20090821b Exhibits To 2255 Reply

BILL BOYD Texas Bar No. 0278000 [email protected] RUSS A. BAKER Texas Bar No. 24045440 [email protected] BOYD-VEIGEL, P.C. P.O. Box 1179 McKinney, Texas 75070 Telephone: 972-562-9700 Telecopier: 972-562-9600 Attorneys for Armstrong UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION UNITED STATES OF AMERICA No. CR 94 276 PJH

Plaintiff v. CONNIE C. ARMSTRONG, JR.

EXHIBITS TO ARMSTRONG’S REPLY IN SUPPORT OF 28 U.S.C. § 2255 MOTION

Defendant Armstrong submits these Exhibits to his Reply in support of his pending motion under 28 U.S.C. § 2255 and in traverse of the factual allegations and legal argument provided in the government’s response of July 24, 2009.

EXHIBITS to Section 2255 Reply - Page 1

TABLE OF CONTENTS Letter from Armstrong’s counsel to Ninth Circuit ..........................................................................3 Ninth Circuit’s Recall of its mandate, April 22, 2008 .....................................................................5 FBI Letter referencing prior investigation, September 23, 1988 .....................................................6 FBI Letter referencing prior investigation, February 8, 1988 ..........................................................8 Baker & McKenzie opinion letter, October 29, 1981 ....................................................................14 FBI memo disclosing political influence and lack of probable cause, March 8, 1991 ..................19 Financial report showing creditor’s claims, including $100 million whistleblower claim............23 Federal Express Original Complaint..............................................................................................34 Wall Street Journal article induced by Pelosi and Boxer ...............................................................41 Status memo from FBI deputy Director Potts to Howard Baker, Pelosi, and Boxer.....................43 Hearing transcript of January 13, 1997 discussing late-produced audio tapes ..............................44 Affidavit of FBI Special Agent Hatcher disclaiming prior knowledge of audio tapes ..................56 FBI memo showing prior authorization for tapes given to Hatcher by AUSA Yamaguchi ..........60 Hearing transcript of January 27, 1997 discussing late-produced audio tapes ..............................61 Government brief authored by Yamaguchi in opposition to law of the case instruction ..............69 Partial FBI 302 disclosing Hamilton Taft problems prior to Armstrong’s acquisition .................81 FBI 302 re. between FBI and counsel for bankruptcy trustee .......................................................84 FBI 302 wherein witness stated bankruptcy trustee was doing the work of the FBI.....................87 FBI memo regarding meeting between prosecution team and trustee to plan prosecution ...........89

EXHIBITS to Section 2255 Reply - Page 2

BOYD · VEIGEL ATTORNEYS

July 30, 2007

CERTIFIED MAIL NO. 7004289000042213 9412 RETURN RECEIPT REQUESTED Clerk of the Court U. S. Court of Appeals for the Ninth Circuit P. O. Box 193939 San Francisco, CA 94119-3939 Re:

Court of Appeals Docket No. 00-10399; Filed 9114/00 USA vs. Armstrong; Appealed from N orthem District of California (San Francisco) Our File No. 3964.060452

Dear Clerk: I represent Connie Armstrong, Jr., who is the Defendant-Appellant in the above styled and numbered cause. On June 4, 2007, I sent your office a letter asking about the status of two pleadings filed in this case by Mr. Armstrong. One of those matters was a pro se petition for panel rehearing and petition for rehearing in banc which was apparently received and filed in your office on May 29,2002. We received a prompt reply from you on June 13,2007 providing us with an order from the Court which was filed in your office on January 31, 2003 (the" Order"). The Order denies Mr. Armstrong's petition for rehearing and petition for rehearing in banco Mr. Armstrong was never provided with a copy ofthe Order or given any notice as required by Rule 36, F.R.A.P., thatthe Court had denied the relief requested. It is my understanding of Rule 13 of the Supreme Court Rules that he is entitled to file a petition with the Supreme Court for a writ of certiorari within 90 days after entry of the Order, and, if no such petition is filed, he is entitled to seek habeas corpus relief pursuant to 28 U.S.C. §2255 within one year after the time has expired for the filing of a petition for certiorari. Accordingly, it is obvious that, due to the lack of notice of the entry of the Order, Mr. Armstrong has been prevented from exercising any further review of the proceedings which resulted in his conviction. We therefore are requesting that the Court re-establish the date of the issuance of the Order so that Mr. Armstrong will be able to retain his rights to take a further appeal and/or review of the Order. Since Mr. Armstrong is a federal prisoner who was entitled to have the Order and his conviction reviewed by further proceedings authorized by law, his request should be given special consideration

P.O. Box 1179

McKinney, Texas 75070

972.562.9700

Fax 972.562.9600

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EXHIBITS to Section 2255 Reply • SL- PageU 3 A Professional Corporation

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July 30, 2007 Page 2 to take the steps other litigants by the Court. Witho ut the aid of counsel, it was impos sible for him filed in the Courts and to can take to monito r the proces sing of pleadi ngs and reques ts for relief ts, federa l prisoners like Mr. insure that such reques ts are proper ly ruled upon. Unlike other litigan tions regarding the promp t Armstrong are unable to travel to the cOUlihouse or to take other precau , we ask that Mr. Armstrong's resolution of matters they have filed with the Court. Accordingly Court and that the date of the failure to timely file a furthe r review of the Order be excuse d by the his legal right to seek a further Order be re-esta blishe d so that Mr. Armst rong will be able to exercise review of the Order and/or his conviction. Very truly yours,

BILL BOYD

BB :vn 0707290/060452

cc:

Conni e C. Armst rong, Jr.

COMPLE TE THIS SECTION ON DELIVER Y

• Complete items 1, 2, and 3. Also complete item 4 if Restricted Delivery i,s desired. • Print your name and address on the reverse so that we can return the card to you. • Attach this card to the back of the mail piece, or on the front if space permits. 1. Article Addressed to:

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DYes 4. Restricted Delivery? (Extra Fee) Clerk of the Court U. S. Cour t of Appe als >ticle Number 7004 2890 0004 2213 941 2 '-fer from service lat 39 1939 Box O. I P. 2.M.1540 Domestic, Beturn Receipt 'f: ':>1'-' / . lXt;O<{ J ) - -102595-0 11 , February 2004 9411 EXHIBITS to Section 2255 Reply Page 4 CA isco Franc San

Case 3:94-cr-0027f

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Document 531

Filed 04/25,

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Page 1 of 1

FILED APR 22 2008 MOLLY C. DWYER, CLERK

u.s. COURT OF

UNITED STATES OF AMERICA, Plaintiff-Appellee,

APPEALS

No . 00-10399

DC# CR-94-276-CAL Northern California (San Francisco)

v.

CONNIE ARMSTRONG, JR.,

ORDER

Defendant-Appellant.

Before: BROWNING, KLEINFELD and GOULD, Circuit Judges

Armstrong's letter is a construed as a motion to recall the mandate, and so construed, the motion is granted. We recall the mandate issued on February 10, 2003. The order issued on January 31, 2003 is withdrawn. The panel has voted to deny the petition for panel rehearing . The full court has been advised of the petition for rehearing en bane and no judge has requested a yote on whether to rehear the matter en bane. See Fed. R. App. P. 35. The petition for panel rehearing and the petition for rehearing en bane are denied. The mandate shall issue forthwith. KBiResearch

EXHIBITS to Section 2255 Reply - Page 5

u.s.

Federal Bureau

In Reply I Ploa-se Refer Ftle No

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Departmen.

Justice

of InveStlgatlOn

450 Golden Gate Avenue

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San Francisco, California 94102

September 23, 1988

Mr. Joseph P. Russoniello united states Attorney Northern District of california 450 Golden Gate Avenue Box 36055

San Francisco, California 94102

Attention:

Mr. Flay Dawson

Assistant u. S. Attorney

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Re:

PRESIDENT, dba

HAMILTON TAFT AND COMPANY, SAN FRANCISCO, CALIFORNIA; UNKNOWN SUBJECTS I dba

MAX FHARMA, INCORPORATED, 200 CRESCENT COURT, SUITE 1375, DALI.AS TEXAS;

POSSIBLE WIRE FRAUD b -: i:

Dear Mr. Russoniello:

Referenced conference between Assistant U.s. Attorney

(AUSA) Michael Yamaguch~ and Special Agent (SA)

on September 14, 1988.

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This letter is to confino. the above referenced conference in which SA delineated the details of the allegation and the results or his investigation to date regarding captioned matter. AUSA Mike Yamaguchi indicated based on what was presented to him as well as his examination of documentation pertinent to the captioned matter, there was insufficient

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EXHIBITS to Section 2255 Reply - Page 6

Mr. Joseph P. Russoniello

evidence to support a violation of federal law at this time and AUSA Yamaguchi added if further information could be obtained regarding the allegations presented, he would reconsider his opinion. he would therefore decline prosecution.

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Based on AUSA Yamaguchi's declination, our office will close its investigation into the captioned matter. Very truly yours, RICHARD W. HELD

Special Agent in Charge b7C:: By:

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Speclal Agent

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EXHIBITS to Section 2255 Reply - Page 7

u.s.

Department of Justice

Federal Bureau of Investigation

450 Golden Gate Avenue San Francisco, CA 94102

In Reply, Please ReIer t.o

FIle No

February B, 1991

yt Ji$-~rtL! ,( ''''''! liI.'6enhtJ/ II Mr. william T. Mc Givern

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San Francisco, California 94102 Attn:

Mr. Michael Yamaguchi Assistant u.s. Attorney Chip Armstrong, dba Hamilton Taft and company #1 Market ~'Plaza, Spear s~et Tower San Fr~cisco, Ca 94105 Possi~e Fraud by Wirer

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Dear Mr. Me Givern: Our office is SUbmitting the following information to you for a prosecutive opinion as to 'whether a violation of Federal Law has taken place.

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The San Francisco Division first became cognizant of the existence of Hamilton Taft and Company in August of 1988 when I ~as interviewed at our office. I I was the co-founder of Hamilton Taft and the other founder was one, I I who founded the company in ,1979. For your information r Hamilton Taft is a service company which provides. a tax paying service on behalf of their clients. Hamilton Taft and Company collects money from their ~us clients and in turn pays their clients various feder~, state~ and local income Addressee 1 - 196A-2868 1 -

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taxes. Unemployment taxes and other various tax liabilities are also paid by Hamilton Taft. When a company becomes a client of Hamilton Taft, it notifies Hamilton of the companies payroll dates, pertinent payroll information, the state in which the

company is required to pay taxes and the type of taxes which need to be paid and on what dates. Hamilton collects monies from these various clients and in turn pays the clients tax obligation whether they be local, county, state and/or federal income taxes, unemployment taxes and/or other tax liabilities. b7C I I advised that when a client company enrolls with Hamilton Taft, the company notifies Hamilton of its payroll dates, pertinent payroll information the state in which the company is required to pay taxes and the type of taxes which need to be paid. The company then remits to Hamilton Taft on a timely basis its payroll tax liability. The client company will also remit funds to Hamilton Taft which would be used to pay the aforernentionedtax liabilities. Historically the funds were either wired to a Hamilton Taft Impound Account each time a payroll is paid by the company or Hamilton Taft gains access to the companies account by a depository transfer check. Hamilton Taft was also responsible for filing all

applicable federal, state, county and local tax filing

information on behalf of its client and pay their various taxes as they become due for the service Hamilton Taft charges its clients a fee based on the number of times a client renders a payroll and the number of areas taxing agencies which have to be ultimately paid. Hamilton Taft also receives the interest in which it can generate on the funds its clients deposit with it. All this information is revealed to the client prior to a contract being entered into by the client and Hamilton Taft. This is also done orally by Hamilton Taft's sales representatives.

As Hamilton Taft grew, the company became concerned with what its liability may be with the funds they were collecting on behalf of their clients. Because of this internal concern in 1981, the firm contacted Baker and McKenzie Attorney's at Law, 555 California street, San Francisco, California, 94104 and requested that this firm provide Hamilton with an opinion of the characterization of the funds it was holding on behalf of its clients for tax payments. On October 29, 1981, Baker and McKenzie issued an opinion that basically stated that at the time a payroll is rendered, that is paid by the employer, the funds representing the withheld taxes belong to the federal government. The employer becomes a trustee for those funds and as such the duties and responsibilities of a trustee are mandated under common law. 2

EXHIBITS to Section 2255 Reply - Page 9

In addition various state and federal law mandates how a trustee needs to act in his capacity as a trustee. "'.

Although Hamilton Taft is not the employer but an independent agent, it was the opinion of Baker and McKenzie that the funds are still trust funds and the holder of these funds (Hamilton Taft) still bears the responsibility of a trustee.

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When interviewed by the Federal Bureau of Investigation ~~ ~ I I went so far as to stat,e that some <:i::i:::individuals representing clients have stated that the collected j.~;.;.~ funds need to be put in a bank account separate from other funds ~ ."~ ~ of that particular entity. In addition~ during his tenure at ~ "'~~, Hamil ton Taft, Hamil ton ,Taft considered themselves to be trustees "'-t..it ~i , for those funds on behalf of the various taxing agencies. :L:"t>:;; . ~ "~ i.' (FBI)

in August of 1988,

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By way of background information, stated that in August of 1984, Hamilton Taft was sold to the Cigna.Corporation the large insurance conglomerate out of Philadelphia, Pennsylvania and Hartford, Connecticut. At that time, Hamilton Taft had approximately 900 corporate clients and was -handling on '"a daily basis, approximately $100,000,000 in client deposits.

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According to a personality conflict developed between himself and one formally Executive Vice President of cigna Corporat~on W 0 was placed by that corporation as the person in charge of Hamilton Taft's operation. Because of landl lonel I tbe persynality differences be~enl Jwas appointed as President of Hamilton Taft.

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Shortly after leaving ,Hamilton Taft in the latter half~\ of 19~5,1 ,1stated he became aware th. at Hamilton Taft stc;rted 1 to lose approx1mately $100,000 per month. He noted that whlle he (. was President of Hamilton Taft, that the company although not highly profitable, was able to stay in a slight profit position. He understands that Hamilton Taft hired another President but'the company continued to lose, money in C.igna and soon thereafter began to look for a buyer for Hamilton "Taft. In December of 1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to Cigna Corporation as a down payment for the purchase of Hamilton Taft.

On February 29, 1988, Maxphrama Incorporated completed 'its

purchase of Hamilton Taft from Cigna Corporation.

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____~'also stated to onel I former Executive Vice President in charge of operations for Hamilton Taft provided him with the foregoing information. r--1allegedly toldl Ion February 27,1988 that~ I ~iml ! transfer $5,000,000 by wire transfer to a brokerage house in New brl~ans, Louisiana called the Howard Wiel Labluisse Friedricke Investment Security Incorporated. Al1eqediy~toldl I that this wire transfer was td'"purchase a Treasury B111 at 5 1/2% interest. r I allegedly asked Iwhy she was purchasing a Treasury" Birr--

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EXHIBITS to Section 2255 Reply - Page 10

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the $5,000,000 was exclusive~stomer funds which were put on deposit with Hamilton Taft. ~told' ~that at the time the transfer was made, Hamilton Taft did not have any funds of its own. ~__I noted that the form 8-K report which,. was filed in -'-'. the Securities Exchange Commission (SEC) by Maxphrama for the purchase of Hamilton Taft, Maxphrama states it has used a $5,000,000 Treasury Bill to secure a promissory note which funds

were used to conclude the ~urchase of Hamilton Taft from Cigna Corporation. According tal Itold him that these funds had been transferred to th~s brokerage firm from customer funds in the custody of Hamilton Taft. According toL' . ~ also advised thatl Ihad directed him to wire transfer $50,000 in an unrelated transaction. J

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In order to assist you in preventing your opinion from fs a historical point of view~ Yle are enclosing a copy of the actual r ~I~ FD-302 noting interview Of, with appropriate copies of -J /~'~ '1\ documents provided byl to our agent. --/-t

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was also interviewed in December of 1988. I~--:===~Ih~a~d~b~e~e~n~hiired by Hamilton Taft as TreasurerManager of the firm. I I is a Certified Public Accountant (CPA) having become a CPA in the state of ta~;f:rnia I Ibasically stated that shortly after became President of Hamilton Taft, she told him t a sewall e making the day to day investment decisions regarding the funds of Hamilton Taft. She instructed him not to make any investment b7C unless she okayed them. He explained to her that any monies collected from the clients only had a two or three day "window" during which they could be invested prior to having to be paid to taxing entities. Thereafter, all investments he made, other than

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into commercial paper, were done at the direction

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~would assist in the preparation of the monthly financial statements for Hamilton Taft. Each month a meeting would be held to discuss a just completed financial statement for the previous month. At the close of such a meeting in April, 1988, after the close of the April financial statements,l lstated that he had a conversation with in her office. During this conversation was bragging on the financial strength of Maxphrama an ow axphrama was in the process of purchasing C & H Nationwide Incorporated, a specialized trucking company. Apparently, in order to sUbstanti~te herr statements and the strength of Maxphrama, she showedL _ the Hamilton financial statement which listed Hamilton Taft's assets in excess of 30,000,000. financial picture was quite different than the financial statements which he had prepared for Hamilton from the month of April, 1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} - , :~: ~~'J~t::1JDL~~~ ~/~:.~~,

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lin looking at the financial showed him that someone had taken the April, 1988 financ~a statements of Hamilton and re-did them. The financial statement prepared for Hamilton Taft showed its reta)U:d earnt'ngs at approximately $200,000. , Istated he toldL _ . during this conversation that he thought the financ~al statements which she had showed him for Hamilton Taft were a fabrication and not rl:prese:ta~ive of Hamilton Taft's actual financial condition. _ ~ Jreplied that the people in Dallas were taking care of these f~nancial statements.

