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2 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK 3 - - - - - - - - - - - - - - X 4 UNITED STATES OF AMERICA, : CR 96 1016(S-1) 5 v. : U.S. Courthouse 6 Uniondale, New York BRUCE W. GORDON, WHO'S WHO 7 WORLD WIDE REGISTRY, INC., : STERLING WHO'S WHO, INC., 8 TARA GARBOSKI, ORAL FRANK OSMAN, LAURA WEITZ, ANNETTE 9 HALEY, SCOTT MICHAELSON, : STEVE RUBIN, and MARTIN 10 REFFSIN, : TRANSCRIPT OF TRIAL 11 Defendants. : February 2, 1998 12 - - - - - - - - - - - - - - X 9:30 o'clock a.m. 13 14 BEFORE: 15 HONORABLE ARTHUR D. SPATT, U.S.D.J. 16 APPEARANCES: 17 For the Government: ZACHARY W. CARTER 18 United States Attorney One Pierrepont Plaza 19 Brooklyn, New York 11201 By: RONALD G. WHITE 20 CECIL SCOTT Assistant U.S. Attorneys 21 For the Defendants: NOR
MAN TRABULUS, ESQ. 22 For Bruce W. Gordon 170 Old Country Road, Suite 600 23 Mineola, New York 11501 24 EDWARD P. JENKS, ESQ. For Who's Who, Sterling 25 332 Willis Avenue Mineola, New York 11501
OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2281
1 GARY SCHOER, ESQ. 2 For Tara Garboski 6800 Jericho Turnpike 3 Syosset, New York 11791
4 ALAN M. NELSON, ESQ. For Oral Frank Osman 5 3000 Marcus Avenue Lake Success, New York 11042 6 WINSTON LEE, ESQ. 7 For Laura Weitz 319 Broadway 8 New York, New York 10007
9 MARTIN GEDULDIG, ESQ. For Annette Haley 10 400 South Oyster Bay Road Hicksville, New York 11801 11 JAMES C. NEVILLE, ESQ. 12 For Scott Michaelson 225 Broadway 13 New York, New York 10007
14 THOMAS F.X. DUNN, For Steve Rubin 15 150 Nassau Street
New York, New York 10038 16 JOHN S. WALLENSTEIN, ESQ. 17 For Mart
in Reffsin 215 Hilton Avenue 18 Hempstead, New York 11551
19
Court Reporter: Owen M. Wicker, RPR 20 United States District Court
Two Uniondale Avenue 21 Uniondale, New York 11553 (516) 292-6963 22
23 Proceedings recorded by mechanical stenography, transcript produced by computer-assisted transcription. 24 25 OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2282 1 (Case called.) 2 MR. WHITE: Your Honor, before the jury comes in 3 I wanted to ask the Court's permission if we could 4 interrupt the testimony again of Agent Rosenblatt and put 5 on a couple other witnesses. Among the ones I told the 6 defense attorney would be in here today, two witnesses 7 have to leave town tonight, they are in from out of town, 8 and I would imagine if we wait until we finish 9 Mr. Rosenblatt they may not get on today. 10 THE COURT: Yes.
11 MR. WHITE: Thank you. 12 (Jury enters.) 13 THE COURT: Good morning, members of the jury. 14 Please be seated. 15 Again, my compliments. It was 9:30 on the nose 16 when we got the signal. Of course for a few days you were 17 here even before 9:30, that's even better than 9:30, but 18 I'll settle for 9:30. 19 I have distressing news for you. You will not be 20 here on Friday. I would like to have you here on Friday, 21 you know that because I like to keep the trial going and I 22 like your company besides. But try as I could, I could 23 not arrange my schedule to do away with all the other 24 cases that I already put on for Friday that are clamoring 25 for my attention while I'm busy for this trial. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2283 Rieger-direct/Scott 1 So we'll not be working on this trial on Friday.
2 You may make arrangements to go to work. 3 All right. You may proceed.
4 MS. SCOTT: Thank you, Your Honor. 5 The government calls Rita Rieger.
6 R I T A R I E G E R , having been first duly sworn by 7 the Clerk of the Court, was examined and testified as 8 follows: 9 THE WITNESS: My name is Rita Rieger, 10 R-I-E-G-E-R. 11 THE COURT: Members of the jury, I told you that 12 we will interrupt from time to time to take another 13 witness. This is one of the occasions we are 14 interrupting. Mr. Rosenblatt, as you remember, was on the 15 stand. 16 DIRECT EXAMINATION 17 BY MS. SCOTT: 18 Q Good morning, Ms. Rieger. 19 Can you tell us where you live? 20 A Folsom, California. 21 THE COURT: How do you spell that? 22 THE WITNESS: F-O-L-S-O-M. Outside Sacramento. 23 THE COURT: Okay. 24 BY MS. SCOTT: 25 Q And what do you
do for a living? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2284 Rieger-direct/Scott 1 A I'm a pharmacist. 2 Q What does your
job involve? 3 A Interpreting prescriptions, returning medications and
4 dispensing them with information to the patient. 5 Q How long have you been doing
that? 6 A Since 1959. 7 Q Have you ever been contacted by a company called
8 Who's Who Worldwide? 9 A Yes, I have. 10 Q And did you eventually
purchase a membership from 11 them? 12 A Yes, I did. 13 Q Can you tell us approximately when you were first 14 contacted by them? 15 A I think it was 1993. 16 Q And how were you contacted? 17 A By telephone at work. 18 Q How many times were you contacted? 19 A More than once, and I can't be sure -- I can't be 20 sure of the total number of times. 21 Q How is it that y
ou remember you were contacted at 22 work? 23 A Because it is unusual to be approached about a 24 business proposition of any kind at work. 25 Q Do you remember the name of the person who called OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2285 Rieger-direct/Scott 1 you? 2 A I thought he said his name was Michael. 3 Q What happened in the course of your conversations 4 with him? 5 A I believe the first time he called, it was not a good 6 time to talk because of the flow of our business, and I 7 asked him if he could call me back and he did. 8 Q And when you -- did you eventually -- 9 MR. LEE: Your Honor, I have an objection. 10 THE COURT: Objection to which, the last 11 question? 12 MR. LEE: As to statements of someone that may 13 qualify as hearsay unless there is a foundation laid for 14 that foundation coming
in. 15 THE COURT: Well, you will have to identify who 16 this was. 17 MS. SCOTT: Your Honor, I believe it has been 18 established that the call came from Who's Who Worldwide or 19 at least that the person identified themselves as 20 representing Who's Who Worldwide. 21 THE WITNESS: That's correct. 22 THE COURT: They did? 23 THE WITNESS: Yes, they did. 24 THE COURT: All right. Overruled. 25 BY MS. SCOTT: OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2286 Rieger-direct/Scott 1 Q Now, did you eventually have a conversation with this 2 person? 3 A Yes, I did. 4 Q What happened in that conversation? 5 A Well, this individual told me that I had been 6 nominated by a known benefactor. 7 THE COURT: You say the name of the person who 8 spoke to you was Michael? 9 THE WITNESS: That's as I recall it.
10 THE COURT: You don't know the last name or any 11 other name for the person? 12 THE WITNESS: I can't retrieve that information. 13 It's in moving boxes. I have it written down or I can't 14 find it. 15 THE COURT: And you don't remember where it is? 16 THE WITNESS: No, Your Honor. 17 THE COURT: Come up, Counsel. 18 (Side bar.) 19 THE COURT: Since I assume this is going to be 20 similar testimony by a number of witnesses, how do you 21 propose to get it in even though it is from Who's Who 22 which is a defendant in the case. You have to identify 23 somebody who said this who would be authorized or at least 24 in the course of whose employment they would make that 25 statement. Can't be just a person named -- who is OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2287 Rieger-direct/Scott 1 Michael. 2 MS. SCOTT: Your Honor
, this is a typical call 3 from an unknown person to sell a product and I think most 4 of the witnesses will not be able to remember the name of 5 the person they spoke with. What we'll be able to offer 6 is documents they received as follow up to the telephone 7 calls. 8 THE COURT: You better offer the documents -- 9 well, I assume you are offering this under 801(d)(2). 10 MR. WHITE: Yes, as both a corporate admission 11 and as a co-conspirator statement, Your Honor. 12 THE COURT: But you have to identify somebody. 13 You can't say I'm from Who's Who Worldwide and I confess 14 to four murders. That will not fly with me. 15 Let's look at the rule. 16 MR. WHITE: Okay. 17 THE COURT: The rule says, because this is going 18 to be repetitious and we might as well iron it out right 19 now. 20 The rule says statements that are not hearsay, if 21 th
e statement is not hearsay if, subdivision (2), a 22 statement is offered against a party and is a statement by 23 the party's agent -- who am I talking to, the both of you. 24 MR. WHITE: Yes. 25 MS. SCOTT: Yes. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2288 Rieger-direct/Scott 1 THE COURT: Within the scope of the agency or 2 employment made during the existence of the relationship, 3 or a statement by a co-conspirator of a party. 4 Now, let's look at what the law is on this agent 5 and employees. (Perusing.) 6 According to the authoritative test, 7 Weissenberger's on Federal Evidence, did I tell you that 8 was authoritative before? 9 MR. WHITE: Yes, I did. 10 THE COURT: The proponent of the vicarius 11 admission must establish a foundation that demonstrates 12 that the declarant at the time of the making of the 13 sta
tement wasn't an employee or the agent of the party 14 against whom the statement was offered. For example, 15 statements made after the employment has concluded do not 16 qualify. 17 Now otherwise you meet the rule, but I'm unsure 18 about whether some -- a party we don't know about, not 19 identified that that's within 801(d)(2). You say you have 20 some corroborating material. 21 MS. SCOTT: We have exhibits which have been 22 received in connection with this deal she made on the 23 telephone, this witness. 24 MR. WHITE: Your Honor, there are two different 25 issues. With respect to the corporate admission, I think OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2289 Rieger-direct/Scott 1 even if we don't identify the person yet, we can, but even 2 if we don't yet, the circumstances suggest the facts that 3 form the foundation,. In other wo
rds, someone calls up, 4 identifies themselves, at least she remembers only part of 5 the name, says they are from Who's Who Worldwide, conduct 6 a discussion which is toward the view of purchasing a 7 membership. He tells the customer all the things we'll 8 subsequently know who are the basic sales pitch of Who's 9 Who. The customer consummates a transaction, the customer 10 gives the credit card number and shortly thereafter 11 receives confirmation in the mail. 12 THE COURT: You are talking very rapidly and you 13 are losing me. 14 MR. WHITE: I'm sorry. 15 THE COURT: My mind, as I told you a number of 16 times which apparently you don't believe, my mind doesn't 17 work as fast as you do. 18 MR. WHITE: Your Honor, this is the first time 19 during the entire trial you asked me to slow down. 20 THE COURT: Then join the crowd. 21 So under your theory,
if a janitor picked up the 22 phone and called this lady and said I want to sell you a 23 trip to the moon or give you a trip to the moon if you buy 24 this, do you think this will be admissible? 25 MR. WHITE: No, Your Honor, but the fact it is OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2290 Rieger-direct/Scott 1 followed up in the normal course but he takes her credit 2 card number, she gets an invoice, she gets certain things, 3 that suggests the regularity of it, that was someone who 4 was authorized to make the sale. I would add as well on 5 this one there are internal company documents, documents 6 this customer does not see that identifies the person who 7 made the sale. 8 MR. JENKS: Except how will he get them in? I 9 will not stipulate to them and not in the regular course 10 of business. You should have someone from Who's Who 1
1 Worldwide. 12 THE COURT: You have to talk like a technician. 13 Right now I have doubt whether this call from an unknown 14 person will satisfy the rule. You are using this for the 15 most incriminating material. This is the real substance 16 of the case and I'll not allow it at this time unless you 17 show who this is. 18 MR. WHITE: Your Honor, let me back up further. 19 On this particular one, the internal paperwork of the 20 company indicates that the salesperson who spoke to 21 Ms. Rieger was Scott Michaelson, one of the defendants. 22 She just remembers the guy as "Michael." 23 THE COURT: You better lay a foundation by 24 bringing that material in. If you want to bring this 25 conversation in, I'm telling you now I will not allow it OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2291 Rieger-direct/Scott 1 unless you identify who it wa
s. 2 MR. WHITE: You are talking on the corporate 3 admission theory? 4 THE COURT: On either admission, corporate or 5 individual. They are individuals also, they can make 6 admissions. 7 MR. WHITE: Your Honor, I don't think it is 8 necessary that the person has to specifically, you know, 9 identify who they are to you. 10 THE COURT: You don't, but I do. 11 MR. LEE: Judge, I think -- 12 THE COURT: You show me a case that says an 13 unknown person calls up and makes these statements for a 14 corporation. Show me a case like that. I'm not going to 15 allow it. 16 MR. WHITE: Wait, Your Honor. It's not so much 17 that the person is unknown. I thought Your Honor's 18 objection, Your Honor's identification where it was 19 lacking was we haven't shown that the person had authority 20 to do that. 21 THE COURT: That's only part of it. I don't
even 22 know who this person is. It's an unknown person. You 23 will have this unknown person making all of these 24 admissions? Not with me you're not. Especially when you 25 say you can identify the person. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2292 Rieger-direct/Scott 1 MR. WHITE: But Your Honor I think when a person 2 calls up under those circumstances, the circumstances 3 suggest that they were authorized to do that. If, for 4 example, they called up and then nothing ever happened, 5 this person was lied to and nothing ever happened, you 6 might suggest maybe the person was unauthorized, maybe 7 they were the janitor as you said. 8 But where the sale is actually consummated, where 9 the person is following a script and then the normal 10 business paperwork confirming the sale is received by the 11 customer, I think all the cir
cumstances suggest that the 12 person was authorized. 13 THE COURT: I don't see any circumstances at this 14 point that anybody -- it's not a question only of 15 authorization, it's a question of identification of a 16 person. This could be a complete stranger calling up, and 17 I'm sure it isn't, but I don't know who this is and I'm 18 not going to allow it, period. 19 MR. WHITE: But, Your Honor, is it not also from 20 the face of it a co-conspirator's statement? In other 21 words, what she -- 22 THE COURT: Not an unknown person it isn't. 23 MR. WHITE: But, Your Honor, it's not unknown 24 yet. It is someone named Michael who is a salesman at 25 Who's Who Worldwide. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2293 Rieger-direct/Scott 1 THE COURT: Who said he was a salesman for 2 Barbara Walters Worldwide. I don't know who he is.<
BR> 3 MR. WHITE: She would testify that he called up 4 to sell her a membership, and that's what it is. 5 THE COURT: Mr. White, let's not prolong this. 6 You've heard my ruling and there is nothing you've told me 7 that will change it. You have to identify those people. 8 If you want their conversations to come in you will have 9 to identify them. 10 MR. JENKS: Further, Judge -- 11 THE COURT: You want to talk me out of it? 12 MR. JENKS: No. 13 THE COURT: I see. 14 MR. JENKS: I'm going to make the next 15 objection. He's going to try to introduce the witness 16 with corporate documents and receipts, which I assume is 17 the next part of this witness' testimony. Unless those 18 corporate documents, records and receipts are shown to be 19 made within the regular course of business of Who's Who 20 Worldwide Registry, Inc., and it was the regular course of
21 business of Who's Who Worldwide to maintain and keep the 22 records, I object to the documents as hearsay. 23 He has to have a document custodian to introduce 24 the documents. The mere fact she got a bill in the mail 25 is not indicative of anything. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2294 Rieger-direct/Scott 1 THE COURT: We will see when they are offered. 2 MR. NELSON: Your Honor, if I might. Alan 3 Nelson. 4 Your Honor, I have a separate objection to raise 5 as it relates to my client Frank Osman. 6 THE COURT: Good. I might consider it and rule 7 otherwise on the whole thing if you talk me out of it. 8 MR. NELSON: That's not my intention, Judge. 9 Mr. Osman has alleged to have been a member of 10 the conspiracy from up to a period of time in November of 11 1992 and not to agree to join the conspiracy up until
12 November of 1994. These documents based upon a review of 13 the documents indicate they were prepared sometime in 1993 14 when he would not have been a member of the conspiracy. 15 THE COURT: So what? 16 MR. NELSON: I object to their admission as it 17 relates to him. 18 THE COURT: Overruled. He can go out of the 19 conspiracy, come back and join it for one hour and be 20 criminally liable for everything. 21 MR. NELSON: Not unless he adopts what prior 22 happened. 23 THE COURT: No, if he knowingly and willfully 24 joined the conspiracy, not for an hour, for a minute. 25 MR. NELSON: I understand, but the government OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2295 Rieger-direct/Scott 1 would have to demonstrate he reentered with knowledge. 2 THE COURT: I understand, willingly, 3 intentionally, knowingly, any other words? If he
knew 4 what this conspiracy is, the criminal purpose and joins it 5 at 12:01 and leaves at 12:03, he's in. 6 MR. WHITE: Your Honor, here's what I propose we 7 do. Your Honor, I was going to try to think how we would 8 proceed now. For virtually every witness the government 9 intends to call there is internal paperwork of the firm 10 that identifies the person they spoke to even if they 11 don't recall what their name was. 12 As Mr. Jenks said, we would have a document 13 custodian or employee who could identify that paperwork 14 and it was prepared in the ordinary course of business. 15 Obviously we don't have that person here today 16 because we weren't anticipating that person. 17 Unfortunately what we'll have to do, if it is all right 18 with Your Honor, go back to Mr. Rosenblatt and get that 19 witness, bring her or him in, we'll have him identify 20 tho
se documents and then we'll put on these people and so 21 that even if they don't remember who they spoke to there 22 is some paperwork that indicates they did speak to a Who's 23 Who salesperson. 24 Will that, in Your Honor's view, satisfy? 25 THE COURT: Depends what the papers say, yes. I OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2296 Rieger-direct/Scott 1 think if they identify the name of the salesperson 2 sufficiently by circumstantial evidence to be that person, 3 yes, I think that would be sufficient. 4 MS. SCOTT: One other question, Your Honor. 5 Because we have three people here from out of town, would 6 it be possible to offer these documents subject to 7 connection when that person -- when the document custodian 8 comes in because we have three people here and we can get 9 them out and not interfere with the court day. It would
10 just, I think, be in the interest of some efficiency to do 11 it that way. 12 THE COURT: Well, unless there is consent by the 13 defendants, I wouldn't let you do that. 14 MR. LEE: Your Honor, by the way, they are 15 proffering this evidence on two grounds, co-conspirator 16 and agency. If Your Honor finds whatever they put on as 17 evidence to establish as a foundation for the agent of a 18 corporation and if Your Honor rules that it is 19 insufficient, it's my position also there is not enough 20 here preliminarily to show even the existence of a 21 conspiracy to let it in even under the other rule. So I 22 want to heads up put them on notice of that because they 23 may need another break. 24 MR. NEVILLE: There is another problem here. She 25 says she remembers the person as Michael. Apparently OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2
297 Rieger-direct/Scott 1 there is internal documents that show Scott Michaelson 2 showing the documents at that time. There were two other 3 people, first name Michael working at this place, and 4 secondly -- whose first names were Michael, and secondly, 5 according to a good faith understanding of how this 6 business worked, Scott Michaelson may have indeed spoken 7 to this women but not necessarily the first call that was 8 made. The first person who may have made the call may not 9 have been there and Scott Michaelson followed up. So 10 there is another attenuation there that I don't think 11 those documents help to cure. 12 THE COURT: You can make those objections at the 13 time. I disagree. You better have your agents come in 14 and call right away. Get Agent Rosenblatt and get another 15 person in here. 16 MR. WHITE: You mean the document custodian.
17 THE COURT: A custodian -- doesn't have to be the 18 custodian, it could be anybody who can recognize the 19 documents made in the regular course of business by Who's 20 Who. 21 MR. WHITE: We intend to do that, just further on 22 down the road. We didn't anticipate that. 23 THE COURT: In the absent of the consent by the 24 defendants, I will not let you put documents in subject to 25 connection. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2298 Rieger-direct/Scott 1 MR. WHITE: Okay. 2 THE COURT: Take this witness off the stand, put 3 Mr. Rosenblatt on and bring this witness back. 4 MR. WHITE: That's what I propose. 5 THE COURT: Go out and get the people. What are 6 they doing, sitting here and watching? 7 MR. WHITE: No, Your Honor, they are doing 8 something. 9 THE COURT: Let them do something. 10 (End s
ide bar.) 11 THE COURT: Members of the jury, we'll interrupt 12 the testimony of this witness. We'll put the witness back 13 on later. 14 We'll now revert back to the original witness who 15 was here, Mr. Rosenblatt; is that correct? 16 MR. WHITE: Correct, Your Honor. 17 THE COURT: All right. Let's go. 18 Don't go too far, Ms. Rieger. Don't go back to 19 Sacramento. 20 Sir, you are still under oath. 21 THE WITNESS: Yes, Your Honor. 22 (Continued.) 23 24 25 OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2299 Rosenblatt-cross/Wallenstein 1 A N D R E W R O S E N B L A T T , having been 2 previously sworn by the Clerk of the Court, was examined 3 and testified as follows: 4 CROSS-EXAMINATION 5 BY MR. WALLENSTEIN: (Continued). 6 Q Good morning, Mr. Rosenblatt. 7 A Good morning.
8 Q Let me call your attention to the collection 9 information statement, that would be the 433-A forms, 10 particularly Government's Exhibit 404 and I believe 405 11 and 406 as well. 12 Are you familiar with those documents? 13 A I don't have them in front of me but I know the 14 documents you're referring to. 15 Q Are you aware that the Internal Revenue Service 16 publishes a form entitled "how to prepare a collection 17 information statement"? 18 A I'm not aware of that. 19 Q I show you what has been marked as Defendant's 20 Exhibit L (handing.) 21 THE COURT: For Identification? 22 MR. WALLENSTEIN: For Identification, yes. 23 BY MR. WALLENSTEIN: 24 Q Mr. Rosenblatt, do you recognize that document as a 25 copy of an IRS form? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2300 Rosenblatt-cross/Wallenstein 1 A
It appears to be a copy of an IRS publication 1854. 2 Q And that's headed "how to prepare a collection 3 information statement," correct? 4 A Yes, it is. 5 MR. WALLENSTEIN: Your Honor, I would offer that 6 as Defendant's Exhibit L. 7 THE COURT: Any objection? 8 MR. WHITE: Yes, Your Honor. May I have a brief 9 voir dire? 10 THE COURT: Surely. 11 (Continued.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2301 Rosenblatt-voir dire/White 1 VOIR DIRE EXAMINATION. 2 BY MR. WHITE: 3 Q Mr. Rosenblatt, next to the publication number you 4 read, what does it say? 5 A Revision, 9/95. 6 Q What does that mean? 7 A That would be the date that this came into 8 pub
lication, this revision. 9 Q I'm sorry, finish your answer. 10 A This revision came in on 9/95, September of 1995. 11 Q So this document was not effective until 9/95? 12 A That's correct. 13 MR. WHITE: Your Honor, I would object. 14 THE COURT: Sustained. Three counts involving 15 the collection information statements have dates of 16 September 16, 1991, July 8, 1993, and December 29, 1993. 17 This document was revised in 1995. 18 (Continued.) 19 20 21 22 23 24 25 OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2302 Rosenblatt-voir dire/White 1 CROSS-EXAMINATION 2 BY MR. WALLENSTEIN: (Continued.) 3 Q Mr. Rosenblatt, do you know if there was a prior 4 revision of this, a revision? 5 A I have no idea. 6 Q By the way, in the course of your analysis of the 7 financial
records of Who's Who Worldwide and in particular 8 those relating to the accounting records, did you review 9 the records for 1990, 1991, 1992, 1993 and 1994? 10 A Yes. 11 Q And do those records reflect payments made by Who's 12 Who Worldwide Registry, Incorporated, to Martin Reffsin or 13 M. Reffsin & Company? 14 A I'm sure they do, yes. 15 THE COURT: Do you want to pull that microphone 16 closer to you, Mr. Rosenblatt. 17 (Witness complies.) 18 BY MR. WALLENSTEIN: 19 Q Mr. Rosenblatt, let me show you what has already been 20 placed in evidence as Government's Exhibit 652. 21 Would you take a look at page 31 of that 22 document. That's the Who's Who general ledger for 23 December 31, 1990; is that correct? 24 A Yes. 25 Q And would it be a fair statement that that document OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 230
3 Rosenblatt-cross/Wallenstein 1 reflects all of the transactions of -- financial 2 transactions of Who's Who for the period ended December 3 31, 1990? 4 A Yes. 5 Q And would you take a look down -- there are four 6 categories of payments on this page, correct? 7 A Yes, there are. 8 Q And the last one, account number 5016, I believe that 9 number is? 10 A I believe it is 601. 11 Q It could be. This is a bad copy. It says 12 professional fees, correct? 13 A Yes. 14 Q And there are seven entries to Reffsin & Co. and 15 M. Reffsin & Company, correct? 16 A Yes. 17 Q And would it be a fair statement that the total of 18 those items is $5,913? 19 A (Perusing.) Around $6,000. 20 Q Okay. 21 Now, would you take a look at what is in evidence 22 as Government's Exhibit 658-B, and can you identify that 23 doc
ument for us? 24 A The general ledger of Who's Who Worldwide Registry, 25 Inc., for the period ending December 31, 1992. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2304 Rosenblatt-cross/Wallenstein 1 Q Okay. 2 And would you look, please, at page 41. 3 A Yes, I have it. 4 Q And do you see a category there, account number 7262, 5 labeled "accounting"? 6 A Yes, I do. 7 Q And there are a number of fees paid to Reffsin & 8 Company there as well, correct? 9 A Yes. 10 Q Would it be a fair statement that the total of those 11 payments is approximately $26,000? 12 A Yeah. 13 Q And let me now show you what is in evidence as 14 Government's Exhibit 660. 15 Can you identify that document for us? 16 A It's the general ledger of Who's Who Worldwide 17 Registry, Inc., for the period ending December 31, 1993.
