ee.

18 A. Exhi bi t 62.

19 Q. Page 16. Does t hat , i n any way, r ef r esh your r ecol l ect i on

20 as t o t he amount of f r i nge benef i t s t hat wer e cl ai med by CASI ?

21 A. That doesn' t .

22 Q. Do you have anyt hi ng t hat , t hat shows you t he amount that

23 you di sal l owed, or suggest ed shoul d be di sal l owed?

24 THE COURT: What ar e you r ef er r i ng t o now?

25 MR. RUBI NSTEI N: There i s an appendi x i n exhi bi t 62,


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1 government exhi bi t 62, your Honor , appendi x number t hree,

2 page - -

3 THE COURT: What page?

4 MR. RUBI NSTEI N: Page 16.

5 MR. KWOK: Your Honor - -

6 THE COURT: Yes.

7 MR. KWOK: I t hi nk def ense counsel i s di r ect i ng t he

8 wi t ness' at t ent i on t o t he def endant ' s r esponse, not t o her

9 wor k.

10 MR. RUBI NSTEI N: No. I ' m di r ect i ng her at t ent i on t o

11 t he l ef t si de of t he page. As you l ook at i t , t her e i s - -

12 THE COURT: I ' m j ust t r yi ng t o f i nd t he page, so I can

13 det ermi ne what you' r e r ef er r i ng t o. Page 16, appendi x t hr ee?

14 MR. RUBI NSTEI N: Appendi x t hree, yes, your Honor .


16 Q. Al l r i ght . As you l ook at t he page, t he l ef t - hand por t i on

17 are your number s, corr ect , Ms. Ri l ey?

18 A. Okay. The l ef t - hand number s.

19 Q. As you l ook at t he page?

20 A. Yes.

21 Q. Wher e i t says, di sal l ows, t hen t her e i s a col umn?

22 A. Yes, quest i oned i s a col umn. Yes, okay.

23 Q. And t he ot her si de says answer . That was what was

24 submi t t ed by Mr . Spi t z i n hi s pr esent at i on, cor r ect ?

25 A. Corr ect .


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1 THE COURT: So t he posi t i on - - t hi s i s a r esponse t o

2 t he dr af t audi t r epor t , as Mr . Kwok sai d, r i ght , Mr - -

3 MR. RUBI NSTEI N: No. These ar e her number s - - yes.

4 But t hose - - yes.

5 THE COURT: As contai ned i n t he r esponse - -


7 THE COURT: - - t o t he dr af t audi t r eport .

8 MR. RUBI NSTEI N: Fai r enough, J udge.

9 THE COURT: What ?


11 Q. Di d you check t hat Mr . Spi t z had pr operl y cal cul ated and

12 i dent i f i ed what you had di sal l owed i n t hi s audi t ?

13 A. I ' m sor r y, r epeat t hat ?

14 Q. I n other words, t he di sal l owances are pur port ed by

15 Mr . Spi t z t o be what you di sal l owed as t he OI G audi t or f r om

16 CASI ?

17 A. Corr ect .

18 Q. And di d you check t hese f i gures so t hat coul d you determi ne

19 t hat t hose wer e, i n f act , your di sal l owances?

20 A. Corr ect .

21 Q. So t hese - - so i t ' s f ai r t o say t hat t he number s depi ct ed

22 on t he l ef t - hand si de of t he page, as you l ook at i t , marked

23 di sal l owance, are i n f act your number s?

24 A. Corr ect .

25 Q. And by t he way, Mr . Spi t z submi t t ed an 80 page r esponse,


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1 di d he not ?

2 A. The r esponse? Dr . Kar r on, wi t h t he ai d of Mr . Spi t z. I - -

3 what , t hi s 38 page r esponse?

4 Q. Wel l , di d you - - was i t an 80 page r esponse?

5 THE COURT: I t says 16 of 38, Mr - -

6 MR. RUBI NSTEI N: I know what i t says, J udge. I ' m j ust

7 aski ng a quest i on.

8 THE COURT: Was i t i n f act more t han t hi s 38 pages,

9 Ms. Ri l ey?

10 THE WI TNESS: I - -


12 THE WI TNESS: I t hi nk t hi s i s al l .

13 THE COURT: Do you know? Yes or no, or you don' t

14 know?

15 THE WI TNESS: I don' t know.

16 THE COURT: Okay.

17 THE WI TNESS: Thi s i s al l I know.

18 Q. Your t otal quest i onabl e i t ems was $547, 000, corr ect ? You

19 want t o l ook at 3502B, t op of t he second page and see i f t hat

20 r ef r eshes your r ecol l ect i on?

21 A. 547?

22 Q. What ?

23 A. Yeah 547.

24 Q. 547, 000 was quest i onabl e, corr ect ?

25 A. Corr ect .


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1 Q. And you di dn' t change one dol l ar af t er you r evi ewed

2 Mr . Spi t z' s r esponse, cor r ect?

3 A. Corr ect .

4 Q. And i t ' s a f act t hat - -

5 THE COURT: Who gave t he r esponse; do you know who

6 wr ot e i t ?

7 THE WI TNESS: The r esponse says t hat Dr . Karr on, wi t h

8 t he ai d of , wr ot e i t .

9 THE COURT: Dr . Karr on, wi t h t he ai d of Mr . Spi t z?

10 THE WI TNESS: On page, on page one of 38.

11 THE COURT: Al l r i ght . Thank you.

12 Q. So wer e t her e addi t i onal r ebut t al s, ot her t han t hi s

13 appendi x? Were t her e ot her document s submi t t ed besi des t hi s

14 r ebut t al t hat we have her e i n appendi x t hr ee?

15 A. Af t er t he f i nal r epor t ? Af t er t he r epor t was - - af t er t he

16 dr af t ?

17 Q. No, when you r ecei ved - -

18 A. I don' t r ecal l any, any ot her .

19 Q. Wel l , do you r ecal l t el l i ng Mr . Kwok on Apr i l 22nd, 2008

20 t hat an 80 page r ebut t al was submi t t ed?


22 Q. Let me show i t t o you. You met wi t h Mr . Kwok on Apr i l - -

23 I ' m sorr y - - Apr i l 22nd, corr ect ?

24 A. I don' t r ecal l t he dat e.

25 Q. I show you what ' s - - when you met wi t h Mr . Kwok, di d he


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1 t ake notes when he spoke t o you?

2 A. I don' t r ecal l i f he t ook not es.

3 Q. Al l r i ght . I ' m goi ng t o show you what ' s been mar ked as

4 3502B and i dent i f i ed as def endant ' s exhi bi t I f or

5 i dent i f i cat i on and ask you t o l ook at t he second page wher e I

6 have a number t en on t he r i ght - hand si de and see i f t hat

7 r ef r eshes your recol l ect i on as t o t el l i ng Mr . Kwok t hat an 80

8 page r ebut t al was submi t t ed?

9 A. I don' t recal l sayi ng an 80 page r ebut t al was submi t t ed.

10 Q. Okay. Now, do you have any cal cul at i on f or t he, f or t he

11 t otal amount of f r i nge benef i t s t hat were expended?

12 A. Tot al amount - - yes.

13 Q. And what was t he t ot al amount - -

14 A. For - -

15 Q. - - of f r i nge benef i t s t hat wer e expended by CASI ?

16 MR. KWOK: Your Honor , i f I coul d di r ect t he wi t ness'

17 at t ent i on t o government exhi bi t 114 and 115.

18 ( Handi ng)

19 THE COURT: I t ' s 10 af t er 11: 00. Whi l e you' r e

20 conf er r i ng, l et ' s have t he j ur y t ake a br eak whi l e you conf er

21 and get your exami nat i on t ogether .

22 ( J ur y exi t s t he cour t r oom)


24

25


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2 THE COURT: Al l r i ght , are you near t he end?

3 MR. RUBI NSTEI N: Unf or t unat el y not , J udge, because I

4 can' t get yes or no answers , and - -

5 THE COURT: You can get yes or no answer s.

6 MR. RUBI NSTEI N: Al l r i ght .

7 THE COURT: Al l you have t o do i s ask f or t hem, you' l l

8 have t hem.

9 MR. RUBI NSTEI N: I ' l l do t hat .

10 THE COURT: Al l r i ght , t hank you.

11 ( Recess)

12 THE COURT: Al l r i ght , pl ease be seat ed. Let ' s br i ng

13 i n t he j ur y.


15 THE COURT: Pl ease be seat ed.

16 Al l r i ght , Mr . Rubi nst ei n.


18 Q. I had asked you bef ore t he br eak i f you have a t otal of t he

19 amount of f r i nge benef i t s t hat wer e pai d by CASI ?

20 THE COURT: I n any year ?

21 Q. I f t he year , f i r st year i n r ent . We' ve est abl i shed t hat

22 t hey were aut hor i zed t o pay 110, 000, and t he government gave

23 you exhi bi t s one - - gover nment Exhi bi t 114 and 115 f or you t o

24 r ef r esh your r ecol l ect i on?

25 A. Corr ect . And so t hey have an al l ocat i on f or 163, 460,


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1 accordi ng t o t he checks.

2 Q. Pardon?

3 A. 160 - - 100 and - - i n t he checks wr i t t en - -

4 THE COURT: What ar e you l ooki ng at ?

5 THE WI TNESS: At t he gover nment 110.

6 Q. Looki ng at government 110?

7 THE COURT: Wher e i n gover nment 110? What ?

8 THE WI TNESS: Oh, I ' m sor r y. On page t en of 44. Page

9 t en, page t en.

10 THE COURT: 10 of 44?


12 Q. What was t hat page agai n, pl ease?

13 THE COURT: Page t en of 44, Mr . Rubi nst ei n.


15 THE COURT: What i s 110 t aken f r om, Ms. Ri l ey; whose

16 r ecords are you basi ng t hi s on?

17 THE WI TNESS: On t he - - t hi s document i s t he one we

18 di d f r om t he cancel l ed checks af t er l ast year - - af t er t he

19 audi t .

20 Q. So i t ' s pages 110 and 111, i s t hat - - I ' m sor r y, pages t en

21 and 11 of Exhi bi t 110, i s t hat what you' r e r ef er r i ng t o?

22 THE COURT: She sai d page t en of 44.

23 Q. 10 of 44?

24 A. 10 of 44, yes.

25 Q. What i s your t otal amount of f r i nge benef i t s t hat was


( 212) 805- 0300



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1 cl ai med?

2 A. 158 - - I don' t have t hat f or a year .

3 THE COURT: Do you have i t f or - -

4 THE WI TNESS: The cl ai ms, t he cl ai med amount i s

5 158, 576.

6 THE COURT: For what per i od?

7 THE WI TNESS: Oct ober 1, 2001 t hrough J une 27t h, 2003.

8 Q. So t hat ' s f or a year and ni ne mont hs?

9 A. Yes.

10 Q. You do not have t he - - t hey wer e ent i t l ed t o 110, 000 i n

11 f r i nge benef i t s t he f i r st year , cor r ect?

12 A. Corr ect .

13 Q. And t hey were ent i t l ed, I t hi nk, t o 127, 000 t he second

14 year ; am I cor r ect or i ncor r ect about t hat ?

15 A. Corr ect .

16 Q. So t hat t hat woul d be over 230, 000 f or f r i nge benef i t s, and

17 t hat i ncl udes t he payr ol l t axes, r i ght ?

18 A. Corr ect .

19 Q. How much of t hi s f i gur e was t he payrol l t axes; i s t hat on

20 t he bot t om of page 11?

21 A. How much of whi ch f i gur e?

22 Q. Of t he, your 163, 460. 37 i s your t ot al f r i nge benef i t

23 expenses, act ual expenses, f or 21 mont hs of t he gr ant , cor r ect ?

24 A. Can you r epeat t hat ?

25 Q. The f r i nge benef i t s f or - - f r om Oct ober 1st , 2001 t o J une


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1 30t h, 2003, ar e r ef l ect ed i n t hi s number t hat says, wher e i t

2 says f r i nge benef i t s on t he l ef t , i f you go across i n bol d

3 pr i nt , you go across t hat l i ne, i t says 129 det ai l ed r ecor ds?

4 MR. KWOK: What document , your Honor ?

5 THE COURT: Yeah, l et ' s - - we don' t know what you' r e

6 r eadi ng f r om.

7 MR. RUBI NSTEI N: I ' m sorr y, J udge.

8 THE COURT: You don' t i dent i f y i t .

9 MR. RUBI NSTEI N: I ' m sorr y. I t hought we wer e al l - -

10 THE COURT: I t makes no sense f or t he r ecord, Mr .

11 Rubi nst ei n.

12 MR. RUBI NSTEI N: I ' m sor r y, J udge. I t hought we wer e

13 al l on page t en of 44 of Exhi bi t 110. That ' s what we' r e

14 t al ki ng about .

15 THE COURT: She' s t est i f i ed t o what i t was. Let ' s go

16 on, 160. I t shows t her e, f or t he r ecor d, 163, 460. I s t hat

17 cor r ect , Ms. Ri l ey?


19 Q. For a 21 mont h per i od, st ar t i ng - -

20 THE COURT: We' ve cover ed t hat .

21 Q. Okay. How much of t hat was wi t hhol di ng, payr ol l

22 wi t hhol di ng t axes t hat ar e consi der ed f r i nge benef i t s?

23 A. 135, 000.

24 THE COURT: How much?

25 THE WI TNESS: One - - i t ' s - - t he empl oyment t ax amount


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1 i ncl udes t he, t he empl oyer ' s shar e, but i t ' s 135, 000 f or the

2 t otal empl oyment t ax.


4 THE WI TNESS: 135, 000 on page 11 of 44.

5 THE COURT: Page 11 of 44?

6 THE WI TNESS: Of 110.


8 Q. And so t he non- payrol l t ax f r i nge benef i t s equal what?

9 A. Appr oxi mat el y 35 - - approxi matel y $30, 000.

10 Q. Now, and you di sal l owed - - your r ecommendat i on was a

11 di sal l owance of $68, 884, cor r ect ?

12 A. Corr ect .

13 Q. Because when you di sal l owed sal ary, you di sal l owed what t he

14 per cent age of payrol l t ax woul d be appl i cabl e t o t hat sal ary,

15 cor r ect ?

16 THE COURT: I s t hat t he r eason you di d i t ?

17 THE WI TNESS: Repeat t hat , pl ease?

18 Q. Yeah. When you di sal l owed sal ary, you know, l i ke Gur f ei n' s

19 25, 000, Dr . Kar r on' s 40 some odd t housand, you t hen di sal l owed

20 as al l owabl e expense t he payr ol l t ax t hat was pai d on t hat

21 $71, 000?

22 A. Corr ect .

23 Q. So t hat i f t he sal ar y was i n f act al l owabl e, t hen t he

24 f r i nge benef i t woul d' ve been al l owabl e, cor r ect ?

25 A. Corr ect .


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1 Q. And di d you di sal l ow - - wel l , I ' l l wi t hdr aw t hat .

2 Now, you al so had a cat egory of meal s, cor r ect ?

3 A. Corr ect .

4 Q. And you had di sal l owance i n t hat cat egory?

5 A. Corr ect .

6 Q. You showed us an ent i r e schedul e r el ated t o meal s, cor r ect ?

7 A. Corr ect .

8 Q. And di d you ascer t ai n whet her or not - - wi t hdr awn. I t ' s

9 appr opr i at e, i f you have a busi ness meet i ng, t o - - meal s are

10 deduct i bl e, are t hey not?

11 MR. KWOK: Obj ect i on. Deduct i bl e?

12 Q. Wel l , al l owabl e. I ' m sorr y. I s t hat corr ect ?

13 A. For what ?

14 Q. Ar e meal s an al l owabl e expense i f - -

15 A. Appr oved by t he budget .

16 Q. - - i f di scussi ng CASI busi ness at a cof f ee shop?

17 THE COURT: Al l owabl e grant expense?

18 THE WI TNESS: No, not f or di scussi ng CASI .


20 Q. Pardon?

21 THE COURT: Why not ?

22 THE WI TNESS: No. The meal s - - t he meal s woul d not

23 be - - meal s woul d depend.

24 Q. Pardon?

25 A. Meal s - - they woul d - - f or di scussi ng CASI busi ness, t hey


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1 woul d not be al l owabl e.

2 Q. On what t heory?

3 A. Some - -

4 Q. What audi t i ng t heor y i s t her e t hat says t hat a busi ness

5 meet i ng conducted i n a r est aur ant or i n a boar d r oom where f ood

6 i s suppl i ed, i s not an al l owabl e expense?

7 A. They - - i t woul d - - t he some - - some may be al l owabl e f or - -

8 f or NI ST expense.

9 THE COURT: What , I ' m sor r y?

10 A. To di scuss NI ST. But f or meet i ngs t o di scuss CASI busi ness

11 expense - -

12 Q. Wel l , t he onl y busi ness CASI had was NI ST, corr ect ?

13 A. Al l of t he aspect s of a NI ST ar e not - - t he

14 commer ci al i zat i on of the end pr oduct of t he market i ng st r ategy

15 of t he pr oduct you' r e cr eat i ng i s not an al l owabl e expense,

16 even t hough i t ' s r equi r ed by NI ST f or t he gr ant .

17 Q. Di d you i nqui r e as t o what any of t hese meal deduct i ons

18 r el ated t o?

19 A. I , I ' ve - - yes.

20 Q. And di d you ascer t ai n t hat i n t he comput er at CASI wi t h t he

21 scanned i nvoi ces and checks, wer e al so scanned r ecei pt s f r om

22 each one of t hese i t ems t hat you say ar e - - t hat you l i st i n

23 t he meal s cat egory?

24 A. I don' t recal l i f I have a speci f i c sampl e f r om t he f ood

25 cat egory.


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1 Q. I s i t f ai r t o say, ma' am, t hat you j ust t ook t he Amer i can

2 Express st at ement , mont hl y st at ement s and j ust wr ot e down every

3 meal t hat was char ged, or cof f ee or Chi nese f ood or what ever,

4 r i ght ?

5 A. For t he r evi ew of t he end anal ysi s of checks, yes.

6 Q. The anal ysi s of t he Amer i can Expr ess, t her e were no checks

7 wr i t t en f or t hese, quot e, meal s, cor r ect ?

8 A. Corr ect .

9 Q. They were pai d f or by t he Amer i can Expr ess card, r i ght ?

10 A. Corr ect .

11 Q. Now, di d you ever r equest any backup t o show what - - who

12 was present when t hese f unds wer e expended?


14 Q. Wel l , l et me show you what ' s been marked f or i dent i f i cat i on

15 as def endant ' s - - I show you what ' s been marked as def endant ' s

16 exhi bi t CCC.

17 MR. RUBI NSTEI N: Here, your Honor .

18 ( Handi ng)



21

22

23

24

25


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2 Q. I show you what ' s been marked f or i dent i f i cat i on as CCC.

3 Ar e you f ami l i ar wi t h t hat document , ma' am?


5 Q. Wel l , why don' t you t ake a l ook at Government Exhi bi t 110,

6 page 24 of 37. I n t he mi ddl e of t he page you have a Moonst r uck

7 East r est aur ant on 4/ 5/ 03, r i ght ?

8 A. Corr ect .

9 Q. I n t he amount of $50, r i ght ?

10 A. Yes.

11 Q. And t hat ' s i n t he amount of $50, cor r ect ?


13 Q. CCC - -

14 A. Yes.

15 Q. I s t hat t he r ecei pt f or the same dat e and t he same amount

16 - -

17 A. Yes.

18 Q. - - t hat you have i n your exhi bi t ?

19 A. Yes.

20 Q. And you never saw t hi s bef ore, cor r ect ?

21 A. CCC?

22 Q. Yes.

23 A. I don' t r ecal l seei ng t hi s bef or e.

24 Q. Di d you ever ask f or any document at i on of any of t he meal s

25 t hat you di sal l owed?


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2 Q. Page 2, do you see what ' s r ef l ect ed on page 2 of t hat

3 document , CCC?

4 A. Oh, yes.

5 MR. RUBI NSTEI N: We of f er CCC i nto evi dence, your

6 Honor .


8 THE COURT: CCC i s admi t t ed i nt o evi dence.

9 ( Def endant ' s Exhi bi t CCC r ecei ved i n evi dence)

10 Q. Do you see on t he second page i t says di nner meet i ng,

11 cor r ect ?

12 A. Yes.

13 Q. And do you r ecogni ze Dr . Karr on' s si gnatur e?

14 A. Yes.

15 Q. And do you r ecogni ze - - t her e are t wo other si gnatur es

16 t her e, cor r ect ?

17 A. Corr ect .

18 Q. Do you r ecogni ze ei t her of t hose si gnatur es?

19 A. I - - no.

20 THE COURT: She doesn' t r ecogni ze any of t he

21 si gnat ur es.

22 MR. RUBI NSTEI N: I j ust want t o exhi bi t t hat t o t he

23 j ur y, your Honor . That ' s t he r ear por t i on of t he r ecei pt .

24 Q. Bot t om l i ne says di nner meet i ng. Above t hat i s Dr .

25 Kar r on' s si gnat ur e, r i ght , Ms. Ri l ey?


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1 A. Corr ect .

2 Q. And above t hat are t wo other i t ems, corr ect ?

3 A. Corr ect .

4 Q. That you cannot i dent i f y?

5 A. Corr ect .

6 THE COURT: Let ' s move i t al ong, Mr . Rubi nst ei n. We

7 don' t need al l t hose ext ended conf erences at t he t abl e t here.

8 Let ' s pl ease move i t on. We don' t need t hose ext ended wai t s

9 and ext ended t i me. We are l osi ng a l ot of t i me by t hat .

10 Q. Di d you i n f act go wi t h Dr . Kar r on and Bob Benedi ct t o

11 Chr i st i ne' s on J une 25, 2003?

12 A. Yes.

13 THE COURT: What ? To wher e?

14 MR. RUBI NSTEI N: C- R- I - S- T- I - N- A- ' - s.

15 Q. Di d you go t her e?

16 A. I went t o a r est aur ant wi t h t hem.

17 THE COURT: You di d go t o a r est aurant wi t h t hem?

18 THE WI TNESS: Um- hum.

19 Q. And di d you - - t he audi t i s deduct i bl e, cor r ect ? The cost

20 of t he audi t i s deduct i bl e.

21 THE COURT: The cost of whose audi t ?

22 Q. The payment f or an audi t or , Ms. Hayes i n t hi s case, i s a

23 deduct i bl e expense, al l owabl e expense, under the NI ST gr ant ,

24 cor r ect ?

25 THE COURT: The cost f or Ms. Hayes audi t i ng t he books


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1 i s a deduct i bl e expense, t hat ' s t r ue. I s t hat cor r ect ?

2 THE WI TNESS: Yes, t he cost of t he audi t i s a

3 deduct i bl e expense.

4 Q. And i n f act when you went t o l unch - - r at her , when you went

5 out wi t h Dr . Kar r on and Ms. Hayes, Dr . Kar r on pai d f or t hat ,

6 di d he not ?

7 A. Yes, I guess.

8 Q. I show you what ' s been mar ked - -

9 THE COURT: Di d he pay f or i t ?

10 THE WI TNESS: I guess. I guess.

11 THE COURT: You don' t know.


13 THE COURT: Al l r i ght . Then answer t hat .

14 Q. Let me show you what ' s been mar ked as Def endant ' s N f or

15 i dent i f i cat i on and ask you t o l ook at t he f r ont .

16 THE COURT: Pl ease, l et ' s move i t al ong.

17 MR. RUBI NSTEI N: Wel l , I ' m wai t i ng f or an answer f r om

18 t he wi t ness.

19 THE COURT: What have you shown her ?

20 MR. RUBI NSTEI N: I have shown her Exhi bi t N, as i n

21 Nancy. My wi f e' s name.

22 THE COURT: Let me see i t . I haven' t got t en a copy.

23 MR. RUBI NSTEI N: I ' m t r yi ng t o pr i nt i t out now,

24 J udge.

25 THE COURT: What date i s i t ?


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1 MR. RUBI NSTEI N: The date i s J une 25, 2003. I t ' s

2 r ef l ected on Government Exhi bi t 110, page 23 of 37.


4 Q. Ma' am, by l ooki ng at Exhi bi t N, does t hat r ef r esh your

5 r ecol l ecti on?

6 A. Exhi bi t N?

7 Q. Yes.

8 A. Yes.

9 Q. And, as a mat t er of f act , do you r ecal l t hat you pai d your

10 own shar e?

11 A. Yes.

12 Q. And so $17 even was t he share f or Ms. Hayes, Mr . Benedi ct

13 and Dr . Kar r on, cor r ect ?

14 A. Thi s i s showi ng t hat Ms. Hayes pai d separat el y al so.

15 Q. Ms. Hayes pai d separatel y, OK. And t hat was dur i ng, whi l e

16 you were t her e t o do your f i el d work.

17 A. Yes.

18 Q. Ri ght?

19 A. Yes.

20 Q. You deduct ed - - you di sal l owed t hat meal , t hat $17 on your

21 schedul e, r i ght ?

22 THE COURT: J ust yes or no.

23 A. Yes.

24 Q. Di d you f eel t hat goi ng and di scussi ng - - you di scussed

25 audi t busi ness, di d you not ?


( 212) 805- 0300



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1 A. Yes, we di d.

2 Q. Do you f eel t hat t hat meet i ng, di scussi ng audi t busi ness,

3 i s not an al l owabl e expense under NI ST?

4 A. No.

5 Q. No what ? I t ' s not al l owabl e?

6 A. I t woul d be al l owabl e.

7 THE COURT: I t what ?

8 THE WI TNESS: Woul d be al l owabl e.

9 THE COURT: I t woul d be al l owabl e.

10 THE WI TNESS: I f t her e was - - yes, i t woul d be

11 al l owabl e.

12 MR. RUBI NSTEI N: We of f er Def endant ' s N i nto evi dence.

13 MR. KWOK: Obj ect i on, your Honor . The wi t ness has not

14 aut hent i cat ed t he document .

15 THE COURT: Let me see t he document .

16 Q. Di d you si gn t he back of t hat , ma' am? I s t hat your

17 si gnat ur e on t he back?

18 THE COURT: I s t hat your si gnat ur e, or i s t hat someone

19 el se' s wr i t i ng?

20 THE WI TNESS: I t ' s not my si gnat ure.

21 Q. But that i s t he expense t hat you have on your sheet , do you

22 not ? That i s f or the same dat e, t he same amount , t he same

23 r est aur ant that you have l i st ed i n Exhi bi t 110, cor r ect ?

24 THE COURT: I am al l owi ng i t i nt o evi dence. Let ' s go

25 ahead.


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1 MR. RUBI NSTEI N: OK.

2 THE COURT: What page i s t hi s on?

3 MR. RUBI NSTEI N: Page 23 of 37, your Honor , near t he

4 t op quart er of t he page.


6 Q. Now, i n addi t i on t o t hat , you have on page 22, number 37 of

7 Exhi bi t 110, you have expenses f or a r est aur ant Benj ami n' s. Do

8 you see t hat? I t says 530 i s t he number on t he l ef t - hand si de.

9 THE COURT: What page?

10 MR. RUBI NSTEI N: Page 22 of 37.

11 THE COURT: Go ahead. What date ar e you r ef er r i ng t o?

12 Q. Do you know what t he f i r st vi si t t o Benj ami n' s was at

13 November 5, 2002?

14 THE COURT: Di d you ever ask about November 5, 2002?


16 Q. Wel l , ar e you aware - - di d you ever speak t o - - wi t hdr awn.

17 You spoke t o Ms. Li de and Ms. Or t hwei n of NI ST ATP,

18 cor r ect ?

19 A. Yes.

20 Q. Ar e you aware as you si t t her e now whet her or not t hey went

21 wi t h Dr . Kar r on t o Benj ami n' s r est aur ant when t hey came f or

22 t hei r s i t e vi s i t at CASI ?

23 A. I don' t know what t hey di d.

24 Q. Now, you got t hese expenses f r om t he Amer i can Express car d,

25 cor r ect ?


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1 A. Corr ect .

2 Q. And were t her e meal s charged ever y day t o t he Amer i can

3 Expr ess card?

4 A. No.

5 Q. As a mat t er of f act , Dr . Kar r on had anot her cr edi t car d,

6 di d he not ?

7 A. A per sonal - - yes.

8 Q. He had a Mast ercard, r i ght ?

9 A. Yes.

10 Q. Have you ever r evi ewed hi s Mast ercar d r ecords?

11 A. No.

12 Q. Ei t her i n your Government Exhi bi t 110 or Government Exhi bi t

13 111 you have a Mast ercar d schedul e, do you not ?

14 A. I have an Amer i can Express schedul e.

15 Q. No Mast er car d.

16 A. No.

17 Q. And you never saw a Mast er car d schedul e?

18 A. I don' t r ecal l seei ng a Mast er car d schedul e.

19 THE COURT: Let ' s move t hi s al ong, Mr . Rubi nst ei n.


21 Q. And t he equi pment - - sorr y, suppl i es, di d you di sal l ow

22 suppl i es?

23 A. Yes.

24 Q. And how much suppl i es di d you di sal l ow?

25 A. Suppl i es, 24, 000.


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1 THE COURT: Whi ch year are we t al ki ng about ?

2 MR. RUBI NSTEI N: The f i r st year of t he gr ant .

3 A. Oh, t he f i r st year ? That ' s t ot al gr ant .

4 THE COURT: I t ' s t he t otal gr ant .

5 MR. RUBI NSTEI N: Pardon?

6 THE COURT: You have t o move t hi s al ong. I mean you

7 are put t i ng me t o sl eep, Mr . Rubi nst ei n. Let ' s move i t al ong.

8 Al l r i ght ? I ' m onl y goi ng t o al l ow you anot her 15 or 20

9 mi nut es. That ' s i t .

10 MR. RUBI NSTEI N: I agr ee wi t h you, J udge.

11 THE COURT: Let ' s go.

12 Q. You di sal l owed ut i l i t i es, di d you not ?

13 A. Di sal l owed ut i l i t i es?

14 Q. Yes.

15 A. Yes.

16 Q. Ar e you aware t hat ther e were di scussi ons bet ween Dr .

17 Karr on and NI ST as t o whether t o al l ow a port i on of t he

18 ut i l i t i es?

19 A. Yes.

20 THE COURT: When? Al l r i ght .

21 Q. And i s i t f ai r t o say t hat you det er mi ned t hat a por t i on of

22 t he ut i l i t i es shoul d be al l owabl e?

23 MR. KWOK: Your Honor , i s i t an audi t , or i s i t an

24 anal ysi s based on t he bank st at ement s? I don' t know what

25 Mr . Rubi nst ei n i s aski ng.


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1 THE COURT: The audi t ? Ar e you addressi ng t he audi t ,

2 Mr . Rubi nst ei n?


4 THE COURT: I n t he audi t , di d you say t hat some - - di d

5 you det er mi ne t hat a por t i on of t he ut i l i t i es shoul d be

6 al l owabl e? Yes or no? Yes or no?

7 THE WI TNESS: No.


9 Q. And what about educat i on?

10 A. No.

11 Q. You di sal l owed al l t he educat i on, r i ght ?

12 A. Ri ght .

13 Q. Even i f t he educat i on was r el ated t o t he NI ST ATP pr oj ect ,

14 cor r ect ?

15 THE COURT: Were you advi sed t hat any of i t r el at ed t o

16 t he pr oj ect ?




20 THE COURT: What por t i on?

21 THE WI TNESS: One of t he cost s was f or a st udent .

22 Ther e were t wo educat i onal cost s, and I t hi nk one was f or a

23 st udent .

24 THE COURT: One was f or a st udent .

25 THE WI TNESS: The Ph. D st udent , r i ght ? A st udent


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1 empl oyee t hat Dr . Kar r on had.

2 Q. And anot her one was J oan Hayes goi ng t o a semi nar t o l ear n

3 about audi t i ng f or f eder al gr ant s, cor r ect ?

4 A. Corr ect .

5 Q. You di sal l owed both of t hem, corr ect ?

6 A. Corr ect .

7 Q. Now, you coul d per mi t f r i nge benef i t s ei t her under t he

8 budget i t em or i t coul d be char geabl e t o ot her s, r i ght ?