statement

~~~_rnoted that the above incident concerning what he considered false and misleading financial statements was a major factor in his ultimate decision to sever his employment with Hamilton Taft. A copy of the interview form FD-302 the interview oil I is incorporated as part of this communication.

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It should also be noted that was interviewed in september of 1988 regarding his former employment with Hamilton Taft. At the time of this interview,c::J stated

that he was self-employed as a consultant specializ~ng in employment taxes. He stated that prior to being self-employed, he was employed for five years with Hamilton Taft in San Francisco as their Chief Operations Officer and Executive Vice President. A copy of the interview conducted withc::J is attached hereto. This matter was informally presented to the united states Attorney's office which concluded that there was a lack of (. evidence to support the violation of any federal law at that time. Our case was subsequently closed. I IttI j J.'j(J ; : .'. ". /$. ' .~..-,.. ~/Dd tl~/ w(J~ rJ~ . ..,..,,~.fJ _~,~M:.,•.'" On December 24, 1990 7 -the.

Icall from one

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CPA.

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( stated that he was the current Controller of Hamilton Taft and that he was calling the FBI because he felt that his employer was).

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cheating the Internal Revenue Service - (IRS) by not paying ta~es (--/1'li'~ I-J; ,'iiI owing to not only the I~S but other taxing entities wh~n th~Y J ;~~ wer,e due. I ~advlsed that at least $20,000,000 J.n cl~ent rJIJ ' ! --~:'t funds have been transferred to accounts controlled by Chip ~B~ . Armstrong, the new CEO of Hamilton Taft. I I stated that were used to purchase one or more companies in Texi?-s. ~ stated that Hamilton Taft had approximatel: 100 . emp oyees in San Francisco in July of 1990. I t advised Armstrong is basically operating a Ponzi scheme, ut~lizing the tens of millions of dollars which are sent to Hamilton Taft for the ultimate payment of tax liabilities sustained by Hamilton Taft I s clients. I ~ has documentation, to support his claims r~~ t; ~r\ ~ and is scheduled to present same to t~e rBI on Jar:uary 13" ~991 7"~t:"S~'" ~ at 10: 00 am. I I furth 7r stated that th 7re ~s an ongo~ng , i.; ~:-% ~: procedure for prov1d~ng lul11ng letters to c11ents who actually ~~~< ~ comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~ ~, ~

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notice from the IRS. , ~ states that a letter on Hamilton Taft stationery is generated to the IRS berating the IRS for having made an error in showing at least the front copy of a check drawn on Hamilton Taft/s checking account allegedly demonstrating that payment was actually made on a particular date

for a particular tax liability_ These checks were never sent to the IRS but a copy of the letter was sent to the client, thereby stalling the clients further inquiries. Please contact us at your earliest convenience so that we might discuss this matter in greater detail. Sincerely yours, RICHARD W. HELD

Special Agent in Charge

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Octc=er 19, 1981 Mr. :·iarc Paiva ~amilton Taft & COffi?any 1255 Post Street San Francisco, CA 94109 Re:

Charac:erization of Funds 'E'or Tax Payments

~ichheld

by Employer

Dear Marc: Per your request, this letter Q1SCUSSes the characterization of funds withheld by employers from employee pay checks in satisfaction of federal and sta~e income taxes, Social Security taxes, and state ~nemployment insurance '. taxes. This letter is limited to a discussion of the Internal Revenue Code ("I.R.C."), t~e California Revenue and Taxation Code ("Cal. Rev. & Tax. Code"), ;:he California Unemployment Insurance Code ("Cal. U. Com. Code"), and the general responsibilities and duties of a trustee as reflected in the California Civil Code ("Cal. Civ. Code"). An employer is required to withhold from the wages of employees amounts in respect of federal income taxes (I.R.C. § 3402], Social Security taxes [I.R.C. § 3102], state income taxes [Cal. U. Corn. Code § 13020], and state unemployment insurance "taxes [Cal. U. Com. Code § 986]. The employer is liable for the deduction and witr.holding of taxes. I.R.C. 5 3403: Cal. U. Corn. Code § 13021. Characterization of Withheld Funds Funds that are withheld or collected as income tax or Social Security Tax are to be held by the employer as " a special f:..1nd in trust for the United States." LR.C. § 750l. u.s ..... Hill, 368 F.2d 617,66-2 ::.S.T.C. ~[9736 at 87382 (5th

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employer aE "3 special fund in tr'Jsc for the S't'ate ot Cali=ornia rCcl. -,:. Com .. Cocie § 13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax .:i r e t 0 be \.; i t h he 1 d "i n t r L1 st. Cal . - U • - Ca ~ . :: 0 d e § 9 8 6 • The duty to keep Withheld taxes as a trust arises as the taxes are withheld from wages regardless of the or~scribed dace for ~ayment to the government and does not termi~ate until the taxes are paid over. ';stleforc ' I . U.S., 75-1 U.S .T.C. I! 9464 ( D. ~1 i nn. 1975). ll

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During the ?eriod the funds are held i~ trust, the person holding the f~ndsassumes, with a few except~ons discussed ~elow, the duties and resDonsibilities of a ~rustee as such duties and responsibiliti~s are mandated under common law. ~arsh v. Home Federal Savinas & Loan Assn, 66 Cal. App. 3d 674, 136 Cal. Rptr. 180 (4th D.C.A. 1977). In general, a trustee is a fiduciary and is bound to act in the highest good faith toward his beneficiary, must make full disclosure of material facts, must not acquire any adverse interest, and must not use his position to gain any advantage over the beneficiary or to make any special ~rofit. Cal. Civ. Code §§ 2228-2233. A trustee normally should not ~ingle trust property with his own, but if he do.es willfully mingle the trust funds with property of his own, he is absolutely liable for their safety and for the value of thei~ use. Cal. Civ. Code §§ 2236. A trustee has a general duty to invest funds for the benefit of the beneficiaries, but he must account over to the beneficiaries any interest earned. Cal. eiv. Code § 2262. In investing, reinvesting, or otherwise managing trust property, a trustee must exercise the judgment and care which people of prudence, discretion, and intelligence exercise in the management of their own affairs. Cal. eiv. Code § 2261. California law provides a-fairly liberal description of the type of investment a prudent person would make, including every kind of property, real, personal, or mixed, and every kind of investment which a prudent person might enter into. Id. Notwithstandin~ the foregoing, the parties to the trust may alter or waive any of the standard pro~isions and duties. Rest. 2d, Trusts § 216. It is possible for the parties to a trust arrangement to authorize commingling of funds, to authorize the trustee to retain any income rrom the trust assets, and

EXHIBITS to Section 2255 Reply - Page 15

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V

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?age Three :0 consent ~o various ki~ds of investmen~s. The ~ase G[ :·;acsh Va HOi7le Federal Savir.qs &. Loan Assn. 66 C::. ';?p . .,)0 6 7 4 , 1 36 Cal.. R~ t: r--:. 1 8 0 (4 t h D. C .. rl.. 1 9' 7 7), i spa =- tic u 1 a t 1 Y instructive. At issue in Marsh was the proprie~~ and :egality or ':he lIimpoundll or llreserve" accounts :::.lstomar-ily required by savings and loan 2ssocia~ions and ba~Ks in connection with residential ~ortgages to insure ~ayment of ~axes and insurance.. The suit was a class action seeking general and punitive damages and seeking an acco~nting of interest on the impound accounts, which were customarily held ~ithout interest. I

The Court first determined that the impound accounts trusts, not escrOws. It then considered in detail the nature of a trust and the duties of a trustee, observing that the beneficiary of ' the trust may ~aive the right to any income and may authorize the commingling of Eunds. Thus, the Court noted that the deed of trust authorizing the impound account stated specifically that the payments by the plaintiff would be held by Home Federal "in its general fund without interest," and concluded that the parties had agreed that the trustees could commingle and use the trust funds, but did not have to account for any interest earned. ~onstituted

9.

The statute and cases indicate that the trust funds created by I.R.C. § 7501, Cal. U. Com. Code § 986, and Cal. U. Com. Code § 13070 are subject to some modification of the general rule. Thus, although normally a trustee must segregate the assets of a trust and not commingle the assecs with his personal funds, see Cal. eiv. Code § 2236, it is not generally required that the-Iunds withheld for taxes be held separately from the general accounts of the corporation or chat they be deposited in a separate bank account, Slodov v. ~.S., 436 U.S. 238, 78-1 U.S.T.C. ,[ 9447 at 84,206 (1978); Newsome v. U.S., 431 F.2d 742, 70-2 U.S.T.e. ~ 9504 at 84,1~9 (5th Cir. 1970). The Treasury or the Franchise Tax Board, as the case may be, may specially require that withheld taxes be put into separate accounts, however, in the event the employer has failed previously to make appropriate deposits, payments, or returns for such taxes, I.R.C. § 7512; Cal. Rev .. & Tax. Code 5 18492. Furthermore, there is nothing in the statute or any regulation or case with which we are acquainted to imply that the government is entitled to any additional interest on the trust funds doring the period such funds are held in trust. Thus, it would follow that if an employer decided to forego interest on the trust funds, he, too, could do so.

EXHIBITS to Section 2255 Reply - Page 16

:·1 r.

:·1.3 r c ? a \. i

Oc tobe r :2 9, ?age four

~ole

of

3-

1981

Co11ec~ing Ager.~

The foregoing discussion has considered the situation of an emclover. There does noe appear to be any case law, regulation, or statute dealing wit~ an :~dependent agent who actually pays over the taxes to the sovernment. The funds presumably are still trust funds, and che holder of those funds still bears the responsibilities of a trustee. Presumably, however, the collecting agent may use the f~nds in the same manner as the employer ~ight have, ana is noe required, insofar as the Internal Revenue Service or the Franchise Tax Board are concerned, to segregate the =unds from the general fund of the collecting agent. Penalties The normal penalty for a breach of fiduciary duty by a trustee is the amount of the loss to the beneficiary. A similar penalty is imposed by I.R.C. § 6672 or Cal. Rev. & Tax. Code § 18815: any person required to collect, account for, and pay over withholding taxes who willfully fails to collect, account for, or pay over such tax, is liable for a penalty equal to the total amount of the tax evaded, not collected, not accounted for, or paid over. ~ The test is " w illfullness." Basicallv, "willfullness" does not require anintent to deprive the government of its taxes, Newsome v. U.S., suora, 70-2 U.S.T.C. at 84,151, but can be evidenced merely by use of the withheld funds for any other corporate purpose, regardless of any expectation that adequate funds would be available at the due date for the taxes. WavchofE v. U.S., 79-2 U.S.T.C • • 9602 at 88,195 (S.D. Tex. 1979). Any person who voluntarily and consciously risks the withheld taxes in the operation of a corporation is subject to liability under I.R.C. § 6672 (Cal. Rev. & Tax. Code § 18815) if subsequently the corporation is unable to remit the withheld taxes. ~ewsome v. U.S., supra. In addition to the civil penalties, however, there are also ciminal penalties. I.~.C. § 7202 provides that any person required to collect, account for, and pay over any tax who willfUlly fails to collect, account for, or pay over such tax shall be guilty of a felony and, upon conviction thereof, shall be fined not more than S10,000, or imprisoned not more

EXHIBITS to Section 2255 Reply - Page 17

:·lr. :·larc Pa'.'.:..3 October 29, :981 ?age Five

than five years. o~ both, together with the costs of prosecution. Cal. Kev. & Tax. Code § 19408 imposes a fine of nat mOre than $2,000 or imprisonment [no staeed maximuml, or both for the similar offense. Although the penalties under these sections have been imposed only rarely and only in particularly egregious situations, there is considerable need to be concerned about the potential criminal penalties as well.

If you have any questions or comments.concerning the foregoing, please do not hesitate to contact us.

t;;jY,

~id

L. Kimpert

DLK/aw

..

EXHIBITS to Section 2255 Reply - Page 18

Memorandum

. SAN FRANCISCO (196A-SF-93255) (P)

To

From

Subject

sAJ. . .___-----1 _ sAJ

(SQ' 5)

Date Date

3/8/91 3/8/91

b7C

CHIP ARMSTRONG, Jr., dba Hamilton Taft and Company 1 Market Plaza Spear Street street Tower San Francisco, California FBW; MFi Tax Fraud; 00: SAN FRANCISCO

The purpose of this_memo this memo is to'document tO'document events events that that ";'::'::~;;"""';~~I"-I:.G.iiIIol~e since ~brua:;y which ~~;;;:"":~~Io6..JII'oIIIel...,e 6bruary 13 II ~ 19 whi,?h is the date date that that ~~~~________~was ~was last interviewed by the writer. On ~~~~ On that that ___________ provided a numbe ocuments to iter __________ ~provided numbs iter which which y he writer to qA or have been disse ~na e ~A or the the IRS IRS C~ere in San Francisco, telephone number 556-6850. C~here 556-6850. It It should: should: noted. that a copy of these documents along with aa summqry also be noted. summ~ry of the writer's review of San Francisco file 196A-2868 has has been been prepared and disseminated to AUSA MICHAEL YAMAGUCHI at 556-1328. 556-1328. this summary summary is a matter of record under aa separate A copy of this separate communication which is a part of this file.

9

)7C

to the the fact that AUSA Due to AUSA YAMAGUCHI was on annual annual leave leave and did not return to his office until March 4, and/or 5, 1991 1991 no no overt investigation was undertaken. This matter was referred to to YAMAGUCHI he handled ~ Mr. Y GUCHI because of his previous revious referral which w' handled ~ ~g..arding HamHton for ~ re ardin Haml on Taft -in in which he subsequently subse entl QIilCl f r~_ l.sck OJ prosecution.. pros e cntiOIL This --- -7 lJlck This matter was was investigated by S . -7 _it was handled under--SF I _ it was under--SF 196A-2868 196A-2868 and and was closed ~h

j.n:p

0]

August, 1988.

byl

I

with regard to writer with to information supplied supplied byl writer was reluctant to to initiate initiate any was any overt overt investigation investigation for for fear fear thatthere would~ ~uld~ Eotential potential liagility there liability qttached attached wherein the governin~nt £.QB1dJ2e £QB1d1;!e accused..Q.t governm~nt accused.Qf initiatipg the the pownfall downfall ,of captioned company COmpany bvl'the byjthe mere captioned mere fact that that it was was making making overt overt .has provided detailed informat.ion inquiries. [I ..- ' ,has information which which,I ~ of this date, has'been has· been unable of unable to to be be thoroughly corroborated. corroborated. Progress is is being being made made to Progress to effect effect such such coriOEorat2on. corroDorat2on. .

I. I~ expressed expressed apprehension apprehension in in his his mind mind regarding regarding the "extensive "extensive"n time-it time-it was was taking the taking for the the government government to to decide decide whether or or not not to to initiate initiate an Whether an investigation investigation and and to to effect effect some some criminal process. He He was was told tolc:1 tbat ......ll9.;.~_ criminal that the the government government haJl._:t.Q ha_g._:t.Q......... @~_ victim before before any any process process would He victim would be be forthcoming. forthcoming. He was was further further

I.

EXHIBITS to Section 2255 Reply - Page 19

196A-SF-93255 PKM/sgc advised on more than one occasion by the writer of the potential civil !iability liability which miggt mi~t attach to the revelation to the

general public that the FBI was conducting or maybe conducting an investigation into certain alleged criminal activities on tne the part of Hamilton Taft. '. ]Ll, 1991~r= Ilsaw saw fit to Nonetheless, on February 1-1, 1991~r= contact the congressional offices here in San Francisco of

congress persons NANCY PELOSI and BARBARA BOXER. ~ Congress on resswoman PELOSI/s PELOSI's office to whom arne of an investi ative re orter spoke ave e CQDtactjng.. with b~s infdrmat-ion. ~hould consider contacting.. infOrmat.iQD. Qn On Fepruar}!'_12.'; Fel;>ruar~,'; writ~r as well wall as ~gentl lof the eIn ~1, the w~it~r ~gentl Cln repo~ed repo~ed -~ receiving telephone calls from an attorney at the Department of jnquiry as to the FBI and/or IRS' connection if Justice making inquiry any with Hamilton Taft. ~t' ~presentat'

b7C

________ _ On February 13, 1991, during the interview of~I ofl~ __ conducted by the writer, he was again questioned as to the reason He for making calls to the aforementioned oonaressional conaressional offices. stated that he was concerned about I Ifollowing his resignation from Hamilton "'rrl-a,'""'I'.rll"!"'~t--o-n--"F~le""'tb""'r""'u"'a""r-Y~1~1~,~1!"'!9!!"'!!9!!"'!!1~. I ~T-a-Y-~t--o-n--F-le-~b--'r-u-a-r-Y~1~1~,~1~9~9~1~. Itt should be noted that during this interview on February 13, 1991 re-iterated that fact fact.that! !I thatl 1 I He was J---again reminded of potential civil liability problems tnat that might ~ £n?ue from the publicatiQD publicatigo Qf the possibl~nterest gn?ue possibl~nterest of the FBI with res~9t resE§.g~~-Hamilton £af~. to-Jiamilton £af~.

I

1

Il

I

On Wednesday, March 6

J--'

1991, the writer received a~

~N:,

telephone call from SAJ ; JIRS CID who advised that he had been called by a M-. RALPH :IN W, an investigative reporter for the Wall street Journal here in San Francisco. The purpose of KING's call to SWAIN was to confirm that the IRS was conducting~DY§stigation regarding Hamilton Taft. On the conducting~nY§stigation morning of March 6, 1991, the writer reviewed message slips that had arrived on Tuesday, March 5, 1991, the writer having been on sick leave that day and one of, them was from RALPH KING of the Wall street Journal. The writer did not return KING's phone res~g to a page, for a telephone calIon call, however, in res~g ~h-~) 1991, the writer became connected the afternoon call of ~h-_6J) street Journal. The usual inquiries were to Mr. KING of the Wall street,Journal. t~at, is we can neither confirm made and the usual response, t~at, and/or deny the existence of any investigation was provided to ~ thi§

perturped £y Mr. KING who seemed perturbed

~espOQse. ~espon~.

2

EXHIBITS to Section 2255 Reply - Page 20

196A-SF-93255 PKMjsgc PKM/sgc

On March 6, 1991,1 rr head head of of corporate corporate security of Sun Micro Systems Inc. at at 2550 2550 Garcia Garcia Ave., Ave., Mountain Mountain View, California 94043 94043,1 telephone telephone number number (415) (415) 336-0496 336-0496 was was called by the writer in response to call call that that he he had had made made to to our our office on March 5, 1991. that his office office had had was been contacted by was accompanied by an attorney (ph) attorneJ one (ph) who who advised advised that that the purpose of .. _ J.cro oflI _contac lcro Systems Systems was was to to advise Sun Micro Systems that it had been been tBe the victim victim of of aa fraud fraud perpetrated by Hamilton Taft' on Sun .-.Micro Micro systems Systems and and numerous numerous other corporate clients of Hamilton Taft. 'advised Taft. I ~dvised the writer that he would fax certain documents documents up up to to San San Francisco at the writer's suggesti~n. 5uggestiqn. These These documents'included documents· included aa .

