Amended 2255 Motion 1-4

1

2 3 4

5 6

7

BILL BOYD Bar Card No. 02780000 bi [email protected] RUSS A. BAI(ER Bar Card No. 24045440 [email protected]

BOYD-VEIGEL, P.C. P. O. Box I 179 McKinney, Texas 75070 Telephone: 972/562-9700 Telecopier: 972/562-9600

8

Attonleys Pro hac vice 9

10

UNITED STATES DISTRICT COURT

11

NORTHERN DISTRICT OF CALIFORNIA 12 13

14

UNITED STATES OF AMERICA VS.

15

CONNIE C. ARMSTRONG, JR.

§ § § § §

Criminal No. 94-0276-CAL

Amended l\tlotion Pursuant to 28 U.S.C. 2255 to Vacate, Set Aside or Correct Judgment and Sentence

16 17 18

COll1es now, Defendant, Connie C. Annstrong, Jr., in the above l1unlbered and styled cause

19

of action and presents this Motion pursuant to 28 U.S.C. 2255 attacking thejudgement ofcol1viction

20

and sentence ilnposed by this court.

21 22 23 24

25

Name: Cmillie C. Annstrong, Jr. Prison NUlnber: 88762-011 Place of confinement: Seagoville Federal Prison Canlp Court Name: United States District Court Northen District of California Case No. 94-0276-CAL Sentencing Judge: Judge Charles A. Legge United States v. Connie C. Annstrong, Jr.

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 1

1

2

MOTION 1.

Name and location of court which entered judgment of conviction under attack:

3

4 5 6

U.s. District Court California Northern District (San Francisco)

2.

Date of jUdgment of conviction:

3.

Length of sentence:

4.

Nature of offenses involved (all counts):

7

August 24, 2000

108 Months

18:23 14 & 2 Stolen Property & Aiding and Abetting (1) 18:23 14 & 2 Stolen Property & Aiding and Abetting (2) 18:2314 Stolen Property (3) 18: 1343 & 2 Wire Fraud & Aiding and Abetting (4-5) 18:1343 Wire Fraud (6) ] 8: 1343 & 2 Wire Fraud & Aiding and Abetting (7) 18: 1343 & 2 Wire Fraud & Aiding and Abetting (8-10) 18:]343 Wire Fraud (11-14) 18: 1343 Wire Fraud (19-2 1)

8 9

10 11 12 13

What was your plea:

5. 14

(a) Not guilty

ex )

15

(b) Guilty ( ) 16

(c) Nolo contendere () 17

If you entered a guilty plea to one count or indictment, and a not guilty plea to 18

another count or indictment, give details:

19 20

6.

lUnd of trial (Check one) (a) .T ury ( x) (b) Judge only ( )

21 22

7.

Did you testify at the trial?

23

Yes(x) No()

24 25

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45

Page 2

1

8.

2 3

Did you appeal from the judgment of conviction? Yes (x) No ( )

9.

4

If you did appeal, answer the following: (a) (b) (c)

5

u.s. Court of Appeals for the Ninth Circuit

Name of court: Result: Date of Result:

Lower Court's Decision Affinned 4/15/2002

6

7

10.

Other than a direct appeal from the judgment of conviction and sentence have you previously filed any petitions, applications or motions \vith respect to this judgment in any federal court? Yes (x) No ( )

11.

If your answer to 10 was "YES" give the following information:

8 9

10 11

(a)

(1) Name of court:

12

United States Court of Appeals for the 9 1h District

(2) Nature of proceeding: Motion for Rehearing after 9 th Circuit affinnation of conviction on direct appeal.

13 14

(3) Grounds raised:

15

San1e as direct appeal

17

(4) Did you receive an evidentiary hearing on your petition, application or motion? Yes() No(x)

18

(5) Result:

16

19 20

21 22

Motion for Rehearing denied and mandate issued in 2003, but nlandate was recalled and the order denying the motion for reheaJing was withdrawn due to lack ofnotice to defendant by the 9th Circuit. The order denying defendant's motion for rehearing was denied and nlandate re-issued on April 22, 2008. Therefore, the one year Statute of Lin1itations to file this n10tion did not begin tolling until April 22, 2008. See exhibit #] attached to this motion.

23

(6) Date of result:

April 22, 2008

24

(b) 25

As to any second petition, application or nlotion giye the same infornlation: Not Applicable

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 3

1 2

(c)

As to any third petition, application or motion, give the same information: Not Applicable

(d)

Did you appeal to an appeJiate federal court havingjurisdiction the result of action taken on any petition, application or motion?

3

4

5

(1) First petition, etc. Yes () No (x)

6 7

(e)

8

9

10

lfyOlJ did not appeal from the adverse action on any petition, application or motion, state briefly why you did not: Continuation of a direct appeal on the nlerits or a Motion pursuant to 28 U.S.C. 2255 would be the proper remedy.

11

12. 12 13

14

State concisely every ground on which you claim that you are being held unla\vfu))y. Summarize briefly the facts supporting each ground. If necessary, you may attach pages stating additional grounds and facts supporting same.

A. Ground One:

15

Defendanfs prosecution and subsequent conviction were unconstitutional due to 16

proseclItorial nlisconduct caused by political influence which caused the Petitioner to be deprived 17

of his right to a fair trial, his ability to 1110unt a defense to the charges against hinl, and his light to 18

effective assistance of counsel at trial. 19 20

Supporting Facts: 21 22

.Introduction: Connie Anllstrong, Jr. received the following infonnation six years after his conviction in

23 24

25

this case. As a result, these issues either could not have been properly raised on direct appeal or properly presented on direct appeal. Mr. Anl1strong's only course of action at this stage in the proceedings is a Motion to Set Aside and Vacate Judgment pursuant to 28 U.S.C. 2255. AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45

Page 4

1

In an effort to ren10ve the defendant as CEO and dismantle Mr. Amlstrong's C0111pany,

2

vmious plivate and political sources nlislead and pressured the govenlnlent to prosecute Mr.

3

Annstrong even though the govenmlent had already investigated the case and concluded no

4

violations of federal law had been cOlnmitted. The new evidence received by Mr. Annstrong taken

5 6 7

B

in conjunction with the infomlation known at the tinle of trial it is clear that Mr. Armstrong did not con1111it any crinle because he lacked the requisite "intent to defraud" and none of Hanlilton Taft's clients suffered any financial loss at the hands of Mr. Ann strong. In fact, it is clear from the conclusion ofthe bankruptcy proceedings against Hamilton Taft that no client suffered financial loss

9

due to their involvement with HaInilton Taft. Ho\vever, any perceived losses to clients at the time 10

crinlinal charges were pending against Mr. Annstrong were losses caused by Hamilton Taft's clients 11

thenlselves. It is also clear the government prosecuted Mr. Armstrong knowing he had not violated 12

any federal climinaJ ]a\vs and only did so due to pressure created by Hamilton Taft clients, enoneous 13

media publications concenling Hanlilton Taft, and certain politicians such as Howard Baker, Nancy 14

Pelosi, Barbara Boxer, and then seated deputy director of the FBI, L.A. Potts. :i5

The simple fact of the matter is the issues surrounding Hamilton Taft's use of its client's 16 17

18 19

20

funds for whatever purpose was a civil matter) not a criminal matter.

Because the govemnlen1

rushed the prosecution ofMr. Anl1strong, rather than allow these issues to be resolved in civil court, the government and the court confused the issues for the jury and ultinlately ended up successfully convicting an innocent man.

21

COlmie Annstrong, Jr. \vas originally indicted of 21 counts of fraud on, June 27, 1994, In

22

relation to his actions as the CEO of a con1pany called Hanlilton Taft (hereinafter collectively

23

referred to as HT). Although~ the gIn Circuit Court of Appeals ultimately vacated Mr. Annstrong s

24

conviction on several counts, he was sentenced to 108 n10nths in prison and some 62 111111ion dollars

25

in resti tution. The restitution allegedly owed by Mr. Annstrong was later refomled to one 111illion

1

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 5

1

dollars.

2

HT was a Hfor profit" tax services corporation. In other words, HT's operations centered

3

around paying its clients' state, local, and federal payroll taxes. HT also prepared the conesponding

4

tax returns and quarterly reports for its clients as well. HT executed contracts with its clients which

5 6 7

required the clients to deposit the amount of money owed to the taxing authority to HT before the due date for the taxes. In return, Hamilton Taft would prepare the tax statement and pay the client's taxes. Hamilton Taft did not charge a fee for its services. However, per the HT/c1ient contract, HT

8

was authorized to use client monies for its benefit before the taxes were ultimately paid to the 9

relevant taxing authority. Also according to the contacts between HT and its clients, ifHT failed to 10

pay the taxes in a timely fashion, HT would be responsible for ALL penalties and interest accrued 11

from any late payment of the taxes owed. 12

The government alleged that Mr. Annstrong invested in unauthorized long telln investnlents 13

and personal expenditures rather than liquid short term lllvestnlents.

See exhibit #2.

The

14

govel1llnent's contention that Mr. Annstrong had defrauded its clients centered around their position 15

that these longer tenn investments caused HT to either pay client taxes late or not at all. Id. 16 17 18 19 20

21

According to the government, HT's failure to pay clients' payroll laxes on time created a deficit which mnounted to some 90 million dollars. ld. The claim was Mr. Annstrong was using HT to .' run a '"ponzi" schelne where he would use ne\v client monies to pay old client tax delinquencies, i.e., fill the hole, thereby creating an ever increasing deficit for HI. Jd. At trial, the govemnlent relied on several oEBT's clients, such as Federal Express, Scott Paper, and R.R. Donnely, as the alleged

ld. The govenl111ellt claims these client

22

victims to the fraud perpetrated by Mr. Arnlstrong.

23

C0111panies lost nlillions of dollars at the hands ofMr. Annstrong's fraud. Id.

24

It is noteworthy that HT was embroiled in the civil bankruptcy proceeding \vhile Mr.

25

Amlstrong's crinlinal proceeding was pending. This involuntary bankruptcy action was initiated AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 6

1

before Mr. Annstrong was indicted and did not conclude until after Mr. Armstrong was convicted. l

2

Rather than waiting for all of the evidence to come out and all of the 1110ney to be accounted for

3

pursuant to the bankruptcy proceeding, the govenmlent chose to prosecute Mr. Amlstrong with

4

inCOlnplete, and inaccurate evidence because they Imew securing a conviction against Annstrong

5 6 7

8

would be impossible once an accurate accounting of HT assets was completed. Subsequent to Mr. Annstrong's conviction, new evidence has been discovered. It is clear the government was aware of the existence of this evidence at the time of trial and deliberately withheld this infonnation from Amlstrong. This new--evidence proves Mr. Armstrong's prosecution

9

was based on prosecutorial misconduct, corporate malfeasance, and undue political influence. 10

Additionally, the alleged elTors at trial, i.e., late disclosure of Brady 11laterial, the court's 11

unwillingJless to grant a continuance to review the material, and the court's unwillingness to properly 12

instnlct the jury the laws oftrust and Mr. Armstrong's theory ofdefense become even nlore hamlfuI 13

in light of the new evidence. In order to adequately explain Mr. Amlstrong's current position, it is 14

important to understand the circumstances in which Mr. Annstrong acquired HT and exactly ho\v 15

HT dealt with its clients on a contractual basis. Much of the ne\v doculnentation that is in Mr. 16 17 18

Anl1strong's possession will be referenced throughout this lnemorandum. The docu1l1ents referenced

,\vill be attached as exhibits to this men10randum.

19 20

21

ARMSTRONG'S HISTORY: In 1986 Am1strong started Dresdner Enterprises, a Dallas-based corporation. (RT 492.)

22

lThis fact is relevant because, at trial, the government relied on a preliminary, inaccurate bankruptcy trustee report that stated HT only had 24 some 5 million dollars in assets. The government's claimed this amount was far less than HT would have needed to cover all of its tax liability. See 25 exhibit #22A. 23

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 7

1

Dresdner was an acquisition conlpany which Annstrong used to buy undervalued prope11ies in an

2

effort to tum them into to profitable Enlerplises. (RT 4292). Annstrong's experience in this regard

3

enabled him to recognized HT as troubled, yet undervalued company that could be turned into a

4

profitable enterprise.

5 6

THE ACQUISITION OF HAMILTON TAFT BY ARMSTRONG:

""7 I

HTwas founded in 1979. HT services have always centered around providing its clients with 8

payroll tax preparation and payment services under the same general structure as it did when Mr.

9

Annstrong was the CEO of HT. In other words, HT has ALWAYS entered into contractual 10

relationships with its clients wherein clients would deposit money for its taxes to HT and HT in tum 11

was allowed to invest the monies for its own benefit until the clienfs taxes were ultimately paid. 12

H is important to note that, this was not a novel idea created by Mr. Annstrong and this type of 13

business had been conducted by HT since its inception in 1979. 14

In August of 1984 HT was sold to the Cigna Corporation. Then, on February 28, 1988 15

Maxphanna, a publicly traded corporation, purchased HT from Cigna. In late 1988, Mr. Am1strong, 16 17 18

19 20

a shareholder of the Maxphanna corporation, found out that HT was 1n financial difficulty. (RT 3487). Armstrong learned that Maxpbarma had bOlTowed money from HT and was having difficulty paying it back because Maxphanna had not collateralized any ofthe loans it obtained [raIn HT. (RT 4323, 4349). Since HT's business was comprised only of its paYroll tax services to its clients, the

21

only way Maxphanna could have bOlTo\ved these monies was ifHT lent Maxphanl1a nlonies frOlll

22

HT's account. When Maxpharma took out uncollaterlized loans fronl HT these loans caused a capital deficit 0[20 million dollars. (RT 3297,3298.) However, at the time HT was processing and

24

paying over 3 billion dollars in payroll taxes for its clients and therefore had no problenls covering

2S

its obligation to pay client taxes. When Armstrong purchased HT, Amlstrong's concenl was ifHT AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 8

1

was automatically shut down there would be 18 million in taxes that could not be paid because the

2

loans to Maxpharma were not collateralized. Unknown to Armstrong at the time ofhis trial, in 1988

3

the FBI, under the direction ofMike Yamaguchi, investigated HT and Maxpharma in regard to these

4

loans and the use of HI funds transferred to HT under contractual agreenlent by the clients and

5 6

detem1ined there had been no violation of federal laws. See exhibit #3. It was not until six years after Mr. Annstrong was convicted and in prison that he began receiving this infomlation.

7

8

In January 1989, Annstrong retained Dallas law firm of Godwin, Carlton and Maxwell to prosecute a shareholder's derivative suit against Maxphamla. (RT 213-214.) The suit alleged the

9

Maxphanna had borrowed at least 14 million dollars in unsecured loans fr0111 HI (RT 3597, 4349) 10

and, as a result, was attenlpting to sell offthe financially unstable HT \vithout shareholder approval. 11

In late March 1989, the majority shareholder of Maxpharrna, John Roberts, offered to give 12

Am1strong complete ownership ofRT if Armstrong agreed to take over the Maxphanna loans fron1 13

HT. Annstrong agreed and became the sole owner and CEO of HI. (RT 226-229, 4352.)

See

14

exhibit #10. 15

16 17

18

HAMILTON TAFT'S INVESTMENT PROTOCOL AND CORRESPONDING CLIENT CONTRACTS: When Annstrong took control ofHT the deficit, known as the "hole," was estitnated at 20

19 20

21

111111io11 dollars. (RT A526, A906, 3600, 3296,4009.) This deficit represents the amount of taxes which could not have been paid ifHT had immediately been shut down. When Anl1strong took over

22

HT. he realized the deficit had to be filled in order for HT to beC0111e secured. (RT 3931. 3957-

23

3958.) Annstrong believed he could tum HT into a profitable C0l11pany (RT 3127.4353) but knew

24

the only way to accomplish this was to collateralize the deficit with long tenll investn1ents that would

25

eventually cover the deficit through a return on said investnlents. (RT 3601,3968.) AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45

Page 9

1

Amlstrong sought the advice of lawyers at Godwin, Carlton and Maxwell, Petit and Martin,

2

and an accounting opinion from Pete Marwick with respect to how HT's cash flow from clients

3

could be legally invested (RT 251,299,370). Tom Rosen, a transaction lawyer at Godwin, Carlton

4

and Maxwell advised Amlstrong that once a client company turned over its payroll tax funds to H T

5 6

7

8

a debtor/creditor relationship existed between HT and the client company. (RT 373.) Rosen nrrther advised Armstrong that he could use the tax funds deposited with HI by client companies for investments other than short-tenn overnight paper. (RT 299,425,427,455.) As such, a typical HT client contract required clients to deposit tax funds with HT in a tinlely fashion as they became due.