18 Q And would you take a look, please, at page 38. 19 A Yes. 20 Q Do you see the fourth account number there labeled 21 "accounting"? 22 A Yes, I do. 23 Q Those are all entries payable to M. Reffsin & 24 Company? 25 A Yes, that's correct. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2305 Rosenblatt-cross/Wallenstein 1 Q And would it be a fair statement that the total of 2 those is approximately $25,000? 3 A Yes. 4 Q And would it also be a fair statement that those 5 appear to be monthly payments? 6 A Yes. 7 Q Given the volume of the Who's Who Worldwide financial 8 records as they existed at any particular time and the 9 state of those records particularly in 1993 and 1994 as 10 kept by Maria Gaspar, would you have an estimate based on 11 your experience and based also on your own analysis of the 12 fig
ures as to how long it would take an accountant to do a 13 monthly bank record or a monthly report on these records? 14 A I would have no way of knowing. 15 Q Would it be a fair statement it would probably take 16 at least a day? 17 A I would have no way of answering. 18 THE COURT: Excuse me a minute. 19 (An unrelated matter was taken by the Court.) 20 THE COURT: I must apologize. That was a 21 telephone call from the Chief Judge of the Second 22 Circuit. The United States Court of Appeals. There are 23 three circuits, the lowest court, me, and then there is an 24 appellate court, the circuit court which reviews my 25 decision and then as you know there is the United States OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2306 Rosenblatt-cross/Wallenstein 1 Supreme Court. Well, this judge who called me is the 2 Chief Judge of the Second Circui
t, one of the greatest 3 judges in the United States. His name is Ralph Winter, 4 and he has asked me to sit there for a couple of days in 5 the circuit court, which of course when he asks me to sit 6 there, I don't want to go there, but the answer is yes, of 7 course. When would you like me to go? He said how about 8 May 7th and 8th, I said fine. I haven't the slightest 9 idea what I'm doing the 7th and 8th, but that's what I'll 10 be doing. 11 I'm sorry for keeping everybody waiting. 12 MR. WALLENSTEIN: Now you know precisely what 13 you'll be doing the 7th and 8th of May. 14 BY MR. WALLENSTEIN: 15 Q Now, Mr. Rosenblatt, let me direct your attention to 16 Government's Exhibit 1500 in evidence and that document is 17 an analysis of Bruce Gordon's loan account for Who's Who 18 in 1994; is that correct? 19 A Yes. 20 Q And that document was created by
you after your 21 analysis of the financial records; is that correct? 22 A Yes. 23 Q Would it be fair to say that what you did in coming 24 up with your bottom line of $406,160 was to take the 25 opening balance of the $265,000 and change, adding in OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2307 Rosenblatt-cross/Wallenstein 1 those numbers you felt should have been loans to Bruce 2 Gordon during 1994, subtracting a couple of credits for 3 payments and reclassifications, and coming up with that 4 bottom line number, correct? 5 A Well, this is based on the corporate records. 6 Q I mean, that's what you did. You took the additions, 7 took the subtractions and came up with that bottom number 8 of $406,000; is that correct? 9 A That's correct. 10 Q And would it be fair to say that in Exhibit 1404 11 which you also have in front of y
ou, that document is the 12 analysis -- withdrawn. 13 That document is what you called Bruce Gordon's 14 additional taxable income; is that correct? 15 A Yes. 16 Q That's your opinion, correct? 17 A Yes. 18 Q And that document reflects in the column for 1994, an 19 indication that in 1994 Who's Who Worldwide Registry paid 20 $141,025 for Bruce Gordon's personal expenses and you're 21 calling that "income," is that correct? 22 A That's correct. 23 Q And would it be fair to say that $141,000 number is 24 the net of Exhibit 1500, and by that I mean you took the 25 $406,000 ending balance on Exhibit 1500 and subtracted the OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2308 Rosenblatt-cross/Wallenstein 1 $265,000 beginning balance, the difference being $141,025? 2 A That's correct. 3 Q So all of the additions you made during 19
94 and all 4 of the subtractions you made during 1994, really net out 5 to $141,000 worth of Mr. Gordon's personal expenses paid 6 by Who's Who in 1994; is that correct? 7 A That's correct. 8 Q Would you look at the item on 1500 now, on the item 9 dated June 30, 1994. That's an item from an adjusting 10 journal entry, correct? 11 A There are several June 30th items. 12 Q Well, the big one. 13 A Okay. 166,000? 14 Q Yes. 15 A Yes. 16 Q And that is an item which came from an adjusting 17 journal entry, and your description of it is to add in the 18 balance from the other loan and exchange account number 19 1202, correct? 20 A Yes. 21 Q Would it be fair to say by putting that item in that 22 fashion in this analysis, you increased the amount of 23 personal expenses paid by Who's Who for Bruce Gordon in 24 1994 by that amount, 1
66,000 and change? 25 A Yes. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2309 Rosenblatt-cross/Wallenstein 1 Q And so if that item were not there, if that $166,000 2 were not an increase in his loan account for '94, the net 3 loan account for 1994 would be a negative number, about 4 $25,000 or $24,000, correct? 5 A Yes. 6 MR. WALLENSTEIN: May I have a moment, Your 7 Honor? 8 THE COURT: Yes. 9 MR. WALLENSTEIN: Thank you. 10 BY MR. WALLENSTEIN: 11 Q I want to take you back to Exhibit 658. 12 A 658-B? 13 Q Yes. Specifically page 7. 14 That's the general ledger ending December 31, 15 1992. 16 A Yes. 17 Q Specifically page 7 of that document. There's an 18 entry there in account 1201. Almost at the bottom of that 19 account there are three entries, Joyce Grossman, Richard 20 Grossman and Ri
chard Grossman. And those are the checks 21 for $156,000 reflecting the $313,000 payment to the 22 Grossmans which was $400,000 net of taxes, correct? 23 A Yes. 24 Q And I assume at this point you are thoroughly 25 familiar with that transaction? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2310 Rosenblatt-cross/Wallenstein 1 A I think so. 2 Q There are three checks there, and would it be fair to 3 say that that was because Joyce Grossman's check was 4 ultimately returned to Who's Who and replaced with a 5 second Richard Grossman check? 6 A That's correct. 7 Q So that the net effect was to pay $313,000 which was 8 the total of the two $156,000 checks; is that correct? 9 A Yes. There were two checks, each one for $156,000. 10 Q Now, is it fair to say, however, that the third 11 check, the return check from Joyce Grossman was not sh
own 12 on the books as a return check until 1993? 13 A It's not reflected here. I would assume the entry 14 would have been made in 1993. 15 Q Correct. 16 But what I'm saying is, based upon your analysis 17 of the books, do you know that it was in fact credited in 18 1993? 19 A I don't recall. 20 Q Do you recall that the check -- withdrawn. 21 At this point in time, going back now to page 7 22 of Exhibit 658, when we have three checks carried on the 23 books, they are all receivables, correct? 24 A That's correct. 25 Q And that is really an asset of the corporation? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2311 Rosenblatt-cross/Wallenstein 1 A Yes. 2 Q At the point where Joyce Grossman returns that check, 3 if the check is simply voided out, all you need to do is 4 make an entry to correct that and reclassify
it, correct? 5 A Rephrase that, please? 6 Q Fine. 7 In 1992, Who's Who issues three checks. One to 8 Joyce Grossman and two to Richard Grossman, each in the 9 amount of $156,000 and change, correct? 10 A Yes. 11 Q At the end of the year all three of those checks are 12 still carried on the books, correct? 13 A Yes. 14 Q And in January of 1993, Who's Who gets back the 15 uncashed check from Joyce Grossman. 16 Do you recall that? 17 A Yes. 18 Q And rather than reversing the check, voiding it out 19 in the checkbook and reversing the journal entry, that 20 check is deposited into the Who's Who account, correct? 21 A Yes. 22 Q Would it be fair to say that that then increases 23 whatever account is numbered "cash in bank or cash on hand 24 --" correct? 25 A Yes. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER
2312 Rosenblatt-cross/Wallenstein 1 Q -- And reduces the loan and exchange balance? 2 A Yes. 3 Q So by taking the check back and putting it in the 4 bank you've basically done the same thing as a simple 5 reversal of the bookkeeping entry, but you've done it in a 6 little more complicated fashion; is that correct? 7 A The result is the same. 8 Q Maybe next time I can simplify the question. 9 In January of 1993, Richard Grossman writes two 10 checks to Who's Who, one for $200,000 and one for $35,000 11 with some change, correct? 12 A I don't remember the specific dates, but yes. 13 Q And those are both deposited in a Who's Who cash 14 account, they go into the bank, correct? 15 A Yes. 16 Q And thereby create a debit to the cash in bank or 17 cash on hand account, increasing that account, correct? 18 A Yes. 19 Q And they then
reduce the loan and exchange account, 20 correct? 21 A Well, they went to reduce Bruce Gordon's loan and 22 exchange account. 23 Q And that's how they were carried on the books, 24 correct? 25 A No, they were originally put into the loan and OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2313 Rosenblatt-cross/Wallenstein 1 exchange, other accounts. 2 Q But that is still a loan and exchange account. 3 At some point the accountant then comes along and 4 straightens all of these out; is that correct? 5 A Yes. 6 Q What you calculated to be Mr. Gordon's additional 7 income, did you reduce your calculation by that $235,000 8 payment? 9 A No. 10 Q Now, let me draw your attention to -- 11 MR. WALLENSTEIN: Judge, I'm sorry. May I have a 12 moment? 13 THE COURT: Surely. 14 MR. WALLENSTEIN: Thank you, Your H
onor. I have 15 no further questions for Mr. Rosenblatt at this time. 16 THE COURT: All right. 17 (Continued.) 18 19 20 21 22 23 24 25 OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2314 Rosenblatt-cross/Trabulus 1 CROSS-EXAMINATION. 2 BY MR. TRABULUS: 3 Q Good morning, Mr. Rosenblatt. 4 If you recall I'm the attorney for Mr. Gordon, as 5 I'm sure you've noticed throughout the trial as you've 6 been watching. 7 Mr. Rosenblatt, you've indicated that you've been 8 a revenue agent for 26 years? 9 A Approximately. 10 Q You've stated that you are a technical assistant to 11 the district counsel in Brooklyn, correct? 12 A Technical advisor. 13 Q Technical advisor. 14 Are you the only technical advisor to the 15 district counsel in Brooklyn or are the
re others? 16 A I'm the only one. 17 Q Let's talk about the things you've done as a revenue 18 agent in the audit or examination division. 19 Is it fair to say what you've primarily done was 20 to conduct audits? 21 A That's correct. 22 Q And approximately how many audits have you conducted? 23 A A lot. I wouldn't even be able to put a number on 24 it. 25 Q Procedurally, what is the outcome of an audit? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2315 Rosenblatt-cross/Trabulus 1 A We are trying to determine whether the proper tax is 2 paid and -- 3 Q Perhaps my question was not sharp enough. But the 4 question is, the end product of an audit, is there a name 5 for the determination that you make? 6 A A revenue agent's report. 7 Q Okay. 8 Now, the revenue agent's report in the case of an 9 audit, you mak
e represents your own conclusions as a 10 result of the audit; isn't that correct? 11 A That's correct. 12 Q And what type of review can that report then be 13 subject to, what is the next level of review if the 14 taxpayer disagrees with you? 15 A Supervisory review. 16 Q Is that the appeal? Is that by an appeals officer? 17 A No, it's a review by my supervisor. 18 Q Let's say as a result of that review -- withdrawn. 19 What would the result of that review be? Would 20 that be another report or an informal decision by the 21 supervisor? 22 A It might be the offer of an informal conference by 23 the supervisor. 24 Q Let us say that the taxpayer is dissatisfied with the 25 result of the informal review or the review by the OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2316 Rosenblatt-cross/Trabulus 1 supervisor. What would
be the next level of review? 2 A The case is set up unagreed, then it can go to the 3 IRS individual. 4 Q When you say "agreed," you say unagreed set of facts? 5 A Unagreed. 6 Q Unagreed, I'm sorry. 7 Then it would go to the IRS appeals process, and 8 who is that? 9 A Well, actually a 30-day letter is issued which gives 10 the taxpayer or his representative 30 days to file an 11 appeal and then it goes to the IRS appeals division which 12 is out here in Hempstead, I believe. 13 Q And the IRS appeals division, who works there? 14 A Other IRS employees. 15 Q And they basically can review a determination made by 16 a revenue agent; is that correct? 17 A That's correct. 18 Q And they can change it; is that correct? 19 A Yes. 20 Q And has it ever happened that any of your audits have 21 been changed as a result of a supervisory review th
at 22 you've mentioned before? 23 A No. 24 Q Has it ever happened that any of them have been 25 changed as a result of an appeal? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2317 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q Now, let us say that the result of the appeal is not 3 satisfactory to a taxpayer or they disagree with it, what 4 is the taxpayer's recourse at that point? 5 A Generally the case is issued a statutory notice of 6 deficiency and they would have to go to tax court to fight 7 it. 8 Q There's a certain time period within which they have 9 to start a case in tax court with a petition in order to 10 review the determination. 11 A Yes. 12 Q So that would be yet a fourth place after the 13 supervisory level, the appeals level -- a third place, 14 excuse me. 15 Now, the tax court could also make a
16 determination concerning the taxpayer's contentions; is 17 that correct? 18 A Yes. 19 Q And the tax court, that would be a proceeding in the 20 tax court would be a civil proceeding, would that not be 21 the case? 22 A Yes, it is. 23 Q And in that civil proceeding is it your understanding 24 that the taxpayer bears the burden of proof in showing 25 that the Internal Revenue Service was wrong? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2318 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q And the decisions of the tax court are published, are 3 they not? 4 A Yes, they are. 5 Q And in fact, some of the factors that you were 6 testifying to concerning whether or not a loan is a loan 7 were taken from decisions of the tax court in that kind of 8 case; is that correct? 9 A Yes, it is. 10 Q Cases in which
the taxpayer had the burden of proving 11 that the IRS was wrong? 12 A Yes. 13 Q Now, I think you testified that you yourself had been 14 involved as an IRS agent in determining whether or not to 15 treat loans as loans or things that had been claimed to be 16 loans as really being loans or else being salary-type 17 payments or something of that sort; is that true? 18 A Yes. 19 Q When you had done that is that in the connection of 20 audits? 21 A Yes, it was. 22 Q And it was always in connection with an audit as 23 opposed to a criminal investigation; is that correct? 24 A I believe so. 25 Q Other than this case? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2319 Rosenblatt-cross/Trabulus 1 A I believe so. 2 Q And in doing that -- withdrawn. 3 Are you aware of any case, any of the criminal 4 cases or crim
inal investigations on which you work, other 5 than this one, in which the issue came up whether or not a 6 loan was truly a loan, that you worked on? 7 A I can't really recall it being an issue in a criminal 8 case. 9 Q So your entire experience, in terms of that 10 particular issue, has been working on audits in civil 11 proceedings where ultimately the taxpayer would bear the 12 burden of proof in showing that the IRS was wrong; is that 13 correct? 14 A I believe so. 15 Q Now, in this case are you aware whether any audit was 16 ever done by the IRS of the returns of Who's Who Worldwide 17 Registry, Inc.? 18 A I'm not aware of any. 19 Q As far as you know there was no such audit? 20 A Not to my knowledge. 21 Q How about Mr. Gordon's returns for the years 1991 22 through 1994, the period you've been talking about. Are 23 you aware as to whe
ther or not the IRS ever conducted an 24 audit? 25 A I don't believe there was a civil audit. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2320 Rosenblatt-cross/Trabulus 1 Q Now, I think you testified on Friday or maybe it was 2 Thursday that if there had been a disclosure to Agent 3 Gagliardi, that Mr. Gordon had an ownership interest in 4 Who's Who Worldwide, there would have been a referral to 5 the examination division or the audit division, whatever 6 it was called at that point. Do you recall giving that 7 testimony in substance? 8 A Yes. 9 Q And you also recall hearing as Agent Gagliardi 10 testified here that at a certain point in time he had 11 become aware of a newspaper report which indicated that 12 Mr. Gordon was an owner or the owner of Who's Who 13 Worldwide. Do you recall hearing that? 14 A I believe that's when th
e arrests were made in 1995. 15 Q Now, following that are you aware of any civil audit 16 or referral for a civil audit of Mr. Gordon's returns? 17 A I'm not aware of it. 18 Q Now, in this particular case, in terms of what you 19 did, did you yourself do the same things you would have 20 done for an audit? 21 A No. 22 Q Did you decide what information would be obtained? 23 A No. 24 Q When did you first look -- withdrawn. 25 When did you first begin your work on this case? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2321 Rosenblatt-cross/Trabulus 1 A I received a letter from the U.S. Attorney's Office 2 requesting my assistance in preparation for and testimony 3 in trial, if needed. I believe it was September of 1997 4 after Labor Day, I believe. 5 Q And that was after, as far as you understand it, an 6 indictment that ha
d already been returned against 7 Mr. Gordon and Mr. Reffsin; is that correct? 8 A Absolutely. 9 Q Now, in connection with that, let me ask you, we've 10 seen a bunch of charts here, did you yourself prepare 11 those charts? 12 A I prepared some of them and others were prepared at 13 my direction and they were reviewed by me. 14 Q Did you decide which charts to prepare? 15 A For the most part, yes. 16 Q Did you -- was there or were there any charts that 17 were not prepared that you considered preparing? 18 A No. 19 Q Did you have any discussions with Mr. White or with 20 anybody else in his office or with possibly an IRS agent 21 such as Agent Jordan concerning what charts to prepare? 22 A Yes, we had discussions. 23 Q Did anybody suggest that any charts not be prepared? 24 A No. 25 Q Now -- OWEN M. WICKER, RPR OFFICIAL C
OURT REPORTER 2322 Rosenblatt-cross/Trabulus 1 A Excuse me. I may have suggested certain things. 2 Q Now, the bank records that you reviewed in this case, 3 who was it who decided which bank records you would 4 review? 5 A I do. 6 Q Now, one of your charts referred to a Republic 7 National Bank account of Who's Who Worldwide? 8 A There's a lot of bank accounts and a lot of charts. 9 You would have to show me. 10 Q Referring to Government's Exhibit 837. 11 I'm showing you 837 which is in evidence and I'm 12 referring to this particular bank account. 13 A Yes. 14 Q Did you review -- 15 MR. WHITE: Excuse me, Mr. Trabulus. May I just 16 see what you are showing the witness? 17 MR. TRABULUS: Sure (indicating.) 18 MR. WHITE: Do you want the easel? Might that 19 help? 20 MR. TRABULUS: It might help. Thank you.
21 BY MR. TRABULUS: 22 Q Mr. Rosenblatt, I'm pointing to this box on the 23 exhibit which says Who's Who Worldwide Registry Inc., 24 Republic Bank for Savings. 25 Did you review the bank records of that account? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2323 Rosenblatt-cross/Trabulus 1 Do you recall? 2 A I've looked at all bank records. 3 Q Do you know whether they are in evidence in this 4 case? 5 A I would think they are. 6 Q Do you know what exhibit they are? 7 A No. 8 Q Do you recall whether or not -- let me ask you about 9 this chart. 10 I think you testified in response to some 11 questions by Mr. White that the general ledger is a 12 picture of all the accounts, not a picture, but it shows 13 all the accounts of a corporation and the trial balance is 14 a snapshot of the status of the general ledger as
of a 15 particular point in time. Do you recall that? 16 A Yes. 17 Q And does this chart represent a snapshot at a 18 particular point in time? 19 A It's a period of time. 20 Q And is it true that it covers a period of time and it 21 doesn't show everything that happened with regard to each 22 one of the accounts here; is that correct? 23 A It doesn't show every transaction, no. 24 Q For example, do you recall whether or not during this 25 period of time any monies came out of Who's Who Worldwide OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2324 Rosenblatt-cross/Trabulus 1 to pay taxes? 2 A Taxes to who? 3 Q To the Internal Revenue Service, payroll taxes, state 4 taxes. 5 A I'm sure, yes. 6 Q Do you recall whether there's a check here shown to 7 Who's Who Worldwide Registry Inc., Republic Bank for 8 Savi
ngs, for -- there's shown here a transfer of 9 $560,000. 10 Do you recall whether at any point after that 11 transfer, within that same general time period, any checks 12 were written from Who's Who Worldwide Registry Inc., 13 Republic Bank for Savings to various taxing authorities to 14 pay taxes? 15 A Do I recall specifically? No. But I would expect 16 that checks would have been written on it. 17 Q Would you take a look at the Republic Bank for 18 Savings documents which are in evidence -- 19 MR. TRABULUS: Mr. White, do you have them? 20 MR. WHITE: Tell me what exhibit it is. 21 MR. TRABULUS: You tell me. I wasn't able to 22 find them. 23 BY MR. TRABULUS: 24 Q Mr. Rosenblatt, I'll show you 780-C which is a Marine 25 Midland Bank statement. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2325 Rosenblatt-cross/Trabulus
1 Is that a document that was used in preparing 2 this chart? 3 A Yes, it is. 4 Q Does that reflect some of the transfers to the Who's 5 Who Worldwide Registry Inc., Republic Bank for Savings 6 account? 7 A (Perusing.) I can't see the numbers, I'm sorry. 8 Q Okay. 9 This says $560,000 and it may be an aggregate 10 figure. Did you prepare this chart? 11 A I reviewed it. Yes, there are three items, debits to 12 the Marine Midland Bank account, $360,000, $100,000 and 13 another $100,000, total of 560. 14 Q So that is in evidence. 15 Is it correct that the documents showing the 16 transfer to Who's Who Worldwide Registry, Republic Bank 17 for Savings are in evidence? 18 A Yes. 19 Q And I'm going to ask you again, are the records of 20 the Who's Who Worldwide Registry, Republic Bank for 21 Savings account themselves in evidence?
22 A You would have to give me the exhibit. 23 MR. TRABULUS: Mr. White, are we prepared to, 24 rather than going through all the exhibits in evidence, 25 just acknowledge that they are not. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2326 Rosenblatt-cross/Trabulus 1 MR. WHITE: The document -- let me look at the 2 chart. The document reflecting the transfer from Sterling 3 Marine Midland to Who's Who Republic Bank for Savings is 4 what Mr. Trabulus just showed Mr. Rosenblatt. There is 5 not a document in evidence reflecting the mirror image of 6 that transaction from Republic for Savings. 7 BY MR. TRABULUS: 8 Q Well, Mr. Rosenblatt, I'm not just asking about the 9 mirror image, I'm actually referring to the records of 10 that account, the Republic Bank for Savings account. Have 11 you ever seen them? 12 A There's a lot of bank accoun
ts, a lot of records, a 13 lot of corporations. I really can't say with certainty. 14 Q Did you participate in any decision or discussion 15 with either Mr. White, Ms. Scott, Agent Jordan as to which 16 bank records should and which bank records should not be 17 introduced in evidence? 18 A No. 19 Q Did you look at any bank records which, to your 20 knowledge, are not in evidence and utilized those in 21 preparing any of these charts or forming any opinions? 22 A Not to my knowledge. 23 Q So if the Who's Who Worldwide Registry Republic Bank 24 for Savings bank records are not in evidence, you didn't 25 look at them; is that fair to say? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2327 Rosenblatt-cross/Trabulus 1 A It's possible I did look at them. 2 Q But they are not in evidence? 3 A That I don't know, if they are in evidence. I
f we 4 have them it's possible that I looked at them. 5 Q If you have them you would have looked at them 6 without regard whether or not they were introduced in 7 evidence? 8 A It's possible at the time I looked at them I didn't 9 know what would have been put in evidence or not. 10 Q Do you know if they would have been put in evidence 11 if you looked at them? 12 A I have no idea. 13 Q Do you know whether they reflected tax payments to 14 the IRS? 15 A I don't recall. 16 Q If they reflected tax payments to the IRS, do you 17 believe that may be one of the reasons they are not put in 18 evidence? 19 A I would have no way of knowing that. 20 Q Now, you've been asked a great deal about loans. Is 21 it fair to say it is not at all unusual for a corporation 22 to make a loan to a shareholder? 23 A Not unusual. 24 Q Indeed the c
orporate tax returns even have a box 25 where that can be checked, indicating loans to OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2328 Rosenblatt-cross/Trabulus 1 shareholders, right? 2 A There's a line on the balance sheet, loans to 3 shareholders. 4 Q So it is sufficiently common that the IRS in 5 preparing tax forms for corporations actually takes the 6 trouble to print out a special place to indicate that, 7 fair enough? 8 A Yes. 9 Q And it is not even unusual for a corporation which is 10 entirely owned by one person, not that I'm saying that 11 Mr. Gordon owned all of Who's Who Worldwide, but it's not 12 unusual for a corporation which has a sole shareholder to 13 make a loan to that shareholder; is that correct? 14 A That's correct. 15 Q And there's nothing wrong with that, is that correct, 16 that could be a loa
n? 17 A Not on the face of it, no. 18 Q Now, we're talking about a C corporation in these 19 questions? 20 A Yes. 21 Q Can you tell the jury what a C corporation is and in 22 particular what it is in comparison to an S corporation? 23 A A C corporation is a corporation that pays tax on its 24 own basically. An S corporation or a subchapter S 25 corporation, does not pay tax and the items of income from OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2329 Rosenblatt-cross/Trabulus 1 that corporation flow directly onto the shareholders 2 returns. 3 Q Let me see if I can encapsulate that. 4 When an S corporation earns money, gets taxable 5 income, that becomes taxable income to its shareholders 6 automatically at the same time. Is that fair to say? 7 A Yes. 8 Q It might be a little bit of an oversimplification but 9 ba
sically that's the way it operates? 10 A Yes. 11 Q If a C corporation gets income, even if it is owned 12 by one person, one person owns all the shares, that income 13 does not represent taxable income to that individual 14 personally, is that correct, ordinarily? 15 A The taxable income of the corporation is the taxable 16 income of the corporation. 17 Q And not the individual? 18 A That's correct. 19 Q And the corporation itself pays taxes or could pay 20 taxes on it depending upon whether or not it has taxable 21 income? 22 A Yes. 23 Q Now, in 1991, what was the corporate tax rate? What 24 percentage rate did corporations pay taxes? 25 A I believe it was about 39 percent. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2330 Rosenblatt-cross/Trabulus 1 Q And in 1992? 2 A I believe it stayed about the same.
3 Q 1993? 4 A Same, I believe. 5 Q 1994? 6 A I believe the same. 7 Q And what was the maximum rate for individuals in 8 those same time periods? 9 A I think possibly around 1990 or '91, I believe it 10 might have been 31 percent for individuals and then it 11 went to like 39.6 percent. My years could be a little 12 off. 13 Q Okay. 14 And with regard to when it went to 39.6 percent, 15 that would not be on all the income of an individual, just 16 the income above a certain amount; is that correct? 17 A That is correct. 18 Q Now, the 39 percent or whatever the number was for 19 corporations, was that on all the corporation's income or 20 just the amount over a certain amount? 21 A I believe it was the amount over -- I could be off, 22 it could be over 100,000 up to about 350,000, and then 23 beyond that I think the rate was just a s
traight 34 24 percent. 25 Q Okay. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2331 Rosenblatt-cross/Trabulus 1 MR. TRABULUS: Your Honor, I'm going to be a fair 2 amount longer. It's after 11. 3 THE COURT: All right. 4 Members of the jury, we'll take a ten-minute 5 recess. Please don't discuss the case. Keep an open 6 mind. Please recess yourselves. 7 (Recess taken.) 8 (Jury enters.) 9 THE COURT: You may proceed, Mr. Trabulus. 10 MR. TRABULUS: Thank you, Your Honor. 11 BY MR. TRABULUS: 12 Q Okay. 13 Mr. Rosenblatt, we were talking about the 14 different corporate and individual rates. 15 Now, is it fair to say that in this case if the 16 corporations and Mr. Gordon had treated the loans as 17 something else, the logical thing for it to have been 18 treated as was a salary, fair enough, is that t
he 19 alternative? 20 A At that time, yes. 21 Q Okay. 22 If they had been treated as a salary, is it 23 correct that the corporations would have been entitled to 24 take a deduction for that purpose? 25 A Yes. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2332 Rosenblatt-cross/Trabulus 1 Q And is it correct that the corporations did not take 2 a deduction for that purpose? 3 A That's correct. 4 Q Now, you talked about various factors in determining 5 whether or not what is claimed to be a loan is truly a 6 loan. 7 Would one of those factors, whether I phrase it 8 the way you did or not, be what the tax consequences might 9 be? 10 A That's something I would definitely look at. 11 Q You would look at. 12 In this particular case you've made quite a few 13 computations, have you not? 14 A Ye
s. 15 Q And do you know from your review of the records here 16 the total amount of corporate income tax paid to the 17 United States government by Who's Who Worldwide over the 18 four years, 1991 through 1994? 19 A I don't know. 20 Q Is there anything that might refresh -- excuse me. 21 When you say you don't know, did you ever seek to 22 find that out during the course of whatever work you did 23 in preparation for your testimony here? 24 A I never added them up. I mean, the tax returns 25 themselves would show what the corporations made. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2333 Rosenblatt-cross/Trabulus 1 MR. TRABULUS: I would ask the government to 2 given me 415 and these are all in evidence, 415 which is 3 the 1990 return for Who's Who Worldwide, 416, the 1991 4 return, 417, the 1992 return and 418, the 1993 return.