9 A. Corr ect .

10 Q. By t he way, t her e was some t al k about medi cal bi l l s. Do

11 you know when Dr . Karr on had surger y?

12 THE COURT: Di d you know he had surger y at al l ?

13 THE WI TNESS: I knew he had sur ger y. I don' t know

14 when.

15 Q. I sn' t i t a f act that i t was af t er t he gr ant was suspended?

16 A. I don' t know when.

17 THE COURT: The surgery was or t hat she l ear ned of i t ?

18 Q. Di d you see any expense, medi cal expense, f or surger y f or

19 Dr . Kar r on?

20 MR. KWOK: When?

21 Q. When you di d your audi t .

22 A. There were medi cal expenses f or Dr . Kar r on.

23 Q. Di d you see anyt hi ng f or sur gery?

24 A. I don' t r ecal l seei ng anyt hi ng speci f i cal l y, what

25 ever yt hi ng was.


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1 Q. Now t hi s audi t t hat NI ST r equi r es, r equi r es an i ndependent

2 audi t or , cor r ect?

3 A. Corr ect .

4 Q. And t hey had Ms. Hayes, corr ect ?

5 A. Corr ect .

6 Q. I n f act you were aware t hat Ms. Hayes di d Dr . Kar r on' s

7 per sonal t ax r etur ns, wer e you not?

8 A. I don' t recal l i f I knew t hat at the t i me or not .

9 Q. Woul d t hat di squal i f y her as an i ndependent audi t or?


11 THE COURT: Di d you al l ow t he expense f or her as an

12 i ndependent audi t or?


14 THE COURT: You di d. Obj ect i on sust ai ned.

15 Q. My quest i on i s she cr eat ed r ecor ds t hat she gave t o you,

16 cor r ect ?

17 A. Corr ect .

18 Q. Now, i s i t f ai r t o say t hat t he per son t hat does t he

19 audi t - - i n t hi s case Ms. Hayes - - i s supposed t o be an

20 i ndependent audi t or?

21 A. Cor r ect . Cor r ect .

22 Q. Because she mi ght have some i nt erest i f she wasn' t

23 i ndependent , corr ect ?

24 A. Corr ect .

25 Q. I n t hi s case were you aware whether or not she was i nvol ved


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1 i n management deci si ons?


3 THE WI TNESS: I ' m not sure how much her i nvol vement

4 was.


6 THE WI TNESS: I don' t - - I don' t know.

7 THE COURT: You di dn' t know t hat .

8 THE WI TNESS: I don' t know about her .

9 Q. Ar e you f ami l i ar wi t h Qui ck Books, t he syst em Qui ck Books?

10 A. Yes.

11 Q. Were you f ami l i ar wi t h t hem i n 2003 when you di d t hi s

12 audi t ?

13 A. No.

14 THE COURT: You weren' t f ami l i ar wi t h t he - -

15 THE WI TNESS: I ' m not f ami l i ar - -

16 THE COURT: - - wi t h t hat syst em of bookkeepi ng?

17 THE WI TNESS: No, I ' m not f ami l i ar . I wasn' t f ami l i ar

18 wi t h t hat syst emof bookkeepi ng.

19 Q. Now, you t ol d t hi s j ury - - how much money of Dr . Kar r on was

20 at t r i but abl e as a cof und by Dr . Kar r on?


22 THE COURT: Sor r y. Coul d I hear t he quest i on.

23 Q. Yeah. How much money do you say was cont r i buted by Dr .

24 Kar r on as hi s cont r i but i on t o t he NI ST ATP pr oj ect ?

25 A. Not hi ng.


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1 Q. Do you r ecal l t est i f yi ng her e and sayi ng i t was ver y smal l ,

2 bet ween $1200 and $1500?

3 THE COURT: That ' s not my r ecol l ect i on of t he quest i on

4 and t est i mony as t o hi s cont r i but i on.

5 Q. Wel l , you sai d i t was mi scel l aneous. Do you r ecal l t hat ?

6 A. Yes.

7 Q. And do you have a schedul e of what you say were

8 mi scel l aneous cont r i but i ons?

9 THE COURT: I s t he answer yes?

10 THE WI TNESS: Yes. I ' m sor r y. Yes.

11 THE COURT: Do you want her t o l ook i t up?

12 MR. RUBI NSTEI N: No, your Honor , I want t o move al ong.

13 Q. How much was i n t he bank i n t he begi nni ng of Oct ober , i n

14 t he CASI accounts i n t he begi nni ng of Oct ober 2001?

15 A. I don' t r ecal l . I s t her e a bank st at ement ?

16 Q. Wel l , l et me show you what ' s been marked as Def endant ' s O.

17 THE COURT: Def endant ' s O f or i dent i f i cat i on.

18 MR. RUBI NSTEI N: I ' m sor r y. I wi l l wi t hdr aw t hat .

19 Q. Do you know what sunk cost s ar e?

20 A. What ?

21 Q. Do you know what sunk cost s means?

22 A. No.

23 THE COURT: Sunk cost s?

24 MR. RUBI NSTEI N: S- U- N- K cost s.

25 A. No.


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1 Q. Do you know whet her or not pur chases made f or t he grant ,

2 t hat wer e made pr i or t o t he gr ant ' s st ar t of Oct ober 1, 2001,

3 wer e pai d af t er Oct ober 1, 2001, whet her or not t hose are

4 proper expendi t ur es under t he gr ant ?

5 A. Gr ant s pai d pr i or t o t he gr ant awar d need wr i t t en

6 per mi ssi on.

7 THE COURT: Sorr y? Wi t ness.

8 A. Payment s made pr i or t o t he grant award need wr i t t en

9 appr oval by NI ST. They need wr i t t en appr oval . I s t hat what

10 we' r e aski ng? Cost s t hat were bef ore t he award? ATP cost s

11 t hat wer e made pr i or t o t he awar d, i s t hat al l owabl e i n t he

12 gr ant ? I f t he gr ant award document al l ows i t .

13 THE COURT: I f you have wr i t t en approval .

14 THE WI TNESS: Yes, i f you have wr i t t en approval .

15 Q. So, i f you pur chased somet hi ng, i f CASI pur chased t he Qui ck

16 Books sof t ware i n Sept ember of 2001 and i t was del i ver ed af t er

17 t he gr ant - - af t er Oct ober 1, 2001, and pai d f or i n November of

18 2001, woul d t hat be an al l owabl e or unal l owabl e i t em?

19 A. I f i t was used f or t he ATP gr ant , i t was par t of t he gr ant

20 cost i t coul d be al l owabl e.

21 THE COURT: I t coul d be. On what condi t i on?

22 THE WI TNESS: I f i t ' s speci f i cal l y f or t he ATP

23 pr oj ect , t he sof t war e f or a speci f i c account i ng - - i f t he

24 busi ness account i ng i s al so done on t hat syst em i t woul d not

25 necessar i l y be al l owabl e, because t he busi ness shoul d al r eady


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1 have i t i n pl ace as par t of t hei r busi ness.

2 Q. Di d you ent er t ai n how much cost s were i ncur r ed pr i or t o t he

3 Oct ober 2001 by CASI on behal f of t he ATP NI ST grant ?

4 A. Speci f i cal l y I used t he books pr ovi ded, and whatever t hey

5 r equest ed was consi der ed. So i f i t ' s a cost that was pr i or t o,

6 i t woul d have been consi der ed i f i t was on t he books, because I

7 t hi nk t hey went t o t he check t o cash basi s, so t hey woul d have

8 pai d - -

9 THE COURT: Sorr y. What di d you say?

10 THE WI TNESS: I t hi nk Mr . Spi t z had moved t o t he cash

11 basi s, so i f i t was i ncl uded as payment i t woul d have been one

12 of the t hi ngs cl ai med, probabl y under equi pment or suppl i es,

13 and woul d be over budget , so i t woul d be over budget .

14 Q. How about t he cost shar e provi ded by donat i ng equi pment , i s

15 t hat per mi ssi bl e?

16 A. I f i t ' s speci f i cal l y NI ST ATP pr oj ect cost s, yes.

17 Q. Di d you make any al l owance - - wi t hdr awn.

18 Were you aware whet her or not Dr . Kar r on had comput er s

19 and equi pment pr i or t o t he ATP grant ?

20 A. Yes.

21 Q. Di d you make any al l owance t o gi ve hi m cr edi t f or hi s shar e

22 of t he cont r i but i on of about $36, 000 i n t he f i r st year of t he

23 grant t hat he was supposed t o cont r i but e?

24 A. I asked f or t hei r cost share. No one put f or t h t hat as an

25 answer .


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1 Q. No one ment i oned t hat?

2 A. Ri ght , no one came up - - no one provi ded document at i on t o

3 show t hat .

4 THE COURT: And no one sai d so?

5 THE WI TNESS: Ri ght . No one of f ered t hat . I don' t

6 r ecal l anyone of f er i ng t hat as a t hi ng f or mat ch, but usual l y

7 you woul d have what ever you woul d go i nto a busi ness , t hat

8 woul d not be what they consi dered t hei r cost shar e or t hei r

9 mat ch share.

10 Q. I sn' t i t a f act t hat Mr . Spi t z gave you backup t o show when

11 t he equi pment was purchased?

12 A. Most - - I was under t he i mpr essi on t hat the equi pment had

13 been r epl aced by t he equi pment pur chased wi t h t hi s award.

14 Q. And who gave you t hat i mpressi on?

15 A. Vari ous peopl e t hat I spoke t o, r evi ewi ng t he i nvoi ces of

16 t he equi pment cost .

17 Q. Now, i t ' s your t est i mony t hat Dr . Kar r on di d not cont r i but e

18 any f unds t o t he - -

19 THE COURT: You' ve got about f i ve mi nut es.

20 Q. I show you t hat Dr . Karr on cont r i but ed nothi ng, no

21 f i nanci al f unds t o t he gr ant . I s t hat your t est i mony?

22 A. Corr ect .

23 Q. You r evi ewed t he checks, Dr . Karr on' s personal checks?

24 A. Corr ect .

25 Q. And I show you what ' s been marked f or i dent i f i cat i on as


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1 Def endant ' s FFF and ask you do you r ecogni ze what ' s cont ai ned

2 i n t hat document ?

3 A. Checks.

4 Q. Pardon?

5 A. They' r e checks.

6 Q. Ar e t hose checks of Dr . Kar r on' s on account endi ng 1665?

7 A. OK.

8 Q. Do you r ecogni ze t hose checks?

9 THE COURT: FFF.

10 Q. FFF?

11 A. Yes.

12 MR. RUBI NSTEI N: We of f er t hem i n evi dence, your

13 Honor .

14 THE COURT: FFF ar e admi t t ed i n evi dence.


16 ( Def endant ' s Exhi bi t FFF r ecei ved i n evi dence)

17 Q. Now, I show you what ' s i n evi dence. Thi s i s copi es of a

18 number of checks wi t h t he f r ont s and t he backs. Now, do you

19 see t hat exhi bi t , ma' am?

20 THE COURT: Thi s i s par t of FFF?


22 A. Yes.

23 Q. Do you see what dat e t hat i s?

24 A. 10/ 11/ 2001.

25 Q. And who i s t he payee?


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1 A. Comput er Ai ded Sur ger y.

2 Q. And i s t here a memo on t here?

3 A. Emergency l oan t o t he Comput er Ai ded Sur ger y.

4 Q. So, t hat ' s $2, 000 t hat was - - and Comput er Ai ded Sur gery,

5 I nc i s t he account t hat NI ST expenses were bei ng made out of ,

6 r i ght ?


8 A. Yes.

9 Q. NI ST expenses were bei ng pai d at t hat t i me out of t hi s

10 account .

11 A. Yes.

12 Q. And i n f act t hi s i s pr i or t o t he t i me t hat any NI ST moni es

13 wer e t r ansf er r ed t o Dr . Kar r on.

14 A. Yes.

15 THE COURT: To what account ?

16 MR. RUBI NSTEI N: Any account .

17 THE COURT: Thi s i s pr i or t o t he t i me t hat any money

18 was pai d t o t hat account?

19 MR. RUBI NSTEI N: Cor r ect . I t hi nk t he f i r st t i me was

20 Oct ober 25, i f I ' m not mi st aken.

21 Q. Now, I show you t hi s check marked 1052 as par t of Exhi bi t

22 FFF. See i f you r ecogni ze t hat check.

23 A. Yes.

24 Q. And t hat i s al so a check made t o Comput er Ai ded Sur ger y

25 I nc. i n t he amount of $1, 000, cor r ect ?


( 212) 805- 0300



791


1 A. Corr ect .

2 Q. And i t says t he memo i s emergency l oan t o cor por at i on.

3 Ri ght ?

4 A. Ri ght .

5 Q. And agai n t hat ' s t he cor por at i on t hat ' s payi ng NI ST bi l l s,

6 r i ght ?

7 A. At t hi s t i me - - when di d t he ATP account come i nt o

8 exi st ence?

9 THE COURT: I can' t hear you.

10 THE WI TNESS: I t may have been - -

11 Q. And on August 12, 2002 Dr . Karr on' s per sonal check number

12 1121 was payabl e t o CASI , Comput er Ai ded Sur gery, I nc. ?

13 A. Yes.

14 Q. The memo i s l oan t o t he company?

15 A. Yes.

16 Q. So he i s l oani ng hi s personal money t o t he company, r i ght ?

17 A. Yes.

18 Q. And how much i s t hat check f or ?

19 A. $20, 000.

20 Q. Do you have any r ecor d i n al l of your recor ds of any of

21 t hese checks so f ar?

22 A. Yes. Yes.

23 Q. As cont r i but i ons of Dr . Karr on?

24 A. No, no.

25 THE COURT: You have r ecor ds of t he checks?


( 212) 805- 0300



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2 THE COURT: Wher e?

3 THE WI TNESS: They' r e - - t hey' r e both r ecords

4 actual l y.

5 MR. KWOK: Your Honor , may we di r ect t he wi t ness t o a

6 part i cul ar page of Government Exhi bi t 110?

7 THE COURT: Yes.

8 MR. KWOK: Gover nment Exhi bi t 110, page 38 of 44.

9 Q. So, i s i t f ai r to say i n r evi ewi ng your recor d t hat you

10 have a t ot al of $37, 000 at t r i but abl e t o cont r i but i ons made by

11 Dr . Kar r on, i s t hat r i ght ?

12 A. I consi dered t hem l oan r epayment t o t he $129, 000 t hat he

13 had t aken f r om t he NI ST ATP account .

14 Q. Pardon?

15 THE COURT: Repeat your answer . You speak ver y

16 qui ckl y, and you j ust r at t l e i t of f . Al l r i ght ?

17 A. OK. I at t r i buted t he $37, 000 payment s as l oan r epayment s

18 t o t he $129, 850 t hat Dr . Kar r on had t aken as l oans f r om t he

19 NI ST ATP grant .

20 Q. Ti me out . Dr . Karr on t ook $75, 000 l oan i n Oct ober or ear l y

21 November 2001, af t er he got $150, 000 f r om NI ST ATP, cor r ect ?

22 A. Corr ect .

23 Q. You di d your anal ysi s when?

24 A. Whi ch anal ysi s?

25 Q. When di d you do your anal ysi s?


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1 A. I - -

2 Q. When di d you make t hat det ermi nat i on t hat t hese were

3 r epayment of a l oan?

4 A. I ni t i al l y back - -

5 Q. I n J une of ' 03?

6 A. December of ' 03.

7 Q. December of ' 03?

8 A. Or J une of ' 03.

9 THE COURT: Wel l , wai t a mi nut e. She hasn' t f i ni shed.

10 A. Wai t . What ' s t he - -

11 THE COURT: What ' s t he r est of your answer?

12 THE WI TNESS: J une of ' 03.

13 THE COURT: Par don?

14 THE WI TNESS: J une of 2003.

15 THE COURT: J une of 2003.

16 Q. I sn' t i t a f act , ma' am, t hat i n August and Sept ember of

17 2002 Dr . Karr on r epai d t hat money out of hi s sal ary i n f act ?

18 A. The r epayment s of t he sal ary were part of expendi t ur es t hat

19 wer e al so di sal l owed. I t depends on whi ch - -

20 Repeat your quest i on.

21 Q. I n August of ' 02 di d you see an ent r y on August 2, 2002 of

22 $61, 918. 07 as sal ary t o Dr . Karr on?

23 THE COURT: What are you r ef err i ng t o, Mr . Rubi nst ei n?

24 I s i t an exhi bi t i n evi dence? What i s i t ?

25 Q. Di d you cal cul ate at any t i me t he moni es r ecei ved as sal ary


( 212) 805- 0300



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1 i n a schedul e, sal ar i es r ecei ved by Dr . Kar r on?

2 THE COURT: I don' t under st and t he quest i on.

3 MR. RUBI NSTEI N: He r ecei ved payment .

4 THE COURT: I j ust want t o hear t he quest i on phrased

5 so t hat i t ' s under st andabl e.

6 MR. RUBI NSTEI N: The quest i on i s di d t hi s wi t ness

7 pr epare a schedul e showi ng t he sal ary checks of Dr . Kar r on f r om

8 Oct ober 1, 2001 unt i l Sept ember 30, 2002, t he f i r st year of t he

9 gr ant ?

10 THE COURT: What t i me ar e you aski ng?

11 MR. RUBI NSTEI N: Dur i ng t hat year , t he f i r st year of

12 t he gr ant .

13 THE COURT: Dur i ng t he year - - Oct ober 1, 2002.

14 MR. RUBI NSTEI N: 1, Oct ober 1, 2001.

15 THE COURT: 2001 t o Sept ember 30, 2002, di d you

16 pr epare a schedul e? I s t hat your quest i on?


18 THE COURT: Of hi s sal ary f or t hat year?

19 MR. RUBI NSTEI N: Ri ght .

20 THE COURT: Were you assi gned t o t he audi t i n t hat

21 per i od of t i me?

22 THE WI TNESS: I di d t he audi t st ar t i ng J une of 2003.

23 THE COURT: So, you coul dn' t have done anyt hi ng dur i ng

24 t hat f i rst f i scal year , i s t hat r i ght ?

25 THE WI TNESS: Ri ght , yes.


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1 THE COURT: You di dn' t prepare any schedul es dur i ng

2 t he f i rst f i scal year .


4 THE COURT: Do you want t o r ef r ame your quest i on,

5 Mr . Rubi nst ei n?

6 Q. Do you know what a schedul e i s, ma' am?


8 THE COURT: Obj ect i on sust ai ned. Fi ve more mi nut es.

9 Fi ve mor e mi nut es, t hat ' s i t .

10 MR. RUBI NSTEI N: J udge, i t ' s not f ai r .

11 THE COURT: Fi ve mi nutes.

12 MR. RUBI NSTEI N: I ' m not get t i ng answers .

13 THE COURT: You' r e get t i ng answers; you' r e not aski ng

14 quest i ons. You' r e dawdl i ng around t her e i n t he back of t he

15 cour t r oom.

16 MR. RUBI NSTEI N: I am not .

17 THE COURT: And you' r e not aski ng quest i ons. Now ask

18 quest i ons and do i t qui ckl y.

19 Q. How many checks di d Dr . Kar r on r ecei ve i n t he f i r st year of

20 t he gr ant f or sal ar y?


22 Q. Do you have any not es or not at i ons?

23 A. I have i t i n t hi s document I pr epar ed i n 2004. I don' t

24 have - -

25 Q. You have a f i gur e i n Gover nment Exhi bi t 114 and 115.


( 212) 805- 0300



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1 That ' s t he backup f or t hat?

2 A. Thi s document i s t he backup f or the 114 and 115, and i n t he

3 f i r st year of t he gr ant - -

4 THE COURT: And you ar e l ooki ng now at Exhi bi t 110?


6 THE COURT: Al l r i ght . Wher e i n 110? Can we poi nt t o

7 a page where hi s sal ary i s l i st ed? Can t he government poi nt me

8 t o a page? Let ' s move t hi s on.

9 THE WI TNESS: Payr ol l i s on page 39 of 44.

10 THE COURT: Page 39 - -

11 THE WI TNESS: Of 44.

12 THE COURT: Thank you ver y much.

13 Q. And how much di d Dr . Kar r on - - how much was he pai d i n t hat

14 year , t he f i r st year of the gr ant ?

15 A. I t shows net sal ary of $35, 000.

16 MR. KWOK: Your Honor , I t hi nk t her e i s a conf usi on of

17 t he dat e. I t hi nk t he wi t ness i s l ooki ng at t he dat abase f or

18 year t wo. I t hi nk Mr . Rubi nst ei n i s aski ng i nf or mat i on about

19 year one. Oh, I ' m sor r y, I t ake t hat back. I t ake t hat back.

20 Q. So you show $35, 000. I s t hat net or gr oss pai d t hat Dr .

21 Karr on r ecei ved?

22 A. Net .

23 Q. That ' s af t er you deduct ed 45, 000 as di sal l owed? I s t hat

24 what you' r e sayi ng?

25 A. He al so r ecei ved $129, 000 t hat he cal l ed l oans.


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1 Q. Di dn' t he have a sal ary of $14, 000 a mont h?

2 A. I don' t know.

3 Q. Ar e you aware of t he f act that on Sept ember 2 - - sor r y - -

4 August 2, 2002 Dr . Karr on, t here was an ent r y on t he books of

5 CASI showi ng payment t o Dr . Kar r on of $61, 000 and change?

6 A. For ?

7 Q. Sal ary.

8 A. But - -

9 MR. KWOK: What page, your Honor ?

10 THE COURT: Yes.

11 MR. KWOK: What exhi bi t ?

12 THE COURT: You' r e r ef err i ng us t o, Ms. Ri l ey, t o page

13 38 of 49, and t he t op of t he page you have l oan and bot t om of

14 t he page you have l oan r epai d.


16 THE COURT: And on t he next page i t says payr ol l . So

17 basi cal l y t he checks - - t hen you have payr ol l on t he next page.

18 THE WI TNESS: Speci f i cal l y i dent i f i ed as payr ol l on

19 t he checks when I l ooked at t hem i n 2004 and 5.

20 THE COURT: Accordi ng t o your anal ysi s of t he checks,

21 t he onl y ones t hat were made f or payr ol l are t he ones on page

22 39 of 44?


24 THE COURT: And t he ot hers.

25 Q. Let me show you t hese exhi bi t s.


( 212) 805- 0300



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1 THE COURT: Wel l , l ook, j ust l et me cl ear t hi s up. We

2 heard about t he $75, 000 l oan i n Oct ober . On what basi s di d you

3 det ermi ne t hat t he ot her amounts were l oans by Dr . Kar r on?

4 Based on t he ent r i es of t he check or what ?

5 THE WI TNESS: I t ' s noted i n t he check memo, some of

6 t hem f r om t hei r check r egi st er s or gener al l edger s.

7 THE COURT: Sor r y.

8 THE WI TNESS: From t hei r r ecor ds, f r om t hei r check

9 r egi st er s or t hei r l edger s.

10 THE COURT: Fr om t hei r l edgers?

11 THE WI TNESS: Fr om t he l edgers or check r egi st ers

12 provi ded by CASI t o me.

13 Q. Let me show you t hi s document , Def endant ' s Exhi bi t P f or

14 i dent i f i cat i on. I s t hi s t he document that was pr ovi ded t o you

15 as a r egi st er by CASI ?


17 Q. I sn' t i t a f act on t he r ecor ds of CASI t her e was an ent r y

18 on August 2, 2002 f or a payment of sal ary of $61, 000 and change

19 t o Dr . Karr on?

20 MR. KWOK: Obj ect i on. The wi t ness says she doesn' t

21 r ecal l .

22 THE COURT: I don' t know what she saw because I wasn' t

23 pr ovi ded wi t h a copy of i t . Can I have a copy?

24 I ' m goi ng t o sust ai n t he obj ect i on.

25 Al l r i ght .


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1 MR. RUBI NSTEI N: I of f er i n evi dence, your Honor , as

2 P- 1, 2, 3, 4, 5, 6.

3 THE COURT: What ?

4 MR. RUBI NSTEI N: Checks, P- 1 t hrough P6.

5 THE COURT: As what Exhi bi t ?

6 MR. RUBI NSTEI N: I sai d i t ' s P- 1 t hr ough P- 6.

7 THE COURT: Oh, Def endant ' s Exhi bi t s P- 1 f or

8 i dent i f i cat i on t hr ough P- 6 f or i dent i f i cat i on.

9 Q. I show you t hese checks and ask you i f you r ecogni ze t hese

10 checks , ma' am.

11 A. Ar e t hose - - yes.

12 Q. And are t hose - -

13 MR. RUBI NSTEI N: We of f er t hem i nto evi dence, your

14 Honor .


16 THE COURT: Def endant ' s P- 1 t hrough P- 6 admi t t ed i n

17 evi dence.

18 ( Def endant ' s Exhi bi t s P- 1 t hr ough P- 6 r ecei ved i n

19 evi dence)

20 Q. Do you know of any addi t i onal checks t hat were gi ven t o

21 doct or - - wi t hdr awn. Those checks have a memo as t o payr ol l

22 per i ods, cor r ect ?

23 A. Corr ect .

24 Q. And t hey are payr ol l checks payabl e t o Dr . Karr on, cor r ect ?

25 A. Corr ect .


( 212) 805- 0300



800


1 Q. And t hey st ar t on May 11, 2002, corr ect ?

2 A. Corr ect .

3 Q. And i s i t f ai r t o say t hat on a $175, 000 sal ar y, Dr . Kar r on

4 woul d be pai d approxi mat el y $14, 000 a mont h gross?

5 A. Corr ect .

6 Q. And so i f he borr owed $75, 000 i n Oct ober , wi t hi n f i ve

7 mont hs he basi cal l y woul d pay t hat back, corr ect ?

8 THE COURT: Answer , pl ease.

9 Q. 14 t i mes f i ve i s 70, cor r ect ?

10 A. Yes.

11 Q. And Oct ober , November , December , J anuar y, Februar y, by t he

12 end of Febr uary he woul d have basi cal l y pai d back t he 75, 000,

13 cor r ect ?

14 A. For t he gr oss, cor r ect .

15 Q. And i n May he got a net check f or $5, 019. 84, r i ght ?

16 A. Corr ect .

17 Q. For a pay per i od Apr i l 1, ' 02 t o Apr i l 30, ' 02, cor r ect ?

18 A. Corr ect .

19 Q. And t hen - -

20 THE COURT: Let me see. How much i s t hat check?

21 MR. RUBI NSTEI N: $5, 019. 84.

22 I n J une he get s a check, memo pay per i od i t says

23 3/ 1/ 02 t o 5/ 31/ 02, i n t he amount of $5, 002. 25.

24 I n J ul y he r ecei ves a check f or t he payr ol l per i od of

25 December 1, 2001 t o December 31, 2001, and t hat net amount of


( 212) 805- 0300



801


1 t hat check i s $9, 288. 07.

2 Al so i n J ul y, on J ul y 5 he r ecei ves a check, t he

3 paycheck f or t he pay per i od November 1, 2001 t o November 30,

4 2001, i n t he amount of $4, 756. 38. Corr ect ?

5 A. Corr ect .

6 Q. And t he t hi r d check on t he same day f or the payrol l Oct ober

7 1, 2001 t o Oct ober 31, 2001 pay per i od, he r ecei ved a check i n

8 t he amount of $5, 502. 01, corr ect ?

9 A. Yes.

10 Q. And t hen he r ecei ved a check on August 2, 2002 f or pay

11 per i od J ul y 1, ' 02 t o J ul y 31, ' 02, i n t he amount of $5, 675. 03,

12 cor r ect ?

13 THE COURT: Ar e t hose checks i ncl uded i n your

14 schedul e?


16 THE COURT: On page 39 of 44?


18 Q. And where was t he r est - - i f you pay t axes on t hose checks,

19 how much woul d have been t he gross appr oxi mat el y?


21 THE COURT: I don' t t hi nk she shoul d have t o - -

22 Q. Wel l , what happened t o t he r est of the $175, 000? Di d he

23 r ecei ve any addi t i onal moni es other t han t he 34, 35, 000 t hat

24 are r ef l ect ed i n t hose checks?

25 A. Wi t hhol di ngs woul d have been pai d t hrough t he company f or


( 212) 805- 0300



802


1 t hose checks.

2 Q. Woul d t he wi t hhol di ngs be equal t o t he amount of the

3 checks?

4 A. No.

5 Q. Even i f t hey wer e equal , you onl y have 70, 000. We' r e st i l l

6 mi ssi ng 105, 000, r i ght ?

7 A. Yes.

8 Q. Di d you gi ve hi m any credi t f or t hat mi ssi ng sal ar y t hat he

9 never got ?

10 A. He got t he l oans. He st i l l had more l oans.

11 Q. Loans f or what ?

12 A. Whatever he wi t hdr ew t he money f or .

13 Q. You don' t know, r i ght ?


15 Q. The onl y one we know about i s t he $75, 000.

16 THE COURT: Ar e t he l oans r ef l ect ed on t he books?

17 THE WI TNESS: Yes. Wel l , t hey say l oans. They don' t

18 say what t hey' r e f or .

19 THE COURT: Or dr aws?

20 THE WI TNESS: The l oans say l oans.

21 Q. Show me some l oans ot her t han t he $75, 000 l oan. Not i n

22 your books. Show me. Show me a check.

23 MR. KWOK: Obj ect i on, your Honor .

24 THE COURT: Al l she has i s t he books.

25 MR. RUBI NSTEI N: Wel l , I want t he backup.


( 212) 805- 0300



803


1 MR. KWOK: I t ' s i n f r ont of her i n t hat box. Does

2 Mr . Rubi nst ei n want t he wi t ness t o di g t hr ough t hat box of

3 checks?

4 MR. RUBI NSTEI N: Wel l , she di d yest erday.

5 THE COURT: Ar e t hey r eadi l y avai l abl e?

6 Q. Ma' am, i n your schedul e of Exhi bi t 114 - -

7 THE COURT: She i s l ooki ng. You asked f or her t o show

8 you.

9 MR. RUBI NSTEI N: I ' m goi ng t o wi t hdr aw t hat .

10 THE COURT: You asked f or her t o show you t hose

11 checks.

12 MR. RUBI NSTEI N: I have a qui cker way. She can do

13 t hat on t he gover nment ' s t i me. Al l r i ght ?

14 Q. I n your schedul e Government Exhi bi t 114 you have sal ary t o

15 Dr . Kar r on, cor r ect ?

16 A. Yes.

17 Q. Budget ed 175, r i ght ?

18 A. Corr ect .

19 Q. CASI spent $200, 488 on hi s sal ary. How di d you get t hat

20 number ?

21 A. By i ncl udi ng t he wi t hhol di ngs por t i on of t he f r i nge

22 benef i t s as par t of t he sal ar y of what he r ecei ved. I t

23 i ncl udes t he sal ar y, i t i ncl udes t he di f f er ence bet ween t he

24 l oans he r ecei ved and t he l oans he pai d, and i t i ncl udes t he

25 f r i nge benef i t s.


( 212) 805- 0300



804


1 Q. You have f r i nge benef i t s l i st ed separ atel y, do you not ,

2 ma' am?

3 A. I j ust have t he i t ems t hat ar e - -

4 Q. Do you see 59, 500 i n f r i nge benef i t s?

5 THE COURT: She di dn' t f i ni sh her answer ,


7 MR. RUBI NSTEI N: She j ust sai d t hat t he f r i nge

8 benef i t s ar e i ncl uded, and I submi t , your Honor , t hat on t hat

9 same schedul e - -


11 MR. RUBI NSTEI N: - - t he f r i nge benef i t s ar e l i st ed

12 separat el y as $59, 000.


14 MR. RUBI NSTEI N: $59, 500.

15 THE COURT: You' r e not a wi t ness .

16 MR. RUBI NSTEI N: I ' m aski ng i f t hat ' s on her schedul e,

17 her exhi bi t , t he Gover nment ' s Exhi bi t 114.