9

See exhibit #3. The contract also stated that once tl1e money was received by HI it could be used 10

for the benefit ofHT. See Id. Ho\vever, the contracts then went on to say HT would be required to 11

pay the client's payroll taxes and sublnit the proper reports to the taxing agency and that HI was 12

responsible for paying any penalties and interest for late paYment of the client's taxes. See Id. 13

Nowhere, in the contracts did it limit HI to short tenn investnlents or any particular type of 14

investment at all for that matter. See Id. The contracts that HT presented to and HT's client's signed 15

were sinlple and straightforward. 16 17 18 19 20

This evidence alone shows Mr. Arnlstrong lacked the requisite intent to defraud in this case, and the Court should have granted an instructed verdict.because the evidence was legally insuffici ent to support a conviction. However, based on the new evidence in Mr. Alll1strong's possession it becOllles clear the San Francisco DepartI11ent of Justice did not think Mr. Armstrong violated allY

21

federalla\vs and only prosecuted him in the first place due to intense pressure from Howard Baker,

22

Nancy Pelosi, Barbara Boxer, the director of the FBI, L.A. Potts, and a few ofHT's clients such as

23

Federal Express. This political parties involved also facilitated enoneous national and intenlational

24

llledia coverage. This infomlation, in conjunction with trial

25

evidence in the case was legally insufficient to support a conviction in this case.

COUl1

error warrants a finding that the

AMENDED MOTION PURSU~~T TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 10

A1111strong

1

maintains that at the very least a new trial is warranted.

2

3

THE DEMISE OF HAMILTON TAFT AND CONNIE ARMSTRONG CAUSED BY

4

FEDERAL EXPRESS AND IMPROPER POLITICAL INFLUENCE:

5 6

7

In July 1990, Steve Solodoffwas hired as controller for Hamilton Taft. (RTI024, 4075.) Solodoffs employment at HT was temlinated as a result ofhis cocaine use. On Decelnber 24, 1990 and after his tennination from HT, Solodoffapproached the Federal Bureau oflnvestigation and the

8

San Francisco division ofthe Internal Revenue Service by filing a cOlnplaint alleging Mr. Annstrong 9

and HT were improperly diverting client monies. Documents reveal that Mike Ymnaguchi had 10

already investigated HT for this same claim in 1988.

See exhibit #4.

According to FBI

11

111emorandums, Solodoffwas told there was not enough evidence to support his claim that HT was 12

illegally diverting client monies. See exhibit #4. The FBI also told SoIodoffthe FBI had concerns 13

that significant liability existed if the govemn1ent caused the downfall of a private corporation by 14

ll1aking an overt investigation of the company without enough evidence. See exhibit #4. The FBI 15 16 17 18 19

was worried that if an unwarranted investigation against HT was made public causing HT clients to cease doing business with the company, the government would ultimately be liable for the downfall of HT. This was made clear to Mr. Solodoff. As explained above, HT was started in 1979 and then purchased by Cigna in 1984. In

20

January of 1988, Cigna sold HT to Maxphanna. See exhibit #5. The sell to Maxpham1u was

21

accompJished by instructing HT to transfer five n1illion dollars to Howard Weil, a brokerage house

22

in Ne\v Orleans, so that a securities transaction known as a ·'reverse repo" could be done. 2 See

23

exhibit #6. In this transaction with Howard Weil, HT transferred five ll1iIlion dollars to Howard

24

2This type of transaction is done by converting cash into United States 25 treasuries and borrowing up to 95% against the value of the treasuries. AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 11

1

Wei] for the purchase ofU.S. treasuries and then borrowed 4.5 million dollars against said treasuries

2

which \vas then transferred to Maxphanna pursuant to a loan agreement between HI and

3

Maxphanna. See exhibit #6. Maxphanna then paid Cigna for the purchase ofBT. See exhibit #5

4

and #6.

5 6

7

8

After the acquisition ofHT, Maxphanna began making loans to its own corporate officers and outside persons who were acquainted with Maxphamla. See exhibit #5. These loans were 111ade using HT funds and amounted to approxin1ately 14 million dollars. See exhibit #7. These loans caused employees of HT to contact the FBI in 1988 and file a complaint that HT tax funds were

9

being used to fund unsecured loans. See exhibit #4. The contention in the cOlnplaint was that this 10

was improper because HT tax funds were qualified as trust monies. See exhibit #4. 11

In response to these cOlnpJaints, the U.S. Department of Justice began an investigation. See 12

exhibit #4 and #8.

AUSA~ Mike Yamaguchi,

was in charge of this investigation. See exhibit #4 and

13

#8. Prior to working with US Attorney's Office, AUSA Yamaguchi worked in the Pete Marwick 14

finn 's tax division. See exhibit #9. Naturally, the 1988 investigation of HT was well within 15

Yanlaguchi's area of expertise. On September 23, 1988, a letter addressing this investigation stated 16

17 18 19 20

that AUSA Yatnaguchi made a detennination that there was insufficient evidence to support the contention that any vioJation of federal law had occurred-with respect to Maxphanl1a and HT. See exhibit #8. Based on Yamaguchi's opinion in the matter, the Department of Justice closed the investigation (see botton1 of letter). See exhibit #8.

21

On February 8, 1991, Richard Held sent US Attonley McGiven a letter asking for a

22

prosecution opinion as to wl1ether a violation of federal law had taken place with respect to the new

23

clainls against HT because the US Att0111ey's Office had already decided that no violation existed

24

on the exact sanle issue back in 1988. See exhibit #4. See also exhibit #11. AUSA Ya111aguchi was

25

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 12

1

copied on this letter. See Id. This letter goes into great detail regarding what AUSA Ymnagllchi

2

discovered during his 1988 investigation. This letter describes all the concerns, the Howard Weil

3

transaction, the loans that were made between Maxphanna and HI for the purchase of HT fi'om

4

Cigna, including relevant financial statements. See exhibit #4 and #5. See also exhibit # 13. After

5 6 7 8

discussing all ofthese things in detail, the Department ofJustice again enlphasizes the US Attorney's Office lacked the evidence to support a violation of federal law. See exhibit #4. In addition to these two letters, there is also a March 8, 1991 memo, which is discussed in detail below, stating repeatedly there is too much potential liability associated with an overt investigation against HT

9

because the government could be accused of wrongfully initiating the downfall ofHT. See exhibit 10

#12. 11

The March 8, 1991 lnemo di scussed events that had taken place since February 13, 1991. 12

The nlemo also mentions on numerous occasions the concern about the potential liability to the 13

govemnlent if any unfounded, overt investigation against HT were l11ade public. See exhibit #12. 14

The memo also goes onto discuss the fact that there are no victilllS and reiterates the need for a 15

victim be fore any investi gation sho uId be stated against HT. See exhibi t # 12. On Febnlary 12, I99] , 16 17

18 19 20

21

a representative of Congresswomen Nancy Pelosi and Barbara Boxer provided the name of an investigative reporter to an un-named contact 3 so that information regarding HT could be forwarded to the ll1edia. See exhibit # 12. On February 12,1991, Special Agent PKM and an agent frOlTI the IRS CTD receive calls froll1 an attorney at the Department of Justice in Washington, D.C. inquiring as to any FBI and/or IRS

22

connection \vith Hamilton Taft. See exhibit#12. On February] 3,1991, Special AgentPKM meets

23

with Solodoff after the Wall Street Journal inquires and was ren1inded abollt the lisle of the

24

3The contact is considered un-named because the government removed the 25 person's name from the memo before Mr. Armstrong received it. AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 13

1

government being liable for any damage caused to HT due to an overt investigation against the

2

company. Id. Special Agent PKM also explained to Solodoff that there was no crin1e on the part

3

of HT since there were no victims. Id.

4

5 6 7 8

On March 6, 1991, Special Agent PI<M received a call from Special Agent Swain with the

TRS CID. Swain reported to PKM that he had been contacted by Ralph King, investigative reporter for the Wall Street Journal, to confirm the IRS was conducting an investigation into HT. rd. Also, on March 6, 1991, agent PKM received a written telephone message from King. At SaIne point on the 6 th , King connects with PI<M and asks questions about a possible FBI investigation ofHT. Id.

9

PI<M responded as protocol dictated that HHe could neither confilTI1 nor deny any infonllation 10

regarding HT", and Ralph IGng was

~'perturbed by

the answer." See Jd.

11

Special Agent PKM was then contacted by a representative of Sun Microsystenls. The Sun 12

representative reports that he was contacted by Solodoff and an attonley advising that Sun 13

Microsystems and numerous other HT clients were the victilTIS of fraud perpetrated by HT. Id. On 14

March 8, 1991, 20-40 alleged victims ofHT, including Federal Express, n1eet with Solodoff at the 15

16 17

18 19 20

offices of Sun Microsystems to discuss the matter. Id.; CRT 2449; 2450, 2840.) At this meeting, Solodoffgave lhe representatives ofthe alleged HT victim cmnpanies a printed handout that clainled Anl1strong was operating a Ponzi schen1e, "stealing" the clierHs' tax funds, and planned to run Hsouth of the boarder." (RT 4076-4081; 4113, 4120.) Two days later these clients not only ceased fUlure paynlents to HT but also began withdrawing already deposited funds from HT. (RT 3196.) These

21

clients did nol contact HT to inform HT they were stopping payn1ent or \vhy they \vere stopping

22

paynlents. See exhibit #3.

23

Five days after this 111eeting with Solodoff, on March 13, 1991, Federal Express files a civil

24

lawsuit against HT in Federal Court for the Northern District ofCalifOlll1a. See exhibit #14. Federal

25 AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 14

1

Express requested a temporary restraining order to freeze HT assets which was denied until an

2

evidentiary hearing can be held. See exhibit #14. The judge schedules an evidentiary hearing for

3

August 1991. Rather than having the evidentiary hearing to determine ifthere was enough evidence

4

supporting HT's alleged fraud on its clients to warrant freezing ofHT assets, Federal Express along

5 6 7

with Stanford University Hospital and Stanford University, filed a petition for involuntary bankruptcy on March 14, 1991. See exhibit #15. Meanwhile,just nine days after contacting the IRS and FBI seeking a story, Ralph King and

8

the Wall Street Journal published and unfavorable and erroneous front page article detailing how 9

Annstrong had defrauded and stolen money from HT clients. See exhibit #16. This article reports 10

An11strong's alleged scheme to defraud HT clients for 100 million dollars as fact without any 11

evidence other than hearsay and conjecture and before any evidence has been heard by the 12

Banluuptcy court.

The Wall Street Journal article is promptly picked up by other 111edia outlets

13

across the

country~

including the San Francisco press corp. On March 17, 1991, in response to this

14

media frenzy, politlcal pressure fron1 Baker, Pelosi and Boxer, and a fe\v angry HT clients (who were 15

falsely infoffiled), the FBI launches a fonnal investlgation of HT and Connie Annstrong. 4 See 16 17

18 19

exhibit # 17.

It is noteworthy, this investigation was launched before any banla-uptcy court

proceeding had taken place andjust nine days after the March 8, 1991 FBI memo was issued stating there was insufficient evidence to support a crin1e, there were no victims, and the government could

20 21

4An investigation which consi sted mainly of collecting incomplete 23 informat ion from the bankruptcy proceeding and placing a wire on one of Armstrong's long time assistants in an effort to get a confess ion from 24 Armstrong. Incidentally, some 70 hours of "confession-less n and, therefore, exculpatory, taped conversations between Armstrong and this assistant were 25 not disclosed by the government until the middle of trial.

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 15

1

be exposed to significant liability if an overt investigation caused the demise ofHT. s See exhibit

2

#12.

3

On March 25, 1991, without an evidentiary hearing, HT is placed into banlu1.1ptcy, a lrustee

4

is appointed and Mr. Armstrong is removed as CEO of HT. See exhibit # 18. On April 2, 1991,

5

6

Trustees files a motion for an inlmediate temporary restraining order seeking to freeze HT assets in bankruptcy court. The nlotion is granted. 6 See exhibit #19.

7 8

On April 3, 1991, the Deputy Director of the FBI, L.A. Potts, sends a letter addressed to

"Mr. Baker" detailing the actions of the Department of Justice's actions and widespread media

9

coverage in relation to HT and Connie Annstrong, Jr.. See exhibit #20. "Mr. Baker" is fonner 10

Senator Howard Baker, and Chief of Staff for President Reagan, and a melnber of the Federal 11

Express board of directors. Also, noteworthy, this letter was also sent to the representatives at the 12

offices of Nancy Pelosi and Barbara Boxer. 13

When the foregoing docUlnents are taken into account in conjunction with the facl thal the 14

FBI concluded HT had violated no federal laws for its actions in 1988 (and even noted as

11111Ch

in

15

1991), it is clear the FBI began an overt investigation and sought to indict Mr. Armstrong based on 16

17 18

no new evidence all.

Rather, the FBI investigation was started due to the pressure put

OIl

government by Federal Express board member, Howard Balcer and two nlelnbers of Congress, and

19

SIt should also be noted the IRS declined to join in any prosecution of Mr. Armstrong, presumably because the IRS did not believe Mr. Armstrong 210r HT had committed any IRS violations. See exhibit #. 20

On December 31, 1991, the bankruptcy trustee issues a report stating that HT's assets were valued at roughly five million dollars, not nearly 23 enough to cover the alleged 90 million dollar "hole" created by Armstrong. See 12/31/91 trustee report, exhibit #. The government relied heavily on 24 this report during the criminal proceedings against Armstrong. As it turns out, this report was inaccurate as it was issued before the bankruptcy 25 proceedings were concluded. 22

the

6

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 16

1

the unfavorable, erroneous Wall Street Journal front page article which nlade national and

2

international headlines. Clearly, the FBI was never inclined to investigate Anllstrong or HI until

3

these events created a false impression that Annstrong \vas defrauding its clients, an impression the

4

media and HI's ll1isinfonned clients immediately ran with.

5 6 7

8

Filing a petition that forced HI into involuntary bankruptcy gave Federal Express, Stanford University and other HI clients a motive to pressure the FBI and the Department of Justice to seek criminal charges against Armstrong.

Placing HI into involuntary bankruptcy and freezing HT

assets, Federal Express, et a1., caused the downfall of a company and potentially caused many HT

9

clients to potentially incur Inillions in tax liabilities that they would not have incurred but for Federal 10

Express's actions. At the time, HT was set to process nine billion dollars in payroll taxes for its 11

clients in 1991. 7 With that kind of cash flow, HT was a healthy company regardless afany paYroll 12

taxes paid at the end of the quarter due to the purchase oflong tenl1 investments. IfFederaJ Express 13

and angry HI clients ended up forcing a seven billion dollar cOInpany into involuntary bankruptcy 14

by a filing that \vas made in error or in bad faith it would expose the petitioners to enonnous 15

liability.!! Indeed, a seven billion dollar liability would be tough for any company La withstand, even 16 17 18

a company as large as Federal Express. Although the governnlent's position before the Wall Street Joumal article and the involuntary

19

7In 1990, HT processed nearly seven billion in payroll as true, the government's assertion that this Ponzi scheme 20 created a 100 million dollar deficit in the company, HT was financial trouble or a candidate for involuntary bankruptcy 21 only amounted to less than 1% of HT's annual cash flow.

taxes. Taking of Armstrong's clearly not in as the deficit

22 23 24 25

Since the time of Armstrong's conviction and the bankruptcy proceedings has concluded and the rest of the facts have unfolded, Federal Express may still be liable to Armstrong for the demise of HT. Indeed, the government may be liable to Armstrong for a 1983 ci vi 1 rights violation for a malicious, unfounded prosecution in a case that was civil in nature, not criminal because there were never any "victims n to begin with. AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45

Page 17

1

banluuptcy proceedings was that there was no cnn1e on the part of Annstrong because there were

2

not victims (See exhibit #12), Federal Express, et a1. conveniently provided the govenlment with

3

several victinls. HI had withholding tax payments for a small percentage of its clients, however,

4

until HT was placed into involuntary bankruptcy all payroll taxes, including penalties had been paid

5 6

7 8

by HT for prior quarters. See exhibit #2]. However, by placing HT i11to involuntary bankruptcy and freezing its assets on March 25,1991, before the paj'lnen1s and penalties were due on APli115, 1991 for the quarter ending on March 31, 1991, Federal Express, et a1. prevented HT from paying its client's payroll taxes for the pI quarter of 1991.

In other words, HT's own clients caused

9

themselves to be the "victims" the government did not have prior to the bankruptcy.

Federal

10

Express, et a1. were responsible for their own losses, not HT. Although too late, Federal Express 11

surely recognized that it should have consulted directly with Annstrong and HT to better understand 12

what was going on before placing the company into involuntary bankruptcy. Ultilnately) the only 13

way for Federal Express to ensure it would not incur any liability for the del11ise of HT was to 14

pressure the government to pursue criminal charges against Armstrong. 15

On June 27, 1994, the governlnent secured an indictment against Connie Annstrong, Jr. for 16 17 18 19 20 21 22

21 counts of fraud. Mr. Annstrong plead not guilty and his trial by jury began in December 1996 and concluded on February 26, 1997. Mr. Annstrong was convicted on all 21 counts (although the conviction on several counts was later vacated by the 9 th Circuit Court of Appeals) and sentenced to 108 months in prison and 62 million dollars in restitution that he allegedly owed to the clients of HT. His restitution was later refonned to one n1i1110n dollars. However, the banknlptcy case had not concluded at the time Annstrong was sentenced.