5 Incidently, Mr. Rosenblatt, while the government 6 is doing that, are you aware whether Who's Who Worldwide 7 filed a 1994 return? 8 A I don't believe that was filed. 9 Q That related to the bankruptcy? 10 A I don't know why it wasn't filed. 11 Q Do you know who was -- withdrawn. 12 Do you have any idea who was in control of Who's 13 Who Worldwide during the period of 1995 when such a return 14 might have been filed? 15 A I believe the trustee was. 16 Q Do you know where the books and records of Who's Who 17 Worldwide were such as might have been needed to prepare 18 such a return? Do you know where they were at that point 19 in time? 20 A I couldn't say. 21 Q Mr. Rosenblatt, I'm handing you 415 through 418 22 inclusive in evidence. 23 Now, my questions to you before were 1991 through 24 1994, but the returns you have are 1990 through 1993
; is 25 that right? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2334 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q Okay. 3 Let's look at 415 which is the year 1990. That 4 was when Who's Who was a pretty new business; is that 5 correct? 6 A Yes. 7 Q And the taxable income was shown as $11,490; is that 8 correct? 9 A Yes. 10 Q And the tax is only $1,724; is that right? 11 A Yes, it is. 12 Q Now, did you determine that there were loans made by 13 the corporation or repayments made to Mr. Gordon made 14 during 1990? 15 A Yes. 16 Q Do you recall what they were? 17 A I believe it was approximately $62,000. 18 Q Now, if that had been taken as a tax deduction, how 19 would that have been reflected on the return? If that had 20 been treated as salary by the corporation, how would that 21 hav
e been reflected on the return? 22 A It would have been a deduction on line 12, 23 compensation of officers. 24 Q And would there have ever been any taxable income as 25 a result? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2335 Rosenblatt-cross/Trabulus 1 A No, there would have been a loss. 2 Q There would have been a loss? 3 A That's correct. 4 Q And there would have been no tax paid? 5 A That's correct. 6 Q In that year; is that correct? 7 A That's correct. 8 Q And are you familiar with the term "tax loss carry 9 forward"? 10 A Yes. 11 Q Tell the jury what that is. 12 A When there is a net operating loss in conducting a 13 business, the taxpayer has the right to carry it back to 14 three prior years if they exist or forward, I believe at 15 that time for ten years. 16 Q So is it fair to say
that if there had been a 17 treatment of this sixty-two odd thousand dollar amount of 18 loan to Mr. Gordon as salary, the corporation could have 19 benefited by that by getting a tax loss carry forward and 20 it might have been able to use in subsequent years when 21 operating a profit? 22 A That's correct. 23 Q Okay. Let's proceed to -- withdrawn. 24 The amount of the tax loss carried forward would 25 be the amount of this loan amount which we are now saying OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2336 Rosenblatt-cross/Trabulus 1 would have been treated as salary, minus the taxable 2 income. Is that correct? 3 A That's correct. 4 Q So the taxable income, excuse me, the loan amount you 5 said was about $62,000, the taxable income was about 6 $11,400, was recorded as $11,490, so is it fair to say 7 there would have been a tax
loss carried forward of 8 approximately $50,000? 9 A Yes, that's correct. 10 Q Let's proceed to 1991. 11 A Actually net operating loss? 12 Q I'm sorry, net operating loss. 13 The effect is the same. They would have been 14 able to carry it forward to another year and utilize it as 15 a deduction; is that correct? 16 A That's correct. 17 Q 1991, Exhibit 416. 18 And in that year taxable income of Who's Who 19 Worldwide was $14,707; is that correct? 20 A Yes. 21 Q And what were the loans that were made to Mr. Gordon 22 as claimed on the return in that year? 23 A Approximately $145,000. 24 Q That's based upon the computation that you made, 25 right? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2337 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q Now, let's talk about the tax consequences if it had
3 been treated as salary. 4 Would that have resulted in net operating logs of 5 about $130,000? 6 A Yes, it would have. 7 Q So in 19 -- that would have also represented -- 8 excuse me. That would have also resulted in a carry 9 forward; is that correct? 10 A Yes. 11 Q And that carry forward would have been added to the 12 carry forward for the preceding year? 13 A Yes. 14 Q So now we have 50,000 from the year before, 130,000 15 from this year, we are talking about a carry forward of 16 $180,000; is that right? 17 A Yes. 18 Q Okay. Let's go to 1992. That's Exhibit 417 in 19 evidence. 20 Now, Who's Who Worldwide is shown as doing much 21 better; is that correct? 22 A Yes, it is. 23 Q It has taxable income of $516,208; is that correct? 24 A Yes. 25 Q And it has, it paid tax of $175,511? OWEN M. WICK
ER, RPR OFFICIAL COURT REPORTER 2338 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q That's its corporate income to the U.S. government? 3 A Yes. 4 Q That doesn't include any payroll taxes that it paid 5 or any other taxes that it paid as a result of having all 6 the employees it did; is that correct? 7 A That's correct. 8 Q So we're just talking about income tax? 9 A Just income tax. 10 Q Now, how much were the loans as you computed them to 11 Mr. Gordon in 1992? 12 A Approximately $237,000. 13 Q Okay. 14 Now, if they had been taken as salary in 1992, 15 that would have resulted in a deduction of, what did you 16 say $237,000? 17 A Yes. 18 Q Now, in 1992, the taxable income of Who's Who 19 Worldwide was big enough so that if the loans had been 20 treated as salary in the preceding years, Who's Who 21 Worldwide w
ould have been able to take advantage of the 22 carry forwards; is that correct? 23 A Yes. 24 Q So we've got not only the $237,000, but we also have 25 $180,000, correct? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2339 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q And the end result, if during those three years 3 Mr. Gordon's loans had been treated as salaried, the end 4 result would have been that the taxable income of Who's 5 Who Worldwide in 1992 would have been reduced by about 6 $407,000; is that correct? 7 A Approximately. 8 Q And instead of reporting a taxable income of 9 $516,208, it would have reported a taxable income of about 10 $109,000; is that correct? 11 A Yes. 12 Q What would the tax have been on that? 13 A Around 30, $40,000, in that area. 14 Q And the tax actually paid was $175,000? 15 A Tha
t's correct. 16 Q And so Who's Who Worldwide itself would have paid, 17 let us say, approximately $140,000 less in taxes that 18 year? 19 A Approximately. 20 Q Let's go to 1993. That's Exhibit 418 in evidence. 21 A Yes. 22 Q In 1993, Who's Who Worldwide was doing quite well, it 23 made $1,286,588? 24 A Yes. 25 Q In taxable income? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2340 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q Incidently there is nothing in your investigation to 3 indicate that any of the reported amounts of income for 4 Who's Who Worldwide Registry, Inc., or any of the 5 corporations was incorrect, other than perhaps they didn't 6 take deductions they could have according to your view of 7 what the loans were. Is that fair to say? 8 A I didn't conduct the investigation. 9 Q Okay. 10 But
as far as you know, there's nothing to 11 indicate that this number is incorrect, that there was 12 more taxable income than that. 13 A No. 14 Q And Who's Who Worldwide paid $426,000 odd in federal 15 income taxes in 1993; is that correct? 16 A Yes, it is. 17 Q And what did you compute the loans to Mr. Gordon in 18 1993 as being? 19 A Approximately $132,000. 20 Q And in doing that, you did not treat any of the 21 amounts returned by Dr. Grossman as being a repayment of 22 the loan, did you? 23 A I believe that occurred in 1992, the adjustment. 24 Q In either year you did not include that, is that 25 correct, as reducing the amount of the loan, did you? OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2341 Rosenblatt-cross/Trabulus 1 A No. 2 Q So how much -- withdrawn. 3 If the loan had -- if the loan amounts in 1993
4 had been shown as salary, do you know how much the tax 5 paid by the corporation would have been reduced? 6 A Approximately $50,000. 7 Q Do you know whether the rate at which the corporation 8 paid taxes was higher than the rate at which Mr. Gordon 9 would have paid taxes if he had reported these loans as 10 salary? 11 A Like I said before, I believe the rate was 12 comparable. I think the top rate was about 39 percent for 13 each. 14 Q Would you go back to Mr. Gordon's returns, and I'll 15 get them for you, and determine what the top rate, what 16 the rate would have been on the last dollar he got had 17 these loans been reported as salary. Can you do that? 18 A I believe it is 39.6 percent. 19 Q But the lower amount, the lower end of the scale, the 20 rate would have been lower for Mr. Gordon than for the 21 corporation; is that correct?
22 A Yes. I mean, actually the individual rate and the 23 corporate rate I believe both start at about 15 percent in 24 these years. 25 Q Is it fair to say that the amount by which Mr. Gordon OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2342 Rosenblatt-cross/Trabulus 1 paid less taxes by reason of reporting loans as loans, was 2 less than the amount that the corporations would have 3 saved, the corporation would have saved if it had reported 4 the loans as salary and taken a deduction as we've spoken. 5 A Can you rephrase that? 6 Q Sure. 7 We have the corporations taking -- we have, the 8 way things are, we have the corporation didn't take a 9 deduction, treated it as a loan and Mr. Gordon treated it 10 as a loan? 11 A Right. 12 Q As a result of that the corporation paid more taxes 13 than it would have if it had treated the loa
ns as salary, 14 correct? 15 A Absolutely. 16 Q Now, I'm talking about the amount of that more, the 17 additional amount we're talking about, the difference 18 between what it would have paid, what it actually paid in 19 taxes and what it would have paid had it treated the loan 20 as salary. We'll call that figure A, all right? 21 A You want me to try to figure out what that is? 22 Q Yes, and I'd like you to compare it to the amount by 23 which Mr. Gordon would have paid more taxes if the loans 24 had been treated as salary by him, and I want to see which 25 is bigger. We'll call that the B figure. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2343 Rosenblatt-cross/Trabulus 1 A You will have to give me a couple minutes. 2 Q Sure. 3 Do you need a calculator? 4 A I think I can give an approximate number. 5 MR. TRABULUS: Okay
. 6 A Go back to your last series of questions about the 7 tax returns themselves. Corporate taxes would have been 8 reduced by in 1990, approximately $1,700. In 1991, 9 approximately $2,000. In 1992, I believe the number was 10 about $140,000. 11 Q Yes, we had an approximation of about that. 12 A And then about 50,000 in 1993. 13 Q So we're talking about -- about $200,000? 14 A About $200,000. 15 Q Now, so if the corporation had treated these loans as 16 salary, they would have saved over the course of those 17 years about $200,000 in federal income taxes, right? 18 A Approximately, yes. 19 Q Now, let's compute how much more federal income taxes 20 Mr. Gordon would have had to have paid if he would have 21 treated the loans as salary. 22 Do you have all the exhibits you need? 23 A No, I believe -- 24 Q Do you know his returns? 25 A
1405, the exhibit, the tax computation for OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2344 Rosenblatt-cross/Trabulus 1 Mr. Gordon. 2 Q Okay. 3 Now, 1405 has 1994 in it and it doesn't have 1990 4 in it (handing.) 5 A And I could also use the 1990 tax return. 6 Q For Mr. Gordon. 7 A For Mr. Gordon. 8 Q I'm giving you 408 in evidence, the 1990 return. So 9 let's leave 1994 aside since we don't have any return from 10 Who's Who for that period. 11 A I mean, the additional tax for 1990 based on 12 approximately $62,000 of income would have been in the 13 area of $20,000. 14 Q Okay. 15 A Then for 1991 we have about $45,000. For 1992, 16 approximately $74,000. And for 1993, $63,000. It's a 17 little over $200,000. 18 Q Not too different than the other number? 19 A Approximately the same. 20 Q And co
ming into 1994, is it fair to say that there 21 would have been a similar result if Mr. Gordon had treated 22 the loans made to him as salary, and if the corporation 23 had filed a return, or corporations filed a return, 24 treating the loans as salary, the total amount of tax that 25 would have been paid would have been comparable to what OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2345 Rosenblatt-cross/Trabulus 1 would have been paid? I mean, as between the two of them, 2 comparable to what have been paid as treated as loans 3 across the two, that same general principle would have 4 applied? 5 MR. WHITE: Objection to the form of the 6 question. 7 THE COURT: Sustained as to form. 8 BY MR. TRABULUS: 9 Q Okay. 10 Is it fair to say because of the similarity of 11 the rates you've testified to in any given year, if money 12
is treated as a loan from a corporation to an individual 13 and the corporation doesn't get a deduction for salary, 14 the overall tax effect adding together the corporation's 15 tax and the individual's tax, is not going to be too 16 different than if it had been treated as a salary? 17 A I mean, in these years it wasn't because the income 18 rates -- both Mr. Gordon and the corporation would have 19 been in similar tax brackets. I can't say what the tax 20 bracket would have been for 1994 on the corporation, so I 21 couldn't make that comparison. 22 Q Okay. 23 Given similar tax brackets, the results would 24 have been comparable? 25 A Yes. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2346 Rosenblatt-cross/Trabulus 1 Q Fair enough. Okay. 2 Now, before you mentioned that in the other 3 criminal investigations in which you've been
involved 4 there weren't any other cases involving an issue as to 5 whether loans were really salary. Do you recall that? 6 A I recall that. I can't recall if there were. 7 Q Can you recall some of the other criminal cases on 8 which you did work? 9 A Yes. 10 Q In criminal tax fraud cases? 11 A Yes. 12 Q Were there cases in which a corporation would take a 13 deduction for a personal expense of an individual and the 14 individual would not report that personal expense as being 15 income? 16 A A criminal case? 17 Q Yes. 18 A Yes. 19 Q That's a pretty common type of tax fraud; is that 20 correct? 21 A Yes, one type. 22 Q That's one type. 23 There's nothing of that sort here. There's no 24 indication here that any corporation wrote off a personal 25 expense to Mr. Gordon; is that correct? OWEN M. W
ICKER, RPR OFFICIAL COURT REPORTER 2347 Rosenblatt-cross/Trabulus 1 A No. 2 Q It's not correct? 3 A No. 4 Q You're saying -- I'm limiting it with regard to the 5 loans. You maintain that with regard to the condominium 6 and so forth that was a personal expense? 7 A That's correct. 8 Q Leave that aside with regard to -- we'll get to that 9 later. 10 With regard to the loans and the American Express 11 account and so forth, is there any indication that any 12 personal expense of Mr. Gordon was written off by the 13 corporation? 14 A I believe there are indications. We did not charge 15 them, no. 16 Q So in other words, there is nothing that you regarded 17 as something that is worthy of being included in this 18 prosecution; is that correct? 19 MR. WHITE: Objection. He didn't determine what 20 is worthy of prosecut
ion. 21 THE COURT: Sustained. 22 BY MR. TRABULUS: 23 Q What are some of the other types of criminal tax 24 frauds that you've worked on in other cases? 25 A The use of sham corporations, nominee corporations. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2348 Rosenblatt-cross/Trabulus 1 All different types of unreported income. Use of multiple 2 bank accounts. 3 Q And of course -- 4 MR. WHITE: Objection. Can he finish the 5 answer? 6 BY MR. TRABULUS: 7 Q You may continue. 8 A Expenditure cases where people spent more than they 9 reported, and it was proved to be taxable income. Bank 10 deposits analyses where going to bank deposits it was 11 determined on additional income. 12 Q Okay. Multiple bank accounts. In your experience as 13 an auditor, have you encountered corporations which had 14 multiple bank
accounts? 15 A Yes. 16 Q Is it fair to say it is typical for a corporation to 17 have multiple bank accounts? 18 A It's not unusual. 19 Q Not unusual at all; is that correct? 20 A Not unusual. 21 Q Are there business reasons why a corporation might 22 have multiple bank accounts that you are aware of? 23 A I mean, usually the biggest one is that there is a 24 regular operating account. 25 Q Are there other business reasons of which you are OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2349 Rosenblatt-cross/Trabulus 1 aware, sir? 2 A Yes. 3 Q For example, a business might want to have 4 relationships with multiple banks; is that correct? 5 A Yes. 6 Q Indeed is it not true that generally before one might 7 obtain financing from a bank, it's useful to have a 8 relationship with that bank as a depositor. Is t
hat fair 9 enough? 10 A Generally, it is, yes. 11 Q Might there be issues relating to the degree of FDIC 12 insurance for an account? 13 A Sure. 14 Q So you can spread the risk among different banks; is 15 that correct? 16 A Yes. 17 Q And also get the benefit of that 100,000 insurance 18 spread out over several different accounts as opposed to 19 just a single account; is that correct? 20 A Yes, it is. 21 Q Have you ever audited the books of a business that 22 had merchant credit card accounts with banks? 23 A Yes. 24 Q And would it not be unusual for the corporation to 25 have a checking account with the same bank in which it had OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2350 Rosenblatt-cross/Trabulus 1 a merchant credit card account? 2 A No, that's not unusual. 3 Q Not unusual at all. <
BR> 4 A No. 5 Q In fact, it might be something that the merchant bank 6 might want the business to have with it? 7 A I can't answer that specifically. 8 Q In the course of auditing -- and none of these things 9 are unusual or criminal; is that correct? These can be 10 typical things we're talking about, right? 11 A They can be typical; they can be criminal. 12 Q But on their face there is nothing criminal about 13 them; is that correct? 14 A No. 15 Q And there are business reasons for them, right? 16 A They can be. 17 THE COURT: What is a merchant credit card 18 account? 19 THE WITNESS: That's where the merchant deals in 20 like Mastercard or Visa and they have an account set up to 21 handle all the transactions. 22 THE COURT: Is it a credit card account with the 23 bank through one of the credit card companies or is it 24 with the
credit card company? 25 THE WITNESS: It's with the bank. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2351 Rosenblatt-cross/Trabulus 1 THE COURT: It's with the bank. 2 THE WITNESS: Yes. 3 THE COURT: But it's in the name of Mastercard or 4 something like that? 5 THE WITNESS: I'm not really sure. 6 THE COURT: Or is it in the name of X, Y, Z bank 7 credit card? 8 THE WITNESS: I'm not really sure. 9 BY MR. TRABULUS: 10 Q In terms of the function of a merchant credit card 11 account, would that be something that a corporation would 12 need to have in order to be able to accept payment by 13 credit card? 14 A I would think so. 15 Q And that's the function of it? 16 A Yes. 17 Q Now, you've been asked a fair amount about the 18 factors that the IRS considers in determining whether or 19 not a loan is tr
uly a loan. 20 Is it fair to say that all of those factors are 21 various things that the IRS uses in trying to determine a 22 key question whether or not there was an intent to repay 23 the loan at the time the money was originally paid over to 24 the borrower? 25 A Yes, it is used to determine intent and whether OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2352 Rosenblatt-cross/Trabulus 1 something is really a loan. 2 Q Is it true, as you understood it, that is the key 3 factor whether or not there was an intent to repay at the 4 time the borrowing was made in terms whether something is 5 or is not a loan? 6 A Certainly is a key factor. 7 Q A key or the key? 8 A A key factor. 9 Q Not the key? 10 A I think it goes along with all the other items. 11 Q If someone were to borrow money and truly intend to 12 repay i
t, can you conceive of any circumstances under 13 which the IRS would not consider that to be a loan? 14 A Yes. 15 Q Now, would those be situations in which there was no 16 ability to repay? 17 A Certainly. 18 Q Now, people borrow from gambling casinos to gamble, 19 are you familiar with that? 20 A Yes. 21 Q And they may intend to repay it; is that correct? 22 A I don't think the casino would take the money if they 23 didn't. 24 Q And is that -- does the IRS regard those loans as 25 loans even if it turns out that the person loses their OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2353 Rosenblatt-cross/Trabulus 1 shirt and can't repay it? 2 A It would depend upon all the facts and circumstances. 3 Q Well, given a genuine intent to repay. Yes or no, 4 sir? 5 A It would be considered a loan. 6 Q Now, peopl
e borrow money to set up a business or to 7 go into business, correct? 8 A Yes. 9 Q For example, somebody might want to start a garment 10 business and borrow money to buy cloth, put it together, 11 and they wouldn't be able to repay it unless they were 12 successful to sell clothing? 13 A That might be. 14 Q And they might have pie-in-the-sky agreements and not 15 have a reasonable way of distributing it and it still 16 would have been a loan if they intended to repay it and go 17 along with it? 18 A There are a lot of bad business people who make bad 19 decisions. 20 Q You mean people who are not skilled in making their 21 decisions? 22 A People who were poor in making decisions. 23 Q It might depend upon something that might happen 24 after the time the loan was made, right? 25 A Yes. OWEN M. WICKER, RPR OFFICIAL COURT
REPORTER 2354 Rosenblatt-cross/Trabulus 1 Q Could there be loans that are really loans even 2 though the amount of the loan keeps on getting bigger and 3 bigger and while repayments are being made? In other 4 words, you can have a situation where there is a loan 5 getting bigger and bigger and smaller partial portions of 6 it are being repaid and portions of it are getting bigger 7 and bigger? 8 THE COURT: Slow down, Mr. Trabulus. I lost you 9 in the beginning of the sentence and these things are not 10 easy to comprehend to begin with. When you give these 11 questions so rapidly, I have trouble following it. I'm 12 sure the jurors don't but I have a problem following it. 13 MR. TRABULUS: I'll repeat it. 14 BY MR. TRABULUS: 15 Q In this case, by your computation, the amount of the 16 loan to Mr. Gordon, the outstanding balance got bigger as
17 time went by, right? 18 A Yes. 19 Q And also you've indicated that there were certain 20 repayments which were shown? 21 A Very minor payments. 22 Q Well, you term them as minor? 23 A Yes. 24 Q So you have a situation by your calculation there 25 were some repayments but a balance getting bigger; is that OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2355 Rosenblatt-cross/Trabulus 1 right? 2 A Yes. 3 Q Can you have a true loan in a situation like that? 4 A In this situation. 5 Q Not this situation. That type of situation. When I 6 say not this situation, I don't mean the situation with 7 Mr. Gordon, but that type of situation where the balance 8 keeps on getting bigger and there may be some repayments. 9 Is that precluded from being a true loan? 10 A No. 11 Q In fact, the national debt is a true loan,
is it not? 12 A Yes. 13 Q And it has gotten bigger and bigger, right? 14 A Yes, it has. 15 Q And there were repayments along the way? 16 A Yes. 17 Q And there were borrowings in order to make the 18 repayment? 19 A Yes. 20 Q And that's a true loan? 21 A Yes. 22 Q Supposedly this one will get smaller, this is the 23 first one in 30 years, is that so? 24 A Hopefully. 25 Q Now, is it correct that on the books of Who's Who OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2356 Rosenblatt-cross/Trabulus 1 Worldwide the amount by which Dr. Grossman repaid Who's 2 Who Worldwide was shown as a reduction in the loan balance 3 from Mr. Gordon? 4 A The amount that he repaid Who's Who is approximately 5 235,000. Mr. Gordon's loan account was reduced by, I 6 believe it was 313,000. 7 Q Were there subseq
uent entries that you are aware of 8 relating to that transaction after the $313,000 reduction? 9 A I don't recall. 10 Q Well, if there were such subsequent entries, could 11 they have effected the net result of the reduction? 12 A Yes. 13 Q So is it possible there were subsequent adjustments 14 you were not aware which resulted from the total reduction 15 of being $236,000? 16 A It's possible. 17 Q Now, if that were so, would that be consistent with 18 Mr. Gordon having borrowed from Dr. Grossman to repay 19 Who's Who Worldwide? 20 A Based on the testimony of Dr. Grossman, the money was 21 loaned to Who's Who, not to Bruce Gordon. 22 Q Well, Dr. Grossman sent a check; is that correct? 23 A Yes. 24 Q It said loan, did it not? 25 A Yes, it did. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2357 Rosenblatt-cross/Trabulus
1 Q He testified that he did not specifically discuss 2 with Mr. Gordon whether the loan was being to Mr. Gordon 3 or to Who's Who? 4 A That's not what I recall. 5 Q Regardless of the testimony which is a matter of 6 record and will speak for itself, would such an 7 arrangement be consistent with a loan having been made -- 8 withdrawn. 9 Would such an arrangement we've talked about be 10 consistent with Dr. Grossman having made a loan to Bruce 11 Gordon and Bruce Gordon having used the proceeds of the 12 loan to repay a portion of his obligation to Who's Who 13 Worldwide, just the financial arrangement? 14 A I don't understand your question. 15 Q Okay. 16 The way it was reflected on the books of the 17 corporation, leaving aside whether the $313,000 amount was 18 correct or subsequently adjusted, the way it was reflected 19 on the book
s of the corporation, would that be consistent 20 with a loan by Dr. Grossman to Bruce Gordon and the 21 proceeds of that loan being used to reduce Mr. Gordon's 22 loan obligation to Who's Who Worldwide? 23 A You have to break down your question. 24 Q Okay. 25 A I'm not following it. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2358 Rosenblatt-cross/Trabulus 1 Q Okay. 2 The books of the corporation reflect payments to 3 Dr. Grossman and Joyce Grossman, correct? 4 A Yes. 5 Q And they apparently reflect in some way the payment 6 to Joyce Grossman was reversed; is that correct? 7 A Yes. 8 Q But they don't show a reversal of the payment to 9 Dr. Grossman; is that correct? 10 A Yes. 11 Q And it's also correct that in some respect an amount 12 which is associated with the amount of the payment to 13 Dr. Grossm
an, after taxes, is shown as a credit against 14 Mr. Gordon's loan balance to the corporation; is that 15 correct? 16 A Yes. 17 Q And we'll leave aside for a minute whether or not it 18 correctly shows the number or whether it shows it as too 19 much, okay. 20 A Okay. 21 Q But just keeping that in mind, is it not correct that 22 the way it is shown in the books of the corporation would 23 be consistent, would be consistent with Dr. Grossman 24 having borrowed monies, excuse me, withdrawn. Would be 25 consistent with Dr. Grossman having made a loan to Bruce OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2359 Rosenblatt-cross/Trabulus 1 Gordon and Bruce Gordon utilizing the proceeds of that 2 loan to pay down his obligation to Who's Who Worldwide? 3 A The IRS has no control over how the entry is made on 4 the books. 5 Q I did
n't ask you that. 6 A They can make any entry they want. 7 MR. TRABULUS: Move to strike. 8 THE COURT: Motion granted -- 9 Q And -- 10 THE COURT: Do you want me to rule on that or you 11 just want to hear the witness continue? 12 MR. TRABULUS: You ruled on it. 13 THE COURT: Well, I didn't complete the 14 statement. 15 You will have to slow down, Mr. Trabulus. You're 16 now talking over my answers. 17 MR. TRABULUS: I'm sorry, Your Honor. 18 THE COURT: -- Which is inadvertent on your part, 19 I'm sure, in your desire to proceed, especially when it is 20 in these complicated matters which you have gotten down to 21 a science here. 22 Do you want me to strike that answer? 23 MR. TRABULUS: Yes, Your Honor. 24 THE COURT: I strike the answer. The jury is 25 instructed to disregard it. OWEN M. WICKER, RPR OFFICIAL COURT RE
PORTER 2360 Rosenblatt-cross/Trabulus 1 There, I got it in. 2 MR. TRABULUS: I'm sorry, Your Honor. I did not 3 mean to interrupt Your Honor. 4 THE COURT: Okay. Go ahead. 5 BY MR. TRABULUS: 6 Q Mr. Rosenblatt, can you answer the question? The 7 entry on the books of Who's Who, would they be consistent 8 with a loan by Dr. Grossman to Mr. Gordon and Mr. Gordon 9 utilizing the proceeds of that loan to pay down his loan 10 obligation to Who's Who? 11 A Yes. 12 Q Now, if there were such a repayment in the amount of 13 $236,000, how would that have affected your computation of 14 the outstanding loan balance to Mr. Gordon for the years 15 1992, 1993 and 1994? 16 A (Perusing.) 17 Q I'm going to withdraw the question and come back to 18 that. 19 I think you testified that the $313,000, there 20 was a $313,000 entry which
you regarded as reflecting a 21 credit to Mr. Gordon's loan balance which was shown in 22 1992. Is that correct? 23 A Yes. 24 Q And the testimony was that the money was returned in 25 1993, is that correct, the checks show that -- that OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2361 Rosenblatt-cross/Trabulus 1 Dr. Grossman wrote a check to Who's Who in 1993; is that 2 correct? 3 A Yes, there were two checks. 4 Q He also testified that when he received the money 5 originally there were no strings attached; is that 6 correct? 7 A I believe so. 8 Q So there was nothing which obligated him to make that 9 loan which he did in 1993, right? 10 A Not that I'm aware of. 11 Q According to his testimony. 12 A Right. 13 Q Now, the general ledger for 1992 which reflects this 14 $313,000 entry in 1992, do you recal