I

copy of of· the service agreement that( thal: exists exists betw~en betw~en Sun Sun. .l~icl;"o .Mic1;"o

.. .

systems and Hamil ton Taft dated (October 1, 1981 as Systems 1, ..__.1987 as well well as as copies copies of certain Federal tax forms whicn had had been been executed executed by by employees employees of Hamilton Taft Company. I~ Ilalso also advised advised the the writer writer that I ..0, ad of his own volition convened convened aa meeting meeting of of ""~~,1 ""~~}:'~~ _.':~ several of the corporate representatives representatives who who he he had had contacted contacted .t~/;r:~·,:'.t~~('-_~,':;~'.'.J presumably in the first presumably first week of March telling telling these these corporations corporations who are are current and/or former clients of Hamilton who Hamilton Taft, Taft, that that they they had in in fact been ,defrauded defrauded by Sun had by Hamilton Taft. Sun Micro-Systems Micro-Systems reluctantly reluctantly agreed to to "host" this this meeting which which was was to to take take place place .ft"' .I"'" during the afternoon "'; during afternoon of of March March 8, 1991 1991 at at Sun Sun Micro Micro System's System's offices in Mountain View. nf

I

rpad

_'J_'- .. ' /

,1' ,i'

""

" ;~ .Jr

'

.' ,.. /, '~ :':' ;

,,[)if/,

Of Ithrobgh ..... Of the the mornin: mornin: of of March March 7, 7, 1991, H91, II I,throtgh' I, an investigator his associatel investigator for for the the COJ;.porate Co~porate Security-. Department of un Micro Systems, facsirniled Securit~Department facsimiled 16/pages l~~ages 0,£ oj documents to the writer. The most salient point of these documents The point of t~ese documents was documents was aa letter letter to to Sun Sun Micro Micro systems Systems dated dated February February 13, 13, "', ,'.' ' 1991 from the ,.IRS in-- Fresno.. 1991 Fresno. The The let}:er letter refers refers to to aa particular particular ,/' ;) >')' tax identification identification number utilized by Sun Micro Systems and . number utilized by' Sun Micro Systems and . '~: references aa tax references tax period period ending ending september september 30, 30 I 1990.; 1990.'- The The letter letter ~,l~:?,.,. }} goes on t·t -.~, '; goes on to to thank thank tax tax payer payer (Sun (Sun Micro Systems) Systems) for for its its reply reply dated January 25, 1991 and its payment of $260,784.25 in penaltyJ, dated January 25, 1991 and its payment of $260,784.25 in penaltyJ;'..... fees and The " - .,~ fees and for for its its late late deposit deposit of of ($5,215, ($5,215, 684.86). 684~86). The Signifirn:e of th~S ~mmunication is that Sun Micro Systems ... signifiri:lD:e Of th~S ::mmunication is that Sun Micro Systems .,'' .. t h r o u g h _ _ h a s represented, as of March 7, 1991, that t h r o u g h L J h a s represented, as of March 7, 1991, that it did did 1nact it lnac~ sen sen tt ee appropriate appropriate money money that that is is $5,215,684.86 $5,215,684.86 to Hamilton Taft via a wire transfer in order to to Hamilton Taft via a wire transfer in order to pay pay employment employment tax obligations obligations do tax do and and owing owing the the IRS IRS for for the the tax tax period period ended ended September 30 September 30 rr 1990. 1990. Per Per an an agreement agreement of of which which the the writer writer is is in in receipt, that is, the service agreement between Hamilton Taft receipt, that is, the service agreement between Hamilton Taft and and Sun Micro Micro System?, System~, Hamilton Sun Hamilton Taft Taft is is responsible responsible for for the the payment of~--L~e ot~--L~e penalti~§4 It payment penalti~§4 It is is an an inference inference drawn drawn by by Sun Sun

l,

if

'

33

EXHIBITS to Section 2255 Reply - Page 21

196A-SF-93255 PKM/sgc

Micro Systems personnel that this document tends to corroborate what I I was alleging in his representations to the

government.

b7C

'

On the afternoon of March 7, 1991, AUSA YAMAGUCHI was personally visited by the writer and a brief update was provided to him of events that have taken place. On March 8, 1991, copies of the aforementioned facsimiles were provided to AUSA YAMAGUCHI fore his review. On March 8, 1991, Mr. YAMAGUCHI suggested to the writer -that ,that efforts continue to accumulate enough probable cause to cause the issuance of a search warrant for the offices at Hamilton Taft at the earliest possible date. The following corporations have been contacted by by

]

I land/or his attorney and ~d~~~ed ~d~~~ed that they' have been the victims of fraud perpetrated on them by Hamilton Taft. These

corporations are costal Costal Savings Bank, Sun Micro Systems, American West Airlines, and one or two chemical companies located at the east coast. In addition, I I advised writer that he has been contacted by representat~ves representat~ves of Lloyds of London Insurance company with respect to Hamilton Taft. It is "'y,nkno..wIl is-y,nkno~~ ~~~~~~~dyal~!!!p~;~_!,~~_,~. wil.~ , h_e,Y,~~,},~E?i~~ ~,~!~,!:~ ~~,~_ ___ "_9! ..J)},e ~~~~~~tdyal~!!!p~;~_!,~~_,~.wil.~ h_e,Y,~~,},~E?i.~~,~~~!~,!:~~~,~, J)}.e

I

I

meetl.ng_",Lo-.-oe" ··he~d_~"a_t,.Sun",,M~c_ro __ Systems me~t~ng_"",I:.o-;-oe,,··he~d_~,at,.Sun.,M~c_ro systems, ().ff~~es ().f:!:~pes

o~March at-March 8,

1991.

,on the .afternoon afternoon

San Francisco at San Francisco, California: Investigation is continuing.

4*

EXHIBITS to Section 2255 Reply - Page 22

•

•

• SUMMARY OF CREDITORS CLAIMS

•

CONSOUDATED ESTATE

•

•

Scheduled Amounts

Proof of

Maximum

Oalm

Potential

S 95,1

Hamilton Taft Customer Claims

$ 91 ,925,180.61

$ 90,790,426.62

Claims

82,975.21

198,393.09

204,873.85

1,346,135.60

1,535,6Hl.13

112.298.770.21

\ 12,298, 770.2.1

Hamillon1aft

Hamilton 'Tafl Trade Claims Other Hamlllon TsH Claims

0.00

Claims

Dresdner

970,665.90

505.932.59

Remington Claims

TOTAL

10007.25 $ 94,419.148.42

$ 205 •.255,006.4Q

TOTAL CLAIMS EXCLUDiNG SOLODOFF

•

$ 2'0,181.093.92 S 100,1

DRESDNER PETAOIL,.EUM

•

Scheduled

Proor 01 Claim

Maximum Potential

Amounts Dresciner Petroleum Claims

371.376.03

651,060.93

731.286.55

• •

•

/:OlIlOhtdoc

C-1

EXHIBITS to Section 2255 Reply - Page 23

•

•

• NOTES TO LISTS OF CLAIMS

• •

•

1. The list of claims includes all claims and amendments filed on or before October 18, 1991. The listing of a claim or amend~ent filed after the bar date of september 30, 1991 does not constitute a waiver of the trustee's right to object to the claim on the ground that it was untimely filed. 2. NScheduled Amount» means the amount stated to be owing to the creditor in the Schedules of hssets and Liabilities filed by the respective Debtors. The nproof of Claim Amount" is the amount claimed to be owing by the creditor in a proof of claim filed __ with the Court. If no' proof of cla im was filed, the "Maximum Potential Cl aim" is the Scheduled Amount. If a proof of claim was filed, the hMaximum Potential claim" is the "Proof of Claim Amount", regardless of whether the proof of claim amDunt amount is higher or lower than the Scheduled amount. The llMaximum potential Claim- does not constitute any admission by the trustee that the claim is allowable in the amount stated, and all objections are reserved. 3. All duplicate claims have been eliminated for the purpose of the list. If a proof of claim was filed against more than one Debtor, it appears only once. 4. The list of claims does not include any intercompany claims of any Debtor against another Debtor, or of any non-Debtor affiliate against a Debtor.

•

5. The list of claims does not include any classification as to priority.

•

• • •

WTS1U,DOt

C-2

EXHIBITS to Section 2255 Reply - Page 24

•

•

COHBOLIDIl'mD E6n'I'E "iIAHILTOH n r r CUS1"OWlm CI..JUNS

PROOF OF CLAIM

AMOUNT

CREDITOR ACTION

I~STRUMENTS

CO., INC.

INC. AIR C1I.BLE, INC. AI..I...E1iI FOAM CORPORATION ADVo-Sl{STEM.

•

•

AMERICA WEST AIRLINES, INC. AMERICAN MleROSYSTEHS, INC. AMERICAN NUUM COFlPOR}l.TION AMERICAN RESIDBNTlAL ESCRO~ AMERICAN RESIDENTIAL MORTGAGE ANAL rTI 'KEM ARRAY TECRNO~OGY CORP. ~~~OCIA~ED COIN AHUSEHENT co ATLAS HOTELS INC. BI\LCO.!< PAYROLL COH.PANY BARCLAY HOLLANDER CORP BEEBE ORCHARD CO. ~L~E CResS & SLUE SHIELD OF TX BLUE GOOSE GROWERS INC. BLUE GOOSE GROWE~S, INC. BOARD OF TROSTEES, STANFORD BOSTON & MAINE CO~RTATION BOSTON & MAINE CORPORTATION aOYLE MIDWAY INC, BOYLE-MIDWAY BRINKMANN INSTRUMENTS BRtlNSWICK SEAT COMPANY BUD ANTLE, BUD ANTLE,

• • •

INC. I Ne •

BW I rp INTERNATIONAL, INC. C .. R CLOTHIERS CALIFORNIA PACIFIC KED. CTR. CARTEX CORPORATION c)l.STLE &. coox.s

CASTLE & COOKE PROPERTIES CASTLE & COOKE RESIDENTIAL CAST~E ~ COOKE. INC. CASTLE COOKE RETAIL. INC. CITY OF PIEDMONT CITY OF PINOLE CITY 01:1' PINOLE CLA.'ts CC:RPQAATION

CLEVITE aRIDGESTONE CO. COAST FEDERAL BANK caVIA PARTNERSHIP C'JANOKEH U~GUSSA CORPORATION DEL MANUFACTURING COMPANY OELAWARE SEAT COMPANY DELHI GAS PIPELINE CORPORATIOII DIAMOND WALNUT GROWERS DOLE FOOD COMPANY, INC.

•

DONNELLEY RECEIVABLE lNC. DUBLIN/SAN RAMON SRVCS DSTRCT ELECTRIC POWER RESEARCH INST. ENSR CORPOAATION DELAWARE

$92,092.84 SI, J7g~e36.0e

51.

Ital. ~

,654.31 ,288.32

$96,654.31 $1,'796,288.32. $24,966.22 53.,;226.23 S834, 7.25.41 $:268,237.64

S24~966.22

$3,:226.23 $834,725.41 5267,401.62 $32,198.85 $849.&8

$268,237.64

$156,040.21

5175,862.00

$31,194.29 .

$32,798.85 $849.69 S l.7S •. 862.00 $31,l84.29

$32,198.85

$31,194.29

$35,106.01 $8,407.12 SH>7,024.91 512,211.47 $3,617.50 S14,489.1B $1,156,576.16 5214,931.33 $6,285.72

$35,106.01 S10,218.74 $H'6,607.00 $12,211.41 617.50 $14,489.18 ,623.47

saO,2HL 74 $166,601.00

S1,2S7,~23.41

931.33 $6,285.72

S296,991.46

$296,991. 48

$845.20

$845.20 $5,572.54 $4,314.91 $7,61£!.24 $'72,034.16 $1,096.8S

$5.512.54_ $4,314.!H S7,618.24 $72,034.16 $1,096.88 $229,477.87 S890, 046. 0') $18&,932. IS 5324,523.13 Sl,l02,204.0S

5229,477.87 $890,046.01 $310,691.23 $324,523.13 Sl,106,353.90 S24,663.04

MAXIMUM

POTENTIAL CLAIM

5386,932.78 $1,102,264.05

$24,663.04 51,BS9. B6

$1,899.86 $28,I14B.13

$28,648.13

S74,se8.42

S74,59B.42-

$223,640.91 $21,522.14

$223,640.91 $27,522.14-

53,518.58 $2,843.17

$3,57.9.58 $1,211.71

$1,221. 71 $3,232.54

$3,232.54

$164,378,45 $2,733.94

$1,793,303.81 $49,063.07 $146,680.78.

522,552.14

$164,332.89 52,733.94

$164,332.89

57,476.29 $1, ]92, 401. En

5'7,476.29

51,792,401.B1

$49,063.07 s9n,077.10 $22,851.14

549,063.07 $971,077 10 522, as!. 14 S14,905.3B $50,209.72

$14, gO!'>. 38

547.209.72 $.5,996.84 51,592,062.34 SlOB.26 $45,012.29 S117, 9SD. 60 5nO,506.19

S50, 209.72

57 ,421. j4

$',421.34 53,142,906.64

$3,142,906.64 $108.26 $45,352.57 $138,982.22

$45,352.57 $138,982.22 $110.506.56

$110,506.56 "

~.

01/19/92

•

EXHIBITS to Section 2255 Reply - Page 25

• COHSOLII.U.'1'ED BInATE B.AKIL'l'ON 'UFT v..rr CUS':OOKl!:R

HllXIMUM

•

SCHEDULED AMOUNT

CR.EIH'!OR FEDERAL EXPRESS CORPORATION

..s..:J,_"-',

FIRST CAPITAL LIFE INSRNCE CO.

• •

GENSTU STOW PRODUCTS COMPAID;: GLENDALE AOVEN'l'I Sf MED. CTR.

GUCKENHElMER ENTERPRrSES, INC. GUCKENHilKER OF TEXAS, INC.

PROOF OF CLAIM

POTENTIAL

AMOUNT

CLAIK

530,432,796.91

$28,319,089.05

S28,.319,089.DS

$1:27,193.73 551B,023.:.15 $625,353.80

$139,054.00 $603,765.00

5139,054.00 $603,165.00

$625,109.60

$625,109.80

$95,403.19 $95.403.19

$98,091.81

S9,072.69

59,474.00

S9B,091.Bl S9,474.00 $101,862.64

H. 1). HUDSON )oo!MU1"AC'TlJRING CO.

$100,556.49

$101,862.64

BBO & COMPANY OF GEORGIA

$420,317.BO

$421,924.80

$4.21,924.BO

REJl.LTRQUEST LTD.

$:203,803.91

S230, 626. Ol

$230,626.01

J.E.G. rooDS, INC. JBB SPIRITS INC.

51,027.79 Si.l9 4.46

JIM BEAM BRANDS CO.

S157,962.79

KAY TEA ROSE, INC. KEMPER SECUR!TIES GROUP

516,422-.46 51,078.13 5114, B88 .19 5114,888.19 p,SSO.91

LANAI COMPANY, LANAI COMPANY.

•

ClJ\IHS

INC. INC.

LONG BEACH CONTAINER TERMINAL LOCASAR~S ENTERTAINMENT CO. KABON, NUGENT & COMP AllY

S9,899.80 S9.899.80 $218,065.99 $21,432.34 $954,798.68

HASON, NUGENT & OOKPNAY

S2,OOD.OO S2.00D.OO

LUCASF'lLH, LTD.

HAINE CENTRAL

RAIL~OAOS

CO.

MCCUTCHEN,DOYLE,BROWN& ENERSEN Me! TELgCOMUNrCATIONS CORP.

$60,6B5.10 $2,163.98 S2,163.98

METROHEDr,.. COKPANY HILLS COLLEGE MILLS

MONROE

SYST~MS

FOR

$411.01 $99.993.14 $102.95

BUS1~SS

Sl,027.79 $B94.46

S894.46 S157,862.19

S 15 j , B62 .19

$16,814.'98

S16,B14.96

$1,078.73 $1,018.73

$1,078.03 $114,B88.19 $3,550.91 S9,7B6.79 $9,786.79

$9,186.79 ~2:n,a57.32

$22,175.B4 $985,407.53

$100,959.51

S6l ,317.00 S6.l

$2.31,851.32 S12,17S.B4 59B5,407.53 $2,000.00 S411.01 $100,959.51 $102.95 $61,317.00 511,508,89 Sl1, 50a, 89

S660,777.55

$11,508.89 Sl1,508.89 $650,177. SS

~660,j77.SS

Sl46,OJ3.47

SH.a,724.1>0

5160,724.60

$6B,911.30 S14,454.42 5285,282.60 52,665,121.26

$84, .l4 7. B2

INC

HT. DIABLO HOSPITAL NATIONAL DAT~ CORP. NATION~ DAT~ PAYMENT SYSTEMS

•

NEe

ELECTRO~ICS,

INC.

NEIMAN-MARCOS GROUP, INC.

NORTHLAND PLASTICS I~C. NORWEST PUBLISHING CO. NUXEM AOQOI5ITION CORPORAT10N

$24,100.27

OAIro TlU\.NSPORT CO., LTD.

OAKLAND ATHLETrCS BAS~BALL co. CBS FINANctAL SERVICES

$90,365.04 $4.779.92

590,499.42

OCEANIC CONSTRUCTION COMPAm.'

PAYLESS 5BOE SOURCE POL~TECHNIC UNIVERSITY R.IL nONNELLEY "" SONS COMPANY RECLU'l'T ,

• •

$45,237.26 $79.62

$24,700.27 $2,209.85

N1.7KEH TECHNOLOGIES OORPORATION N1.7KEM

•

$7,234.95

S33D,S9l.G9 S553,250.70 p,690.1B

COLEMAN INC.

RECKITT & COLEMAN INC.

RICHMOND WHOLESALE

ME~T

Rl'ITERSIDE SE1I.T COMPANY J MO GENERAL INC.

CO. INC.

RM MARKETING INC. ROCHESTE~ INSTITUTE OF TECH. ROOT-LOWELL MANUFAC7URING CO. ROSS STORES, INC. S , S CREDIT COKPANIES, INC. S.D. WARREN CO.

S38,607.53 $4,243,286.64 $1,8B8,208.34

S246,309.1) S4.3,424.27

$45,222.87

$16,828.57 $4,420.63

$4,643.63

S581,564.39

$5,231.14 Sl05,673.S7 $35,745.10 $701,843.46 5158,'329.53 53,206,607.68

57,690.1B $45,237.26 .$19.62 $24,100.21 52,209.85 590,499.42 $4,179.92

$38,607.53 Sl,052,856.30 $640,704.98 $5,143,366.45 $2,4?l,860."

5271,349.31

$80\1,141.£12

514,454.4' 5330,591. 69 5553,:250.70 $553,:250.70

$36,340.00 5101,843.46

S3,206,607.68

Sl,052,B56.1C $6.40,704.98 $5,143 • .366.5& $2.471,850.77 $2,471,850.7"/ S246,309,17 $45,222.8") $45,222.81 $16,828.51 S4,643.63 $5,231.14 $105,673.57 $36,340.00 S"1 0 1 • 84.3 . .4 6 $158,929.53 $3,206,607.68

02/19/92

•

C-4

EXHIBITS to Section 2255 Reply - Page 26

• CONSOLrO~D

ESTATE

•

HAMILTON :rAPT ctlSTOHER l:LAINS

•

•

• •

CREDITOR SANO!~ NATIONAL LABORATORIES SCM CHEMICALS, INC. SCM METAL PRODUCTS, INC. SCOTT CONTAINER PRODUCTS GROUP

SCOTT PAPER COMPANY

SCOTT PAPU COloU>ANY SCO'l"r POLY.Ml!:RS

SCOTT WORLDWIDE, INC. SIGNET ARMORLITE, INC. SIGNE'ICS COMPANY SINAI HOSPI~AL OF DETROIT SINAI MANAGEMENT SERVICES

co.

SI'l'KJ\ CORPORATION

SONY AVIATION SERVICES SONY CAPITAL CORP, SONY CHEMICAL CORP. OF AMERIC~ SONY CLASS 1 CAL SONY CORPORATION OF AMERICA SONY USA INCORPORATED SONY USA, INC. SOS CALIFORNIA DIVISION 50S ENVIRONMENTAL TCHNLG,

INC.

SOSTAA

50UTRLAND CORP. EMPLOYEES TRU. 'SPRINGFIELD SUG~ , PRDCTS CO. SPRINGFIELD TERMINAL RAIL. co.

•

• •

AMODN'J'

$'206,809.05 549,347.49

$S.3,553.33 $7,086,901.47

$300,000.00 $207,834.04 $65,785.93

$53,553.33 57.0136,801. 47 $44,471.8,)

KJl"XIMUH POTENTIAL CLAIM S300,OOO.00 $20'.834.04 $65,765.9.3 $53,553.33 $7,086,901.47 SU,4H.Bi $6,294.42

$44,471.87 $6,294.42 SEl30.33 $50,.105.99 56,212,016.45 51,377,666.01 S17,195.19

56,:a2, OHi. 4S $1.561,207.10 $17,773."73

S12,D41.S0

$12,588.32

512,588.32

$l,539.67 S982.72 $967.24 S420.24

S2,B38.13 $1,572.12 $967.24 $1,010.24

$2,83B.13 $1,572.72 $9&7.24

S414,189.1S $5,978.17

5541,129.92

$'541,129,92 510,347.03

S6,294.42 $830.32

$10,347.03 $2.366.56

Sl,590.29

-S675.S3 53,836.03 5178,993.18 $351,.36(1.47

$8,362.82 $6 1 306.52 5178,993.14 $446,261.18

$51,705.83

S830.32 $50,105.99 56,212,016.45 $1,561 , 207.70

$1'},773.73

~il,OlO.

24

S2,:ibG.S6 $1.590.29 $8,362.82 $6,306.52 S178,993.14 $446,261.19 551,705.83

SPRINGFIELD TERMINAL RAIL. CO.

5188,420.35

STANFORD UNIVERSITY HOSPITAL STATE OF ARKANSAS SUN MICROSYSTEMS FEDERAL, INC. SUN MlcR05YSTEMS or CALIFORNI~ SUN MICROSYSTEKS, INC. SUN MICROSYTEMS EU~OPE, INC. SUN-MAID GROWERS OF CALlFOiUHA SUNBELT BEVERAGE CORP. SUNSWEET GROWERS, INC. BYaRON TRANSITION CORPORATION T.D.S. FOODS, INC. TANDEM COMPUTERS, INC. TANDEM TELECOMMUNICATIONS SYST TEXAS OIL " GAS CORPORATION

53,512,722.32

$296 1 014.77 $.3,512,722.32 550,011. S6

:)23,660.37

524,011.79

53,085.14

53,070.86

$801,887.97 $528.51 p,B}4.2S

5191,227_64

$235,422.69

5239,938.37

S239,93B.3?

$)3,141.02 S8,671.61 511,306.08 Sl,950,838.1B

$14,925.70

$14,925.'70 S8,80l.44 512,2.35.50 $2, '94,142.85

'I'm: ALL AKERICAN GOIlRMET

$40,708.11 S30,SB1.22

CO.

$8.30.74

THE CHRONICLE PUBLISHING CO. THE COOPER COMPANIES, I~C.

$1,08a,&32.47 SI8,.316.15

THE 1WB COMPANY

$11,455.66 $1, OHI, 911. 96 5331. 74 $687. 92,{1, 28 $36,787.19

THE KENDALL OOMPANY THE 'KENDALL OOloU>ANY OF NEVADJ\ THE Pur...t..HAN COMPANY

THE STATE BAR OF CALIFORNIA THE VINTAGE CLUB THE'R.K1I.L1tEM

•

PttooP' OF c:LAIH

SCHEbULEO AMOUNT

TRANS-ADVD SYSTEMS, INC. UNGERHANN-BASS, INC. UNITED SAVINGS BANK VALLEY FIG GROWERS

S.20, 32B.O!:' $S7,303.54 $11,169.40 $1, 844.17 595,71LlS 55,988.90

$991.44 $9,163.44

~BJB03.44

S12,23S.50

$2,794,142.

$53,299.35 SJJ,974.00 $1,163.471.01 S18,2B9.24 532,566.74 $1,320,460.00 57.36,111.75 523,61.3 S7 $57,303.S4

$1,101,103.57 ~96,6?S. 7S $7,227.26

$296,014.77 p,512,722 • .l2

S50,01l.Se.

$24,011 • .,e $3,070.86 $791,22'.64 $991.44

59,163.44

S40,106.11 $5.3,:299.35 $33,914.00

ilJ 163, 471.01 51B,28':':I.:24 532,566.74 51, 460.00 $331.74 $136,111.75 S36, 787.19 $23,613.51 557,303.54 $11,169.40 51.1Q1,/03.57

596,675.15 $7,227.26 ,/

~

• f

02/19/92

•

c-s

EXHIBITS to Section 2255 Reply - Page 27

• COMSOLln~~ BB~

•

HAMILTON 'rAPT C::US'l'OMER c:LJI.IM5

MA..XIMUK

•

CREDITOR VERBATIM CORPORAT10N

•

•

WAHIAWA WATER CO., INC. WAIALU~ SUGAR CO •• INC. WAIALUA SUGAR CO., INC. WAS'I"E CBEM CORPORATION WBF TECHNOLOGIES WILLIAM KARSH RICE UNrvIRSITY WILLIAM MARSH RICE UNIVERSITY WINCUP, INC. WOODBRIDGE WOODBRIDGE WOODBRIDGE HooDBRIOGE WOODBRIDGE Totalt

CORP. FOAM FABRICATING HOLDINGS, INC. INOAC, INC. SALES & ENGINEERING

SCHEDULED AMOUNT

PROOF OF CLAIM

POTENTIAL

AMOUNT

CLAIM

$451,398.96

S391,051.78 $473.90

$46,401.38

5451,39B.95 S473.90 546,407.38

$43,377,27 $22,385.78

$43,371.27

S22,385.18 $421.44

534.26 5829,l67.24 S980.19 sea,031.42 S18,528.81 $458.47

$829,201.50 5990.19

$421.44 534.26 5829,201.50 S980.19 $88,031.42

S18.S2B.81 $209,353.81

$30,799.40

$209;353.81 $30,199.40

$4,285.'36

S4.2QS.96 $90,790,426.62

591,925,180.61

$95,123,932.26

•

•

• •

• 02/19/92

•

6

EXHIBITS to Section 2255 Reply - Page 28

,

•

CONSOLID~

•

ESTAXB B.AMILTOH TA1"".r BMPLOYEE CI.Ji.YMS

•

MAXIMUM CREDITOR AFLA1<.,

ZlBJ.

• •

BOONE JEI\NNE

BENIPAYO, CONSUELO CONSUELa BERNSTEIN, MATTHEW

ELIZABETH LABRADO ilLACHAASKI, DAN BRISCOE, EDWARD E. BE~EY,

SULDA,

ERLnm~

BtJ'R.R.F!ARDT, DIANE

BUSENBARRICK, DIANA CALLAHAN, PATRICIA

CARRIZALES, JUAN-JOSE CATAH, RODEL

CHANG, ALBEJIT CHENG, ).!ELODY

•

CONOVER, SALLY CORPUS, ANDREW CROWE, CINDY DANCEL I JUnE DAVIS, ELIZABETH

DAV!SSON, ROBE:RT DE LA CRU Z I

DAN 1£L

DIKALANTA, VICTO~IA DtJNN, DORA DORA E. OtJNN, ERESE, JR., JOAQUIN ~SPIRITI.l,

AImE~

FELCZAX, JOHN

fIFIELD, THOMAS 8.

•

FITCH, URSULA FITCH, URSULA FONG,

MICHAEL

PORESTI I JAMES GAINEs, BRIMI GAYO,

MICHELLE

GOFMAN, RDZALIA RAAAlS, DARRELL

•

BOLLOWAY, FREDERIC HUNPHRIES, THOMAS A • aACH:KJ>. J AHJ A RACH:KJ>. T KEEL I JAMES KLEINBERG, JERRY \tRAU'l'HAM'ER, KtrRT

KWOK GLORIA

•