18 THE COURT: Fi nd out what you' r e deal i ng wi t h and t he

19 exhi bi t and I wi l l al l ow your quest i on, but I ' m not al l owi ng

20 t hat . And your t i me i s up. So t hi s i s t he l ast quest i on.

21 MR. RUBI NSTEI N: J udge, I ' d ask you t o gi ve me t en

22 mor e mi nut es.

23 THE COURT: Al l r i ght , t en mi nut es, and t hat i s al l .


25 Q. You have on Exhi bi t 114 an expense f or Dr . Karr on' s f r i nge


( 212) 805- 0300



805


1 benef i t s?

2 A. Yes.

3 Q. And i s t hat expense $59, 500? Do you see i t on t he

4 schedul e? I onl y have t en mi nut es.

5 THE COURT: J ust gi ve her a mi nut e.

6 MR. RUBI NSTEI N: I t ' s her schedul e, J udge.

7 THE COURT: You' r e l ooki ng not on t he schedul e. You

8 ar e l ooki ng at a char t . Exhi bi t 114 i s t he pi e char t .

9 MR. RUBI NSTEI N: On t he bot t om i s a breakdown of

10 number s, your Honor .

11 THE COURT: I agr ee wi t h t hat , but l et ' s r ef er t o t he

12 document as t he pi e char t , 114. Now what ' s your quest i on?

13 Q. My quest i on i s: You j ust t est i f i ed t hat t he $200, 000 t hat

14 CASI spent on Dr . Kar r on f or sal ary t hat you have her e was

15 because of f r i nge benef i t s, cor r ect ?


17 THE COURT: I don' t t hi nk t hat i s her t est i mony.

18 Obj ect i on sust ai ned.

19 Q. What was t he ext r a 25, 488, what i s t hat at t r i but abl e t o?

20 THE COURT: The 200, 488?

21 MR. RUBI NSTEI N: Wel l , i t ' s an addi t i onal $25, 488. I

22 wi l l t ake si l ence as an answer and move on.

23 THE COURT: Wel l , she has t o l ook. You' r e aski ng her

24 t o t ake her pi e chart and t hen gi ve you t he backup f or t he pi e

25 chart , and she has t o l ook t o t he exhi bi t s t o show where t hat


( 212) 805- 0300



806


1 i s .

2 THE WI TNESS: For year one, whi ch number ar e you

3 aski ng about ? 25?

4 THE COURT: Are you aski ng about t he 25, 000 or t he

5 200, 488?

6 MR. RUBI NSTEI N: I am aski ng her how she expl ai ns t hat

7 Dr . Kar r on, where t he addi t i onal - - of her number of 200, 000,

8 wi t h t he addi t i onal 165, 000 t hat she at t r i but es t o Dr . Kar r on,

9 wher e i s t hat?

10 THE COURT: 165, 000?

11 MR. RUBI NSTEI N: Yeah. We onl y have checks of about

12 35, 000.

13 THE COURT: Look, st op a second. What f i gur e i s

14 165, 000, Mr . Rubi nst ei n, that you' r e r ef er r i ng t o?

15 Q. The checks P- 1 t hr ough P- 6 t otal about $35, 000, corr ect ,

16 ma' am?

17 A. Corr ect .

18 Q. You have a f i gur e CASI spent f or Dr . Kar r on wi t hout f r i nge

19 benef i t s of $200, 488?

20 A. Corr ect .

21 Q. You subt r act 35, 000 f r om 200, 000, you come up wi t h r oughl y

22 $165, 000, r i ght ? Yes or no?

23 A. Corr ect .

24 Q. Do you have any documentat i on t o show $165, 000?

25 A. Thi s char t was pr epar ed f r om t he check r egi st er . The


( 212) 805- 0300



807


1 200, 000 comes f r om t he l oan - - t he di f f er ence bet ween t he l oan,

2 t he l oan pay back and t he amount of sal ar i es t hat he r ecei ved,

3 pl us t he wi t hhol di ngs f r om appl i cabl e payr ol l , wi t hhol di ngs,

4 t hat woul d have been associ ated wi t h hi s - -

5 Q. The gr ant was suspended at your r equest , r i ght?


7 Q. At your r equest t he grant was suspended on J une 27, 2003,

8 cor r ect ?

9 A. Corr ect .

10 Q. What were t he moni es owed by CASI t o NI ST suppl i ers at t he

11 t i me t he grant was suspended?



14 Q. Di d you make any ki nd of schedul e - - t hey' r e cal l ed

15 payabl es, r i ght ? I f you owe money and you di dn' t pay your

16 suppl i er s, i s t hat what you cal l t hem?


18 THE COURT: Let her gi ve an answer bef or e you ask a

19 second quest i on.

20 Now, what was t he quest i on you were aski ng?

21 MR. RUBI NSTEI N: Di d she make any l i st of payabl es,

22 moni es owed by CASI , t o suppl i ers who suppl i ed pr oduct f or t he

23 NI ST ATP grant .

24 THE COURT: I n J ul y 2003.



( 212) 805- 0300



808


1 Q. Do you know af t er the grant was suspended whet her or not

2 Dr . Karr on i nvest ed addi t i onal money i nt o t he CASI pr oj ect , yes

3 or no?

4 A. No.

5 THE COURT: Do you know whet her he i nvest ed any money

6 i n t he CASI pr oj ect af t er t he gr ant was suspended?

7 THE WI TNESS: No.

8 THE COURT: I amended your quest i on because i t cal l ed

9 f or t wo concl usi ons, Mr . Rubi nst ei n.

10 MR. RUBI NSTEI N: Pardon, your Honor ?

11 Q. I sn' t i t a f act - - do you have any document at i on t hat woul d

12 show whether or not Dr . Kar r on cont r i buted any moni es af t er t he

13 grant was suspended - -

14 MR. KWOK: Obj ect i on, r el evance.


16 Q. Wel l , when t he grant was suspended, di d NI ST say t hat he

17 was shor t on hi s cont r i but i on?


19 Q. Was t he gr ant - - I wi l l wi t hdr aw t hat .

20 Was t he grant suspended because he was short on hi s

21 copay port i on accor di ng t o your audi t - -

22 THE COURT: I n?

23 Q. I n J une 27, 2003?

24 A. Yes.

25 Q. And i n f act were you i nf ormed t hat he cont r i but ed $60, 000


( 212) 805- 0300



809


1 i n t he begi nni ng of J ul y 2003?

2 THE COURT: You mean af t er t he audi t was compl et e?

3 MR. RUBI NSTEI N: No, af t er t he f i r st audi t , not t he

4 f i nal audi t i n December .

5 Q. I n J une 27 t he grant i s suspended, he doesn' t get anymore

6 money, r i ght?

7 A. Corr ect .

8 Q. He' s got debt s out st andi ng on behal f of NI ST, r i ght ?

9 A. Corr ect .

10 Q. To get t he gr ant rest ar t ed he i s supposed t o pay back

11 $54, 000, corr ect ?

12 A. I t hi nk i t was more t han t hat , but he was supposed t o pay

13 back an amount .

14 Q. Al l r i ght . And i s i t f ai r t o say he deposi t ed mor e t han

15 t hat amount i n t he CASI account and pai d expenses of NI ST wi t h

16 t hat money af t er t he grant was suspended?



19 A. Was he aski ng me - -

20 THE COURT: He i s aski ng you i f you know what happened

21 af t er t he grant was suspended.

22 THE WI TNESS: I know t hat some money was deposi t ed.

23 Q. Now, you t ol d us bef ore t hat af t er your audi t t her e i s an

24 appeal s pr ocess, cor r ect ?

25 A. Corr ect .


( 212) 805- 0300



810


1 Q. And t her e i s a negot i at i on on what ' s al l owabl e and

2 unal l owabl e, cor r ect ?

3 A. Corr ect .

4 Q. Cal l ed a wr ap r eport ?

5 A. I ' m not f ami l i ar wi t h t hat t er m.

6 Q. I s i t a f act - - was Dr . Kar r on or CASI ever af f or ded an

7 oppor t uni t y t o have t hi s audi t r econci l i at i on?

8 A. No.

9 THE COURT: She sai d no, and t hen t he cour t r epor t er

10 sai d no, and t hen she sai d no.

11 MR. RUBI NSTEI N: I know t hat i t ' s no. Al l r i ght ?

12 Q. So nobody r evi ewed your number s f r om t he ATP gr ant of f i ces,

13 r i ght ?

14 A. I bel i eve t hat ' s pr obabl y cor r ect . They get a copy of my

15 r eport , so I don' t know. I don' t know.

16 Q. You t ol d us t hat t hey' r e t he ones t hat shoul d have t he

17 f i nal say- so of what ' s al l owabl e and what ' s not al l owabl e i n a

18 gr ant , r i ght ?

19 A. Corr ect .

20 Q. And what happened her e i s t hat t he speci al agents j umped i n

21 on t hi s back i n 2003, r i ght ?



24 Q. And t hey made t hi s f r om a ci vi l mat t er i nt o a cr i mi nal

25 mat t er , cor r ect ?


( 212) 805- 0300



811


1 MR. KWOK: Obj ect i on. Obj ect i on.


3 Q. Wel l , i s t he audi t r esol ut i on a ci vi l pr ocedur e?

4 A. I t ' s j ust a pr ocedur e.

5 Q. Yeah, where you si t down wi t h t he gr ant of f i cer s and

6 di scuss whether or not cer t ai n expenses are al l owed or

7 al l owabl e or not?

8 A. Corr ect .

9 Q. That never happened her e, r i ght ?


11 Q. I t never happened her e?

12 THE COURT: He says t hat never happened.


14 THE COURT: You never sat down wi t h hi m?

15 THE WI TNESS: Oh - -

16 MR. RUBI NSTEI N: I s my t en mi nut es up, J udge?


18 MR. RUBI NSTEI N: I r et i r e. I ' m f i ni shed.

19 THE COURT: We wi l l t ake a l uncheon break.

20 Do you have any r edi r ect ?

21 MR. KWOK: Very br i ef l y.

22 THE COURT: I t ' s got t o be br i ef . I mean we have t o

23 move t hi s case al ong.

24 MR. KWOK: Very br i ef .

25 THE COURT: Thi s i s t er r i bl e. J ur or 3 has got her


( 212) 805- 0300



812


1 eyes awake al l t he t i me, but I keep an eye on her because she

2 l i es back i n t hat chai r .

3 Al l r i ght . The j ur y i s excused unt i l t en af t er t wo.

4 Can I get away wi t h f i ve af t er t wo? Let ' s say f i ve af t er two.


6 THE COURT: I s t her e anyt hi ng t o t ake up?


8 MR. KWOK: No, your Honor , not at t hi s t i me.

9 THE COURT: Wel l , l et ' s be back 2 o' cl ock t o t ake up

10 somet hi ng t hen.

11 MR. EVERDELL: There i s one mat t er . I not e t hat

12 def endant has i nt r oduced CCC. I t hi nk t her e al r eady i s a

13 def ense CCC i n evi dence, so I t hi nk we may have t o r ename t hat

14 DEPUTY COURT CLERK: I haven' t seen t hem.

15 THE COURT: We have t o keep t r ack of t hese t hi ngs

16 because t hi s i s a compl ex si t uat i on.

17 THE DEFENDANT: I don' t t hi nk I ' ve seen any of t he

18 def ense exhi bi t s.

19 THE COURT: You have t o mar k t hem.

20 ( Luncheon r ecess)


22

23

24

25


( 212) 805- 0300



813

866zkar4

1 A F T E R N O O N S E S S I O N

2 2: 05 p. m.

3 THE COURT: Al l r i ght , pl ease be seat ed. Let ' s br i ng

4 i n t he j ur y, and t he wi t ness.

5 MR. KWOK: Very qui ck your Honor , hopef ul l y.

6 THE COURT: I ' l l bel i eve i t when I see i t .


8 THE COURT: I t hi nk your chai r - - t hose car t s are al l

9 i n t he mi ddl e of t he j ur y pat h.


11 THE COURT: Al l r i ght , pl ease be seated.

12 Go ahead, Mr . Kwok.



15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



814

866zkar4


2 BY MR. KWOK:

3 Q. Ms. Ri l ey, you r emember on cr oss Mr . Rubi nst ei n aski ng you

4 quest i ons about meal s?

5 A. Yes.

6 Q. And he showed you r ecei pt s of every meal s t hat Dr . Kar r on

7 had wi t h ot her peopl e?

8 A. Yes.

9 Q. Ms. Ri l ey, ar e meal s a l i ne i t em i n t he CASI budget

10 submi t t ed t o NI ST f or t he gr ant ?

11 A. No.

12 Q. Ms. Ri l ey, you r emember Mr . Rubi nst ei n showi ng you checks

13 t hat Dr . Karr on wr ote t o CASI ?

14 A. Yes.

15 Q. Let ' s pul l up gover nment Exhi bi t 114.

16 Ms. Ri l ey, di d you t ake t hose checks i nt o account i n

17 your anal ysi s f or year one?

18 A. Yes.

19 Q. And st i l l , what i s t he col or r epr esent ed i n r ed t her e?

20 A. $268, 638.

21 Q. Let ' s pul l up gover nment Exhi bi t 115. I n your - -

22 THE COURT: I ' m sor r y, l et me j ust see - - t hi s i s 114?

23 MR. KWOK: 114, your Honor .

24 THE COURT: What i s t he t ot al amount f or what ?

25 MR. KWOK: Represent ed i n t he r ed.


( 212) 805- 0300



815

866zkar 4 Ri l ey - r edi r ect

1 THE COURT: The r ent ?

2 MR. KWOK: Red, not r ent .

3 THE DEPUTY CLERK: I n t he r ed, i n t he r ed.

4 MR. KWOK: Col or r ed.

5 THE COURT: Red, oh.

6 Q. Let ' s t ur n now t o gover nment Exhi bi t 115?

7 A. Okay.

8 Q. Di d you t ake t hose checks t hat Mr . Rubi nst ei n showed you

9 i nt o account i n your anal ysi s f or year t wo?

10 A. Yes.

11 Q. And st i l l what i s t he dol l ar amount repr esent ed i n t he

12 col or r ed on your chart ?

13 A. 196, 504.

14 Q. Now, Ms. Ri l ey, you r emember Mr . Rubi nst ei n al so aski ng you

15 quest i ons about cost shar e?

16 A. Yes.

17 Q. And he asked you about t he equi pment and how i t mi ght

18 r el at e t o cost shar e?

19 A. Yes.

20 Q. Let ' s pul l up gover nment exhi bi t 40A, 40A. Let ' s f ocus on

21 l i ne I .

22 Ms. Ri l ey, what i nf or mat i on i s cal l ed f or on l i ne I of

23 government exhi bi t 40A?

24 A. Cost shar e.

25 Q. And what i nf ormat i on i s r ef l ect ed - - what number i s


( 212) 805- 0300



816


1 r ef l ected on l i ne I ?

2 A. Zero.

3 Q. I f we coul d zoom out of - -

4 THE COURT: Thi s i s 40A?

5 MR. KWOK: 40A, your Honor .

6 THE COURT: And t hi s i s submi t t ed by - - t hi s i sn' t

7 your r ecor d, t hi s i s submi t t ed by CASI ?


9 Q. Who submi t t ed t hi s f orm?

10 A. Yes, CASI submi t s t hi s f or m t o us.


12 Q. Coul d we zoom i n on t he si gnatur e bl ock on t he bot t om of

13 t hat? Whose si gnatur e appear s on t he bot t om of t hat f orm?

14 A. Dr . Karr on.

15 Q. Let ' s go t o gover nment exhi bi t 41A. Let ' s zoom i nt o l i ne

16 I . Agai n, what i nf or mat i on i s cal l ed f or on l i ne I ?

17 A. Cost shar e.

18 Q. What i s t he number t her e?

19 A. Zero.

20 Q. Let ' s zoom out . Go t o t he second bl ock. What si gnatur e

21 appear s i n t he bot t om?

22 A. Dr . Kar r on' s.

23 Q. Go t o 42A. What i s t he number shown f or l i ne I i n 42A?

24 A. Zero.

25 Q. And what si gnatur e appear s on t he bot t om port i on of t hat


( 212) 805- 0300



817


1 f orm?

2 A. Dr . Kar r on.

3 Q. Go t o 43A, l i ne I ?

4 A. Zero.

5 Q. Si gnatur e bl ock, what si gnatur e appears t here?

6 A. Dr . Kar r on' s.

7 Q. Now, Ms. Ri l ey, one l ast t hi ng. Coul d you r ead t he

8 cer t i f i cat i on above t he si gnat ur e bl ock?

9 A. I cer t i f y, t o t he best of my knowl edge and bel i ef , t hat

10 t hi s r epor t i s cor r ect and compl et e and t hat al l out l ays and

11 unl i qui dat ed obl i gat i ons ar e f or t he pur poses set f or t h i n t he

12 awar d document s.

13 MR. KWOK: No f ur t her quest i ons.

14 RECROSS EXAMI NATI ON


16 Q. When you consul t ed wi t h Mr . Spi t z i n December of 2003, di d

17 he di scuss wi t h you t he meal s i ssue?


19 Q. Wel l , under t he budget , i sn' t i t a f act t hat ther e i s a

20 cat egory cal l ed "ot her s" ?

21 THE COURT: Thi s i s beyond t he scope.


23 MR. RUBI NSTEI N: I submi t i t ' s not . I t was asked

24 about meal s and whet her t here' s a l i ne i t em i n t he budget about

25 meal s.


( 212) 805- 0300



818

866zkar 4 Ri l ey - r ecr oss

1 THE COURT: That i s, t he scope of t he di r ect di d not

2 have anyt hi ng t o do wi t h meal s.


4 THE COURT: J ust go r i ght ahead.


6 THE COURT: We have gone t hr ough meal s al r eady.

7 MR. RUBI NSTEI N: I know t hat .

8 THE COURT: You are i nst r uct ed not t o go beyond t he

9 di r ect . That i s an or der of t he Cour t , t hat i s a r ul e of

10 t r i al s .

11 MR. RUBI NSTEI N: Absol utel y, J udge.

12 THE COURT: You are t o conf i ne your sel f t o t he

13 r edi r ect of t he government .

14 MR. RUBI NSTEI N: Ri ght . But I submi t , your Honor , i f

15 you l ook at t he t r anscr i pt - -


17 MR. RUBI NSTEI N: I j ust aski ng your Honor t o l ook at

18 t he t r anscri pt .

19 THE COURT: Don' t argue about i t . You have an

20 i nst r uct i on. I f you want a si debar , you can have i t .



23

24

25


( 212) 805- 0300



819



2 MR. KWOK: Your Honor , i n my r edi r ect I di dn' t ask a

3 si ngl e quest i on about t he audi t s. I si mpl y asked a quest i on

4 about whet her l i ne i t em - - wher e meal s ar e a l i ne i t em on t he

5 budget , t hat ' s al l I asked. I di dn' t go i nt o audi t s, I di dn' t

6 go t o meal s, I don' t know wher e he' s goi ng. On r ecr oss, he' s

7 goi ng t o t ake another hour i f we go t hi s way.

8 MR. RUBI NSTEI N: Wi t h t hei r di r ect s t hey shoul dn' t

9 compl ai n. Your Honor shoul d compl ai n, but not t hem.

10 Al l r i ght . They asked about meal s, and I ' m aski ng her

11 whether or not - -

12 THE COURT: They di dn' t ask meal s.

13 MR. RUBI NSTEI N: Yes, t hey di d. They sai d i s t here a

14 l i ne i t em f or meal s.

15 THE COURT: They di dn' t ask.

16 MR. RUBI NSTEI N: They di d.

17 MR. EVERDELL: That ' s al l I asked. I di d ask t hat

18 quest i on, but I j ust asked - -

19 THE COURT: Di d you, a l i ne i t em? I di dn' t hear t he

20 meal s.

21 MR. RUBI NSTEI N: So I ' m aski ng i f - -


23 MR. RUBI NSTEI N: I can go i nt o t hi s.

24 THE COURT: I ' l l al l ow i t .



( 212) 805- 0300



820



2 THE COURT: I t hought t he quest i on was al l owed wi t h

3 r espect t o Exhi bi t 140. I s t hat the exhi bi t that the quest i on

4 was asked about ? No, not 140. I ' m sor r y.

5 THE DEPUTY CLERK: 114 and 115.

6 THE COURT: 114 and 115.

7 Wi t h r espect t o 114 and 115, I wi l l al l ow i t .


9 Q. Now, t her e i s a cat egor y cal l ed ot her s, i s t her e not - -

10 A. Yes.

11 Q. - - Ms. Ri l ey?

12 A. Yes.

13 Q. And i s i t a f act that meal s coul d be cl assi f i ed under the

14 l i ne i t em cal l ed ot her s?

15 THE COURT: The quest i on i sn' t whet her i t coul d be.

16 The quest i on i s was i t .

17 A. I t was not .

18 Q. Was i t ?

19 A. I t was not .

20 Q. What was l i st ed under ot hers?

21 A. Audi t i ng ser vi ces.

22 Q. Pardon?

23 A. Audi t i ng ser vi ces.

24 Q. And what el se?

25 A. Under ot her s? That ' s al l I r ecal l .


( 212) 805- 0300



821


1 Q. Now - -

2 A. I mean f or what , f or what ? On t he budget ? The budget was

3 f or audi t i ng. Cl assi f i ed - - al l owed f or ot her s, ot her cost i n

4 t he budget was audi t cost s. That was t he onl y t hi ng t hat was

5 al l owed i n t he budget .

6 Q. Ther e i s a cat egor y cal l ed ot her s. I s t her e a cat egor y

7 cal l ed audi t s, yes or no?

8 A. No.

9 Q. I s t her e a cat egor y cal l ed other s, yes or no?

10 A. Yes.

11 Q. And can meal s be consi der ed under t he cat egory "ot hers" i f

12 i t r el at es t o t he pr oj ect?

13 THE COURT: Ther e i s a cat egory cal l ed audi t , i sn' t

14 t here?

15 THE WI TNESS: There' s ot her s, yes.

16 THE COURT: Audi t I sai d.

17 THE WI TNESS: Oh, i t was - - t hey - - no - - wel l , on

18 our , my char t may have a cost , but .

19 THE COURT: A char t has i t ?

20 THE WI TNESS: The char t has - -


22 THE WI TNESS: The char t has t hat cat egory.

23 THE COURT: Look at t he char t , l ook at t he exhi bi t I ' m

24 t al ki ng about when you answer t he quest i on. Don' t j ust dr eam

25 about somet hi ng el se.


( 212) 805- 0300



822


1 THE WI TNESS: I t hought we were t al ki ng about budget .

2 THE COURT: Not t al ki ng about budget , we' r e t al ki ng

3 about t he exhi bi t .


5 THE COURT: Al l r i ght , t he quest i on t hat was asked

6 was about t he exhi bi t 104 - - 114.

7 THE DEPUTY CLERK: 114.

8 THE COURT: 114.


10 THE COURT: And 115, t hose are t he onl y quest i ons.


12 THE COURT: Now, you got a quest i on, Mr . Rubi nst ei n?

13 MR. RUBI NSTEI N: Di d we get an answer? That ' s al l

14 I - -

15 THE COURT: Wel l , I don' t know what t he quest i on was.

16 MR. RUBI NSTEI N: Wel l , t he quest i on was coul d meal s

17 t hat ar e had r el at i ng t o NI ST ATP busi ness meet i ngs, can t hey

18 be al l owabl e under t he budget l i ne others , yes or no.

19 THE COURT: You can ask about 114 and 115, t hat ' s al l .

20 Q. Wel l , ma' am, you t est i f i ed as t o 41A, 42A and 43A, cor r ect ?

21 THE COURT: Yes, she di d.

22 A. Yes.

23 Q. Li ne I ?

24 A. Yes.

25 Q. And i s t hat what you woul d ut i l i ze t o make a deter mi nat i on


( 212) 805- 0300



823


1 t hat t he equi pment coul d not be ut i l i zed as a cof undi ng

2 cont r i but i on?


4 THE COURT: Let me get t he exhi bi t . Obj ect i on

5 sust ai ned. Thi s document was f i l ed by Dr . Karr on. She di dn' t

6 pr epar e i t . Dr . Kar r on pr epar ed i t .

7 MR. RUBI NSTEI N: I asked i f she - -


9 MR. RUBI NSTEI N: I f she ut i l i zed i t .

10 THE COURT: Al l we' r e t al ki ng about i s l i ne I , t hat ' s

11 al l .

12 MR. RUBI NSTEI N: Yeah, t hat ' s what I ' m t al ki ng about .

13 Wel l , al l r i ght , J udge.

14 THE COURT: Al l r i ght , t he document was not prepared

15 by t hi s wi t ness . The document was prepared by Dr . Kar r on,

16 apparent l y. She cannot answer what was i n t hat or shoul d or

17 shoul d not have been i n t hat l i ne.

18 MR. RUBI NSTEI N: That wasn' t t he quest i on, J udge. The

19 quest i on was, di d she r evi ew t hat to make a determi nat i on.

20 They br ought i t out on r edi r ect l i ke she had used t hat t o make

21 her determi nat i on.


23 THE COURT: I don' t - - obj ect i on sust ai ned.

24 Q. What were you asked about 41A, ma' am, by t he Pr osecut or ?



( 212) 805- 0300



824



2 MR. RUBI NSTEI N: I ' m aski ng her exact l y what she was

3 asked.

4 THE COURT: We al l heard what she was asked her .

5 MR. RUBI NSTEI N: Obj ect i on.

6 THE COURT: She doesn' t have t o r epl y t o t hat

7 quest i on, now go ahead and ask a quest i on i f you' r e goi ng t o

8 ask one or t he cross- exami nat i on, r ecr oss i s over .

9 MR. RUBI NSTEI N: Wi t h al l due r espect , J udge, coul d I

10 have a si debar ?

11 THE COURT: No, you may not at t hi s poi nt . The r ul es

12 appl y t o r ecross- exami nat i on and t hey' r e goi ng t o be st r i ct l y

13 adher ed t o, i n l i ght of t he l engt hy l engt hy cross- exami nat i on

14 we' ve al r eady heard.

15 MR. RUBI NSTEI N: I ' m goi ng t o ask f or a l i mi t i ng

16 i nst r uct i on t o t he j ur y, your Honor , on t hat comment by your

17 Cour t . I t hi nk i t was, i n al l due r espect - -

18 THE COURT: I don' t know what t o i nst r uct t hem. Al l

19 I ' m doi ng i s st at i ng t he f act s. I f you want t o have a si debar

20 on t hat , I ' l l t ake a si debar on t hat .



23

24

25


( 212) 805- 0300



825



2 THE COURT: I f I got annoyed enough so I made some

3 mi sstatement s, I ' l l cor r ect i t , but ot her wi se t he r ul e i s, and

4 you know i t ver y wel l , t hat r ecr oss cannot exceed t he r edi r ect .

5 MR. RUBI NSTEI N: I agr ee, J udge.

6 THE COURT: The scope.

7 MR. RUBI NSTEI N: I agr ee, J udge. But when t he

8 gover nment , A, br i ngs out i s t her e a l i ne i t em f or meal s and

9 she says no, I t hi nk I have a r i ght t o ask i f i t coul d come

10 under t he cat egory ot her s, t hat ' s number one. Number t wo, when

11 t he government - -

12 THE COURT: A l i ne.

13 MR. RUBI NSTEI N: - - br i ngs out - -

14 THE COURT: The i nqui r y, I bel i eve, was was t here a

15 meal s category or a meal s - - a f i gur e f or meal s i n t hose t wo

16 exhi bi t s. She sai d no.

17 MR. RUBI NSTEI N: They were asked speci f i cal l y, J udge,

18 whet her t here' s a budget l i ne f or meal s. That ' s what t hey

19 asked. I t ' s mi sl eadi ng because i t doesn' t have t o be. I t

20 coul d be under ot her s and I f eel I have a r i ght t o st r ai ght en

21 i t out .

22 THE COURT: You can br i ng - - you brought t hat out .

23 MR. KWOK: You went past t hat al r eady.

24 MR. RUBI NSTEI N: You obj ected t o i t and you sust ai ned

25 i t .


( 212) 805- 0300



826


1 THE COURT: We' r e here t o - -


3 THE COURT: - - based on your want i ng me t o cor r ect

4 somethi ng t hat I may have sai d t o t he j ur y.

5 MR. RUBI NSTEI N: Yes. The second t hat - - yeah, t hat

6 your Honor suggest ed t hat i t was i nappr opr i ate f or counsel t o

7 cross- exami ne t he l engt h he di d, par t i cul ar l y i n vi ew of t he

8 f act t hat you l i mi t ed me t o - -

9 THE COURT: I t ' s not - -

10 MR. RUBI NSTEI N: - - i n t he ki nd and I don' t t hi nk t hat

11 t he j ur y - - t hat counsel has an absol ut e r i ght t o cr oss- exami ne

12 j ust as t he gover nment has a r i ght - -

13 THE COURT: You got - -

14 MR. RUBI NSTEI N: - - t o show t he same exhi bi t s t hr ough

15 every wi t ness, show t he same exhi bi t on t he scr een. I

16 shoul dn' t be - - and as t o t he l et t er I i n 40, i n t he A' s

17 exhi bi t s i n t he 40s, i t says t ot al - -

18 THE COURT: The cost share.

19 MR. RUBI NSTEI N: Share. So t hey are suggest i ng t hat

20 because t her e' s nothi ng i n her e t hat she coul dn' t consi der i t .

21 She never consi der ed t hi s document , J udge. She never

22 consi der ed i t .

23 MR. KWOK: I never suggest ed t hat . I j ust asked her

24 what t he document says.

25 THE COURT: She - -


( 212) 805- 0300



827


1 MR. RUBI NSTEI N: What was t he pur pose of i t ?

2 THE COURT: To show t here was no di spute.

3 MR. RUBI NSTEI N: Pardon?

4 THE COURT: To show t here was no di spute about t hat

5 i t em.

6 MR. RUBI NSTEI N: But she consi dered i t .

7 MR. KWOK: Who sai d she consi dered - -

8 THE COURT: No one sai d she consi der ed i t .


10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


( 212) 805- 0300



828



2 MR. RUBI NSTEI N: Can I ask t he Cour t Repor t er i f t hat

3 was answered, t hat quest i on about t he meal s was asked answered?

4 THE COURT: No.

5 MR. RUBI NSTEI N: Coul d I ask i t agai n?

6 THE COURT: You can ask anot her quest i on, not t hat

7 one.

8 MR. RUBI NSTEI N: You sai d at t he si debar I coul d ask

9 i t .


11 MR. RUBI NSTEI N: You sai d at t he si debar , I coul d ask

12 i t .

13 THE COURT: I di dn' t say t hat .


15 Q. I n t he exhi bi t s, gover nment Exhi bi t 114 - -


17 Q. The government asked you quest i ons about 114, cor r ect ?

18 THE COURT: Yes.

19 Q. By your - -

20 THE COURT: I f i t ' s wi t hi n t he scope of t he r edi r ect .

21 We' r e not goi ng t o go over al l of 114 and st ar t al l over agai n.

22 MR. RUBI NSTEI N: I don' t i nt end t o, J udge.

23 Q. By your r ed port i on of t he ci r cl es, Dr . Kar r on owes t hr ee

24 t i mes t he amount of money t hat he r ecei ved, r i ght ; i s t hat

25 cor r ect ?


( 212) 805- 0300



829



2 THE COURT: I don' t under st and t he quest i on. You want

3 t o poi nt t o somet hi ng i n Exhi bi t 114 or 115, you can, but t he

4 quest i ons you' r e aski ng cal l f or comput at i ons.

5 Q. How much, accordi ng t o t hese r ed ci r cl es on Exhi bi t 114 and

6 115, how much does Dr . Kar r on, accordi ng t o you, owe NI ST ATP?

7 A. Accor di ng t o t he r ed ci r cl es? I t woul d be 268, 000 pl us - -

8 Q. Pardon?

9 A. - - 196.

10 Q. What ?

11 A. 268, 000 pl us 196, 000 i s how much CASI woul d owe back.

12 MR. RUBI NSTEI N: I ' m sorr y, J udge.

13 Q. Di d you say 196?

14 THE COURT: Tal ki ng about what CASI owes or what Dr .

15 Karr on owes?

16 THE WI TNESS: CASI , r i ght . Dr . Kar r on woul d be - -

17 what CASI owes.