l when that was 15 prepared according to that general ledger? 16 Do you have it there? 17 A I believe so (perusing.) 18 Q Does it have a date at the top of it? 19 A December 31, 1992. 20 Q What is under the clip? 21 A June 25, 1993. 22 Q So that would suggest that the general ledger itself 23 was either printed or in some respect prepared in 1993, 24 after the fact that the repayment occurred; is that right? 25 A After the money came back from Dr. Grossman, right. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2362 Rosenblatt-cross/Trabulus 1 Q Yes. If what came back was $236,000, it wouldn't be 2 correct to record a credit for $313,000, would it? 3 A No. 4 Q Unless there was some sort of offsetting entry in 5 some other account, is that correct, that would make it 6 all right? 7 A That's correct. 8 MR. TR
ABULUS: Bear with me a moment, Your 9 Honor. 10 THE COURT: Yes. 11 MR. TRABULUS: Thank you. 12 BY MR. TRABULUS: 13 Q On page six of the general ledger, 658-B, there is a 14 $313,086.20 entry. Is that the entry you were referring 15 to previously as being a credit to the Bruce Gordon loan 16 account? 17 A Yes, it is. 18 Q Is there also on the next page offsetting entries to 19 another account called "loans and exchanges, other"? 20 There are two entries to Richard Grossman for 21 $156,543.10 each? 22 A There are two payments, I don't know if that was part 23 of the same entry. 24 Q So those two payments to Dr. Grossman and the payment 25 to the credit to Bruce Gordon at that point would wash, if OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2363 Rosenblatt-cross/Trabulus 1 you add up the numbers? 2 A I don
't know if it was the same entry he made. 3 Q Can you check the dates? Excuse me, can you check 4 the numbers? 5 In other words, if you add up the $156,543.10 and 6 double it, does that equal the amount of the credit to 7 Bruce Gordon? 8 A I can't answer that question yes or no. 9 Q It's just a question of addition. Do you have a 10 calculator? 11 A I don't need a calculator. 12 The entry to the loan account is dated December 13 31, 1992, and it is to record payroll of 12/92 in the 14 amount of $313,000. 15 The two checks you are talking about to 16 Dr. Grossman are dated December 18, 1992 and December 24, 17 1992. The total amount is the same, yes. 18 MR. TRABULUS: Your Honor, if you could bear with 19 me another moment. 20 THE COURT: Yes. 21 MR. TRABULUS: Thank you. 22 BY MR. TRABULUS: 23 Q Now, Mr. Rosenblatt, the $313,0
00 some-odd thousand 24 entry that equals the amount on the two checks to 25 Mr. Grossman, Dr. Grossman, it indicates, does it not, OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2364 Rosenblatt-cross/Trabulus 1 it's to record payroll? 2 A Yes, it does. 3 Q So it doesn't indicate that it is in repayment of the 4 loan, does it, even though it may appear in that account 5 for the time being? 6 A That's correct. 7 Q And the payments to Dr. Grossman, did you hear they 8 were -- withdrawn. 9 From your review of the books and records of the 10 corporation, were the payments to Dr. Grossman shown as 11 salary? 12 A Yes. 13 Q And that would be payroll in the amount of the 14 $313,000 odd shown in the Bruce Gordon loan account; is 15 that correct? 16 A Well, I think the salary shown on the 1992 corporate 17 return
is $400,000. 18 Q And then the checks by which the salary was paid are 19 reflected in the two sets of entries we've been talking 20 about, correct? 21 A Yes. 22 Q And they are not the full $400,000 amount because 23 there were separate amounts taken out for payroll 24 deductions, correct? 25 A That's correct. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2365 Rosenblatt-cross/Trabulus 1 Q Withholding and so forth? 2 A Yes. 3 Q And did you look to the 1993 general ledger to see 4 whether or not there were any entries there relating to 5 the moneys paid in 1993 by Dr. Grossman to Who's Who 6 Worldwide? 7 A I don't recall. 8 Q Okay. We'll come back to that. 9 Now, I think you indicated that one of the 10 factors that gets considered in determining whether or not 11 a loan is a loan or something else might b
e the purpose 12 for which the monies are spent; is that correct? 13 A Yes. 14 Q And ordinarily, except in a situation where as a 15 condition of one's job you need to wear a certain type of 16 uniform such as a police officer or possibly a nurse, 17 expenditures of clothing are not deductible by the person 18 who wears the clothing; is that correct? 19 A That's correct. 20 Q Now, in this case we've seen a certain amount of the 21 loans were used to purchase clothing; is that correct? 22 A Yes. 23 Q And some to pay for the leasing of an automobile? 24 A Yes. 25 Q And in terms, if somebody were running a business OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2366 Rosenblatt-cross/Trabulus 1 such as a coal mine where they never had any dealing with 2 other business people and basically dealing with 3 employees, there might n
ot be a business purpose for 4 wearing special clothing or driving expensive cars; is 5 that correct? 6 A I can't answer that. 7 Q How about in a business which by the nature of the 8 business would put the president of the business in touch 9 with the chairman or chairwoman of top corporations, could 10 there be a business purpose there to somebody having 11 expensive clothing? 12 A And having the corporation pay for it? 13 Q No, not having the corporation take a deduction for 14 it, but just in terms of a business purpose. There is no 15 claim that it is deductible by the corporation or by the 16 individual, but just there might be some business benefit 17 to the corporation in having the employee or the president 18 be able to drive a fancy looking car or wear expensive 19 clothing in a situation where the business itself takes 20 the president into contac
t with people such as the Prime 21 Minister, perhaps the Prime Minister of Lithuania or the 22 sub republics of Russia, could there be a business purpose 23 why such a president would have to wear nice clothing? 24 A I don't see where the President or the Prime Minister 25 of Lithuania will be looking at your clothing labels. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2367 Rosenblatt-cross/Trabulus 1 I've never heard of that before. 2 Q Let's say you are going to a business meeting with 3 the chairman of the board of a large corporation. You 4 wouldn't want to drive up to the meeting in a 1986 Chevy, 5 would you? 6 A Unless the chairman of the board of that company is 7 parking your car, I don't think it would matter. 8 Q What if you were taking a person on a drive? 9 MR. WHITE: Objection, Your Honor. 10 THE COURT: Overruled. 11
BY MR. TRABULUS: 12 Q You can answer. 13 A I don't know what the question is. 14 Q Could you conceive of a business reason why somebody 15 who is basically running a business, which among other 16 things is selling prestige to people, why they themselves 17 might want to be driving a fancy car and wear fancy 18 clothing in a business context? I'm not saying it should 19 be deductible, but there should be reasons in the 20 corporation's interest. 21 A People like to impress themselves and hopefully by 22 impressing themselves it will impress others, if that's 23 what you're getting at. 24 Q Would it seem unusual to you or the head of a 25 business which was selling itself as something which was OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2368 Rosenblatt-cross/Trabulus 1 their top executives and was designed to impress people 2 wi
th its prestige, to show up at business meetings in 3 cheap suits or wearing a car that wasn't a luxury car? 4 Would that seem a bit odd? 5 A No. 6 Q Would it seem desirable -- do you think there could 7 be a business purpose to such a corporation having an 8 entertainment facility that had artwork in it that was of 9 a luxurious and expensive character? 10 A What do you mean by an entertainment facility? 11 Q A penthouse. 12 A In this case? 13 Q First, not in this case, and then we'll get into this 14 case. Something like a penthouse. Could there be a 15 business reason for having luxurious accommodations? 16 A Corporations do things like that, yes. 17 Q If assuming, just for the sake of discussion, there 18 was a period of time Mr. Gordon was actually living there, 19 could there be a business reason why it would be to the 20 advantage of a corpora
tion for Mr. Gordon to be able to 21 show people who he was entertaining on a business purpose 22 or purposes that he was successful and had expensive 23 accommodations, an expensive place to live? 24 A Again, that goes into wearing the expensive suits and 25 things. If you are trying to impress people, people do a OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2369 Rosenblatt-cross/Trabulus 1 lot of things to impress others. 2 Q Is it unusual in your experience that people who are 3 high up in corporations that deal with other corporations 4 or other -- have business contacts with other people, is 5 it unusual for them to be well dressed, to pay a lot of 6 money for clothing? 7 A If they pay it out of their own pocket, there's 8 nothing wrong with it. 9 Q I'm not talking about whether they pay it out of 10 their own pocket. Is it unusual fo
r people who are top 11 executives of corporations to spend a lot of money on 12 clothing or cars? 13 MR. WHITE: Objection, Your Honor. 14 THE COURT: On what ground? 15 MR. WHITE: On relevance. 16 THE COURT: Overruled. 17 A That's why there are luxury cars out there. That's 18 why there are 2,000 suits, because people buy them. 19 Q Do you believe that there could be business reasons 20 that it could benefit their business if they dress that 21 way and impress people that way, that they can convey an 22 aura of success? Could that benefit the business too? 23 A I'm sure other people could look at him and say well, 24 he's successful in that way, yes. 25 Q So if the person didn't have the money to buy those OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2370 Rosenblatt-cross/Trabulus 1 things himself and a loan was made to him or her
for doing 2 that, could there be a business reason for that loan? 3 A It could also be a reason for increasing the person's 4 salary and let him pay it out of his salary. 5 Q Okay. Let's talk about Mr. Gordon's salary and what 6 would have happened if it could have been increased. 7 I think the evidence here is that Mr. Gordon had 8 a tax liability of somewhat over 3.5 million dollars 9 resulting from earlier years, is that correct, and there 10 is a chart which shows that? 11 A Yes, it is. 12 Q Just to run through that chart a bit, that's Exhibit 13 823. The actual income taxes were $809,000 some-odd; is 14 that correct? 15 A I don't have the chart in front of me. 16 Q Okay. 17 The actual taxes were a little bit over $809,000, 18 almost $810,000; is that correct? 19 A Yes. 20 Q And there were penalties of $660,000 some-odd? 21 A Y
es. 22 Q And there was interest of 1.8 million dollars also; 23 is that correct? 24 A Yes. 25 Q And there were additional penalties under another OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2371 Rosenblatt-cross/Trabulus 1 section of the IRS code of $254,000? 2 A Yes. 3 Q So of the 3.5 million dollars, approximately 2.7 4 million dollars was interest and penalties; is that 5 correct? 6 A Yes, it is. 7 Q Now, let's say that all of a sudden, let's stop 8 talking about Mr. Gordon. Let's take somebody who has a 9 3.5 million dollars tax liability in the abstract and they 10 have a corporation which has unlimited funds and they pay 11 him 3.5 million dollars so he can pay his tax liability, 12 okay. 13 A Okay. 14 Q Does that result in additional taxable income to the 15 individual? 16 A Sure it does
. 17 Q The 3.5 million dollars of additional taxable income; 18 is that correct? 19 A That's correct. 20 Q So at the current maximum individual rates, what 21 would that be, approximately? 22 A About 40 percent of that. 23 Q So we're talking about well over $1,000,000? 24 A 1.4 million dollars, I think. 25 Q So if somebody were to take from a corporation an OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2372 Rosenblatt-cross/Trabulus 1 amount necessary to satisfy a 3.5 million dollars tax 2 liability, they would immediately incur another tax 3 liability of 1.4 million dollars; is that correct? 4 A Yes. 5 Q And if they didn't have the money to pay that, they 6 would incur interest and perhaps penalties on it; is that 7 correct? 8 A Yes. 9 Q As time went on? 10 A Sure. 11 Q And at what rate would th
at interest and penalty 12 accrue? 13 A No, they probably wouldn't be penalties. 14 Q The interest? 15 A The interest I believe is at 9 percent now. 16 Q There were previous years at a higher rate? 17 A In the '80s they were much higher. 18 Q And that was at a time when that interest would 19 accrue on Mr. Gordon's tax liability, because the taxes 20 were from 1981 through 1986; is that right? 21 A Yes. 22 Q At that time was the interest as high as 20 percent? 23 A I believe it was. I don't know for how long a 24 period, but it was definitely. The bank accounts at that 25 time also paid 15 percent. OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2373 Rosenblatt-cross/Trabulus 1 Q Now, you've testified concerning the collateral 2 agreement which is in evidence; is that correct? 3 A Yes. 4 Q And I think you testified
that the collateral 5 agreement picked up for its purposes in Mr. Gordon's 6 income the income of corporations that he either 7 controlled or directly or indirectly controlled or owned; 8 is that correct? 9 A Yes. 10 Q Now, you prepared a chart -- 11 MR. TRABULUS: Bear with me a moment. 12 Sorry, Your Honor. 13 THE COURT: That's all right. 14 MR. TRABULUS: I think a Post-it note came 15 loose. 16 While I'm looking for it -- 17 BY MR. TRABULUS: 18 Q The chart I'm referring to is one that analyzed what 19 the effect would have been on Mr. Gordon's obligations 20 under the collateral agreement if what you've maintained 21 was income had been included; is that correct? 22 A Yes. 23 Q Now, in the course of doing that, you did not take 24 into account the effect of any income of any corporation 25 that he directly or indirectly o
wned or controlled; is OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2374 Rosenblatt-cross/Trabulus 1 that correct? 2 A That's true. 3 Q You deliberately left that out. You indicated that 4 on the chart itself; is that right? 5 A Yes. 6 Q Did you discuss with Mr. White whether or not you 7 should leave that out? 8 A No, that was my decision. 9 Q Was that your decision? 10 A That was my decision. 11 Q Did you do this because you found any ambiguity in 12 the collateral agreement as to the circumstances or the 13 amount at which corporate income should be picked up? 14 A No. 15 MR. TRABULUS: Exhibit1525. 16 Q Now, before we get into the chart, the collateral 17 agreement provides the taxpayer's proportionate share -- 18 withdrawn. 19 The collateral agreement provides that 20 Mr. Gordon's proportion
ate share on the income of closely 21 held corporation that he either directly or indirectly 22 controls is to be included, that may be a little bit of an 23 oversimplification; is that correct? 24 A Basically, yes. 25 Q As you read that, if Mr. Gordon owned 75 percent of OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2375 Rosenblatt-cross/Trabulus 1 the corporation, that would mean that 75 percent should be 2 taken into account? 3 A Yes. 4 Q If he controlled all of it what would that mean? 5 Should he take 100 percent even if he owned maybe 75 6 percent of it? 7 A I would have gone conservative and used 75 percent. 8 Q What if he owned none of it and controlled all of it, 9 should any of it have been picked up? 10 A I don't know. 11 Q So there's some questions about the terms of the 12 collateral agreement that can't be an
swered exactly? 13 A Well, I've never seen one of them before so I'm not 14 going to discuss it. 15 Q This is the very first collateral agreement you've 16 ever seen? 17 A Yes. 18 Q Well, based upon your familiarity -- withdrawn. 19 In the course of doing audits and examinations, 20 you've never, ever seen a collateral agreement? 21 THE COURT: That's what he just said. Next 22 question. 23 MR. TRABULUS: Sorry, Your Honor. 24 BY MR. TRABULUS: 25 Q Are you familiar with the different types of OWEN M. WICKER, RPR OFFICIAL COURT REPORTER 2376 Rosenblatt-cross/Trabulus 1 provisions that get included in collateral agreements? 2 A No. 3 Q So you don't know whether or not the provision about 4 picking up the income of a closely held corporation is 5 always included in the collateral agreement? 6 A I would not k
now -- I would have no way of knowing. 7 Q Is it fair to say if in preparing this chart, 1525, 8 you had taken into account in some percentage income of 9 Who's Who Worldwide, the amount of the payments that you 10 would have shown as being subject to being payment by 11 Mr. Gordon would have been greater than what was shown 12 here. He would have had to have paid more. 13 A Yes. 14 Q There can be times, can there not -- withdrawn. 15 MR. TRABULUS: Your Honor, this might be a good 16 time for lunch. 17 THE COURT: Yes. 18 Members of the jury, we'll recess for lunch. 19 Please recess. Do not discuss the case among yourselves 20 or with anyone else. Come to no conclusions. 21 We'll recess until 1:30. 22 Have a nice lunch. 23 (Jury exits.) 24 THE COURT: How much more do you have with this 25 witness, Mr. Trabulus? OWEN M. WICK
ER, RPR OFFICIAL COURT REPORTER 2377 Rosenblatt-cross/Trabulus 1 MR. TRABULUS: At least another hour. 2 THE COURT: Will you conclude this witness, 3 Mr. White, before you get to the next one? 4 MR. WHITE: Yes. 5 THE COURT: All right. 6 MR. LEE: Your Honor, I have an application. 7 THE COURT: Pardon? 8 MR. LEE: I believe the government is endeavoring 9 to bring in a custodian of business records. Could we 10 know who that is so we can prepare for cross-examination. 11 MR. WHITE: Ms. Springer. 12 THE COURT: 1:30. 13 (Luncheon recess taken.) 14 15 16 17 18 19 20 21 22 23 24 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2378 Rosenblatt-cross/Trabulus 1 A F T E R N O O N S E S S I O N 2 3 (Whereupon,
the jury at this time entered the 4 courtroom.) 5 6 A N D R E W R O S E N B L A T T , 7 called as a witness, having been previously 8 duly sworn, was examined and testified as 9 follows: 10 11 THE COURT: Please be seated, members of the 12 jury. 13 You may proceed, Mr. Trabulus. 14 MR. TRABULUS: Thank you, your Honor. 15 16 CROSS-EXAMINATION (cont'd) 17 BY MR. TRABULUS: 18 Q Good afternoon, Mr. Rosenblatt. 19 A little before the lunch break I asked you 20 questions what if someone is suddenly given three and a 21 half million dollars so someone can pay off taxes, and we 22 talked about that person realizing 1.4 million dollars in 23 income, and I think I asked you what would happen if that 24 person didn't have the money to pay? And you said there 25 would be interest, but no penalties. Do you recall
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2379 Rosenblatt-cross/Trabulus 1 testifying to that? 2 A I think you got your numbers a little mixed up. 3 Q Maybe I did. But I think you talked about a 4 situation in which there was 3.5 million dollars of tax 5 liability, and the corporation paid that money to someone 6 because they have couldn't pay it -- 7 THE COURT: You have to slow down, Mr. Trabulus. 8 Q I think we agreed, did you not, that as a result of 9 that payment, the individual would realize that taxable 10 income, I think you said it would be about 40 percent, and 11 we talked about it being 1.4 million dollars? 12 A The tax would be 1.4. 13 Q And the taxable income is 3.5 million? 14 A Right. 15 Q So I misspoke. 16 Let's talk about the tax if we are in a situation 17 where the person give the money to pay it. You sa
id there 18 would be interest of nine percent; is that correct? 19 A Yes. 20 Q And that is compounded daily now, isn't it? 21 A I believe so. 22 Q And I think you indicated that there would not be any 23 penalty; is that correct? 24 A There might be estimated tax penalties on to the 25 whole situation. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2380 Rosenblatt-cross/Trabulus 1 Q Could there also be something known as a late 2 penalty -- late payment penalty? 3 A Yes. 4 Q And that's a half a percent a month up to a certain 5 time? 6 A Yes. 7 Q And after the IRS sends the person a notice it 8 increases to one percent a month? 9 A I don't think it increases to that. 10 Q Whatever amount it amounts to it is on top of the 11 nine percent compounded daily; is that right? 12 A Yes. 1
3 Q Now, I think you also indicated before in response to 14 one of my questions, that Dr. Grossman had testified that 15 his loan was to the corporation; do you recall that? 16 A Yes. 17 Q Isn't it correct that Dr. Grossman did not testify to 18 that? 19 A It is my recollection that Dr. Grossman testified 20 that Mr. Gordon told him that the corporation needed the 21 money to print a new book or catalogue or something. 22 Q Fair enough. 23 But would that not be consistent with a loan to 24 Mr. Gordon, which Mr. Gordon to use to repay his loan to 25 the corporation, and the corporation utilizing that money HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2381 Rosenblatt-cross/Trabulus 1 itself to help print the book? 2 A No. 3 Q It wouldn't be consistent with that? 4 A No. 5 Q Do you recall -- do you recall Dr. Grossm
an being 6 asked questions, the following questions, and giving the 7 following answers, page 537, beginning at line 12. 8 Following an objected to question. 9 The Court: Well, did you have a discussion with 10 this -- what this $200,000 was to be? 11 The Witness: No, we did not have discussions. 12 The Court: You just did this unilaterally. 13 The Witness: This was in response to a request 14 from Mr. Gordon which I referred to earlier, sir. 15 The Court: He requested a return of the money. 16 The Witness: That's correct. 17 The Court: You sent a check for $200,000. 18 The Witness: That is correct. 19 The Court: You said it was a loan? 20 The Witness: I said it was a loan. And there 21 was a subsequent correspondence in which I indicated to 22 him it didn't have to be a loan, I just did that because I 23 wasn't sure how it was to be characterized.
24 The Court: Right now we are getting as to how 25 you decided it was a loan. You decided that yourself. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2382 Rosenblatt-cross/Trabulus 1 The Witness: Absolutely. 2 The Court: All right. 3 And then another question by me. 4 Question: Dr. Grossman, I think you mentioned 5 this before, but let me clarify, in your conversation with 6 Mr. Gordon did he say why he needed this money back? 7 Answer: Yes. He indicated they needed money for 8 publication expenses to put out the registry and I didn't 9 have enough because returns to the business had been 10 rather weak because of the holiday time. And so, would I 11 send the money back? I said, of course. 12 Is that the testimony you were referring to? Do 13 you recall hearing that testimony? 14 A I believe that was that testimony and the
n maybe 15 during direct examination there were other questions about 16 that, yes. 17 Q But at any point did Dr. Grossman say that he 18 understood that the loan that he was making was to the 19 corporation as opposed to Mr. Gordon? Yes or no, sir? 20 A I can't answer that yes or no. 21 Q Would it help you to look at the transcript? 22 A No. 23 Q It's possible, is it not, for someone to make a loan 24 to one person, for that person to use the proceeds of the 25 repayment -- withdrawn. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2383 Rosenblatt-cross/Trabulus 1 Is it possible for someone to loan money to 2 somebody else, for that other person to use the money that 3 is loaned to him to pay down a loan he owes to a 4 corporation, and for that corporation to use the money it 5 receives in its business? 6 A I think
you will have to rephrase that. 7 Q Sure. 8 We got three steps. Loan from A to B. B owes 9 money to corporation C. B takes the money it gets from A 10 and uses it to repay corporation C, and C uses that money 11 in business, for printing a registry or whatever. Is that 12 possible? 13 A Yes. 14 Q And they can all be loans; is that correct? 15 A Yes, they can. 16 Q I would like to go back to how the corporation's 17 books, the general ledger reflected the monies and were 18 paid by Dr. Grossman. 19 I think you indicated that the amount returned by 20 Dr. Grossman, or paid by Dr. Grossman on that check was 21 about $236,000; is that right? Or 235, somewhere around 22 that? 23 A There were two checks, about 235,000. 24 MR. TRABULUS: May I have Exhibit 660, please. 25 Q Mr. Rosenblatt, I am showing you 660 in evidence, and HAR
RY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2384 Rosenblatt-cross/Trabulus 1 I opened it up to page 5. 2 (Handed to the witness.) 3 Q 660 is the general ledger, is it not, for Who's Who 4 Worldwide for the calendar year 1993? 5 A Yes, it is. 6 Q That's the year after the general ledger that we were 7 talking about before; is that correct? 8 A Yes. 9 Q And in the general ledger that we were talking about 10 before, we saw an entry in Bruce Gordon's loan and 11 exchange account for, to pay payroll in the amount of 12 $313,000; is that right? 13 A Yes. 14 Q Something like that? 15 A Yes. 16 Q And there was also offsetting entries, two checks to 17 Dr. Gordon, $156,000; is that right? 18 A Dr. Grossman. 19 Q Dr. Grossman, excuse me. I said Dr. Gordon. My 20 mistake. 21 Now, let's look at this entry here
that is 22 circled, that says $392,454.30. 23 Is that a credit to a loan and exchange account? 24 A Yes, it is. 25 Q Do you know what that represents? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2385 Rosenblatt-cross/Trabulus 1 A No. 2 Q You recall that there was a check to Mrs. Grossman, 3 also $156,000? 4 A Yes. 5 Q If you subtract that amount from that $392,454, what 6 approximately do you get? 7 A Approximately 236,000. 8 Q The amount by which Dr. Grossman reimbursed the 9 corporation, correct, or paid -- withdrawn. 10 The amount of the check which Dr. Grossman wrote 11 payable to the corporation, correct? 12 A Yes. 13 Q In doing your analysis of how the corporation treated 14 the check for $236,000 that was paid to Dr. Grossman -- 15 excuse me, paid by Dr. Grossman -- did you take into
16 account this entry, the $392,454 entry at all? 17 A No, because it is not part of the loan and exchange 18 BG account. 19 Q It is indicated as a loan and exchange other; is that 20 correct? 21 A Yes. 22 Q I am going to show you Defendant's Exhibit M and 23 Defendant's Exhibit N, which are not in evidence. They 24 are for identification only at this point. And I am going 25 to ask you whether you have ever seen them before. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2386 Rosenblatt-cross/Trabulus 1 (Handed to the witness.) 2 MR. TRABULUS: Your Honor, bear with me a 3 moment. I want to give Mr. White a copy of these. 4 THE COURT: Yes. 5 (Whereupon, at this time there was a pause in the 6 proceedings.) 7 Q Do you know whether you have ever seen these before? 8 A I don't recall seeing this. 9 Q Are
you aware that the grand jury -- that a grand 10 jury subpoena was served on the business of the defendant 11 Reffsin? 12 A Yes, I am, sure that there was. 13 Q Are you aware that various books and records were 14 produced in response to that subpoena? 15 A Yes. 16 Q Do you know if this was included among them? 17 A I don't recall seeing these two documents. 18 Q Do you recall if you were shown everything that was 19 produced by the business? 20 A As far as I know I was. 21 Q Did you yourself ascertain whether you were? 22 A I can't possibly know every document that was 23 produced in this case. 24 Q Did you ask Mr. White, or whoever it was that was 25 showing you the documents, that I need to see everything HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2387 Rosenblatt-cross/Trabulus 1 produced by Mr. Reffsin's co
mpany? 2 A I asked to see documents, yes. 3 Q Every one? 4 A Every one that was relevant, yes. 5 Q And you wouldn't know if they were relevant until you 6 saw them; is that right? 7 A No. 8 Q You would know even before you saw them? 9 A Well, I trusted the special agent on the case with a 10 tax background to know which are relevant issues. 11 Q Would adjusting entries to the loan and exchange 12 account be relevant? 13 A If it was Bruce Gordon's loan and exchange account, 14 yes. 15 (Mr. Trabulus confers with Mr. Wallenstein and 16 Mr. White.) 17 Q Let me return to something we were talking about 18 before. And I think I gave you an example of someone who 19 borrowed money to go into a garment business or use in a 20 garment business and they took the money and bought 21 cloth. They basically manufactured garments. If they
22 don't sell them, they wouldn't be able to make the loan. 23 That's the hypothetical I gave you. 24 Bearing that in mind, in such a situation would 25 it be relevant to look to the repayment history to HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2388 Rosenblatt-cross/Trabulus 1 determine whether or not the loan was really a loan? 2 A It depends on who you are borrowing from. If you are 3 borrowing from a corporation in which you are a major 4 shareholder, yes, it certainly makes sense to look at the 5 repayment history. If in your hypothetical if you are 6 talking about borrowing from a bank, maybe it doesn't. 7 Q Well, even take a situation -- we talked about a 8 situation where it would not be unusual -- withdrawn. 9 I think you testified that it would not be 10 unusual, even in a situation where the shareholder was the 11 sole shareh
older of the company, for the shareholder to 12 take a loan from the company, correct? Do you recall 13 that? 14 A Yes, it happens. 15 Q Take a situation in which a shareholder borrows from 16 a company money which the shareholder then uses to obtain 17 cloth and manufacture garments,, perhaps a new line of 18 garments, something not done before, and is unsuccessful. 19 In that situation where the corporation is not 20 repaid be a factor in determining as to whether or not the 21 loan was a true loan? 22 A I don't understand the question. 23 Q Well, I think you said that it would make a 24 difference whether or not the garment manufacturer or 25 seller was borrowing from a bank or borrowing from a HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2389 Rosenblatt-cross/Trabulus 1 corporation that he or she controlled; do you recall that?