23

The banlauptcy case concluded with a final trustee report by Hel11TIling Morse on

24

Septenlber 13, 1999. This report showed the liquidation ofHT assets at sonle 1 l3 Inillion dollars,

25

an anlount far in excess of the estinlated five n1i1110n dollars the govemnlent relied AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 18

011

eXlensively

1

during Amlstrong's criminal trial. See exhibit #22. Why was the final number so much larger than

2

O1iginally estimated?

3

investing the funds in collateralized long tenn investments in HT's name in an effort to fill the 18

4

million dollar deficit he inherited when he took over the company frOITI Maxphanna. The trustee

5

6 7 8

Because Annstrong was not stealing HT client funds.

Rather, he was

didn't accurately depict the value of these assets. Also noteworthy from the final report is the fact that Mr. AImstrong's plan to cover HI's inherited deficit worked.

After aU HT assets were

liquidated, all HT creditors (clients) were paid the money owed to then1 from funds invested by HT, and the bankruptcy tnlstee was paid 39 nlillion dollars. See exhibit #22. As it turns OLlt, the -FBI

9

was correct when it told Mr. Solodoff there was no crime without any victims. Based on the final 10

bankruptcy accounting, clearly, Mr. Annstrongnever committed any fraudulent crinle because there 11

were no victims. 12

These assets, however, were not taken into account by the govemnlent or HT's 11lisinfonned 13

clients when they conspired to take down HT and send Mr. Anl1strong to prison. Also not taken into 14

consideration by the govenlllent or HT's clients was the fact that at any tilne had Annstrong fel t HT 15

could not meet its contractual obligations to its clients, these investments could be liquidated to 16 17

18 19 20 21

cover the shortfall.

Federal Express and The Wall Street Journal were too quick to brand Mr.

Annstrong a swindler and charge him with using a Ponzi scheme to defraud clients. In fact, the only reason the "hole" in HT was growing was because Mr. Annstrong purposely made it bigger to accomnlodate these long tern1 investments. This, o[course, is contrary to the govemnlent's position that the hole kept getting bigger because Annstrong had to keep using ne\v client money to cover old client obligations in order to keep facilitating the fraud. This mischaracterization by the govelllment

23

assumes an ""intent to defraud" that Amlstrong sinlply did not possess.

24

Had the govenllTIent 110t succumbed to the pressure to prosecute Mr. Anllstrong and, instead,

2S

exercised SOlne prudence and waited for the outc01l1e of the civil case, the Federal District Court AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 19

1

would have decided as a matter of law the status of the fund held by HT. The government would

2

have then realized that no crime was ever committed by Annstrong and they would have had the

3

final financial statements from the bankruptcy case to prove it. The government would have realized

4

that Federal Express and other HT clients caused their own losses (which ended up not being losses

5

at thanks to HT's long tenn investments) by destroYing a flourishing company.

6

7

8

GOVERNMENTS FAILURE TO TIMELY DISCLOSE EXCULPATORY AUDIO RECORDINGS:

9

Near the end of trial, Mr. Annstrong was notified the government was in possession of 10

approximately 70 hours of audio recordings obtained by one of Am1strong's long tilne personal 11

assistants, working for and paid by the government. The existence of the tapes and the identity of 12

the infonnant were not disclosed at any time prior to trial. 13

Since the existence of these tapes was not disclosed until trial was well underway, trial 14

counsel was prevented from reviewing the material prior to the end of trial. It wasn't until after trial 15

concluded that trial counsel was able analyze the tapes and realized the tapes were actually 16

17 18 19

20 21

exculpatory because the recorded conversations between Mr. Amlstrong and his assistant showed Mr.

Armstrong~s lack

of intent to defraud. Had the govemnlent disclosed this evidence in a manner

that would have allowed the court or the jury to hear the tapes during tria], the essential elenlent of Hintent to defiaud" would have been conlpromi sed. Trial counsel requested a continuance whi ch was denied. Further, trial counsel was unable to employ other counsel to review the tapes with trial continued.

:23

In denyjng the motion for continuance, the Court relied upon the affidavit of FBI special

24

agent Hatcher. See exhibit #23. Special agent Hatcher testified that the seventy hours of tapes were

25

unrelated to the current prosecution and even underlined the word "unrelated" in his affidavit. AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 20

1

Although, unknown at the tinle, this statement by Hatcher proved to be false. The recordings in

2

question were obtained via body wire placed on Mr. Amlstrong's personal assistant by the FBI.

3

Contrary to Agent Hatcher's assertion that the evidence was acquired by the Dallas FBI in an

4

unrelated investigation, FBI notes and men10randums reveal the recordings were obtained by the

5 6 7 8

request of and, under the authorizations of the US Atttomey for the Northern District of Cali fonli a, Mike Yamaguchi. See exhibit #23. Mike Yanlaguchi, of course, was the AUSA overseeing Mr. Annstrong's prosecution for alleged fraud in the Northern Districl ofCalifomia. Therefore, not only was the U.S. Attorney's office aware ofthe tapes, the goven1lnent was not honest with the court

9

by acting as if they didn't know they existed before trial. The pressure upon special agent Hatcher 10

to conceal the nature of the government's acquisition of the tapes is revealed by the memOrandUl11 11

from the Deputy Director of the FBI to a fomler Senator, along with the offices Nancy Pelosi and 12

Barbara Boxer, outlining the progress of the investigation of Mr. Arnlstrong and HT. See exhibit 13

#20. 14

As stated previously, Mike YaJnaguchi had investigated HT for the exact same things in 1988 15

and detennined that no violations of federal law had been conlm.itted. See exhibit #8. The fact that 16 17

18 19

20

the FBI and U.S. Attorneys office decided to investigate and prosecute this case within nine days of receiving pressure [rOlTI Howard Baker, Federal Express, Nancy Pelosi, Barbara Boxer, and the media without any new evidence that HT had cOlnmitted a crinle Blakes the conceahnent of these tapes even more egregious. The new" investigation of Amlstrong and HT consisted of gathering Il

21

documents from an incomplete involuntary bankruptcy proceeding and trying to get a confession out

22

of Amlstrong by putting a wire on his closest personal assistant 9 . The fact that Anl1strong did not

23

24

9It is noteworthy, that during the some 70 hours of recorded conversation, Armstrong was talking to a very trusted assistant whom he 25 would never have expected to be wired.

AMENDED IVlOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 21

1

confess to any wrongdoing or say anything indicative ofhi5 alleged Hintent to defraud" HT clients

2

is extremely credible evidence that he possessed no such intent. Rather, Mr. Annstrong believed

3

he wasn't doing anything wrong. The government's failure to produce this

4

evidence in a timely fashion is inexcusable and warrants a new trial in this case. See exhibit #23.

nlaterial~

exculpatory

5 6 7 8

Ground Two The trial court's failure to properly instruct the jury on the applicable law of the case deprived Mr. Anl1strong of his Constitutional right to a fair trial and his right to due process. The trial court's

9

failure to give proper instnlctions not only confused the issues for the jury, but also improperly 10

allo\ved the jury to decide what the applicable law of the case was. 11

Supporting Facts: 12

In 1993, before the govemnlent secured an indictnlent against Amlstrong, the bankruptcy 13

tnlstee sought to recover preference payments paid to the IRS in the fonn ofpayro1l1axes by HT on 14

behalf of S&S credit. The judge on the bankruptcy case, ruled the monies in question were held in 15

tIllst by HT and, therefore, the trustee could not recover preference payments. 10 The trustee appealed 16 17 18 19 20

21

the ban]mlptcy comi' s decision to Federal District Court. The district judge, the sanle judge that would ultimately preside over Annstrong's criminal trial, affirmed the banknlptcy court's decision, i.e., that the funds in question were held in trust by HT and, therefore, the trustee was not entitled to recover those monies as preference payn1ents. The trustee then appealed the District Court's decision to the 9 th Circuit. This appellate action was extremely important to the crinlinal case

22

:opreference payments are payments made by the debtor in a bankruptcy 23 proceeding to a creditor near in time to the bankruptcy action being filed. Typically, these payments can be recovered by the trustee in an effort to 24 resolve the bankruptcy. However, preference payments can not be recovered if the debtor was holding the money in trust. See In re Hamilton Taft v. th 25 S&S Credit, 53 F.3d 285 (9 Cir. 1995). AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 22

1

because it would ultimately become one of Armstrong's nl0st inlportant theories of his defense.

2

Likewise, the govemmenCs actions with regard to this civil appeal are note\vorthy as well.

3

The government's whole case against Annstrong was that he was intentionally diverting

4

cHen t funds for personal use and, therefore, defrauding HT clients. The govenlment' sIegal pos'j tion

5

is correct, if and only if, HT was legally bound to hold client funds in trust, thereby creating a fiduciary duty on the part of HT to its clients with regard to the monies. This is true because the

7

govemnlent lacked any evidence to prove Annstrong had the requisite "intent to defraud" needed

8

to prove a crime beyond a reasonable doubt. Therefore, the only legal basis the govenmlent could 9

rely upon to show the requisite "intent" of Armstrong was to claim the clients monies HT received 10

were to be held in trust. 11

The 9 th Circuit in 111 re Hamilton Taft v. S&S Credit, ruled against S&S Credit and the 12

government held that the funds in question were not held in trust by the debtor (HT), rather the 13

money was the property of the debtor. See 111 re Hamilton Taft v. S&S Credit, 53 F.3d 285, 288 (9 th 14

Cir. 1995)(opinion vacated as moot due to settlement agreenlent). The 9 1h Circuit stated: 15

111 this case, S&S does not contend that it committed a breach oftrust by conveying 16 17 18 19 20

the trust-fund taxes to Taft as consideration for Taft's promise to pay S&S 's tax obligations and prepare the appropriate reports. Nor does S&S attempt to show that it arranged with Taftfor the transferredfimds to be held in trust. J;Vhile two ofTaft 's clients arranged 10 have their trust-fimd tax payments kept in segregated accounts, S&S and the other clients did 110t.

21

Instead, Taft extensively commingled all ofthefill1ds it received and treated thefilllds as its

22

own assets, using them to pay its operating expenses and investing the filllds for its

23

benefit. Therefore, under ordinary principles of trust, Taft did not hold the funds ill trust.

24

Thus, the funds were the property ofthe debtor and the Jalluf.uy lax paymenls were subjecl

25 AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 23

OW11

1 2

3

to avoidance. III re Hamilton Taft, 53 F.3d at 288. See exhibit #24.

After the 9 th Circuit issued its opinion, S & S Credit filed a petition for reheating

ell

banco

4

After S& S filed its petition for rehearing, the government stepped in and filed an anlicus briefwith

5

the 9 1h Circuit Court of Appeals explaining to the Court why it believed the Com1 should nIle the

6 7

8

monies were held in tnlst rather than becoming the property ofHT. Clearly, the govemnlent took the time to file this brief because it knew the prosecution against Mr. Anllstrong would be in jeopardy if the 9 1h Circuit ruled the monies were the property ofHT based upon the contract that was

9

executed bet\veen the parties. See exhibit #25. 10

Subsequent to the 9 1h Circuit's opinion, the trustee and S&S Credit settled the claim. After

11

settlement, and while a petition for rehearing was pending, the 9 th Circuit upon motion ofthe parties 12

vacated its opinion in In re Hamiltoll Taft as 11100t due to settlement.

PresuTIlably, S & S Credit

13

petitioned the Court to vacate its decision as n100t due to government intervention. Anllstrong can 14

tbink of no reason that the trustee or S & S Credit would ask the court to vacate its decision, 15

especially since the settlenlent was precisely in ham10ny with the opinion in 1/1 re Hamilton Taft. 16

17 18

19 20 21

At t1,e beginning of trial, Am1strong filed a nl060n that asked the trial court to instruct the jury at the start of the trial that the tax funds HT received froln its clients \vere not held in tnlst by HT but were the property ofBT. (ER 110-155.) Once the funds were received by HT. it was rree to use its cash flow to cover its operating expenses or to invest those monies for its own benefit. (ER

125.); See also exhibit #3 and #26. This motion to instruct the jury was, of course, based 011 the

22

language in the typical HT contract and on the 9 th Circuit's opinion in In re llamiltol1 T{~{t. 53 F.3d

23

285 (9 th Cir. 1995). As stated above, the Court concluded the funds were the property orthe debtor

24

(HT) and were not being held in trust for HT's clients. See Id. The district court denied the request

25

to instnlct the jury in this regard. The court stated that it did not think the 9 th Circuit's opinion was AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 24

1

applicable to the case at hand, even though the case dealt with the same parties, under the sanle

2

contracts, with the sanle monies at issue.

3

At the end of tlia] , Annstrong proposed another jury instruction which essentially stated the

4

holding of In re Hamilton Taft as noted above. (ER 169.) The district court refused to give this

5

instruction also. Despite the 9 th Circuit's specific ruling on the how the funds in question were going

6

7

to be legally qualified, the district court stated it didn't think the nlonies could be treated by Hanlilton Taft as its own assets. The court further stated it didn't think the monies could be used

8

to pay Hamilton Taft's operating expenses, nor did the court think the lTIOney could be invested by 9

Hanlilton Taft for its own benefit. The court went on to say, "1 think it's wrong." (RT 5473.) 10

The court's ruling did two things that affected Annstrong in an unfair maImer. First, even 11

though the court refused to give the requested instruction, in actuality no legal definitions or 12

instructions regarding "money held in trust" and 41nloney held pursuant to a debtor/creditor 13

relationship" were given to the jury. This improperly directed the j ury to detemline what the 1aw was 14

in this regard. This left the jury to detennine for itself what the law was, albeit incorrectly, before 15

applying the facts of this case to the law. 16 17 18

19 20 21

Secondly, the court's ruling opened the door to for the govenlment to argue that a trust relationship existed between HT and its clients, even though-the HT client contracts specifically stated otherwise. This gave the government an unfair advantage because it relieved the govemlnent of its burden to prove Annstrong had an Hintent to defraud" beyond a reasonable doubt because the jury was invited to lnerely aSSUlne the requisite "intent to defraud" ifHT held client nl0nies in trust.

22

Additionally, to conlpound matters, during sentencing the trial c0U11 used the preference

23

payments recovered by the trustee in bankruptcy to calculate the anlount of restitution Annstrong

24

owed. Therefore, the court used In re Hamiltoll Taft as a double edged sword against Amlstrong.

25

On the one hand, the 9 th Circuit's holding in Taft was not applicable at the guilt/innocence phase of AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 25

1

the trial, i.e., client funds were trust funds, not the prope11y ofHT. And on the other hand, the court

2

ordered Amlstrong to pay restitution for the preference payments Taft enabled the trustee to recover

3

by holding the funds in question were the property ofHT.

4

The simple fact of the matter is that in the years since In re Hamilton Taft was issued by the

5

9 th Circuit, many courts have relied upon the legal holding espoused in the 111 re Hamilton Taft

6

7

opinion even though the opinion was vacated as moot. Annstrong nlaintains the trial court's denial of his request for jury instructions in line with the holdings of 111 re J-Iamiltol1 Taft demands a new

8

trial, and AnTIstrong prays this court order a briefing schedule on his motion so that the parties lnay 9

have an opportunity to brief these issues. 10

Conclusion: 11

The new evidence received by Mr. Amlstrong in this case delTIOnstrates a pattern ofbehaviof 12

by the government that was improper, lnalicious and resulted in the wrongful prosecution ofMr. 13

Annstrong.

Clearly, this pattern of behavior was caused, in part, by erroneous press coverage,

14

corporate nlalfeasance, and improper political influence to pressure the govenlment to prosecute Mr. 15

Annstrong even though the goven1TI1ent believed he was innocent.

Further, this new evidence

16 17 18 19 20

proves the United States Attorney's Office, namely Mike Yamaguchi, knew the crimes he sought to indict Mr. Annstrong for had already been investigated by his office and the IRS, both of which concluded no crinle had been committed. Additionally, Mike Y mnaguchi knew the 70 hours of exculpatory audio tapes existed because he is the one that authorized the tapes be n1ade in the first

21

place. The government's failure to timely disclose these exculpatory rnateJials to the defense was

22

a willful Brady violation. Based on the foregoing infoDl1ation, Mr. Anl1strong prays the COllrt grant

23

a briefing schedule and an evidentiary hearing.

24

pursuant to 28 U.S.C. 2255 in this regard, Mr. Arnlstrong maintains the evidence should be declared

25

legally insufficient to support a conviction, his conviction should be vacated and ajudgment ofNot

Should tIle court grant Mr. AnTIstrong's motion

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 26

1

Guilty should be entered in his favor.