18 Q. And what does Dr . Karr on owe?

19 THE COURT: What ' s t he r est of your quest i on? You' r e

20 aski ng what Dr . Kar r on owes, accor di ng t o Exhi bi t 114?

21 MR. RUBI NSTEI N: 115.

22 THE COURT: 115?

23 MR. RUBI NSTEI N: Ei t her one.

24 THE COURT: Whi ch one?

25 MR. RUBI NSTEI N: They' r e r el at ed. I can' t t el l .


( 212) 805- 0300



830


1 Q. I want t o know bet ween t hese t wo exhi bi t s, i f we coul d f i nd

2 out how much she cl ai ms Dr . Kar r on has i n unal l owabl e expenses?

3 A. Thi s shows t he CASI unal l owabl e expenses.

4 THE COURT: J ust Dr . Karr on, j ust Dr . Karr on, t hat ' s

5 al l you wer e asked. You' r e l ooki ng at Exhi bi t 114.

6 MR. RUBI NSTEI N: I have no f ur t her quest i ons, your

7 Honor .

8 MR. KWOK: Two quest i ons, your Honor , t wo quest i ons.

9 THE COURT: How ar e you goi ng t o be i n t he scope? Al l

10 r i ght .

11 MR. KWOK: Wi t hi n t he scope.

12 THE COURT: I t ' s got t o be wi t hi n t he scope.


14 BY MR. KWOK:

15 Q. Can you pul l up government Exhi bi t 110B, page seven?

16 THE COURT: Wai t a mi nut e. Where ar e we goi ng now?

17 I t ' s a di f f er ent exhi bi t . That ' s not wi t hi n t he scope. I t ' s

18 not al l owed.

19 MR. KWOK: Fi nal quest i on.

20 Q. Ms. Ri l ey, i n your revi ew of al l t he checks, who si gned al l

21 t hose checks f or CASI ?

22 MR. RUBI NSTEI N: Obj ect i on, your Honor , beyond t he

23 scope.


25 Al l r i ght . You' r e excused. Next wi t ness.


( 212) 805- 0300



8AKMKARS Sentence

1



2 ------------------------------x

3 UNITED STATES OF AMERICA,

4 v . 07 Cr. 541 (RPP)

5 DANIEL B. KARRON,

6 Defendant .

7 ------------------------------x

8 New York, N.Y.

October -20, 2008

9 2:30 p.m.

10

Before:11

HON. ROBERT P. PATTERSON, JR. ,12

Dis t r i c t Judge

13

14 APPEARANCES

15 MICHAEL J . GARCIA

UnitedSta te s

Attorney fo r the16 Southern Dis t r i c t of New York

STEVE KWOK

17 CHRISTIAN EVERDELL

Ass i s t an t United Sta te s Attorneys18

RUBINSTEIN & COROZZO

19 Attorneys fo r Defendant

BY: RONALD RUBINSTEIN

20

21

22

ALSO PRESENT: KIRK YAMATANI

23 RACHEL ONDRIK

24

25


(212) 805-0300



28AKMKARS Sentence

1 (Case ca l led)

2 MR. KWOK: Good af ternoon, your Honor, Steve Kwok fo r

3 th e government . With me a t counsel t ab le i s Chris Everdel l .

4

5

THE COURT: Good af ternoon, Mr. Kwok and Mr. Everdel l .

MR. RUBINSTEIN: Good af te rnoon , your Honor, Ron

6 Rubins te in fo r the defendant . I have to apologize. I thought

7 it was 2:30, th e s en te nc e. It must have been a sen io r moment.

8

9

10

11

12

13

14

15

'THE COURT: I have a presen tence r epo r t . The l a t e s t

one i s dated October 7, 2008. Has th e defendan t seen th e

presentence repor t s , in clu din g th e l a t e s t one, October 7, 2008?

MR. RUBINSTEIN: Yes, your Honor.

THE COURT: He has read them?


THE COURT: Are t he re any changes to be made?

MR. RUBINSTEIN: No. Except fo r the objec t ions we

16 have - -

17 THE COURT: Except fo r the objec t ions t ha t you have in

18 your l e t t e r of October 13 and a lso in a l e t t e r received Friday ,

19 October 17, 2008, those two l e t t e r s to th e Court?

20

21

MR. RUBINSTEIN: Th at 's c or re c t, your Honor.

THE COURT: The government s en t us a l e t t e r dated

22 October 17 a l so . I have n ot re ce iv ed any response by the

23 government to your l e t t e r of October 17.

24 MR. KWOK: The government d id no t submit a response to

25 th e l a te s t le t t e r .


(212) 805-0300



1

2

3

8AKMKARS

3

Sentence

THE COURT: You're wil l ing to proceed on tha t basis?

MR. KWOK: The government i s ready to proceed.

THE COURT: Then I guess the bes t way - - I don ' t know

4 how the pa r t i e s th ink the bes t way to proceed, but it would

5 appear to me t ha t the bes t way to proceed i s by consider ing

6 Mr. Rubins te in ' s l e t t e r of October 17, which disputes the

7 computat ion of loss contained in the presentence repor t and in

8 the government 's l e t t e r .

9 I might say tha t I ' ve had some c on ce rn s a bo ut the l o s s

10 computation. It's not c l ea r to me tha t a f a i l u r e to ge t

11 approval of expenditures from the grant of f i c e r amounts to th e

12 same as an in ten t ional misappl icat ion of funds. And to the

13 extent tha t we have here in th i s case , as I understand i t , the

14 f i na l budget as approved in December 2001, and subsequent to

15 th e appl ica t ions to amend th e budget were not approved. So th e

16 requis i t e documents t ha t th e Court has to examine of the budget

17 conta ined in - - i s it Exhib i t 12?

18 MR. KWOK: Your Honor, I th ink the l a s t approved

19 budget i s the budget a t tached to Government Exhib i t 22. It's

20 th e th i rd page - -

21 THE COURT: It's Exhibi t 12. Jus t a second. Exhibi t

22 12 i s the or ig ina l budget t ha t Dr. Karron signed. Then the re

23 i s Exhibi t 20. 21 was j u s t an adminis t ra t ive contac t change.

24 Exhib i t 22 contains th e f ina l budge t app roved - - amended budget

25 approved by the agency.


(212) 805-0300



1

8AKMKARS Sentence

So I have d i f f i c u l t i e s . For i n s t a n c e , looking a t

4

2 E x h i b i t 20 and 22 and t h e f r i n g e b e n e f i t s be ing al lowed a t 34

3 p e r c e n t o f s a l a r y , as I s e e it i n t h e documents. I have

4 d i f f i c u l t y a l s o with t h e t a b u l a t i o n c o n t a i n e d i n Government

5 E x h i b i t 114 and 115 because t h e y a r e j u s t rough c a l c u l a t i o n s ,

6 a s I s e e it. I d o n ' t know who compiled them, b u t I g a t h e r it

7 was Ms. R il e y , b u t we never went i n t o t h e d e t a i l about, for

8 i n s t a n c e , t h e s t a t e m e n t i n t h e t a b u l a t i o n t h a t Dr. Karron 's

9 s a l a r y b u d g e t e d . a t 175, v a r i o u s cash. He s p e n t 200,486,

10 a c c o r d i n g t o t h a t t a b u la t i o n . Tho se amounts, as I saw them,

11 e r r were s a l a r y . They in vo lv ed lo an s made which someone, I

12 d o n ' t know whom, I presume Ms. Riley, determined t h e e q u i v a l e n t

13 o f s a l a r y .

14 A s I a l l u d ed t o e a r l i e r , t h e f r i n g e b e n e f i t s f i g u r e i n

15 t h i s t a b u l a t i o n - - I ' m looking a t 114 says t h a t Dr. Karron

16 d i d n ' t spend $40,337 i n f r i n g e b e n e f i t s , and y e t i n t h e same

17 t a b u l a t i o n it says t h a t t h e f r i n g e b e n e f i t s were n o t allowed

18 and s p e n t $4,081. That whole s c e n a r i o .of f r i n g e b e n e f i t s i s

19 somewhat i l l u s i v e t o me.

20 The test imony, as I r e c o l l e c t it, was CASI, t h e

21 c o r p o r a t i o n , d i d no t have a formal b e n e f i t p l a n and they were

22 endeavoring t o compile one d u r i n g t h e t ime of t h e g r a n t . And

23 i n s t e a d what Dr. Karron d i d was t o pay b e n e f i t s j u s t as he was

24 accustomed t o paying them, f o r wha teve r medic al expenses t h e

25 v a r i o u s employees had f o r t h e i r wives. I have some d i f f i c u l t y


(212) 805-0300



8AKMKARS Sentence

5

1 in , 1, f inding t ha t the re was cr imina l i n t en t with respec t to

2 t he se expendi tu r es , which a re a l l on Government 114, and with

3 the manner in which t ho se over expend it ur es were computed. I t

4 seems to me t h i s i s j u s t a rough ca lcu la t ion and not something

5 t h a t a Court could re ly on in a c rim in al c ase . I'll hear from

6 you. That ' s my assessment of t h a t proof .

7 MR. EVERDELL: Your Honor, I th ink; in fac t , I know

8 114 and 115 a re based on Ms. Ri l ey ' s underly ing ana lys i s .

9

10

11

THE COURT: The spreadshee t s .

MR. EVERDELL: Yes, the spreadshee t s .

THE COURT: But it doesn ' t meet it because in her

12 spreadsheet she doesn ' t have any payment l i ke $248,000 worth of

13 sa la ry in year one.

14 MR. KWOK: Your Honor, she does. That number i s the

15 ne t t r an s fe r s .

16

17

THE COURT: I ' ve looked a t sa la ry , I th ink .

MR. KWOK: Including the tax withholding, I bel ieve i s

18 th e tes t imony t ha t she t e s t i f i ed to . When you take in to

19 account a l l the money t h a t Dr. Karron took out from CASI, minus

20 the amount t ha t he pa id back - -

21 THE COURT: That i s n ' t sa la ry . We a re ta lk in g about

22 sa la ry . I don ' t see sa la ry . There i s noth ing l i ke sa la ry in

23 those d o c ~ ~ e n t s t h a t equals 248 - - $200,488.

24 MR. KWOK: Salary i s j u s t a heading. What she meant

25 by t h i s i s money t h a t defendant took, pure money, no t in terms


(212) 805-0300



8AKMKARS Sentence

6

1 o f expendi tu re ; cash t h a t he took from CASI, whether in the

2 form of quote unquote loan o r whether in te rms - -

3 THE COURT: Show me. She has no t abu la t ion put t ing

4 114 in to c on te xt w ith her 110, Exhib i t 110.

5 MR. KWOK: I f your Honor could look a t Government

6 Exh ib i t 110.

7

8

9

10 it here .

11

12

THE COURT: I d id look a t Exh ib i t 110.

MR. ~ · K W O K : Page 38.

THE COURT: I have it here . I don ' t know t h a t I have

MR. KWOK: Page 38 o f 44.

THE COURT: I guess we wi l l have to ge t 110, because I

13 don ' t th ink I have it here , bu t I 'm fu l ly fami l i a r with it. I

14 th ink it's in Mr. Rub ins t e i n ' s submiss ion, as a m atte r of f ac t .

15 MR. KWOK: That page shows money going to th e

16 defendan t and money coming from the defendan t . So t ak ing

17 THE COURT: What page a re you r e f e r r i ng to? Maybe

18 it's in Mr. Rubinstein

19

20

21

22

23

24

25

MR. KWOK: 38 of 44.

THE COURT: He has· payro l l . Looking a t 13 of 44?

MR. KWOK: Page 38 of 44.

THE COURT: Tha t ' s l·oan and loan repay. Tha t ' s not

s a l a ry .

MR. KWOK: I f you look a t th e memo l i n e , it i s sa l a ry .

Look a t , fo r example, th e t h i rd check, per check r eg i s t e r ,


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8AKMKARS

1 sa lary advance.

Sentence

7

2

3

THE COURT: That one she t r ea ted as a loan.

MR. KWOK: These a re expressed in a spreadshee t as

4 loans, but they are a l l money going to the defendant .

5

6

THE COURT: I understand. I t ' s j u s t not sa la ry .

MR. KWOK: You can give it whatever l abe l you l ike,

7 bu t the bottom l ine i s , the defendant took from the company

8 t h i s much money which added to 188.

·9 THE COURT: I don ' t doubt t ha t ' s what your

10 c ~ l c u l a t i o n s are .

11 MR. KWOK: I f I can j u s t cor rec t a misimpression,

12 Government Exhibit 114 i s not a rough ca lcula t ion. I t ' s not a

13 guess . It's based ent i re ly on Government Exhibit 110 which, In

14 tu rn , i s based ent i re ly on the bank records tha t she reviewed.

15 THE COURT: They a re cer ta in ly not in th os e r ec or ds , a

16 showing of $200,488 in sa la ry .

17

18

MR. KWOK: I f I can explain how she got tha t number.

THE COURT: I t ' s denominated sa lary. It's a t ab le

19 saying sa la ry . I don ' t care how she got the number.

20 MR. KWOK: But tha t doesn ' t rea l ly a f fec t the loss

21 amount. You can l abe l it and give it whatever l abel you want.

22 But a t the end of the day - - l e t me back up one s tep . The

23 grant says Dr. Karron can take from the g rant for h is own use,

24 whether we ca l l it sa lary or compensation for e f fo r t s tha t he

25 put into the grant , $175,000. That ' s the amount - - the port ion




8AKMKARS Sentence

8

1 of the p ie t ha t he can ge t from the grant , $175,000.

2 THE COURT: He can get a sa lary of 175,000 i s what it

3 says in the budget, plus 34 percent for fr inge benef i t s .

4 MR. KWOK: I f he took from the grant money in addi t ion

to $175,000, put t ing aside f r inge benef i t for a second, any

6 amount above tha t i s a disa l lowed amount, whether you ca l l it

7 excess sa la ry or ca l l it a loan tha t never gets paid back. It

8 doesn ' t rea l ly matter . At the end of the day, the budget says

9 $175,000 and no more. I f you take more than tha t , the f i r s t

10 dol la r above $175,000 i s disa l lowed. Whether you ca l l tha t

11 excess sa la ry or loan, it doesn ' t rea l ly matter .

12 THE COURT: I 'm not dealing with i f s . I 'm d ea lin g

13 with what the record shows. This doesn ' t show what the records

14 show as fa r as sa lary goes.

15 MR. KWOK: I t shows tha t , j u s t for s impl ic i ty , she

16 doesn ' t want to crea te tha t many di f fe ren t categor ies . Salary ,

17 loan.

18 THE COURT: She has got a sa la ry category. She shows

19 it. Go on a couple of pages. Payroll , next page, $35,293.58.

20 MR. EVERDELL: Your Honor, also , to bear in mind with

21 th i s , these ent r ie s on the spreadsheet are based on how

22 Dr. Karron himself character ized things in the documents. So

23 we have checks here for pay periods tha t are quote unquote

24 payro l l checks for sa lary . However, he ca l led other things

25 loans or other th ings l ike tha t .

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



9

8AKMKARS Sentence

1 Now, Lynn Riley, in doing th i s analys is , put those

2 together in the same category because as Mr. Kwok was saying,

3 it was money paid from CASI to Dr. Karron. I f he i s allowed a

4 payrol l , a sa lary of $175,000, it doe sn 't n e ce s sa r il y matter

5 how the defendant himself charac ter izes those paYments to

6" himself . Whether he ca l l s them payrol l checks or whether he

7 ca l l s them loans, it's s t i l l a paYment to him personal ly from

8 CASI funds. So her objec t , I th ink in doing it th is way, was

9 to sweep together th os e th in gs which were di rec t paYments from

10 the company to Dr. Karron.

11 THE COURT: I don ' t dispute tha t . But the tabulat ion

12 i s not something tha t I can go along with. I t i s not salary.

13 MR. KWOK: We have no problem with tha t . I f you want

14 to ca l l it sa lary / loans or j u s t simply money to Karron, excess

15 money to Karron, it doesn ' t rea l ly a f fec t the loss amount

16 because a t the end"of the day the loss amount i s simply

17 ar i thmet ic , what he took from CASI minus what he i s supposed to

18 ge t under the grant , which i s $175,000. We have no problem, i f

19 it makes th ings c lea re r , ins tead of c al l in g th at sa lary , we

20 could ca l l tha t , simply, excess money to Dr. Karron.

21 THE COURT: You see what he did was - - I th ink it i s

22 borne out by the defendant ' s papers to some degree - - i s he"

23 took a very low sa lary to pay back the loans. Is th a t a fa i r

24 statement?

25 MR. EVERDELL: Your Honor, t ha t fac t tha t you jus t




8AKMKARS Sentence

10

1 s a i d , t h e f a c t t h a t he d i d n ' t take h i s f u l l s a l a r y , i s taken

2 i n t o account

3 THE COURT: I d i d n ' t say t h a t . I want t o know whether

4 y o u ' r e d i s p u t i n g what I j u s t s a i d .

5 MR. EVERDELL: \Nhat I agree with i s t h a t , yes, the

6 defendant d i d not t a k e h i s f u l l s a l a r y i n t h e sense t h a t when

7 you look a t s a l a r y i n checks , they a r e l e s s than t h e $175,000

8 o f quote unquote s a l a r y .

9

10

THE COURT: You saw t h e r e was l e s s withholding, r i g h t ?

MR. EVERDELL: But he p a i d himself i n o t h e r ways in

11 t h i n g s he do did n o t c h a r a c t e r i z i n g as s a l a r y .

12 THE COURT: Was t h e r e l e s s withholding o r not? You

13 b e t t e r c o n f e r .

14 MR. EVERDELL: Your Honor, a p p a r e n t l y wha t happened

15 was, he w a s n ' t c h a r a c t e r i z i n g anything - - t h e r e was no

16 withholding u n t i l an accountant came i n towards t h e end of y e a r

17 one and s a i d , you have t o c a l l t h e s e t h i n g s p a y r o l l , you have

18 t o take your s a l a r y and then you have t o c a l c u l a t e withholding.

19 And t h a t account went back r e t r o a c t i v e l y and looked a t these

20 payments and did t h e withholding r e t r o a c t i v e l y with a l l t h e s e

21 payments t o him which had not been c h a r a c t e r i z e d .

22 THE COURT: There a r e documents appended t o t h e

23 d e f e n d a n t ' s papers which i n d i c a t e t h a t t h e withholding was

24 taken t i m e l y . T h a t ' s not borne out by what you say, showing

25 Mr. R u b i n s t e i n ' s l e t t e r of Friday. Where d i d I p u t i t ? He has


(212) 805-0300



8AKMKARS Sentence

11

1 g o t documents s howing money b e i ng w i th h el d t o c a l c u l a t e s a l a r y .

2

3

MP_. KWOK: Which page a r e you looking a t , your Honor.

THE COURT: I ' m t r y i n g t o f i n d t h e l e t t e r now.

4 Attached t o i t , i f you look, it 's about t e n pages i n . It shows

5 t h e s a l a r y , August 2, 2002, s a l a r y . It shows o u t s t a n d i n g

6 s a l a r y of $61,918; f e d e r a l w i t h h o l d i n g t a x , minus 17,104;

7 s o c i a l s e c u ri t y deduct ion, 2,091; Medicare and employee 462.81.

8 New York withhold ing , New York C i t y r e s i d e n t also:. It I S a l l i n

9 t h e r e . He a l s o has one f o r t h e pay p e r i o d 7/01/2002. ' Maybe

10 t h a t ' s t h e same.

11

12

13 t o p .

14

MR. KWOK: Are you looking a t t h i s page?

THE COURT: Yes, I b e l i e v e s o . It has a check a t t h e

MR. EVERDELL: Your Honor, I t h i n k t h i s may a c t u a l l y

15 r e f l e c t what we a re t a lk in g about . I f you look a t check No.

16 10401. I s t h a t t h e page y o u ' r e looking a t ?

17

18

THE COURT: Yes.

MR. EVERDELL: That looks l i k e it was p a i d out on

19 August 2, 2002, which i s towards t h e end of y e a r one of the

20 g r a n t . I f you ,look a t t h e s p r e a d s h e e t t h a t Ms. R i l e y c re a t e d ,

21 it shows t h a t t h e f i r s t a c t u a l p a i d check t h a t he go t was i n

22 May of 2002; again, s o r t of towards t h e end of y e a r one of t h e

23 g r a n t . This i s , as we a r e g e t t i n g towards t h e end o f y e a r one,

24 where Dr. Karron i s b e i n g t o l d t h a t needs t o p u l l o u t

25 w i t h h o l d i n g . I d o n ' t t h i n k t h i s c o n t r a d i c t s what we were


(212) 805-0300



8AKMKARS

1 saying b e f o r e .

Sentence

12

2 THE COURT: It does c o n t r a d i c t what was s a i d . What

3 you s a i d i s n o t c o n s i s t e n t w i t h what y o u ' r e saying now. T h a t ' s

4 t h e t r o u b l e w i t h t h e s e a n a l y s e s . They a r e f i n e as f a r as they

5 go, b u t t h e y do n o t t e l l t h e s t o r y .

6 Anyway, t h e r e a r e , s i m i l a r l y , p r e s c r ip t i o n s , f i r s t

7 i tem i n Mr. R u b i n s t e i n ' s l e t t e r . I d o n ' t t h i n k t h a t t h e item

8 i s p r e s c r i p t i o n s . I t h i n k t h e i tem i s o t h e r and it included

9 o th e r m a tt e r s such as bank p r o c e s s i n g , c o n s u l t a n t s , lawyers,

10 and bookkeeping .

11 MR. EVERDELL: Your Honor, if I can j u s t s t e p back f o r

12 one secon d and j u s t t a l k about t h e g e n e r a l p o s i t i o n of t h e

13 government on l o s s , which i s t h a t u n l e s s it's s p e c i f i c a l l y

14 budgeted f o r - - t h a t it has been preapproved i n a budget or h a s

15 had subsequent approval a u t h o r i t y from NIST, o r whatever

16 e x p e n d i t u r e it may be, t h a t it 's overbudget o r an i tem i n a

17 c a t e g o r y t h a t i s n o t a budgeted c a t e g o r y , t h a t c o n s ti tu t e s a

18 l o s s t o t h e government . The reason why i s - -

19 THE COURT: It has t o be - - it seems t o me it has t o

20 be a l o s s a s t o which t h e r e was c r i m i n a l i n t e n t .

21

22

MR. EVERDELL: Your Honor, I t h i n k - -

THE COURT: I n o r d e r f o r t h e r e t o b e a n i n t e n t i o n a l

23 m i s a p p l i c a t i o n o f funds. You have t o have c r i m i n a l i n t e n t

24 h e r e . The f a c t t h a t t h e government l o s t money on t h e g r a n t o r

25 t h e money w a s n ' t expended p r o p e r l y does n o t n e c e s s a r i l y mean


(212) 805-0300



8AKMKARS Sentence

13

1 tha t there was cr imina l in ten t involved in a l l those

2 expendi tures .

3 MR. E \ ~ R D E L L : Your Honor, according to the

4 g uid elin es, th e guidel ines commentary, when you ' re looking a t

5 government benef i t s , you are supposed to look a t what the

6 in te nd ed u se for the money was. For loss amount you look at

7 whatever was d iv erted to in unintended use. I t ' s the

8 government 's p osit io n th at with th i s money tha t was given out,

9 it came with a lo t of very speci f ic spending ru les and those

10 ru les were c lea r and s e t for th . So t ha t i s the intended use of

11 the money.

12 We handled t h i s money such t ha t you would spend i t in

13 accordance with these ru les and tha t included the budgetary

14 ru les , the pr ior approval ru les , a l l of the o ther spending

15 ru les tha t came at tached to the grant . So tha t when money is

16 diver ted elsewhere, when it i s not par t of an approved category

17 or overbudgeted category, tha t ' s not an intended use of the

18 money. That i s not an intended use of th e money because,

19 otherwise, why not j u s t give away the grant money with no ru les

20 and say, okay, here i s a block of money fo r you to use as you

21 see f i t . We won't ask you how you ' re spending i t . Come back

22 in a year or so and t e l l us the progress you've made on your

23 grant . I 'm sure t he re are grants tha t probably do operate tha t

24 way, but tha t ' s not th i s one. This one wanted to keep a very

25 close leash on how t h i s money was spent , they wanted to approve


(212) 805-0300



8AKMKARS Sentence

14

1 everything tha t was spent and see a l l of the expendi tures

2 beforehand so tha t they were on board.

3

4

THE COURT; All the expenditures tha t were budgeted.

MR. EVERDELL: They wanted to see a b ~ d g e t f i rs t , . yes,

5 and anything tha t was not in tha t budget or over tha t budget,

6 with the exception of the 10 percent ru le tha t we a re a l l

7 fami l iar with, had to be app roved. The reason why they do t ha t

8 i s because, as defense counsel sa id many t imes in h is own

9 submissions, th i s i s a type of grant where the government is

10 ac tua l ly very involved. So they want to keep a t i gh t leash on

11 how th i s money i s spent .

12 Given th a t th a t i s the posture of th i s grant , how the

13 money i s supposed to be spent , tha t i s the in tended use of the

14 money, to be spent according to budge ted i tems or i tems tha t

15 have been preapproved by NIST. So it's the government 's

16 posi t ion t ha t when you go outside of those categor ies or go

17 over budget on one of the approved categories , tha t s t i l l

18 cons t i tu te s a loss to the government because they have not been

19 able to ex erc ise the cont ro l tha t they meant to exercise with

20 i n s t i t u t ing these grant ru le s and these spending rules .

21 THE COURT: Look. Let ' s go r i gh t to an item tha t

22 bothers me, fr inge benef i t s . They were approved a t 34 percent

23 of sa la ry . No one sa id what cons t i tu te s a val id , as fa r as I

24 could f ind in the papers in th e court, what was a va l id fr inge

25 benef i t and what wasn ' t . How can I have any confidence tha t


(212) 805-0300



8AKMKARS Sentence

15

1 not approved f r inge benef i t s of $4,000 i s something t ha t i s a

2 wi l l fu l di s rega rd of th e Lules?

3 MR. EVERDELL: Your Honor, the re a re a couple of

4 th ings with f r inge benef i t s which is " I be l ieve , how t h i s was

5 ca lcu la ted . We heard tes t imony t h a t the re was no plan in

6 place .

7 THE COURT: I heard t h a t , but the re was no plan in

8 place from th e beginning. You only found t h a t out a t a ce r t a in

9 po in t . No one went and checked th e group out o r anything in

10 advance. It says f r inge bene f i t s . The tes t imony i s , he had a

11 ca fe t e r i a plan or whatever it was.

12 MR. KWOK: Your Honor, i f I may, I th ink the

13 tes t imony - -

14 THE COURT: And anyth ing and everything could be

15 expended in th e way of f r inge benef i t s to himsel f and members

16 o f the family and fo r th e employees. The government may come

17 back with, oh, it wasn ' t in th e plan, so , t he re fo re , it

18 shou ldn ' t be al lowed, but the re i s no warning to the person

19 the re . I can ' t see th e c rim in al i n t en t the re .

20 MR. KWOK: The defendant was c er ta in ly to ld

21 repea tedly - -

22 THE COURT: The government may have l o s t th e money,

23 bu t I can ' t see any cr imina l i n t en t .

24 MR. KWOK: The i n t en t i s when he asked a quest ion and

25 was to ld no and went ahead and d id it anyway. I t was in the


(212) 805-0300



8AKMKARS

1 document s - -

Sentence

16

2 THE COURT: He didn 'L ask any ques t ion about medical

3 benef i t s , as fa r as I know; from th e record .

4 MR. KWOK: I f I could j u s t address your Honor 's

5 quest ion about amount. The amount re f lec ted on th i s cha r t i s

6 simply th e amount over budget because he took more sa la ry

7 because f r inge benef i t s i s a percentage of sa la ry . So it's

8 ca lcu la ted as a f ixed percentage of s a l a ry . So because he took

9 more from CASI than th e amount t h a t he was al lowed, namely,

10 $175,000, th e amount we j u s t al lowed him i s an amount of $4,000

11 or so. I t i s simply an amount over budget because he took more

12 in do l l a r s

13 THE COURT: He underspent budge t th ro ugh those f r inge

14 benef i t s by $4,000 it says r i gh t above it. Look a t t ha t . This

15 i s a mess.

16 MR. EVERDELL: Your Honor, I th ink we can make th i s

17 much s impler . Let me see i f I can. do t h i s . Even i f you look

18 a t j u s t th e c ate go rie s t h a t were nonbudgeted ca tegor i e s , we a re

19 not t a lk ing about fr in ge b e ne fi ts anymore, we a re not ta lk ing

20 about even equipment overexpendi tu res , we a re no t t a lk ing

21 anything t ha t w a s a c ~ u a l l y a budgeted category t h a t had been a t

22 l e a s t somewhere a pp ro ve d by NIST before .

23 I f we are t a lk ing about everything e l se , t h a t i s ,

24 r en t , u t i l i t i e s , cleaning, meals , cap i t a l improvements, or

25 these o the r expenses which were ac tua l ly not l i s t ed in the




8AKMKARS Sentence

17

1 category othe r under the budget , we are a l ready t a lk ing about

2 fo r years one and two of th e gran t, we a re a l ready t a lk ing

3 about a loss amount, under my ca lcu la t ion , i s over $172,000. I

4 th ink

5 THE COURT: What f igures d id you use in the f i r s t year

6 of th e budget to ge t 172,000?

7 MR. EVERDELL: I j u s t added up in years one and years

8 two, so th i s would be 114 and 15.

9

10

THE COURT: Which i tems a re you adding up?

MR. EVERDELL: I 'm adding up ren t , which i s $60,000 in

11 year one; I 'm adding up u t i l i t i e s , which i s 16,341 in year one.

12 I 'm adding up cap i t a l improvements.

13

14

15

16

17

THE COURT: Rent . You're adding up a f t e r r en t what?

MR. EVERDELL: Rent was f i r s t , 60,000.

THE COURT: Ut i l i t i e s .

MR. EVERDELL: Ut i l i t i e s was second.

THE COURT: There was some tes t imony on u t i l i t i e s . He

18 got an approval .

19 MR. EVERDELL: Your Honor, I don ' t th in k th ere was

20 ever tes t imony t h a t he got a pr io r approval fo r u t i l i t i e s . In

21 f ac t , he was to ld repea tedly t ha t u t i l i t i e s were not al lowed.

22 THE COURT: The dif ference between the u t i l i t i e s fo r

23 the apar tment before and a f t e r the upgrade fo r a i r condi t ioning

24 and fo r the machinery - -

25 MR. EVERDELL: I th ink the only tes t imony we had on




8AKMKARS Sentence

18

1 the record i s tha t he t r i ed to get an approval fo r the

2 u t i l i t i e s , but he never received one.

3 THE COURT: Mr . Rubins te in ' s quotes a u t i l i t i e s f i ~ ~ r e

4 using Mr. Benedic t ' s test imony a t 1057 .. I can ' t f ind i t . Here

5 it is , 1057.

6 MR. EVERDELL: I 'm looking a t the page he c i ted. Here

7 it jus t says - - h is quest ion i s , th i s i s Mr. Rubins te in ' s

8 quest ion, and he i s ques t ioning - -9 THE COURT: And t he d is cu ss ions were tha t i f he could

10 ind ica te the fac t t ha t there was an increase , tha t they could

11 be c lass i f i ed as d i rec t expenses, not ind i rec t expenses.

12 MR. EVERDELL: I t says the discuss ions were, r ight ,

13 tha t i f he cou ld demonst ra te the fac t tha t there was an

14 increase, tha t they could be c lass i f ied as d i rec t expenses, not

15 ind i rec t expenses. But there was never any approval of th i s .

16 So a t th is point none of the test imony here i s t a lk ing about

17 any ap pro val of any addi t ional u t i l i t i e s , expenses, or anything

18 l ike tha t .