LAFLIN, FlOBERT LANDIG, MICHAEL LAU,

POTENTIAL

AMOUNT

AMOUNT

CLAIM

S558.69 $i,07S.SB $124.78

SB21.76

sioa.77

S1,606.80 $1,003.89 $6,167.64 5574.74 5527.81 S580.03 $160.35 $334. BS

LILLEF, .JOHN

MAGEE, ELIZABETH HANLEY, P1l.UL

MJl.THERS, LINDA MENDOZA, ARACELI MILLER, HARILl{N

$1,340.06 S558.5B SS58.5B $2,684.B9 $2.684. B9 S724.78 $3,903.90 $708.71 $1.606.80 $1,003.89

S/1.J9i.Ol $514.74 $527.BO $643.28 $160.35 $334.89

51)340.06 $556.58 $2,684.89 S724.78 53 / 903.90 5708. n Sl,606.S0 51,003.89 $71,397.01 5574.14 $527.80 $643.28 $160.35 5334.89 5334,89 $3.35.62 .!il, 120. 66. $2,050.65 S439.97

$335. &2

$335.62

$1,120.66 $2,OSO.65 $439.B7 $416.60

$1,120.66 $2,050.65 5439.87

$2,255.22

$2,255.22 $561. 01 $101.09 $2 •. 986.56

S2,25!>.22

$2,094.36 $1,211.85 $634.00 Sl,670.13

$2,094.36 57,211. S? ,211. as $634.00

5634.93

$634.93 $1,583.3)

::;56L01 $341.60 $1,624.08

S416.59

S6'14.45

$2,094.36 $1,709.85 $1,709.B5 $634.00 $759.73 SSOO.68 5634.94 $914.88 $1,117.83

S1B4.93 $751. 14 S470.64

$1,946.10 $298.64 S690.34 $2,366.Bo

$1, sa3. J3 $974. BS S1,ll"1.83 S1,l1"1.83

$784.9) $751.14 $470.64 $1,946.10 5298.64 $5,90B.El2 $2,366.60 567.01 $1,623.92

~416.

59

$561.0:'1 S101. 09 $2,986.56 $674.45

$1,670.13 $500.68

$914.88

$1,117.83 $7e4.93 $751.14 $470.64

Sl,946.10

529B.64

$453.44 SI,189.50 51,643.53 $988.10

$16,000.00 $16,000-00 5453.44 $3,321.45 $1,643.53 5988.10

SlBB.54 SlBB.S4

S288.54

$432. BB $38.86

$432.88

55,908.82 52,366.80 567.01 $1,623.92 $3,674.14 52,000.00 $1,646.B5 $744.03 $1,391. 83 OOQ. 00 SHi, 000. $453.44 $3,321.45 51,643.53 $988.10 $288.54 5432.88

538.86

531,,. 136 $31.,.

$6'1-.01

$1,623.93 53,674.74 $1,646.86 $144.03 $2,119.46

STEVEN

LEE, curoY

•

PROOF OF cr.l\I:X

51,340.06

MA!lU., JAIME ARMSTRONG, ASDOUJlIAN,

SCHEDULED

S2,000.00 $1,646.86 S1,391.B.3

02/19/92

•

C-7 C·7

EXHIBITS to Section 2255 Reply - Page 29

,

•

CONSOLID~D

B8~ATE

•

HAMILTON TAn BKPLOY'E!: CLAIMS

•

MAXIMUM

CREDITOR HIL.LS, TOSY MON'.l:'kND,

•

.

PROOF OF CLAIM

POTENTIAL

AMOUNT

AMOUNT

CLAIM

$1,462.40

IRENE

$1,462.40 $310.'5

s:nO.75 $311:1.1.3

5463.90

S46l.90

$564.14

SS64.14 $414.70

OBERHOLTZER, DONNA

5&64.14 5414 .10 SSB4.B4

5884.94

SSB4.84

PMAOAN 1 EDWIN

$387.54

PATERA, JEnNIFER

$411. 9B

SlS1.S;I S41L9B

$387.54 $411.9B $240.52 $2,098.88 $6:20.14 $1.39 $1,703.33 $11,715.11

MUNIZ, BE'J.""l:'E J. MURPHY, KATflLEEN

MG, DON

$240.52

QUIGLEY, JOHN

ROY, JO'flAN'NA

SAHAROFF, BASIL SANCHEZ. LORENE

SARMIENTO, ROMULO SCHORA, BARSRA

S HEENAN. RICHA.R.D SrKlN, ROBERT

•

SCHEDULED

S'l'RUTZ, STEPHEN SOSHANSK~,

ANATOLY

'XABANGCtl'R1t., TONY TARTAXOVSK~,

YEVGENIYA

TUR.t,A • FLORA MlER.XEY

TUTT, GEORGE TYLER, JAMES WM.

VIRAY, DIVINA (DEBBIE) WATSON, iCATIE

ZAMBRANA, LILLIAN Total:

51,011. S9 $620.14 $1.39 $453.98

5240.52 S2,09B.B8 $620.14

51,88:2. 10 $667.20 $193.00

$1,703.33 511,115.l'1 Sl,298.45 S737.70 $1,882.10 5667.20 5793.00

SlOO.02 $427.20

S427.20

Sl,BHL 71 Sl,296.45 $717.70

5346.37 52,043.44

51,298.45 Si3i.iO Sl,882.10 5661.20 S793.00 $lOO.02 $427.20

$346.37

5346.37

S721. 56 $848.00 $835.03

51..4,501. 17 S72l.S6 S848.00 SBlS.03

S14, 501 . .,., S121.S6 S848.00

$B2,975.21

$198,393.09

$204, a73. as

5B35.03

•

. • • 02/19/92

•

EXHIBITS to Section 2255 Reply - Page 30

• CONSOLIDATED

~S~TE

•

IiA.MILT'OH T..I\.l"'X TR.1U)E CIJUMS

• •

CREDITOR 191 ASSOCIATes 191 P,SSOCIATES ACCOUNTANTS, INC. Jl.LCA TEL FJUDEN

ALHAMBRA NATIONAL WATER co. ALLNET COMMUNICATION SERVICES APOLLO COMMUNICATIONS

APTITI1DE TESTING

ASSOCIATED LOOSE LEAF AT'T AT&T AT&T BANe ONE LEASING CORP.

AMOUNT

CLAIM

$3,250.00 $1,236.35 $640.00 $144.45 $148.10 $3,455.30 5119.57

CELLtTL.AR ONE

COCORlCO PATISSERIE COMP IJ TOWN CONTRACT OFfICE GROgp DUPL~X PRODUCTS, INC.

$1,360.25 5170.13 $428.:.11

S175.00 $400.83 $158.39 $651.65

ENTRE COMPUrER CENTER EQUITABLE LIFE ASSURANCE EQUITABLE LIFE ASSURANCE SOC

EVANS RENTS, INC.

$150.00 $3,309.85

FIRS7 INTERSTATE BANCORP FOX HARDWARE

$62.36

GENERAL ELECTRIC CAPITAL CORP GILTSPOR/SAN FRANCISCO GOLDEN GATEWAY CENTER KAKILTON MANAGEMENT RE.ADQtl1l.RTERS COMPANIES DISCOU~T

S175.00

S3,270.14

$5,650.40 S1,943.22

OFFICE

HYATT REGENCY S.T. HOTEL HOoV;C

INNOVATIVE OFfICE SYSTEMS INTELLIGENT ELECTRONICS, INC. lNTERNAL REVENUE SERVICE COMPUTER

JOHN WILLIAMS & ASSOC. J(ESTREL RECORDS MA.llAGEMENT

53,222.35

S306,126.58 562 • .36 5962.64 $6,620.96 5B15.91 $700.00

GOODWIN, THOMPSON W.

KIRK PAPER CO.

S8 ,an. 47 $175.00 $4.00.83 $158.39 5651.65 $134.84

$779.76 $851.33

54.90

EXECUTIVE COURIER NETWORJ(

EXPERTLY DONE FEDERAL EXPRESS CORP.

•

59,0:21.47

$432,.397.00

$2,665.21 51,264.42

ERNA PRE.55

INTRANATIONAL

S170.13 $10,2'10.94

$119.57 587S.00 $439.05

$134. Ei4

$3,270.14 S22,669.50 $11,822.75 $4,233.52

E..P.TON' FINANCIAL

•

$170.13 $10,270.94

S2,B)7.8:2

5571. S3

BOISE CASCADE OFFlCE PRODUCTS

HI-TIMES

Sl, )60. 25

S3,250.00 $1,236.35 5640.00 SHoll .45 $148.10 $2,837.92 5119.57 S875.00 $439.05 S432,297.00 $179.16 $851.33 $1,759.09 SSS.31 $542.28 Sl,'75.39 P ,390 .4Q $571.53 $1,360.25

57,390.40

BANK OF KAWAU BEKINS

C.lI.LHODN GUHP SPILU'.J\1'l & STACY CATAPULT

•

AAOUHT

~426.S6

BROOK FURNIT(JJ.U: RENTAL

•

MAXIMUM POTENTIAL

51,598,525.00 5692.94 SaSL33 51,759.09 $55.31 $542.28 $1,475.39

AA'I'RU:R. ANDERsEN ASSOCIATEO LIHOUSINES

AT&T

•

PROOF OF CLAII-I

~B75.00

A.RA CORY

•

SCHEDULED

pO,ODO.DO S83.81

$211.05 S1,J.6B.07 S130.81 5223.00

S2,131.08

$11,B11.75

S6.44 513,640.00 524,204.22

$43.56 $365.41

S11, 640. 00 $34,977.47

53,270.14 $22,669.50 $11,822.75 55,660.40 $1,943.22 52,665.21 $1,264.42 54.90 $150.00 53,222.35 5306,126.58 $62.36 $962.64 $6,620.96 $815.91

$700.DO $30,000.00 $83.81 $211.05 $2,131.08 5130.81 $223.00 511, 81L 75 56 .... 4 511,640.00 . $34,97"1.47 $43.56 5365.41

D2/19/92

•

C-9

EXHIBITS to Section 2255 Reply - Page 31

• CONSOLIDATED

E~A~

•

BAMlLroH n.P'T 7:MJ)E c:::::t.JI.IHIll

MAXIMUM

•

CREDITOi<

LE REGENCY

SCHEDULED

PROOF OF CLAIM

.!\MOUNT

AMOUN'f

5530.00

LE~IS ~SSOCI~TES

•

COMPUTER SERVICE

LONG &

1;2,140.77

5112.50

$220.00 $112.50 $14,716.50

S2,000.00

$2,140.77 $220.00 Sl.U.SO $14,716.50 $1.670 • .10 $220.00 S1,033.91 $973.72 545.00 5340,000.00 $2,000.00

517.42 S54.06 568,822.38 S1,433.95 5575.11 $27.91 $10,451.25 56,497.00

$54.06 $88,822.38 51,433.95 $57.5 .11 527.91 $10,143.49 $6,497.00

LEVIT

LOOKS YURHITURE LEASING LVG PROPERTIES MEADOWS OW'l!:NS COLLIER

SI,6'70.30 :;220.00

$1,033.91

MINDENS STATIONERS

•

$340,000.00

NEW MEXICO TAX &. REVENUE: OFFICE CLUB

•

REVENUE

PACIFIC BELL

PACIFIC BELL PACKAGED BDSINESS ~lLLSBURY, MADISON' SUTRO

PLANT DESIGN PROFESSIONAL TRAINING ASSOC RAYZ8ERG, DDS, ALEXANDER C. REMEDY TEMP. INC. ROBERTS OF SAN FkANC!SCO S.Y. NEWSPAPER AGENCY SAN FRANCISCO TOM SNACKS SECURITY PACIFIC NATIONAL BANX

SOOTHERN BELL STANSBURY BO~GINE " ASSC STATE BOARD or EQUALIZATION STATE OF CALIFORNIA TAB PRODOCTS co. THE MARK ROPkl~S ~OTEL

5662.39 5117. 00 5128.40 5340.08

52,978. i3 5728.40

SO.OO $74.62 $1,302.40

51,919.17 &;58.01

$266.43

TRANSPORTf\.BLE SOFTWARE

UARCO I INC. tiS SPRINT

WEINBERG, DORON wtSTCORP SOFTWARE SYSTEMS, IN.

•

WORD POWER

$'20,350.90

$20,350.90

$3,t!97.58

SJ,t:I97.sa

$166.62

$166.62 S1. 87 584.40 $16,000.00 $549.97 $293.92

$1.B7 $84.40

VULCAN BINDER &: COVER

$104.37 5176.55 54.00 $3,600.00 $662.39 $2,978.73 S72B.40 $340.0B SO.OO $24.71 574.62 $1,320.40 $500.00 51,919.17 $971.65

5.266.4J 525,161. 67

INS. FINANCE

$72,862.69

SSB.01

S971.65

TKE VERY LAST WORD

•

$10,143.49 $6,497.00 $12,862.69

$24.71 589.60 51,302.40 $500.00

liNET

TRANSAMERIC~

517.42

$104.37 S17£>.SS H.OD

PlTNE! BOWES

•

.72

$899.34 $45.00

MOORE BUSINESS PRODUCTS MORTGAGE SECURIT~ ADVISORS MUNICIPAL MOTOR OPFlCER ONE HARl{ET PL.UA ONE MARKET PLAZA PA BOARD OF FINANCE"

5530.00

$2,060.52

LIBERTY MUTUAL INSURANCE co. LLO~D'S

POTENTIAL CLAIM

$16,000.00 $549.9/ $293.92

~===,::;:==:::::::.=======

Tot.al:

$1,894,052.76

51,146,1.3$.60

Sl,53S,Sl'3.13

• 02/19/92

•

10

EXHIBITS to Section 2255 Reply - Page 32

• COHSOLIDAXED BSTArE

•

o:J:'BER lU.NIUMN TAJ"1' CI..AIHS

•

AAX.IMUH SCHEDULED AMOUNT

CREDITOR

SECURITY PACIFIC

NATION~

BANK

STEV'EN SOLDOOFF

•

Total:

$0_00

PROOF OF CLAIM

POTENTIAL

AMOUNT

CUlM

S2,26B,170.21

$2,.268,170.21

S110 I OlD ,000.00

$110,030,000.00

S112,296, '110.21

$112,298,/10.21

• •

•

• •

• 02/19/92

•

C-11

EXHIBITS to Section 2255 Reply - Page 33

1

2 3 .4

5

GILMORE F. DIEKMANN PATRICIA H. CULLISON BRONSON, BRONSON & McKINNON 505 Montgomery street San Francisco, California 94111-2514 Telephone: (415) 986-4200 Attorneys for Plaintiff FEDERAL EXPRESS CORPORATION

6

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UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

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FEDERAL EXPRESS CORPORATION, Plaintiff, COMPLAINT FOR INJUNCTIVE AND FOR DAMAGES FOR BREACH OF CONTRACT, FOR BREACH OF FIDUCIARY DUTY, AND FOR BREACH OF THE AGENCY RELATIONSHIP

v.

RELIEF

HAMILTON TAFT & COMPANY, Defendant.

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DEMAND FOR JURy TRIAL

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Plaintiff, FEDERAL EXPRESS CORPORATION, hereby alleges as follows:

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PARTIES

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1..

Plaintiff FEDERAL EXPRESS CORPORATION ("Federal

22

Express ll )

23

virtue of the laws of the state of Delaware, and maintains its

24

principal place of business in Memphis, Tennessee.

25

2.

is a corporation organized and existing 'under and by

Plaintiff is informed and believes and thereon alleges

26

that Defendant HAMILTON TAFT & COMPANY (IIHamilton Taft tl )

27

corporation organized and existing under and by virtue of the

28

laws of the State of California and maintains its principal place COMPLAINT FOR INJUNCTIVE RELIEF

is a

EXHIBITS to Section 2255 Reply - Page 34

1

of business in Texas.

2

3

II.

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This is an action for breach of contract, breach of

fiduciary duty, and breach of agency relationship arising, inter alia, under the California Civil Code section 2322 et seg.

The

amount in controversy exceeds the sum or value of Fifty Thousand Dollars ($50,000) exclusive of interest and costs.

The

jurisdiction of this Court is invoked pursuant to 28 U.S.C. section 1332 . 4.

Venue

u.s.c. section

properly laid in this Court pursuant to

28

1391(a), in that the claims involved arose in this

district.

15 16

III.

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JURISDICTION AND VENUE

17

GENERAL ALLEGATIONS

18 19

Count One

20 21 22 23

24

25 26 27 28

(Breach of Contract) 5.

Plaintiff realleges and incorporates by reference as

though fully set forth herein each and every allegation contained in paragraphs 1 through 4 of this Complaint. 6.

In December of 1989 Federal Express entered into a

payroll tax service contract with Hamilton Taft.

Pursuant to

this agreement, Federal Express would wire transfer its employee payroll taxes to Hamilton Taft.

Under the contract Hamilton Taft

was then obligated to make disbursements to the appropriate COMPLAINT FOR INJUNCTIVE RELIEF

2 EXHIBITS to Section 2255 Reply - Page 35

1

2

IRS, and state and local taxing agencies.

3

performing this service, Hamilton Taft had the use of Federal

4

Express' money from the time of its receipt until the time of its

5

disbursement to the appropriate taxing authority.

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under the contract by promptly delivering to Hamilton Taft all

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Plaintiff has fully performed all contractual obligations except where prevented by breach of defendant. 8.

Plaintiff is informed and

belie~es

and thereon alleges

12

that defendant has breached its contractual obligations by,

13

rather than paying plaintiff's payroll taxes with the money

14

transferred for that purpose, the money would be held for an

15

additional 30 to 90 days.

16

thereon alleges that in some cases defendant then used a

17

different client's incoming funds to pay Federal Express taxes

18

and any federal or state taxing agency penalties for late

19

payments.

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Federal Express has performed all of its obligations

appropriate payroll tax summary reports and payroll tax funds.

11 -or

7•

As consideration for

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taxing authorities on behalf of Federal Express including the

20

21

22 23

24

25 26

9.

Plaintiff is informed and believes and

Plaintiff is informed and believes that in other cases,

Federal Express taxes simply were not paid, and penalties may be accruing. 10.

Defendant has further breached the contract by not

providing original tax receipts evidencing the tax payments as requested by plaintiff. 11.

As a result of defendant's breach of contract plaintiff

27

has been damaged in excess of

28

true extent of its damages plaintiff is in need of information

$50,000~

COMPLAINT FOR INJUNCTIVE RELIEF

In order to discovery the

EXHIBITS to 3Section 2255 Reply - Page 36

1

2 3 A-

from the defendant regarding payroll taxes paid and money currently owed to the appropriate taxing

authorities~

Such

information is within the exclusive control of the defendant and has not been made available to the plaintiff as requested.

5 6

count Two

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Plaintiff realleges and incorporates by reference as

though fully set forth herein each and every allegation contained in paragraphs 1 through 11 of this Complaint. 13.

Plaintiff is the trustee of the tax funds withheld from

the wages of its employee.

Plaintiff, as trustee of these funds,

is a fiduciary of the withheld funds for the purpose of paying the required amounts to the united states, and state and local agencies. 14.

As custodian of these funds, defendant owed a fiduciary

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(Breach of Fiduciary Duty)

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duty to the plaintiff to transmit these funds to the appropriate taxing agency promptly and in the full amount.

Defendant also

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had a fiduciary duty to invest these funds as a reasonably prudent investor investing his own money would have done so as not to jeopardize the principle.

On information and belief

plaintiff alleges that by investing in high risk non-liquid loans, defendant has breached this fiduciary duty.

24 25

Count Three

26 27 28

(Breach of Agency Relationship) 15.

Plaintiff hereby realleges and incorporates by

reference as though fully set forth herein paragraphs 1 through COMPLAINT FOR INJUNCTIVE RELIEF

EXHIBITS to 4Section 2255 Reply - Page 37

1

2 3 .4

5 6

7

Pursuant to the written payroll tax service contract

entered into between the defendant and plaintiff, defendant became the agent of plaintiff. 17.

Defendant consented to the creation of this

relationship by agreeing to accept payroll tax money from the plaintiff and deposit such money on behalf of the plaintiff in the appropriate amounts and manner on or before the statutory

9

deadlines as herein alleged.

11

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16.

8

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11 of this Complaint.

18.

In consideration of

i~s

entering into an agency

relationship with the plaintiff, defendant had the use of

12

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plaintiff's employee payroll tax funds from the time received by

13

defendant until the time of disbursement to the appropriate

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taxing authorities.

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19.

Pursuant to its agency relationship with the plaintiff,

16

defendant owed a duty of loyalty to the plaintiff.

17

loyalty required defendant to pay the payroll tax funds owed by

18

This duty of

the plaintiff to the appropriate taxing authorities in a timely

:::Q

19

manner, and to refrain from administering the payroll tax funds

20

in a manner harmful to the interest of the plaintiff, includIng

2]

22

23 24 25 26 27

28

imprudent investments, or investments which might expose the plaintiff to taxing authority liability. 20.

Also pursuant to its agency relationship with the

plaintiff, defendant owed a duty to disclose promptly upon demand by the plaintiff all documents, including tax receipts, relating to the defendant's administration of the plaintiff's payroll account. 21.

Defendant has breached its agency relationship by

COMPLAINT FOR INJUNCTIVE RELIEF

5 EXHIBITS to Section 2255 Reply - Page 38

1

failing and refusing to render to Federal Express, upon its

2

demand, an accounting of its fund.

3

22.

Defendant·s breach of its agency relationship has

4

caused plaintiff damages in an amount to be specifically

5

ascertained at trial but which is presently alleged to be in

6

excess of $50,000.

7

8

Count Four

9

(Injunctive Relief)

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reference as though fully set forth herein paragraphs 1 through

12

22 of this complaint.

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Unless defendant is restrained by appropriate

14

injunctive relief herein from destroying or otherwise disposing

15

of tax receipts and other information in its control documenting

16

the use and transfer of plaintiff's employee tax funds,

17

unless defendant is restrained by appropriate injunctive relief

18

from continuing to operate the "ponzi scheme", and unless

19

defendant is ordered to immediately produce tax receipts and/or

20

other information regarding the transfer and use of funds,

21

plaintiff will suffer immediate and irreparable injury for which

22

there is no adequate remedy at law herein.

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11

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and

III

23

24

25

WHEREFORE, plaintiff prays for judgment against defendant as follows:

1.

For preliminary injunctive relief restraining or

26

otherwise preventing defendant from destroying tax receipts

27

and/or other information regarding the transfer of payment of

28

plaintiff's payroll taxes as alleged, pending trial; COMPLAINT FOR INJUNCTIVE RELIEF

EXHIBITS to Section 2255 Reply - Page 39 6

1

For preliminary injunctive relief ordering defendant to

2.

2

cease using plaintiff's payroll tax funds as part of a "ponzi

3

scheme", pending trial; For a temporary restraining order enjoining defendant

3.

5

from destroying tax receipts and/or other information regarding

6

plaintiff's payroll taxes; and

7

For an order mandating the production of tax receipts

4.

8

and/or other information in control of the defendant regarding

9

the payment and transfer of plaintiff's payroll tax funds; and

10 11

For damages for the acts herein alleged in accordance

4.

with proof ..

12 13 1.4 15

JURy DEMAND

Plaintiff Federal Express Corporation hereby makes demand for jury.

16 17

Dated:

March 13, 1991

18

BRONSON, BRONSON & McKINNON

19

BY:Qz(~~

20

PATRICIA H. CULLISON Attorneys for Plaintiff

21 22 23 24 25 26 27

\PHC\29296 \ 9999\COMPL T• eMP 44S9~J.Allen

28

COMPLAINT FOR INJUNCTIVE RELIEF 7 EXHIBITS to Section 2255 Reply - Page 40

III

daY$ .':erbe:ran

Ann-

U\! past tew I$.TOng em\llo1!t I Stelle &.l'lodoH.

to

'PI'Wltely proV\6t I number ofmaiot t
natJar. for p.!Il"fllt

Il.~ l.M~b\e

Am1.Jtrcng', S\.Iddtnl)' wml/lt\y

Idftll.ltb.

Tax Was the Big Spender Just Spending Money Firms Owed to IRS?