2

3 4

5 6 7

B

In the alternative, both of the grounds raised in this Inotion are sufficient to warrant a new trial in Mr. Annstrong's case.

With regard to Ground Two the trial court's refusal to properly J

instruct the jury on the law of the case clearly deprived Mr. Am1strong of his right to due process and a fair trial, confused the issues for the jury, forced the jury to improperly deterrnine the applicable law! and prevented Mr. Armstrong from mounting a defense to the charges against hin1. Even if the COUl1 believes that neither one of the grounds raised in this motion are sufficient to warrant a new 11ial, clearly the cUlTllllative effect of these issues warrants reversal ofthe conviction.

9

10

13.

If any of the grounds listed in 12A, B, C, and D 'were not previously presented, state

11

brieny what grounds were not so presented, and give your reasons for not 12

presenting them: 13

These facts were not available to the defendant during the period of til11e 14

encompassing direct appeal. 15 16 17

14.

Do you have any petition or appeal now pending in any court as to the judgnlent under attack?

18

, Yes () No (x )

19 20 21

22 23 24

15.

Give the name and address, if known, of each attorney ,vito represented you in the following stages of the judgment attacked herein: (a) At Preliminary hearing

Court Appointed counsel, unknown nanle and address

25 AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 27

1

(b) At arraignment and plea

2

Mike Murphy, unknown address

3

(c) At trial

4

Chester Brown, deceased

5

2450 Broad\vay, Suite 550

6

Santa Monica, CA 90404

7

(d) At sentencing

8

Chester Brown 1999; David Nickerson, unknown address 9

(e) On appeal 10

David Nickerson! unknown

address~ pro

se

11

12

(I) In any post-conviction proceeding 13

Bill Boyd 14

Boyd-Veigel, P.C. 15

218 E. Louisiana 16

McKinney, Texas 750769

17

(g) On appeal from any adverse ruling in a post-conviction- proceeding

18

Not applicable

19 20

16.

indictment, in the same court and at approximately the same time?

21

Yes (x ) No()

22 23

24 25

\-Vere you sentenced on more than one count of an indictment, or on more than one

17.

Do you have any future sentence to serve after you complete the sentence imposed by the judgment under attack? Yes() No(x)

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 28

1

Therefore, the movant prays that the Court grant an evidentiary hearing and after hearing the

2

evidence movant further prays the Court will set aside and vacate Mr. Armstrong ' s conviction and

3

grant any other relief the movant may be entitled to.

4

5 6 7

B

Appearance Pro hac vice; application pending Boyd Veigel, P.C. P.O. Box 1179 McKinney, Texas 75070 SBN 90001936 TEL: (972)562-9700 FAX: (972)562-9600

9

10 11 12 13

14 15

I declare under penalty ofpeIjury that the foregoing is true and correct.

16

Executed (signed)

17 18

thi~%ay of ~.C-y ~

19 20 21 22 23

24 25

AMENDED MOTION PURSUANT TO 28 U.S.C. 2255 TO VACATE, SET ASIDE OR CORRECT JUDGMENT AND SENTENCE 0509676/060452/5:8:09:15:45 Page 29

APPENDIX -Time Line -Flow Chart -Exhibits: 1.

2.

3. 4.

5. 6. 7. 8. 9. 10. II. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

22. 22(a). 23. 24. 25. 26.

Case Summary - USA v. Annstrong Recall of Mandate Indictment HT Contract and Agreement 2/8/91 Richard Held Memo to USA Plaintiffs Original Petition - HT v. Maxphanna, et al Case Sunm1ary - In re Hamilton Taft Complaint - Bankruptcy Court - In re Hamilton Taft 9/23/88 Richard Held Memo to USA Yamaguchi History Dresdner Note to HT 10/29/81 Kimport Letter (Baker letter) 3/8/91 FBI Memo Financial Records Civil Complaint - Federal Express v. HT Involuntary Petition - In re Hamilton Taft Ralph King - Wall Street Journal Article 3/17/91 FBI Memo Ralph King - Wall Street Journal Article MemorandulTI in support of Application for TRO 4/3/91 FBI Memo Memorandum in support of Motion to Dislniss - United States v. Connie Annstrong, Jr. and Richard Fowles ] 999 Hemming Morse Trustee Report 1991 Hemming Morse Trustee Report Hatcher Affidavit and Associated Doeulnents Case Law and Order of Affinnanee - HI' v. S&S Credit Alnicus Brief Transeripts

CONNIE "CHIP" ARMSTRONG TIMELINE 1979 Hamilton Taft, Inc. created.

August 1984 Hamilton Taft sold to Cigna Corporation.

February 28, 1988 Maxphrama purchases Hamilton Taft from Cigna.

September 23, 1988 AUSA Michael Yamaguchi completes a federaf investigation into Hamilton Taft's operations. Yamaguchi concludes that there existed a lack of evidence to support a finding that there was any violation of federal laws.

March 1989 Connie llChip" Armstrong acquires Hamilton Taft 'from IVlaxphrama.

December 1990 Steve Solodoff fired from employment at Hamilton Taft as a result of his cocaine use.

I TIMELINE 0509647/060452/5: 1:09: 14:45 Page 1

December 24, 1990 Solodoff approaches the FBI and IRS and files complaint against Armstrong and Hamilton Taft alleging that Armstrong was diverting trust monies. This was the same allegation investigated by Yamaguchi in 1988.

I February 8, 1991 Letter sent from Special Agent (PKM) to USA McGivern and AUSA Yamaguchi asking for a prosecution opinion at to whether a violation of federal law had taken place. This letter discusses the history of the 1988 investigation. It further discusses Baker and McKensie, the lobbyist and law firm representing Federal Express, and the former law firm of Hamilton Taft. (See 2/8/91 letter)

I February 11, 1991 Solodoff contacts ofFices of Congress persons Pelosi and Boxer. A representative of Congresswoman Pelosi gave Solodoff the name of an investigative reporter to contact with his information about Hamilton Taft. (See 3/8/91 PKM memo)

I February 12, 1991 Special Agent PKI\/I and an agent from CID receive calls from an attorney at the Department of Justice inquiring as to any FBI and/or IRS connection with Hamilton Taft. (See 3/8/91 PKM memo)

I TIMELINE 0509647/060452/5: 1:09: 14:45 Page 2

February 13, 1991 Special Agent PKM interviews Solodoff. (See 3/8/91 PKM memo and 3/6/91 PKM 302)

I March 6, 1991 Special Agent PKM receives call from Special Agent Swain, IRS-CID. Swain reports that he had been contacted by Ralph King, investigative reporter for the Wall Street Journal. King wants to confirm that the IRS is conducting an investigation into Hamilton Taft. (See 3/8/91 PKM memo)

I March 6, 1991 Special Agent PKM, having been out of the office on March 5th , finds a telephone message dated 3/5/91 from Ralph King. King finally connects with PKM on the 6th . King questions about a possible FBI investigation of Hamilton Taft. (See 3/8/91 PKM memo)

I March 6, 1991 Special Agent PKM speaks with representative of Sun Micro Systems. Sun Micro has been contacted by an individual advising Sun Micro that they, and numerous other Hamilton Taft clients, had become the victims of fraud perpetrated by Hamilton Taft. (See 3/8/91 PKM memo)

I TIMELINE 0509647/060452/5: 1:09: 14:45 Page 3

March 8, 1991 A meeting of the alleged victims of Hamilton Taft meet at the offices of Sun Micro Systems to discuss the matter. (See 3/8/91 PKM memo)

I March 13, 1991 Federal Express files civil suit against Hamilton Taft in Federal District Court, Northern District, California. FedEx's request for TRO freezing Hamilton Taft assets is denied. An evidentiary hearing is scheduled for August 1991.

I March 14, 1991 After refusal of the TRO, Federal Express files to force Hamilton Taft into involuntary bankruptcy.

I March 15, 1991 An unfavorable and erroneous article about Hamilton Taft is published on the front page of the Wall Street Journal.

I March 17, 1991 In response to the allegations in the Wall Street Journal, a federal investigation into Hamilton Taft and Connie Armstrong is initiated. This occurs only nine days after the FBI memo stating that there exists insufficient information to launch an investigation.

I TIIVIELINE 0509647/060452/5: 1:09: 14:45 Page 4

March 20, 1991 Federal Express amends its complaint seeking relief through the involuntary bankruptcy of Hamilton Taft.

I March 25, 1991 Hamilton Taft is placed into bankruptcy. Armstrong is removed as head of company and a Trustee is appointed.

I April 2, 1991 Trustee files for immediate TRO in bankruptcy court. Bankruptcy court grants motion resulting in Fed Ex's successful freezing of Hamilton Taft assets without evidentiary hearing.

I April 3, 1991 FBI sends memo to former senator, Federal Express board members, Congress persons Pelosi and Boxer's offices detailing the actions of the DOJ and discussing the media coverage. (See 4/3/91 memo)

I December 31, 1991 Trustee report indicates that Hamilton Taft's value was calculated at roughly five million dollars ($5,000,000). -rhis was the report which was relied upon throughout the criminal proceedings. (See Trustee Report 12/31/91)

I TIMELINE 0509647/060452/5: 1:09: 14:45 Page 5

1993 Trustee of Hamilton Taft files suit against S&S Credit to seek recovery of preference payments made by Hamilton Taft on behalf of S&S Credit. The bankruptcy court denied the motion. Trustee appeals decision to the Federal District Court.

1994 Federal District Court affirms decision of bankruptcy court in In Re Hamilton Taft v. S&S Credit. Trustee appeals Federal District Court's decision to the 9th Circuit Court of Appeals.

June 27, 1994 Indictment against Connie Armstrong returned.

May 2, 1995 9 Circuit Court of Appeals decides in favor of Hamilton Taft in In Re Hamilton Taft v. S&S Credit. lh

August 1995 AUSA Yamaguchi files Amicus Brief on behalf of the IRS. The brief raises the issue already decided by the 9th Circuit Court of Appeals.

Fall 1995 S&S Credit and the Trustee Usettle As part of the settlement agreement, the 9th Circuit Court of Appeals is asked to vacate their opinion in In Re Hamilton Taft v. S&S Credit. ll

•

I TIMELINE 0509647/060452/5: 1:09:14 :45 Page 6

October 12, 1995 In Re Hamilton Taft v. S&S Credit opinion vacated as moot.

I December 1996 Trial begins in Armstrong criminal case. Despite the fact that a sUbsequent analysis was conducted, the December 31, 1991 Trustee's report is relied upon to assess the value of Hamilton Taft. (See Trustee Report 12/31/91)

I February 26, 1997 Trial concluded.

I September 13, 1999 Hemming Morse Trustee report is released. This report shows the liquidation of Hamilton Taft for roughly one-hundred thirteen million dollars ($113,000,000) an amount far greater than the five million dollar value previously reported in the December 31, 1991 study. (See Trustee reports 9/13/99 and 12/31/91)

TIMELINE 05096471060452/5: 1:09: 14:45

Page 7

Howard Baker and Senators

The

~_aard

--I!lIl. ....- - - (

af Feder;:;1 Er.press

DOJ - Wasl}h1gton Dl:

'1 Called US Attorney In C_,!l!fgrnia to PrQsetute

Gare Smith legal

representative of Pelosi and Bor.er -tontacted Armstrong in 2004 In FCI-Seagoville

...I;.lea;,.d;numbl!r .;,u; ;S.;.;A,;,t~t.o..rof...n..;evitimes oi a.:.;n;,;;d....._ _- ' [ ·._, __....,......caFBI

19DD-Closed Investigation for a Criminal on Illegal Acts. Refused to JODI: Into It until DOJ

From DC ca).l.ed.

If you view the full dockc. ...mline, you will be charged for 6 Pages

Jl 0.42

us Court of Appeals for the Ninth Circuit Case Summary court of Appeals Docket #: 00-10399 Filed: 9/14/00 Nsuit: 0 USA v. Armstrong Appeal from: Northern District of California (San Francisco) Lower court information: District: 0971-3 : CR-94-00276-CAL court reporter: Leo Mankiewicz, Court Reporter 7/27/01

Calendar check performed [00-10399]

8/6/01

Screening letter sent.

4/8/02

SUBMITTED TO SCREENING PANEL 340. [00-10399] (th)

4/15/02

FILED MEMORANDUM DISPOSITION: AFFIRMED ( Terminated on the Merits after Submission Without Oral Hearing; Affirmed; Written, Unsigned, Unpublished. James R. BROWNING, Andrew J. KLEINFELD, Ronald M. GOULD) FILED AND ENTERED JUDGMENT. [00-10399] (dv)

4 / ?9/02

Received aplt's motion for enlargement of time to file a PFR with suggestion for rehearing en banc; no service date. (STAFF) (Note: apl t has counsel; sent copy of motion to counsel) [00 -10 3 9 9] [44192·15] [00 -10399] (dv)

5/29/02

[4443161] Received original and 50 copies aplt's petition for rehearing with suggestion for rehearing en banc of 15 pages with exhibits served on OS/28/02. (STAFF) (Note : aplt has counsel sent pfr to counsel) [00-10399] (dv)

1/21/03

Referred to STAFF re: status of petition for rehearing. [4443161-1] [00-10399) (ea)

1/31/03

[4643063] Filed original and 50 copies Appellant Connie Armstrong petition for panel rehearing and petition for rehearing en banc of 15 pages with exhibits served on OS / 2 8 / 02). [0 0 - 1 0 3 9 9] (dv )

,.. 1/31/03

) I,·' i0j 0/03 '

{00-10399]

(th)

(th) ( Oral)

[00-10399)

Filed order ( James R. BROWNING, Andrew J. KLEINFELD, Ronald M. GOULD, ) We grant apltis motion for an extension of time to file a petition for panel rehearing and order the brief received OS/29/02 filed. The panel has voted to deny aplt's pfr and pfr en bane. The full court has been advise of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en baen. The petition for panel rehearing and the petition for re~earing en banc are deneid. No further filipgs shall be aCcepted in this closed appeal. [4643063-1] [00-10399J (dv)

~~E ~~S~[00-10399]

(dv)

=====P=A=C=E=R=s=e=r=v=i=c=e=c=e=n=t=e=r=======ill

i:=!

http://pacer.ca9.uscourts.gov/egi-bin/reports.pl?CASENUM=00-103 99&puid=0 1053014084

5/15/2003

nLt.D

..", <1'.

G'.J.

_~.... JI?tt 2S y. UNITED ST ATES COuWr'OF ~}~!.~~~~~:~t -~\··'··G\')19.

~\t. \,)~.

PIain tiff- APpe Ilee, v.

CONNIE ARMSTRONG, JR.)

APR 22 2008

0.\'\\

,C.\\I\

FOR THE NINTJ~~krotf

UNITED STATES OF AMERICA,

FILED MOLLYC. DWYER. CLERK us.

COURT OF APPEALS

No. 00-10399 Deft CR-94-276-CAL Northern California (San Francisco)

ORDER

Defendant-A ppellant.

Before: BROWNING, KLEINFELD and GOULD, Circuit Judges

Armstrong's letter is a construed as a motion to recall the mandate, and so conslrued, lhe motion is granted. We recall the mandate issued on February 10,

2003. The order issued on January 3 l, 2003 is withdrawn. The panel has voted to deny the petition for panel rehearing.

The full court has been advised of lhe petition for rehearing en bane and no judge has requested a vote on whether to rehear the matter en banco See Fed. R. I\pp. P. 35.

The petition for panel rehearing and lhe petition denied. The mandate shall issue forthwith. KH/Rcscilrcn

rOf

rehearing en bane are

~ i,

,

.'

4t

.. ..

FIL:!:O ~WIW

No.

NO~ltuli~/rm~~~~

_

__:lII::II:I:::=:I:l=:=:-==:=:Z:::=======~""'...l.L'!

''C/I

UNITED STATES Q.t.S_T.RJ~! COURT __ ~Q~TIiEJ~!J___ ______

e, '9~~

D~trict

of ----C~l~Q~Ij.-O~

C

"_C_R~l~__ R~A

rr"A.L

76

..

"

I-f

THE UNITED STATES OF AMERICA tis.

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

INDICTMENT 18 U.S.C. 18 U.S.C. 18 U.S.C.

§ § §

2314 - STOLEN PROPERTY; 1343 - WIRE FRAUD 2 - AIDING AND ABETTING

Forrman

tUry.

FiW in 0JH1I court tki5

of

Bail. $

A.D. 19

_

t~ (7~

I,

" T r~rehy t;eTlify that the annexed Insr::um~~t .i~ a true and correct copy

of the cnglnal on file in my office. Ai leST:

RICHARD W. WTEKING ., :-: ::;,=.13 "

::--;)

Cle:rk, U.S District Court Northe istricJ-pf Califomia

By

'/;/"~

u7

1"""~V

".

ollbJ

[,.~. ,D-~FE.NDANT INFORtviA' ~'[,y

OCOM~LAINT

'I nl

DINFORMA1,U

PER \8 USL.