19 THE COURT: Sounds l ike approval, but not wri t ten

20 approval .

21 MR. EVERDELL: He i s t a lk ing to Bob Benedict . Bob

22 Benedict, I think, i s a w itn es s h ere who i s the finance

23 manager. We are not ta lk ing to the people a t NIST, who

24 ac tua l ly made the approval , such as Hope Snowden. I f I r eca l l

25 correc t ly , Hope Snowden's test imony about u t i l i t i e s was simply


(212) 805-0300



! , 8AKMKARS Sentence

19

1 t h a t t he re were l o t s of conversat ions t h a t she had with the

2 defendan t himsel f and with othe rs about whether o r not grant

3 funds could be used fo r u t i l i t i e s , and she s a id no.

4

5

6

7

8 them - -

9

T ~ E COURT: Where i s th i s?

MR. EVERDELL: The c i t e s to th e record?

THE COURT: Yes.

MR. EVERDELL: Your Honor, I 'm a f r a i d I don ' t have

THE COURT: This does say the witness summarizes h is

10 tes t imony a t th e end o f th e page . The incrementa l amount of

11 add i t i ona l expense caused by th e gran t could be c l a s s i f i ed as

12 d i r e c t expense and not i nd i r e c t expense. Direc t expenses a re

13 a l lowed, regard less o f what they a re . I nd i r ec t expenses are

14 no t a l lowed.

15 MR. EVERDELL: I t h ink t h a t t h a t quote j u s t says r i gh t

16 the re t h a t they a re t a lk ing about a pos s ib i l i t y , but a

17 pos s i b i l i t y t h a t was never ac tua l ly approved. And a

18 pos s i b i l i t y ' t ha t was neve r ac tua l l y budgeted. S o - -

19 THE COURT: It su gg es ts n ot approved in wri t ing . I

20 have seen t h a t . I agree wi.th t h a t . But it sounds as if it was

21 approved o ra l l y .

22 MR. EVERDELL: I don ' t know i f I read t h a t as t h a t .

23 Maybe it's Mr. Bened ic t ' s unders tanding of what he could

24 p os sib ly g et approved under th e ru les .

25 THE COURT: I th ink t h a t ' s a little b i t - - th e po in t


(212) 805-0300



1

2

3

4

5

20I 8AKMKARS Sentence

i s t ha t the cr iminal in ten t of the defendant i s impo rta nt h er e.

And i f he was proceeding on t ha t bas i s , tha t seems to me - - I

have reason to - - it seems to me th a t th at amount i s an amount

t ha t should n o ~ be considered in the loss ca lcu la t ion .

MR. EVERDELL: Your Honor, I th ink I have to

6 respec t fu l ly disagree with tha t . My col league, Mr. Kwok, has

7 pointed me to the pa r t in the record . This i s Hope Snowden's

8 testimony on page 256 of the record where she i s t a lk ing about

9 her conve rs at ion s w i th I be l ieve it's Dr. Karron and

10 Mr. Gurfein about exp en se s. And th e q ue stio n was:

11 What quest ions did he ask you, i f any, during those

12 conversat ions?

13 And the answer lS: Was he allowed to pay fo r ren t and

14 u t i l i t i e s with the ATP federal -funded gran t .

15 "Q. And r en t fo r what, ren t u t i l i t i e s fo r what?

16 "A. For th e condo in which a t t h i s point , I guess , CASI, the

17 company, was being housed.

18 "Q. And whose condo was tha t?

19 "A. Dr. Karron 's ·condo.

20 "Q . What was your response to th e quest ion? Can ren t and

21 u t i l i t i e s be paid fo r with ATP funds?

22 "A. No. They are unallowable costs . "

23 THE COURT: I understood t ha t tes t imony. That comes

24 well preceding Benedic t ' s testimony, it comes well preceding

25 the work fo r the apartment fo r the a i r condit ioning, and tha t ' s


(212) 805-0300



8AKMKARS Sentence

21

1 what caused the u t i l i t i e s to go up and t h a t ' s a f t e r the time

2 tha t Snowden i s t a lk ing about , as fa r as I can see .

3

4

5

MF, EVERDELL: Let ' s j u s t do th i s then, your Honor.

THE COURT: I ' ve got to be - -

MR. EVERDELL: Let ' s do t h i s . Let ' s s e t as ide for th e

6 moment the i s sue of whether tha t $4,595 should or should not be

7 included in the loss amount.

8

9 4,000.

10

11

THE COURT: According to Mr. Rubinstein , it's not

MR. EVERDELL: I was looking a t page 2 of h is l e t t e r .

THE COURT: 16,341, as I unders tand it. The u t i l i t i e s

12 pr io r were 4595, pr io r to the pro jec t .

13 MR. EVERDELL: I b e l i ~ v e tha t ' s 16,341 i s what the

14 government i s claiming i s th e u t i l i t i e s amount fo r year one.

15 THE COURT: Maybe you ' re r i gh t . That ' s th e

16 government 's claim, not 16,000. He claims

17 MR. EVERDELL: He claims t ha t the loss i s only 4,595,

18 which i s the amount of the inc rease , he says .

19 THE COURT: That ' s the pr io r amount of u t i l i t i e s , not

20 th e in cr ea se . The dif ference should be not a l o ss .

21 MR. EVERDELL: I apologize, your Honor. He's c la im in g

22 the dif ference between the two Sh01lld be no t in cluded in the

·23 lo s s .

24 But se t t ing t ha t as ide fo r the moment, again, i f you

25 add up th e c ate go rie s again tha t were nonbudgeted expenses,




8AKMKARS Sentence

22

1 even l eav ing t h a t i s sue as ide , I guess let's j u s t say t h a t t h a t

2 i s almost $12,000, no t qui te , of di f fe rence .

3 I f you go to th e n ex t c ate go ry , which i s cap i t a l

4 improvement, in year on2 i s 11,248. Again, t h i s has no - -

5 t he re i s nowhere in the budget where t h i s s t u f f i s t a lked

6 about . There i s no p r i o r approval from NIST fo r t h i s so r t of

7 th ing . Mr. Benedict i s using th e money, same which he does fo r

8 c lean ing and mea l s , t o do whatever he f ee l s l i ke he wants to do

9 with it, and he ' s spending it on outs ide budget ca t ego r i e s .

10 THE COURT: Le t ' s dea l with cap i t a l improvements.

11 They claim t h a t t h i s should be more p ro f i t ed by th e s i t e

12 prepa ra t ion .

13 MR. EVERDELL: But even s i t e prepa ra t ion i s n ' t a

14 budgeted ca tegory .

15

16

THE COURT: I don ' t know t h a t it i s .

MR. EVERDELL: It's not , according to th e exh ib i t s .

17 Bas ica l ly , what th e defense counsel has t r i ed to do in t h i s

18 submission i s take every poss ib l e expendi tu re t h a t he can th ink

19 and t r y to claim t h a t if it had some t angen t i a l o r arguable

20 b en ef i t to th e r es ea rc h, then it c an ' t be qua l i f i ed as a l os s .

21 That s imply can ' t be workab le, y ou r Honor, because almost every

22 s ing le expendi tu re has some bene f i t to the re sea rch . You j u s t

23 c an ' t work t h a t s t anda rd . It's unworkable.

24 So what we decided and what our lo ss c alc u la ti on and

25 theory i s about i s whether o r no t it's in budget because t h a t


(212) 805-0300



8AKMKARS Sentence

23

1 i s c lea r ly what the intended use of the money was. We give you

2 th i s money so that ·you can spend it according to the ru les , and

3 they were very c lea r about tha t . There was lo t s of testimony

4 about how the ru les were supposed to b e followed, how they

5 explained the ru les to them, how they had to adhere to the i r

6 budget, and for good reason, and how they needed approvals fo r

7 th ings tha t were outs ide of the budget.

8 So while I understand th at c er ta in things tha t the

9 defendant i s claiming may arguably have benef i ted the research

10 in some way, tha t ' s simply not the standard we can work with,

11 because then there would be no loss a t a l l , it would seem l ike .

12 Even meals. People h ave to ea t in order to conduct research,

13 bu t you can ' t spend fe de ra l g ra nt money to do i t . Yes, you

14 need to clean things in order to have your house cleaned, but

15 you can ' t spend federa l grant money to do i t . I t has to be

16 budgeted i f you ' re going to do it tha t way.

17 Things l ike s i t e improvement, capi ta l improvement,

18 whatever it i s , things tha t may sound even arguably bet t e r than

19 meals and cleaning in terms of how it might af fec t the

20 research, it doesn ' t count because it's not budgeted. There i s

21 a good reason for tha t . The government needed to understand

22 and app rove a l l the expendi tures re la ted to th e re se arc h,

23 whether it was because it was in a budget or because someone

24 came to them l a t e r and asked for approval for something tha t

25 was outs ide of the budget .

. SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300



1

8AKMKARS Sentence

THE COURT: Let ' s not qu i t e pu t it t ha t way because

24

2 the re i s t h i s 10 percent ru le t ha t they have got in the re .

3 MR. EVERDELL: Yes, your Honor. I f you look a t 114

4 and 115, down a t th e bottom r ight -hand corner you see the p ie

5 char t a t th e bottom r ight -hand corner which has I don ' t know

6 if you can see it.

7

8

9 inc l ined

THE COURT: I can see th e p ie char t .

MR. EVERDELL: The s l ic e i s th e 10 percent . I f you ' r e

it's our argument t ha t th e '10 percen t ru le , the

10 money still has to go from somewhere. Even i f you are going to

11 exclude th e 10 percent from th e ca lcu la t ion , it's still going

12 to r i s e fa r above the leve l t h a t I th ink your Honor i s

.13 cons ider ing .

14 Not only t ha t , 10 percent can ' t be used fo r new

15 ca tegor ies . I 'm t a lk ing simply now about ca tegor i e s t h a t are

16 not in th e budge t . The 10 ,percent ru le only appl ies to

17 ca tegor i e s t h a t are a l ready in th e budget , and you may

18 rea l loca te funds within those preapproved ca tegor ies .

19 So with re sp ec t to the money I 'm t a lk ing to . you about

20 now, the ones t h a t a re not budgeted ca tegor i e s a t a l l , th e 10

21 percent ru l e does not even apply to t ha t . So even i f you add

22 it up, a l l these out-of-budget , nonbudgeted ca tegor i e s , you

23 would still get to a loss amount, under my ca lcu la t ion , over

24 $172,000 in lo ss .

25 I f your Honor subt rac ted th e 12,000 or so from the




8AKMKARS Sentence

25

1 u t i l i t i e s , we a re still over the 120,000 thre·shold and

2 guidelines which makes it - - I bel ieve , it's a l evel - - I want

3 to check - - it bumps it down two l evels from th e c al cu la tio n

4 t ha t ' s in the PSR. But it's still a t o t a l offense l evel of 18

5 as opposed to 20, using t ha t calcula t ion .

6

7

THE COURT: The PSR or ig ina l ly was more than 200,000.

MR. EVERDELL: Your Honor, we still think tha t the

8 c al cu la ti on i n 114 and 115 i s ent i re ly correc t . Weactual ly

9 think tha t i s the loss tha t the government suffered . In fac t ,

10 we are giv ing the defendant qui te a b i t of the benef i t of the

11 doubt because we are saying tha t everything within the budgeted

12 category was a proper expense. I t makes tha t assumption. And

13 everything - - a l l we are saying i s everything outs ide of tha t ,

14 e i ther i f it's a nonbudgeted category or something overspended

15 on a budgeted category, represents a loss to the government.

16 However, i f your Honor i s not inc l ined to accept tha t ,

17 because of concerns you have about the calcula t ions here , a t

18 the very l eas t , i f you look simply a t the nonbudgeted

19 categories , things tha t were not approved by NIST a t a l l , which

20 a re those things t ha t I mentioned before - - ren t , u t i l i t i e s ,

21 capi ta l improvement, cleaning, meals, and other - - then we have

22 a loss amount tha t i s a t a minimum j u s t two l evels less than

23 what 's in the PSR.

24 THE COURT: You would agree tha t it should not be

25 ent i t l ed to subscr ip t ions as other expenses.


(212) 805-0300



1

8AKMKARS Sentence

MR. EVERDELL: I apologize, your Honor. I

26

2 miscalcu la ted . It's not two l evels l e s s . It's ac tua l ly four

3 leve ls l e s s . I f you s t a r t with base offense of 6 and the

4 loss amount i s more than 120,000, tha t acds 10 and you get 16.

5 MR. RUBINSTEIN: Your Honor, I th ink tha t the i n i t i a l

6 dis t inc t ion i s a q ue stio n of what i s al lowable and what i s

7 al lowable . And I think - -

8

9

10

11

THE COURT: What i s what?

MR. RUBINSTEIN: Allowable; in other words

THE COURT: I know what al lowable i s .

MR. RUBINSTEIN: As opposed to what the budget says

12 t ha t was allowed. I say to your Honor tha t th i s money was not

13 . given to buy equ ipment, j u s t to buy equipment, to get

14 subcontrac tors , to have employees: This money was given for

15 research . That was the purpose of the money.

16 I th ink t ha t the government i s using the budget in a

17 way tha t it never was intended for the purposes of what a loss

18 should be. Let ' s assume tha t Dr. Karro n's s pe nt the whole

19 $800,000 on machinery. He wasn ' t budgeted fo r i t , but he spent

20 $800,000 for machinery for the projec t . He d idn ' t take a

21 sa la ry , he didn ' t spend money on anything e lse and, 10 and

22 behold, the projec t ran the th ree years and he developed the

23 sc ience t ha t the money was given for . Under tha t theory he

24 could be prosecuted fo r $690,000 in misspent money.

25 The bottom l ine i s , your Honor, the fac t tha t they




8AKMKARS Sentence

27

1 come up with a category and then they say, we have a category

2 here , cap i t a l improvements, th e tes t imony i s c lea r ,

3 uncontrover ted , t ha t these weren ' t cap i t a l improvements. They

4 were s i t e prepara t ion and they devalued the apar tment - - we had

5 an exper t - - a one bedroom apartment in Kips Bay s e l l i ng for

6 j u s t over $500,000. Everyone who knows anything about the r e a l

7 e s t a t e market in New York City . That f igure was devalued

8 because it devalued, but they have a category. It's ca l led

9 cap i t a l improvements and we don ' t have a category in the

10 budget . Therefore, no t only whatever you spent , no mat te r what

11 e l s e you want to ca l l i t , we ca l l ed it cap i t a l improvements.

12 Did anybody ca l l it cap i t a l improvements but th e government?

13 Now they say, it's cap i t a l improvement, not in the budget ,

14 the re fo re disal lowed. I submit to your Honor, t h i s i s s i t e

15 prepara t ion . Any reasonable , log ica l person would conclude

16 THE COURT: The t rouble- i s , in h is appl ica t ion fo r th e

17 gran t he sa id - - he gave the impress ion t ha t they were up and

18 running.

19

20

21 ce te ra .

22

23

MR. RUBINSTEIN: They had equipment the re .

THE COURT: As I unders tood it, ac t ive Web s i t e , e t

MR. RUBINSTEIN: They had a Web s i t e .

THE COURT: And they had computer equipment.

24 MR. RUBINSTEIN: But they d idn ' t have t h i s kind of

25 computer equ ipmen t, Judge. We are going back - -




1

2

8AKMKARS

28

Sentence

THE COURT: You don ' t need s i t e improvement.

MR. RUBINSTEIN: They needed it here . The cont rac tor

3 t e s t i f i ed what he did . He bu i l t th ings , he put up rackings fo r

4 them to convert the l iv ing room in to a computer l ab .

5 THE COURT: The mater ia l was - - everything was in

6 there . What he did was, as I unders tood i t , was to improve th e

7 usab i l i t y of the space.

8

9

10 budget .

11

MR. RUBINSTEIN: Not fo r an apartment.

THE COURT: Not something t ha t was cal led fo r in the

MR. RUBINSTEIN: It's not ca l l ed fo r in the budget, I

12 agree with you. I t may come under the ca tegor ies of others .

13 I t may come in here . But the ques t ion i s - -

14 THE COURT: Others i s fo r aud i t s . Other was the only

15 th ing - - the budget under othe r was aud i t s , i s my reco l l ec t ion .

16 MR. RUBINSTEIN: There was a budgeted category cal led

17 aud i t s , your Honor.

18 THE COURT: The only th ing t ha t was budgeted under

19 others was aud i t s , $10,000.

20 _ MR. RUBINSTEIN: I f you look a t 115, you ' l l see tha t

21 In 115, nex t year, they disallow ed the $10,000.

22 The bottom l i ne i s tha t the i tems t ha t t he p ro se cu to rs

23 ta lked about, capi ta l improvements, I submit , were not cap i t a l

24 improvements. The meals , they have no breakdown of where the

25 mea ls were, who the meals were for . I f you r e ca l l Riley ' s


(212) 805-0300



8AKMKARS Sentence

29

1 testimony, she went to lunch with Dr. Karron to ta lk about th i s

2 invest iga t ion with o ther people from CASI, and she d is al lowed

3 t ha t lunch. Any business i s going to charge a lunch l ik e th at .

4 Dr. Karron spent on h is Master Card - - he had three c redi t

5 cards. The only card tha t he charged meals on tha t were

6 deducted were on the American Express CASI card . His own card

7 and the Master Card i s in evidence. He never deducted.

8 To suggest tha t there i s not a category of meals, ·

9 there i s t rave l . There i s t r ave l does t r ave l inc lude meals

10 when you trave l? Tha t 's why when we broke down, your Honor,

11 th e s ub s cr ip tion , we to ld you what those were. They had

12 nothing to do - - you sor t of have the category, you were

13 th inking of some magazines l ike Sports I l lus t ra ted . This is

14 fo r res earc h fo r access to research fo r the projec ts . So you

15 subscr ibe to a serv ice to get your sc i en t i f i c data ..

16 THE COURT: The b ig item tha t Mr. Everdel l was saying,

17 jus t , look, take the ones tha t a ren ' t within the budget, the

18 nonbudgeted i tems, and add them up and giving you c redi t for

19 the u t i l i t i e sam?un t , so you have an $11,000 c redi t , as I

20 understand i t . You still have 11,000 under u t i l i t i e s or maybe

21 12, 12,000.

22 MR. RUBINSTEIN: I t would be alm ost 5,000 under

23 utilities--

24 THE COURT: You save tha t , so to the extent , instead

25 it would be 5,000. What about the other entry, the ren t entry?




1

8AKMKARS Sentence

MR. RUBINSTEIN: Clear ly , he was no t en t i t l ed to the

30

2 r en t , your Honor, so tha t ' s $60,000.

3

4

5

6

7

THE COURT: Then you add the o ther two then - -

MR. RUBINSTEIN: What do you add two with , Judge?

THE COURT: $43,000 spent .

MR. RUBINSTEIN: For subscript ions?

THE COURT: No. For bookkeeping, auto expense, blank

8 processing, consul tants , lawyers, dues, presc r ip t ions .

9

10

MR. RUBINSTEIN: That he ' s allowed. Subcontractors .

MR. EVERDELL: Your Honor, I th ink t ha t the defense

11 counsel i s saying it's allowed s imp ly bec au se it i s l i s t ed

12 under the category o ther , but , as your Honor pointed out , in

13 th e budget , the only th ing tha t the company l i s t ed for i t s

14 o ther expenses was the audi t .

15 THE COURT: You got th i s 80,000 f igure tha t you can

16 move around. But t ha t seems to me i s a l ready taken care of

17 when you look a t the ove rd rawn equ ipment and the overdrawn

18 mater ia l s and suppl ies . That takes care of the 80,000 pre t ty

19 wel l .

20 MR. RUBINSTEIN: But those were budgeted items, your

21 Honor, tha t went back to the in ten t theory . I f they were

22 budgeted i tems and he had no cr imina l in ten t he in tended to

23 misappropr ia te . We concede tha t . He spent over the budget .

24 But did he cr iminal ly in tend to misappropria te tha t amount?

25 THE COURT: He d idn ' t spend much over the t o t a l amount




8AKMKARS Sentence

31

1 because he took out the 836,5 plus $1300, a pp are ntly , th e f i r s t

2 year . It's these expendi tures in the o ther category tha t

3 MR. RUBINSTEIN: I f you have 60,000 fo r the ren t , you

4 have 11,000 for the - - you have 5,000 fo r the u t i l i t i e s .

5 That ' s 65,000 in the f i r s t year for the u t i l i t i e s . I submit

6 tha t the capi t a l improvements are not - - a re a l eg i t imate

7 expense. The cleaning i s quest ionable . Even though I think

8 t ha t it's arguable on def endan t's s id e, I won' t contes t the

9 cleaning.

10 THE COURT: It's an appropr ia te expense. He should

11 have gotten approval fo r i t .

12 MR. RUBINSTEIN: That i s the poin t . The point is , i f

13 he d idn ' t ge t approval , we know tha t the ren t - - he was turned

14 down.and he still took the ren t . We know th a t tha t i s an

15 amount tha t he took tha t he wasn ' t ent i t l ed to .

16 But as to o ther i tems t ha t were for the benef i t of· the

17 research , it doesn ' t seem tha t the guidel ines , when you look a t

18 the loss fa cto rs and how to consider loss and you consider

19 government benef i ts , I th ink even though they don ' t have the

20 spec i f ic i l lu s t ra t ion , the government can ' t c i t e one grant case

21 where there was a misappropriat ion.

22 The problem here i s tha t , what was the government 's

23 benef i t? They gave money fo r a research projec t . I t ' s

24 unquest ionable t ha t ' s a l l they did was research. The only

25 monies he put in h is pocket were the ren t monies.




1

8AKMKARS

32

Sentence

THE COURT: The problem i s t ha t CASI, he did own CASI,

2 as I unders tood i t , he and h is family, I guess . Yo u can

3 misapply money not j u s t fo r your bene f i t , but you can misapply

4 money fo r the corpora t ion ' s benef i t .

5

6

MR. RUBINSTEIN: Right .

THE COURT: The t roub le with cap i t a l improvements,

7 yes , it probably was not to h is ·personal bene f i t because the

8 a p a ~ t m e n t probably was worth more unimproved than it was

9 contain ing those improvements, but it would be benef ic ia l to

10 CASI as a computer c en te r, r es ea rc h computer cen te r , to have

11 the improvements made. That ' s the problem. That would still

12 no t be the research contemplated by the gran t .

13 MR. RUBINSTEIN: I still don ' t see where they get

14 t he i r f igure t ha t they a re claiming - -

15 THE COURT: I don ' t see th e cap i t a l i m p r o v e m ~ n t s . I

16 d id n 't r e al iz e the amount was $37,000.

17 MR. RUBINSTEIN: When the apar tment was sold they had

18 to r ip out a l l t ha t s t u f f fo r the new owner.

19 THE COURT: That ' s what I was r e f e r r i ng to ea r l i e r .

20 What kind o f a f igure do you come up with,

21 Mr. Rubins t e in i

22 MR. RUBINSTEIN: In the f i r s t year , 60,000 fo r rent ,

23 5,000 fo r u t i l i t i e s . I 'm rounding o f f . 2,000 fo r meals and

24 67,000 in th e f i r s t year . Quest ionable cap i t a l improvements or

25 s i t e prepara t ion , which would probably go under equipment. And


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8AKMKARS

1 th e - -

2

3

4

5

Sentence

MR. KWOK: Can we have the amount on tha t?

MR. RUBINSTEIN: For cap i t a l improvements?

MR. EVERDELL: The th ing you j u s t c i t ed .

MR. RUBINSTEIN: I sa id 2,000 fo r meals, 5,000 for

33

6 u t i l i t i e s , 60,000 fo r r en t . Second year , the re i s 2,000 for

7 r en t , 5,000 fo r u t i l i t i e s . Meals, th e second year , rounded o f f

8 to $1500. I 'm so r ry . Meals. $3,000. That would make it

9 $77,000 without cap i t a l improvements. I f you gave th e whole

10 cap i t a l imp rovemen ts , which I don ' t see how you can do tha t fo r

11 th e two years , you ' re t a lk ing about 20. We don ' t concede t h i s .

12 We are t a lk ing about 31,000 over t he re .

13 So in a wo rs t- ca se s ce n ar io it would be 108,000, but I

14 submit to your Honor t h a t I don ' t see why cap i t a l improvements

15 should be considered as a nonbudgeted i tem when it c lea r ly was

16 used in o rde r to f ac il i t a te - - you cou ldn ' t put those b ig

17 computers in th a t apar tment wi thout s i t e prepara t ion . You

18 wouldn ' t do it without having th e shades to keep th e hea t out ,

19 without h av in g ex t ra wir ing to ge t th e e lec t r i c i ty needed fo r

20 th e p la ce . These are th ings t ha t a re t o t a l l y unre la ted to what

21 anybody would consider a cap i t a l improvement.

22 THE COURT: Par t of th e problem here i s t h a t the s i t e

23 was changed from NYU to apar tment . With NYU you had f ree space

24 and a place fo r the computers. When t h a t f e l l down, he

25 swi tched to the apar tment . But th e budget doesn ' t change in a


(212) 805-0300



8AKMKARS Sentence

34

1 mater ia l way, I bel ieve , between the two budgets. I think i t

2 should have.

3 MR. RUBINSTEIN: Judge, I j u s t fee l t ha t looking at

4 Judge Rakoff 's decis ion in Adelste in - - Adelson, ra ther , and In

5 other ,decis ions t ha t I 've seen, including Judge Block's

6 decis ion out of th e E astern Dis t r i c t - -

7

8

THE COURT: It's not in your memo.

MR. RUBINSTEIN: I know. Because I'll give you the

9 c i t a t ions , your Honor. Judge Rakoff i s 441 F.Supp.2d 506.

10 Judge Block's decis ion c i t ing Judge Rakoff 's decis ion i s a

11 Westlaw c i ta t ion of 354151 and a and they t a lk about - -

12 those cases were primari ly s tock cases. They t a lk about that

13 the fraud guidelines - - because the numbers increase so much

14 tha t they give a dis tor t ed view of what a reasonable sentence

15 should be.

16 In both of th ose cases - - I 'm not even up to tha t

17 po in t because f i r s t we have to have a guidel ine analysis before

18 we get to the quest ions of downward depar ture or 3553

19 cons idera t ions . I th ink what the Court i s t rying to decide now

20 in i t s analys is i s , f i r s t , doing what the guidel ine calcula t ion

21 i s required to do, before you determine whether or not you want

22 to give a guidelines sentence or a nongu ide li nes sent ence . I

23 think tha t for the purposes of a guidel ine analys is , I think

24 tha t a f igure of between 70,000 and 120,000 fo r guidel ine

25 purposes, analys is purpose, tha t tha t would be an appropr ia te


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8AKMKARS Sentence

35

1 range, 70,000 to 120,000 without - -

2 MR. KWOK: Your Honor, i f I may, even taking j u s t the

3 i tems Mr. Rubinstein ta lked about , the ren t , u t i l i t i e s , meals.

4 Ut i l i t i e s , by the way, j u s t the di fference , not the whole

5 th ing, we are up to $100,000 al ready . And then i f you look a t

6 Government Exhibi t 115, year two, the category under other ,

7 which includes a l l manners of th ings l ike bookkeeping, auto

8 expense, bank processing, consul tants , lawyers, dues,

9 subscr ip t ions , tha t alone i s $31,000. I f you add t ha t category

10 alone to a l l the s tu f f tha t Mr. Rubinstein j u s t conceded, we

11 a re al ready over $120,000 , which puts us a t l eve l 16.

12 MR. RUBINSTEIN: I d idn ' t concede tha t . There i s no

13 breakdown of what they are ta lking about . They give you

14 bookkeeping auto expenses, which I assume re la te to t ravel ,

15 bank processing consul tan ts i s budgeted for 250,000 ra ther ,

16 he i s budgeted for $110,000 in subcontractors, which I guess

17 a re consul tants . He spends only 6,000 of tha t , and they throw

18 in consul tants , dues, subscr ip t ions in to a category. Then they

19 want to say, tha t ' s $31,000. I submit to your Honor, tha t

20 nobody from tha t char t or from the 110 backup could say how

21 they ever arr ived a t th is number. Then they want to

22 a rb i t r a r i l y plug it in and say, no, look a t tha t , we have

23 arr ived a t the next leve l .

24 THE COURT: I 'm looking where those f igures must have

25 come from. I think i f you look a t 110, 111, we can probably




8AKMKARS

1 determine - -

Sentence

36

2 MR. KWOK: For example, your Honor, you can look a t

3 G o v e r r ~ e n t E x h i b i t 110, page 17 o f 37. That , f o r example,

4 l i s t s a l l t h e gas paYments, a l l h e r expenses . T h a t ' s where it

5 came from. T h a t ' s j u s t one example.

6 THE COURT: Mr. Spring i s bookkeeper . T h a t ' s what Kim

7 Jackson i s f o r S p r i n t .

8

9

MR. KWOK: T h a t ' s r i g h t .

THE COURT: The s o l e purpose, as I unders tood t h e

10 tes t imony, and I may be wrong, f o r Mr. Spring t o be employed

11 was t o g e t t h e books i n o r d e r f o r t h e o t h e r . They had another

12 bookkeeper, as I unders tood i t , b u t I may be wrong, who could

13 t a k e e n t r i e s f o r bookkeeping, b u t w a s n 't s k i l l e d enough for

14 i n t e r p r e t i n g what should be i n t h e company's expenses and what

15 should be p e r s o n a l expenses , and what should be r e a s o n a b l e

16 expenses . I s t h a t c o r r e c t ?

17 MR. EVERDELL: Your Honor, I t h i n k Mr. Spr ing , i n

18 a d d i t i o n w i t h h e l p in g w i t h t h e ' a u d i t s , a l s o s t a y e d on t o do

19 a d d i t i o n a l bookkeeping work f o r t h e company even a f t e r t h e

20 a u d i t was over .

21

22

THE COURT: I thought it was a l l computerized.

MR. EVERDELL: I misspoke .

23 I n a d d i t i o n t o h e l p p r e p a r i n g t h e books f o r t h e

24 upcoming a u d i t , he a l s o conducted some r e g u l a r bookkeeping

25 Even so, you have $10,000 budgeted



8AKMKARS Sentence

37

1 fo r the aud i t and you went over tha t $10,000 by the amounts in

2 other , which in clu des th e overage, inc ludes some of the Frank

3 Springs expenses, but it also inc ludes some th ings l ike auto

4 expenses.

5 THE COURT: But you are allowed the $80,000, but then

6 the $80,000 has been used up.

7 MR. EVERDELL: By equipment or any other number of

8 categor ies , yes, your Honor.

9 It's the government 's posi t ion tha t a t the very l ea s t

10 tha t th i s money should be co un ted a s a l o ss . It's nonbudgeted

11 and it's completely absent from the budgets tha t were

12 submitted, and was money spent w ith ATP grant money.

13 Let ' s also not lose s ight of the fac t tha t it was very

14 c lear from the budget ru les or from the ATP ru le s tha t in direc t

15 costs are not covered, and t ha t was made very c lea r to the

16 defendant a t a l l the premeetings before he s t a r t ed the grant .

17 Yes, ce r ta in things - - research can ' t happen without

18 lo t s of th ings being bought, lo t s of th ings being improved,' a l l

19 th i s s tu f f . But it doesn ' t mean tha t you can use ATP grant

20 funds to spend on tha t s tuf f . You have to follow th e ru les .

21 So these expenses I think, j u s t looking a t the

22 spreadsheet tha t Ms. Riley prepared, you can see how they are

23 i temized out here , a t l ea s t the other category.

24 THE COURT: Is Peter Ross an employee or was he a

25 consultant?




1

8AKMKARS

38

Sentence

MR. EVERDELL: Peter Ross, your Honor? I don ' t think

2 I know where you ' re looking, your Honor. I see .

3 Your Honor , I th ink tha t Dr. Karron chose to pay Peter

4 Ross as a consul tant . Even so, what we are ta lking about here ,

5 t ha t ' s a $15 charge.

6

7

THE COURT: what charge?