2 A If the corporation is conducting the business, why 3 would the corporation borrow from the shareholder, or the 4 shareholder to borrow from the corporation to make the 5 purchase. 6 Q Sometimes, are you familiar with instances in which 7 individuals and corporations have related businesses? 8 A Yes. 9 Q I am not saying it is this situation here. But I am 10 saying in such a situation, would the fact that there was 11 no repayment indicate that the loan had not been a loan in 12 the first case? 13 A If you are buying goods that are going to be used in 14 the corporate business, yes. 15 Q Now, I also gave you an example before of -- well, we 16 talked about Mr. Gordon, or a business involved in selling 17 prestige. 18 Let me give you some other examples. 19 Let's say someone had a business of running a 20 fancy nightclub. Would it be reas
onable to expect that 21 that person might dress in fancy clothing, expensive 22 clothing? 23 A People can dress any way they want. 24 Q Well, let's say this person owns the fancy nightclub, 25 was at the fancy nightclub every night, greeting guests, HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2390 Rosenblatt-cross/Trabulus 1 schmoozing with people, hobnobbing with the rich and 2 famous, is it fair to say that there is a reason why that 3 person would not want to have fancy clothing? 4 THE COURT: Mr. Trabulus, exciting as the 5 prospect is, this is the last question in that line. You 6 went over this this morning repeatedly. Why do you do it 7 again? 8 MR. TRABULUS: Because the next question would 9 be, your Honor -- if a loan was made from the corporation 10 to the individual, to enable the individual to purchase 11 such
items, and there was no repayment down the road 12 because of some bankruptcy or a judgment or something of 13 the sort which intervened after the loan was made. Would 14 the repayment history be something to consider as to 15 whether the loan was ever legitimately a loan in the first 16 place? 17 THE WITNESS: I think I am lost with the 18 question. 19 Q Let's take a situation -- 20 MR. TRABULUS: Your Honor, I ask the question -- 21 THE COURT: I understand now why you asked the 22 predicate which we heard about were questions about this 23 morning, every type of variety of exotic attire, art 24 collection in order to stir up business, right? 25 MR. TRABULUS: And facilitate it. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2391 Rosenblatt-cross/Trabulus 1 THE COURT: Facilitate business. We heard of all 2 that. Now you are g
etting into another subject, go 3 ahead. 4 Q Now we are talking about a situation where given 5 these facts, nightclub owner, fancy clothing, borrows 6 money from the business to buy it, there is some kind of 7 subsequent problem, bankruptcy, judgment, raid, whatever 8 it is, the business gets shut down. The person's source 9 of funds is going to be related to the business. And that 10 type of situation would the fact that there was a break in 11 the repayment, or after a certain point there were no 12 repayments, would that be something to consider in terms 13 of whether originally it was a loan or not? 14 A You would look at the entire repayment history, not 15 just one point of it. 16 Q So, hindsight can be sometimes affected by 17 intervening events, like a bankruptcy and a judgment, 18 something of the sort; is that right? 19 A Yes. 20 Q Are you
aware as to whether there were any 21 instructions at all in how to fill out 433-A, collection 22 statements back in 1991 to 1993? 23 A I have no idea. 24 Q Are you aware of any IRS form at all published 25 without some kind of instructions or work sheet that goes HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2392 Rosenblatt-cross/Trabulus 1 with it? 2 A There are a lot of forms, and I am sure some of them 3 don't have instructions. 4 Q Forms used by members of the public as opposed to 5 forms used internally within the IRS, forms to be used by 6 taxpayers, do you know one way or another if there are any 7 that don't have any instructions? 8 A I can't answer that. 9 Q If there were instructions, what were in the 10 instructions, would that be something appropriate to 11 consider in terms of evaluating a response put on the
12 form? 13 A Generally if there are instructions, people follow 14 the instructions. 15 Q In this case, do you know what forms 433-A of 16 Mr. Gordon you looked at in connection with, you know, 17 preparing to testify? 18 A I looked at all three, in 1991, and the two in 1993. 19 Q Did you look at any forms that you thought were in 20 1990? 21 A Not that I can recall. 22 Q Did there come a point in time where Mr. White asked 23 you for assistance in preparing a letter to me relating to 24 some of the testimony you would be giving; do you recall 25 that? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2393 Rosenblatt-cross/Trabulus 1 A I think it was some kind of disclosure request, yes. 2 Q Did you see that letter before it went out? 3 A No. 4 Q Have you seen it since? 5 A I don't believe so. <
BR> 6 Q Let me show you what is previously marked as Gordon D 7 for Identification only. 8 (Handed to the witness.) 9 Q Have you ever seen that document before? 10 A No. 11 Q You have not? 12 A No. 13 Q You have not? 14 A No. 15 Q Did Mr. White tell you there was a Form 433-A for 16 Mr. Gordon that appeared to be a 1990 form? 17 A No. 18 Q I will show you what I have marked as Gordon-O for 19 Identification. 20 (Handed to the witness.) 21 Q And Gordon-O is a redacted form of a letter, meaning 22 parts have been blotted out. Do you recognize this? Have 23 you ever seen that before? 24 A I have never seen this before. 25 Q Okay. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2394 Rosenblatt-cross/Trabulus 1 Do you have any of the Forms 433-A up there with 2 you? 3 A No.
4 Q Okay. 5 MR. TRABULUS: May I have Exhibit 406, please. 6 Q While the chart is being obtained, the blowup, I will 7 show you 406 in evidence. 8 406 is a collection information statement from 9 Mr. Gordon, a Form 433-A, and it is dated December 29th, 10 1993; do you see that? 11 A Yes. 12 Q And the blowup has two parts called 406-A and 406-B. 13 Now, let me take a look at the original of 406. 14 The original of 406 has certain shaded areas; is 15 that correct? 16 A Yes. 17 Q And I am going to show them, and point out some of 18 the shaded areas on the blowup. 19 These areas here are shaded (indicating), are 20 they not? 21 THE COURT: When you say these areas -- 22 MR. TRABULUS: I am sorry, I am referring under 23 column -- 24 THE COURT: What page? 25 MR. TRABULUS: Well, it is page 3 of 433-A. HARRY
RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2395 Rosenblatt-cross/Trabulus 1 Q Under the column current market value, the first four 2 rows are shaded, are they not, on yours? 3 A Yes. 4 Q It doesn't come out as clear on this; is that 5 correct? 6 A True. 7 Q The second column, liability balance due, the first 8 four columns are shaded? 9 A Yes. 10 Q And in equity and asset none are shaded among the 11 first four; is that correct? 12 A Yes. 13 Q And under the remaining four columns, amount of 14 monthly payment, etcetera -- 15 THE COURT: You have to slow down. 16 MR. TRABULUS: I am sorry. 17 Q Under the remaining four columns, amount of monthly 18 payment, name and address of lien, note holder, obligee, 19 date pledged and date of final payment, those are all 20 shaded; is that correct? 21 A Yes.
22 Q And is it fair to say on an IRS form when something 23 is shaded like that the taxpayer is not supposed to fill 24 something in; is that correct? 25 A Generally, yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2396 Rosenblatt-cross/Trabulus 1 Q So, the absence of an entry in any of the shaded 2 areas, means simply that nothing was being asked for 3 there; is that correct? 4 A Generally. 5 Q This form was designed by the IRS, as far as you 6 know, contract? 7 A Yes. 8 Q And if -- withdrawn. 9 Do you know what the purpose of this form was or 10 is? Yes or no, sir. 11 A Yes. 12 Q And is it not to determine somebody's assets and 13 income for determining what they can pay? 14 A Yes. 15 Q Now, under securities, the place that would be listed 16 as current market value is shaded, right?
17 A Yes. 18 Q So, you are not supposed to put in the current market 19 value of any securities, right? 20 A Not there, but under item which is what it refers to, 21 you should. 22 Q Now -- 23 A 18 is on page 2. 24 Q Equity and asset -- withdrawn. 25 Liabilities balance due, there would be nothing HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2397 Rosenblatt-cross/Trabulus 1 to put down over there; is that correct, for securities? 2 A True. 3 Q Equity and asset, you are supposed to put something 4 there if there is equity, right? 5 A Yes. 6 Q Do you know -- have you done a computation as to 7 whether as of the date of this form Mr. Gordon had any 8 equity in any securities he may have owned in Who's Who 9 Worldwide? 10 A I haven't done any calculation. 11 Q You don't know if there was any eq
uity or not, 12 correct? 13 A No. 14 Q And if there was no equity, would it be of any 15 significance to the IRS that any securities -- withdrawn. 16 Would there be no equity, even if a security was 17 owned, it wouldn't represent an asset, would it? An asset 18 of any value. 19 A I can't answer that. 20 Q Now, on page 4, on the right-hand side, there is a 21 column that says necessary living expenses. 22 Is it your understanding that that is supposed to 23 show everything that a person spends or is spent on behalf 24 of that person or just what is necessary? 25 A It is my understanding that it should show what you HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2398 Rosenblatt-cross/Trabulus 1 have spent. 2 Q Had you looked over everything that was spent? 3 A The form is trying to determine a budget, how much
4 income you have, how much expenses you have, and what is 5 left. 6 Q You testified that you have not seen any instructions 7 for this form; is that correct? 8 A That's correct. 9 Q And so, you don't know whether the instructions tell 10 you that you should only put necessary living expenses as 11 opposed to what you have actually spent? 12 A I don't know what the instructions tell you. 13 Q Is there any place on this form that says you are 14 supposed to put everything you spend, even if it is not -- 15 or is spent for you, even if it is not necessary? 16 A There are no instructions on the form. 17 Q Is there any place on the form for unnecessary living 18 expenses? 19 A No. 20 Q Let's say somebody bought a new car every month for 21 $15,000, and added it in on their necessary living 22 expenses so that their necessary living expenses came out
23 to $20,000 a month. Would you say that that is an 24 accurate way to fill out that form? 25 A The way I would use the form, it should reflect what HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2399 Rosenblatt-cross/Trabulus 1 your actual income is and what your expenses are, whether 2 they are necessary or not. 3 Q Even though it says necessary? 4 A Yes. 5 Q Do you know why it says necessary and just doesn't 6 say living expenses? 7 A I have no idea. 8 Q This form again -- if the IRS asks the wrong 9 question, does it have any cause to complain if it is 10 given what it now regards as a wrong answer? 11 A In the examination division, or formerly the audit 12 division, we don't even use this form. So I can't answer 13 your question about why it says "necessary" and what it 14 means. 15 Q Now, you have bee
n shown or you have been asked 16 whether or not this form shows Mr. Gordon's obligation to 17 the corporation on it; is that correct? 18 A Yes. 19 Q And if it showed the obligation to the corporation, 20 his liabilities would be even greater than they are shown 21 here, right? 22 A Yes. 23 Q Now, do you know whether -- withdrawn. 24 That would make it look like he was even less 25 able to pay than what was shown here; is that correct? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2400 Rosenblatt-cross/Trabulus 1 A Absolutely. 2 Q So, the effect of omitting the liabilities to the 3 corporation, the loan to the corporation, was to make it 4 look like he had fewer liabilities and thus was more able 5 to pay his taxes than he was; is that correct? Yes or no, 6 sir? 7 A I can't answer it yes or no. 8 Q Now, yo
u have heard testimony, have you not, in this 9 case that under -- on page 2 of this 433-A, under Section 10 14, where it says bank charge cards, credit unions, 11 Savings and Loans, lines of credit, the word "none" is 12 always shown; is that correct? 13 A Yes. 14 Q And you have heard witnesses been asked whether or 15 not the Liz Sautter American Express card in which 16 Mr. Gordon owned the card is shown here, and they said no, 17 it is not; do you recall that? 18 A Yes. 19 Q And a Master Card would typically be a bank charge 20 card, would it not? 21 A Yes. 22 Q And Visa cards would be a bank charge cards, would it 23 not? 24 A Yes. 25 Q And an American Express card is not a bank charge HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2401 Rosenblatt-cross/Trabulus 1 card, is it? 2 A No.
3 Q It is not? 4 A No. 5 Q Is there anything on this form that says you are 6 supposed to put an American Express charge card here as 7 opposed to in item 28, which is on page 23, where it says 8 other charge accounts? 9 A As I look at it, should be on one place or the other. 10 Q Does the form make it clear to someone who has to 11 fill it out? 12 A It might not make it clear exactly which place it 13 should be. But I think the reasonable person would look 14 and say that it belongs in one or the other. 15 Q There is a charge account entry of $30,000 down on 16 page 3, is there not? 17 A Yes. 18 Q And do you know what the balance on Mr. Gordon's card 19 as of the date of this was? Yes or no, sir? 20 A On the American Express card? 21 Q Yes. 22 A No. 23 Q Mr. Rosenblatt, I think you heard Mr. Gagliardi 24 testify that he r
eceived the compensation agreement, and 25 had it in connection with the offer and compromise; do you HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2402 Rosenblatt-cross/Trabulus 1 recall that? 2 A Yes. 3 Q The compensation agreements is 420-G. Do you have it 4 there? 5 A No. 6 MR. TRABULUS: May I have it, please? It is in 7 the rest of the package. 8 Q I am going to hand you 420 in evidence, and 420-G is 9 inside it. 10 (Handed to the witness.) 11 Q Now, Mr. Rosenblatt, is it fair to say that this 12 compensation agreement describes Mr. Gordon as the 13 president and chief executive officer of Who's Who 14 Worldwide Registry, Inc. with responsibilities for running 15 its day to day operations? 16 A Yes, it does. 17 Q And it also says that he shall be a director of Who's 18 Who Worldwide or any re
lated or affiliated entity for the 19 duration of this agreement. Does it not say that? 20 A Yes. 21 Q Now, you also heard testimony that as originally 22 drafted, this document was to bear a 1990 date, but that 23 Dr. Grossman in signing it changed the '90 to '93, to 24 reflect the actual day in which he was signing it. Do you 25 recall that? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2403 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q And if this document was prepared with a view toward 3 giving it to the IRS, would that not suggest that the 4 intention was to disclose that Mr. Gordon was the 5 president and in control and a director of Who's Who 6 Worldwide since 1990? 7 A I can't say what the intent was. 8 Q Fair enough. 9 Now, this document reveals that Mr. Gordon's 10 compensation is pegged in some way to the cash
flow of the 11 corporation; is that correct? 12 A Yes. 13 Q And, of course, it also shows that he controls its 14 day to day operations; is that correct? 15 A Yes. 16 Q And, of course, someone who controls the day to day 17 operations of a company, may be able to control, to a 18 certain extent, its cash flow; is that correct? 19 A Yes, that's true. 20 Q So, this document shows, does it not, that 21 Mr. Gordon, at least to the a certain extent, was in 22 control of his own salary, correct? 23 A Yes. 24 Q That was not being hidden from the IRS, was it? 25 A No. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2404 Rosenblatt-cross/Trabulus 1 Q Now, you also heard Revenue Agent Gagliardi testify 2 that he did not go to the bankruptcy court to get 3 documentation relating to the corporation's cash flow,
4 even though he was informed by Mr. Reffsin of the 5 bankruptcy; do you recall that? 6 A I remember him not going to the bankruptcy court, 7 yes. 8 Q Have you ever in connection with doing audits gone to 9 the bankruptcy court and looked at files? 10 A Yes. 11 Q It is not a very difficult thing to do, is it? 12 A No. 13 Q The bankruptcy court in Westbury is located how far 14 from Mr. Gagliardi's Garden City office? 15 A Ten minutes or so. 16 Q And you also heard Mr. Gagliardi say that he did not 17 ask Mr. Reffsin for the corporate tax returns of Who's Who 18 Worldwide; do you recall that? 19 A Yes. 20 Q He said he didn't have authorization; is that 21 correct? 22 A Right. 23 Q Now, in terms -- I think you on direct examination 24 may have testified a bit about getting authorization, too, 25 for corporate returns when y
ou are auditing an HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2405 Rosenblatt-cross/Trabulus 1 individual. Do you recall that? 2 A Vaguely. 3 Q Now, to get authorization from a corporation you 4 would need to go to somebody who is in charge of the 5 corporation; is that correct? 6 A Yes. 7 Q In this case, Mr. Gordon, who was the same person who 8 Mr. Gagliardi was working on his case, he was revealed to 9 be in charge of the corporation; is that correct? 10 A Yes. It was revealed he was president and CEO. 11 Q If Mr. Gordon was intending to enter into an offer in 12 compromise, it is reasonable to assume if the IRS on the 13 other side asked for him to be giving authorization for 14 the corporate terms to be given to them to be reviewed in 15 connection with it, he would have given it to them, 16 wouldn't he? 17
A I can't say what he would have done. 18 Q Now, in connection with your work as an auditor, I 19 assume you had many occasions in which to look at bank 20 records and trace bank transactions; is that correct? 21 A Yes. 22 Q Now, for the benefit of the jury, can we explain what 23 records are made when a check is written, delivered to the 24 payee, the person who or the company who is supposed to 25 get the money, and they deposit it into their account, and HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2406 Rosenblatt-cross/Trabulus 1 then it comes back to the account or to the person that 2 wrote the check. Let's just go through the steps. 3 I write a check. I am a corporation or a 4 person. I write a check. I give it to you. You are a 5 corporation or a person. You deposit it in your bank 6 account. Does the bank take a picture of the che
ck? 7 A Yes, it makes a copy of the deposited item, and a 8 copy of the check that is written. 9 Q It makes a copy of both the deposit ticket and the 10 check? 11 A We are talking two different banks. The corporation 12 who wrote the check would have a bank statement. The bank 13 itself would have a copy of the check that was written. 14 The corporation would get back the original check. 15 Q I am going to go step by step. 16 The first time that this check, this piece of 17 paper appears at a bank door when the -- is when the 18 company or the person who gets the check goes to deposit 19 it; is that right? 20 A Yes. 21 Q And when that happens, a picture is taken of it by 22 that bank, the depository bank? 23 A Yes. 24 Q And they take a picture of the front of it and also 25 the back of it; is that right? HARRY RAPAPORT, CS
R, CP, CM OFFICIAL COURT REPORTER 2407 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q And they also take a look at the deposit ticket that 3 goes with that check and maybe other checks; is that 4 correct? 5 A Yes. 6 Q And they are required to keep that check for how many 7 years, seven? 8 A I am not sure if it is six or seven. 9 Q In talking about organizing the records, do they keep 10 them on an account by account basis or a daily basis? 11 A I think a daily basis. 12 Q Now, a check comes back to the bank on which it was 13 written, my bank, I am writing the checks, right? 14 A Yes. 15 Q They get it, right? They take a picture of it, too, 16 right? 17 A Yes. 18 Q Front and back? 19 A Yes. 20 Q And how do they keep records of those pictures, by 21 date? 22 A Also by date, I believe. 23 Q The d
ate it comes, in right? 24 A Yes. 25 Q And the front and back pictures show the stamps HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2408 Rosenblatt-cross/Trabulus 1 placed on it by the other bank. When a check is 2 deposited, the other bank stamps it, correct? 3 A Yes. 4 Q Sometimes it goes to a clearing house and they stamp 5 it, too, right? 6 A Yes. 7 Q There are pictures of all of that? 8 A There should be. 9 Q That's what enables you, when you do your work of 10 auditing, to check -- to trace checks as it goes back and 11 forth between two banks; is that right? 12 A Yes. 13 Q Now, in the course of doing your auditing work, I am 14 sure you have audited many companies that have 15 subsidiaries, have you not? 16 A Yes. 17 Q And you have also audited companies that have 18 affiliates; i
s that correct? 19 A Yes. 20 Q And sometimes there are loans or financial 21 transactions between the corporations or affiliates; is 22 that correct? 23 A Yes. 24 Q They are done by checks? 25 A Checks or wire transfers. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2409 Rosenblatt-cross/Trabulus 1 Q And a wire transfer is something for which there 2 would also be a record? 3 A Yes. 4 Q And that record is kept for the same amount of time 5 as the checks; is that correct? 6 A Should be. 7 Q And the wire transfer record would show the amount, 8 would it not? 9 A Yes. 10 Q It would show the date of the transfer, correct? 11 A Yes. 12 Q It would show the account and bank from which the 13 transfer is made, correct? 14 A Yes. 15 Q It would show the account and bank to which t
he 16 transfer was made, correct? 17 A Yes. 18 Q And that would enable you to trace the transfer of 19 those funds; is that right? 20 A That's true. 21 Q Actually there was another type of transfer that you 22 talked about in some of your testimony before, debit memos 23 and credit memos; is that correct? 24 A Yes. 25 Q That would be a transfer from one account in a bank HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2410 Rosenblatt-cross/Trabulus 1 to another account in the same bank; is that correct? 2 A Yes. 3 Q And doing that you don't need to use a check; is that 4 right? 5 A That's correct. 6 Q The debit memo also has a date on it, correct? 7 A Yes. 8 Q It shows the amount? 9 A Yes, it does. 10 Q It shows the account from which the money is being 11 debited; is that correct?