Belote ~ T~ed ku.t mMU\. MI. SoladoU 'WAI ccn\roUer r.)/ iIll ob5el.lrt San Frantl.aco firm. H.IUIillltJII Talt , Co.. t.NtI\~ by tdr > ~ Id.nu IIarth 1988, Tlltl firm Ulnu.tfy ~ n.S btl· \lOft In payroll wtlJl.holdl.n£ WK OIVI!od to In.. !Ill/!'C"I'IJI.I Rl'v~Uf Servi«o lind cthllr !ax

np!l.elr.i (or tllch 1l'Vf:n!o! trnp!oym u f.'e-dmJ , Castll!' &I (:cdt. 1)/. State sal' of CtlIfOMi.a and I.b.e OaklAnd Atll\!l\ci.

Texan 'Cbip' Armstrong Ran &heme Processing Funds, Former Employee Alleges

Kind Ponzl Sebeme Mr, Salodo.t! a1Il1fti to (eden! 1"ttu:111' UtS 911d In A memonmdum Iiled With & fed·

wt

~flll '!lIt I~ad 01 promPtlY ~t· log eU of tNsc fUndS W'ttb the ptOflel' fav· 4'mnltl'lt ~f!CY as tUpub1ted by ecmtr!l.~!. ~tr, Af!TIlIt1'I)!\g 6.lyeNd INJfY nullkmJ to 1111 0\Im f>rlllllf IrU"S III a bnd of Pom::\ scheme now 01\ Ult verre o( collll.p5!- Some Ham1ItM Tall CWlICl'1N!tIl cc.nfirm tile dl \ets.!tm.!, alId Mr, Solodor! uttmateS !.hat

-

FedEx Frets Over $16 Million By B.4U'H T, K(NC Ja. SltaIl iltorll"'>rll'" orr" .. w....... a"l"ll~~ '''Ull''' .....

tht-y t.lXa.I nearly noo mUllan. Hl!.!ntllon T1i!t. It rul'1l!l out. Is (1M (J{ llie hllliitlit IA>; r.ftlCl!Ul:Il'I in tnt ClllllltrY. But tblS 1.i'I11 a ~t ~ to be II! rigM 1I0W. I.ASt Yt lif. Ibt [RS ~t tfIe lag 'I1m.e ~twetfl p.ayday and ux payment" from Hlnt 4aY1 to one wlth I! JU'ilJJn1Wd de· ~I pt«est, sharply eulU.lhng /'!W"ttllS.

Wt year s FO!1l1!1 of JuJy p!rty at t.bt

l,l')(,lG-acre COu\:llt C raneb near

neb!

TexlS. "'U II l'CeDt 0111 The 2&0 rutsts ft\'t [Nate
Ur e slt'dOlllll dinner.

tM host ~d rmtll o-.mer. COOrue C. Anm;lrong Jr .. was ulebrQl.\llr 11 pefS4!lalldfld of il'Id~lulenee day: HJs b· mer hId )USt eDmDltle4 an l8'f1\Onth jlU

~tg

"c."IIP~

playetJ lite ADP artd Qa.nltAmtr1ca

I

I!enmtt Ill!' better lees by Ollertnc e«n-

!

f1\tte payroll se~ A«.Dtdlt1f 1£1 Mr. Bi>lodaH. t!'Ie lure for Mr. AmlStrllllf \IIU flat proftts 00\ hue. lOWly \lQT'tfUlIttO cash (laws. Al:te:S'& to ihat money bAs htlped hlm c~&ee It Uti

Il.'nn for J.!I.W)6erlng druC' !'!'lotie)'. 'Tbe eX'Q'tvara.n.u was DOU!wortl:\y. lven by !.be S'W!dard$ of Texas' bytone nI)' boom ~ 1l.Iltfi at! lSS8 Oup .lliNtronr. IIOW yean llld. warked u a

I )

rtyle lie cou.!rl ooly lIre.!un of durin: Ul\cw' tlreba.lst shifli. II \lfe style ttw would al· low hmi to ,tar In hI.s own ~ lUiyQme hr V/tshK and m~ 'OallM WCIlIUI\ he U!l'd UI rut It Irt lOOl!t;' pam.

S16.,{lOO-a yw I'trem.an e.ni1 b.ad a l\.I.slOI'Y Oi tepam baJlk Joans in 19a!l. lI.e de· clared Iltrr.on.tl DWl:tIptty .ftu the fatl· ure I)r i tDUlU bUSU'less be ran ()41 ~ &Ide-l.I!mporary worken; IIJred by Mr • 1:101

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How It WlIrUd

Al1'Il.Str onr sprayed Ilre-ri!ta.rdanl mateMalI tile .r.eel tta.mts af amunetdal tKItld·

~re'i how !It.tt &ebeme ~e(I, tw)N' llIi tc Mr, SQlodoffs memClr611i1um filed With ted,raJ !!.Olin doeltmtnts: ~ ».1IJ.c: idc.1. w;u It1l1U.Sk the loti",yment 01 tAxes tn" s:u.rting quwr.lt'a not too t.oog1I. AU ytIl.1 dA I.s repc.rt to W ~ lil!ncy tbJit you are tbl! ~ p!Llf'rIlent \aU 11.9

00

Ing&.

~tJEIIIs til ~

~r.

WId

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- tleq:in SUCb nven:a..l1. Mr. .ums:tn:lng t:h.e.pt'St t&o c:a.m:t UJj VII1tl1 b\lI-

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maid.

lIew qualUf bq:!ns. 10\1 t&ke W fIN f\lla.rtl!t' a fill last q\l.lll'teT"& bole. 1M villi forward Dtlt' qlJJ:!'!!r, WIUle Pl)"Rlefits recelft!j mew ~'Yt qllUfElr Iftep .lmUI, It bl.r I1vranj for all !.bill ~l~·filltnr la the. ehunk 01 UI'lpal6 \.IU~ tram tM ttart.lI:Ir QIlAI'!.eT

n.e

I 1

.

Irs; tou.1Id R\Oory. 1M tVllnrua.ll.:r. hCll ....5.!tl.nr wry c.mly. Than wIltre tht Panii aspect emnts l.h. 'I'M u:tS t.sse'f.ll,eS A. lCl"/. fIe!lAlIV

rea

phls U!.tete:JI on even' Ill"' ~I. UJ)~ ~ Ut t:e.m1I\.r at least ltl"h q\lluterly l~ &.n.nually I lie ~our "foond Vlo.ney" &CId p..u.s It along to me \.aX man, yOI.I wl!! have til dI.r the holt that !Dnell< deeper u.cn tIm.t ....n:lUnd to rep.alr tilt ~. .u th~ bltH. itt birrer LTId rnt.rI"t c:.Ilel\1S • II'f.. blnfll, 1M el'Wlee mcna.s:es that 50l'1'l.I.' tUttll Will rtt a peNlJty nCilkt Slid aJIk ' ~l1i questions. llUlcI! HamIltOn

I tatl' l ae-

~ ~ 1!S'''6Ii!\\S!thit'' ~I.teQtt, Ali. Col\l:l1l.ltJ EXHIBITS to Section 2255 Reply - Page 41 .

•

l.U

"I._~. "",,_ .... ):1404>

I

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'ax Question: WM Big-Spender 'Chip' Armstrong Just Spending Money That Others Owed to IRS?

c.LlStorn en wUl !ruffer at· 01'.1

Ha.m.t.ltOb talt's

at'llhly 1.0 ge.ne'!1kte q,u.\clQy from UI" tUn In ~.stm.eDU 0fI tb br:lo.ks. All Ilf Dee. , 31. It beld tot.al1ng Ifi mWlon frOm C'ompa.roe.S by Of amJla1ed wIth Mr. Armrtn:lflg, J.C;C(lrQml UI an I.I1WldJted

eompany b.aLa.nee

~l

"Tbere .IS un<:ert8llll:y 01 the ~Y'li abUlty I/) meet Its obbgat.li:m.£:' says An, th<my llotan:stl III 1{PMG Peal MaMek. Hanulton fait's atcOWltant JD a JUDe 1989 review, Put Ma'l"Wlck dUd a S1.9 milllon 11IOrk1nr-clPltaI dew:U and BLI.d "substanli.a.Uy mQn furd!I hv-e been eoDected 1'rO!n clients thall am ellJ"rt"fltly I 'Iil1able to I18Y those tu:i!s:' By yeaHnd. 1990, In. internal sheet ,boWl, that filurl'! Iw3 1.0 sa7 miUIbn.. 6ly5 U has talItd tot twO .."m:I\I",U l full QUdll Of tht earn-

i i

Litton Unit's Soviet Venture BEVERLY Cillf.-A gutw.dlary of IJn.oa stgned IJl ~ ment with III So~t COI'lttm w fOrm Il.!o!n\ VeD.tuf\!! Ui proVide teehnlcal Soervices in t/Ir .RI.!.E:Il.an l'epllblic.. Of tI'Ie a,reemttlt were!! 't dis

EXHIBITS to Section 2255 Reply - Page 42

-

•

;-.

.~

/~~ ftL

~STRONG'

Mr · Baker:\f7

RE:

P

•

-iitpf1-s f~ 9dr2~ 4/3/91

CONNIE/C. JR., AKA 9HIP~STRONG; DBAvHAMILTON TAFT AND COMPANY; 32ND FLOOR, SPEAR STREET TOWER, SAN FRANCISCO, CALIFORNIA; FRAUD BY WIRE; MAIL FRAUD; TAX FRAUD i

00:

SAN FRANCISCO

San Francisco has initiated a Fraud By Wire investigation based on information received from the former Comptroller of Hamilton Taft and Company (HTC) that the sUbject, Armstrong, has'embezzled over $100 million from the firm's clients over the last three years. ,These allegations continue to be front-page news in San Francisco and on 3/15/91, the Wall street Journal ran a front7page article detailing the allegations (copy attached). HTC contracts ,with companies who owe taxes to numerous state and local taxing authorities. Client companies make a lump sum wire transfer of funds to the HTC account, and thereafter, HTC issues checks to whatever taxing authority is owed money. The former Comptroller, I I, has alleged that Armstrong diverted lump sum payments to his own use and thereafter, incurred penalties associated with late payments and 7(:

passed these costs along to the client companies who were not notified of the late charges. In essence the allegation is that Armstrong is running a "Ponzi scheme ll of considerable magnitude Which requires increasing amounts of cash to keep the operat'on

J~ -3:1,:;"&

going ·

left HTC in Februar

of 1991

-"

and on 3

You will be kept apprised of pertinent developments. NOT APPROPRIATE FOR DISSEMINATION TO THE PUBLIC

L.~S Enclosure 1 - Mr. Jones 1 - Mr. Baker 1 - Mr. Potts 1 - Mr. Bryant

1 - Mr. OIHara 1 - Mr. Esposito 1 - Special Assistants, CIn

GDM:gdm/sw (9)

(JA~ EXHIBITS to Section 2255 Reply - Page 43

COURT NORTHERN DISTRICT CT

FORNIA

BEFORE THE HONORABLE CHARLES A. LEGGE, LEGGE JUDGE I

UNITED STATES OF AMERICA,

)

)

PLAINTIFF,

) ) )

VS.

NO,, CR 94-0276 CAL

)

CONNIE C. ARMSTRONG, AJU4STRONG, JR./ JR.,

)

AND RICHARD A. FOWLES, POWLES,

)

) )

DEFENDANTS.

MONDAY VOLUME

I CALIFORNIA JANUARY It 1997 PAGES 286B 868 - 3048

FOR PLAINTIFF: FF: 450

AVENUE

SAN

, CALIFORNIA

94102

GEORGE D. D, HARDY ESQ. RONALD D D. SMETANA, ESQ. ASSISTANT UNITED STATES

BY:

I

SANTA

90404

SOLOMON 388 10S0 lBB MARKET STREET, SUITE 1080 94111 SAN

(APPEARANCES CONTINUED ON NEXT REPORTED BY:

:)

YEOMANS CSR COURT REPORTER! REPORTER JI

I

COMPUTERIZED

BY XSCRIBE

REPORTER, USDC, 415 863-5179 415-863-5179 EXHIBITS to Section 2255 Reply - Page 44

JAMES YEOMANS,

1

2885

GOVERNMENT COUNSEL COME IN, PLEASE, I NEED TO SEE THEM ABOUT A MATTER HERE. (PAUSE IN THE PROCEEDINGS) THE COURT:

I RECEIVED FROM THE GOVERNMENT THIS

MORNING A DOCUMENT ENTITLED,

IIEX PARTE SUBMISSIONSII SUBMISSIONS" REGARDING "EX

WITNESS TERRI ROBINS. NOW, IS SHE GOING TO BE COMING IN THIS MORNING? MR. SMETANA:

IT WAS OUR INTENT TO DO SO IF MR. HARDY

WAS IN THE PROCESS OF PRE-TRYING YESTERDAY WHEN HE DISCOVERED THIS. MR. HARDY: DATES ARE WRONG.

ONE CORRECTION TO THE SUBMISSION.

THE

APPARENTLY,I IT WAS TWO YEARS AFTER THE FACT. APPARENTLY

IT WAS 1993 AND 1994. THE COURT:

BUT NOW WHAT BOTHERS ME IS THAT SHE DOES

HAVE AND DOES KNOW OF STATEMENTS BY ARMSTRONG.

YOU NOW KNOW OF

STATEMENTS BY ARMSTRONG. MR. HARDY:

WE KNOW SHE APPARENTLY DID RECORD SOME

STATEMENTS. THE COURT: MR. SMETANA:

YOU HAVEN'T SEEN THE STATEMENTS? AGAIN, WE FOUND OUT YESTERDAY AND SINCE

THIS MORNING TALKED WITH THE FBI SPECIAL AGENT INVOLVED WHO CONFIRMED FIRST, THAT IT WAS AN INVESTIGATION OF AN ENTIRELY DIFFERENT COMPANY. THE COURT: MR. SMETANA:

HE STILL MADE STATEMENTS. AND, SECONDLY, SHE WAS INSTRUCTED NOT TO

EXHIBITS to Section 2255 Reply - Page 45

JAMES YEOMANS, OFFICIAL REPORTER, USDe, USDC, 415-863-5179

6

OR DISCUSS HAMILTON TAFT.

ASK

THE COURT:

BUT

SAY -- IT'S NOT JUST

THE WITNESS ITSELF I'M CONCERNED ABOUT, IT'S ALSO POSSIBLY EXCULPATORY THINGS THAT WERE SAID.

I THINK THE DEFENSE HAS A

THOSE STATEMENTS BOTH BECAUSE THEY ARE, AI

RIGHT TO

STATEMENTS OF THE WITNESS AND, B, BECAUSE THEY'RE POTENTIAL BRADY MATERIAL.

I

MR. HARDY:

DON1T KNOW WHETHER THEY ARE OR NOT. WE I VE NEVER SEEN THEM.

WE I RE NOT

THAT CONCLUSION AT ALL, THAT'S WHY WE BROUGHT YOUR ATTENTION. THE

HOW CAN WE GO AHEAD

MR. HARDY:

CAN WE DO THIS?

ROB INS? WE REVEAL THE FACT

THAT THE PAYMENT OF MONIES BY THE FBI TO TERRI ROBINS DURING THE PER

1993 TO 1994?

THE COURT: MR, HARDY:

DEFENSE

DIRECT? IN OUR DIRECT I OR WOULD BE LEFT TO THE

NOW, THEN ORDER UP ALL OF THAT/ GET IT FAXED FEDEXED OUT HERE.

HERE,

SHE'S RELEASED FROM TESTIFYING AFTER DIRECT AND CROSS SHE

BE RELEASED SUBJECT TO RECALL FOR THE

CROSS-EXAMINATION ON THOSE POINTS. SO THAT WE CAN TURNOVER THE

IS THAT

IBLE? TO THE

THEY CAN REVIEW THEM, THEY CAN DECIDE WHETHER OR NOT THEYJRE ISSUES

WANT TO BRING UP. THE COURT:

YOU DON'T THINK IT MIGHT BE BETTER TO

EXHIBITS to Section 2255 Reply - Page 46

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863-5179

2887 ROBINS? MR. SMETANA:

WE PROPOSE TO REST

OR WEDNESDAY.

WE'RE ABOUT DONE. THE COURT:

I THINK WE'RE NOW AT A POINT WE HAVE TO

TELL THE DEFENSE ABOUT THE PROBLEM.

NOW, SO YOUR SUGGESTION IS

'.u ...... n~ WITH WHAT WE'VE GOT AND THAT THE ONLY QUESTION THEN WE GO ..~~~=~

WHAT TO DO ABOUT THE STATEMENTS THEMSELVES?

WOULD

MR« HARDY:

CORRECT «

THEY MAY NOT WANT TO GO INTO

THEY LOOK AT THEM.

THEM

THE COURT!

THEY MAY BE JUST TOTALLY IRRELEVANT.

IT'S A PIECE OF MEAT FOR

BUT

TO JUMP ALL OVER AND I

HAVE TO BE CONCERNED THAT IF SHE HAS RECORDED IT AND THEY ARE PRODUCED AS WITNESS STATEMENTS AND WHETHER THERE'S POSSIBLY ANY BRADY MATERIAL IN THERE,

YET NONE OF US KNOW THAT.

(PROCEEDINGS HELD IN OPEN THE COURT:

NOT PRESENT:) I'VE RECEIVED THIS

LET THE RECORD

A STATEMENT FROM THE GOVERNMENT ROBINS, AND THIS RAISES SOME

WITNESS TERRI

ABOUT MS. ROBINS AS A

WITNESS AND'S, I GUESS, ANTICIPATED TO BE YOUR NEXT WITNESS? MR. HARDY:

THAT'S

THE COURT:

APPARENTLY, IT CAME TO LIGHT OVER THE

WEEKEND IN THE PRE-TESTIMONY

BETWEEN THE

GOVERNMENT COUNSEL HERE AND MS. ROBINS, WHICH SHE WAS ASSISTING

USDC, 415-863-5179 YEOMANS, OFFICIAL REPORTER, 2255 EXHIBITS to Section Reply - Page

47

2888

THE FBI AND ANOTHER INVESTIGATION OF HAMILTON TAFT INVOLVING COMPUTECH AND THAT SHE WAS PAID BY THE FBI FOR WHAT, I DON'T KNOW, TIME, EXPENSES, I'M NOT SURE WHAT.

SHE DID RECORD

CONVERSATIONS WITH MR. ARMSTRONG. NOW, AS I TOLD GOVERNMENT COUNSEL, I THINK THOSE STATEMENTS THAT SHE RECORDED HAVE TO BE PRODUCED TO THE DEFENSE BOTH AS STATEMENTS OF THE DEFENDANT AND FOR POTENTIAL BRADY MATERIAL.

NOBODY HAS YET REVIEWED THESE.

IT'S MY

UNDERSTANDING GOVERNMENT COUNSEL DOESN'T KNOW WHAT'S IN THOSE STATEMENTS, JUST FOUND OUT ABOUT IT THIS WEEKEND. MR. HARDY!

THAT 1 S CORRECT. THAT'S

THE COURT:

SO THE STATEMENTS HAVE TO BE PRODUCED.

SO

THE QUESTION IS WHAT WE CAN DO WITH MS. ROBINS WHO'S COMING IN TO TESTIFY TODAY.

THE GOVERNMENT SUGGESTS - - WELL, MAYBE YOU

BETTER STATE THE SUGGESTION. MR. HARDY:

GOVERNMENT SUGGESTS THAT WE PROCEED TODAY

AND WHEN WE'VE FINISHED WITH THE TESTIMONY THAT THE PLAINTIFF CROSS-EXAMINATION, WHATEVER CROSS-EXAMINATION THAT YOU GO INTO, THAT SHE BE RELEASED SUBJECT TO RECALL FOLLOWING THE REVIEW OF THOSE STATEMENTS, SHE BE CALLED ON CROSS ON THOSE POINTS. WE DON'T KNOW IF YOU'RE GOING TO WANT TO GO INTO THOSE POINTS OR NOT.

WE DON'T KNOW WHAT'S THERE, BUT WE'RE RUNNING

LOW ON WITNESSES. THE COURT: MR. SMETANA:

HOW SOON CAN YOU HAVE THE STATEMENTS? I DON'T EVEN KNOW AT THIS POINT WHAT

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863-5179

EXHIBITS to Section 2255 Reply - Page 48

2889

THEY'RE IN, WHETHER

HAVE BEEN TRANSCR

WHETHER

THOSE ARE JUST TAPED, WHETHER THERE'S TAPES THEY HAVE

THE COURT:

BE

DO YOU KNOW THE VOLUME?

MR. SMETANA:

I KNOW

ONE OF THE AGENTS WHO IS HERE IN COURT

WHAT WE

IS HAVE THE

IN TOUCH

FBI AGENTS IN DALLAS AND ARRANGE TO HAVE THOSE

AND

ALONG THE WAY FIND OUT. ONE OF THE PROBLEMS WE APPARENTLY ENCOUNTERED IS THERE IS APPARENTLY ICE AND SLEET IN DALLAS AND THE FBI OFFICE IS OFFICIALLY CLOSED.

AS IT HAPPENS, THE AGENT WENT IN, BUT I

GUESS THEY WERE GIVEN AN ADMINISTRATIVE DAY OFF

TO THE

WEATHER, SO WE HAVE A PAGER NUMBER FOR THE FBI

WE CAN

HAVE HIM PULL THAT THE COURT:

HOW SOON DO YOU THINK YOU CAN GET THE

STATEMENTS HERE, EITHER -- IN WHATEVER FORM THEY'RE IN, TAPES OR TYPEWRITTEN FORM? MR. SMETANA:

AT A MINIMUM 1 EVEN I F THEY WERE TO

LOCATE THEM IMMEDIATELY AND SEND THEM

I

BE TOMORROW UNTIL WE HAVE SOME - - SOME TIME BY FEDEX.

IT WOULD THAT'S

THE FASTEST WE CAN POSSIBLY DO IT, AND I DON'T KNOW WHETHER THAT'S POSSIBLE. THE COURT:

THEN, OF COURSE, THE DEFENSE WOULD NEED A

REASONABLE TIME TO GO OVER THEM TO DECIDE WHAT THEY WANTED TO WITH THEM OR DO WITH MS, ROBINS.

REPORTER, USOC! 415-863-5179 EXHIBITS to Section 2255 Reply - Page 49

JAMES YEOMANS

I

2890

MR. HARDY:"

IT'S MY UNDERSTANDING WE'LL BE BREAKING,

AFTER THE GOVERNMENT FINISHES ITS WITNESSES THIS WEEK, UNTIL THE

DEFENSE BEGINS.

THERE WILL BE A GOOD BIT OF TIME FOR

REVIEW AND IF NEED BE WE COULD BRING HER BACK BEFORE YOU START YOUR CASE. IN OTHER WORDS,

I THINK THERE WILL BE A BLOCK OF TIME

FOR YOU TO REVIEW IT AND FIGURE OUT WHAT YOU WANT TO DO. MR. SABELLI: OF THIS AREA. CONCERNS.

WE MAY HAVE RELEVANCE OBJECTION TO ANY

THERE MAY BE 403 CONCERNS AS WELL, 404(B) 404(8)

IT MAY BE A BASIS FOR A MOTION TO SEVER ON THE PART

OF MR. FOWLES.

I'M NOT SURE IT'S FAIR FOR US TO HAVE TO BEGIN

OUR CROSS-EXAMINATION WITHOUT KNOWING THE NATURE OF THIS MATERIAL.

MAYBE SOMETHING THAT WE CAN USE TO MR. HARDY:

YOUR COMMENTS SUGGEST WE HAVE SOME

INTEREST IN PUTTING SOME OF THAT MATERIAL IN AND USE IT IN SOME WAY, WE DO NOT.

WE HAVE NOT SEEN IT.

WE DON'T KNOW WHAT'S IN

IT AND HAVE NO INTENT USING ANY OF THAT MATERIAL. MR. BROWN:

AT THE VERY LEAST, THIS WITNESS -- - WE

THINK THIS WITNESS ALREADY HAS A TREMENDOUS BIAS AND SHE INDICATED IN HER GRAND JURY TESTIMONY III'M UPSET, I'M ANGRY, I'M VINDICTIVE. INFORMANT.

II

NOW WE FIND OUT SHE BECAME A GOVERNMENT

CERTAINLY THAT'S SOMETHING WE WOULD WANT TO BRING

UP ON CROSS-EXAMINATION. THE COURT:

I WOULD IMAGINE THAT COULD BE DONE EVEN

BEFORE YOU SEE THE STATEMENTS.

WHAT I'M DEBATING HERE, SHOULD

USDC, 415-863-5179 JAMES YEOMANS, OFFICIAL REPORTER, 2255 EXHIBITS to Section Reply - Page

50

2891

WE START ROBINS AT ALL, DIVIDE HER UP AS THE GOVERNMENT SUGGESTS, OR THE BETTER THING TO DO IS POSTPONE HER UNTIL THE DEFENSE HAS THE

MEANS EVEN MAXIMUM SPEED IT

GETS HERE OVERNIGHT, YOU GET IT TOMORROW, IT'S GOING TO BE

WEDNESDAY BEFORE WE CAN MR. BROWN: A GREAT OF ALL, A

WI

II DON'T

OF

WITNESSES THIS WEEK.

MS. ROBINS.

WE'RE

ING TO HAVE, FIRST

FFI

THE GOVERNMENT'S

THINK THROUGH

WE'D BE ABLE TO

COMPLETE WHATEVER, WOULDN'T YOU

IT SEEMED THAT WAY.

I

WOULD LIKE JUST A MOMENT OR TWO TO CONFER WITH COUNSEL. THE COURT:

APPARENTLY, THE

MR. BROWN:

I F WE COULD HAVE A FEW MOMENTS.

THE COURT:

GO AHEAD AND CONSULT.

U"-\.JI\..;;) 1..I£' "'",.,n..... MEN' T ALL HERE

YET.

(PAUSE IN THE PROCEEDINGS) MR. BROWN:

WEtRE STILL IN THE PROCESS OF

YOUR

DISCUSSING IT AND IF WE DID A LITTLE MOMENTS, WHAT -- THE

FOR A FEW

THING I'M GOING TO SAY, II THINK,

THERE ARE SOME CASES TO SUPPORT WHAT I'M ABOUT TO SAY.

THE FIRST MOTION WE WOULD MAKE WOULD BE THAT THE WITNESS BE EXCLUDED ENTIRELY. SET UP THE TIME FRAME.

THIS COMPUCHECK WE'RE TRYING TO

I'M EVEN WONDERING IF IT WAS COMPUCHECK riM

AND I DON'T EVEN KNOW IF MR. SMETANA OR MR. HARDY KNOWS AT THIS

POINT, BUT I'M WONDERING IF SHE WAS REALLY COMPUCHECK OR THERE WAS A SPILLOVER HER

Jk~ES

GATING WERE FOR THIS

OFFICIAL USDC, Reply 415-863-5179 YEOr4ANS, REPORTER,2255 EXHIBITS to Section - Page

51

2892

MATTER. THE COURT: QUESTION.

THAT'S THE ISSUE, THAT'S PART OF THE

NOW, MY FEELING, JUST AS I'M THINKING ABOUT IT, IT'S

NOT FAIR TO THE DEFENSE TO HAVE THEM HAVE TO TAKE MS. ROBINS ON CROSS AND TIPTOE AROUND THE QUESTION WITHOUT KNOWING THE WHOLE STORY, THAT YOU GOT THE -- KNOW THE WHOLE STORY.

AND BY THE

WHOLE STORY, I MEAN, CERTAINLY THE RECORDED STATEMENTS BEFORE YOU CROSS-EXAMINE. MR. BROWN:

I AGREE WITH YOU.

THE COURT:

I THINK

MR. BROWN:

BUT I'M GOING ONE STEP BEYOND THAT FOR MY

FIRST INITIAL DISCUSSION WITH THE COURT.

IN THE PREPARATION

OUR DEFENSE, IN AND ANALYZING ALL THESE CASES AND RECEIVING ALL THE WORK THE GOVERNMENT DID SO NICELY IN ALL THESE BINDERS AND BOOKS AND LOOKING AT ALL THE 302'S, WE HAD TWO 302'S FROM THIS WITNESS.

SHE GAVE A COUPLE OF DEPOSITIONS AT OR ABOUT THIS

TIME AND SHE HAD GRAND JURY TESTIMONY.

IT'S NOT MENTIONED

ANYWHERE.

SHE'S MISLED THE

THEY DIDN'T KNOW IT EITHER.

GOVERNMENT.

SHE S MI SLED EVERYBODY. J

AND WE WERE NOT ABLE TO

TAKE THIS INTO ACCOUNT IN PREPARATION OF OUR DEFENSE. I REALLY THINK SHE NOT BE ALLOWED TO TESTIFY. THE COURT: WHAT IT IS.

I'M NOT GOING TO GO THAT FAR UNTIL I SEE

IT MAY BE HAS ABSOLUTELY NOTHING TO DO WITH THIS

CASE AT ALL, BUT I'M NOT PREPARED TO STRIKE HER, BUT CERTAINLY NOT GOING TO FORCE YOU FOLKS TO DO YOUR CROSS BEFORE YOU HAVE A

EXHIBITS to Section 2255 Reply - Page 52

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-B63-5179

2893

LITTLE

, AND THAT RAISES THE

SHOULD LET HER ON

ABOUT

I

BEFORE THAT OCCURS, TOO.

MS. LEARY:

WE JOIN IN MR. BROWN'S MOTION.

THE COURT:

IS THERE A MOTION?

MS. LEARY:

THE MOTION IS

WHAT'S THE MOTION?

EXCLUDE HER AS

WITNESS

ON DUE PROCESS GROUNDS, SPECIFICALLY ON BRADY GROUNDS. THE COURT:

WE DON'T KNOW WE HAVE ANY BRADY.

MS. LEARY:

WE KNOW THIS WOMEN PARTICIPATED IN AN

INVESTIGATION OF MR. WE HOPE NOT.

I

POSSIBLY MR. FOWLES I

THE FACT THAT INVESTIGATION DIDN'T RESULT IN

ANYTHING, MAYBE ON ITS FACE BRADY, CERTAINLY IT'S IMPEACHMENT

AND THAT IS A TYPE OF BRADY MATERIAL, THIS RAISES SOME MATERIAL AND GRAVE DUE PROCESS CONCERNS. THIS PERSON HAS HAD CONSTANT CONTACT WITH THE FBI AND WITH THE GOVERNMENT.

'S TESTIFIED BEFORE THE

JURY, AT

INDICATING

NO

THE COURT:

GRAND JURY WHERE, IN TEXAS?

MS. LEARY:

MR. SMETANA AND MR. YAMAGUCHI DIRECTED

JURY TESTIMONY.

THAT

CONCERNS.

SHE AT NO POINT INDICATED --

THE COURT:

YOU HAVE THAT

MS. LEARY:

WE DO.

THIS

THIS IS SOMETHING THAT

GRAVE DUE EXTREMELY

MUST HAVE MET WITH MR. YAMAGUCHI, AND MR. SMETANA AT DIVULGES THIS TYPE IN FACT,

SHE

POINT