MR. EVERDELL:I thought you were ta lking about the

8 Peter Ross parking charge.

9

10

11 charge.

12

THE COURT: Yes.

MR. EVERDELL: Reimbursement to Peter Ross i s a $43

We a re ta lk ing about very small numbers here. Under

13 the guidel ines , as it says in the commentary, the Court need

14 only make a reasonable est imate of the loss . And I th ink when

15 you consider a l l these categor ies tha t we are t a lk ing about and

16 the fac t t ha t it i s backed up on the paper here , tha t we are in

17 the range, a t l eas t , of 120,000, given what Mr. Rubins te in h as

18 ju s t to ld your Honor and the very small di fference . that seems

19 to exis t a t th is poin t .

20 The categor ies th a t a re nonbudgeted categories should

21 be counted, and tha t bumps us in to the $120,000 range without

22 much t rouble a t a l l . Given tha t your Honor doesn ' t have to

23 come to an exact dol la r amount of loss , the minor

24 discrepancies , to the exten t they even exis t , shoul dn 't d e te r

25 your Honor from coming to t ha t l a rger loss amount because I




8AKMKARS Sentence

39

1 think the c lea r , lo gica l way to read the evidence i s tha t there

2 a re lo t of nonbudgeted categor ies and they are backed up by th e

3 spreadsheet analys is , and t ha t these should be considered as

4 loss to the government because they were not approved, as the

5 defendant knew he needed.

6

7

THE COURT: Brings me back to the quest ion - -

MR. RUBINSTEIN: The problem i s , 'Judge, when you go to

8 the backup tha t they throw out there , 110, and you f ind tha t

9 the bank charges are under $336 - -

10

11

THE COURT: What page are you on?

MR. RUBINSTEIN: We have a gas exp ense on page 17 of

12 37 o f $ 1,1 89 .6 8. We then have - -

13

14

THE COURT: I missed the page.

MR. RUBINSTEIN: Page 17 of 37. We know tha t

15 Dr. Karron was t rave l ing to Washington, D.C. and to New Jersey

16 as pa r t of h is work on th is research, but l e t ' s take the whole

17 f igure . Next they have l e t ' s assume she put in - - the

18 parking, $67, t ha t ' s on 18 of 37. Then they have pank

19 processing on 18 of 37 of $336. I f you add up lawyers they

20 have on 21 of 37 $1,173.75. And I submit tha t ' s quest ionable

21 because I th ink those lawyers were pa ten t lawyers re la ted to

22 securing in te l lec tua l property tha t they were allowed to do.

23 'Ehen it says dues and subscr ip t ions under tha t . They have

24 $198.

25 I 'm looking fo r the - - they have tha t bookkeeping




8AKMKARS Sentence

40

1 f igure out . I don ' t th ink it i s appropr ia te , bu t they have a

2 bookkeeping I don ' t know who t h a t inc luded , but l e t ' s l eave

3 th e bookkeeping out of it. We a re ta lk in g about under $3,000,

4 in my quick math, of expenses . And then they t e l l you t h a t th e

5 ca tegory ca l l s fo r $31,000, bu t t h e i r th ing i s 31 thousand 8 o r

6 625, depending on your eyes igh t . How t h a t ' s broken down,

7 whether o r no t these a re app rop ria te expenses , then they say,

8 let's plug In t h i s add i t iona l $31,000. I submit to your Honor

9 t h a t would be inappropr ia te .

10 MR. EVERDELL: Your Honor, l e t me address - - fo r

11 example, the re i s a spec i f i c i s sue with th e lawyers. Pennie &

12 Edmonds, pa t en t a t to rneys , it was my unders tanding th a t th is

13 was incur red befo re the g ran t even s t a r t ed . And these charges

14 fo r lawyers a re spec i f i c a l l y proh ib i t ed by th e g ran t ru l e s .

15 Was Mr. Karron to ld t h i s? No. Because he never

16 ac tua l l y t r i ed to budget it as an i tem. Had he t r i ed to budget

17 it, he would have been to ld spec i f i c a l l y tha t he cou ldn ' t use

18 gran t money to do t h i s .

19 Again, we a re faced with t h i s argument t h a t i f it

20 arguably somehow benef i t s th e r es ea rc h, it should no t be

21 covered a t the lo s s . The government submits t h a t t h a t i s

22 simply unworkable. What we have to work with i s what was

23 budgeted and what was approved by NIST, and anything t h a t

24 wasn ' t i s a lo s s to th e government.

25 Not only t ha t , your Honor, we a re ta lk ing a t l e a s t - -


(212) 805-0300



8AKMKARS Sentence

41

1 now we seem to be t a lk ing about the di fference of maybe $10,000

2 between two th resholds in the guidel ines . The defendant 's

3 calcula t ion tha t he gave you a few moments ago doesn ' t even

4 inc lude the cleaning expenses, and t ha t ' s severa l thousand

5 dol la rs two years in a row. And t ha t I j u s t don ' t see the

6 argument there . Again, the only argument could be, as he sa id

7 in h is papers , was t ha t you need to clean in order to make the

8 computers work. That simply doesn ' t hold water .

9 This i s an ind i rec t expense, something tha t i s

10 disa l lowed by the grant and was never budgeted and never

11 approved. That i s a loss to the government. I t was money t h a t

12 was spent in contravention of .c lear ru le s th at were se t out

13 governing the grant fund.

14 So given the fac t tha t we are l i t e r a l l y arguing now

15 about a couple thousand dol la rs here and there , and I

16 bel ieve - - we could s i t here and t a l ly up a l l of these

17 nonbudgeted expenses. I guarantee you, we would be over the

18 120,000 dol la r mark without any t rouble whatsoever.

19 THE COURT: What's the appl icable note tha t we apply

20 here to losses?

21 MR. EVERDELL: Your Honor, there are a few. One i s

22 the est imat ion of loss , which j u s t says - - thac ' s 3A - - 3C,

23 which says tha t the Court need only make a reasonable est imate

24 of the loss , but also the specia l rules .

25 THE COURT: You're looking in the commentary.




1

8AKMKARS Sentence

MR. EVERDELL: I 'm looking a t the commentary I yes l

42

2 your Honor.

3 Commentary 31 which i s loss under subsect ion Bl and

4 then 3C I es t imat ion of loss l sa id : The Court need only make a

5 reasonable es t imate of the l o ss . And the Cou rt 's lo ss

6 determinat ion i s en t i t l ed to appropr ia te deference. And then

7 if you look a t FIwhich are the spec ia l ru les - -

8 THE COURT: I j u s t want to see one second because I

9 have t rouble l I guess I in determining whether or not it should

10 be lo ss to the government or misappropr ia t ion .

11

12

MR. RUBINSTEIN: There i s another bas i s

THE COURT: In tent ional misappropriat ion by the

13 defendant . I t seems to me it should be i n t en t iona l

14 misappropr ia t ion by the defendant .

15 MR. EVERDELL: An i n t en t iona l misappropriat ion l your

16 Honor I would in clu de th e fac t tha t he was to ld tha t he needed

17 to submit a l l of these charges in h is budget and ge t pr io r

18 approval fo r them.

19

20 lacking.

21

THE COURT: The fraud and decei t element i s somewhat

MR. EVERDELL: Your Honor l as you l I think I pointed

22 out ea r l i e r l the case law shows t ha t you can have a

23 misapp rop ri at ion s ca se even i f the expendi tures arguably

24 b en efite d th e company. That ' s the Urlacher case.

25 THE COURT: I s n ' t th i s app l ica t ion to the benef i t of

SOUTHERN DISTRICT REPORTERS I P.C.

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8AKMKARS Sentence

43

1 the defendant , or th i rd party?

2

3

MR. E V ~ R D E L L : Or to the defendant .

THE COURT: That ' s under one of these guide l ines .

4 Which lS i t ?

5 MR. RUBINSTEIN: No, it's not , Judge. That i s for th e

6 purposes of gUil t . We are t a lk ing now fo r guidel ine purposes

7 determining the l o ss , which I sugges t i s a di f fe ren t analys is .

8 I th ink your Honor" should be d ire cte d to 2B1.1, 3B, where i t

9 says ga in . This i s an a l t e rna te method fo r the Court to use.

10 THE COURT: Let me f ind you, where you are . 3B. Now

11 you ' re going to the commentary.

12 MR. RUBINSTEIN: I 'm in the commentary, Judge. 3B

13 says ga in . The Court sha l l use the gain th a t re su lte d from the

14 offense as an a l t e rna t ive measure of loss only i f there i s a

15 loss , but it reasonably cannot be determ ined. And I submit to

16 your Honor tha t under these circumstances you cannot reasonably

17 determine what the loss i s , so you should look a t the gained

18 fac tor which in th i s case would r e su l t in looking a t the ren t ,

19 the $62,000; the u t i l i t i e s ; cleaning, i f you want; meals, and

20 you would be j u s t over $70,000. I th ink tha t is the

21 appropr ia te analys is here before you consider any c redi t s or

22 offse t s . But f i r s t we have to a r r ive a t what is an appropriate

23 f igure . Obviously, th e guid elin e considers the fac t of what

24 someone ac tua l ly puts in the i r pocket for personal benef i t s .

25 MR. EVERDELL: Your Honor, I have not looked a t the




8AKMKARS Sentence

44

1 case law on th i s recent ly and it was not c i ted in any

2 submission by Mr. Rubinstein, but I th ink the loss can be

3 reasonably de te rmined based on the numbers se t for th by the

4 government. I don ' t th ink we need to re ly on any a l te rna t ive

5 method of loss because we can determine what the government

6 l o s t as a r e su l t of a l l of t h i s .

7 I th ink, i f I remember correc t ly , the cases where you

8 ta lked about a l t e rna t ive lo ss c al cu la ti on s is where the

9 vict ims - - there a re so many vic t ims and the calcula t ion

10 involved th ings l ike s tocks and how the value of s tocks go up

11 and down and how t ha t ' s very h ard to es t imate . Here we are

12 ta lking about hard numbers. We know what grant money went to

13 the defendant and we know what he spent it on. The question

14 for your Honor to consider i s which of these expendi tures are

15 you consider asa loss to the government and which a re not .

16 THE COURT: Insofar as t he mi sapp li ca ti on involved

17 fraud, then I think you used loss . Insofar as the

18 misappl ica t ion i s in ten t iona l - - th i s appl ica t ion seems to be a

19 d i ff er en t d e fi ni ti o n of in tended. Then it seems to me to use

20 the gain to the defendant or a th i rd party . But I can ' t see

21 where I am in the guidel ine not ice . I don ' t see tha t it rea l ly

22 appl ies under the gu id e li ne no te s. So what I jus t sa id i s n ' t

23 suppor ted by the gu id e li ne not es .

24

25 tha t .

MR. RUBINSTEIN: What's tha t , your Honor? I missed


(212) 805-0300



1

8AKMKARS Sentence

THE COURT: What I j u s t s a i d isn't s u p p o r t e d by the

45

2 g u i d e l i n e n o t e s , a s I s e e it.

3

4

MR. RUBINSTEIN: What ' s t h a t , your Honor?

THE COURT: I g a t h e r t h a t you o n l y a p p l y g a i n t o an

5 i n t e n d e d m i s a p p l i c a t i o n , you a p p l y l o s s t o a f r a u d c a s e if it's

6 done by a f r a u d . Then you a p p l y l o s s . My problem from t h e

7 b e g i n n i n g h e r e has been t h a t d i s t i n c t i o n . I am n o t s u r e you

8 a p p l y l o s s h e r e .

9 MR. EVERDELL: Your Honor, t h e commentary t h a t t h e

10 government was f o l l o w i n g was a c t u a l l y - - i n comb inat ion w i th a

11 r e a s o n a b l e e s t i m a t e was t h e 3F s p e c i a l r u l e s .

12

13

THE COURT: Let me look a t t h e r u l e s .

MR. EVERDELL: 3F2, government b e n e f i t s , which i s a l s o

14 t h e s e c t i o n t h a t was c i t e d by t h e d e f e n d a n t i n h i s l e t t e r ,

15 which s a y s : I n a c a s e i n v o l v i n g government b e n e f i t s , e . g .

16 g r a n t s

17 THE COURT: It s a y s : S u b j e c t t o t h e e x c l u s i o n and

18 s u b d i v i s i o n if t h e l o s s i s t h e g r e a t e r o f a c t u a l l o s s and

19 i n t e n d e d l o s s . I n a s e n s e , t h e whole t h i n g , t h e whole

20 agreement was a l o s s t o t h e government .

21 MR. EVERDELL: Yes, your Honor. I n f a c t , t h e

22 defendant n e v e r even d i d h i s c o s t s h a r e , a s we know, and was

23 e s s e n t i a l l y n o t e n t i t l e d t o any o f t h e g r a n t money t h a t he

24 s p e n t .

25 THE COURT: There was h i s c o n t r i b u t i o n l a t e r , w a s n ' t


(212) 805-0300



8AKMKARS

there some money?

Sentence

46

MR. EVERDELL: I th ink a f t e r th e g ran t was suspended

the re was a con t r ibu t ion by th e defendant .

THE COURT: That went to outs tand ing b i l l s .

MR. RUBINSTEIN: That money was probably extended.

That ' s the whole purpose. I t inc reases your budget .

MR. EVERDELL: Your Honor, th e government to ld the

defendant t ha t in order to comply with th e cos t share he had to

make payments to the gove rnment and t h a t ' s th e payment tha t was

made, but I be l i eve t h i s was a f t e r - -

THE COURT: That ' s more than th e co s t share - -

MR. EVERDELL: I 'm so r ry . He did not make t h a t

payment.

THE COURT: The $70,000.

MR. EVERDELL: You a re ta lk in g about th e $70,000

loan - -

THE COURT: There i s some s ta tement in these papers

t h a t he gave 70,000 a f t e r the c lo si ng p er io d .

MR. EVERDELL: Tha t $ 70 ,0 00 , which I be l i eve

Mr. Rubinstein was saying was done between Ju ly 27 - - June 27

o f 2003 and August o f 2003 was a f t e r the suspension.

THE COURT: What was t h a t used for?

MR. EVERDELL: One moment, your Honor.

Your Honor, I be l ieve my unders tanding i s the re were

outs tanding invoices a t the t ime t ha t the $70,000 was used to


(212) 805-0300



8AKMKARS Sentence

47

1 pay the outs tanding invoices . It was not ac tua l ly used to pay

2 the government any of the cos t share amount. So t ha t didn ' t

3 t rans la te - -

4 MR. RUBINSTEIN: You never pay th e government the cos t

5 share . You put the money in so you take th e money out and

6 spend it. 'I 'hat' s the concept . The money

7 THE COURT: I t doesn ' t go to the government. I t goes

8 to the budge ted i tems during th e p erio d of the gran t . Before

9 it was suspended - -

10 MR. EVERDELL: I th ink tha t i s the po in t , your Honor.

11 It wasn ' t before the grant was suspended. The grant was

12 suspended on June 27, 2003.

13

14

THE COURT: To keep CASI going.

MR. EVERDELL: But under the guidel ine ru les , i f the

15 f raud, i f th e misappropriat ion i s discovered by a government

16 agency, tha t i s the po in t a t which you s t a r t you cu t off

17 people from· get t ing c red i t from paYments they make l a t e r . And

18 as I think I out l ined in the government 's l e t t e r to the Court,

19 t ha t da te predates the suspension date because we had tes t imony

20 from Hope Snowden who t e s t i f i e d tha t when she was get t ing

21 revised budge t submis sion s a t the end of 2002 and the beginning

22 of 2003, she noticed there were ser ious discrepanc ies in the

23 budget numbers and t ha t ra i sed red f lag s to her t ha t there may

24 be some problem with t he app rop ri at io n of these funds and t ha t

25 led to them ca l l ing it of f .


(212) 805-0300



1

2

II 8AKMKARS Sentence

THE COURT: I th ink t ha t ' s covered in my opinion.

MR. EVERDELL: That i s the date o f d is co ve ry and the

48

3 defendant i s , in fac t, not ent i t l ed to a cred i t fo r any funds

4 he m ~ y have given back a t tha t poin t because the

5 misappropr ia t ion was discovered.

6 MR. RUBINSTEIN: That ' s not , your Honor - - I'll take a

7 look a t your opinion. That ' s not the date of the discovery

8 from the standpoint tha t the defendant pu t monies back because

9 he thought tha t it was discovered he did something wrong. The

10 bottom l ine i s , he d idn ' t th ink he did anything wrong. That ' s

11 the whole concept of the discovery i s tha t we don ' t want

12 somebody to run back and put money in a f t e r they f ind out tha t

13 th eir th ef t has been discovered.

14 This i s a misappropr ia t ion case and he did not feel - -

15 he was a he then tha t he had done anything wrong. And it's

16 h is mental process, not t he i r mental process, because the whole

17 concept i s , hey, .i f you ge t caught s tea l ing , a t tha t point ,

18 when you give it back, it's not the same as i f you did th is

19 volunta r i ly because you rea l ized you did something wrong and

20 you wanted to make amends before it was detected . S o l think

21 tha t they have the wrong person tha t has to be aware of when

22 there i s something wrong here .

23 THE COURT: I see tha t th i s sect ion, subsect ion of the

24 commentary, subsect ion I I says, in a case involving government

25 benef i t s , ent i t lement program paYments, losses sha l l be


(212) 805-0300



8AKMKARS Sentence

49

1 considered to be something obta ined from unintended rec ip ients

2 o r d iv erted to unintended uses . The problem I 'm having i s t ha t

3 there i s more than one s ta tu te - - the s ta tu te deals in terms of

4 fraud in one case and in ten t ional misappl ica t ion in another .

5 And it does seem to me tha t benef i t s obta ined by unintended

6 rec ip ients dea ls with i n t en t iona l misapplicat ion of funds

7 d iv erte d to unintended uses . The second pa r t of th i s note to

8 t he gui de li ne s i s more d i f f i c u l t to apply in in te nt io na l

9 misappl ica t ion of funds in terms of showing t ha t it was an

10 in ten t ional m isapp lic a tion . A ll the evidence in the case kind

11 of shows t ha t when con fr on ted w it h misapplying the funds, he

12 would say things l ike , my mother has got the money or something

13 el$e , I 'm working on i t , they are going to come along, and the

14 l ad ies down there a t the program love me and everything i s

15 going to be a l l r igh t . Never does he make a s ta tement , a t

16 l eas t to these par t i es , the he l l with ru les , I 'm taking the

17 money. They owe it to me for my research.

18 I f ind it d i f f i c u l t to apply th e g uid eli ne s in th is

19 case . Maybe the guidel ines make it a s i tua t ion tha t d idn ' t

20 occur to the dra f te r s of th e gu id el in es . It's not the usual

21 case, as I understand i t .

22 Are there other cases of th is so r t th at e i th er par ty

23 i s re ly ing on involving the in ten t ional misappl ica t ion - - are

24 th ere othe r cases· involving the in ten t ional misappl ica t ion of

25 funds as opposed to fraud, embezzlement?




1

8AKMKARS Sentence

MR. EVERDELL: I looked for some cases t ha t ta lked

50

2 about loss amount in sentencing. I d idn ' t f ind anything very

3 helpful in tha t regard. What I was going with was l i t e ra l ly

4 what I got fr8ffi the guidel ines .

5 But I still don ' t know why it's d i f f i c u l t to apply

6 d iv erted to unint ended uses in th i s case , tha t prong of the

7 guide l ines , specia l ru les fo r government benef i t s , because t h a t

8 seems to me to be the def in i t ion of misappl ica t ion . You're

9 taking funds and applying them fo r unintended uses , unintended

10 in th i s case by the people who gave out th e gran t money, NIST.

11 And unintended in th e sense t ha t they gave out the money with

12 l o t s of ru les at tached to it, tha t they made c l e a r to the gran t

13 rec ip ients and those were the in te nd ed u se s of money, t ha t i s ,

14 expendi tures t ha t followed the grant spending ru le s . And

15 anything t ha t d id not follow the gran t spending ru les was an

16 unintended use of t ha t grant money. I th ink t ha t was made very

17 c lea r to the defendant in th i s case and, from the test imony, to

18 a l l grant r ec ip ie nts , th at th ings l ike th e k ick off meeting an d

19 other th ings l ike tha t . I th ink t ha t i s ac tua l ly the

20 appropr ia te par t of the guide l ines to be applying in th i s case,

21 tha t the money t ha t was spent , contrary to g ran t spending

22 ru les , was diver ted fo r an unint ended use and t ha t t ha t

23 cons t i tu t es a loss .

24 Now, your Honor ra i sed some d i f f i cu l t i e s you had with

25 the ca lcu la t ions fo r ce r ta in th ings and whether overbudget


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8AKMKARS Sentence

51

1 expenses should count or should not . We have, a t le a s t , I

2 th ink, provided a more s impl i s t i c and one t ha t benef i t s the

3 defendant way of th inking about th i s , which i s j u s t looking a t

4 the unbudgeted categor ies . Those are c lea r ly cases , money t ha t

5 was spent contrary to the g ran t ru le s because the re was

6 absolu te ly nothing in the budget t ha t spoke to it. These are

7 monies t ha t were expended without any re fe rence to the grant

8 ru les whatsoever.

9 Now, defendant can argue t ha t these th ings arguably

10 benef i ted the research in some way. Perhaps they did , but

11 tha t ' s not the s tandard t ha t we need to opera te with because

12 tha t would sweep in every s ing le expenditure . There would be

13 no loss in any of these types of cases i f t h a t ' s the way we

14 have to look a t it. I f you look a t the unbudgeted ca tegor ies

15 and you apply to unintended uses , being d iver ted cont ra ry to

16 the gran t ru les , t ha t provides a framework fo r the loss amount

17 tha t ' s appropr ia te in th is case .

18 MR. RUBINSTEIN; Your Honor, I think th a t th is case i s

19 outs ide the hear t land because I don ' t think anybody envisioned

20 a case where somebody got a grant , spent a l l t he i r t ime and

21 energy on tha t grant , bough t equ ipment in fu r therance of the

22 grant . There i s no sugges ti on he re . As a mat ter of f ac t , Lide

23 even t e s t i f i ed t ha t Dr. Karron met a l l the benchmarks, and your

24 Honor sa id something t ha t I have to ta ke oppo si ti on to ,

25 suggest ing tha t nothing came of th i s research .

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



1

8AKMKARS Sentence

THE COURT: No. Saying tha t the pro jec t wasn ' t

52

2 completed, so I suppose tha t they d idn ' t ge t t he i r money's

3 worth in tha t sense.

4 MR. R U B I N S T E ~ N : No. Because the government gets

5 t he i r money's worth s ince they d idn ' t have a f in an cia l b e ne fi t,

6 no matter what, and tha t the whole concept was tha t i f

7 something was developed, Dr. Karron and CASI would keep a l l the

8 prof i t s fo r themselves. Society would benef i t . They were

9 doing research on a cut t ing edge. We have to go back seven

10 years ago. Now it's commonplace. But they were deal ing with

11 the concept o f - - I hope I pronounce th i s r i gh t - - topologica l

12 imaging t ha t they use today in many medical fac t ions .

13 I submit to the Court and the government a paper tha t

14 was submit ted f or publ ic a ti on , c i t ing work tha t was submitted

15 to a medical journal , c i t ing th i s work because, in fac t , tha t

16 was the whole purpose of th i s research . That ' s why the gran t

17 was given, to develop th is concept, a t a t ime where they use

18 computers ha l f the s ize of th i s room. Today they probably

19 could use a laptop and get the same informat ion. I know I have

20 it here . Jus t a second, your Honor.

21 THE COURT: I 'm not taking i ssue with tha t ,

22 Mr. Rubinstein . I am not taking i ssue with tha t . I t never

23 came to f ru i t ion with the commercia l iza t ion of the process , as

24 fa r as I know.

25. MR. RUBINSTEIN: They are t a lk ing about the amount


(212) 805-0300



8AKMKARS Sentence

53

1 tha t Dr. Karron rece ived and the f igure tha t we s ta r t ed out

2 with from - - as to sa la ry , it seemed to me th a t th a t figure, a s

3 I c ited in my submission of October 17, on page 3 f i r s t of

4 a l l , they have 129,850 in loans. This i s a t 110, Government

5 Exhibi t 110, 38 through 40 of 44, th e second port ion of 110.

6 They show 129,850 loans to Dr. Karron. We dispute one, and I

7 have backup fo r i t , a $750 check t ha t was r ea l l y fo r Scot t Alba

8 tha t was advanced from defendant out of h is own money. Then

9 December 30, '02, 15,00 0 check tha t ' s fo r reimbursement.

10 Doe sn 't s ay anywhere on tha t check where it says loan, we

··11 reduced those numbers.

12

13

THE COURT: Why do you say t ha t shouldn ' t . be

MR. RUBINSTEIN: Because tha t was a pa r t i a l

14 reimbursement. There i s nothing on t ha t check - -

15 THE COURT: I f he wri tes a check and it says par t i a l

16 reimbursement on i t , i s n ' t tha t reimbursement fo r loans taken?

17 MR. RUBINSTEIN: It's pa r t i a l r eimbursement because

18 the medical expenses t ha t were on the c red i t cards - -

19 THE COURT: What 's pa r t i a l reimbursement of expenses

20 taken? I don ' t know what you ' re t a lk ing about .

21 MR. RUBINSTEIN: Out-of-pocket expenses tha t he paid

22 on the MasterCard t h a t ' s in evidence. They never give him

23 c red i t fo r the monies t ha t we have the documentat ion t ha t we

24 submit ted to the Court , and I have add i t iona l documentation

25 showing - - not only showing t ha t these bookkeeping en t r i e s gave




8AKMKARS Sentence

54

.1 back 67 - - $75,000 t h a t was given back by s a l a r y paychecks t h a t

2 he never g e t s c r e d i t f o r . It seems t o me when they came up

3 w i t h t h e f i g u r e t h a t they used f o r h i s s a l a r y , they included

4 t h e 60,000 of r e n t . I mean, they have never s a i d - -

5

6

THE COURT: I d o n ' t t h i n k it d i d .

MR. RUBINSTEIN: I f you look a t pages 38 through 40 o f

7 E x h i b i t 110, t h e one t h a t ends i n 44 - -

8

9

THE COURT: 1 and - -

MR. RUBINSTEIN: The second h a l f of 110 has 38 of 44.

10 The beginning p a r t says

11

12

THE COURT: 38 of 44, y e s .

MR. RUBINSTEIN: We have 38 of 44, 39 of 44, 40 of 44.

13 It s t a r t s out on t h e top of 38 saying, Dr. K a r r o n ' s l o a n s . I

14 have t h e check t h a t I submit ted as p a r t of it on t h e $15,000

15 l o a n . It d o e s n ' t say anything about loan. Here she p u t s DPK

16 loan , b u t t h e r e i s nothing on t h e check t o i n d i c a t e loan .

17 There a r e o t h e r checks t h a t do say loan. So why - -

18

19

20

21

THE COURT: Which one i s t h a t ?

MR. RUBINSTEIN: J u s t above t h e l i n e f o r loan repay.

THE COURT: I see it. I see t h a t .

MR. RUBINSTEIN: This i s 9/12/02, check 10451, it's

22 II w r i t t e n t o Dr. Karron.

23

24

25

THE COURT: Can I s e e t h e check?


THE COURT: It's a check payable t o Dr. Karron. It

SOUTHERN DISTRICT REPORTERS, p.. C.

(212) 805-0300



8AKMKARS Sentence

55

1 says something. It's depos i ted . It i s n ' t sa la ry . Why i s n ' t

2 it a loan?

3 MR. RUBINSTEIN: Why i s it a loan? It's a

4 re imbursement . It doe sn ' t say a n ~ ~ h e r e what it i s , bu t they

5 c l a s s i f i ed it as a loan .

6

7

THE COURT: I would, too , i f I see it paid to him.

MR. RUBINSTEIN: They have o the r checks , your Honor,

8 where it says loan on it.

9

10

THE COURT: Where does it show as reimbursement?

MR. RUBINSTEIN: It doe sn ' t show on t h a t check. We

11 unders tand it's on th e check s tub .

12 THE COURT: Reimbursement fo r what? It's a round sum.

13 It sounds r a the r s t r ange to be a reimbursement.

14 MR. RUBINSTEIN: This comes out of th e Quick Books,

15 you wi l l r e ca l l , your Honor, th e comput er -gener at ed so ftwa re

16 t h a t they had, s6 it's in t h a t sof tware .

17

18

19

20

21 15,000

22

THE COURT: For 1 5,0 00 ro un d dol l a r s?

MR. RUBINSTEIN: You have to have an invo ice

THE COURT: You never have a reimbursement l i ke t h a t .

MR. RUBINSTEIN: He had a number o f i tems. He took

THE COURT: It j u s t happens to add up to 15,000. It's

23 very s t range . Le t ' s see th e backup.

24 RUBINSTEIN: Your Honor, if you can give us a

25 s ho rt r ec es s. Dr. Karron came with the computer . He fo rgo t to


(212) 805-0300



8AKMKARS Sentence

56

1 b r i n g t h e power s u p p l y . We could g e n e r a t e it r i g h t h e r e . We

2 have it i n t h e computer . I f he can r e c e s s

3

4

THE COURT: D o e s n ' t show r e n t , does i t ?

MR. RUBINSTEIN: Yes. He has e v e r y t h i n g i n t h e

5 computer i n t h e Quick Books t h a t a r e i n t h e computer . We don ' t

6 need - -

7 THE COURT: This d o e s n ' t show t h a t t h e amounts taken

8 f o r r e n t were p a r t o f t h e s a l a r y computa t ion.

9 MR. RUBINSTEIN: What I ' m s a y i n g , Judge, I was t r y i n g

10 t o add up t h e numbers t o g e t t o h e r number. And t h e o n l y way I

11 c o u l d do t h a t was by th rowing i n t h e 60,000 f o r s a l a r y so t h a t

12 i f , i n f a c t , h i s s a l a r y i s a c c u r a t e , which he has - -

13 THE COURT: I ' v e g o t t o g e t t h i s s e n t e n c e completed.

14 We can t a k e a f i v e - m i n u t e r e c e s s , if t h a t ' s what you want.

15 Take a f i v e - m i n u t e r e c e s s then, b u t I d o n ' t t h i n k it's going t o

16 make much d i f f e r e n c e .

17

18

19

20

MR. RUBINSTEIN: A l l r i g h t , Judge.

(Recess)

THE COURT: Mr. R u b i n s t e i n .

MR. RUBINSTEIN: Your Honor, Dr. Karron purchased t h e

21 n e c e s s a r y p a r t - - a c t u a l l y , I gave him my c r e d i t c a r d - - and

22 t h e machine i s b o o t i n g up. We should have it momentari ly .

23 MR. KWOK: Your Honor, w h i l e we a r e w a i t i n g , if t h e

24 Cour t p l e a s e s , we c o u l d go t o t a l k about t h e 3553(a) f a c t o r s ,

25 which i s a n o t h e r major f a c t o r .


(212) 805-0300



1

8AKMKARS

57

Sentence

THE COURT: I want to deal with th e computat ion. Then

2 we can dea l with the 3553(a) f ac to r s .

3 When wi l l you be ready, Mr Rubinstein?

4 MR. RUBINSTEIN: Your Honor, do y o ~ have a computer

5 screen t ha t we can plug in to to show you t h a t would be more

6 e f f i c i en t to show you?

7

8

THE COURT: No, I don ' t have one here .

MR. KWOK: Your Honor, j u s t to save t ime on t h i s , I

9 th ink t h a t what they a re t ry ing to p r i n t out i s the Quick Books

10 ledger , which i s not in evidence, which i s no t au then t i ca ted ,

11 which i s a document t ha t witness a f t e r witness have

12 t e s t i f i ed - -

13

14 out .

15

THE COURT: I don ' t know what he ' s t ry ing to p r i n t

MR. RUBINSTEIN: I t doesn ' t have to be in evidence fo r

16 th e pu rp oses o f sentencing, your Honor.

17

18

THE COURT: What are you t ry ing to pr in t out?