12 A Yes. 13 Q And it shows the account to which the money is being 14 credited; is that correct? 15 A Yes. 16 Q And each account has a number, right? 17 A Yes. 18 Q A unique number, correct? 19 A Yes. 20 Q And that's how it is shown? 21 A Sure. 22 Q And basically a credit memo is the other side of the 23 same thing, except it is done for the account receiving 24 the money, right? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2411 Rosenblatt-cross/Trabulus 1 Q And that is how you contrast monies that are 2 transferred by debit memos and credit memos, correct? 3 A Yes. 4 Q There is a paper trail, correct? 5 A Yes. 6 Q It does not run cold, correct? 7 A What do you mean it does not run cold? Explain that. 8 Q As long as the checks are done by check, wire
9 transfer, credit memo, debit memo, you contrast 10 everything, correct? 11 A Not always. 12 Q Now, in this particular case here you talked about 13 variety of transfers, correct? And they appeared on the 14 charts? For example there were transfers that were shown 15 on this chart that we were talking about before, the one 16 where for some reason or another we don't have the bank 17 records for one of the accounts there, but there are 18 transfers shown here; is that correct? 19 A Yes. 20 Q And you traced them; is that correct? 21 A Yes, we did. 22 Q You traced them because there were checks and bank 23 statements and credit memos and debit memos, and I don't 24 know if there are any wire transfers, but everything was 25 shown? There was a record of everything, right? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2412 Rosenb
latt-cross/Trabulus 1 A Yes. 2 Q And that's what enabled you to trace it; is that 3 correct? 4 A Yes. 5 Q And in these other cases I talked to you about where 6 you have done audits, and in which there have been 7 subsidiaries and affiliated companies, you have done -- 8 you have been to -- you have been able to trace them as 9 well, is that correct? 10 A Where necessary, yes. 11 Q Where you have to. 12 Of course, the more affiliates, and the more 13 subsidiaries, and the more accounts they have, the more 14 work it is; is that correct? 15 A The more complex it becomes. 16 Q The more complexes and the more work there is, 17 correct? 18 A Yes. 19 Q There are many times there are affiliates and 20 subsidiaries for a totally legitimate purpose; is that 21 correct? 22 A Sure. 23 Q In such a situation, you
would not say, would you, 24 that the fact that the business is organized that way, and 25 there are transfers between them impedes you, simply HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2413 Rosenblatt-cross/Trabulus 1 because you have to do more work because there are more 2 things, would you? 3 A It depends on the nature of the transaction and what 4 is happening. 5 Q Let's talk about, you said before having a lot of 6 accounts, and a lot of different entities can impede the 7 IRS, it is something you said in response to a question by 8 Mr. White; is that correct? 9 A Yes. 10 Q In discussing the testimony with Mr. White 11 beforehand, is the word "impede" something you came up, or 12 did he ask you that -- 13 A I never discussed my testimony with him before. 14 Q Is that word "impede" something you normally use in
15 describing whenever you do an audit by -- let's say an 16 ordinary audit, do you say when you are talking to another 17 auditor -- 18 THE COURT: You are picking up speed again, 19 Mr. Trabulus. You are past flank speed. I don't know 20 what super flank speed is but that's where you are. 21 Q Just like lawyers get together and kind of shoot the 22 breeze, you would sometimes talk to other auditors, right? 23 A Yes. 24 Q At the IRS? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2414 Rosenblatt-cross/Trabulus 1 Q You may talk about a complicated audit you are doing, 2 right? 3 A It happens. 4 Q And you take a situation where you are talking about 5 a complicated audit, and it is not the situation where 6 there is anything criminal that you are looking at, but 7 just in terms of assessing the validi
ty of the tax 8 treatment that is claimed, would you say to another 9 auditor, I have been "impeded" by the taxpayer because 10 there are lots of different accounts? Is that what you 11 would call it? 12 A Possible. 13 Q Or would you say it is a lot of different work 14 because there are a lot of different accounts here? 15 A It is possible that both phrases could be used. 16 Q Have you ever encountered situations within your work 17 where a person who is being audited or investigate, 18 examined, whatever we are did you go to call it, didn't 19 take money out of one bank by writing a check, but took 20 cash out? Did you ever have this situation? 21 A Yes. 22 Q They took cash out and didn't write a check and you 23 don't know where that is? 24 A It depends on the situation. 25 Q Maybe you could find out where the money went or not;
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2415 Rosenblatt-cross/Trabulus 1 is that correct? 2 A Yes. 3 Q In that type of situation where a person takes check 4 out of -- cash out of a bank and deposits it in a 5 brokerage house or another bank with a different name, 6 there is no record showing such and such cash went from 7 this bank to another bank or another account, is there? 8 A Not necessarily true. 9 Q We are talking about currency transaction reports? 10 A Yes. 11 Q And a currency transaction report would apply if 12 there is more than $10,000? 13 A Yes. 14 Q And that's a record where the person took more than 15 $10,000 out? 16 A It could apply to smaller amounts, yes. 17 Q There are some cases where it is $5,000? 18 A It could be less if it is suspicious. 19 Q Let's say cash is taken out, if a currenc
y 20 transaction report is taken out at the other end you might 21 be able to link the two of them? 22 A True. 23 Q If a person is impeding the IRS they might cause it 24 to be deposited in another account with a different name; 25 is that correct? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2416 Rosenblatt-cross/Trabulus 1 A There are all different ways to try to avoid taxes. 2 Q None of what I just talked about happened here? In 3 other words, all of these transfers were by check, debit 4 memo, wire transfer, the kind of thing that creates a 5 record that the IRS can mechanically check out -- it may 6 take a while, but it is a purely mechanical process; is 7 that correct? 8 A To my knowledge there are no cash transactions here. 9 Q No cash transactions here, right? 10 A No, not that I can see. 11 Q So, to the e
xtent that you had more work, it was a 12 question of just the quantity of it, correct? 13 A Quantity of what? 14 Q There were a lot of checks that went from one place 15 to another, right? 16 A Yes. 17 Q You didn't have to figure out where cash went, did 18 you? 19 A By the time I got involved in the case we had all the 20 accounts. It wasn't a matter of first going out and 21 serving summonses, whatever to get them. 22 Q But these were simply records that by law they exist, 23 that anybody can get, right? Not anybody can get, but 24 which can be obtained by proper legal process, correct? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2417 Rosenblatt-cross/Trabulus 1 Q In a situation where cash is taken out and put 2 someplace else, there might be no way to find out where 3 that went? You would have to lo
ok; is that right? 4 A It is possible we can't trace cash, yes. 5 Q Isn't that typical of many of the fraud cases that 6 you have worked on, cash? 7 A Some, not all. 8 Q Is it not typical withdrawn -- in this case we heard 9 testimony that Mr. Gordon was the only signatory on any of 10 these accounts; is that correct? 11 A Yes. 12 Q And there would have been nothing stopping him from 13 writing a check to cash, right? No one else to account 14 to, right? 15 A No. 16 Q He could have done that, right? 17 A Sure, he could. 18 Q He could have taken the money in his pocket and 19 walked to wherever he wanted to and put it there, and 20 unless the IRS knew what to look for they wouldn't have 21 found it; is that right? 22 A Possible. 23 Q He didn't do that? 24 A Not to my knowledge. 25 Q He didn't impede you at all.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2418 Rosenblatt-cross/Trabulus 1 Now -- 2 A Is that a question? 3 MR. TRABULUS: I will withdraw it. 4 Q You heard testimony that among American Express 5 charges was about $10,000 in artwork; is that correct? 6 That's what you yourself computed it to be on one of your 7 charts? 8 A I don't remember the amount, but there was a lot of 9 artwork. 10 Q Now, artwork is not like a restaurant meal, is it? 11 When you spend money on a restaurant meal and eat the 12 food, it is gone, correct? 13 A Yes. 14 Q Artwork has a value? 15 A Depending on the value of what you buy, yes. 16 Q You in your evaluation have considered all of that 17 artwork paid for under the American Express account as 18 income to Mr. Gordon; is that correct? 19 A Anything that went through the
loan account was, yes. 20 Q And that's because the corporation itself simply 21 showed it in the loan account; isn't that correct? 22 A Yes. 23 Q Now, if a company pays an electric bill, it gets a 24 tax deduction for it, correct? If it is something used in 25 its own operation? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2419 Rosenblatt-cross/Trabulus 1 A Yes. 2 Q I should have put that in. 3 Now, artwork is a little different, right? If a 4 company spends $10,000 on some sculpture, and keeps that 5 $10,000 piece of sculpture in its offices, it doesn't get 6 a $10,000 deduction, does it? 7 A No. 8 Q It is an asset and not expense? 9 A It is an asset. 10 Q Some assets depreciate in time; is that correct? 11 A Yes. 12 Q If your company buys a computer and it is supposed to 13 last five years, ev
ery year they can take off one-fifth of 14 the cost of the computer as a deduction until the end of 15 the road; is that right? 16 A Basically, yes. 17 Q Artwork, like a sculpture, it doesn't depreciate, 18 does it? 19 A I don't think so, not if it is high quality art work. 20 Q Whoever prepares the books of this company, they 21 would have had no incentive to write it off, to pay 22 attention as to whether it was being put in the loan 23 account or its own account, right? It couldn't have 24 gotten any tax benefit by treating it as its own purchase? 25 A If it is corporate property it should be treated as a HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2420 Rosenblatt-cross/Trabulus 1 corporate asset. 2 Q Do you know if any of the artwork paid for by the 3 corporate -- by the American Express card of Mr. Gordon, 4 do you k
now if any of that artwork was ultimately disposed 5 of in the bankruptcy proceeding? 6 A I have no idea. 7 Q And if it was disposed of by the bankruptcy trustee 8 and sold to pay the debts of Who's Who Worldwide, would 9 that suggest that the artwork had been property of Who's 10 Who Worldwide? 11 A In the eyes of the bankruptcy court, yes. 12 Q Would that suggest further that the cost of the 13 artwork was not income to Mr. Gordon, regardless of how it 14 was booked, as a loan or whatever? 15 A I don't think the bankruptcy court deals in the 16 income tax laws. 17 Q You are saying it is okay to charge Mr. Gordon with 18 having received income in the amount of $110,000 worth of 19 art work, let's say, even if you say it is wrongfully 20 shown to him as a loan to Who's Who Worldwide, even if at 21 the end of the line the artwork is sold off for Who's Who
22 Worldwide? 23 A I don't think I said it was wrongfully shown as a 24 loan to him. 25 Q It was correctly shown as a loan? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2421 Rosenblatt-cross/Trabulus 1 A He included it in his loan account or his accountant 2 did. So they made the statement that this is a personal 3 item. 4 Q You know, let's talk about loans and the choice of 5 whether to do something as a loan. The issue of whether 6 or not something is a loan comes up in several different 7 places in the Internal Revenue Code; is that correct? 8 A I don't know what you mean. 9 Q We talked about whether what Mr. Gordon received here 10 was a loan or not. How about the monies that the 11 Grossmans invested in the corporation, $125,000. You 12 heard testimony about that, correct? 13 A Yes. 14 Q And they said th
at was a loan; is that correct? 15 A Yes. 16 Q And that was a loan as opposed to an investment 17 company, according to their testimony? 18 A I believe that's what they said, yes. 19 Q Although they said they received 25 percent of the 20 stock; is that correct? 21 A Yes. 22 Q And that is something which the Grossmans and 23 Mr. Gordon, the people working on it at the time, they 24 were allowed to decide that among themselves, correct, as 25 long as there was a genuine attempt to repay the loan, HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2422 Rosenblatt-cross/Trabulus 1 correct? 2 A I believe they were allowed to make a decision. 3 Q Sometimes people making -- entering a transaction are 4 able on their own to decide as to whether it is a loan or 5 something else? 6 A They can make the decision. But upon audit th
e IRS 7 can come in and say that is really not the intent of the 8 transaction. 9 Q Do you know whether the Grossmans were ever audited 10 and that treatment was ever questioned? 11 A I have no idea. 12 Q Do you know whether IRS agents are sometimes 13 permitted to use names other than their real names when 14 speaking to taxpayers? 15 A The only time I know of is if a criminal investigator 16 is working undercover. 17 Q Recently has that been permitted in a non-criminal 18 context? 19 A In a non-criminal context? 20 Q Yes. 21 A As far as I know, it is not allowed. 22 Q I think you testified that you computed what you 23 regarded as the rental value of the Manhasset condominium 24 based on what the rent was after he no longer lived there; 25 is that right? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2423
Rosenblatt-cross/Trabulus 1 A Yes. 2 Q Do you know what the rent was before he lived there? 3 A Only by what he was paying out of his account. 4 Q I think you testified that Mr. Gordon first started 5 to pay rent in February of 1993, is that correct, 6 according to the checks you saw? 7 A I believe so, yes. 8 Q Do you know how long it took for the condominium to 9 be refurbished? 10 A I don't know. 11 Q Do you recall seeing in the evidence in this case 12 numerous invoices from companies that were either Joyce 13 Grossman's or this other individual, Matchless 14 Construction, who had some other affiliation for work on 15 refurbishing the condominium? 16 A Yes, I know major work was done on it, yes. 17 Q Do you know that it extended for month and month and 18 month? 19 A I don't recall the time frame. 20 Q Do you recall tha
t the types of work done on that 21 would be the work that you wouldn't want to live in a 22 place where that type of work was being done, some of it? 23 A Different people live under different circumstances. 24 Q If Mr. Gordon was paying rent on the condominium at a 25 time when he wasn't even living in it, or at a time when HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2424 Rosenblatt-cross/Trabulus 1 it wasn't fit to live in, should he be given some sort of 2 additional credit for that? 3 I will withdraw the question. 4 Would you say that during that time period, if 5 that was the case, the fair rental value of the 6 condominium was the same as what it was rented for after 7 he moved out of it? 8 A Fair rental value when he was living there was with a 9 furnished condominium. I don't know if it was furnished 10 when it was rented
to -- I am sorry, I can't remember the 11 other gentleman's name. 12 Q Sure, Mr. Chase. Is that the gentleman you are 13 talking about? 14 A The one who paid the 5250, I don't remember the name. 15 Q Let me get to the other end of it. 16 Let's say there was a period of time when the 17 condo was being renovated, and a period of time when the 18 condo was not habited, during that period of time what 19 would you say its fair rental value is? 20 A Depends on if you have anywhere else to live. 21 Q Let's say you are not living there. Is the fair 22 rental value there what it was rented to Mr. Chase after 23 it was thoroughly renovated and improved? 24 A It would probably be worth less at that time, and 25 maybe more at other times. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2425 Rosenblatt-cross/Trabulus 1 Q Is it possible
it could be worth less than the 22 -- 2 2000, I am sorry if I said 2500, do you think it could be 3 worth less than the 2,000 that he was paying for it? 4 A I don't understand what he was paying rent for if he 5 wasn't living there. 6 Q Well, maybe he was living there and that would be the 7 terms of his agreement with PVI, could the rental value be 8 less? 9 A It could be less if he was not living there. 10 MR. TRABULUS: Bear with me a moment, if your 11 Honor please? 12 THE COURT: Yes. 13 (Whereupon, at this time there was a pause in the 14 proceedings.) 15 Q Now, you heard testimony that there was an office for 16 the Manhattan condominium, do you not? 17 A I heard testimony there was a desk and computer. 18 Q Well, some people described it as an office, do you 19 recall that? 20 A Yes. 21 Q Indeed, if there was a portion of the
condominium 22 used exclusively for Mr. Gordon preparing the work for 23 Who's Who Worldwide, would it be appropriate for Who's Who 24 Worldwide itself to pay the rent, or to pay the value of 25 that? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2426 Rosenblatt-cross/Trabulus 1 A I don't remember any testimony that it was used 2 exclusively for that purpose. 3 Q Well, we are not in a tax court proceeding -- 4 withdrawn. 5 Do you remember any testimony that it was not, 6 that that portion was not? 7 A I remember testimony that Mr. Gordon -- I think it 8 was with the condo -- with the penthouse. 9 Q We are not talking about the penthouse, the condo. 10 We are talking about an office, a fax machine, a copier, a 11 computer, we saw a drawing of it. Was there any testimony 12 that it was used for other than business purposes?<
BR> 13 A Living purposes. 14 Q Not talking about the condo, just talking that 15 particular portion of it? 16 A Not having been there, I can't say. 17 Q If it was used for business purposes, is it normal 18 for Who's Who Worldwide to pay for that portion of the 19 condo? 20 A Yes, if it is included in income. 21 Q It is to be used as income if he used it for nothing 22 than business purposes? 23 A Under the tax there is something called home office 24 and it wouldn't qualify for a home office. 25 Q Do you know if Mr. Gordon was aware of it? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2427 Rosenblatt-cross/Trabulus 1 A He had a C.P.A. working for him. 2 Q Why is it not used as a home office, authorized to be 3 used? 4 A It wasn't only used for an office, he had two other 5 offices, and fancy places, as I reca
ll. 6 Q But we also heard testimony that he worked there late 7 at night; is that correct? 8 A The condo is I believe ten minutes from Who's Who's 9 offices in Lake Success. So it would have been for his 10 convenience. 11 Q Are you saying that the entire condominium would have 12 had to have been regularly and exclusively used for 13 business purposes for it to qualify for a home office, or 14 is it just sufficient that the office purpose of it would 15 be used regularly for business purposes? 16 A The office purpose. 17 Q Did you hear testimony that it wasn't? 18 A I didn't hear anything that it wasn't used for 19 business purposes other than two cocktail parties. 20 Q No, now you are over in Manhattan at the penthouse. 21 We are now talking about the office, talking about the 22 office, the condominium, are you saying Mr. Gordon has the 23 burden
of proving here in this criminal case that it was 24 used exclusively for -- 25 MR. WHITE: Objection. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2428 Rosenblatt-cross/Trabulus 1 THE COURT: Sustained. Mr. Gordon doesn't have a 2 burden to prove anything. As I told you, the burden in 3 this case is entirely and exclusively on the government to 4 prove every element of every count beyond a reasonable 5 doubt. 6 Q Your testimony that you gave concerning this, that's 7 the kind of testimony you would have given in a civil case 8 in tax court, right, where the taxpayer has the burden of 9 proving the entitlement of a deduction; is that right? 10 A It could apply to tax court, yes. 11 Q In this case here have you heard any evidence that 12 that office was not used exclusively for business 13 purposes, not talking about the rest of the c
ondo, just 14 the office part in it, have you heard anything to that 15 effect, that he would go there and watch TV, and there was 16 a jacuzzi there, not talking about Manhattan, only talking 17 about the condo, that it was anything but for business 18 purposes? Yes or no, sir? 19 A I have not heard anything specific to say what 20 business was conducted there. 21 Q If indeed it was used for business purposes, if 22 indeed it was used for business purposes exclusively and 23 regularly, that portion of it, would it be correct that 24 Who's Who Worldwide could pay for it, or somebody else, or 25 some other company could pay for it, without it being HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2429 Rosenblatt-cross/Trabulus 1 included in his income; is that correct? 2 A If it was exclusively for business, yes. 3 Q In evaluating wheth
er the rent he paid, the $2,000, 4 and then the $2,500, was fair for what he got, you would 5 not look to the rental value of the entire condominium, 6 but just the part that didn't include the home office; 7 isn't that correct? 8 A Yes. 9 Q I think you testified that you thought -- withdrawn. 10 A couple of minutes ago, I was asking you about 11 what if the bankruptcy court sold off the artwork for 12 Who's Who, and I think you said that it had nothing to do 13 with the tax laws, or words to that effect? I may not be 14 quoting you exact, but do you recall that, something like 15 that? 16 A Yes. 17 Q And is it not correct that the bankruptcy court 18 resolves tax issues all the time? 19 A I don't think they resolve income tax issues. 20 Q Is it not a fact that the bankruptcy court has the 21 power if someone files for bankruptcy, to discharge income
22 tax obligations? 23 A I don't know. 24 Q Mr. Gordon never filed for bankruptcy personally, did 25 he, even with the 3.5 million dollars? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2430 Rosenblatt-cross/Trabulus 1 A Not that I am aware of. 2 Q That could have been an easy way out, couldn't it 3 have? 4 A I can't say that. 5 Q Would you consider in evaluating whether or not 6 someone had an intent to repay a loan on the one hand, or 7 on the other hand avoid paying taxes, whether or not that 8 person had availed themselves of an easy way out? 9 A I think the motive would certainly play a part in 10 determining as to whether something was a loan or income. 11 Q If Mr. Gordon could have avoided all or most of the 12 3.5 million dollars tax obligation by filing for 13 bankruptcy, but didn't, would that suggest to
you that in 14 taking the loans he intended to repay them and paid -- at 15 the same time ultimately with the receipt of monies from 16 Who's Who Worldwide, ultimately discharged his tax 17 liability if the company was as successful as it was 18 appearing to be? 19 A I can't say what his intent was. 20 Q Up until the year of the re-judgment in the 21 bankruptcy, is it fair to say that the income of Who's Who 22 Worldwide was going up steeply, was accelerating? 23 A Yes, it was increasing. 24 Q You are familiar with the phrase bell curve? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2431 Rosenblatt-cross/Trabulus 1 Q It was getting to be on the steepest part of the bell 2 curve, correct? 3 A Bell curve suggests it might have been going down, 4 too. 5 Q It could have flattened out at some point?
6 A And gone down. I don't think you would use a bell 7 curve to describe what the income was doing. 8 Q It was going up and increasing; is that right? 9 A The income was increasing, yes. 10 Q And the rate at which it was increasing, was 11 increasing, right? It was a little bit of an increase in 12 the beginning, and then it much more than doubled and then 13 went up more? 14 A It increased substantially. 15 Q You heard testimony from I think -- I forget as to 16 whether it was Mr. Ackerman or Mr. Skalka -- I think it 17 was Mr. Ackerman -- that Sterling Who's Who was also 18 expanding -- doing very well, correct, financially, to the 19 extent that the loans made to it by Who's Who Worldwide 20 weren't risky; do you recall that? 21 A Yes. 22 Q Let's talk briefly about the penthouse, the rental 23 there was 8,000 a month; is that correct? 24 A Yes.