--I.TIVE TO A CRIMINAL AC'

BINDICTMENT

U.S. DISTRICT COURT

N~me 01 Dllllla COU". anolor Juagel~tltee~ 1 ' 0

NORTHERN DISTRICT OF CALIFORNIA

uFFENSE CHARGED

-

W'-=---

18 U. S .:C. § 2314 - STOLEN PROPERTY; 18 U.S,C. § 1343 - HIRE FRAUD; L......I P~I1V 18 U. S .;C. § 2 - AIDING AND

. _ - - DEFENDANT - U.S.

V~.

ABETTING

o

me~no(

Felonv

PENALTY See Attachment

_ - - - - - - - - PROCEEDING

----,R94 _

. _ - - - - - - - - - OEFENOANT-_--&'_-:-

FBI

1)

fLl

this person/Pror.eeding 15 transterred Irom another d,stnct per Icircle one) F RCrP 20, 21 or 40. Show District

0 5) 0

.

On this charge On another conl/iction

}

0

Fed"

OSt

610 Awaiting trial on other charges

this is a reprosecutlOn of charges previously dismissed which were dismIssed on motion of: U.S. AU'y ODefense

If an5wer to (6) is "Yes", show name of institution

SHOW DOCKET NO.

o

Has detainer been filed?

this prosecution relates to a pending case irwolving this same defendant prior proceedings or aooearance{s) before U.S. Magistrate regarding_ this defendant we~ recorded under

--

/S IN CUSTODY

41

o o

Has nOt been arresteo. pending outcome this proceeding If not detained give date any prior summons ~ was served on above charges [L.... _ Is a Fugitive Is on Bailor Rf'lease trom (show District)

person IS awaiting tnal in another Federal or State Court. gIve name ot coun

o

_

IS NOTlN CUSTODY

Name at Complainant Agency, or Person (& Title. if any)

o

.,

MAGISTRATE CASE NO.

If "Yes" give date. filed ,<-----Year DilY

I-J Yes L......J No

Mo. DATE OF ~ ARREST

r

~

Or ... if Arresting Agency & Warrant were not Federal N~me ~no

Off,ce 01

P~',on

Fy,nlln,ng In'Ofm.1l110n on

THIS FORM

N~me

III

01 AUl

u.s,

I

AlI'V

DATE TRANSFERRED [) TO U.S. CUSTODY

Eb F. Luckel

Day

o

ThIS repOrt

amenas

I

AO 257 prevlouslv sUbm'lted

. . - - - - - - - - - - - - - - - ADDI TlONAL INFORMA TION OR COMMENTS - - - - - - - - - - - -

PROCESS: SUMMONS BAIL

Connie C. Armstrong, Jr. c/o John Milano 507 Polk Street San Francisco, CA 94102

Request summons return date of 7/20/94

(AMT).

NO PROCESS'" ~WHERE

\

V '------------

MICHAEL J. YAMAGUCHI

u"9"eal

Mo.

DEFENDANT PREVIOUSLY APPREHENDED ON COMPLAINT; NO NEW SUMMONS OR, WARRANT NEEDED, SINCE MAGISTRATE HAS SCHEDULED ARRAIGNMENT

... Maximun penalty each count

18 U.S.C.

§

2314 -

10 years imprisonment $250,000 fine Supervised release of at least two years 1r~J but not more than three years. $50 speci.:\l assessment , "

CALf

18 U.S.C. S 1343 -

5 years imprisonment

$250,000 fine ( ) C' At least two years~'knot mo .. than three yea~' II f~; ~ $50 special as~ iJ";C

Cpmbined maximum penalty Armstrong

Fowles

130 years imprisonment $5.25 million fine 63 years supervised release $1050 special assessments 60 years imprisonment $2.25 million fine 27 years supervised release $450 special assessment

76

F\LEO J\:\~ ~ , i~~A .. _." .' v-I\~~\NC3

t~~~~~~,~~~tir~~~Jt\~

NQRTHERri D

- ./ ' .,.

,f

'.,

-.'

,

I

-

2

MICHAEL J. YAMAGUCHI United states Attorney

ORIGINAL FILED

3

Attorney for Plaintiff

JUN 27 1994

1

4

nlCHARD

w,

WIEKING

Ll ERK. u.s. DISTRICT COUnT ~JO!~rH[liN DISTRICT OF CALIFORNIA

5 6 7

UNITED STATES DISTRICT COURT

8

NORTHERN DISTRICT OF CALIFORUIA

9

UNITED STATES OF AMERICA,

10

Plaintiff,

11 12

v. CONNIE C. ARMSTRONG, JR. and RICHARD A. FOWLES,

13

Defendants. 14 15

',CAL

l(}R~4: 0276 ) ) } .) ) ) ) )

YIOLATION: Title 18, united States Code, Section 2314 STOLEN PROPERTY; Title 18, United States Code, Section 1343 - .WIRE FRAUD Title 18, United ~tates Code Section 2 - AIDING AND ABETTING

I N DIe T MEN I '

16

..

INTROPUCTORY bLLEGA1IONS 17

The Grand Jury charges that:

18 1.

Hamilton Taft

&

Company, Inc.

("Hamilton Taft")

19

",as incorporated in California in 1979.

Its business was to

20

provide payroll tax services to companies ("clients") with 21

large payrolls.

Clients transferred funds to pay their payroll

22

taxes to Hamilton Taft, and Hamilton Taft was,

in turn,

23

obI ig~.~ed to pay the ·taxes to the Internal Revenue Service and 24

·to-other taxing authorities when they were due. 25 2.

,Funds for' federal income and soclalsecurity

26

taxes withheld from employees· wages accounted for most- of the

Exhibit

"1\"

000001

.-

If

1

funds transferred to Hamilton

2

Taft~__

A company with a large

payroll is required to pay these federal taxes to the IRS each

3

time its employees are paid, commonly twice a month. 4 ,,~. ~.5

. .... .

Hamilton Taft had the use of funds it received

. 3• 'li>

fram clients for limited periods of time before the taxes were 6 7

due.

In the case of federal income and social security taxes,

Hamilton Taft had use of the funds for a day or less, except

B

for the "safe haven," an amount equal to five percent of the 9

tax, which was due as much as sixty days later.

Most of

10

Hamilton Taft's income was earned by investing the funds it 11

received to pay its clients' taxes in risk-free, short term, 12

liquid investments. 13

4.

In addition to paying taxes, Hamilton Taft often

14 provided other

servic~s,

such as preparing and filing Quarterly

15

Employer Tax Returns, Forms 941.

These tax returns are due the

16

last day of the month folloving the end of each quarter. 17

5.

The IRS assesses penalties for payroll taxes

18

that are not paid when due, cplled "failure to deposit

lt

19

penalties.

Absent reasonable cause, vhen any tax payment is

20

missed, a failure to deposit penalty will be assessed, even"if 21

the tax has been paid by the time the quarterly tax return is 22

due.

The IRS usually bills a taxpayer for a failure to deposit

23

penalty several months after the tax return for the quarter is 24

filed.

If taxes remain unpaid after the quarterly tax return

25

26

I N DIe T MEN T (Armstrong , .Fowles)

2

000002

•

1

is filed, an additional penalty, called a "failure to pay"

2

penalty, of one-half percent per month, is assessed and 3

interest is charged on the unpaid balance.

The IRS usually

bills a taxpayer for a failure to pay penalty shortly after the 5

quarterly tax return is filed. 6

7

Thus, failure to pay penalties

are typically due months earlier than failure to deposit

.

penalties.

8

6.

Connie C. Armstrong, Jr. ("Armstrong") acquired

9

Hamilton Taft on or about March

3~.

1989.

At that time,

10

Hamilton Taft had a working capital deficit of over $14

~il11on

11 ~ue

to misappropriations by prior owners of funds received from.

12

clients.

The deficit'created a shortage of funds to pay taxes,

13 but taxes could still be paid on time because some of the funds

14 received, such as funds for the five percent safe-haven and for 15

var}ous state and local taxes, were not due immediately.

This

16

enabled Hamilton Taft to cover shortages from later collections 17 of funds without falling behind in the payment of taxes and 18

incurring penalties. 19

7.

From Armstrong's acquisltion of Hamilton Taft in

20

March 1989, to March 1991, when a trustee in bankruptcy was

.

21

appointed to run Hamilton Taft, Armstrong was Hamilton Taft's 22

chief executive officer and its sole director and shareholder. 23

During much of this time, Richard A. Fowles ("Fowles") was 24

president of Hamilton Taft.

At other times,

Fowle~-served-

25

26

I N DIe T MEN T (Armstrong & Fowles)

3

000003

1

~~other

Hamilton Taft or a related entity

capacities.

2

PREAMBLE TO COUNTS ONE THROUGH TWENTY-ONE 3

The Grand Jury 'furthe r charges tha t :

4

8.

Beginning around March 31, 1989, and continuing

5

thereafter to around the end of March, 1991, in the City and 6

County of San Francisco, state and Northern District of 7

California, and elsewhere, 8

CONNIE C. ARMSTRONG, JR., 9

defendant herein, knowingly aided and

abe~ted

by

10 RICHARD A. FOWLES,

11 defendant herein, devised and intended to devise a schemenand 12

artifice to defraud and to obtain money from companies that had 13 contracted with Hamilton Taft for payroll tax services by means

14

of false and fraudulent pretenses, representations, and 15

promises.

The, scheme is described in paragraphs 9-23.

16

The piyersions

o

17

9.

Armstrong caused funds received by Hamilton Taft

18

for the payment of taxes to be diverted to companies he 19

controlled for investment purposes and

operati~g

costs, or to

20

himself for personal expenditures.

In less than two years,

21

approximately $55 million (net) vas taken out of Hamilton Taft 22

for these purposes and replaced with various notes and bonds. I

23

10.

The investments made with the diverted funds

.

24

included the purchase of 011 and

~as

leases, participation in a

25

26

I N DIe 'j-M E N T (Armstrong & Fowles)

-

4

I

000004

,-

,

1

(J

"

shopping center joint venture,

and_p~rchases

of various real

2

estate interests. 3 4

The operating costs paid with diverted funds

included skyboxes at Texas Stadium and a lavish Fourth of JUly

party.

The personal expenditures of diverted funds included

5

the purchase of a ranch and political and charitable 6

contributions. 7

The Holding Back of Tax Payments 8

~1.

As a result of the diversions, Hamilton Taft was

9

unable to pay all of its clients' taxes when they were- due] 10

When tax payments were not made when due, penalties, which '.

11

Hamilton Taft was responsible for paying, were incurred.

This

12

increased the need to hold back more taxes because more funds 13 were needed to pay the penalties. 14 12.

The non-payment of taxes began in the third

15

quarter of 1989 when approximately $25.• 3 million in tax 16

payments were held back.

Beginning in the first quarter of

17

1990, Armstrong caused taxes to be held back each quarter.

The

18

holding back of taxes

as follows:

increas~d

19 First Quarter 1990

$19.4 million

20

Second Quarter 1990

---

$37.8 million

21 Third Ouarter 1990 ---- $45.0 million

22

Fourth Quarter 1990

---

$57.0 million

First Quarter 1991

----

$68.2 million

23 24

13.

As time passed, Hamilton Taft became

25

26

I N DIe T MEN T (Armstrong , Fowles")

5

"-

000005

l.J 1

2 3

~ncreaSinglY dependen~ o~ the rece!p~ of additional funds from .

~

r

clients to pay the taxes of clients whose taxes had been held back earlier and to pay penaltiesJ By the time the trustee in

4

bankruptcy was appointed to take over Hamilton Taft in March 5

1991, the cash shortage to pay taxes had increased to

6

approximately $85 million and the unpaid penalty liability was 7

approximately $8 million more. 8

The Penalties

9

14.

The holding-back of taxes resulted in a penalty

10

liability to Hamilton Taft of approximately $15 million.

By

11

the time the trustee in bankruptcy was appointed, approximately' 12

$7 million of this liability had been paid.

The penalty

13

liability alone: vastly' 'exceeded Hamilton Taft's income, even 14

wi thout consideration of' i ts othe~ operating expenses •

.15

The Fraud In the Inducement 16

15.

It was part of the scheme to fraudulently induce

17

companies to enter into tax service agreements ("contracts") 18·

19

J

with Hamilton- Taft~.

16.

Acting through regional sales representatives,

20

Armstrong attempted to sell Hamilton Taft's payroll tax 21

services to large companies throughout the United states. 22

During initial contacts and throughout the negotiations, 23

prospective clients were assured that Hamilton Taft was capable 24

of professionally and reliably providing all the payroll tax 25 26

I N DIe T MEN T (Armstrong' Fowles)

. b

000006

1

services it offered including, mosL}mportantly, the timely 2

payment of payroll taxes.

Potential clients were encouraged to

3

contact existing Hamilton Taft clients as references and were 4

led to believe that Hamilton Taft was financially secure. 5

17. 6

As

8

result, between June 1989 and early 1991,

Hamilton ~aft~ntered into new customer contracts with clients

7

whose aggregate annual payroll tax

lia~llity

exceeded $1

8

billion]

Each contract provided that Hamilton Taft would pay

9

the client's payroll taxes when they---were due prov-ided certain 10

conditions were met. 11

\18. L

12

As Armstrong and Fowles knew, these contracts

were fFaudulently induced, because Armstrong had already begun 13

to divert funds needed for taxes and:~e:~ad no intention of

14

paying all the clients' taxes vhen 15

the~

vere

due~ More~ver,

as

time passed and the capital deficit of Hamilton Taft 16

dramatically increased, Armstrong and Fowles knew that it would 17

18

be impossible to pay all the taxes Hamilton Taft was responsible for paying.

By

time the trustee in bankruptcy

t~e

19

was appointed, the overdue payroll tax liability was 20

approximately $91 million, of which over half was for clients 21

who signed contracts after Armstrong's acquisition of Hamilton 22

Taft.

Hamilton Taft had only approximately $5 million to pay

23

these taxes. 24

25 26

II I N DIe T MEN T

(Armstrong, Fowles)

7

000007

--

r

.

1

The Coyer-yp

2

3

19.

It was also part of the scheme to fraudulently

conceal the diversions, the systematic holding back of tax

4

payments, the magnitude of the resulting penalties, and 5

Hamilton Taft's ever-increasing dependence on recently received 6

funds for taxes to pay the taxes of clients whose taxes had 7

been held back earlier.

This concealment enabled Hamilton Taft

8

to continue to' receive funds from its clients, to avoid massive 9

cancellat ions of its contracts, and- to preserve the opportuni ty 10 for new business. 11

False'Tax Returns are-Filed 12

20.

In the third quarter of 1989, when approximately

13

$25.3 million in

f~deral

payroll taxes were not paid, Armstrong

14 and Fowles approved the filing of approximately one hundred

15 false Employer's Quarterly Tax Returns, Forms 941, for the

16

calendar quarter ending September 30, 1989. 17

Each return 0

falsely stated that all the taxes for the quarter" had been lB-

paid.

The- clients who

these returns were thereby

receiv~d

19

falsely led to believe that all their taxes had been paid. 20

Later, when the IRS discovered the shortage and notified the 21

clients and Hamilton Taft, the clients who inquired were again 22

deceived when Hamilton Taft employees, at Armstrong and Fowles' 23

direction, falsely stated that the reason for the non-payments 24 was a temporary problem with Hamilton Taft's computer software 25

26

I N DIe T MEN T (Armstrong & Fowles)

8

000008

1

or was due to

"banking problem."

8

_

2

Ibe Cover-up Method Changes

3'-

21.

Beginning in the first quarter of 1990,

4

Armstrong directed the systematic holding back of taxes early 5

in a quarter, intending that the taKes would be paid around the

6

quarterl~

time the employer

tax

~eturns

were due to be filed

7

several months later.

After the end of each quarter, when the

-tax return

was near, the unpaid taKes were paid

S 9

wi th funds

.

filing'dat~

. rece 1ved

Another, larger round of holding back taxes

about to be d4e.

11·

ovas then

D

12

~ r4~·

.j',r/.. ~· -:

···1~'·

.'

:.'. .1).6. '2

•

.

i7,

~ecessary.

. of currently due ...

.. ·.13 _... ~ ... .

.~.

from othe r cl len ts----whose own taxes we re

10

.longer ..;.. ~ .~ ~:,I'

By

choosing to pay past due taxes instead

ta~es,

Armstrong was able to delay,' for a much

time,a.dJscov~ry

by the clients that their taxes had been

.'

• .

.

;. •

a

.

"Da ~ ·la te~: -:-~Af ~.~'.. '. . .'

the "same . time, he was able to cre a te the false . ·i~dression that ·Hamilton Taftls bu'siness was running smoothly. . '

I

In' fact,. Hamilton Taft was 'insolvent and heading toward '·0

collapse.