MR. RUBINSTEIN: We a re t ry ing to p r i n t out the backup

19 to t ha t $15,000 check to show your Honor tha t , in fac t , th a t i s

20 no t a loan ; was, in f ac t , a reimbursement.

21 THE COURT: I am. not going to make th e fin din gs on

22 t h a t i s sue . I am going to make th e fin din gs on the bas i s t ha t

23 Mr. Everdel l sugges ted . And taking the amounts in the o ther

24 ca tegor ies t h a t a re no t included in the budget and making th e

25 adjustments he t a lked about , giving the defendant c red i t fo r




8AKMKARS Sentence

58

1 th e u t i l i t i e s and a l l . It seems to me t h a t the amount of the

2 lo s s , pursuant to guide l ine 2Bl .1, i s more than $120,000.

3 I s n ' t t h a t your cor rec t conclusion, Mr. Everdel l?

4 MR. EVERDELL: Yes, your Honor, t h a t ' s so r r ec t , more

5 than 120,000 adding ten po in ts to a base offense of 6.

6 THE COURT: I th ink t h a t ' s borne out by the f igures

7 with adjus tments t h a t you poin ted oUL, Mr. Rubinstein , as the

8 t o t a l l os s to th e - - which should be computed, in tended loss

9 which should be included fo r g uid elin e ca lcu la t ion purposes,

10 which makes a t o t a l l o s s ·o f 16 l eve l s .

11 MR. RUBINSTEIN: Your Honor, I th ink your Honor has to

12 consider th e c red i t s aga ins t whatever lo s s your Honor has · - -

13

14

15 th e

THE COURT: I don ' t th ink th e re a re any c red i t s - -

MR. RUBINSTEIN: Your Honor, I submit t h a t under

t h a t the amount of sa la ry th at they have ca lcula ted i s

16 not supported by any documentat ion they submit ted.

17 THE COURT: In t ha t tabula t ion I agree with you, t h a t

18 th e ent ry includes sa la ry and loans as they ca lcu la ted i t , but

19 it doesn ' t make much dif ference because the 80,000 odd do l la r s

20 t h a t the defendant was en t i t l ed to r ed i s t r i bu t e a re

21 incorpora ted in the equipment - -

22

23 f igures

24

25

MR. RUBINSTEIN: I subm it, your Honor, under t he i r

THE COURT: Other en t r i e s .

MR. RUBINSTEIN: I submit under t he i r f igures , Judge,


(212) 805-0300



8AKMKARS Sentence

59

1 t h a t they have added back t h e $60,000 r e n t . I f you t a k e a

2 look

3

4

THE COURT: There i s no showing o f t h a t .

MR. RUBINSTEIN: There i s , Judge. They hav2 n o t shown

5 you a t a l l where they g e t t h e f i g u r e t h a t they have i n 114.

6 And I submit t h e o n l y backup i s on page 38, 39, and 40 of

.7 E x h i b i t 110 of 44 pages . And t h e o n l y t h i n g they have t h e r e i s

8 a loan which they c l a i m i s $129,000, repaYment i s 37,000.

9 Taking t h e i r b e s t f i g u r e s - -

10

11

THE COURT: You haven-' t g o t t e n any s a l a r y - -

MR. RUBINSTEIN: S a l a r y o f 37,000 - - of, r a t h e r ,

12 35,000, and you have t o add t h e $60,000.

13 THE COURT: I ' v e g o t t o t a k e i n t o account on t h e

14 s a l a r y t h e f i g u r e s t h a t apply t o w i t h h o l d i n g t a x e s , e t c e t e r a .

15 MR. RUBINSTEIN: Yes. I d o n ' t d i s a g r e e w i t h t h a t ,

16 Judge, b u t I submit t h a t they have a $129,000 i n a loan and

17 t h e y d o n ' t show t h e repaYment o f t h e 67,000.

18

19

THE COURT: RepaYment i s r i g h t below it.

MR. RUBINSTEIN: No. They d o n ' t inc lude it t h e r e .

20 The two checks t h a t I submit ted t o t h e Court t h a t I have c o p i e s

21 o f w i t h t h e backup showing

22 THE COURT: Those checks a r e a f t e r t h e c l o s e o f t h e

-23 p e r i o d and were f o r , a s I u n d e r s t a n d it, expenses i n c u r r e d

24 t h e r e a f t e r .

25 MR. RUBINSTEIN: No, your Honor. We a r e t a l k i n g about

S O U T H E ~ DISTRICT REPORTERS, P.C.

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8AKMKARS Sentence

60

1 two separate things. We a re ta lk ing about , one is the salary

2 t ha t i s submitted in our l e t t e r of the 17th where we provide to

3 the Cou rt ch eck of August 2, '02, a year before the grant was

4 suspended, ac tua l ly ten months before the grant was s u s p e ~ d e d5 where you have - - th a t 's in evidence - -6

7

THE COURT: Where a re you reading?

MR. RUBINSTEIN: I 'm looking a t our l e t t e r of October

8 17, your Honor. And I am showing you what was previously

9 marked as Defendant 's p6 in evidence, which shows - -

10 THE COURT: You ' l l have to show me and you ' l l have to

11 show Mr. Kwok.

12

13 to it.

14

15

16

MR. RUBINSTEIN: Mr. Kwok has the page. He has turned

THE COURT: $5,000 check?


THE COURT: That shows the defendant had taken $61,918

17 in sa lary j u s t below i t .

18

19

MR. RUBINSTEIN: Right . And t ha t

THE COURT: 61,000 plus 129,000. I f th at 's the

20 government 's f igure, adds to more than $200,000,· r ight?

21

22

23

MR. RUBINSTEIN: No, your Honor.

THE COURT: $187,000.

MR. RUBINSTEIN: The Court 1S commingling two

24 di f fe ren t concepts . One i s they claim there i s a loan

25 outstanding tha t they never gave him c red i t for anywhere of




8AKMKARS Sentence

61

1 $75,000 t h a t was taken in October of 2001. I th ink the date

2 was October 25 o r 26 o f 2001.

3

4

THE COURT: Tha t ' s what the loan advances .

MR. RUBINSTEIN: It doe sn ' t show th e o f f s e t of tha t

5 loan. -What I 'm showing your Honor i s - -6 THE COURT: I know you had o f f se t s fo r the l oan . I

7 have given you c r ed i t fo r t h a t and I have gone over your

8 f igures in your l e t t e r and I ' ve made ca lcu la t ions on the bas is

9 of it. It shows me t h a t t he re i s still a ne t paYment due the

10 government on loans .

11 MR. RUBINSTEIN: But when you add t h a t toge ther with

12 th e sa l a ry , it shows t h a t Dr. Karron d id no t ge t h is fu l l

13 sa l a ry .

14

15

THE COURT: I agree he d idn ' t .

MR. RUBINSTEIN: So he should have an o f f se t under

16 guide l ine 2B1.1(3) (e) fo r c r ed i t aga ins t los s fo r serv ices

17 rendered. He rendered th e se rv ice s , he was en t i t l e d to fu l l

18 sa l a ry .

19

20

THE COURT: He got it in th e form of loans .

MR. RUBINSTEIN: I su bm it, Jud ge, t h a t it doesn i t

21 compute - - t h a t th e loan ca lcu la t ion does not compute to what

22 they a re say ing and I submit ted in my l e t t e r - -23

24 s imple .

25

THE COURT: He got it in th e form of loans . It's very

MR. RUBINSTEIN: Your Honor, in my l e t t e r I showed the




1

II 8AKMKARS

Court - -

62

Sentence

2

3 in loans

THE COURT: I f you t ake the money from the corporat ion

4 MR. RUBINSTEIN: He took loans, but he paid it back

5 ou t of these sa lary

6

7

THE COURT: In pa r t

MR. RUBINSTEIN: In par t . So t ha t l e f t , your Honor, a

8 balance in a wors t case - - in a bes t -case scenar io fo r the

9 government of $24,765.81, and you have to add to tha t the

10 60,000 from the ren t .

11

12

THE COURT: No, you don ' t . Add to i t ?

MR. RUBINSTEIN: They did, though. They have never

13 submit ted how they arr ived a t t he i r f igure of th e 200,488 in

14 th e chart, 114.

15 THE COURT: All I have to do i s use my bes t judgment

16 on the f igures t ha t a re here . I exerc i sed them arid I have read

17 your papers ., and I ' ve taken them under account and I have

18 somewhat s t ruggled with them, I must admit tha t . I ' ve

19 ca lcu la ted h is c r ed i t s for sa la ry not taken and of f s e t tha t

20 agains t the loans . I still ge t the balance of loans due the

21 corpora t ion from Dr. Karron of severa l thousand do l l a rs .

22 Without t ak ing in to account in any way the ren t he re ce iv ed o f

23

24

25

$60,000.

MR. RUBINSTEIN:

see how t ha t i s poss ib le .

(

In a l l due respect , Judge, I don ' t

Nobody has shown me to th i s point .

SOUTHERN DISTRICT REPORTERS, P.C.(212) 805-030Q.·



8AKMKARS Sentence

63

1 The government hasn ' t proffered how they come to t he i r f igure .

2 I frankly don ' t comprehend i t , but I th ink tha t even - -

3 THE COURT: I th ink you 've got to read s a l a r i e s ,

4 Dr. Karron 's sa la r ie s , as sa l a r i e s plus loans .

5

6

7

MR. RUBINSTEIN: I do, your Honor.

THE COURT: The loan en t r i e s .

MR. R U B I N S T ~ I N : I ,do. I see an entry fo r $75,000 as

8 a loan and I don ' t see any sa la ry - - I don ' t see the balance o f

9 th e two e ntr ie s th at I submitted to your Honor - -

10 THE COURT: I f he had taken the sa lary , you'd have a

11 worse s i t ua t ion because you then have the paYments due the

12 government for withholding t ha t weren ' t made, soc ia l secur i ty

13 weren ' t made, the other paYments of taxes not made as a r e su l t

14 of taking less sa la ry . The s i t ua t ion would be l e ss i f he had

15 taken a l l h is sa la ry . He would have a worse s i tua t ion

16 confront ing him.

17 MR. RUBINSTEIN: Do I unders tand t ha t the Court 1S no t

18 giving him c redi t fo r the $70,000 t ha t he contr ibuted in July

. 19 and August a f t e r the gran t - - th i s i s money t ha t he took out of

20 a home equi ty loan, and I submitted the documentat ion to show

21 t ha t .

22 THE COURT: I went in to tha t ea r l i e r in f ront of you

23 with counsel and it was s ta ted on the record , without any

24 except ion taken, tha t those mon ies were fo r add i t iona l

25 expendi tures t ha t have been made between June 30 or June 23 and




8AKMKARS Sentence

64

1 t h e d a t e o f payment of t h o s e amounts .

2 MR. RUBINSTEIN: But he should g e t c r e d i t f o r t h a t .

3 These a r e expenses - -

4 THE COURT: Depends on when t h e e x p e n d i t u r e s were made

5 and, a s s t a t e d i n open c o u r t and n o t o b j e c t e d t o by you, t h e s e

6 were e x p e n d i t u r e s t h a t o c c u r r e d a f t e r t h e p e r i o d o f t h e a u d i t .

7 MR. RUBINSTEIN: The a u d i t , your Honor - - t h e a u d i t

8 d i d n ' t occur

9 THE COURT: The a u d i t d i d n ' t occur u n t i l l a te r ,

10 obviously , b u t books and r e c o r d s were reviewed a s of t h e date

11 June 23, a s I u n d e r s t a n d it, t h e d a t e o f s u s p e n s i o n .

12 MR. RUBINSTEIN: He was unaware o f t h a t . As a m a t t e r

13 o f f a c t , Judge, you may r e c a l l t h e tes t imony t h a t he d i d n ' t

14 r e c e i v e a copy o f t h e a u d i t u n t i l September, so he was t o t a l l y

15 unaware o f any d i s c r e p a n c i e s . He unders tood t h a t t h e g r a n t was

1£ suspended because - -

17 THE COURT: It d o e s n ' t m a t t e r whether he was aware o f

18 it o r n o t . It's i r r e l e v a n t .

19 MR. RUBINSTEIN: I t h i n k , Judge, t h a t t h e concept i s ,

20 when h e ' s aware, because it's when he becomes aware whether o r

21 n o t h i s i n te n t i o n i n making compensat ion was motiva ted by a

22 g u i l t y mind.

23 THE COURT: A l l I know - - I am going t o t a k e t h a t i n t o

24 account i n connect ion w i t h t h e 3553(a) , b u t n o t t a k i n g t h e

25 g u i d e l i n e computa t ion. I ' m making t h e g u i d e l i n e computat ion a s


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65

1 I ' v e s t a t e d , and on t h a t b a s i s . And I'll hear from you f u r t h e r

2 on 3553(a).

3 MR. RUBINSTEIN: Yes, your Honor. I t h i n k t h a t t h i s

4 i s a case t h a t i s very unusual i n t h a t Judge Rakoff used t h i s

5 language i n the case t h a t I p r e v i o u s l y c i t e d , and I have a copy

6 f o r the government and your Honor, Adelson. Unfor tuna te ly

'7

8

9 a r e - -

10

THE COURT: Y o u ' l l want your n o t e s , w o n ' t you?

MR. RUBINSTEIN: Judge, Ju dge Rakoff s a i d t h a t there

THE COURT: It's a s e c u r i t i e s f raud c a s e . What p a r t

11 o f the c a s e do you want me t o r e f e r ? I t h i n k I s e e a l i t t l e

12 e r r o r i n t h e opinion , but it 's n o t - - t h e s i x o r seven p o i n t s

13 under t h e base l e v e l d o e sn 't depend on t h e d a t e o f t h e o f f e n s e .

14 It depends on t h e maximum p e n a l t y f o r t h e o ff e n s e . Here the

15 maximum p e n a l t y was t e n y e a r s , so only s i x p o i n t s a r e allowed.

16 I f it were 20 y e a r s , it would be seven p o i n t s . It has nothing

1'7 t o do with t h e d a t e o f the o f f e n s e . I t has something to do

18 w it h t h e maximum p e n a l t y on t h e o f f e n s e .

19 Give me something e l s e .

20

21

MR. RUBINSTEIN: I have t h e language.

THE COURT: T e l l me what y o u ' r e r e l y i n g on, because

22 h e ' s probably r i g h t .

23 MR. RUBINSTEIN: I'll t r y and f i n d it as I 'm reading

24 it here , b u t I have t h e quote . There may be c a s e s i n which the

25 o f f e n s e l e v e l determined under t h e g u i d e l i n e s s u b s t a n t i a l l y


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66

1 overs ta tes the ser iousness of the offense.

2 THE COURT: You can ge t th a t in secur i t i es cases

3 because of the number the people who lose as a r e su l t of the

4 f raud commi tt ed by the of f i c i a l s of the company. The stock i s

5 publ ic ly t raded and, therefore , you have a number of

6 t ransact ions involved, so you ge t tremendous losses , as you do

7 in th i s case, Adelson case. This i s a di f fe ren t case.

8 MR. RUBINSTEIN: He was re fer r ing to tha t , Judge, and

9 you ' re absolu te ly r i gh t - -

10

11

THE COURT: I 'm ful ly aware - - I understand tha t .

MR. RUBINSTEIN: In th i s case, your Honor, it i s a

12 unique case and the government cannot poin t to one case l ike it

13 because there i s no case l ike it. And I think tha t the

14 guidel ines overs ta te t he s er ious ne ss of what happened here.

15 There i s no quest ion tha t the United Sta tes Government

16 afforded Dr. Karron an opportu nity to do research. They had no

17 ves ted in te res t f inancia l ly in the pro duct of h is research.

18 Even though he has a business background tha t dates back over

19 20 years , he was i ll- eq u ip pe d to handle these funds. And i f

20 you could see the way he withdrew money, j u s t the dates when he

21 did i t , whether you ca l l it a loan or a sa lary , you see he

22 funct ioned as i f whenever he needed money he would take i t .

23 So he d idn ' t take a sa lary un t i l Apri l or May of 2002,

24 e igh t months in to the g rant . He takes h is f i r s t sa lary check.

25 Before tha t he ' s taking loans. At the end of the year he winds


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8AKMKARS Sentence

67

1 up tha t he owes a l l th i s money t ha t he had taken as a loan back

2 in October 2001, so they take it as sa lary a t tha t t ime.

3 All h is ef for t s and a l l h is energies were devoted to

4 th i s projec t , to do th e re se arc h t ha t the government wanted to

5 be performed .for everybody in soc ie ty ' s benef i t . That ' s why he

6 got th i s grant . And when they say cred i t agains t lo ss in

7 2B1.1(e) , they are ta lking about monies re turned, f a i r market

8 value fo r the proper ty returned and the serv ices rendered.

9 There i s no way to quantify what the value of what Dr. Karron

10 created a t t ha t time in th i s tqpographical imaging tha t ' s used

11 today in a l l kinds of surger ies and what benef i t it was to the

12 nat ion and to the world.

13 I think tha t tha t takes th i s case out of the hear t land

14 because he, as you know from everything sa id , he d idn ' t get

15 involved here to benef i t himself f inancia l ly . He took the ren t

16 money. He shouldn ' t have taken it. He owed debts , so he paid

17 the debt with the ren t money. That was wrong. That was wrong.

18 I think tha t th is case goes outs ide t he hea rt la nd ,

19 t ha t your Honor should consider 3553 Ti t l e 18, U.S.C. , and

20 consider giving him a nonguideline sentence. And I think tha t

21 because you sa t through a t r i a l with Dr. Karron and.you know

22 a i l the evidence and the background and the way he was advised

23 by people not to do th i s , not to do tha t , and he, l ike a bowl

24 in a China shop, ins i s ted on doing it h is way, tha t i s why

25 there i s rea l ly a l eg i t imate l ike l ihood tha t i f he had followed


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8AKMKARS Sentence

68

1 protocol and followed procedure tha t he would not have been

2 s i t t i ng here as a defendant in a c rim in al c as e.

3 I t seemed tha t although the budget, which he

4 submitted. Remember, he submitted a budget . He put down

5 110,000 fo r equipment. That was what 's accepted. He put down

6 for subcontractors, he put down 250,000. He found tha t he

7 could get students for free . Is he ent i t l ed to an of f se t or

8 cons id e ra ti on f or tha t because he d idn ' t spend the government 's

9 money on subcontractors and got f ree employees to do a job?

10 There i s no suggestion here tha t the equ ipment he

11 purchased he used fo r o ther i tems other than th i s projec t . The

12 government, b y law, owned th i s equipment. Yes, a t the end of

13 the day it was possib le for a grant rec ip ien t to get possession

14 and benef i t from tha t equipment, but , in rea l i ty , he was using

15 government money to buy government equ ipment which the

16 government took back. They not o nly .to ok back the i r equipment,

17 they took back everything, piece of equipment tha t he ,had,

18 whether they had any r i gh t to it or not, and they kept i t .

19 So tha t ' s where he found himself in th i s case. So I

20 th ink when you look a t the way he managed h is money, he saved

21 the government cons iderable money on subcontractors. He saved

22 them, according to the government's own f i ~ J r e s , in the f i r s t

23 year $174,000 j u s t on subcontractors. He got the work done,

24 but he d idn ' t have to spend the money because he d id something

25 he wasn' t supposed to do. He wasn' t supposed to have employees




8AKMKARS Sentence

69

1 without approval· and we had testimony of tha t .

2 And in the second year they revised the budget and

3 110,000 for subcontractors and he used 6100. You know from th e

4 testimony here tha t there were numbers of people working in

5 tha t apartment on these computers, on th i s projec t . And the

6 g o v e r T h ~ e n t wasn ' t bi l led fo r i t . Why? Because he was using

7 s tudents . Does the government get a benef i t of that? They do.

8 That i s why, your Honor, the mathematical

9 considera t ions of a s t r i c t guide l ine calcula t ion doesn ' t apply

10 in th is case because Dr. Karron, with good in ten t ions , and good

11 in ten t ions meaning t ha t he wanted the research to work, because

12 t h a t ' s a l l he cared about. Those were th e good in ten t ions . He

13 might have used improper means, but the in ten t ions were there .

14 And he created a product which people bu i l t upon and T

15 have a manuscript t ha t was submitted to the Elsevier Edi tor ia l

16 Systems fo r computer medical imaging and graphics. This is a

17 dra f t manuscript tha t wa$ submitted, hasn ' t been published yet ,

18 but it may well be publ ished in the near fu ture . I t c i t es ATP,

19 it c i te s Dr. Karron, and it shows tha t the work tha t he did may

20 have a s igni f icant value. So it's hard to say what the value

21 was, but I don ' t think anybody in th i s room could say tha t he

22 d idn ' t do the research tha t he was contracted to do.

23 I th ink your Honor has to consider the 3553 and ask

24 yoursel f whether or not h is background, th i s offense, h is

25 character , i s such tha t should cause your Honor to impose a·


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8AKMKARS

1 nonguidel ine sentence.

Sentence

70

2 I th ink the fac t tha t you ' re dealing with a man who

3 frankly has a lo t of i ssues . He's no t a man anYmore. He's, in

4 fac t , l ega l ly a woman. I spoke to the BOP. Rather, my off ice

5 did . And he i s and as the probat ion report says, he wil l be

6 t r ea ted as a woman and, i f confined, he wil l go to a women's

7 pr ison . We submit ted l e t t e r s from people who know him. He has

8 a generous good s ide to him. He has no c rim in a li ty i n h is

9 pas t , and I think t ha t he wil l have no cr iminal i ty in h is

10 fu.ture.

11 His mother i s incapaci ta ted . She i s in a home. They

12 are hopeful . He i s now l iv ing in tha t house in Long Beach.

13 Amongst the th ings he l o s t here , he l o s t h is home. He i s

14 hopeful - - and I spoke to h is brother about th i s . I have a

15 l e t t e r from h is brother t ha t wasn' t included in the orig inal

16 submissions. I am not going to burden the Court with i t . He

17 says when h is mother needed ass is tance in the s l igh te s t way,

18 the defendant was the one who was there because he was the

19 closes· t to where h is mother was s i tua ted in Staten Is land, and

20 he ' s hoping to be able to take h is mother home, and he ' s

21 le arn in g to work a vent i l a tor because sh e needs tha t in order

22 to breathe, and tha t i s the hope, tha t he can s tay in the home

23 there .

24 So I would ask your Honor to consider under, a l l these

25 circumstances , to fashion a sentence t ha t doesn ' t have


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8AKMKARS Sentence

71

1 confinement in a federa l i n s t i t u t i on , t h a t has house a r res t ,

2 t ha t he could funct ion from th e home t ha t he ' s presen t ly

3 r es id ing in Long Beach; and when h is mother ge ts out , he can

4 a s s i s t her the re , and provide fo r r e s t i t u t i on out of h is fu ture

5 earnings , i f he ' s able to earn anything.

6 He has been severe ly compromised in h is profess ion.

7 He has been turned down fo r pos i t ions because th i s case

8 rece ived a lo t of no to r ie ty . They t a lk about genera l

9 de te rrence . This case has sen t a shock wave through the

10 sc i en t i f i c community as to how they ought to comport themselves

11 when dea l ing with fe de ral g ra nt and federa l monies.

12 There i s no quest ion t h a t he wi l l never be e l ig ib le

13 I don ' t say never, but , in a l l probab i l i ty , w i l l not be

14 e l ig ib l e to any federa l funding so t h a t he could go ahead with

15 h is research , which i s h is l i f e ' s work, i s to do s c i en t i f i c

16 research . And the quest ion i s what sentence would be

17 appropr ia te under a l l these circumstances , and I don ' t see t h a t

,

18 based upon h is background and cha rac t e r i s t i c s tha t confinement

19 i s necessary here based on h is h is to ry and charac te r , and I

20 th ink th a t th a t so r t of sentence wi l l be as much as necessary

21 and not more than i s necessa ry as the cases seem to say what

22 punishment sho uld b e.

23 Dr. Karron would l i ke to address you, your Honor, and

24 I know you ' l l af ford him t h a t opportuni ty .

25 THE COURT: Does the government want to say something


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8AKMKARS

1 f i r s t ?

2

Sentence

~ f f i . KWOK: Yes, we do.

72

3 Your Honor, we spent a good par t of the af ternoon

4 arguing about loss amount, and r igh t ly so, because the numbers

5 can be a little b i t confusing. But the defendant 's conduct,

6 when di s t i l l ed to i ~ s essence, it i s very c lear what he did.

7 This i s not the case about someone forget t ing to cross the Ts

8 or dot the I ' s . This i s not the a case about a technical

9 vio la t ion . I f it were, the government wouldn ' t have been able

10 to show in ten t , and the jury wouldn' t have been able to return

11 a gu il ty v e rd ic t. And the jury in th i s c as e convic te d the

12 def endant bec au se the d e ~ e n d a n t ' s in ten t was c lea r ly shown a t

13 t r i a l .

14 The defendant was repeatedly to ld to s top . The

15 government wasn ' t in th i s to t r ip someone up. The t r i a l

16 test imony establ i shed tha t the people who adminis tered the

17 grant wanted to succeed. That ' s why they kept t e l l ing him and

18 kept working with him to explain the ru les to him t ime and t ime

19 again ad nauseam. Everyone of those t imes he could have

20 got ten himself out of the hole t ha t he was digging, everyone

21 of those t imes he could have stopped. And none of what he did,

22 none of t ha t money tha t he would spent would have even been

23 reported to the Department of Commerce, the inspector genera l ' s

24 of f ice , much less prosecuted by our off ice , and, ul t imate ly ,

25 the case brought before your Honor.


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1

8AKMKARS Sentence

Of course, th e d efe nd an t n ev er s topped. He kept

73

2 misusing th e yrant money. And not only t ha t , he t r i ed to muck

3 around, as Frank Spr ing t e s t i f i ed , with th e company's books to

4 hide h is t r acks . And Mr. Rubins te in j u s t now ta lked about him

5 spending l e s s money than he ' s a l l o t t ed in the ca tegory of

6 subcontract ing. And the reason t h a t ' s so i s because he could

7 use s tudents so the re was more money l e f t so he could pay

8 himself .

9 So everything u l t imate ly comes back to how he could

10 use the gran t to bene f i t himself or h is company tha t he owns,

11 CASI, t ime and t ime again .

12 In h is e-mai l s to h is f r iends he d idn ' t mince words

13 about what he was doing. He was, in fac t , brazen and open

14 about what he was doing.

15 THE COURT: I don ' t th ink there i s any evidence tha t

16 he used th e s tudents so he could pay more money to himself .

17 MR. KWOK: There i s evidence in the record t ha t

18 equipment u nd er $ 5,000 he would be able to keep a t the end of

19 th e day.

20 THE COURT: It ma y be t ha t it benef i ted him, but I am

21 not sure from the evidence t ha t he a c tu a ll y i n te n t io n a ll y sa id ,

22 I am going to use s tudents ra the r than subcontract so I could

23 ge t money fo r myself . I don ' t th ink the record es tabl ishes

24 t ha t .

25 MR. KWOK: Let me go to the l a rger poin t . The l a rger




8AKMKARS Sentence

74

1 po in t i s , when no one was looking, when he thought no one was

2 l i s te nin g, in h is e-mai l to h is f r iends , he was open ab out what

3 he was doing. In the e-mail to h is f r i e nd ,he sa id he wanted

4 to make a l ease with h is f r iend l iv in g in Connect icut , so he

5 could "make l ike I only keep a folding bed on 33rd St ree t . And

6 if ATP buys into th i s idea, then I can charge my ren t on the

7 apartment to the gran t and pay my mortgage." He sa id in

8 another e-mai l t ha t i f the ATP people d idn ' t agree with him he

9 would turn the grant in to enough of a t ra in wreck so the

10 government would be forced to nego t ia te with him and, quote,

11 f ind a l iv e ab le s o lu tio n fo r a l l .

12 Now, ce r ta in ly in tha t e-mai l , a f t e r h is crime was

13 detec ted , a t no t ime d id he show any remorse. He d idn ' t take

14 any re spons ib i l i ty fo r h is ac t ions . Instead, he t r i ed to

15 engage in , essent ia l ly , f inancia l black mail of the government

16 to strongarm the government to accept h is f a i t accompli because

17 he has misspent so much of the government 's money. And th i s

18 kind - -

19 THE COURT: I saw th a t th a t was what he might th ink

20 about doing. I don ' t th ink there i s any evidence in th e record

21 t ha t he strongarmed o r at tempted to strongarm the government i s

22 such.

23 MR. KWOK: 1 would submit to the Court tha t ' s what it

24 means when he ,says, I would make the g ran t enough of a t r a in

25 wreck so t ha t they can f ind a l i vab le solu t ion fo r a l l .


(212) 805-0300



1

8AKMKARS Sentence.

THE COURT: That was one of two a lte rn at iv e s in tha t

75

2 e-mai l tha t he men tioned , ra the r to pay more, I th ink more

3 money to cover the expenses or to make it a t r a in wreck.

4 MR. KWOK: I t ' s the government 's view tha t those

5 e-mai l s , when you take them together , it shows the type of

6 brazenness, the type of arrogance tha t necessar i ly warrants

7 considera t ion under the 3553 fac tors because they go di rec t ly

8 to the ser iousness of the offense .

9 Let me turl i now to the defendant . Of course, none of

10 th i s conduct can be considered in a vacuum. I t has to be

11 considered in the context o f t h i s defendant . And here , too,

12 the 3553 fac tors argue fo r a meaningful cus todia l guidel ines

13 sentence .

14 This 1S not the case about someone who broke the law

15 because he was in d ire s t r a i t s where some sympathy might

16 appropriately be shown. This i s not a food stamps case, th is

17 i s not a housing fra ud S ec tio n 8 case where we a ls o c alc ula te

18 the loss under 2B1.1 whe re somet imes those mit igat ing

19 circumstances a re p re se nt.

20 This i s a defendant , who under the grant in year one

21 alone, i s given an annual sa la ry of $175,000, $175,000 in

22 taxpayer ' s money. That ' s a lo t of money for a lo t of people,

23 but not fo r th is defendant b ec ause he kept misspending the

24 government 's grant money to buy equ ipmen t tha t he knows he 's

25 not supposed to buy.




76

8AKMKARS Sentence

1 Of course, the defendant i s a Ph.D. sc i en t i s t from one

2 of the f ines t un iv e rs it i es i n the world. He did not have to

3 s t ea l to put food on the table . He d idn ' t have to s t ea l to

1 " f ind a place to l i ~ e . But he d id it anyway.

5 I think the defendant ' s charac te r i s t i cs under 3553

6 also argue fo r a cus todia l sentence within the guidel ines .

7 Final ly , your Honor, a guidel ines sentence i s

8 necessary in th i s case to serve the goal of the terms. Anyone

9 paying any a t ten t ion to any publ ic pol icy debate in the past

10 10, 20 years knows t ha t one of the prime arguments opponents o f

11 these government programs l ike to use i s rampant, it i s fu l l of

12 fraud.

13 We know t ha t ' s not t ru e in th i s case because we have

14 ATP witnesses who t e s t i f i ed t ha t they keep a close eye on the

15 grant . In fac t , they have these ru les so tha t they can closely

16 monitor what the r ec ip ie nts a re doing with government money.

17 But there i s fraud and th is i s one such case. And it's the

18 government 's view t ha t when a c lea r -cu t fraud case presents

19 i t s e l f , there has got to be a s trong deterrence, as ref lec ted

20 in a meaningful cus todia l sentence so t ha t people who get th is

21 money wi l l know tha t you can ' t j u s t walk away and apologize and

22 say, I shouldn ' t have done it.

23 Rather, as h is business manager to ld him himself a t

24 the t ime, you could go to j a i l fo r th i s , and tha t message

25 should be sent because it i s the taxpayer ' s money, and fo r


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8AKMKARS Sentence

77

1 these programs to survive there must be a genera l deterrence

2 message t h a t i f you misspend the government money and you get

3 caught , you don ' t j u s t ge t slapped on th e wr i s t and l e t go.