INFORMATION. I HAVE A LIST OF IN LIMINE MOTIONS I'D LIKE

USDC, 415-863 5179 JAMES YEOMANS, OFFICIAL REPORTER, 2255 EXHIBITS to Section Reply - Page

53

2894

TO MAKE ABOUT HER TESTIMONY TODAY THAT'S

THIS,

WHO IS MORE THAN WILLING TO BEND THE TRUTH IN AN AGGRESSIVE WAY. AND I

THINK THIS IS AN EXTREMELY UPSETTING EXAMPLE OF

THE EXTENT TO WHICH SHE IS AND

IN

BY IMPLICATION OF MR. FOWLES.

MR. ARMSTRONG

AND I WOULD MOVE TO STRIKE

THE TESTIMONY OF SOMEBODY WHO WITHHELD THIS

OF INFORMATION

FOR THIS PERIOD OF TIME.

THE COURT: SHE MAY HAVE, QUOTE,

I'M NOT PREPARED TO "WITHHELD,

II

AS YOU

BECAUSE

FAR.

IT, MAY BE

SOMETHING THAT IS TOTALLY NOT TANGENTIAL BUT TOTALLY IRRELEVANT TO AN ENTIRE DIFFERENT MATTER.

I'M NOT PREPARED TO SAY IT IS OR ISN'T, BUT I DO THINK THAT I SHOULD NOT LET MS. ROBINS TESTIFY HERE TODAY UNTIL RE READY TO CROSS. AND

I DON/T THINK YOU/RE READY TO

THE WHOLE STORY. I

AND ONCE YOU HAVE THE

L YOU HAVE AND THEN,

YOU CAN RENEW YOUR MOTION

THINK

TO BE A WITNESS AT ALL.

MS. LEARY:

THERE'S TWO

WE

STAND NOW AND VOIR DIRE HER OUTSIDE

HER THE PRESENCE

JURy WHAT SHE DID, WHAT THE STATEMENTS WERE, AND TRY

THE F

WHAT THE RELEVANCE ON THAT BASIS.

WE CAN ASK THE GOVERNMENT I ALSO, ALSO I I

I

WHAT

KNOW ABOUT THE COMPUCHECK, INVESTIGATION; WHO INITIATED, WAS IT

USDe, 415-863-5179 JAMES YEOMANS, OFFICIAL REPORTER, 2255 USDC, Reply EXHIBITS to Section - Page

54

2895

TO WHAT EXTENT THESE GENTLEMEN WERE

} OUT OF

WERE INVOLVED, IF THE TWO INVESTIGATIONS WERE COMBINED IN SOME WAY AND SHE KEPT THAT INFORMATION FROM THEM. THE COURT:

AREN'T YOU GOING TO KNOW BETTER WHEN

?

SEE THE MS. OF IT

WE MAY, BUT WE CAN CERTAINLY GET A PIECE NOW HAVING HER ON THE STAND, VOIR DIRE HER ON THE

I THINK I JUST TO MAKE RECORD I

MR.

MY

COMPUCHECK WAS A SEPARATE INVESTIGATION DALLAS.

'S

SOMETHING THAT WE HAVE PLAYED A A ROLE IN OR WITH.

HAD ANY

IN

WHO'S BEEN WITH

I NEED TO SPEAK ONLY BECAUSE I I M THE ONE CASE THE LONGEST.

MR. HARDY

A FAIRLY

RECENT ADDITION. WE'VE NOT BEEN INVOLVED IN COMPUCHECK INVESTIGATION.

I DON'T KNOW IT'S CURRENT STATUS, IF IT'S STILL AN OPEN INVESTIGATION, I BELIEVE IT IS.

JUST FROM MY

THIS

MORNING, TO MY KNOWLEDGE THEY'RE TWO TOTALLY SEPARATE

THIS MORNING I REVIEWED A COPY OF THE 10K OR FROM SEPTEMBER OF 1993, AND THAT POINT MR. INTEREST, SO IT IS SOME TWO YEARS

HAD JUST

THE

TAFT.

MS. LEARY:

THE GOVERNMENT KNOW WHETHER

NOT

MR. MURPHY WAS INVOLVED IN THAT INVESTIGATION?

usnc, 415-863-5179 EXHIBITS to Section 2255 Reply - Page 55

JAMES YEOMANS, OFFICIAL REPORTER,

1

MICHAEL J. YAMAGUCHI United states Attorney

2 3 41 5

JOEL R. LEVIN C~ief, Criminal Division RONALD D. SMETANA Special Assistant U.S. Attorney GEORGE D. HARDY Assistant U.S. Attorney

6

7

450 Golden Gate Avenue San Francisco, CA 94102 Telephone: (415) 436-6851

II

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

10

UNITED STATES OF AKBRlCA,

) ) ) ) ) )

11

Plaintiff, 12

v. CONNIE C. ARHSTRONG,

JR.,

Iilnd

No. OR 94-0276 CAL All!'lI!'IDAVIT Oll!' WILLARD L. HATCHER, JR. Illi SUPPORT

OF GQVBRmU!JIIT'S EX-PARTE SUBHXSSION

) )

14

RICHARD A.FOlllrLES,

15

Dllfondanta. ) ---------------)

)

16

17

I, Willard L. Hatcher, Jr., state that: I have been a Special Agent with the Federal Bureau of

18 19

Investigation ("FBI") for 6 years, and am currently the case

20

agent for the prosecution in United States v. Connie C.

21

Armstrong. Jr .. et al,

22

investigation of Hamilton Taft and Company since March of 1991.

23

Prior to his retirement on January 1, 1997, FBI special Agent

24

Patrick K. Murphy was the case agent.

25

26

2.

I have been involved with the

I first learned of the government's possession of

recorded conversations of Connie C. Armstrong, Jr., on the night AFFIDAVITOP WILLARD L HATCHIJIl, lR IN SUPPORT OF GOYllRNMENT'S EX-PARTE SUBMISSION

EXHIBITS to Section 2255 Reply - Page 56

1

of January 12, 1997, after witness Terri Robins informed

2

Assistant United states Attorney George Hardy of their existence.

3

3.

I telephoned Patrick K. Murphy on January 13, 1997, and

4

asked his knowledge of such recordings.

5

he understood that Ms. Robins had made some recordings for the

6

government on an unrelated investigation.

7

did not know that Ms. Robins had ever recorded conversations with

8

Armstrong. 4.

Mr. Murphy stated that

Mr. Murphy stated he

Mr. Murphy and I knew of the existence of the Dallas

10

FBI's investigation of Armstrong's activity at Comp-U-Check.

11

understood that this investigation related to conduct that

12

occurred well after the bankruptcy of Hamilton Taft.

13

knowledge this investigation was unrelated to Hamilton Taft

14

except for the common involvement of Armstrong.

15

5.

We

To our

Since January 12, 1997, I have contacted Special Agent

16

Peter A. Galbraith, the Dallas FBI case agent for the Comp-U-

17

Check investigation, and requested all taped conversations with

18

Armstrong.

19

special Agent Galbraith has assured me that these constitute all

20

of the tape recordings of Armstrong in the possession of the

21

Dallas FBI.

22

6.

I have received thirty-six (36) audio tapes and

In addition, Special Agent Galbraith provided to me

23

copies of 302 reports prepared relating to the tapes and

24

documents provided to the Dallas FBI by Terri Robins.

25

me that all of the reports and documents have also been forwarded

26

to San Francisco.

He assured

AFFIDAVIT OF WILLAIlD L HATCIlEll, JR IN SUPPORT OF GOVERNMENT'S SUBMISSION

EX~PAR.TE

2

EXHIBITS to Section 2255 Reply - Page 57

1

7.

Agent Galbraith expressed concern about the disclosure

2

the tapes, reports and documents to Armstrong because the Comp-U-

3

Check investigation and other related investigations are on-going

4

and he is concerned that disclosure of the materials may

5

jeopardize these investigations.

6

the tapes, written materials and reports may have to be turned

7

over to Armstrong, but requested that the materials be

a

scrutinized carefully and that those ultimately turned over be

9

limited to those necessary to protect Armstrong's rights without

10 11

He understood that certain of

harming the investigations. 8.

Agent Galbraith said that all of the conversations were

12

recorded and documents were received in late 1993 and early 1994,

13

SUbsequent to the Hamilton Taft bankruptcy and before the

14

indictment of Armstrong.

15

9.

After review of the tapes and documents by myself,

16

Special Agent Laura Nielson, Assistant United States Attorney

17

George Hardy and special Assistant United states Attorney Ronald

18

Smetana, we determined that Hamilton Taft is mentioned in five

19

(5) tapes; copies of the relevant portions of those tapes have

20

been reproduced for review by the Court for a determination of

21

whether they should be turned Over to Armstrong.

22

there is one document, a "novella" about Hamilton Taft, that has

23

statements attributed to Armstrong; since I do not know its

24

authorship, that document has been copied for the Court's review.

25 26

10.

In addition,

All of the reports, tapes and documents received from

the Dallas FBI are being made available for the Court's

in camera

AFFIDAvrrOF wn.LARD L HATCHER, JR IN SUPPORT OF GOVEIlNMIlNl"S !lX-FARTE SUBMISSION

3

EXHIBITS to Section 2255 Reply - Page 58

1

review.

2

I declare under penalty of perjury that the foregoing is

3

Executed

4

true and correct.

5

Francisco, California.

Ii

7 8

COUNTY OF SAN FRANCISCO

) )

STATE OF CALIFORNIA

)

9

SS.

10

Sworn to and subscribed in my presence on January 24, 1997,

11

12 13

in San Francisco, California.

~z •

15

16

@,. co:":~=73

e.eeeeceee.eeeJ ,~.. ' ,

d"

0

•

.. '

1 i~om:':r:::u~eW: Notory N:>IIc - Co1IlomlrJ

!

Son FrancIDCO CounIV

0

My Commission Expires on

,OJ; :

i.\" ""'\ ie,' . cli.'

[CYll

\

17 18

20 21 22 23 24 2S

26 AFFIDAVIT OF WILLAIID L HATCHER, JR IN SUPPORT OF GOVERNMENT'S EX-PART!! SUBMLSSION

4

EXHIBITS to Section 2255 Reply - Page 59

FBI TRANSMIT VIA: Teletype Facsimile

PRECEDENCE: Immediate D Inority D Routine

o

o

!KJ

CLASSIFICATION: TOP SECRET SECRET CONFIDENTIAL UNCLAS EFT 0 UNCLAS

o

AIRTEL

o

o o o

o

Date

TO

DALLAS,

FROM

SAC, SAN FRANCISCO (196A-SF-93255)

SUBJECT

CONNIE CHIP ARMSTRONG, JRj

8/4/93

SAC

(P)

ET ALi

WIRE FRAUD (A)i MAIL FRAUDj 00: SAN FRANCISCO

Reference airtel dated February 22, SA HATCHER has obtained verbal/ailth~l::i:~tion from

I

united states Attorney, MICHAEL YAMAGUCHT, forL

I

_

Iconfidential source to record conversa lons with subiects of this case. I

b2

I

2 - DALLAS (1) -

SAN FRANCISCO

WLH/wlh

1.

Approved:

"

":fS:~

PCI'

Transmitted (Nmnber)

'

_

(Tune)

EXHIBITS to Section 2255 Reply - Page 60

STATES NORTHERN

OF

BEFORE THE HO:N01WlLE

A.. LEGGE, JtJDGE

OF AMERICA,

UNITED

) ) ) } )J\ ) )} ) ) )

PLAHITIFF, PLAINTIFF, VB. VS.

CONNIE C. ARMSTRONG, A. FOWLES,

,.•

, I

DEFENDANTS.

CR 94-0276 CAL

FORNIA

SAJ.V SAN

27, 1997

PAGES 3441 - 3639 ATTORNEY AVENUE

,CALIFORNIA CALIFORNIA

102

I

BY; BY:

GE()RG~E GEORGE

RONALD n.' •./L'''.M..I..IJ.J

D,. D. I ESQ. D. SMETANA, D.

ASSISTANT UNITED STATES CHESTER L. BROWN, ESQ. 550 2450 BROADWAY, SUITE SSD SANTA MONICAl CALIFORNIA

90404

SOLOMON WOLLACK, ESQ. STREET SUITE 1080 388 MARKET STREET, I

SAN

I

CALIFORNIA

111

CONTINUED ON NEXT PAGE:) REPORTED BY:

~1 . YEOMANS t CSR JAMES J. OFFICIAL COURT COuKT REPORTER, REPORTER UBDC

COMPUTERIZED

JAMES YEOMANS, OFFICIAL EXHIBITS to Section

BY XSCRIBE

-863-5179 2255 Reply - Page 61

3446 3446

THE COURT; COURT:

1

YES.

COMPUCHECK COMPUCHECK INVESTIGATION? INVESTIGATION?

2

WHAT YOU'RE TALKING ABOUT?

3

GUESS, THEY GAVE IT JUST TO COUNSEL COUNSEL FOR FOR MR. MR. ARMSTRONG ARMSTRONG BECAUSE BECAUSE II

4

DON'T THINK MR. FOWLES IS INVOLVED INVOLVED IN IN IT, IT, AT AT LEAST, LEAST, FROM FROM WHAT WHAT II

5

SAW. MR. SMETANA:

6

YES. YES.

IS IS THAT THAT

THEY THEY FILED FILED SOME SOME STUFF STUFF AND, AND, II

THE QUOTE QUOTE STATEMENTS STATEMENTS OF OF TIrE THE DEFENDANT DEFENDANT

7

THAT WE HAVE AND ANY POTENTIAL POTENTIAL BRADY BRADY THAT THAT WE WE HAVE HAVE RELATE RELATE ONLY ONLY

8

TO MR. ARMSTRONG AND NOT TO TO MR. MR. FOWLES. FOWLES.

9

PROVIDED TO COUNSEL FOR MR. MR. ARMSTRONG. ARMSTRONG. THE COURT:

10

THOSE THOSE HA.VE HAVE BEEN BEEN

AS I SAID, SAID, II GOT GOT A A GREAT GREAT BIG BIG BOX BOX FRIDAY FRIDAY

11

AFTERNOON FULL OF MATERIAL ON ON THAT, THAT, SO SO WHAT WHAT DO DO YOU YOU FOLKS FOLKS WANT WANT

12

TO DO? MR. BROWN: BROWN:

13

LET'S TALK TALK ABOUT ABOUT THESE THESE TAPES. TAPES.

II KNOW KNOW --

, ....".1',

14

FIRST, I KNOW THE COURT IS PROBABLY PROBABLY VERY VERY CONCERNED, CONCERNED, II KNOW KNOW WE WE

15

ARE.

FROM OUR PERSPECTIVE, YOUR YOUR HONOR, HONOR, IT'S IT'S A A MAJOR MAJOR PROBLEM. PROBLEM. WE'VE JUST RECEIVED --- WE WE HEARD HEARD ON ON FRIDAY, FRIDAY, II BELIEVE, BELIEVE,

16

17

AFTERNOON THAT THEY THEY HAD FINALLY FINALLY

18

IT'S MR. SMETANA OR MR. MR. HATCHER HATCHER OR OR MR. MR. HARDY'S HARDY'S FAULT, FAULT, BUT BUT IT'S IT'S

19

ONE GOVERNMENT AND WE ALL KNOW KNOW HOW HOW THOSE THOSE THEORIES THEORIES WORK, WORK, IT'S IT'S

20

THE

21

AND AND II DON'T, DON'T, I DON'T DON'T BELIEVE BELIEVE

ABOUT FBI IN DALLAS. WHAT APPARENTLY HAS HAPPENED HAPPENED HERE, HERE, WHILE WHILE MR. MR. ARMSTRONG ARMSTRONG

22 22

WAS CLEARLY REPRESENTED BY COUNSEL COUNSEL AND AND WHILE WHILE THERE THERE WAS, WAS, II

23 23

BELIEVE, GRAND JURY GOING ON IN IN THIS THIS CASE, CASE, MS. MS. ROBINS ROBINS WAS WAS

24 24

ACTING AS AN INFORMANT FOR THE THE FBI FBI DOWN DOWN IN IN DALLAS. DALLAS.

2S 25

IS HARD TO IMAGINE, WITH THE FACT FACT THAT THAT SHE SHE WAS WAS A A GRAND GRAND JURY JURY

IT IT REALLY REALLY

JAMES OFFICIAL REPORTER, USDC, 415-863-5179 JAMES YEOMANS, YEOMANS, OFFICIAL REPORTER, 2255 USDC, Reply 415-863-5179 EXHIBITS to Section - Page

62

3447 3447

1

HERE, THE THE FBI FBI HERE HERE IN IN LOS LOS ANGELES ANGELES DID DID WITNESS OF THE GOVERNMENT HERE,

2

A NUMBER OF INTERVIEWS DOWN IN IN THE THE DALLAs DALLAs AREA. AREA. MR. MURPHY WENT DOWN DOWN THERE THERE ON ON OCCAS OCCAS ION ION WE WE KNOW KNOW FROM FROM

3

4

MR. EVERETT WHO WAS FORMALLY WORKING WORKING WITH WITH THE THE GOVERNMENT GOVERNMENT

5

THAT - - ON ONE OCCASION, AT LEAST, LEAST, THAT THAT WERE WERE SOME SOME DALLAS DALLAS AGENTS AGENTS

6

THAT WORKED WITH MR. MR. MURPHY MURPHY WHEN WHEN THEY THEY WERE WERE IN IN DALLAS, DALLAS, THAT THAT THIS THIS

7

INFORMATION WASN'T KNOWN, ALTHOUGH, ALTHOUGH, IT'S IT'S NOT NOT REALLY REALLY OUR OUR PROBLEM PROBLEM

8

WHETHER IT WAS COMMUNICATED TO TO THE THE SAN SAN FRANCISCO FRANCISCO --THE COURT:

9

-"

10

DO ABOUT IT?

11

MR.

IT IS YOUR YOUR PROBLEM. PROBLEM.

WHAT WHAT DO DO YOU YOU WANT WANT TO TO

WHAT DO YOU WANT WANT TO TO DO? DO? BROWN:

YOUR HONOR, HONOR, WE'VE WE'VE JUST JUST RECEIVED RECEIVED -- -- LET LET ME ME

12

TELL YOU WHAT'S HAPPENED.

THE THE GOVERNMENT GOVERNMENT -- -- APPARENTLY, APPARENTLY,

13

THERE'S SOME -- 35 SOME TAPES TAPES WITH WITH 70 70 SOME SOME HOURS HOURS OF OF INFORMATION INFORMATION

14

ON IT.

-II'

THE COURT:

15 16

I'VE GOT GOT A A GREAT GREAT BIG BIG BOX, BOX, LITERALLY LITERALLY A A BIG BIG

BOX, OF MATERIAL THEY BROUGHT BROUGHT IN IN MY MY OFFICE OFFICE FRIDAY FRIDAY AFTERNOON. AFTERNOON.

17

MR. BROWN:

ALL WITH WITH SOUND SOUND RECORDINGS RECORDINGS ON ON THEM. THEM.

18

THE COURT:

NOT ALL, ALL, SUBSTANTIAL SUBSTANTIAL QUANTITY QUANTITY OF OF PAPER PAPER IN IN

19

THERE.

20

IS START WITH WHAT WAS OBVIOUSLY OBVIOUSLY GREATEST GREATEST INTEREST INTEREST TO TO YOU, YOU, THAT THAT

21

IS THE TAPES AND, I GUESS

22

ARMSTRONG ON THEM, SO ---

23 23

I'M NOT SURE QUITE WHAT WHAT IT IT IS. IS.

MR. BROWN:

II

WHAT WHAT II ATTEMPTED ATTEMPTED TO TO DO DO

THE THE OTHER OTHER STATEMENTS STATEMENTS WHICH WHICH HAD HAD MR. MR.

I'LL TELL TELL YOU, YOU, YOUR YOUR HONOR, HONOR, WE WE WERE WERE TOLD TOLD

24

THAT THERE WERE THREE HOURS WORTH WORTH OF OF SOUND SOUND RECORDINGS RECORDINGS THAT THAT

25 25

SPECIFICALLY MENTIONED HAMILTON HAMILTON TAFT. TAFT.

THE THE GOVERNMENT GOVERNMENT

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863-5179 REPORTER, 2255 USDC, Reply 415-863-5179 EXHIBITS to Section - Page

63

3448 3448

1

ION THAT THE

2

THIS

3

THEIR' THEIR' , INVOLVED MR. MR.

ARMSTRONG BUT

4

THE COURT:

I GUESS THAT'S A FAIR

5

MR • BROWN:

THAT S

'6

lAM

7

I

WE WERE AnVI SED.

II

THESE THESE

AT LEAST SOME BRADY MATERIAL. MATERIAL.

HONOR,

SAYING I THINK THE GOVERNMENT GOVERNMENT WOULD WOULD IN ONE OF THEIR MOTIONS THAT THEY FILED THIS MOTION MOTION ON ON

8

ASKING THAT WHATEVER INFORMATION INFORMATION FROM FROM

OF MIND.

9 10

THESE TAPES INDICATES MR. ARMSTRONG'S DENIAL OF ANY ANY WRONGDOING WRONGDOING

11

AT HAMILTON TAFT NOT BE PERMITTED TO BE ADDUCED DURING DURING THE THE

12

COURSE OF THIS TRIAL. THE COURT:

13 14

PARDON ME A SECOND.

I THINK I SEE SEE MR. MR.

SOLODOFF IN THE HALLWAY THERE. MR.

HATCHER, WOULD YOU TELL HIM THAT THAT

JUST TO TO BE BE ON ON

TELEPHONE STANDBY AND IF WE NEED HIM WE WILL 17

TELEPHONE CALL.

HIM A A

HE SHOULD BE AVAILABLE BY TELEPHONE THIS THIS WEEK. WEEK.

18

GO AHEAD.

19

MR.

BROWN:

HONOR, FOR US TO

20

ASSESS THIS, AND I HATE TO SAY THIS, IT'S THREE HOURS, WE WE WERE WERE

21

TOLD ABOUT

23

25

WE WERE IN THE MIDDLE OF ---

WERE ARRIVING.

22

24

ON FRIDAY.

THE THE

TO

COURT:

THE TAPES. MR.

BROWN:

DOUBT YOU HAVE NOT HAD HAD TIME TO TO LI LISTEN STEN WHAT DO YOU WANT TO DO? I

REALLY HATE HATE TO SAY SAY THIS. THIS.

II

THINK THINK WE WE

JAMES YEOMANS, OFFICIAL REPORTER, 2255 USDC/ Reply 415-863-5179 415-863-5179 EXHIBITS to Section - Page

64

3449 3449

1

TO TAKE TAKE A A NEED AN OPPORTUNITY TO REVIEW THESE AND/ IF WE NEED TO

2

DAY JUST TO REVIEW TAPES, I THINK WE NEED TO DO IT.

3

CAN 'T - - THE COURT - - I THINK THE COURT NEEDS TO REVIEW REVIEW WHAT WHAT

4

MATERIAL IT HAS.

WE WE

THIS DEFINITELY HAS BRADY MATERIAL MATERIAL IN IN IT. IT.

THERB'S THERE'S ALL KINDS OF MOTIONS, AS THE COURT COURT KNOWS, KNOWS,

5

6

INCLUDING MOTIONS FOR DISMISSAL THAT WE OUGHT TO PERHAPS PERHAPS BE BE

7

FILED REGARDING THIS SITUATION.

8 9

10

THERE/S MACIA PROBLEMS BECAUSE MR. ARMSTRONG ARMSTRONG IS IS REPRESENTED BUT COUNSEL AT A TIME WHEN THE INVESTI INVEST CLEARLY HAD FOCUSED ON HIM AND HE WAS A TARGET.

11 12

THERE'S A NUMBER OF OTHER REMEDIES, THE LEAST LEAST OF OF WHICH WHICH WOULD BE TERRI ROBINS SHOULD NOT BE PERMITTED TO TESTIFY. TESTIFY. THE

13

THE GOVERNMENT HAS HAS ALREADY INDI INDI

14

STEP POSSIBLY

15

MEAN,

I

16

YOU?

MAYBE

17

WHETHER THEY HAVE MERIT OR NOT.

18 19

ON ON

JUST

THAT THAT

AGAIN, WHAT DO YOU WANT WANT TO TO DO? DO?

II

COULD COME OUT

FOR FOR

WHAT'S

FOR A MOTION TO DISMISS.

II

DON'T DON'T KNOW KNOW

MR. BROWN:

THAT WOULD OBVIOUSLY BE WHAT WE'RE WE'RE LOOKING LOOKING

THE COURT:

NOT GOING TO BE WANTING TO PUT MR.

FOR.

20

21

ARMSTRONG'S OWN STATEMENTS IN THIS CASE.

22

DISCLOSING TO THE JURY THE FACT HE'S

23

ANOTHER

24

CALL, BUT THAT'S A TACTICAL

25

MR. BROWN:

BECAUSE YOU'D YOU'D BE BE

- OTHER INVESTIGATION INVESTIGATION IN IN

I WOOLDN'T WOULDN'T THINK YOU'D WANT TO DO THAT. THAT.

WE WERE TOLD AND

YOUR YOUR

COURT WOULD WOULD HAVE HAVE TO TO

USDC, Reply 415-863-5179 415-863-5179 EXHIBITS to Section ,2255 - Page 65 I

3450 3450

1

LOOK AT THE IN CAMERA MATERIAL.

2 3

THE COURT:

I REALLY AM AM CHOKING ON THAT. THAT.

IT'S IT'S

HOURS AND HOURS OF SITTING AND LISTENING.

4

MR. BROWN:

I KNOW.

5

THE COURT:

I'VE NEVER HAD HAD ANY REASON TO QUESTION QUESTION THE THE

6

GOVERNMENT'S GOOD FAITH WHEN THEY SAY HERE'S A TAPE THAT THAT

7

SOMEBODY'S CONVERSATION IS ON AND AND THESE TAPES DON'T HAVE HAVE THAT THAT

8

PERSON ON THE TAPE AT ALL.

9

GOVERNMENT'S WORD ON THOSE THINGS.

10

YOU KNOW, I GENERALLY TAKE TAKE THE THE I'VE NEVER BEEN BEEN MISLED MISLED BY BY

THE GOVERNMENT. MR. BROWN:

11

.

DO I?

WE, YOUR HONOR, WITH ALL -- IN ALL ALL CANDOR, CANDOR,

12

WERE OFFERED THESE TAPES SOMETIME LATE FRIDAY AFTERNOON, AFTERNOON,

13

MID-AFTERNOON, AND I SIMPLY ADVISED MR. SMETANA TO FAX FAX OVER OVER

14

THESE VARIOUS MOTIONS THAT THE COURT HAS . .

pI

IN LOOKING AT THOSE MOTIONS AND COORDINATING COORDINATING OUR OUR

15

16

WITNESSES AND GETTING READY FOR TODAY AND THE COMPLETION COMPLETION OF OF

17

THAT, WE DID NOT HAVE TIME TO BE LISTENING AND EVALUATING EVALUATING THREE THREE

18

HOURS. I HAVE WITNESSES HERE FROM OUT OF TOWN TODAY. TODAY.

19

TO TO DO DO

20

JUSTICE TO THIS INFORMATION, QUITE QUITE FRANKLY, WE WOULD WOULD NEED NEED TO TO

21

TAKE TODAY TO REVIEW THESE TAPES AND DETERMINE WHAT WHAT THE THE

22

APPROPRIATE RESPONSE THAT WE WOULD HAVE WI-TH REGARD TO TO THIS THIS

23

BRADY MATERIAL AND WHATEVER OTHER INFORMATION PERTAINS PERTAINS TO TO THIS THIS

24 24

CASE.

25

STATEMENTS BY THE DEFENDANT.

THESE TAPES HAVE THREE HOURS OF COMMENTS BY -- -- AND AND

JAMES YEOMANS, OFFICIAL REPORTER, 2255 USDC, Reply 415-863-5179 415-863-5179 EXHIBITS to Section - Page

66

3451 3451

THE COURT:

1

2

SUGGESTING YOU YOU NEED NEED A A DAY DAY OFF OFF SO YOU'RE SUGGESTING

TODAY TO REVIEW TAPE?

3

MR. BROWN:

YES, SIR.

4

THE

THE PROBLEM PROBLEM WITH WITH THAT, THAT, OF OF COURSE, COURSE, WE WE

5

BROUGHT THE JURY IN. MR.

6

7

POSS

II

NOW. NOW.

THE

WELL, I'D RATHER GIVE GIVE THEM THEM A A DAY DAY OFF OFF TOMORROW TOMORROW AND AND II THEY' THEY'

8 9

IS IS IT IT

,, SO SO BE BE

RUDE RUDE

SIMPLY SEND THEM HOME. HOME.

TO THEM

I RATHER, IF YOU NEED A A DAY DAY OFF, OFF, TO TO TAKE TAKE IT IT OFF OFF

10 11

TOMORROW OR THE NEXT DAY, BUT

12

WHAT YOU'RE II

INTO INTO

TO DO WITH WITH

YOU'RE YOU'RE

AND

14

MR. MR. BROWN:

15

16

THE COURT IS SAYING.

17

AS