MOreover, by choosing to pay past due taxes instead

18

of currently due

ta~es,

Arms~rong

increased Hamilton Taft '.s

19

,penalty liability

co

beca~se

the failure to deposit penalty on the

20

currently due taxes would be f rve percent t. while the f'l ve per:2~

cent failure to deposit penalty on the overdue taxes had ·22

already accrued and the only additional penalty would be the ·23

failure to· pay

pen~lty

of one-half percent each month the taxes

24

remained unpaid., 25, \.

·26

I N D-I C THE N T (Armstrong & Fowles)

9

000009·

~.'

1

Selected Clients' Taxes

2 22.

L~re

Not Held Back

Some of Hamilton Taft's clients had contracts

3

that required Hamilton Taft to verify each deposit of federal 4

0

taxes during a quarter.

To ensure the success of the cover-up,

5

~

Armstrong and Fowles directed that the taxes 'of these clients 6

"

not be held back.

-

,~

.

The remaining clients would ~eceive notic~s

.7

of late payments (typically, about six months after they had 8

transferred funds to Hamilton Taft) pay the late penalties and. 10 11

~ but Ha~i;to~,:,Tart"'JouC'P":..~

9

i~

wou,ld appear to

~

.. ,' . ,.,'.

13

~

..

_.'

.

- '. .: . ~' ~ P'~;' .:: ~_ .,.",: ..~

... ?f"

Tafte~mploYe;~ Q

who responded to inquires did not know the re~so~~o~ t~ i~e

..

,

'. t-·..

penalties and could only give misleading responses., 14

,

~='

., •... :'·...0

the late payment was an isolated, innocent "pc~u~rence~,.':' Moreover, as Armstrong and Fowles knew, Hamilton

12

.. ~.'=' ..-_.. ,I": .-";:. ....:_

'~he' cli~~O~Q~. ,'".:,:'

~.a

::.:.,.f!' ",.;

:.:.''''

ArmstrODQ Stonewalls'

C).

15

_

.' .,

~...


23.

16

Finally, in early March 1991, when a"Hamllecm'_-',oI_'"' " '~:':.~ ~:=:.~~.:.. .... -" 'oi": ~-~:. . ~'Q .t -ri:7~ Taft employee notified some of the clients of th'e:'- s-ys tema " . . 'jlo'

17

"

-

~

,

•

~

diversion of funds and the non-payment of taxes, Armstrong ., 18

falsely 'represented' tq many <:...1 ients that 19

th~

allegaEions were

false and that taxes. had been pa id la te-·-ohly' oCQas Lonally.' , 20

Armstrong also

..

attempte~

D

to disseminate this false account·

21

through the media. 22 24. 23

The language contained' iil paragrap~sQ.,8 - i3 is'

incorporated by reference in Counts One through

T~enty-One

.'

24

25 26

"

. -

..

....

..... '.. '-" .. :-.--: '

':\ :.:~'.,

..

~-

~

:'

"~.

:J

~

,.

.' •

.-. . . , '. D.0'0'0 l
.

... .•.• _. "

,

0

~

'.' ... - :

~,

::cr.;' :.:'.~,.:-";' ,:, :. :~.[. ':

1

COUNTS RELATING TO THE

2

COUNT ONE: 3

(18 u. S •C.

§§

TAX SERVICE PROPOSALS

PAYRQL~

2314, 2)

The Grand Jury charges that:

4

On or about September 27, 1989, in the Northern 5

_ _ _ _ .

-

-_.,~_,

-

-_

o'

-.

-

.~-

District of California and elsewhere 4

6

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

7

a~d

8

defendant herein, haVing devised

intending-to devise a

9

scheme and artifice to defraud and to obtain money by means of

10

false and fraudulent pretenses, representations and promises,

11

did knowingly and for the purpose of executing the scheme,

12

cause and induce representatives of Commercial Credit Group,

13

Inc. to travel in interstate commerce from Baltimore, MO, to

14

San Francisco, CA,.for a meeting with Hamilton Taft

15

representatives concerning Hamilton Taftls proposal to provide

16

payroll tax services to Commercial Credit.

17

COUNT TWQ:

18 19 20 21

(18 U.S.C.

§

2314, 2)

The" Grand Jury further charges that: On or about April 26, 1990, in the Northern District

.

r----

'-~---"

.. ,,""

of California and elsewhere,

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

22

defendants herein, having devised and intending to devise a 23

scheme and artifice to defraud and to obtain money by means of 24 '"'~ - 25

.false and fraudulent_pretenses, representations and

26

.- ~- :i-: .

.-

promise~,

.. .

- • .1

000011

_

._

1

did knowingly and for the purpose

~f-executing

the scheme,

2

--

cause and induce representatives of R. R. Donnelley & Sons """'--

3

---~-

_.-

....

_.,

Company to travel in interstate commerce from Chicago, IL, to 4

San Francisco, CA, for a meeting with Hamilton Taft 5

representatives concerning Hamilton Taft's proposal to provide 6

payroll tax services -to R. R. Donnelley.7

COUNT THREE:

(18 U.S.C.

§

2314)

8

The Grand Jury further charges that: 9

-_.--

On or about June 6, 1990, in the Northern District of __ . . -.

10

,.

California and elsewhere, 11

CONNIE C. ARMSTRONG, JR., 12

defendant herein, having devised and intending to devise a 13

scheme and artifice to defraud and to obtain money by means of 14

false and fraudulent

pretense~,

representations and promises,

15

did knowingly and for the purpose of executing the scheme, 16

cause and induce representatives of Scott 17

Pa~r Company to ---- ---- - .-. . travel in interstate commerce from Philadelphia, PA, to San

.

18.

Francisco, CA, for a meeting

~ith

Hamilton Taft representatives

19

concerning Hamilton Taft's proposal to provide payroll tax 20

services to Scott Paper Company. 21 22

23 24

II II II II

25 26

.'I . "N-- D I e T ME· N T (Armstrong & Fowles)

12

000012

1

COUNTS RELATING TO TAX SERVICE AGREEMENTS

2

COUNT FOUR: 3

§

1343, 2)

The Grand Jury further charges that:

4 On

5

(18 U.S.C.

or about December 5, 1989, in the Northern

District of California, and elsewhere,

6

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

7 8

defendants herein: for the purpose of executing the scheme to

9

defraud and to obtain money by means of false and fraudulent

10

pretenses, representations, and promises, and attempting to do

11

so, did knowingly cause to be transmitted by means of wire

12

communication in interstate commerce a facsimile copy of a

13

signed Tax Service Agreement from Sunbelt Beverage in

14

Lutherville, MD, to Hamilton Taft in San Francisco, CA.

15

COUNT FIYE:

(18 U.S .. C. § 1343,2)

The Grand Jury further.charges that:

.17 18 19

On or

~bout

December 15, 1989, in the Northern

District of California, and elsewhere, CONNIE C. ARMSTRONG, JR. and

RICHARD A. FOWLES, 20

defendants herein, for the purpose of executing the scheme to 21

defraud and to obtain money by means of false and fraudulent 22

pretenses, representations, and promises, and attempting to do 23

so, did knowingly cause to be transmitted by means of wire 24

communication in interstate commerce a facsimile copy of a 25 26

I N D I C T MEN T (Armstrong & Fovles)

13

00001& ·

1

signed Tax Service Agreement from the Kendall Company in

2

Boston, MA, to Hamilton Taft in San Francisco, CA.

3

COUNT SIX:

(18 U.S.C.

~

1343)

4

The Grand Jury charges that: 5

On or about September 18, 1990, in the Northern 6

District of California, and elsewhere, 7

CONNIE C. ARMSTRONG, JR., 8

defendant herein, for the purpose of executing the scheme to 9

defraud and to obtain money by means of false and fraudulent 10

pretenses, representations, and promises, and attempting to do 11

so, did knowingly cause to be transmitted by means of wire 12

communication in interstate commerce a facsimile copy of a 13

signed Tax Service Agreement fr9m Jim Beam Brands Company and 14 JBB Spirits Inc. in Deerfield, IL, to Hamilton Taft in San 15 16 17

o

Francisco, CA.

• Q. .-

,.

"

...

o

o

.

COUNTS RELATIN6 TO THE DIYIRSION' Of FUNDS NEEPED FOR TAXES . . .. . (18 U.S.C. §, 1343,. 2» • Do·

18

The Grand Jury futtber charges that: 19

---

._----

On or about September 1, 1989, in the Northern 20

"--._-,

-

.

District of California and elsewhere, 21

22

CONNIE C. ARMSTRONG, JR., AND RICHARD A. FOWLES,

23

defendant herein, for the purpose of executing the scheme to

24

defraud and to obtain money by false and fraudulent- pretenses,

..

25

representations, and promises, and attempting to do so, did

26

I N D I C T MEN T

(Armstrong' Fowles)

14

...

000014

~.

1

2

knowingly cause to be transmitted

~y_means

of wire

communication 1n interstate commerce from a Hamilton Taft Smith

3

Barney account in Newport Beach, CA, to State street Bank & 4

Trust Company, Boston, MA, f/b/o Dresdner Enterprises, Inc., a

5

money wire transfer in the amount of $1 million. 6

-------

QQUNT EIGHT: 7

(18 U.S.C.

§§

1343, 2)

The Grand Jury further charges that:

8

On or about November 14, 1989, in the Northern

9

District of California and elsewhere, 10

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

11

12

defendants herein, for the purpose of executing the scheme to

13

defraud and to obtain money by false and fraudulent pretenses,

14

representations, and promises, and attempting to do so, did

15

knowingly cause to be transmitted by means of wire

16

communication in interstate commerce from a Hamilton Taft"Bank

17

of America account in San Francisco, CA, to state street Bank

16

and Trust Company, Boston, MA, f/b/a Dresdner Enterprises,

19

Inc., a money ~ire transfer

20

II

21

II II II II II

22 23

24

25

26

I N Die THE N T (Armstrong' Fowles)

i;

the amount of $1.1 million.

15

000015

1

CQUNT NINE:

(18 U.S.C.

~§

1343, 2L_

2

The Grand Jury further charges that: 3

Qn or about February 8, 1990, in the Northern

4

District of California and elsewhere, 5

CQNNIE C. ARMSTRONG, JR. and RICHARD A. FQWLES,

6

7

defendants herein, for the purpose of executing the scheme to

8

defraud and to obtain money by false and fraudulent pretenses,

9

representations, and promises, and attempting to do so, did

10

knowingly cause to be transmitted by means of wire

11

communication in interstate commerce from a Hamilton Taft Smith

12

Barney account in Newport Beach, CA, to State Street Bank &

13

Trust Company, Boston, MA, flblo Winthrop Realty Company, a --- ...... _--_.

14

money wire transfer in the amount of $9.8 million . ._ -_.0 .__._ •

15

COUNT TEN:

----------~_.-

(18 U.S.C.

§§

1343, 2)

16

The Grand Jury further charges that:

17

On or about May 2, 1990, in the Northern District of

IS

California and elsewhere,

-

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

19 20

defendants herein, for the purpose of executing the scheme to

21 defraud and to obtain money by false and fraudulent pretenses,

22 representations, and promises, and attempting to do so, did 23 '~nowihgly

25

26

cause to be transmitted by means of wire

-comInunicat1on ri'n interstate commerce from a Hamilton Taft ~ank

.

I N D I C T MEN T (Armstrong & Fowles)

16

OQOOl6

c'

L1

1 2

3

of America account in San

Francisc~~_CA,

to a Dresdner

Petroleum, Inc., Bank One account in Dallas, TX, a money wire transfer in the amount of $4 million.

4

COUNT ELEVEN:

(18 U.S.C. 0 1343)

5

The Grand Jury further charges that: 6

On or about September 4, 1990, 1n the Northern 7

District of California and elsewhere, 8

CONNIE C. ARMSTRONG, JR., 9

defendant herein, for the purpose of executing the scheme to 10

defraud and to obtain money by false and fraudulent pretenses, 11 ~epresenta~ions,

and promises, and attempting to do so, did

12 knowingly cause to be transmitted by means of wire 13

communication in interstate commerce from a Hamilton Taft Bank 14

of America account in San Francisco, CA, to First National Bank 15

of Chicago, Chicago, Illinois, [Ib/o Winthrop Realty

~ompany,

a

16

money wire transfer in the amount of $2 million. 17

18

COUNT

TWELVE:

(18 U.S.C. § 1343)

..

The Grand Jury furtper charges that: 19

On or about September 10, 1990, in the Northern 20

District of California and elsewhere, 21

CONNIE C. ARMSTRONG, JR., 22

defendant herein, for the purpose of executing the scheme to 23

defraud and to obtain money by false and fraudulent pretenses, 24 repre~entations,

and promises, and attempting to do so,

25 26

. I N D I C T MEN T (Armstrong & Fowles)

did~

....

17

000017

•

I

-:

.~.

c. 1

2 3

knowingly cause to be transmitted

I

of wire

~y_means

communication in interstate commerce from a Hamilton Taft Security Pacific account in San Francisco, CA, to a Remington

4

Companies, Inc. Bank One account in Dallas, TX, a money wire 5

6

7

transfer in the amount of $1.7 million.

COUNT THIRTEEN:

(18 U.S.C.

§

1343)

The Grand Jury further charges that:

8

On or about September 12, 1990, in the Northern 9

District of California and elsewhere, 10

CONNIE C. ARMSTRONG, JR., 11

4efendant herein, for the purpose of executing the scheme to 12

defraud and to obtain money by false and fraudulent pretenses, 13

representations, and promises, and attempting to do so, did 14

knowingly cause to be transmitted by means of wire 15

communication in interstate commerce from a Hamilton Taft 16

Security Paclflc account in San Francisco,

C~,

to a Remington

17

Companies Inc. Bank One account in Dallas, TX, a money wire 18

transfer ·in the amount of $3.) million. 19

COUNT FQURTEEN:

(18 U.S.C.

§

1343)

20

The Grand Jury further charges that: 21

On or about December 5, 1990, in the Northern 22

District of California and elsewhere, 23

o

.

CONNIE C. ARMSTRONG, JR., 24

defendant herein, for the purpose of

exec~ting

the scheme to

25

26

I N DIe T MEN T (Armstrong ~ Fowles)

18

O~0018

1

defraud and to obtain money by false and fraudulent pretenses,

2

representations, and promises, and attempting to do so, did 3

knowingly cause to be transmitted by means of wire

-4

communication 1n interstate commerce from a Hamilton Taft 5

Security Pacific account in San Francisco, CA, to a

6

Knightsbridge Treasury Bank One account in Dallas, TX, a money 7

wire transfer in the amount of $1.1 million. 8

COUNTS RELATING TO THE PAYMENT OF LATE TAXES

WITH FUNDS RECEIVED fOR CURRENTLY DUE TAXES

9

10

COUNT FIFTEEN

(18 U.S.C. § 2314, 2 )--

JS-R Do4Z7JJ..r~

11

The Grand Jury further charges that:

12

On or about April 12, 1990, in the Northern District of

13

California, and elsewhere, CONNIE C. ARMSTRONG, JR., and

14

RICHARD A. FOWLES, 15 defendants herein, did cause to be transported in interstate 16

commerce from

Hami~ton

Taft in San Francisco, CA, to the North

17

Carolina

Nat10~al

Bank in Ashville, NC, securities having an

18

aggregate value of

approxlmat~ly

$19.4 millon,

kno~ing

that the

19

securities yere traceable to funds that were wrongfully 20

converted and taken by fraud. 21 22

23 24 25

26

/1 /1

/1 1/

:-- :".•. ·-u ..

I N DIe T H tNT (Armstrong' Fowles)

19

0000]9

-

,

L

1

COUNT SIXTEEN: 2

(18 U.S.C.

2314)

§

The Grand Jury further charges that:

3

On or about August 1, 1990, 1n the Northern District of

4

California, and elsewhere, 5

CONNIE C. ARMSTRONG, JR.,

6

defendant herein, did cause to be transported in interstate 7

commerce from Hamilton Taft 1n San Francisco, CA, to the North 8

Carolina National Bank in Ashville, NC, securities having an 9

aggregate value of approximately $37.8

ml111on,~knowing

that

10

the securities were traceable to funds that were wrongfully 11 ~onverted

and taken by. fraud.

12 COUNT SEVENTEEN:

(18 U.S.C. § 2314)

13

The Grand Jury further charges that: 14 On or about November 1, 1990, in the Northern District of 15

California, and elsewhere, 16

CONNIE C. ARMSTRONG, JR., 17

defendant herein, did cause to be transported in interstate 18 commerce from Hamilton Taft 19

in

San Francisco, CA, to the North

Carolina National Bank in Ashville, NC, securities having an 20

aggregate value of approximately $45.0 million, knowing .that

21

the securities were traceable to funds that were wrongfully 22

converted and taken by fraud. 23

1/ 1/ 26

1 N DIe T MEN T (Armstrong & Fowles)

20

000020

.-'

c.· 1

COUNT EIGHTEEN: 2

3

(18 U.S.C.