25 Q A little less than 100,000 a year, about $100,000 a HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2432 Rosenblatt-cross/Trabulus 1 year. 2 Would a $100,000 a year be an unusual corporate 3 expenditure for an entertainment facility? 4 A I can't answer that. 5 Q Are you familiar in your audits of corporations with 6 companies that have bought boxes at sporting events, the 7 U.S. Open, football things, for even more than that, 8 luxury boxes for monies more than that for a short period 9 of use? 10 A Corporations use that, do that. I can't say what the 11 amounts are. 12 MR. TRABULUS: Your Honor, I have no further 13 questions. 14 THE COURT: Mr. White. 15 I think we will take a ten-minute recess. 16 Please do not discuss the case. 17 Keep an open mind. 18 (Whereupon, at this time the jury leaves
the 19 courtroom.) 20 21 (Whereupon, a recess is taken.) 22 23 24 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2433 Rosenblatt-cross/Trabulus 1 (Whereupon, the jury at this time entered the 2 courtroom.) 3 THE COURT: Please be seated, members of the 4 jury. 5 You may proceed, Mr. White. 6 7 REDIRECT EXAMINATION 8 BY MR. WHITE: 9 Q Now, Mr. Rosenblatt, you were asked a lot of 10 questions on cross-examination regarding the return by 11 Dr. Grossman of the approximate 235,000 to Who's Who in 12 late '92 -- I am sorry, in early '93; do you recall that? 13 A Yes. 14 Q And you were asked both by Mr. Wallenstein and 15 Mr. Trabulus about whether that could be viewed as a loan 16 from Dr. Grossman to Mr. Gordon, which he then used to 17 repay Who's Who; do
you recall that? 18 A Yes. 19 Q Now, if that were the case, would that then be in 20 liability of Mr. Gordon? 21 A Yes, it would be. 22 Q And so, in other words, his loan to Who's Who would 23 be reduced by that amount, and he would have incurred a 24 new loan to Dr. Grossman, correct? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2434 Rosenblatt-redirect/White 1 Q And that was in early 1993, correct? 2 A Yes, it was. 3 Q If that were the case, would you expect, therefore, 4 to see the loan for Dr. Grossman to be listed on any list 5 of Mr. Gordon's liabilities thereafter? 6 A Yes, it would be. 7 Q Okay. 8 If you look at Exhibit 405, page four, that's the 9 433 submitted to the IRS on what date? 10 A I don't have that exhibit up here. 11 Q Would you step down for a moment? 12 T
HE COURT: That's July 8th, 1993? 13 THE WITNESS: Yes, sir. 14 Q Mr. Rosenblatt, take a look at box 28 which says 15 other liabilities. Is there any listing of a loan that 16 Mr. Gordon owes to Dr. Richard Grossman? 17 A No. 18 Q Are there any liabilities listed there at all? 19 A No. Not to Dr. Grossman. 20 Q And look at the amounts of the liabilities listed 21 there. Do you see them? 22 A Yes, I do. 23 Q And tell us if there are any listed there that would 24 be larger than the one that Mr. Gordon would have owed 25 Dr. Grossman? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2435 Rosenblatt-redirect/White 1 A Just one. 2 Q And how many others are listed there that would have 3 been less? 4 A Five. 5 Q So, in other words, this loan from Dr. Grossman, if 6 it would have existed, would have been the
second largest 7 liability that Mr. Gordon had; is that correct? 8 A Yes, it would. 9 Q You can sit back down. 10 Do you have Exhibit 420 in front of you? 11 A Yes, I do. 12 Q That's the offer in compromise? 13 A Right. 14 Q Now, if you can take a look at 420-E, like in 15 Edward. Do you have that in front of you? 16 A Yes, I do. 17 Q That's a schedule submitted by Mr. Reffsin and 18 Mr. Gordon in support of their offer in compromise; is 19 that right? 20 A Yes, it is. 21 THE COURT: 420-E is a schedule? 22 MR. WHITE: Yes, your Honor. Not like a calendar 23 schedule. A financial schedule. 24 Q Is that correct, Mr. Rosenblatt? 25 A Yes, it is. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2436 Rosenblatt-redirect/White 1 THE COURT: Okay, I see it. 2 Q And there are liabilities lis
ted there, right? 3 A Yes, there are. 4 Q If the loan -- if the money that was received from 5 Dr. Grossman in early 1993 were in fact a loan to 6 Mr. Gordon personally, would you expect to see it listed 7 on Exhibit 420-E? 8 A Yes, it would be. 9 Q And is it listed there? 10 A No. 11 Q Now, do you recall Mr. Trabulus asking you questions 12 about whether or not Mr. Gagliardi could have obtained 13 Who's Who Worldwide's return, tax returns? 14 A Yes. 15 Q Now, if you take a look at Exhibit 1508 which is in 16 evidence and which is also passed out to the jury. 17 Now, look for a moment to Exhibit 421, and it is 18 a letter from Mr. Gagliardi to Mr. Gordon care of 19 Mr. Reffsin in November of 1993; is that correct? 20 A Yes. 21 Q If you look at item number 3, Mr. Gagliardi asked 22 them to produce, and I will quote, original cancelle
d 23 checks and bank statements for all accounts which you are 24 a signator for the months of April, May, June, July, 25 August, September, October and November 1993; is that HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2437 Rosenblatt-redirect/White 1 correct? 2 A Yes. 3 Q And looking at Exhibit 1508 can you tell us 4 everything that Mr. Gordon and Mr. Reffsin gave 5 Mr. Gagliardi in response to that? 6 MR. TRABULUS: Objection. The testimony was 7 everything came to Gagliardi from Reffsin, and Gordon and 8 Gagliardi never had any dealings with each other with 9 respect to that. 10 THE COURT: Sustained as to form. 11 Q Tell us everything produced by Mr. Reffsin on behalf 12 of Mr. Gordon in response to that request. 13 A Checking accounts, statements, and cancelled checks 14 for Mr. Gordon's personal account at N
ational Westminster 15 Bank from May 1993 to November of 1993. 16 Q Were there corporate accounts at that time for which 17 Mr. Gordon was the signator? 18 A Yes. 19 Q And were any of them produced? 20 A No. 21 Q So, when Mr. Gagliardi asked for it, it wasn't 22 forthcoming; is that right? 23 A That's true. 24 Q If you look at paragraph six, which asks for monthly 25 payments if not paid by your personal check. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2438 Rosenblatt-redirect/White 1 Were there company records that would have shown 2 payments to Mr. Gordon -- excuse me, payments of 3 Mr. Gordon's monthly expenses? 4 A Yes. 5 Q Were those produced? 6 A No. 7 Q And if you look at paragraph 9, when she asked for 8 motor vehicle registration and leasing agreements for 9 vehicles Mr. Gord
on owns and operates. Were there any 10 such lease agreements or checks reflecting lease payments 11 at that time? 12 A Yes, there were. 13 Q Were any of those produced? 14 A No. 15 Q So, is it fair to say that rather than chasing down 16 the tax returns, Mr. Gagliardi made specific requests for 17 specific documents that were not properly responded to? 18 A That's correct. 19 Q Now, Mr. Wallenstein and Mr. Trabulus both asked you 20 about your calculation of Mr. Gordon's taxable income; do 21 you recall that? 22 A Yes. 23 Q And they asked you about whether or not you included 24 the money that Dr. Grossman sent back to Who's Who; do you 25 remember that? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2439 Rosenblatt-redirect/White 1 A Yes. 2 Q Tell us why you did not include that as having 3 reduc
ed Mr. Gordon's loan account? 4 A My recollection is that Dr. Grossman stated he loaned 5 the money back to Who's Who at the request of Bruce Gordon 6 for the purposes of printing catalogues or some 7 publications. 8 Q Now, you were asked a lot of questions with respect 9 to general ledger entries about that transaction; do you 10 recall that? 11 A Yes. 12 Q Tell us in your expert opinion what was the bottom 13 line, how much was the loan account credited for and how 14 much actually came into the company? 15 A The bottom line is that the loan account of Bruce 16 Gordon was credited 313,000 approximately, and the 17 corporation only received, I think it was 235,000. 18 Q Now, is it correct that even if that is a loan, right 19 off the top, the loan account is being reduced by 75,000 20 more than it should be? 21 A Yes. 22 Q The entry that cr
edits that 313,000 to Mr. Gordon's 23 loan account, is that before or after Dr. Grossman returns 24 it? 25 A It is before. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2440 Rosenblatt-redirect/White 1 Q In other words, if you recall Mr. Wallenstein asking 2 you questions about if the money goes out to Dr. Grossman 3 and he pays taxes on it, he can do whatever he wants with 4 it? 5 A Yes. 6 Q So, even before -- let me back up. 7 And that entry reducing Mr. Gordon's loan 8 account, is that before or after the end of 1993? 9 A It is before the end of '93. Before the end of '92, 10 I believe it is. 11 Q That's right, the end of '92. 12 Do you recall Dr. Grossman testifying he wasn't 13 even asked to send it back until January of '93? 14 A Yes. 15 Q And do you recall Dr. Grossman testifying that he 16
wasn't even sure it was a loan? 17 A That's correct. 18 Q And that he never even asked about repayment? 19 A Yes. 20 Q Now, if you can go back to Exhibit 420-E, which is 21 the schedule of Mr. Gordon's income and assets submitted 22 with the offer and compromise. 23 Now, you recall being asked questions by both 24 defense attorneys about the situation where someone 25 borrows money and expects to pay it back, and then an HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2441 Rosenblatt-redirect/White 1 intervening event prevents them from being financially 2 able to do so. Do you recall that? 3 A Yes. 4 Q And you recall Mr. Trabulus specifically mentioning 5 the intervening events, a bankruptcy, the re-judgment, or 6 the company's action, or an arrest? Do you recall those? 7 A Yes. 8 Q Looking at 420-E, the offer and
compromise submitted 9 in 1993, is that before any of those events? 10 A Yes, it is. 11 Q And is Mr. Gordon's income and salaries projected on 12 that schedule? 13 A Yes, it is. 14 Q Does it indicate anywhere that he expects at some 15 point to receive amounts sufficient to repay his loans to 16 Who's Who Worldwide? 17 MR. WALLENSTEIN: Objection. 18 THE COURT: May I hear that question again, 19 Mr. Reporter? 20 (Whereupon, the court reporter reads the 21 requested material.) 22 THE COURT: Sustained. 23 Q Well, look at that schedule as an accountant. 24 Does it indicate -- does it project Mr. Gordon's 25 income through 1996? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2442 Rosenblatt-redirect/White 1 A Yes. 2 Q Does it project his expenses and liabilities through 3 1996? 4 A Yes
. 5 Q Does it indicate whether -- that does not list any 6 loans to Who's Who Worldwide, correct? 7 A That's correct. 8 Q And as you said before, it does not list any loan 9 from Dr. Grossman? 10 A That's correct. 11 Q Does that schedule overall indicate that Mr. Gordon 12 would be unable to pay the listed expenses and liabilities 13 given his projected income? 14 A Yes. 15 Q So, if he had additional expenses or liabilities, in 16 addition to the ones listed in 420-E, the implication is 17 he wouldn't be able to pay those over either, right? 18 A Yes. 19 MR. WALLENSTEIN: Objection. 20 THE COURT: Sustained as to form. 21 Strike the answer out. 22 Q If he had additional expenses or liabilities aside 23 from the ones listed in 420-E, what would be his ability 24 to repay those? 25 A He wouldn't be able to. H
ARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2443 Rosenblatt-redirect/White 1 Q Now, you mentioned before that the ability to repay 2 the loan is one of the factors looked at to determine if 3 it is truly a loan? 4 A Yes. 5 Q Tell us in this case how does that factor -- which 6 side does that factor weigh on? 7 A It weighs on for the degree that it would be income 8 and not a loan. 9 Q Okay. 10 Explain that. 11 A If somebody is taking the loan out of the 12 corporation, the -- the money out of corporation, the loan 13 account, and they don't have the ability to make the 14 repayments, the IRS would look at it that there was never 15 an intention to make the loan and that it was really 16 income from the start. 17 Q Now, if Mr. Gordon had a loan from Who's Who 18 Worldwide, but simultaneously expected to earn income
19 sufficient to pay that loan, would that have any effect on 20 his ability to repay the IRS? 21 A It would depend on which one is being repaid first. 22 Q You heard the terms collateral agreement that we 23 discussed? 24 A Yes. 25 Q Under the terms of the collateral agreement who comes HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2444 Rosenblatt-redirect/White 1 first? 2 A I believe the IRS. 3 Q So, could a taxpayer choose, if he were planning to 4 make $460,000 from his corporation, choose to apply it 5 solely to his one debt to his own corporation? 6 A No. 7 Q And why is that? 8 A Because he would have to pay the IRS first. 9 Q Do you have Exhibit 1404 in front of you? 10 A Yes. 11 Q Okay. 12 Now, looking at 420-E, for 1992, what does it 13 indicate Mr. Gordon's salary is? 14 A For w
hich year? 15 Q '92. 16 A 50,000. 17 Q And at the bottom there is a line of that for -- for 18 all those numbers, and it says net cash flow, right? 19 A Yes. 20 Q And as an accountant, what does that mean? What does 21 net cash flow at the bottom of this mean? 22 A How much is left after paying the expenses. 23 Q Paying the expenses listed? 24 A Listed, yes. 25 Q And for 1992, what does it indicate what Mr. Gordon HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2445 Rosenblatt-redirect/White 1 would have left over after expenses? 2 A He would be in the hole for $15,000. 3 Q So, in other words, the expenses listed here is 4 15,000 more than he made that year? 5 A That's correct. 6 Q According to these figures? 7 A Yes. 8 Q Now, take a look at 1404. 9 For 1992, tell us how much Mr. Gordon bor
rowed 10 from Who's Who Worldwide? 11 A Approximately 237,000. 12 Q Now, as an auditor, can someone who makes 50,000, 13 have expenses of 65,000 a year, are they going to be able 14 to pay a $237,000 debt? 15 A No. 16 Q That 237 is just for 1992; is that correct? 17 A Yes, it is. 18 Q Cumulative up to that point it is almost 400,000; is 19 that correct? 20 A That's correct. 21 Q Take a look at 1993, how much does Mr. Gordon's 22 salary go up from year to year? 23 A 1993 it is shown as $100,000. 24 Q And that is how much more than 1992? 25 A It is doubled. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2446 Rosenblatt-redirect/White 1 Q And after paying all his expenses that are listed, 2 how much is -- how much does Mr. Gordon have left over? 3 A Approximately 8,000. 4 Q Okay. 5 L
et's go back to 1404. 6 How much did he borrow in 1993? 7 A Approximately $132,000. 8 Q So, according to 420-E he made 100,000, he is 9 spending about 92,000, and yet, he is another $132,000 in 10 the hole? 11 A He wouldn't have the money to pay the 132,000. 12 Q All of that is before the re-judgment; is that 13 correct? 14 A Yes. 15 Q All of that is before Who's Who files for bankruptcy; 16 is that correct? 17 A Yes. 18 Q All of that is before the government arrested 19 Mr. Gordon, correct? 20 A Yes. 21 Q Now, you recall Mr. Trabulus asked you whether you 22 can think of a business purpose for an executive who is 23 meeting with important people to look good? Do you recall 24 that? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2447 Rosenblatt-redirect/White 1 Q And tha
t might justify fancy suits and an expensive 2 car; do you recall all that? 3 A Yes. 4 Q If you would not mind taking a look at 5 Government's Exhibit 483 and 484. 6 (Handed to the witness.) 7 Q That's a charge receipt from Bergdorf Goodmans; is 8 that correct? 9 A Yes, it is. 10 Q Could you scan down the first page and tell us what 11 items are bought? 12 A Briefs and socks. 13 Q Look at the first entry. How many pairs of briefs 14 were bought? 15 A I think for. 16 Q How much did they cost? 17 A $140. 18 Q That's $35 a pair for $81 pants, right; is that 19 right? 20 A Yes. 21 Q In your experience, Mr. Rosenblatt, when you meet 22 with the prime minister of Lithuania, do you show him your 23 35 dollar pair of underpants? 24 A I can't answer that. 25 (Laughter.) HARRY RAPAPORT, C
SR, CP, CM OFFICIAL COURT REPORTER 2448 Rosenblatt-redirect/White 1 THE COURT: Mr. Trabulus, did you say something? 2 MR. TRABULUS: I could not resist, excuse me. 3 THE COURT: Did you say something you wanted 4 recorded? 5 MR. TRABULUS: No, your Honor. 6 Q Take a look at Exhibit 515. 7 That's a receipt from Tiffanys, right? 8 A Yes. 9 Q And that's for earrings, right? 10 A It says Picasso silver. I am really not sure. 11 Q Well, do you recall whether or not the Tiffanys 12 person testified as to whether it was earrings? 13 A There were so many different things, I don't recall. 14 Q Okay. 15 Now, you recall Mr. Trabulus asked you whether 16 companies take out luxury boxes at sports arenas, correct? 17 A Yes. 18 Q And companies frequently do that, yes? 19 A Absolutely. 20 Q And to your knowledge, do the company's C
EOs sleep in 21 those boxes? 22 A Not that I am aware of. 23 Q Do they receive dry cleaning at those luxury boxes? 24 A Not that I am aware of. 25 Q Do they frolic in jacuzzis in the luxury boxes? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2449 Rosenblatt-redirect/White 1 A I don't think they have jacuzzis in the luxury 2 boxes. 3 Q Mr. Trabulus asked you the purpose of the 433-A form, 4 the collection statement. What is your understanding as 5 to what it is for? 6 A When the taxpayer owes a tax liability the IRS is 7 looking to collect it. They want to know your assets, 8 income, what your expenses are, so they can determine how 9 much you are able to pay. 10 Q Now, if for example a taxpayer had a certain amount 11 of necessary expenses, and a huge amount of unnecessary 12 expenses that he was spending his mone
y on, would that in 13 your experience be relevant to the IRS's determination as 14 to how much he could pay? 15 A Absolutely. 16 Q Can you explain to us how that would factor in? 17 A If there is more money going for unnecessary expenses 18 the IRS would say pay us instead. 19 Q Is it fair to say -- 20 MR. TRABULUS: Your Honor, move to strike on the 21 basis that he denied being an expert on anything other 22 than the ordinary examination. Now he is talking about 23 the collection -- 24 MR. WHITE: Your Honor, Mr. Trabulus asked him 25 the purpose of the 433, what it was. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2450 Rosenblatt-redirect/White 1 THE COURT: Overruled. 2 Q You may finish your answer. 3 A I think I did. 4 Q Now, are you saying that the IRS might say, hey, you 5 are spending too much on Ar
mani suits, you can give some 6 of that to us to repay your back debt? 7 A Yes. 8 Q Let's take a look at the July 1993 433, which is 9 Exhibit 405. 10 First of all, Mr. Trabulus asked you on page 3, 11 the column that says equity and asset; is that correct? 12 A Yes. 13 Q He drew your attention to line 23 where it says 14 securities; is that correct? 15 A Yes. 16 Q And he asked if there were no equity in the asset, 17 would you have to list anything there. Do you recall 18 that? 19 A Yes. 20 Q And after he says -- it says on line 23 securities, 21 what does it say? 22 A I don't have that exhibit, but I believe it says see 23 line 18. 24 Q See item 18? 25 A See item 18. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2451 Rosenblatt-redirect/White 1 Q When you see item 18 on this fo
rm that Mr. Gordon 2 filled out, what does he say about the securities that he 3 owned? 4 A He says none. 5 Q Does he say I owned shares of Who's Who, but they are 6 not worth anything? 7 A No. 8 Q If you were a corporate officer who was entitled to, 9 and who was expecting a large amount of compensation in 10 upcoming years, would that be something listed on the 11 433? 12 MR. WALLENSTEIN: Objection. 13 THE COURT: On what grounds? 14 MR. WALLENSTEIN: The witness testified that the 15 collection information statement, the 433 is something 16 beyond his expertise, he hasn't seen them before, he 17 doesn't know what information is required to be on them; 18 that's the collection division, and not him. 19 THE COURT: I will let him answer. Overruled. 20 A Can you repeat the question? 21 Q I will repeat it. 22 If a corporate off
icer was entitled to and 23 expecting compensation from his corporation in a large 24 amount would that be an asset? 25 A Yes, it would. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2452 Rosenblatt-redirect/White 1 Q If you look on page 3, does it ask for the listing of 2 assets? 3 A Yes, it does. 4 Q So, if you had the ability to take loans from a 5 company, would that be an asset? 6 A Yes. 7 Q If you purchased artwork that retained its value, 8 would that be an asset that should be listed here? 9 A Yes. 10 Q Now, let's go back -- let's go back in time to 11 Exhibit 404, which is the 1991 collection information 12 statement that Mr. Gordon filed. 13 Now, if you look at that, can you tell us what it 14 says in the box, additional information or comment. 15 A After taxes there is a substantial deficit.
16 Q Now, the figures that are listed here, they are all 17 pre-tax; is that correct? 18 A Yes. 19 Q And that's what the tax -- is it correct that that is 20 what the taxpayer -- 21 Let me back up. 22 On the left side where it says income, that's the 23 taxpayer's earnings before he pays taxes on it; is that 24 correct? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2453 Rosenblatt-redirect/White 1 Q Now, where Mr. Gordon lists his necessary living 2 expenses, they total $3,385; is that correct? 3 A Yes. 4 Q And the total income is $5,000; is that correct? 5 A Yes. 6 Q Now, Mr. Gordon notes here after taxes there is a 7 substantial deficit. Do you see that? 8 A I would go back to even when you said that's the 9 total income. I mean, 1500 of that is I think -- 10 MR. WALLENSTEIN: Obj
ection. Not responsive. 11 THE COURT: Yes. Motion granted. Strike out the 12 answer. 13 Q You were making a reference to the son's contribution 14 to rent? 15 A Right. 16 Q What is the significance of that? 17 A It wouldn't be income to Mr. Gordon, taxable income. 18 Q Now, does this form indicate that after he pays his 19 necessary living expense, he has money left over for 20 unnecessary expenses? Or does it indicate that after 21 taxes he has got a deficit? 22 A It says after taxes there is a substantial deficit. 23 Q Now, you recall calculating this morning with 24 Mr. Trabulus the amount of personal income Mr. Gordon 25 would pay if this were income, if the loans were income, HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2454 Rosenblatt-redirect/White 1 versus how much the corporation would pay if it were 2 lo
ans, do you recall all of that? 3 A Yes. 4 Q Did I not state it right? 5 A I think you are referring to if the corporation took 6 these as salary deductions instead of loans. 7 Q If the corporation did that versus Mr. Gordon taking 8 it as income and paying taxes on it, the conclusion you 9 reached this morning is that it would be about the same, 10 right? 11 A Yes. 12 Q Now, in your experience and from your analysis of the 13 documents here, what would be the net effect -- let me 14 withdraw the question -- if the relative tax burdens in 15 those two situations would have been the same, and it was 16 paid by the corporation, and it was done in the manner in 17 which it was done in this case, what impact would that 18 have had on Mr. Gordon's own personal IRS obligation? 19 A He did not pay the three and a half million or any 20 part of it.
21 Q So, if that income had been shown as Mr. Gordon's, is 22 it correct that he not only would have had to pay the 23 taxes in those particular years, but the prior tax 24 obligations that he had? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2455 Rosenblatt-redirect/White 1 Q So, by doing it this way he saved himself over three 2 million dollars? 3 A Yes. 4 Q Now, Mr. Trabulus asked you about the factors that 5 are used in determining whether or not something is income 6 or a loan; do you recall that? 7 A Yes. 8 Q And he asked you whether the cases you were referring 9 to were civil cases; is that correct? 10 A Yes. 11 Q Now, in those civil cases, the burden is on who? 12 A On the taxpayer. 13 Q Now, to your knowledge, do the factors themselves 14 change whether or not it is a civil or a crimin
al case? 15 A No. 16 MR. TRABULUS: Objection, your Honor. 17 THE COURT: Sustained. 18 Strike out the answer. 19 MR. WHITE: Your Honor, I would like to be heard 20 on that issue. 21 THE COURT: No. Proceed. 22 Q Now, you recall Mr. Trabulus asked you whether you 23 were aware of other criminal cases involving the issue of 24 loans versus income? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2456 Rosenblatt-redirect/White 1 Q Do you recall that? 2 A Yes. 3 Q Can you tell us, in your experience, what 4 characteristics -- let me back up. 5 You said you are a technical advisor to the 6 district counsel of the IRS on criminal cases? 7 A Yes, I am. 8 Q In that position do you have input into whether a 9 case is prosecuted criminally as opposed to civilly? 10 A Yes. 11
Q Can you tell us what sort of factors go into whether 12 or not a case involving loans versus income would be 13 prosecuted as a criminal matter? 14 MR. TRABULUS: Objection. 15 MR. WALLENSTEIN: Objection. 16 THE COURT: Sustained. 17 Q Now, looking at Exhibit 837, do you recall this 18 morning Mr. Trabulus asking you about this transfer from 19 Sterling at Marine Midland in March of '94 to Who's Who 20 Worldwide at Republic Bank for Saving? 21 A Yes. 22 Q And do you recall Mr. Trabulus asking you about 23 whether or not that money was used for Who's Who to pay -- 24 Who's Who Worldwide to pay its taxes? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2457 Rosenblatt-redirect/White 1 Q Do the taxes that Who's Who Worldwide pays, payroll 2 taxes for example, for employees, does it have any bearing 3 in your c
alculation on Mr. Gordon's personal liability, 4 tax liability? 5 A No. 6 Q Now, do you recall Mr. Trabulus asking you with 7 reference to this chart about whether the existence of 8 multiple corporations would impede the IRS's 9 investigation? 10 A Yes. 11 MR. TRABULUS: Objection, your Honor. It was not 12 the question I asked. 13 THE COURT: Overruled. 14 Q You recall Mr. Trabulus asking you about whether it 15 was unusual in your experience for corporations to have 16 multiple bank accounts? 17 A Yes. 18 Q And he talked about some of the reasons why they 19 might have multiple bank accounts, correct? 20 A Yes. 21 Q Now, did Registry Publishing -- did you review the 22 checks or the bank records of Registry Publishing? 23 A Yes. 24 Q From your analysis of them, did Registry Publishing 25 actually conduct any busin
ess? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2458 Rosenblatt-redirect/White 1 A Not that I can recall. 2 Q And Mr. Trabulus asked you about whether you had ever 3 seen in your experience companies that had numerous 4 subsidiaries, correct? 5 A Yes. 6 Q And in this case, however, the other corporations -- 7 the corporation Registry Publishing did no business, 8 correct? 9 A Yes. 10 Q Aside from owning the condo did Publishing Ventures 11 do any business? 12 A No. 13 Q Now, do you recall Mr. Ackerman's testimony that in 14 connection with the transfers among corporations when he 15 asked Mr. Gordon why he would have done that, he mentioned 16 he owed back taxes to the IRS; do you recall that? 17 A Yes. 18 Q And Mr. Trabulus asked you about a taxpayer's motive 19 in whether or not -- and whethe
r or not it was one of the 20 factors that you would have considered? 21 MR. TRABULUS: Objection, your Honor. It is not 22 one of the questions I asked. 23 THE COURT: Overruled. 24 Q In light of the transfers reflected on this chart, 25 and Mr. Ackerman's testimony, and the other testimony that HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2459 Rosenblatt-redirect/White 1 you have heard, can you tell us on which side that factor 2 weighs, the taxpayer's motivation in this case? 3 A It would weigh to calling all of this income instead 4 of loans. 5 Q Okay. 6 Can you tell us why? 7 A Because the incentive was there not to report 8 income. Because if income is reported or assets are 9 shown, more payments would have to be paid to the IRS. 10 So, the less you show, the cheaper it is for you. 11 Q Mr. Trabulus asked you
about what would -- he asked 12 you what the effect would have been if the loans from 13 Who's Who Worldwide to Mr. Gordon were disclosed on the 14 433's; do you recall that? 15 A Yes. 16 Q And Mr. Trabulus asked you if that would indicate 17 that Mr. Gordon was, therefore, quote, less able to pay, 18 unquote, than he otherwise reflected; do you remember 19 that? 20 A Yes. 21 Q And if in fact -- let me follow up on his question. 22 If in fact they had been disclosed, would it then 23 have been disclosed to the IRS that he had the ability to 24 take loans from the company? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2460 Rosenblatt-redirect/White 1 Q Would it have been disclosed therefore that he had 2 some degree of control over the corporation? 3 A Yes. 4 (Whereupon, at this time there was a
pause in the 5 proceedings.) 6 MR. WHITE: Your Honor, I am sorry. I am just 7 trying to find something. 8 THE COURT: Yes. 9 (Whereupon, at this time there was a pause in the 10 proceedings.) 11 (Whereupon, at this time there was a further 12 pause in the proceedings.) 13 Q Do you recall Mr. Trabulus asking you questions as to 14 whether or not there were cash transactions in this case? 15 A Yes. 16 Q From your review of the documents in this case, the 17 general ledger, the checks, and what not, did you see 18 payments by Mr. Gordon to the Internal Revenue Service? 19 A Yes. 20 Q And the payments that you saw, what were the amounts 21 of most of them? 22 A Hundred dollar payments. 23 Q And do you know what those payments were in 24 connection with? 25 A His payment agreement, that he was going to pay a HA
RRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2461 Rosenblatt-redirect/White 1 hundred dollars a month. 2 Q The installment agreement? 3 A Installment agreement. 4 Q From your review of the records, how were those 5 payments made? 6 A Who's Who Worldwide would draw a check to cash. The 7 check would be cashed and a money order purchased payable 8 to the IRS. 9 Q Okay. 10 Now, if you can take a look at 664-E, and tell me 11 what that is? 12 A It is a check register. 13 Q For what company? 14 A I can't tell from this. It doesn't say. 15 MR. WHITE: Your Honor, I will save some time, 16 but it is previously identified as a check register for 17 Who's Who Worldwide. 18 Q Take a look at the entry for check number 2467. 19 A Yes. 20 Q Tell us what it says? 21 A It says BG, in parenthesis, money order, 1040
taxes, 22 $3,000. 23 Q Take a look at 664-D, another check register for 24 Who's Who Worldwide, and look at check number 2425. 25 A It is dated June 19th. It says BG, in parenthesis, HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2462 Rosenblatt-redirect/White 1 money order, for New York State, $2,266. 2 Q Take a look at Exhibit 668; which are also Who's Who 3 check stubs, and look at check number 1165. 4 A It is dated 7/29, to cash, for money order, IRS, in 5 the amount of $100. 6 Q You can put that away. 7 Now, take a look at 666, and tell us what it says 8 for check 3838. 9 A 12/31/91 to EAB for money order, IRS, BG, a hundred 10 dollars. 11 Q Tell us what it says for check number 4240? 12 A 1/30/92 to EAB/cash for money order for BG, IRS, one 13 hundred dollars. 14 Q Okay. 15 This is Exhibit 66
7, also Who's Who check stubs. 16 What is -- does check 112 say? 17 A Dated April 2nd for cash, for IRS money order, one 18 hundred dollars. 19 Q Check number 222? 20 A To cash, not dated, for money order, BG, individual 21 income tax return, $125. 22 Q And check number 434? 23 A Dated May 4th for cash, BG, for IRS, one hundred 24 dollars. 25 Q And check 746? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2463 Rosenblatt-redirect/White 1 A To cash/EAB, for money order, one hundred dollars. 2 Q And check 1062? 3 A To cash for EAB money order, IRS, one hundred 4 dollars. 5 Q You can put that away. 6 One more, let me show you 669, also Who's Who 7 Worldwide check stub, and look at 1698. 8 A To EAB for bank check IRS, $8,773.02. 9 Q You can put that away, Mr. Rosenblatt. 10 Now, Mr. Rosenblatt
, do you recall from your 11 review of the Who's Who books and records whether those 12 monthly payments to the IRS were charged to Mr. Gordon's 13 loan account? 14 A Yes. 15 Q Yes, they were? 16 A Yes, they were charged to the loan account. 17 Q Now, if you can take a look at Exhibit 797, and I 18 will read over your shoulder, it is a note dated 6/13/91. 19 It says Liz, these are Mr. Gordon's tax returns for 1990. 20 Since he has no personal checking account, I suggest you 21 get money orders to pay the tax. Sending a Who's Who 22 check isn't a good idea. 23 Now, subsequent to that, Mr. Rosenblatt, from 24 your review, do you know if Mr. Gordon eventually did have 25 a personal checking account? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2464 Rosenblatt-redirect/White 1 A Yes, he did. 2 (Whereupon, at this time
there was a pause in the 3 proceedings.) 4 MR. WHITE: Your Honor, no further questions. 5 6 RECROSS-EXAMINATION 7 BY MR. WALLENSTEIN: 8 Q Is it a fair statement that payment of your personal 9 taxes by corporate check is not a good idea? 10 A No. 11 Q It is a good idea? 12 A There is nothing wrong with it. 13 Q I don't want to spend a lot of time on this, but I 14 have a couple of more questions about the Grossman loan. 15 You recall that Dr. Grossman testified that he 16 was not sure it was a loan, correct? 17 A Yes. 18 Q And he also testified that he never asked about 19 repayment, correct? 20 A That's correct. 21 Q And he also testified that the reason he wrote those 22 checks and gave the money to Bruce is because Bruce was 23 his brother-in-law and he asked for it, is that correct? 24 A Yes. 25 Q Doe
s that fit the definition of a gift, that he never HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2465 Rosenblatt-recross/Wallenstein 1 asked for repayment? 2 A It could. 3 Q Now, you said with respect to that 315,000 can you 4 tell us, that it was not reflected properly on the books; 5 is that correct? 6 Let me withdraw that. 7 You said it was reflected on the books in 1992 in 8 December; is that correct? 9 A Yes, that was in the entry. 10 Q That's when the entry was made. 11 It is true, is it not, that the books have to 12 balance, for every balance on the -- debit on the books 13 there has to be a credit somewhere? 14 A Yes. 15 Q And do you recollect that with respect to this 16 particular transaction, there were two checks written in 17 December of 1992, each for $156,000 and change, totalling 18 313 in
change? 19 A That's correct. 20 Q And there was a debit at that point in time to the 21 loan and exchange account; is that correct? 22 A I believe so, yes. 23 Q There was a corresponding credit to the cash account, 24 was there not? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2466 Rosenblatt-recross/Wallenstein 1 Q And the money came out of the checking account, the 2 checks were written. So there had to be a credit to the 3 cash account to show a reduction in the amount of cash in 4 the corporate books; is that correct? 5 A Yes. 6 Q And the debit to the loan and exchange account was we 7 got to put it someplace and we will figure it out later, 8 correct? 9 A I can't say why it was done that way. 10 Q But ultimately it wound up being payroll, didn't it? 11 A No. I can't answer your question th
at it had to be 12 done some ways. 13 Q I understand. 14 There had to be a debit, if you credited the cash 15 account because you wrote the checks, some place on the 16 corporate books, there has to be a debit; is that correct? 17 A Yes. 18 Q If at the time you write that you don't know where to 19 put it, you put it in the loan and exchange account and 20 adjust it out later; is that correct? 21 A It could be done that way. 22 Q And do you recall in this case there was an adjusting 23 journal entry which straightened out the situation with 24 respect to the payroll? 25 A I don't recall seeing that. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2467 Rosenblatt-recross/Wallenstein 1 Q Do you recall seeing a $400,000 debit to the payroll 2 account? 3 A Yes. 4 Q And two corresponding entries, a credit to the
loan 5 and exchange account for 313,000 and change, and a credit 6 to the payroll tax liability account or tax liability 7 account of $86,000 and change, those two numbers adding up 8 to $400,000? 9 A It would be away of doing that. I just don't 10 remember seeing the entry. 11 Q All right. 12 You made reference to the collateral agreement. 13 Do you have that in front of you. That's 420-H. 14 A Yes, I have it. 15 Q And you say that that agreement requires for the IRS 16 to be paid first? 17 A Showing how the payment is to be computed, and it is 18 based on your adjusted gross income. 19 Q That's how you are supposed to figure out how much 20 you owe the IRS. But this agreement doesn't say pay the 21 IRS first, does it? 22 Would it be a fair statement that this agreement 23 says this is how we are going to figure out how much you 24
owe us and then goes on to say in fairly convoluted 25 language what happens in the event if you don't pay? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2468 Rosenblatt-recross/Wallenstein 1 A I have to read the whole document. 2 Q Take a minute and look through it, please. 3 (Whereupon, at this time there was a pause in the 4 proceedings.) 5 Q Can you find a paragraph in there that says the IRS 6 gets paid first? 7 A Not specifically in that language. 8 Q All right, let me turn your attention to 9 Exhibit 404-A, or any other collection statements that you 10 may have in front of you there. 11 This is 404. Do you have that? 12 A I have 406, which is 12/29/93. 13 Q Okay. 14 I really need you to look at 404 in a minute, but 15 at the moment 406 will due. The form is the same; is that 16 correct? 17 A I bel
ieve so. 18 Q The handwritten portion and the numbers are 19 different, but the form itself is identical? 20 A Can you tell me what the revision date on the bottom 21 is. 22 Q 4/89? 23 A This one is dated 10/92, so they wouldn't be the 24 same. 25 Q You find 404, because these are too big to maneuver. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2469 Rosenblatt-recross/Wallenstein 1 A I don't believe it is up here. 2 Q We have 404. 3 (Handed to the witness.) 4 A All right. 5 Q Now, Mr. White asked you if -- and I am referring now 6 to the asset columns here. 7 Mr. White asked you if compensation that you 8 expected to receive in the future would be an asset, and 9 you said that it wouldn't; is that correct? 10 A Yes. 11 Q Well, it wouldn't be a current asset, would it? 12 A I don't think
anywhere on this form it specifies 13 current or other type. It just specifies assets. 14 Q I expect that at some point I am going to get paid 15 for this case, but I haven't got paid yet. And if I don't 16 get paid two months down the line I haven't got that 17 money; is that right? 18 A Right. 19 Q So I can't use it, right? 20 A True. 21 Q So is it fair to say that that is a contingent asset? 22 A Yes. 23 Q And it is contingent on the happening of another 24 event, which may or may not be within my control, right? 25 A That's possible. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2470 Rosenblatt-recross/Wallenstein 1 Q So, if I am working for a corporation and the 2 corporation files for bankruptcy six months down the road, 3 and even though I projected my income out five years, I am 4 not going to have that mo
ney, am I? 5 A Not if the corporation is out of business. 6 Q Right. 7 You indicated that the ability to obtain a loan 8 is an asset? 9 A I don't recall saying that. 10 Q I misphrased what Mr. White said when I was trying to 11 write furiously. 12 I believe you said Mr. Gordon's ability to take 13 loans from a corporation is an asset? 14 A Is an asset of the corporation, the loans. 15 Q The loans certainly are an asset of the corporation 16 once the money is owed to them. But I understood the 17 thrust of his question and your answer to be that his 18 ability to obtain that money from the corporation is 19 itself an asset which should have been reported on a 433. 20 Is that what you said or is that incorrect? 21 A I honestly don't recall the question. 22 Q Well, I am asking you now. 23 Would it be? 24 A Not if it is not taken. <
BR> 25 Q All right. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2471 Rosenblatt-recross/Wallenstein 1 Now, with respect to things like artwork and 2 sculpture and all those things we have been talking about 3 for weeks now, that would not be an asset of an 4 individual, if it is owned by the corporation and there is 5 some indicia of ownership that satisfied you down the 6 line; is that right? 7 A I think the items Mr. White was asking about were 8 items in the loan account, which indicates they are 9 personal items. 10 Q The fact that they are initially thrown in the loan 11 and exchange account before they are adjusted out doesn't 12 take them loans at that time for personal accounts, you 13 have to wait until the end of the year to go to the 14 general ledger and see where they went? 15 A All the items in the loan account state
in the loan 16 account. It didn't come out of it. 17 Q Now, you indicated that Mr. Gordon owed the Internal 18 Revenue Service 3 and a half million dollars; is that 19 right? 20 A Right. 21 Q And that would be a fairly substantial motive for his 22 looking not to pay the IRS and for hiding his assets, 23 would it not? 24 A Yes. 25 Q In your view? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2472 Rosenblatt-recross/Wallenstein 1 A Yes. 2 Q And is there anything in your investigation that 3 indicated that Mr. Reffsin owed the IRS anything other 4 than his own personal taxes? 5 A I am not aware of anything. 6 Q Is there anything in any of your investigation that 7 would indicate that Mr. Reffsin was anything other than an 8 outside professional paid the going rate, if you will, for 9 his services?<
BR> 10 A No. 11 Q Okay. 12 One more question. 13 If you wore 35 dollar underwear, wouldn't you 14 want the president of Lithuania to know it? 15 A I can't say. 16 MR. WALLENSTEIN: Nothing further. 17 MR. TRABULUS: Your Honor, can I have a minute or 18 two? 19 THE COURT: Yes, sir. 20 MR. TRABULUS: Thank you. 21 (Whereupon, at this time there was a pause in the 22 proceedings.) 23 24 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2473 Rosenblatt-recross/Trabulus 1 RECROSS-EXAMINATION 2 BY MR. TRABULUS: 3 Q Mr. Rosenblatt, you found the tax transactions, did 4 you in response to the questions of Mr. White? 5 A I don't understand. 6 Q I asked you some questions about various transfers 7 between the different companies or entities that 8 Mr. Gordon was involve
d in, and I think you indicated that 9 there were no cash transactions; is that correct? 10 A Yes. 11 Q And now Mr. White asked you about some cash 12 transactions; is that right? 13 A You mean the smaller checks? 14 Q Yes. 15 A The ones in here? 16 Q The ones that went to the IRS. 17 A Yes. 18 Q The only cash transactions you came up with were the 19 cash transactions to pay the IRS; is that right? 20 A Yes. 21 Q To pay taxes, right? 22 A To pay on his payment agreement. 23 Q And on the payment agreement it was to pay taxes; is 24 that right? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2474 Rosenblatt-recross/Trabulus 1 Q And you were asked a question by Mr. Wallenstein 2 concerning whether or not what Dr. Gordon -- excuse me, 3 Dr. Grossman -- it is getting late -- what Dr.