WE CAN CAN DO IT IT TOMORROW. TOMORROW. I THINK WE WE

IT AND IT

19

COURT:

20

LOOK LOOK

BECAUSE NOW WE'RE

18

II UNDERSTAND UNDERSTAND WHAT WHAT THESE THESE AS AS SOON SOON DEFENSE, DEFENSE,

EVERYTHING. EVERYTHING.

I

DON'T DONIT SEE SEE HOW. HOW.

II

CAN'T CAN'T

DENY YOU THE RIGHT TO DO IT.

21

MR. SMETANA:

I HATE TO TO SUGGEST SUGGEST THIS THIS AS AS A A TEMPEST TEMPEST IN IN A A

22

TEAPOT.

23 23

VERY LITTLE OF SUBSTANCE, IF ANYTHING ANYTHING AT AT ALL,, NOTHING NOTHING THAT THAT

24 24

HASN'T BEEN SAID OR HEARD

25

IF COUNSEL WILL LISTEN LISTEN TO TO THE THE TAPES TAPES HE'LL HE'LL FIND FIND THERE'S THERE'S

MS. LEARY:

AS TO MR. FOWLES FOWLES II WOULD WOULD MOVE MOVE FOR FOR THE THE

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863 REPORTER, 2255 USDC, Reply 415-863- 5179 5179 EXHIBITS to Section Page

67

3452

1

THE WRITTEN INFORMATION.

TAPES AND

..

'S NOTHING ON

THE

2

TO MR.

3

MS. LEARY:

4

5

FOWLES/ THERE'S

6

MR.

INVOLVED ABOUT

THE

7

HIM

TAFT

MR.

IT, THEN IT'S BRADY AS TO

THEN IF THAT'S TRUE THEN YOU'VE GOT THE

8

GOVERNMENT/S REPRESENTATION TO YOU MR. FOWLES

9

AND YOUR LISTENING TO TAPES CANJT DO ANY BETTER THAN THAT. MS. LEARY:

10

,.

IF

I UNDERSTAND

II

THE TAPES AND FOR THE -

12

SO THAT WE CAN INVESTIGATE. MR. SABELLI:

13

14

YOUR HONOR, BUT I

DOES DEPEND ON WHAT'S ON THE TAPES.

THE

OVERFLOW WITHIN HAMILTON TAFT, DECISION MAKING, NOTHING ABOUT MR. FOWLES.

17

DON'T KNOW WHAT

l8

ISN'T ON THERE ISN'T ENOUGH FOR

THEY MAY VERY WELL BE BRADY STATEMENTS. STATEMENTS ARE.

MR. SMETANA:

19

GOOD

WE

SIMPLY KNOWING MR. FOWLES

AGAIN! MY EARLIER COMMENT REALLY MADE IN

, THERE REALLY IS NO DETAILED DESTRUCTION OF THERE'S A PASSING MENTION HERE AND THERE OF

21

SORT OFI I DIDN'T DO ANYTHING WRONG HAMILTON

22

HAMILTON

23

TAFT, BUT THERE'S NO IN DEPTH PLANNING MEETING

25

ASK

WHATEVER WRITTEN DOCUMENTATION EXISTS

16

24

J

STATEMENTS MADE ON THE TAPES HAVE TO DO WITH THE STRUCTURE AND

15

20

I

NOT MENT IONED

I

DISCUSSION OF THE COURT:

HAPPENED TWO WHAT IS

THEY DID A

EARLIER.

FORM OF THE MATERIAL THAT YOU

YEOMANS, REPORTER, EXHIBITSCIAL to Section

415-863-5179 2255 Reply - Page 68 I

1

MICHAEL J. YAMAGUCHI United states Attorney

2

3 4

5

JOEL R. LEVIN Chief, Criminal Division RONALD D. SMETANA Special Assistant U.S. Attorney GEORGE D. HARDY Assistant U.S. Attorney

r ",

' . ·~t

6

.,

.":t':

.

~''''

450 Golden Gate Avenue San Francisco, CA 94102 Telephone: (415) 436-6851

7

''''"''

8 9

UNITED STATES DISTRICT COURT

10

NORTHERN DISTRICT OF CALIFORNIA

11

12

UNITED STATES OF AMERICA,

)

Criminal No. 94-0276-CAL

)

13

Plaintiff,) )

v.

14

) )

15 16 17

CONNIE C. ARMSTRONG, JR., and ) RICHARD A.FOWLES, ) ) Defendants. ) )

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION Date: Nov. 8, 1996 Time: 1:30 p.m. Courtroom: 10 (Han. Charles A. Legge)

18 19

.L..

Introduction \

20

Defendant Connie C.

Armstrong,

Jr.,

seeks

(again)

to

21

dismiss counts seven through twenty-one of the Indictment.

22

alternative, he seeks an instruction on the "law of the case."

23

the reasons set forth below, the government opposes this motion.

24

II.

Argument

25

~

Statement of facts.

26

In the For

As set forth in the grand jury's Indictment, the charges

000156 EXHIBITS to Section 2255 Reply - Page 69

1

arise from defendant's operation of Hamilton Taft, a San Francisco

2

based

3

companies.

4

Hamilton Taft and Hamilton Taft was obligated to pay the taxes to

5

the Internal Revenue Service and other taxing authorities on time.

6

At the time the defendant acquired Hamilton Taft the

7

company had a working capital deficit of more than $14 million.

8

Over a period of two years, as money was siphoned out and Hamilton

9

Taft accrued interest and penalties on money it did not have, the

company

that

provided

tax

services

to

large

Client companies transferred their payroll taxes to

10

withholding

11

million per quarter.

12

approximately $85 million in taxes were unpaid.

of

tax

payments

grew from

$19.4

million

to

$68.2

When Hamilton Taft ultimately collapsed,

Despite the fact that the defendant was aware that he

13

14

could not pay the taxes of his clients when due, he

15

number

16

representations that Hamilton Taft had the ability to pay taxes

17

when due, was paying taxes when due and would continue to pay

18

taxes when due.

of

companies

to

contract

with

Hamilton

induced a Taft

with

~he

19

As a further part of the scheme, the defendant concealed

20

the non-payment of taxes to induce the victims to continue sending

21

(on a weekly, biweekly or monthly basis) their tax payments and to

22

avoid the wholesale cancellation of contracts.

23

defendant's scheme was exposed, he sent out lulling letters denying

24

the existence of the scheme and encouraging

25

sending payments.

26

II GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

J

payroll

Finally, when the

)~tc::t;,i!Jl2-

to continue

2

0001.57

EXHIBITS to Section 2255 Reply - Page 70

1

.a....

Defendant's misplaced.

Reliance

on

In

re

Hamilton

Taft

& Co.

is

2

3

The litigation underlying In re Hamilton Taft & Co., 53

4

F.3d 285 (9th Cir. 1995), was between two parties over a fixed sum

5

of money

6

reclaim for the larger group of victims funds paid to the IRS on

7

behalf of S & S Credit.

8

preferential payment had been made on behalf of S & S and that the

9

funds paid to the IRS on its behalf would have to be repaid by S &

whether the trustee in bankruptcy would be able to

The Ninth Circuit initially ruled that a

10

S to the trustee.

11

matter

12

dismissed as moot, and the decision was vacated.

13

Taft

14

vacation

15

inoperative.

16

(1950).

17

340 U.S.

18

Hamilton Taft & Co.

&

could

Co.,

be

S & S petitioned for rehearing, and before the heard,

the

68 F.3d 337

of

the

case was

(9th Cir.

opinion

nullifies

United States v.

settled,

1995). and

the

appeal was

In re Hamilton

The Ninth Circuit· s renders

Munsingwear,

the

340 U.S.

judgment 36,

40-41

Arguably, the parties could now relitigate the issues. at 40.

In short,

this Court

is not bound by In

re

19

This conclusion is made more compelling by the fact that

20

the government was not a party to the litigation at the time the

21

opinion was rendered by the Ninth Circuit.

22

rehearing was filed the Court obviously recognized that its opinion

23

could well interfere with the government·s right and ability to

24

collect

25

participate in the case as an amicus curiae.

26

file a brief advocating the theory that the funds were held by

\

employee

taxes

and

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

J

thus

3

When the petition for

invited

the

government

to

The government did

000158

EXHIBITS to Section 2255 Reply - Page 71

1

Hamilton Taft in trust for the government.

2

and the opinion vacated before the government's position could be

3

considered.

4

which

5

)£}is) r o •

hC\s~r

The

6

To resolve the i;§sue had

nq~~lY:

thEL~~~gy:

inescapable

The case was settled

t;,o

the~g£2~E]leJlt

tQ b_t;.. heq.rcLi§,"",fundsIDWt:lllY

conclusion

from

this

discussion

7

there is no "l,,!w

8

fact that can be resolved only by the scheduled jury trial.

9

~

10

oLth~.".Cas.e.."

is:

Rather, there remains a dispute of

Contrary To Defendant's Contention, Hamilton Taft Did Not Comply with Its Contractual Duties. The government will subsequently demonstrate why counts

11

7 through 21 should not be dismissed.

However, fundamental to

12

defendant's argument is his premise that he complied with the 13 conditions of his contracts and thus did nothing wrong.

Defendant

14

has again pummeled a straw man. 15

16 17

The trial evidence will show that, at a minimum, all of Hamilton Taft's contracts required timely payment of taxes on or before the statutory deadlines. 1 Some of the contracts also

18

specifically limited the short-term investments that could be made. 19

Thus, Scott Paper's contract stated that: 20

21 22

In order to satisfy Hamilton Taft's investment criteria (Security of Principal, High Degree of Liquidity), Hamilton Taft's investments are limited to investments collateralized by United States Government securities and United States Government sponsored obligations.

23 24 25 26

lContrary to defendant's assertion that he "occasionally" paid the taxes late (Defendant's Memorandum 10:16), he intentionally failed to make more than 300 payments aggregating more than $255 million, and the frequency of missed payments as well as .their dollar amounts were increasing almost logarithmically. GOVERNMENT'S OPPOSITION TO ARMSrRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

4

000159 J

EXHIBITS to Section 2255 Reply - Page 72

....

1

Others limited Hamilton Taft to benefits accruing from temporary

2

use of client funds or benefits accruing from proper use of client

3

funds.

4

long-term use of client

5

defendant's

6

nothing less than revisionist history.

Given the intentional failures to pay taxes on time, the

that

he

and the

other

complied

with

than proper use, the

contracts

is

7

Similarly erroneous is defendant's assertion that once

8

the money was paid over to Hamilton Taft that he could use it for

9

any purpose he wanted.

He induced his clients to do business with

10

Hamilton Taft on the representation that he could and would pay the

11

taxes on a timely basis.

12

funds otherwise clearly constitutes fraud, as the trial evidence

13

will amply demonstrate.

14

."

assertion

funds

His knowing and intentional use of the

Defendant did not

just commit

fraud at

the

time

the

15

contracts were executed, but on an ongoing basis in order to assure

16

continued payment.

17

payments

18

Defendant and his employees concealed the tax withholds as much as

19

possible.

When discovered, they lied about the basis for missed

20

payments.

Thus, each payment from each of the victims was directly

21

attributable to the fraud and a direct and intended consequence of

22

the ongoing fraud.

23

is

The only way to pay past due taxes with current

to assure an

adequate supply of current payments.

Defendant's argument that this was not a Ponzi scheme

24

(Defendant's Memorandum, 10:8-10) is similarly without merit.

25

defendant is not before this court because he paid "Client A's

26

taxes with Client B's and Client C's money;" GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

The

the government would

5

000160

EXHIBITS to Section 2255 Reply - Page 73

1

expect that all of A, Band C's payments would be made from the

2

collective contributions from A, Band C.

3

before the court, in part, because he bought a ranch with A's money

4

paid

5

intentionally failing to make A's tax payment), and then used Band

6

C's funds

7

payment to make A's January payment while failing to make Band C's

8

April tax payment.

to

Hamilton

Taft

for

a

paid to Hamilton Taft

January

in April

Rather, defendant is

tax

for

payment

(while

their April

tax

9

Indeed, the description of a Ponzi scheme in In re United

10

Energy Corp., 944 F.2d 589, 590 at fn.l (9th Cir. 1991)2 describes

11

precisely what defendant was doing.

12

for clients with monies obtained from later tax payments from other

13

clients.

14

created the illusion that taxes were being timely paid and that

15

(bankrupt) Hamilton Taft had the financial wherewithal to pay the

16

taxes, inducing continued use of Hamilton Taft's services, all the

17

while siphoning out funds for defendant's personal benefit.

18

only

19

unfortunately for him, the audience caught on to the trick!

20

IL..

Defendant made tax payments

By funnelling later payments to earlier taxes defendant

sorcery

involved

was

the

defendant's

sleight

of

The hand;

,

There is no basis for the dismissal of Counts Seven through Twenty-One.

21 Regardless of how the relationship between Hamilton Taft 22 23 24 25 26

2"A Ponzi scheme is a fraudulent arrangement in which an entity makes payments to investors from monies obtained from later investors The fraud consists of funnelling proceeds received from new investors in guise of profits from the alleged business venture, thereby cultivating an illusion that a legitimate profit-making business opportunity exists and inducing further investment. GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

J

6

000161

EXHIBITS to Section 2255 Reply - Page 74

1

and its clients is categorized, Counts Seven through Twenty-One

2

withstand attack. Defendant

3

appears

to

argue

that

the

government

can

4

proceed on counts One through Six, the fraud in the inducement, but

5

that proceeding on the other counts is "illogical, excessive and

6

totally prejudicial • • • " (Defendant's Memorandum 14:15-16)

7

has done throughout these proceedings, defendant has made a lengthy

8

and colorful

9

relevant to the inquiry -- the Indictment.

argument all

the while

As he

ignoring the one document It does not depend on

10

the existence of any particular relationship between defendant and

11

the victim companies.

12

conduct in addition to and beyond the inducement to keep the money

13

flowing into Hamilton Taft.

14

ongoing basis to keep money flowing into Hamilton Taft by a cover-

15

up3,

16

selection

17

attempt to disseminate a false account of what was happening to

18

client

19

reference in each of the counts.

Rather it alleges a fraudulent course of

The Indictment alleges fraud on an

false tax returns 4 , a change in cover-up methodology5, of

funds.

specific

All

of

clients

these

for

withholding

allegations

are

and

the

Armstrong's

incorporated

by

(Indictment, paragraph 24.)

20 21

22 23 24 25 26

3"This concealment enabled Hamilton Taft to continue to receive funds from its clients, to avoid massive cancellation of its contracts, and to preserve the opportunity for new business." 4"The clients who received these returns were thereby falsely led to believe that all their taxes had been paid." 5"By choosing to pay past due taxes instead of currently due taxes, Armstrong was able to delay, for a much longer time, discovery by the clients that their taxes had been paid late. At the same time, he was able to create the false impression that Hamilton Taft's business was running smoothly." GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUESr FOR PRETRIAL INSTRUCTION

7

000162

EXHIBITS to Section 2255 Reply - Page 75

1

Defendant

argues,

however,

all

allegations

of

the

2

Indictment, other than the fraud in the inducement allegations, are

3

legally insufficient to charge criminal activity because of the

4

Ninth

5

establishes (or so defendant claims) the "law of the case" contrary

6

to the government's charging theory.

7

defendant sees in that opinion and on which defendant focuses his

8

argument is the conclusion that the relationship between Hamilton

9

Taft and its clients was one of "debtor-creditor", and not a trust

Circuit

opinion

of

In

re

Hamilton

Taft

Co.

&

which

The "law of the case" that

10

relationship.

11

extrapolate to the further conclusion that the defendant was free

12

to do with the clients' tax money whatever he wanted, because it

13

was Hamilton Taft's "property".

14

fraud

15

defendant did with client's tax money after the contracts were

16

signed must be legally insufficient, and therefore dismissed.

17

argument is further based on the factual predicate that Hamilton

18

Taft complied w-ith the terms of the contracts with its clients.

19

Defendant's argument is factually and legally flawed •

20

From that "law of the case", the defendant seeks to

allegations

As

•

noted

in

the

earlier,

Hence, he argues that any criminal

Indictment

the

Ninth

which

describe

Circuit

opinion

what

has

the

His

no

21

precedential .or controlling effect on this Court (and therefore can

22

not be considered "the law of the case") because it was vaca'ted.

23

It should also have little, if any, persuasive effect on this Court

24

because

25

reconsideration,

26

government.

it

was

vacated before

in

the

the Ninth

context Circuit

of had

a

motion

heard

from

for the

Furthermore, even if this Court were to conclude that

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

J

that

8

000163

EXHIBITS to Section 2255 Reply - Page 76

....

1

the legal relationship between Hamilton Taft and its clients was

2

one of "debtor-credi tor", the further coneIus ion that the defendant

3

could do whatever he wished with the tax money (send it to a secret

4

Swiss bank account?) does not logically, or legally, follow.

5

a debtor never defraud a creditor?

6

fact, the defendant acknowledged as much when he said:

9

10

The defendant asserts as a matter of fact that he complied

11

with his contractual duty to pay the taxes of the Hamilton Taft

12

clients.

13

with his contractual dutiesl Jury trials are the vehicle by which

14

such factual disputes are resolved, not motions to dismiss. There

15

is no basis for this Court to dismiss counts Seven through Twenty-

16

One.

17

.L.

8

The government intends to prove that he did not comply

The Court should not make a finding of "the law of the case."

18

The government is persuaded by defendant's eloquence in

19

arguing that this court should not follow In re Hamilton Taft & Co.

20

(Defendant's

21

vacated

22

explication of the common law of trusts" (Id. at 21-22) since the

23

court sought to implicate the government's rights without giving

24

the government an opportunity to be heard.

25

"scholarly" or "lucid" the opinion may be on the common law of

26

trusts, as noted above it is not "the law of the case", and clearly

Memorandum,

opinion

is

15:16-18),

"a

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

I

In

"For instance, had Mr. Armstrong s imply taken clients' monies and opened a Swiss bank account, while totally ignoring his contractual duty to pay their taxes, he almost certainly could be charged with engaging in a scheme to defraud." (Motion, p. 9)

7

~

The answer is obvious.

Can

scholarly,

but

cannot

lucid,

agree

and

that

the

unassailable

Regardless of how

9

000164

EXHIBITS to Section 2255 Reply - Page 77

1

should not be used to justify making a ruling on an issue that is

2

nothing but a red herring. It is clear what the defendant is attempting to do.

3

He

4

wants the jury not to hear relevant evidence.

He doesn't want the

5

jury to hear about the Ranch acquisition, or the limousine rides,

6

or the luxury jet purchase.

7

what his lawyers and senior management were telling him--that he

8

couldn't use client tax money for long-term personal investments.

9

He also doesn't want the jury to hear about the lies he told his

10

employees regarding the source of funds for his ranch and other

11

purchases.

12

the victim companies in order to lull them into a false sense of

13

security.

14

charges in the Indictment.

He also doesn't want the jury to hear

He doesn't want the jury to hear about the lies he told

But all of this evidence is relevant to prove the

15

To his credit, the defendant spells out the remarkable

16

ramifications of a decision to declare that In re Hamilton Taft &

17

Co. represents the "law of the case".

18

He wants:

1.

Defense counsel to be able to refer to monies at issue, in both opening and closing statements as the property of Hamilton Taft or Hamilton Taft cash flow;

2.

The government not to refer to those monies as "client monies" or "client funds" and not to state or imply that Hamilton Taft held those monies in trust;