~

23 14 1__

The Grand Jury further charges that: On or about February I, 1991, in the Northern District of

4

California, and elsewhere, 5

CONNIE C. ARMSTRONG,

6

defendant herein, did cause to be transported in interstate 7

commerce from Hamilton Taft in San Francisco, CA, to the North 8

Carolina National Bank in Ashville, Ne, securities having an

9

aggregate value of approximately $57.0 million, knowing that

10 the securities were traceable to funds that were wrongfully 11

converted and taken by fraud. 12

COUNTS RELATING TO THE DENIAL OF SOLOPOFF'S ALLEGATIONS 13

COUNT NINETEEN:

(18 U.S.C.

§

1343)

14

The Grand Jury further charges that: 15 On or about March 12, 1991, in the Northern District 16

of California, 17 CONNIE C. ARMSTRONG, JR., 18

defendant here~n, for the purpose of executing the scheme to

19

defraud and to obtain money by false and fraudulent pretenses, 20

representations, and promises, and attempting to do so, did 21

knowingly cause to be transmitted by means of wire 22

communication in interstate commerce

fro~

San Francisco, CA, to

23

Advo System Inc., Windsor, CT, a facs imile

let~eI'_ dated·

March

24

12, 1991, signed "Connie C. Armstrong, Jr." 25 26

I N DIe T H:E N T (Armstrong & Fowles)

21

000021

1

COUNT TWENTY: 2

(18 U.S.C. § 1343)

The Grand Jury further charges that:

3

On or about March 12, 1991, in the Northern District

4

of California, 5 CONNIE C. ARMSTRONG, JR.,

6

defendant herein, for the purpose of executing the scheme to 7

B

defraud and to obtain money by false and fraudulent pretenses, representations, and promises, and attempting to do so, did

9

knowingly cause to be transmitted by means of wire 10

communication in interstate commerce from San Francisco, CA, to 11 Federal Express Corporation, Memphis, TN, a

facslml~e

~etter

12 dated March 12, 1991, signed "Connie C. Armstrong, Jr." 13 COUNT TWENTY-ONE:

(18 U.S.C. § 1343)

14

The Grand Jury further charges that: 15

On or about March 12, 1991, in the Northern District 16

of California, 17 CONNIE C. ARMSTRONG, JR.,

18

defendant herein, for the purpose of executing the scheme to 19 defraud and to obtain money by false and fraudulent pretenses, 20

representations, and promises, and attempting to do so, did 21 22 23 24

II II II II -

25

26

I N DIe T MEN T (Armstrong & Fowles)

22

000022

1

knowingly cause to be transmitted Qy_means of wire

2

communication in interstate commerce from San Francisco, 3

c

Scott Paper Company, Philadelphia, PA, a facsimile letter

4

March 12, 1991, signed "Connie C. Armstrong, Jr." 5

DATED:

A TRUE BILL.

6

rHE DEf

7

----,: pleac

:--:

FOREPERSON

8

'0 \

pleat

7\

was

whic

~

9

aftE

10

Title 8L

11

18U.S.

12

Approved as to Form:

tv1V

AUSA: LUCKEL 18 U.~

13 14

15 16 to th l

17

18 19 20

21 )e

22

Of

23 24 25 26

I N DIe THE N T (Armstrong & Fowles)

23

--

PAYROLL TAX

SERVrC~

This Aoreement is made and entered into as of the Twelfth day of October 1983 by and between S ta:1(ord University Hospital, a California corpora tion, and Hamilton Taft [. Company, ["HAMILTON TAFT"). 567 Golden Gate Avenue, San Francisco. California 9t:l02. a California corporation. WH E:REAS, Stanford U niversi ty Hos;::li,al desi res to engage Hamilton Ta ft to perform payrOll ~ax services with respect to employees of Stanford Univer-sity

and Hamilton Taft desires to ;.Jerform such services; NOW, TH =R. :::;:0 RE. in considera tion of the mutual as:-r~:ments set forth below, the parties agree as follows: DUTIES OF HAf.IILiON TAFT: Durins the term of this Agree"ment, Hamilton Taft will (I) deposit requirec Federal. State and local withholding tax payments for Stanrore University Hos;Jital in the appropriate amounts (utili:ing IRS "!;;afe haven" provisions) and in a timely and proper manner (including payment by check. where allowed) with-the tax authorities on 01" before the payment deadlines; (1) Kamilton T2:-t will ;:>repare, transmit and file required federal, state and local payrOll tax forms and ie;5ons. These duties to be 2 condition pre~e­ dent to "DUTI:S OF STANi=ORD UNiV:::R.SITY HOSPITAL" (reimbursement of Harr.ilton Taft by Stanford Universi~y Hospital). DUTIES Or STANFORD UN(VSRSI7Y HOSPITAL: During the term of this A9r-eement, Si.anford University nospital will (1) deliver to Hamilton Taft such documents (inc!uc:!ins ac::urate autol7\2ted payroll tax summary information together with its payroll tax registe;-s) 25 are necessary to enable Hamilton Taft to earlY out its duties under the ~e:-ms of this Agreement; {2) reimburse ~amiJton Taft. via Hamilton Taft'S De,::lositor-y Transfer Check no sooner and no later than 2 calencar days of" the r.I.T .. F.I.C_;.. .. and State tax ce;:>ository due dates, in the amour.t of 1 ()a~ of fede ....al anc stale liabilities. and (j) reim~urse Hamilton Taf •. at Sank of America's ove~dra(t or uncolre-:ted funds borrowing rate applied to r-:amilton Taf, 2S a result of an improper failure by S,anroid University Hospital to reimourse Hamilton Taft in a timely manner for the tax deposits made or. 5 tar. ford Universi~y Hospital's behalf. COMPENSATI8~

OF HAMILTON TAi="T: Compensation which Hamilton Taft shall receive for performance of the Guties des~ribed he~ein is that Hamilton Taft may retain whatever benefitS may ~e derived from the temporary use of any funes not collected immediately '::)y the taxing aut.~odtjes upon Hamilton Taft's deposit of ~2yment on Stanfor:: Uni .... ersity Hos;li~al's ~ehalf on or before the payment deac:ines.

INDEMNIF1CAT10N: Hamilton Taft shall indemnify. defend and hold Stanford UniverSity Hosortal harmless from and against any and all expenses. damages, claims, suits. ac:ions. juGgi.1enrs ane costs, includins attorney's fees. arising out of Hamilton Taft'S failure to perform the duties describ~ herein in a timely a"nd proper ma nner. FEES: Hamilton Taft ..... ill charge Stanforc Univ~rsity Hospital on the las, business cay of each month via De~ository Transfer check. 550.DO for eac.'1 Federal I.D. and SiO.DO per month (or each State in excess of one servicec. Initiation fees will be a one ~jme charge of SiOa.OO pe:- federal t.D.

e·

e·

TERM AND TERJ\\INATION: The term of this Agreement shall begin on oc:tOber 12. 1983 and continue indefinitely until terminated by either party as provided below. Stanford University Hospital may terminate this Agreement immediately if (1) H3millon Taft fails to perform any of its obligations under the terms of this Agreement; (2) a voluntary or involuntary petition for relief of debtors or creditors is filed by or against Hamilton Taft; 0 , (31 Hamilton Taft enters into or effe-.:ts any plan or agreement with its creditors. Either 5 tanford University Hospital or Hamilton Taft may terminate this Agreement \llIithout cause Upon 30 days' written notice. FIDELlTY BOND: In order to protect Stanford University Hospital against dishonesty or fraud by employees of Hamilton Taft, Hamilton Taft shall maintain during the term of this Ag reement one or more fidelity bonds in ag9rel:la te amounts equal to S2Q million. As new customers are acquired by Hamilton Tart. the amount of s2id fidelity bond shall be incre2sec so that the percentage of customer deposits protectec by fidelity bonds remains adequate and constant, Stanford University Hospital shall be entitled to 60 daysl written notice from the bonding companies of any cancellation of such fidelity bonds. MISCELLANEOUS: This agreement constitutes the entire understanding between Stanford Universi:y Hospital and Hamilton Taft and cannot be modified except· by an agreement in writing signed by the parties. Upon execution of this Ag reemen t. this Ag reement sha II supersede all prior negotiations. understandings and agreements. whether ora! or written. This Agreement may not be delegated to persons who 21-e not em;:iloyees of Hamilton Taft. Any notice required to be given shall be in writing. postage ~repaid. by certified m2ir.

IN WITNESS WHERSOF, ,he ;::;arties herein have caused this Agreement to executed on the cate first 2bove written.

ACCSPT=:O""3Y SiANFORD

ACC::?TcD S Y HAMILTON TAFT

UNIVE}'!\'mp'TAL By: /

Title:

(/LZ-Lo~~'---·J

~e

. -..,/ 8'1':

- .. "

...

/.

/~. .-t,.",.

/ '...:..:.,. .... /1/..;"",,--,.. -- .- '" -

'-'

Qi r,=c~:::lr 07 i="inan::e

Ti tIe:

---'=--=-':~'--'--':""""'~------

......

. -.". ~{' P '. : . I 'I:

Hay 27, 1982

r .,' "Ii

Hamilton Taft & Company 1255 Post street San Francisco, CA 94109 Re:

0'

r( .-:

, (

}~

\~.

"

'1

.1 ,

r i. . I'.

Payroll Tax Service Agreement

Gentlemen and Ladies:

This letter is to set out the terms of the asreement between Hamil ton T2.ft £. ComElany (hereinafter referred to as "Hamil ton Ta ft" or "Comp2ny")

Junior

and the Board of Trustees of the Le12nd Stanford

Unive~5ity

(Eereinafter referred to as nUniversityn or

.. Stanford") . Notification:

1.

tax deposit before

eac~

(24) hours

2.

c~e

Ha~ilton

Taft shall notify Stanford of all

dates relevant hereuncer by five (5) calenda= days

cue cater

a=~er

the

a~c

~ate

shall

noti=~

Stanforc of any

aeficie~cy

of deposit.

Services to be orovided bv Ramilton Taft:

(A)

E~iltcn

tax authorities

Ta':-:' shall deposit for Stan:::orc wit::' the reletJ·a!':t.

2~ounts e~ual

to all Federal and California taxes

required ta be withhelc from the Stanford payroll, including but not by way of limitation Insu=ance

Act

(FU~A)

to meet {B}

Cantri~utions

taxes.

s~ate

and federal income t2Xes, Federal Fece~al Una~91oyment

Act (FICA) anc

Tax

Hamilton T2ft shall make these deposits in

Gove=~~ental

ti~e

deadlines for ceposits.

F.2!'ri.ilton Taf-:- sh21l provice

writt~;.

EXHIBIT A

oroo: of all deposi=-s

('

Hamilton Taft & Co. May 27, 1982 Page 2.

, not later than ten

(10) working days

afte~

the due date for each

deposit. Source of Funds:

3.

Deposits by Hamilton Taft uncer this

agreement shall be made from Hamilton Taft's bank account Number 0331-02641 at the main office of Bank of America, 345 Montgomery Street, San Francisco, California '94104.

4.

Actions bv Stanforc:

Stanford will: Dete~ne

(A)

amou~ts

to be deposited for Fede=al and

state withholding purposes;

(E)

Advise

late~ tha~

less

t~an

one two

E~ilton

(1) (2)

Taft of

suc~ ~~ounts,

day a=ter paydate and/or, in

ve=bally no

..... \..!.nc; ,

days prior to each tax deposit due date,

us ins forms sirnila= or identical to Exhibits A and a, he~eto

and by

(e) E~~lton

to

at~ac~ec

reference incorporated herein.

Deposit amounts sufficient for such deposits to Taft bank account described above in a

a~=ive

(i)

~~is

not

WI':l,

map~e~

t~e

tirnec

by the following dates:

For Fede=al Deuosits:

not

late~

than

~~=ee

(3)

banking days after the due ~atei

(ii)

?or

Caliior~ia

Deposits:

banking C2Y a£te= the due date.

loose

not late=

t~an

one

(1)

Hamilton Taft & Co. May 27, 1982 Page 3. ....

5.

Hamilton Taft agrees to hold harmless,

Incemnitv:

and defend Stanford against any and all liability to any

indemni~y

pa~ty

for

any loss, penalty, damage, liability, expense, claim or demand of character, arising out of any breach of duty by

H~~ilton

a~v

unce~

Taft

this agreement. 6.

As security for its performance

Security Deposit:

here~ith

Hamilton Taft shall execute concurrently

hereunde~

the Power of

Attor~ey

over Specified certificate of Deposit attached hereto and by this reference made a part hereof. Fees:

7. \

As the sole fees for Hamilton Taft's service hereunder,

.

stanforc grants herebv to Hamilton Taft

~~e

use and benefit of temporary

disposition of funes cepositec to the account of Hamilton Taft as provided hereunder. 8~

Deliverv Ccsts:

Each party hereto shall pay at the point

of origin the costs of mailing or other .communications or ori;inatin~ ~ith

9. by

Te=:n:

eit~er

such

doc~ents

~arty.

This agreement shall continue in e=fect until

party upon

thi~~y

(30) days notice of termination

te~i~ate~

celivere~

to the ot~er pa~ty, or te~inated by mutual asre~ent between ~~e parties. 10. di~ec~ec

Notices:

Notices, mail, and inquiries hereunder shall be

to each ?arty at the address and

telepho~e

number listec on

Sucj accresses anc telephone numbers may be chanqec by either party u?on writte~ notice of suc~ c~2~~e celiverec to t~e

Hamilton Taft & Co. May 27, 1982 Page 4.

Executed: , Hamilton Taft & CQrnpanv 1255 Post St=eet . San Francisco, CA 94109 Tel.: (415) 885-2929

The Board of Trustees of The Leland Stanford Junior Unive=si~: 102 Encina Hall Stanford, CA 94305 Tel.: (408)~97-J953

By:

By:

Its

Its J-x." ~ kr

~

/

at

--"""---=='---=-...:=::::......=----'--'---

__

---.,c.:.~=r.--:::::..:......:::.......--

Date:

----..<:...._----

~--: 7 .

at Da te:

Stanford June 29. 1982

~

or.d

~

• A.~.ENDMENl

(

TO PAYROLL T::'X

S::::tIl!C~

AG~E=:~ENT

\

ent'::!re~

This Amenc:ilent is me-de anc

into this

7

r

de.y of

, 1983, Eoe the purpose oE modifying the Payroll Tax Serv.ice Agreement dated 29 June 1982 between The Board of Trustees of The Le12nd Stanford Jun.ior University ("STANFORD"), 102

E~cin2

Hall, Palo Alto, California 94305, and Hamilton Taft

a no Comp2 ny ("Efu'1ILTON TAFT"}, -567 Golden Gate Avenue, Sa'l ~alifornia

Francisco, Califoenia 94.102, a

i~

The change shall be mace STANFORD,

p2ragra~h

corporation.

Se=tion 4, of ACTIONS BY

C (i), which shall be amended to read in

its entir:ety

(iil

"For ?ede!:'al Deposits: days after

Exce?t

Not later than. 2 banking

due cate."

t~e

for tbe change sat out above,

Ag reeOilent conti.nues in

HAMILTON TA:T &

COMP.~Y

ef£e~t

in all

... .:l l" '--

t~e

June 29. 1982

te!: iIlS •

THE BOARD OF TRUSTEES OF TSE LELAND ST';~~R crNIVL:>.5IT"':: By

Title

EXHIBIT 8

;;

~~

c,-I rc:rr~

-------------~

• Tni;;

Arr.enc;:-,e:1l

Febt"uaC'y,

for the

196L,

vit:e

A,g.~emenl dated

the

Leland

Hall,

Stanford

Pal"Q

TAFT"),

e~t=::'e-:'

and.

li'.ac.e

L:to

thi;:

It!":

day

cf

purpose of IT.ocifyi'ig the Payr;:;ll Tax Se:--

29 June 1962 between

Junk.

CaliloC"ni.:.

Alto,

("HA~'lILl'ON

is

Uni"Je:-sily

the Boar= of Trustees of

("STANFORD"),

and Har.tiiton Taft

9l.,JOS,

567 Golden Gale

Avenue,

102 Er-.ci.:I2,

and Company

San FC"anci:=co,

Ca1i-

forni.: 9L102, a CaliroC":11'1 Corporalic:'1..

The ford,

change

sha 11

Parag.aph C

(i

a:

be made

5ecti. n I.

i-.

of Aclicns by Stan-

ii) ",'hi..:h shall be Cll7iended to read

i.~

il::

entirely

"For

Feder21

Deoosits; ,

Ncr late:-

th.:Jn

l·...·o

(2) banki.'g

days aIle!." due dete.

Ciil

"For CalifaC":'1.iCl

Net lale!" tha:l

Deocsits:

t\lle (2)

~2.nk-

i:1g days a her due date."