4 For a l l of th os e re as on s, because th e d ef en da nt 's

5 conduct i s i n t en t iona l and repea tedly so, because of the

6 charac te r i s t i c s of t h i s defendant , and because of the need to

7 serve the goa ls of genera l de te rrence , the government

8 respec t fu l ly urges the Court to impose a cus tod ia l sentence

9 within th e g u id eli ne s range.

10 THE COURT: Dr. Karron, would you l ike to say

11 something a t th i s t ime?

12

13

THE DEFENDANT: Yes, I would.

MR. RUBINSTEIN: Where should he make the s ta tement

14 from, your Honor?

15 THE COURT: You can make it s i t t i ng there or standing,

16 whichever you wish o r she wishes .

17

18

THE DEFENDANT: How much t ime do I have?

Your Honor, I 'm deeply so rry fo r what I have done,

19 more sorry than I can convey with words. I have been doing

20 I wish to apologize to the Court and to ATP, to Mark Stanley ,

21 who convinced me t ha t I had a chance to win t h i s grant , and to

22 people of the United States , who I f ee l l i ke I 'm working for

23 with t h i s money.

24 I 'm beginning to see t ha t I v io la t ed t he i r t r u s t and

25 it dis turbs me t remendously fo r anyone to even th ink t ha t I


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1 could do tha t . And i f , in fac t , I did , then I wil l take

2 whatever punishment i s appropr ia te . I can only s t a t e tha t I

3 can perhaps explain myself a l i t t l e b i t be t t e r and maybe

4 p r e ~ e n t other people from making the same mistakes I 've made

5 because I understand, from having l ived through i t , how the

6 PIs, who receive l a rge grants , th ink di f fe ren t ly than the

7 accountants and the grant managers tha t a re responsible for th e

8 money.

9 And I fee l t e r r ib le tha t B.J. and Jane, I got them ln

10 t rouble . I got myself in a lo t more t rouble . My pas t f ive

11 years have been he l l . I thought T knew what I was doing and T

12 recognize now tha t I rea l ly d idn ' t know what I was doing.

13 I ' ve spoken to other PIs , pr inc ipa l invest iga tors , and

14 I ' ve seen them making the same mistakes, and I 'v e t r ie d to help

15 them. And I know when somebody gives you $2 mil l ion , it's

16 l ike , holy cow, the government of the United Sta tes bel ieves ln

17 me, they t r u s t me, and they bel ieve in my research . That 's an

18 in tense th ing.

19 I bel ieved, and I'll admit tha t I was wrong, tha t I

20 could use my sa la ry to pay for everything tha t the gran t

21 t ha t ' s ind i rec t on the grant . I d idn ' t know how to keep t rack

22 of i t . I d idn ' t know tha t I should have taken a paycheck,

23 deposi ted it in to my personal account, and then wri te a check

24 back to CASI, and CASI should have wri t ten a check back to the

25 grant . Then there would be no confusion tha t I seem to have in


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8AKMKARS

1 my wake.

2

79

Sentence

Seven years ago I d idn ' t know about accounting. I 've

3 always done cont rac ts . I 've never done gran t s . DARPA would

4 give me money. They d idn ' t care what I d id with i t , as long as

5 I could produce th e re se arc h tha t I sa id I could do. I never

6 understood tha t a grant , you do whatever you can, but it's how

7 you spend the money t ha t ' s most important . I d idn ' t know how

8 to spend th i s money. I d idn ' t th ink tha t I was throwing i t

9 away. I d idn ' t th ink I was unduly enriching myself un t i l a

10 couple of years l a t e r I rea l i zed , I took too much money.

11 I d idn ' t want to take money unless I absolutely needed

12 it. I t was l ike running a little business. The owner doesn ' t

13 take the money unless you need i t . I d idn ' t want to take

14 sa la ry . I j u s t wanted to take $2,000 a t a pop for ren t . I

15 thought I could charge it aga ins t sa la ry . And a t the end of

16. the day, I overdid it.

17 In the second year I thought I had made amends, but

18 the budget was wedged. I n eve r th oug ht tha t I would be impaled

19 on my own budget. When I wrote the budget I j u s t needed to

20 f i l l something in to get the grant out the door by the

21 deadl ine . I asked a couple of ATP people, what i s a reasonable

22 sa lary? They said, don ' t worry. In fac t , it says, don ' t

23 worry, so I didn ' t worry. I was j u s t going to do th e re sea rc h

24 and tha t was' i t . I took a b ig advance so I could el iminate a l l

25 my personal and f inancia l problems. I d idn ' t want to have to




8AKMKARS Sentence

80

1 worry about the money. I wanted to focus on th e r es ea rc h. And

2 t ry ing to run th i s projec t has dest royed my l i f e . We kept the

3 research going a f t e r the projec t was suspended because the

4 research i s ~ i n e . The grant doesn ' t t e l l me ho w to l ive . The

5 grant t e l l s me how to spend the government 's money.

6 But, anyway - - I 'm ge t t ing lo s t .

7 I 'm bullheaded. I 'm boneheaded. My exwife sa id I

8 couldn ' t t e l l my f r iends from my enemies. That ' s rea l ly been

9 t rue in th is adventure. I 'm a s t range person. I l e t people

10 come and go. I don ' t know. Jus t do whatever you want.

11 I had some br i l l i an t s tudents working on th i s projec t

12 who should have been on the payro l l . I d idn ' t put them on the

13 payrol l . One, because e i the r I was advising them on t he i r

14 Ph.D., or they were already on some other payrol l . This whole

15 i ssue of l ike , you know, do I take people and pay them more fo r

16 the same hours? ATP also sa id , don ' t do cer ta in things, what I

17 understood I could do. I d idn ' t unders tand.

18 I 'm boneheaded. I 'm also too br igh t fo r my own good.

19 When people to ld me tha t I could - - when I s t a r t ed thinking

20 tha t I could use Morse Theory in d ig i t a l data , in d is cre te

21 pic ture data, pixela ted data , everybody sa id you can ' t do tha t ,

22 i t ' doe sn ' t work. Morse Theory only works fo r continuum

23 mechanics, not where you have imagery .

24 But Jim Co x and I ta lked about i t . I th ink I see a

25 way to do i t . Despi te everybody t e l l i ng me, no, no, no, t ha t ' s

SOUTHERN DISTRICT REPORTERS, P.C;

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81

1 not how you do i t ; th i s is how you do it. We pers is ted , and

2 fo r ten years we came up with d ig i t a l Morse Theory and now it's

3 becoming par t of the accepted panoply of topological image

4 process ing.

5 I f I l i s tened to everybody t e l l ing me, no, no, no, you

6 can ' t do i t , you can ' t do i t , f ine, I'll do something else .

7 When somebody says , you can ' t do i t , I s t a r t blowing steam out

8 my nose. There has got to be a way to do i t .

9 We did get the power approved. I d id have long

10 discussions w ith B .J. and Jane about how we can f ix th i s , how

11 we can change th i s , what needs to be done. I made regula r

12 v i s i t s to Washington. I t r i ed to keep in touch with my program

13 managers. They came and vis i t ed regular ly . We were making

14 good sc ien t i f ic progress. But my a t t i t ude was, the hel l with

15 the financing, as long as I kept records. I have a l l of the

16 source records. And give it to th e a ccounta nt and she wil l

17 f igure it out .

18 And, you know, I never thought - - we d idn ' t have a

19 year ' s worth of running actuals to ca lcu la t e a good budget.

20 And towards the end the accountant was t e l l i ng me , th is i s an

21 unl iveable budget. You can ' t do th is pro jec t with th i s budget.

22 You need to put a lo t more money in . And without coinvestors

23 and cofunding, you ' re going to get in t rouble .

24 I thought tha t I could keep overhead minimal, take as

25 little sa lary as I could, take re nt in ste ad of sa lary , which i s


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82

1 a colossa l mistake. I t i s more of a mistake than even th i s

2 Court wi l l understand. I have to pay tax twice on the money.

3 This i s the s tupidest th ing imaginable. It's l ike th e a bs olu te

4 worst th ing I can do. I t in f l a t ed my income. The W2s and the

5 1099s from the grant show tha t I made $250,000. That ' s too

6 much. Because I took the same money, gave it back to the

7 company, and paid it again. I t was spectacular ly dumb.

8 The worst thing i s , worst th ing i s tha t my business

9 managers, I real ly wish tha t - - we needed to get a new budget.

10 We needed to get a new budget approved. I th ink we were almost

11 a t tha t poin t and then I s crewed up.

12 I 'm responsible fo r everything I 've done. I took

13 re spons ib i l i ty . I kept records a t the t ime I was doing i t . I

14 d idn ' t th ink I was committing - - I was defrauding the

15 government. I thought as long as I was doing good work, the

16 research i s moving ahead, we are present ing a t conferences, I 'm

17 f lying a l l o v e r the country presenting. We are a t t rac t ing

18 s tudents , we are a t t rac t ing ' a t ten t ion . That ' s what was

19 im portant. In the pas t f ive years a l l - - I have bean counters

20 going over and over and over. I 'm s t i l l stuck in 2001 and

21 2003.

22 My career i s over. My col leagues d on 't re tu rn my

23 phone ca l l s . I 've al ienated my wife and daughter. I 've had a

24 sex change opera t ion . I am now going to l ive as a woman.

25 I didn ' t th ink - - I wanted my s t a f f to be happy and




8AKMKARS Sentence

83

1 heal thy . I wan ted Nicky Winter; the bookkeeper, I wanted her

2 to f ix her t ee th . I wanted to f ix my t ee th . I d idn ' t waut to

3 have I wanted ~ v e r y b o d y around me to be happy. And I wanted

4 them to know t ha t the f r i ~ g e s were avai lab le . I d idn ' t

5 overspend the f r inges .

6 A fter the grant was suspended I got a job with a

7 col league and I was much happier working fo r him than t rying to

8 manage my own grant . I f I get out from underneath th i s I would

9 l ike to advise Mark Stanley in the ATP program, now TIP

10 program, what to look out fo r in PIs when you give them a lo t

11 of money. What are the common misunderstandings tha t a

12 s c i en t i s t wi l l have when you give him a lo t of money. My

13 col leagues a t City College sa id , we win grants , but we have

14 almost no sa le . I wanted to make my l i t t l e company unique. I

15 wanted to do things di f fe ren t . I wanted to do things nicer ,

16 be t t e r . I didn ' t know what to do and I d idn ' t know what I was

17 doing, and I ended up with a t ra in wreck.

18 Lee Gurfein, my business manager, wanted to lock me up

19 in a room and jus t give me a computer a nd l e t me out fo r a ir

20 and exerc ise . He d idn ' t make any coinvestment. My brother

21 d idn ' t have any signing author i ty un t i l we had a con t rac t with

22 him and he gave me some money. I did everything he wanted. I

23 d id everything my accountant wanted me to do.

24 I did everything tha t Bo b Benedict wanted me to do.

25 I f he to ld me not to do something, I wouldn ' t do i t . When he


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84

1 to ld me to s top paying the ren t , it was get t ing to be a rea l

2 problem, I stopped. I had to understand why. I d idn ' t get it

3 r igh t . I made a mistRke. I nev er th ough t it would be th is b ig

4 of a mistake. I f I have to g8 to pr ison for i t , then I'll go

5 to prison for i t . I made a mistake. I d idn ' t th ink - - I

6 hope - - I fee l t e r r ib le tha t people fee l I vio la ted t he i r

7 t ru s t , and I'll never be able to recover tha t .

8 I want to f inish the Joe Morse Theory. I t has nothing

9 to do with money anYmore. It's something tha t needs to be

10 done. It's why ATP gave me the money. The research was more

11 important than the money, but I d idn ' t know how to handle the

12 money. I th ink i f I got a job as a grants manager, because I

13 needed a job, having made ev ery m ista ke tw ice, I would know how

14 to prevent i t . I have been advising other col leagues, tha t

15 kind of a t t i tude i s going to get you in rea l b ig t rouble . I

16 have to ld them tha t , and they usual ly ge t rea l ly mad a t me.

17 Other ATP grants , when I t a lk with them, I sa id , be

18 rea l ly ca re fu l , donI t have a cer ta in mind-set . You are not

19 your grant . The grant funds cer ta in ac t iv i t i e s , but don ' t put

20 your ego, and get more than one grant and have more than one

21 sponsor.

22 I thought I could do everything myself . I do

23 everything so hard and so intensely and so monomaniacally, so

24 bipolar t ha t I usual ly get myself in t rouble . This i s the

25 worst t rouble I 've ever got myself in . I don ' t know. Maybe


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85

1 I ' ve learned something from i t . I t e l l people I made every

2 mis ta ke tw ic e. It's l ike i f anybody knows the lessons of

3 managing federa l and publ ic money, so tha t everybody can look

4 a t it and say, yeah, there i s no problem with tha t , I think I

5 know how to do i t .

6 I could p robabl y pas s the CPA exam now. Do I fee l

7 comfort ab le defend ing what I did, knowing what I did in 2001

8 with what I know now in 2008? Absolutely not. I made a mess.

9 I t was a b ig mess. But it was f ixable . And I wasn ' t able to

10 f ix i t . I t was too much of a mess, and I j u s t wanted to focus

l Ion th e re se arc h, and I decided to do good work and maybe

12 something good would come out of i t .

13 I f I need to go to j a i l , I'll go to j a i l . I would

14 l ike to f in i sh what I s ta r t ed . I would l ike to help the ATP

15 program in the sense tha t I can probably smell fraud brewing in

16 the mind-sets of the PIs. Because I have a sense now of what

17 th i s en t a i l s , par t i cu la r ly in small s ta r tups , very small

18 s ta r tups . That ' s what ATP wanted to fund, and they should

19 cont inue to do i t , but they need spec ia l supervis ion. When I

20 was doing SBIR grants , they have spec ia l s up erv is io n fo r SBIR

21 grants because the PIs don ' t always know what they are doing.

22 I don ' t have a home to go to . My mom i s going to d ie

23 soon. I want to br ing her home to die .

24

25

Am I wandering off too far?

THE COURT: I couldn ' t hear you.


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1

8AKMKARS Sentence

THE DEFENDANT: Am I wandering off too fa r or am I

86

2 becoming incomprehensible?

3 My mom i s going to d ie soon. She i s on a vent i l a tor .

4 She i s on a feeding tube. I 'm only t rying to bring her home,

5 with my family ' s consent, so tha t she i s a t l ea s t home, because

6 t ha t ' s where she a lways wan ted to be. After she passes on , we

7 are going to have to s e l l the house anyway because of the b i l l s

8 from the nursing home. I f I have to go to pr ison , I would l ike

9 to a t le a s t see her through.

10 I 'm tak ing classes now on ven t i l a t o r care , so a t

11 l ea s t - - we have th ree sh i f t s of nurses a t the hou se running a

12 ven t i l a t o r . I need to be able to cover them. My Ph.D. i s

13 suf f ic ien t ly medical, and I have enough ins ight on how to run a

14 vent i l a tor tha t I need a lo t of t r a in ing so I don ' t screw up,

15 because I th ink I know what I 'm doing, and Mondays a re usual ly

16 my days to go ge t t r a in ing .

17 I pre-separa ted from paying myself ren t because I

18 thought I wanted to take ren t as I needed it and not use

19 sa lary , and j u s t use my sa lary l ine to pay u t i l i t i e s and

20 telephone and the l ega l cost , the b i l l s to Pennie & Edmonds. I

21 t r i ed to keep a green check and a burgundy check. Green checks

22 were nonprogram, burgundy was program.

23 But we d idn ' t se t up the account before we got the

24 f i r s t paYment from ATP. I took too much money a t the

25 beginning, and I t r i ed to pu t it back. The way I t r i ed to put


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87

1 it back. Now I j u s t d id it a l l wrong. I thought it d idn ' t

2 mat te r where I spen t the money out o f. I j u s t give ATP a s tack

3 of rece ip t s .

4 I t r i ed to keep good records . I got consumed with

5 recordkeeping. It's l ike I was t e l l i ng it's l ike I got

6 bur ied in re ce ip ts th at I l o s t and I never added them up. I

7 j u s t took p ic tu res of them and f i l ed them under each day and

8 l e t the accountant deal w ith it. She got l o s t .

9 I th ink the best th ing I can do fo r my count ry i s

10 prevent me from happening again . I don ' t know t ha t I wil l ever

11 personal ly handle b ig federa l pro jec t s , but I th ink I can be of

12 value to the program, par t i cu la r ly s ince they a re going to be

13 gun shy to giving money to small gran t rec ip ien ts . And I f ee l

14 t e r r ib l e because Mark rea l ly be l ieved in me, the program

15 di rec tor .

16 I f there i s something t ha t can be done with me to he lp

17 the program, I would do it any way I can. I 'm happy to l ec tu re

18 and expla in how to get yourse lf in t rouble with more money than

19 you can dea l with. I don ' t know whether t ha t would help . I

20 d idn ' t be l ieve t ha t I rea l ly misspent money un t i l I f ina l ly had

21 to rea l ly , r ea l l y s tudy exac t ly what I did, l ike a th i rd person

22 d id i t , and I admit I took too much money.

23 But I d i dn ' t not do research . I d idn ' t advance the

24 s t a t e of the a r t . The b ig problem i s t ha t I spen t so much t ime

25 being an amateur accountant t ha t I couldn ' t be a profess ional


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8AKMKARS

1 sc ien t i s t .

Sentence

88

2 I f you can f ind it in your hear t to - - I 'm sorry . I 'd

3 l ike th i s to be over and I would l ike to move on. I f I can

4 help, I wi l l . I f making me an example by spending a few years

5 wi l l prison to help, tha t ' s what I need to do. I f making me an

6 example and I can prevent other people from ge t t ing the

7 boneheaded mind-set tha t I have, maybe my experience i s more

8 valuable in some other se t t ing .

9 I would l ike to f inish th e r ese ar ch . And the program

10 would ac tua l ly - - they are horr i f i ed of what 's happened, but I

11 think there i s a reason why they never comp le te ly shut down the

12 grant . They jus t want me to c lean up my ac t . I f we could

13 f inish the program with somebody e l se running i t , t ha t ' s f ine,

14 too. My boss a t A ~ P could adminis te r it for me.

15 Having worked in a b ig federa l defense contractor, I

16 see how they do i t . I f I had spent a couple of years working

17 in a l a rge corporation, perhaps I would see how these a re done.

18 I have never done tha t . I now know more about grants

19 management than I care to .

20 I don ' t know what e l se to say . I 'm rea l ly sorry . I

21 d idn ' t t ry to hide it from anybody. And people ca l l up and

22 say, what ' s going on? I say, I have been convicted of s tea l ing

23 from the grant . I f th at 's what I did, then I did i t , but I

24 never kept it a sec re t . I took pic tures of everything I did.

25 I kept records to hang myself, b ec au se I nev er th ough t I would


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89

1 be hanging. I have n ev er th ough t I would be impaled .

2 I 'm redundant and I 'm repe t i t ive and I forge t what I

3 say, and I 'm a disas te r . I rea l ly am. I wil l be l a t e for my

4 own funera l . I f I do something too fa s t , I always forget

5 some th ing, sc rew some th ing up.

6 I apologize to the Court for keeping you th i s la te and

7 fo r everything e lse tha t I 've done in the pas t .

8 Thank you, your Honor.


10 As I sa id , under the guidel ines , the Cour t ' s findings

11 are tha t the base offense l evel for th i s vio la t ion fo r Tit le 18

12 Sect ion 666 i s found under 2Bl . l . The base offense l evel under

13 subsect ion (a) (2) of t ha t guidel ines i s 6. Because more than

14 $120,000 was l o s t through inappropr ia te expenses, 10 points a re

15 added. Making tha t decision the Court looked to guidel ine note

16 which appl ies to 2F. The guidel ine note tha t app lies to grants

17 i s fed era l g ra nt under guidel ine commentary (f) (2) ( i i ) . At

18 tha t guide l ine of 16, the guidel ines ca l l s for a sentence of 21

19 to 27 months in prison .

20 Turning to 18 3553(a) of Ti t le 18, the Court, as the

21 Court must, consider any guidel ines sentence as a r e su l t of the

22 Booker decision, the Court must take in to account the his tory

23 and c ir cumstances o f the offense , his tory and charac te r i s t i c s

24 of the defendant . The defendant here has no pr io r record.

25 And a dd re ss in g th e Court he sa id tha t he ' s never




8AKMKARS Sentence

90

1 before had the re spons ib i l i ty before o f h an dlin g a federa l

2 gral l t and dea l t with co ntrac ts in the pas t . Those are

3 cont rac ts , I ga ther , to perform spec i f i c serv ices for a fee,

4 which i s a little di f fe ren t than a federa l grant . Both of

5 those circumstances re la te to the circumstances of the offense

6 and the his tory and charac te r i s t i cs of the defendant .

7 But the Court must also impose a sentence which is

8 su f f i c i en t but not grea te r than necessary to comply with the

9 purposes se t for th in subparagraph 2 of 3553(a) , and tha t is

10 the need fo r th e se nte nc e imposed to r e f l ec t the seriousness of

11 the offense , to promote re sp ec t fo r the law, and to provide a

12 j u s t punishment for the offense ; B, to afford adequate

13 deterrence to criminal conduct of other persons, and to pro tec t

14 the public from fu r the r crimes of the defendant - - C, to

15 protec t the publ ic from fur ther crimes of the defendant; and,

16 D, to provide the defendant with needed educat ional and

17 vocat ional t ra in ing , medical care , or other correc t ional

18 t rea tment in the most e f fec t ive manner.

19 I don ' t be l ieve tha t it would be necessary to p ro te ct

20 the public from fu r the r crimes of the defendant tha t would

21 se rve to amel iora te th e p en alty imposed under the guidel ines.

22 I have some d i f f i cu l ty with th is case because

23 del ineat ing the i n t en t of the defendant i s d if fic ul t for me.

24 It i s t rue tha t the loss i s a t l ea s t $120,000, but the

25 defendant ' s in ten t in causing tha t loss i s something t ha t the




8AKJYIKARS Sentence

91

1 Court has been concerned about .

2 And, on the other hand, the Court has to consider a

3 sentence t ha t affords adequate d ete rre nc e to c rim in al conduct

4 and the government gives th es e g ra nts , they are plac ing a lo t

5 of t r u s t in th e g ra nte e. It's important tha t the grantee not

6 in ten t iona l ly misapply the funds.

7 It's c lea r to me t ha t there was an in ten t iona l

8 misappl ica t ion of the ren t money. The defendant was to ld t ime

9 and time aga in not to use the ren t funds for ren t or for

10 u t i l i t i e s . That ' s what the record here subs tant ia tes . That 's

11 a l e s se r sum than the sum found in the guidel ines .

12 Under the circumstances, it seems to me as the f i r s t

13 offense tha t the Court sho uld not impose a sentence tha t is

14 heavy as the guide l ine and, ye t , impose a sentence tha t

15 provides deter rence to other people . I am going to vary the

16 sentence pursuant to Sect ion 3553(a).

17 I am going to impose a sentence of 15 months under

18 zone C of the guidel ines , one ha l f of the term to be served in

19 prison and one ha l f of home confinement, e ight months'

20 impr isonmen t, a nd the remainder in home confinement.

21 The term of supervised re lease i s three years,

22 re s t i tu t ion in the amount of $120,000. That 's required, I

23 guess. And a spec ia l assessment of $100. I th ink I 'm r igh t on

24 the sp l i t sentence , t ha t i f it fa l l s in the 12 category, I can

25 give the s p l i t sentence .




1

2

8AKMKARS Sentence

MR. KWOK: Sect ion 5C1.1, sec t ion D.

MR. EVERDELL: Yes, your Honor, I bel ieve it i s

92

3 cor rec t . I t has to be a one-for-one r a t io .

4 THE COURT: One has to be imprisonment, the o ther has

5 to be home confinement.

6

7

MR. EVERDELL: That ' s correc t .

THE COURT: That 's to enable defendant to take care of

8 h is mother as soon as possib le .

9 Three years of supervised re lease . There wil l also be

10 a $100 assessment as provided by the law. The condit ions of

11 supervised re le as e a re : The defendant sha l l not commit another

12 federa l , s ta te , or loca l crime; sha l l not i l l ega l ly possess a

13 cont ro l led substance; sha l l not possess a firearm or

14 des truc t ive device. Mandatory drug t es t ing i s suspended due to

15 th e Cou rt 's determinat ion tha t defendant poses l i t t l e r i sk of

16 fu ture substance abuse. The defendant sha l l cooperate in the

17 col lec t ion of DNA as di rec ted by the probat ion off i cer .

18 Standard condit ions of supervision 1 through 13 wi l l

19 also apply with the fol lowing spec ia l condit ions: Defendant

20 sha l l provide t he p ro ba tio n of f i ce r with access to any

21 requested f inanc ia l information; defendant sha l l not incur new

22 c red i t charges or open addi t ional l ines of cred i t without

23 approval of the probat ion of f i ce r unless the defendant i s in

24 compliance with the ins ta l lment schedule, insta l lment payment

25 schedule .




93

8AKMKARS Sentence

1 Defendant i s to report to the neares t probat ion off i ce

2 within 72 hours of re lease from custody and be s up er vis ed in

3 the d i s t r i c t of h is residence. $100 wil l be due immediately.

4 That ' s the spec ia l assessment. The r e s t i t u t ion sha l l be in th e

5 amount of $120,000, payable to the c lerk of the United Sta tes

6 Dis t r i c t Court for disbursement to Ju l ie Weiblinger, U.S.

7 Department of Commerce, National In s t i tu te of Standards and

8 Technology, Advanced Technology Program Receivables Group, 100

9 Bureau Drive, Mail Stop 1624, Gaithersburg, Maryland

10 20899-1624.

11 The re s t i tu t ion sha l l be paid in monthly ins ta l lments

12 of 10 percent of gross monthly income over th e p erio d of

13 supervision to commence 30 days a f te r the date of re lease from

14 custody, and the defendant sha l l not i fy the U.S. Attorney 's

15 Off ice fo r th i s d i s t r i c t within 30 days of any change of name

16 o r res idence address tha t occurs while any por t ion of the

17 r e s t i t u t ion remains unpaid.

18 I f the defendant i s engaged in BOP non-UNICOR program,

19 the defendant sha l l pay $25 per quarter towards the

20 r e s t i t u t ion . However, i f the defendant par t ic ipa te s ln the

21 BOP's UNICOR program as a grade 1 through 4 , t h e defendant

22 sha l l pay 50 percent of her UNICOR earnings to any f inancia l

23 pena l t i e s , consis ten t with Bureau of Prisons regulat ions of 28

24 CFI Sect ion 45.11. The fac tors in 18 United States Code

25 Sect ion 3664(f) (2) were considered ln formulat ing the payment

IISOUTHERN DISTRICT REPORTERS, P.C.

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8AKMKARS

1 schedule.

Sentence

94

2 There wil l be no f ine ln th is case ln view of the

3 r e s t i t u t ion requirements .

4 I gather you want to have a voluntary surrender ,

5 Mr. Rubinstein?

6 MR. RUBINSTEIN; Yes, your Honor. I was wondering, if

7 it's poss ib le , I don ' t know how it works. Is it poss ib le to do

8 the home confinement f i r s t and then the incarcera t ion

9 afterwards? So t h i s way i f they can get h is mother home,

10 because her l i f e expectancy i s n ' t tha t long.

11 THE COURT; It seems to me tha t it could. I don 't see

12 anything under the sec t ion tha t says it couldn ' t . I t ce r ta in ly

13 surpr i ses me.

14 MR. EVERDELL; I 'm sorry to in te r rupt , your Honor. I

15 do have a di f fe ren t case with Judge Kaplan where he did allow

16 t ha t very th ing to happen. I f tha t precedent counts for

17 anything, I bel ieve there i s a precedent in the Southern

18 Dis t r ic t fo r doing t h i s .

19 THE COURT; I am going to do it tha t way. So the home

20 confinement per iod wil.l s t a r t . You be t t e r see tha t the

21 defendant sees t he p ro ba tio n of f i ce r in the next 24 hours, Mr.

22 Rubinstein .

23 MR. RUBINSTEIN: Absolutely. I wil l go there

24 tomorrow.

25 THE COURT; We wi l l make arrangements fo r home


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8AKMKARS Sentence

95

1 confinement to s t a r t . I f you have home confinement , the re wi l l

2 have to be a te lephone wi t..hQl.lt ca l l forwarding in the res idence

3 in which the defendant would be loca ted because they have to

4 know t ha t he ' s no t le av in g th e premises dur ing th e p erio d of

5 home confinement . Home confinement i s not to i n t e r f e r e with

6 re l ig ious se rv ices or emploYment, but it wi l l r equ i re the

7 defendant to be home in the evening and nonworking hours par t

8 of the day.

9

10

11

12

MR. RUBINSTEIN: And medical, your Honor?

THE COURT: What?

MR. RUBINSTEIN: And medical .

THE COURT: Of course , he can a t tend medica l

13 appointments fo r h im se lf and h is mother.

14 There wi l l be no ca l l forwarding o r ca l l wai t ing or

15 modem a ttached to the t e lephones . It's c l ea r t ha t he i s

16 se rving h is term of home confinement without any fu r the r

17 inves t iga t ion by t he p ro ba tio n o f f i c e .

18 MR . . RUBINSTEIN: Your Honor, would your Honor

19 cons ider - - f i r s t , on the r e s t i t u t i on , did your Honor say how

20 t h a t ' s to be paid?

21

22

23

THE COURT: Yes, I did . 10 percent of gross pay.

MR. RUBINSTEIN: I s t ha t without i n t e r e s t ?

THE COURT: I leave t ha t to th e grea te r , higher

24 author i t i e s . I be l ieve t h a t i n t e re s t does run.

25 MR. RUBINSTEIN: Would your Honor


(212) 805-0300



1

8AKMKARS

96

Sentence

THE COURT: I be l i eve i n t e r e s t runs . But it can s t a r t

2 a f t e r th e per iod of inca rce ra t ion .

3 MR. RUBINSTEIN: Your Honor, I be l i eve t h a t th e

4 defendant wishes to appeal t h i s mat t e r . Tha t ' s what I ' ve been

5 informed. In view o f t h a t , I wonder if your Honor wi l l

6 cons ider r e leas ing him pending th e appea l . He i s going to be

7 on house a r r e s t fo r seven and a ha l f - - I'll re se rve th e r igh t

8 to make t h a t app l ica t ion .

9 THE COURT: He can appeal , bu t · I don ' t see where you

10 can appeal , bu t i s t h a t bene f i c i a l to your s i t u a t i on fo r me to

11 suspend th e impos i t ion of sen tence pending th e appeal?

12 MR. RUBINSTEIN: I would l i ke to serve the house

13 a r r e s t por t ion while h is mother i s a l i v e .

14 THE COURT: I c an ' t break it up, I don ' t be l ieve ,

15 under th e s t a tu t e .

16 MR. RUBINSTEIN: I'll have to cons ider it, Judge. We

17 wi l l go to proba t ion tomorrow. As fa r as the house a r r e s t , we

18 don ' t have a problem with s t a r t i n ~ t h a t immedia te ly .

19

20

21

22

THE COURT: Make an exped it ed app e al .

MR. RUBINSTEIN: F i l e an expedi ted appeal?

THE COURT: All r i gh t .

MR. RUBINSTEIN: Thank you very much, your Honor.

23 Good nigh t .

24

25

MR. KWOK: A few th ings , your Honor.

I f th e government could reques t the Cour t to give an


(212) 805-0300



8AKMKARS Sentence

97

1 o ra l pronouncement of h is fo r f e i t u r e orde r . There i s a

2 f o r fe i tu r e a ll eg a ti on in th e indicLment .

3 THE COURT: I s fo r f e i t u re requi red here? I d id n 't s e e

4 t h ~ t in the presentence r epor t .

5 MR. KWOK: It i s not r ef le cte d in the presentence

6 repor t , but , as your Honor might r e ca l l , t he re was an order by

7 s t i pu l a t i on between th e pa r t i e s where we se ized th e proceeds

8 from the sa l e of defendant ' s apartment . And so i f we could

9 f o r f e i t t h a t in pa r t i a l s a t i s f a c t i on of th e r e s t i t u t i on

10 obl iga t ion .

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