3.

The government not to present evidence of any advice which Mr. Armstrong received from lawyers or other experts, to the extent that such advice was inconsistent with the "law of the case";

4.

The court to instruct the jury that monies, once delivered to Hamilton Taft, became the property of

19 20

21

22 23 24

25 26

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

10

000165. J

EXHIBITS to Section 2255 Reply - Page 78

.. Hamilton Taft;

1 2

5.

The court to instruct that Hamilton Taft was free to use its cash flow to cover its operating expense or to invest those monies for its own benefit and in anyway it wished;

6.

The court to instruct the jury that Hamilton Taft's sole duties to its clients were those duties stated contractually but that clients were free to sue for breach, if Hamilton Taft ever failed to live up to those duties.

3

4

5 6 7

8 9 10

Nothing in the language, logic, or holding of the vacated opinion in In re Hamilton Taft & Co. comes close to justifying such a gutting of the government's case.

11

The defendant's motion to characterize, as a matter of law,

12

the nature of the relationship between Hamilton Taft and the victim

13

clients, in the form of a pretrial ruling should not be granted.

14

The characterization has not been settled as a matter of law.

15

characterization, even if accepted as "debtor-creditor", does not

16

negate the presence of a fraudulent scheme or support in any way

17

the six conclusions cited above.

18

confuse

19

technicalities of the law.

20

II II II II II II II

21

22

23 24 25 26

the

jury,

J

The characterization would only

leaving them to wonder

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

The

about

the

illogical

11

000166

EXHIBITS to Section 2255 Reply - Page 79

•

1

III. Conclusion

2

For the foregoing reasons, the government respectfully

3

submits that the motion to dismiss be denied and that the Court

4

deny the request to make In re Hamilton Taft & Co. the law of the

5

case.

6

DATED:

November 5, 1996

7

Respectfully submitted, MICH~~J.

YAMAGUCHI

unite~ ta~~s i~~/rn:;,

. __

By~I{)~

8 9 10

RONALD D. SMETANA Special Assistant U.S. Attorney

11

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 GOVERNMENT'S OPPOSITION TO ARMSTRONG'S MOTION TO DISMISS AND/OR REQUEST FOR PRETRIAL INSTRUCTION

J

12

HOnlG1

EXHIBITS to Section 2255 Reply - Page 80

fD-302a

(R~v

11-15-83)

196A-SF-93255

b7C ~onlmuahon of FD-302

of

~- - - -

......1...-

• On

_-----=.-----.;____ 2/ B / 9 3

J

Page

_

2

_

She said that it was apparent to her within the first twenty-four hours while reviewing Hamilton Taft financial records that Hamilton Taft was in a cash flow crisis. She said it was then her job to look at investments and/or loans to determine the likelihood of these assets generating any income~ She was to insure that any future capital outflow was ureal investments". She found out that almost immediately after Maxpharma purchased Hamilton Taft from cigna corporation that Hamilton Taft client funds were wire transferred out of Hamilton Taft. These funds were in the form of notes and were booked at Hamilton Taft as investments. But she saw no evidence of an attempt to collect on these notes by Hamilton Taft. She said that some of the transactions were incredibly complicated. She said that she had frequent meetings concerning these notes with Hamilton Taft officers. She discovered that I I (PHD), Chief Financial Officer,l I PHO), Director of Operations, I 1President ~~~--~~~~(PHO), Comptroller, were the only Hamilton Taft off~cers a knew about the loans by Hamilton Taft which Were outstanding and uncollected. She further explained that she recalls ten to fourteen million dollars in loans had left Hamilton Taft with no payments returning to Hamilton Taft. She discussed these loans with I Ibut not with All of these loans were "brokered ll through the Maxpharma office in Dallas, Texas. She discovered that Maxpharma officers would telephoner at Hamilton Taft and instruct her to wire money to Ma~pharman

I

,

1

Dallas a9 d then

b7C

notes toL

a,~er

Jln

the fact.Maxpharma would then send the

San FranC1SCO.

She felt that the officers at Hamilton Taft were protective of~ oftenl IWQul~ accuse raiding the funds of Hamilton Taft.1 )was not very helpful in her audit. She felt that this was because he was the person who actually wire transferred the funds from Hamilton alIas. She understood the process being that (FNU) of Maxpharma in Dallas would o transfer un s an Iwould then instruct r---. . . . . .~o=-~wire the monies. I ~(PHO), a director, often got irate at her inquiries regarding Hamilton Taft loans. A day or two after she started working at Hamilton Taft she discovered

I

IOf

I

c:::

EXHIBITS to Section 2255 Reply - Page 81

FD-302u (Re.v 11-15-83)

196A-SP-93255

ContinuatIOn of FD-302 of

• On _ _2-:,./_8....:;/_9_ 3

_.....=~~~~~~!!!!!!!l!II

• PAgo _ _3_ _

a "funny" transaction where two to three million dollars of Hamilton Taft funds was wired to Dallas, Texas. She understood thatl ~were working on some deal to raise funds. She was told that these funds were supposedly to be used to "recapi talize" Hamilton Taft. I linstructed her that the details of the transaction was none of her business l but she believes that the funds went to either Amerimac Company in California or to Gulftex, a real estate business in Texas.

I

~said that from her examination of Hamilton Taft financ1ai records she discovered that all the funds sent out J7C

for these loans had to be dedicated Hamilton Taft client funds. lhad to know that Hamilton Taft client funds were being used to finance these investments. She understood thatl lactually assisted in the creation of the notes to Hamilton Taft. One of these loans in 1988 in the amount of approximately $200,000.00 was to a CONNIE CHIP ARMSTRONG, JR. business in Dallas, Texas by the name of Dresdner Corporation (PHD). She said that'

She said thatl

1 (PHO)

I

Sales Manager, and

1~------------l(PHO), Vice Presldent of dperations, at Hamilton

Taft were both concerned and upset at the news of the loans. These loans violated Hamilton Taft's written cash management policy which stated that Hamilton Taft can onJY invest client funds in safe overnight type of investments. I I said that she recalls that most of the notes for the 1988 loans were for a 90 or 180 day period. She stated that in or around March 1989 Iwas fired byl I resigned.

I

She said that Arthur Anderson C.P.A. firm withdrew from the Hamilton Taft audit a couple of days after they gave Hamilton Taft their appointment letter. At that point she said that management at Hamilton Taft felt that Hamilton Taft did not have enough interest money to pay Arthur Anderson. Therefore, Hamilton Taft did not receive any audited financial statements to give the increasingly concerned Hamilton Taft clients. EDS one of Hamilton Taft's largest clients was requesting audited financial statements.

I

'said that she started taking legal action on notes to Hamilton Taft. She was taking aggressive collection acti~she felt that she could have collected on the Amerimac'L----Jandl rates if not for the debtors

at the

EXHIBITS to Section 2255 Reply - Page 82

FD-30la (Rev 11-15-83)

196A-SF-93255

Conunuullon of FD-302 of

_~~~!!!!!!!!!!!~

,----

,

On _ _2-.;.1_8.....;1_9 _3

• Pngc:

_4_

the ARMSTRONG takeover of Hamilton Taft in March of 1989. She ~ and Amerimac notes totaled approximately $6 million dollars. She personally told ARMSTRONG at the Petit and Martin law offices about the notes outstanding and her collection efforts at Hamilton Taft. She told him that he should be able to collect on some of these loans. She said that he did not seem interested.

said that the I

b7C

She said that in March of 19891 I concluded that he was not able to recapitalize Hamilton Taft and that Hamilton Taft would have to file for Chapter Seven bankruptcy protection so he conceded Hamilton Taft to ARMSTRONG She recalls a $20 million dollar figure being used at Hamilton Taft around the time ARMSTRONG took control of Hamilton Taft. She said that the $20 million dollars represented the negative capital and the negative cash flow at Hamilton Taft. She said that she felt at that time that this much capital would be necessary to keep Hamilton Taft a viable company. The financial condition of Hamilton Taft was constantly being communicated to ARMSTRONG and his attorneys during the legal actions. 'said that she sat through all of the depositions during ARMSTRONG's legal action to gain control of Hamilton Taft. 4

I

She said that she understood that ARMSTRONG's plan for Hamilton Taft was to recapitalize Hamilton Taft by investing $20 million dollars, rehirel Ito satisfy Wells Fargo Bank and expand Hamilton Taft's customer base to infuse more revenue into Hamilton Taft.

EXHIBITS to Section 2255 Reply - Page 83

FD-302 (REV. 3-10-82)

-

1 -

FEDERAL BUREAU OF INVESTIGATION

2/18'/92

Date of transcription

On the afternoon of January 13, 1992, a conference was held at thelPffices gf Feldman. Waldman and Kline, bankruptcy counsel for. trustee in the bankruptcy of Hamilton Taft Corporation (HTC). The law firm's offices are located at 235 Montgomery street, suite 2700, San Francisco, California, 94104. Present at this meeting werel Esw1;re, representing Feldman, Waldman and Kline, at cetera. Mr . . CPA, t~~ accQuntant the bankruptcy trustee, and the trustee himsel~,L These individuals thereafter

1

I

fOr

I

provided the following information:

I

b7C

'stated that he has recently received certain

accounting reports from representatives of CHIP ARMSTRONG in Dallas, Te~as, which begin reporting on the period from November 1, 1990 through June 15, -1991. This accounting work was generated using the Quicken Software and chronicles CHIP ARMSTRONG's personal finances.

I ~ stated that in July, three reports became available to him. Wated that only copies CberkS were duplicated by per a restriction put on_ _ . and

Of!Som:

apparently agreed

y the

0

coun~~

L pub11C

for the frus ee

Mr. ARMSTRONG's representatives.

y

advised that the record and that, in

Quicken summary was in fact a addition, the law firm had filed a motion for conternpt·against CHIP ARMSTRONG for his having allegedly violated a temporary restraining order issued by the bankruptcy court.

I

I stated

that his preliminary report indicates

that approximately four million dollars of Hamilton Taft funds have been traced· directly to CHIP ARMSTRONG, that is, four million dollars of HTC funds have been traced to going directly to Mr. ARMSTRONG. I Istated that ARMSTRONG had or has five bank accounts. Any payment that was made to CHIP from either

Hamilton Taft or one of the subsidiaries controlled by ARMSTRONG are accounted for, that is, they are covered by explanations. These explanations are usually in the form of a note receivable or an account receivable notation. These entries to the books and records of Hamilton Taft or anyone of these subsidiaries

-.]ID Invesligationon

~I

by

~M

2/10/~:J

at

I

SA f,YNN HATCHER

Sa);} :P'];a1=lci~co,

Caloi.;fornil ile

11

J96A-SF-93255 Sub C

b7C

PKM la an

Dale dictated

I

2 11 0 192 ;

I

If This document conta.in~ neither recommendations nor conclusions of the FBI. It Is the property of the FBr and is loaned to your agtncy;

-

1\ and ils contents are not to be c1blrlbuted outside your aaency.

----------------'------'--_._-

... _-- ...

_---

EXHIBITS to Section 2255 Reply - Page 84

..

FD-302a (B:ev. 1l-lS-83)

f:>A-SF-93255

Con tlnua tion of FD-302 01

Sub C

-J

I

' On

2/10/92

, P age _~2",,---__

controlled by ARMSTRONG were to pay for clothing for Mr. ARMSTRONG or for a truck for his personal use. Succinctly stated, these documents provided a paper trail for a trloan" or "advance ll to ARMSTRONG to account for the payments to him.

I ~ndicated that an enormous portion of ARMSTRONG's standard of living was booked by the various comptrollers as advances to CHIP ARMSTRONG.

I

Istated that during the period March 20th through April 4th, 1991, CHIP ARMSTRONG liquidated three assets which were not in Hamilton Taft's name. The first asset to be liquidated was a helicopter, apparently owned and/or leased by Winthrup Corporation for 1.1 million dollars. The second asset and/or payment was a $700,000 payment to CHIP ARMSTRONG's criminal. lawyer in Dallas. Finally,1 lindicated that $300,000 went to Rem~~Companies wh~ch was possibly in turn repaid to a law firm of Long and Leavitt in San Francisco.

.

With

h:se~lt

b7C

to the helicopter transaction and

liquidation indicated l~l million dollars was transferred to W~nthrup on the same day and on the same day, CHIP ARMSTRONG wired transferred $700,000 to his Dallas based criminal lawyer,~ IWith respect to this $700,000 'wire transfer, Istated that $400,000 of the lawyers' fees were returned toJthe trUSjee~ Again, with respect to the helicopter transaction indicated that three million dollars had originally been wire transferred to another one of~Knights Bridge companies and then in turn to winthrup Realty. I I stated that ARMSTRONG has few sources of income other than the sale of. assets purchased with Hamilton Taft funds. Among the assets that ARMSTRONG purchased, apparently with Hamilton Taft funds, are two stadium boxes for the Dallas Cowboys football team and these apparently were purchased for $140,000 and $125,000, respectively. A third box is still owned by ARMSTRONG. Approximately 1.1 million to 1.3 million went to various lawyers. Seven hundred and thirty-five thousand dollars went to criminal lawyers and one hundred seventy-five thousand, two hundred thousand and eighty thousand dollars, respectively, went to civil attorneys.

---_... _-- - - - -

EXHIBITS to Section 2255 Reply - Page 85

FD-301a

(~cv.

11-15-83)

~5A-SF-93255 Sub C

b7C Continuation of FD-302 of

-J

I

·On

2/10/92

· Pagc_..lI3"'----

All records for Hamilton Taft and any of trmstrOnq/S

companies are currently domiciled in San Francisco.

~

indicated that some records are missing and those records are for the company known as Winthrup Realty and CHIP ARMSTRONG's personal financial records. Additionally,l ~ndicated that her law firm is in b7C possession of winthrup's ledgers· through May of 1991. b7D

------

.'

-------------"'----

---_.-_.--"-----

EXHIBITS to Section 2255 Reply - Page 86

"1-3028 (Rev. 11-15-83)

196A-SF-93255

-------- ,On cash account for that day.

, Pa llC _ _2_ _

4/15/91

If an overage, the money would go to

Hamilton Management for investing.

If short, he would ask

Hamilton Management to wt~re money into the account to cover checks written that day. _ lassumed all the trouble was started when ARMSTRONG instructed one of these guys to send money to somewhere else or he had the money from Kansas go to one of his companies in Dallas for investment. "No, I don't consider his ranch a real investment".

After the interviewing agents gavel the sUbpoena for HT records, I

la

copy of

'said "I have been down a

similar shopping list as yours. lI • He thought a chunk of client money was taken out and used for investments. Probably a verbal order by ARMSTRONG.

This money replaced later.

HT replaced

Federal Express money with Federal Express payments. HT did not use "Joe Blow's" money to pay Federal Express's taxes and penalties.

I

Every tax that is owed in last quarter has been paid.

Istated

is about 90 million short this quarter because the clients are not putting money into the company. 4 that

HT

""1n

b. ! ....

I lexpressed that everything the trustee is doing will help your investigation. IIHe's doing your work. I am concerned that you guys will come in here and take all the records away.. We will not see them for years." He had that happen before in another case dealing with meat inspectors getting kickbacks. I

Idiscussed he had worked for his family/s

company which had filed bankruptcy. He had successfully reorganized the company. He had went on to work for other

companies in trouble.

He decided to start consulting on his own.

That is when he answered the HT ad.

When questioned again about his contact with ARMSTRONG He said ARMSTRONG was planning to double the volume of business. There was a summary of the meeting minutes kept by a secretary but he was not sure which secretary. he explained most of his contact was in bUdget meetings.

When asked what was ARMSTRONG's long term plans I~--------~replied he did not know much about ARMSTRONG/s goals. "I've been trying to do what you guys are doing. If I I stated "I know a lot of peripheral facts, but not any detail". Idid say that ARMSTRONG went overseas to establish

I

EXHIBITS to Section 2255 Reply - Page 87

r::D-301a (Rev. 11-15-83)

196A-SF-93255

Continuation ofFD-302 of

~l...

...J----------' On

Hamilton gaft International

4/15/91

. Page

_3_

ae

d make SOme sorf of deal. Jsaw the bUdget that_ . prepared for ARMSTRONG. The bUdget indicated that some $50 million dollars of

I

capital was to be introduced back into HT this month and

eventually catch up all the delinquent taxes due by October of this year. b7C

I

Ibelieves what'

Istated in his written actions of the client response unit is a lie.

statement about the He was managin; tn~! unit.

r

_

The intent was not to mislead

clients. ~hO was the supervisor in that department weu d verIfy the unit's intent.

~

~

I Ilast contact with ARMSTRONG was last friday at the HT office in San Francisco. l Istated,IIWe all met

here. It; The trustee with three others and ARMSTRONG with his

attorneys. He explained that he was trying to salvage the business. He had another meeting later with employees. A sort of pep talk asking them not to believe the newspapers.

I

Iproduced a list of all current employees to

the interviewing agents upon the agents request.

Since the

produced copy was missing the last digit of the employee's telephone numbers another copy was sent vis facsimile to Federal Bureau of Investigation office later the same day.

EXHIBITS to Section 2255 Reply - Page 88

Memorandum

To

SAC, San Francisco ((Q(,J}-SF-Cf1}S"5)(P) DQt~

From

s~

Subject

I

3/8/92

b7C

Connie Chip Armstrong, et al

dba, Hamilton Taft and Company, et al San Francisco, Ca. FBW (B); Mail Fraud, Bankruptcy Fraud, OO:SF

712

(A);

On the afternoon of March 5, 1992 a meeting was held at the office of AUSA Michael Yamaguchi to discuss prosecru~t~i~o_n __ strategy in the above referenced matter. Present were~I====~~==~= ESQ. representing the bankruptcy trustee. Also present was Mr. Ronald Smetana, Deputy Attorney General, Major Fraud unit of the california state Attorney General's office. SA's will Hatcher and re resented the FBI.

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EXHIBITS to Section ~ b7C2255 I Reply - Page 89 /C) lL1l

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On February 27, 1992 the accountant for the trustee finished his second interim report for the bankruptcy which includes among other thing a tracing of over $4,000,000 directly into the pockets of Armstrong himself. The report cites payments by Armstrong using Hamilton Taft funds to a stripper' and the use of over $225,000 to purchase Dallas Cowboy "skyboxes lt • The next investigative step is to apply for an ex parte order for Armstrong's personal tax returns for 1988, 1989, and 1990. Also several interviews of former Armstrong associates will be conducted in Texas. Finally due to the continuing effort being expended by SA Will Hatcher and his anticipated involvement in this matter it is requested that he be designated co-case agent for the remainder of the investigation of this case.

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EXHIBITS to Section 2255 Reply - Page 90