Exceot

canli.;,,\ues i" HA~:lLTaN

far the chenge set above,

effec.t

TAFl &

i~~

a II its

CO~(PA~IY

the June 29. 1::82 Ag::-ee;.:ent

te~~s.

TH~

SOARD OF

LE:LA~:O

TRU5TE~S

STANF'JRD JUiHCR.

~

8Y_-r~=--------,_....c;. 7

Tille

or

T~~

U~nVE:i.=IT,{

_

/~~-

---------------

RECEIVED AU G3C1984

vP. &r.t"lnf.rii I Cau nsel EXHIBIT C

::

... . ,-

,-,

•

.

( i'?S5,

fc"

t.~e

£,U~?05e

of

mociEyinc;

the

?=:!coE

!a:<

S~nti::e

Agr:::ee:-.":,:,,

\

cated

2~

'::et·~ee:1

June 1982.

the Board of

Junioc

Uni\fe~sity

9~3DS,

a.nd Hamilton Tat:: and Company

(·STANfOaD"),

'I::us~ees

Encina Hall,

102

(·~i.~HL'::GN

Avenue, San ="ancLsco, Califocnia 94102, a

The

c~anr;e

?acasra~h

(il

shall

C (i & i i l

be

~hich

mace

a~ended

shall be

"For Federal Deoosits:

Palo

r;.,;-!"),

Califor~ia

Section

in

of the lelanc Sl:anfoc-=

Alto,

567 Cnlden Gcite

Cor?o:ation.

Actions

4 oE

California

by

Stanbr=,

to read in its entir:::ety.

Not. late!: than one (1) banking day afte::-

dt.:e date."

{iil

":-or CalU'or:lia De:losits·: afte!' due

Exce?t con:~~ues

fa r

Noe loter than one

{ll banking dai'

ca~e.·

t~e

c~a~ge

se t

above /

the

June

29,

1982

Age: ee~e!1t

in ef:ec: in all its teems.

'IE.!:

Ba~

L~~AND

Q:

Sr~~FORD

OE'

JUNIOR

ONIV~~S~~!

9y

T'ic.!.e

~~si~~~, E~ilt~ T~~

& C~~tle

EXHIEIT 0

Conc:~~lle':"

-------------

A..t1ENDMENT TO PA.YROLLTAJ<. SERVICE

AG?.EE...~T .;-1-1

This Arne!lC1nen':. is made anc entered i:lto t.-l,.:'s

{I

G.ay of

I

October, 1985, for the ?ur?0se of modifying the Payroll Tax SerS~anford

vice Agreement dated 12 October 1983 between

Hospital, 300

Paste~=

E~lton Taf~

anc

San Francisco,

Drive, Stan£o=c,

Corn?~ny

Ca1~fornia

The char.ge

s~all

HOSPITAL" i::'em '.:wo

(2)

~:"1e

("~_~~~TON ~AFT"J,

94305, and

567 Golden Gate Avenue,

94102, a Cali=o=nia

be made in "DUTIES OF

CQ~Q=2.tion_

STANFOP~

~Iv~P3ITY

which shall tJe amenc.ed to reac. in. its entirety

Tr~~s=er C~eck

cay of

Califo~ia

University

no

soo~e=

and no

F'.:.T.,.:.I.C.J... ,

anc.

:~ter ~~en S~at.e

tax

one calancar

c.e?osit~=y

c12e

it:'es.

£xce?t for

t~e

c~a!lqe

continues in ef=ect in all

a~ove,

set

the October 12, 1983

te~s.

3y

Title

Aq=ee~e~t

'T'"~lc

....

_'---

=

cf)

y

UJ r-'\; l'l~l _~l!i_l...... - ~- 1'1+=- ---~I

L

FEOERAL./POWER OF ATTORNEY AND DECLARATION OF REPRESENTATIVE .. HOW ALL UE~ gy TP-iESE PA£SENTS;

~..Jllcdd

......

Ca. t i f

PaLo Alto

300 ?as ceur Dri.ve

~l

--~

94305

(41.5) 497-5864 ~

lllgl

\1\.-.... C&I".., n. . ~ , _ ~~. "'adA, ~ ..-.:I ~ ..w b, II--. ~ . dl:lotS ~ ........ =n5Utl.A ........ ~ l.AHt:z 'EMtL. c "fAa: H. 'ASV" of "".-zTClft Tm " C-::nooMty. ~Iacs. ~7 ~ C&I.",--. ~ n...cta::o, CIJIlDnaa Ita I..- 4lrII;I '-fuf ~ br ~ ~ ... 11: .-.... , . _ ...., ."W 1q • ..-.l /1:) ~ ~ ~ o-QoQ< .-..4 _ ' - ao.. Ci'5b1d !:l\twc;Xlr of ~ ~ on t\o:f\aIf at ~~'fW .wrum-c

"'in.

~

"_a1 u.-tICl~

T..

'No

~ ~

~ , F~.aI ~1r\Ot ~~.l
I.n4

Foo :t>oe

~

toe.."

,~

I'QIU.

,~;W

l~

_

w.-. 1.LI w.lhhIo/4 ..

~

'<J8&

tot ~Ill"'oq AolI11'IQnly to ~ aCo::lI...... in IlIe." "., •• n o..:li~led_18 .UClll. Ilftd ..-. \I'- . - . . . ~1«3 ~., '"~ ~ ~ 1.I.rt:lISUIula. II .. ~00d Ir\.W .-.eft .......... lI4'Cwll'd 0, -..en ~ ... laCl ....... ~ ~lu6lll\.l ~ .. ~ It:1l" U'o4 ... 1G.A.t.L. ~C.Iot"s"''''' ~-w...w.,..-Iot ~ I.&.. ~ D ~ ~ ~ rN ~ "....."a..u 01 .~'. ~ ""'O~'I ~ _ 0I0"b"""'-<1....a lI'IM .:lC1' ... I ...... moo U~.,... and lro • • lad._ ~ 101 ll'loI 01-..... a:I . . . - and ~ l\.Ki.LICy klt '1101 ~I"" pro. ~ Ia ~:a. l40lu 01 It..,....,l'C ,,' ... n:s.

hJn1I"'''...-..o-ct

,01,...., ...

...wrn.

'et

~ utonwy'" ,~ I"'-II~'" ~ l1'4I :MJlnonty ,.-cod. . c.on4ide<>-er Ie ",,--olll1r -.d ~ _ lU ~:u ~)'foll Lw. rMWn .... c1..;>Q1IIO'l tOf'1Tl-l. ~rwj ccmC)Vkr c>w:IC>U1 IQI' ,..oj..-ct I....!,.. 10 lee .... Of COU~ ~ .... P-I7...-tt 0.1 ..., .~~ "/lnl..- ~ 1.... 10. ~I ...... t:1I in_.SI, Ie .Iu1/'1a 1l"'1H4'
""..-.:&4•

............. ~l""i I:" ,'oI1\
c.:.o-", elf toe'tJ~ ~AN'"

01 LaNU

" ••c;o-ocr tr. I... ~,...

'e- .la.U3srntnf

.r.l\Q

..-.a

U'>4 lo.eQIIio3IO 01 ~q ~L

~r:C1 0'f1'V< •• 'n .... ,0_"'I<;~i"" •• om~5«l \d ,,... f2ao.. ycr«~in ~HdINo' ~ t/'oor &I~ ""'~ JJv>uM1 ~ ~J 10 ... .A.l'IC H. FE~&L. ~ c-f _ , , . , . . r.llT :u.a Colma=-, Inc. ~ ~ e....te " ' _ So.- F,~. ~ ~

/"

&

':OIlltCllOn 04 ~ la....

~. . Q~ ~

llf' J
DAYrn"t.

s~r

ai,,,,,,

LU.j,loI.,... Il;8fil,

=

,a.

I ........

m. ....mon,y

\.II _1IoQM INA

~ cl

A11.... .-yo

OECY3ER 27.

------ CD-ECTOR OF Ft?':,!.,NC::

_ CIctl&I1 0' tr'4

t984

......... - - -

~""'Q.loIC~~

I ~ !l'\&I1 C\.II¥

104.::C

.no

u

ncl r:lII .... ry ~ ~--"'" 01 C1stlM-

~

ame-

'aiT

"on< ~ ~ 1IW IItt"""'" " - - - .s...n.oc.. _

."

~

... 07

Goldaf1

I ... .....", '" T Nu...., ~

~ ~1"1100'l£ r:o-iftol11Qon 1&l1.1J1'
t.1. CJ.}l

>J"od ~ ....." 1'I"Irl J .,.. ....,

Gal e

A.,enue

F=rancisco.

9.( 1Q2

c::z.

eQOWlls.. ~ ~_ ..,,-

.... U'''''''.L..~''e.­ --'''''~e- __

C.aJltornla

~I~

4

(J'S) B6J·2929

U.S. Department of Justice Federal Bureau of Investigation

450 Golden Gate Avenue San Francisco, CA 94102

I.n Reply, PleBse. Refer to

PIle No

February S, 1991

M'illlhff"!'.,v I! Mr. William T. Me Givern

,,",DIU#!

V161

united states Attorney Northern District of California

,o4'S'M/~

t/~AJ 1h1tJ'l~c)"

In/" f,oJ

IVI

j.,,,,!

If

'1

h-j,J

')J7hIJD

t1 ,,,,l),JPr:!t .

450 Golden Gate Avenue P.O. Box 36055

San Francisco, California 94102

Attn:

Mr. Michael Yamaguchi Assistant u.s. Attorney Re:

Chip Armstrong, dba

Hamilton Taft and company #1 Market "'Plaza, Spear st~et Tower

San Fr~~isco, Ca 94105 Fraud by Wire,

POSIES' e

Tax

raud

00:

San Francisco

7

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.

b7C

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, 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~1, sta~~ and local income .

Addressee 1 - 196A-2868 1 -

nfl,O

rv

"1

j

\

\

PKM/sgc (2)

Enclosures

b7C

fJ1::.. ,

'/

- ---- 1

Orl --

,U

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 1 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 aforementioned tax 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 oplnl0n that basically stated that at the time a payroll is rendered, that is paid by the employer, tf-'''' ~.. _~- ~~ __ ~ .L..~ the withheld taxes belong to the federal t (.1 / / J employer becomes a trustee for those fund: 'HIJ t/r''''·m;".w II 71ldd~J Jj and responsibilities of a trustee are mant NelJ~(,. lo/'fJMle-tL1 ~J.V .;J. T dJd..J'1 _

j,~

2

t1

+r f

Id

0/" p/;;J/ ;tJI N /.Jd4 ~ e J)~ Ih'tJ!~k 0 I lib; ~j. a

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. When interview~the Federal Bureau of Investigation (FBI) in August of 1988, l----J went so far as to state that some individuals representing clients have stated that the collected funds need to be put in a bank account separate from other funds of that particular entity. In addition, during his tenure at Hamilton Taft, Hamilton Taft considered themselves to be trustees for those funds on behalf of the various taxing agencies.

I

By way of background information, I stated that in August of 1984, Hamilton Taft was sold to the eigna 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. b ir-

0_

According to a personality conflict developed between himself and one formally Executive Vice President of cigna corpora on W 0 was placed by that corporation as the person in charge of Hamilton Taft's operation. Because of the perSjnality differences between l I and 1 lonel I _was appointed as President of Hamilton Taft.

I

Shortly after leaving Hamilton Taft in the latter half of 1985,1 Istated he became aware that Hamilton Taft started to lose approximately $100,000 per month. He noted that while he was President of Hamilton Taft, that the company although not highly profitable, was able to stay in a slight profit positi~n. He understands that Hamilton Taft hired another President but the company continued to lose money in eigna 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 eigna Corporation as a down payment for the purchase of Hamil~on Taft. On February 29, 1988, Maxphrama Incorporated completed its purchase of Hamilton Taft from Cigna Corporation.

I lalso stated to one I r fonner Executive Vice president in charge of operations for Hamilton Taft provided him with the foregoin9 information. r--1~llegedly toldl Ion February 27,1988 that [ I hacr1um I I transfer $5,000,000 by wire transfer to a brokerage house in New Orleans, Louisiana called the Howard Wiel Labluisse Friedricke Investment security Incorporated. Allegedly~toldl I that this wire transfer was to purchase a Treasury B~ll at 5 1/2% interest. r--l allegedly asked Iwhy she was purchasing a Treasury Bi~

I

3

with such a short yield period, I (would not respond to just told him to do it. c::::J told I I that the $5,000,000 was exclusive~stomer funds which were put on deposit with Hamilton Taft. ~toldl Ithat at the time the transfer was made, Hamilton Taft did not have any funds of its own.

May' 5 question and

I I noted that the form B-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 Turchase of Hamiltorr Taft from Cigna Corporation. According tel ItOld him that these funds had been transferred to th1S brokerage firm from customer funds in the custody of Hamilton Taft. According to [ I also advised thatl~' Ihad directed him to wire transfer $50,000 in an unrelated transaction.

b7C

In order to assist you in preventing your opinion from a historical point of View; we are enclosing a copy of the actual FD-302 noting interview of. with appropriate copies of documents provided byl to our agent.

I

I

was also interviewed in December of 1988. I--~==~I~h~a~d~b~e~e~n~h~iredby Hamilton Taft as TreasurerManager of the firm. I I is a certified Public Accountant (CPA) having become a CPA in the state of ta~jf:rnja ~.: [986.

I

Ibasically stated that shortly after

became

s e WOll e making the day to day investment decisions regarding the funds of President of Hamilton Taft, she told him t

a

Hamilton Taft. She instructed him not to make any investment unless she okayed them. He explained to her that any monies b7C 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 into commercial paper, were done at the direction

I

I

01J

L.

~would

In connection with his responsibilitiesL-

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, Istated 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 her statements and the strength of Maxphrama, she showedL _l the Hamilton financial statement which listed Hamilton Taft's assets in excess of 30,000,000. financial picture was quite different than the financia statements which he had prepared for Hamilton from the month of April, 1988. 13d.!OIl£ ::r. O~1JJ"'--d. [~'''''rJC'li'' - 11'../ oha .;/IICJ';s C;~/~:' j) ,,' I .' '. • .... , ( J" -- . r,}.:..' I: t.n It:/': ,j {. r-t c C } t; ;~ . {;. :.: -t .. ;')i"{U::. "'4'" .!J'

I

I

I

f

I

i ( r I;:"J~'~'

~'e

,~.

i

~,

pparent tel lin looking at the financial statement showed him that someone had taken the April r 1988 financ~a s atements of Hamilton and re-did them. The financial statement prepared for Hamilton Taft showed its retatU:d eD~Dt·ngS at approximately $200,000. I Istated he told. _ . during this conversation that he thought the financlal statements which she had showed him for Hamilton Taft were a fabrication and not r[gr~se:ta~ive of Hamilton Taft's actual financial condition. _ _ Jreplied that the people in Dallas were taking care of these f~nancial statements.

~

I

I

noted 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 ofl I is incorporated as part of this communication. It should also be noted that onel Iwas 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 specializ1ng 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 withe==] 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. a/Dct 0/(/ ~)iJS rJ!(f/..f.~././_(~J0';~:j,

.~i

A~

On December 24, 1990, ~the office recei~com-e\aint./.. ,-".1.1,. rcall from one I t Contr~ller and CPA. l I / ~tated that he was the current Controller of Hamilton Taft and that ~e was calling the FBI becaus 7 he felt that his e~ployer was} I~ /1 cheat1ng the Internal Revenue Servlce (IRS) by not pay1ng ta~es 1,--1/1 .':> : ~ {J i owing to not only the IRS but other taxing entities when -they -{.! tb,l).:.: we:re due. I ladvised that at least $20,000,000 in client iJr:r!-~.f· funds have been transferred to accounts controlled by Chip ,:'b,ui Armstrong, the new CEO of Hamilton Taft. I I stated that fllfdS were used to purchase one or more companies in Tex~s. . _ . stated that Hamilton Taft had approXimatel: 100 . emp oyees in San Francisco in July of 1990. ~ 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's clients. 1 I has documentation to support his claims .£~";..: ~\ ~ ~\. and is scheduled to present same to the FBI on Jar:uary 13 t ~991 '=7-~'-?-- ~-. ~ at 10: 00 am. I I furth~r stated that th:-re 15 an ongolng . ~ ~~-~ ~ . procedure for prov~d~ng lUll~ng letters to c11ents who actually ~ L~~: \ complain to Hamilton Taft when they J the client, receive a late {Z---r-, :' ~

l

W (tbe;e "

\

''-.

~ .::

5

r·o f.t

t\'''~ :

~....,,: '\......, 1: ~~ .

~

'i" .:- .......

~ t.:,.....fJ. -.., ~'~,,, Jy'

~~D t :~;:-:

b7C notice from the IRS.

I

J 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

By:

b7C Agent

6*