Grossman 4 paid could have been a gift, and you said it could be 5 based on what you were told; is that right? 6 A Based on what he said, yes. 7 Q Based on -- just for the jury here, a gift, if it 8 were a gift, Mr. Gordon would not have incurred taxable 9 income on that, would he? 10 A If it was a gift to Mr. Gordon, no. 11 Q And you can make a gift to somebody by paying down 12 their obligation to somebody else, right? That could be a 13 gift, right? 14 A The money could be used in any way. 15 Q I am trying to say that Dr. Grossman could have made 16 a gift to Mr. Gordon by paying down Mr. Gordon's 17 obligation to Who's Who Worldwide? That could be a gift? 18 A If that was Dr. Gordon -- excuse me, Dr. Grossman's 19 testimony, yes, it could be. 20 Q That's another way of characterizing it which would 21 be consistent with what Dr. Grossman testifie
d to as 22 Mr. Wallenstein read it to you, correct? 23 A Except I keep going back to Dr. Grossman who said 24 that the -- he was told the money would be used for 25 publications of Who's Who. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2475 Rosenblatt-recross/Trabulus 1 Q Even if he made a gift to Mr. Gordon, Mr. Gordon 2 could have decided the way the gift was to be used was to 3 repay his loan in part to Who's Who, and the loan, the 4 money could have been used with respect to the registry, 5 right? 6 A It would be a beneficial way to look at it. 7 Q It is to Mr. Gordon's benefit that the registry does 8 well? 9 A Yes, and also to reduce his loan by that amount at 10 the same time. 11 Q Okay. 12 Now, you were asked some questions by Mr. White 13 concerning the penthouse, and we heard about the -- and we
14 heard about the jacuzzi, whatever. 15 The evidence you reviewed in this case so far 16 concerning Mr. Gordon's use of the penthouse, we have that 17 there was a leak in the jacuzzi once that he asked for a 18 repair of a heater in another occasion in December of 19 1994. And we have also that the owner of the -- the 20 general partner of the partnership that owns the penthouse 21 say that he had -- after a certain point in time he had 22 seen him maybe once a week, and we have the doorman say 23 that he saw originally Mr. Gordon once a week, and 24 originally he saw him less frequently. Do you recall that 25 testimony? It was summarized, I know, but do you recall HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2476 Rosenblatt-recross/Trabulus 1 it? 2 A Yes. 3 Q Was there any other testimony with respect to how 4 much time Mr. Gor
don actually spent in the penthouse, if 5 you recall? 6 A I think other than having a couple of cocktail 7 parties, no. 8 Q We have a situation where Mr. Gordon was residing at 9 200 Hummingbird? 10 A Yes. 11 Q The Manhasset condominium? 12 A Yes. 13 Q And in the 1994 condominium, he actually listed 200 14 Hummingbird as being his residence? 15 A Yes. 16 Q Not the earlier one where it mistakenly carried over 17 the address, the other address, but he made no secret 18 about it? 19 A I would have to look at it. I don't know. 20 Q Now, in terms of a factor as to whether or not the 21 value of the use of the -- of a condominium or penthouse 22 should be included in income, let's take a situation where 23 an executive -- withdrawn. 24 Take a situation where a corporation acquires a 25 condominium or penthouse, or something like,
with the HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2477 Rosenblatt-recross/Trabulus 1 original intent for using it for business purposes, okay? 2 A Go ahead. 3 Q Initially from time to time when a corporate 4 executive is working late at a location near that 5 penthouse he sleeps over there rather than his regular 6 place which is closer to the place he regularly works at, 7 and this happens two or three times a month, using that as 8 an example. Would that be considered income to that 9 executive for the two or three days' use of the condo or 10 the penthouse? Is that a gray area? 11 A Gray area. 12 Q Let's say instead of two or three times a month, it 13 is four or five times a month, is that a gray area? A 14 little less gray, but still a gray area? 15 A Yes. 16 Q And I guess part of that would be in looking to the<
BR> 17 gray area, would you look to the extent to which the 18 corporation originally intended to utilize the penthouse 19 for business purposes; is that right? 20 A I would look to see if they kept a log of its 21 business use. 22 Q Let's say they didn't. 23 A They would be required to. 24 Q Let's say they asked people -- let's say they invited 25 people to stay over there to utilize it, but they hadn't HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2478 Rosenblatt-recross/Trabulus 1 done it. Would it still indicate it was originally 2 indicated for some business purposes? 3 A It would be hard to fathom the individual in this 4 case, Mr. Gordon -- I guess his personal belongings being 5 in the closets and dressers and closets, and have other 6 people staying there without his presence. 7 Q Taking the executive who uses it two o
r three times a 8 week, going back to the gray area executive. Let's say 9 the executive knows uses it two or three times a week -- I 10 said a week, I meant a month. Going back to that example, 11 two or three times a month. Let's say they know that. 12 Would the fact that they put personal belongings 13 there for their use, or even putting things so the family 14 members can stay with them, does that mean necessarily 15 that there is income to them? 16 A It is part of the process in making that 17 determination, yes. 18 Q Still a gray area though? 19 A Yes. 20 Q One in good faith can make an argument that it was 21 not a gray area; is that correct? 22 A On the simple set of facts you are presenting, yes. 23 Q What if they used it five times a month? 24 A And no one else ever used it? 25 Q Not that no one else was permitted to use it --
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2479 Rosenblatt-recross/Trabulus 1 A No one else ever used it? 2 Q We heard some occasion in this case that there was 3 use by another people, you heard that Rappaport came in. 4 A I know there were logs indicating that the meetings 5 never took place. 6 Q We are not talking about the logs that Maria Gaspar 7 concocted, we are talking about the log that Mr. Strom, 8 the person who spoke with a European accent who came in, 9 he was the doorman there from 7:30 in the morning to 3:30 10 in the afternoon and he had logs; is that correct? 11 A Yes. 12 Q Of course he testified that the logs would not show 13 if Mr. Gordon was present or not, but they would have 14 reference to Mr. Gordon, a jacuzzi or something like that? 15 A I recall him saying if Mr. Gordon were not present he 16 would have to
have permission to let someone up to the 17 apartment. 18 Q Correct. But it wouldn't show if Mr. Gordon was 19 present or not? He acknowledged that? 20 A No. If Mr. Gordon was present it wouldn't show. 21 Q If he wasn't present it wouldn't show it either, 22 right? 23 A That's what I just said. 24 Q It wouldn't show it either way, unless there was some 25 specific incidents with Mr. Gordon being present that HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2480 Rosenblatt-recross/Trabulus 1 would show it, correct? 2 A If Mr. Gordon were not present, I recall him saying 3 that it would not have to show it. 4 Q Right, okay. 5 Getting back to the that we were talking about -- 6 get back to the example that we were talking about there, 7 you said if it wasn't used by anyone else, and that the 8 executives stayed there fi
ve or six nights a month, that 9 might weigh in favor of it being regarded as income; is 10 that correct? 11 A Yes. 12 Q And if reason that it wasn't used by anybody else was 13 not for lack of trying, than it would take it back the 14 other way -- in other words, if people were invited to it 15 and they didn't stay? 16 A It would be a hard determination. 17 Q If, for example, some members were told, hey, if you 18 want to stay here you can, or something like that, would 19 that make a difference? 20 A If there was a general principle that other people 21 can stay there and no one ever did, I would have to look 22 at how genuine was, the offer. 23 Q If it was genuine it would contribute also to it 24 being a gray area; is that correct? 25 A If it was genuine, yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2481 Rosen
blatt-recross/Trabulus 1 Q Now, let's go to -- 2 MR. TRABULUS: Bear with me a moment. 3 (Whereupon, at this time there was a pause in the 4 proceedings.) 5 Q You testified that Registry Publishing Company, 6 didn't have any -- didn't do any business as far as you 7 can tell; is that right? 8 A That's correct. 9 Q Yet, it had money in some of its accounts, and was 10 involved in transfers; is that correct? 11 A Yes. 12 Q Now, Sterling did do business, did it not? 13 A Yes. 14 Q And Who's Who Executive Club did business, too, as 15 far as you can tell; is that correct? 16 A Yes. 17 Q And in your review of your records of Sterling, did 18 you notice that it also had received monies and had 19 transfers before it actually began operating in business? 20 A Transfers from who. 21 Q Well, from Who's Who? 22 A Yes, it
received money -- 23 Q It was funded before it actually started doing 24 business; is that correct? 25 A I believe so. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2482 Rosenblatt-recross/Trabulus 1 Q And some of the conclusions that you testified to 2 before relating to the purposes of some of the transfers 3 were predicated upon the assumption that Registry 4 Publishing Company wasn't going to do business? Not that 5 it just didn't do business, but that -- 6 A It was based on the fact that it didn't do business. 7 Q Well, if it were the case that Registry Publishing 8 Company was set up with a view to doing business in a 9 California operation -- you heard some testimony about the 10 attempt to start a California operation that never 11 happened, did you not? 12 A Yes. 13 Q If it were the case that Registry Publishing C
ompany 14 were set up with a view to that, and it was never set up 15 for whatever reason, relating to the bankruptcy or raid, 16 or whatever, would that have an effect on the decision you 17 reached about Registry -- would it affect your conclusion 18 of Registry Publishing not doing any business? 19 A I don't know what conclusions you talked about. 20 Q You mentioned PVI had no business other than with 21 respect to the real estate? 22 A Yes. 23 Q In the course of your work as an auditor, have you 24 ever encountered other situations, were there were related 25 companies, and one of them just owns real estate? HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2483 Rosenblatt-recross/Trabulus 1 A That happens. 2 Q Not uncommon? 3 A No. 4 Q You heard testimony by Mr. Skalka and Mr. Ackerman 5 that there are legitimate
tax reasons why that could be 6 done? 7 A Yes. 8 Q And legitimate business reasons why that could be 9 done? 10 A Yes. 11 Q And the fact that PVI simply held and operated the 12 real estate in and of itself does not suggest any kinds of 13 improper purpose for doing that; is that correct? 14 A No. 15 Q It is not correct or it is correct? 16 A It is not correct. 17 Q And when you say it is not correct -- withdrawn. 18 Now, you testified in response to questions that 19 Mr. White put to you just a few minutes ago that is of 20 significance to the IRS in evaluating someone's ability to 21 pay, to learn what they are actually spending, or what is 22 actually being spent on their behalf; is that correct? 23 A Yes. 24 Q And you testified to that in relation to a Form 25 433-A; is that correct? HARRY RAPAPORT, CSR, CP, C
M OFFICIAL COURT REPORTER 2484 Rosenblatt-recross/Trabulus 1 A Yes. 2 Q And that's in fact the form you never saw before this 3 particular case; is that correct? 4 A I have seen them before, I am just not that familiar 5 with them. 6 Q And you also testified that your own expertise is 7 limited to just the area of audits and examinations, and 8 not to collections; is that correct? 9 A I have familiarity with collections, but not to a 10 great degree. 11 Q Is it fair to say that you are not familiar with the 12 procedures of the divisions that do the collections; is 13 that correct? 14 A Not totally. 15 Q Therefore, you are not an expert on that, and simply 16 on your own area, which would be audits and examination; 17 is that not correct? 18 A Yes. 19 Q Now, though it might be -- withdrawn. 20 Is there any place
on the four 433-A to lay out 21 all the money being spent in a month, and all the money 22 spent on their behalf in so many words? Yes or no, sir? 23 A I can't see the forms, so I am looking at a different 24 one. 25 Q We have 404 up here, so I will use that one. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2485 Rosenblatt-recross/Trabulus 1 A You mean the monthly income and expense analysis? 2 Q Does it just say necessary here? 3 A It says "necessary" but I don't know the definition 4 of that according to the form. 5 Q Would you expect someone, a taxpayer who fills it 6 out, to know the definition any better than you would? 7 A I would think that if somebody is filling it out and 8 they have a question about it they should ask. Because I 9 believe they sign this under penalty of perjury. 10 Q Could they be mistaken as to what it w
as? 11 Under your analysis and in your view this calls 12 for all expense? Is that what you testified to? 13 A That's what I would believe. 14 Q That's what you would believe it to be? 15 A Yes. 16 Q Could it be that someone might sign this under 17 penalty of perjury, in the view that they just ask what 18 they particularly need to live? 19 A No. I would think because of that penalty of perjury 20 clause I would be pretty certain what I am signing before 21 I sign it. 22 Q Let's say you spent 10,000 -- $15,000 a month on a 23 new car each month, or on something else, some luxury 24 item, whatever you want to call it, Swiss watches, 25 whatever, and you didn't itemize what that money was for HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2486 Rosenblatt-recross/Trabulus 1 under necessary living expenses, and you listed under
2 other expenses -- well, it says specify, and you would put 3 down $15,000, and you might specify cars or something like 4 that. Would you feel -- would you feel comfortable 5 signing under penalty of perjury that it was true and 6 correct that that expense was necessary? 7 A Again, I would go back, and I would say if I am given 8 this form to fill out, I would ask the person who gave to 9 it me for specific instructions on that before I would 10 sign it. 11 Q Do you know whether Mr. Gordon did? 12 A I don't know. 13 Q Do you know what those instructions -- what any 14 instructions were if he received, if any? 15 A I have no idea. 16 Q Are you saying this form is sufficiently unclear that 17 it requires a telephone call to the IRS to figure out what 18 it is asking for? 19 A A lot of forms require telephone calls. 20 Q And you are here say
ing that somebody should be -- 21 withdrawn. 22 Do you know if the IRS manual says anything about 23 the way this form should be interpreted? 24 A I have no idea. 25 Q Do you recall being asked to bring the IRS manual HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2487 Rosenblatt-recross/Trabulus 1 with you today or to look for it if you could find it? 2 A It was asked, yes. 3 Q Did you look for it? 4 A I wasn't able to find it. 5 Q Did you make a phone call and ask someone else -- 6 A I tried this morning. 7 MR. TRABULUS: Bear with me just a moment? 8 THE COURT: Yes. 9 (Whereupon, at this time there was a pause in the 10 proceedings.) 11 Q Did you testify that Mr. Gordon saved three and a 12 half million dollars by not showing the loan as income? 13 Is that something you said to Mr. White? 14 A He
avoided the payment of three and a half million 15 dollars. 16 Q He didn't save three and a half million dollars? 17 A No. 18 Q So the testimony that you said, you were mistaken; is 19 that correct? 20 A I must have misunderstood the statement. 21 Q You were asked a question concerning an asset, and 22 whether or not the right and opportunity in the future to 23 get money from the corporation constitutes an asset to be 24 disclosed on this form; is that correct? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2488 Rosenblatt-recross/Trabulus 1 Q And do you know whether Mr. Gordon was a cash-basis 2 taxpayer or accrual-basis taxpayer? 3 A Cash-basis. 4 Q For the benefit of the jury, giving an example, let's 5 say I am a business, and a company owes me for something I 6 sold to them, and they owe me $10,000
and they are late in 7 paying me the check and sending me the money, do I report 8 that $10,000 as income if I am on a cash basis? 9 A No, you only report it as you receive it if you are 10 on cash-basis. 11 Q If I am on an accrual basis, and I don't have the 12 money yet, do I report it as income? 13 A You report it when it is earned. 14 Q So, for somebody like Mr. Gordon, even if he had some 15 kind of expectation of receiving money from the company in 16 the future, that is not something he would show right then 17 and there, would he? 18 A I think when the question was asked, is whether it 19 was an asset, and not whether it was income at that time. 20 Q Do you think a taxpayer in filling out that form 21 might not realize that the opportunity to receive money in 22 the future could be something that is listed as an asset? 23 A I think if you are working
with an accountant, a 24 C.P.A. assisting you, I think you would be aware, and if 25 you had any questions, it is certainly someone you could HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2489 Rosenblatt-recross/Trabulus 1 ask. 2 Q Is it clear that the possible expectation of income 3 in the future from a corporation should be listed as an 4 asset? Is there anywhere in there that makes that clear? 5 A On the December 29th form, it says other asset, line 6 26. 7 Q It says there -- this there to, other assets. But we 8 are talking about the prospects of receiving money in the 9 future from a company that might -- you might receive 10 money from in the future, there is nothing here that 11 addresses that? 12 A Not specifically, other than other assets. 13 Q By the way, do you know whether Mr. Reffsin or 14 another accountant w
as working with Mr. Gordon in 15 connection with this particular form? Do you know, this 16 is the December 16th, 1991 one. 17 A I don't know. 18 Q Okay? 19 A But I believe Mr. Reffsin was getting accounting 20 firms at that time from Who's Who, you can infer he was 21 available. 22 MR. WALLENSTEIN: Move to strike. 23 MR. TRABULUS: Move to strike. 24 THE COURT: Motion granted. The answer is 25 stricken. The jury is instructed to disregard it. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2490 Rosenblatt-recross/Trabulus 1 Q You were asked by Mr. White whether or not an 2 obligation of Mr. Gordon's to Dr. Grossman was shown on 3 these forms, the 430's; is that correct? 4 A Yes. 5 Q 433-A's. 6 A Yes. 7 Q And you indicated it was not? 8 A Yes. 9 Q Any more than the loans to the corporation w
ere; is 10 that right? 11 A Yes. 12 Q Just as is the case in the loans to the corporation, 13 it would have tended to show that his ability to pay was 14 even less than was originally revealed on the form; is 15 that correct? 16 A If he had more liabilities, yes. 17 MR. TRABULUS: I have nothing further, your 18 Honor. 19 THE COURT: Anything else, Mr. White? 20 MR. WHITE: Yes, your Honor. And briefly. 21 22 23 24 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2491 Rosenblatt-redirect/White 1 FURTHER REDIRECT EXAMINATION 2 BY MR. WHITE: 3 Q This form 433 was used by the IRS in order to assess 4 Mr. Gordon's ability to repay his outstanding tax 5 obligation; is that correct? 6 A Yes. 7 Q And Mr. Trabulus asked you if he had more liabilities 8 it would ha
ve indicated that he was less able to pay what 9 he owed; is that correct? 10 A Yes. 11 Q And, therefore, from the IRS's perspective, would it 12 have been in Mr. Gordon's interest to disclose that if 13 they were in fact loans? 14 A Yes. 15 Q So, in other words, it would have shown him in a 16 worse condition than he really was? 17 A That's correct. 18 Q And, therefore, less able to pay? 19 A Yes. 20 Q Therefore, more in Mr. Gordon's interest to disclose 21 them? 22 A That's correct. 23 Q Mr. Trabulus asked you about this column under 433's 24 about necessary living expenses? 25 A Yes. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2492 Rosenblatt-redirect/White 1 Q You recall that? 2 A Yes. 3 Q He asked you whether or not it was clear; do you 4 recall that? 5 A Yes.
6 Q Taking a look at Exhibit 421, did Mr. Gagliardi 7 follow this up by asking for, at paragraph 6, verification 8 of all monthly payments if not paid by your personal 9 check? 10 A Yes. 11 MR. TRABULUS: Objection, your Honor. 12 THE COURT: On what ground? 13 MR. TRABULUS: Followed it up. 14 THE COURT: Overruled. 15 Q Did he follow up by asking for that specific 16 information? 17 A Yes, he did. 18 Q Did he ask for only the necessary monthly payments? 19 A No. 20 Q And look at Exhibit 1508. Tell us what Mr. Reffsin 21 on behalf of Mr. Gordon gave Mr. Gagliardi in response. 22 A Just the checking account statements and cancelled 23 checks for Bruce Gordon's personal account at National 24 Westminster for the appropriate period. 25 Q Mr. Trabulus asked you about the evidence -- what the HARRY RAPAPORT, CSR, CP, CM OFFI
CIAL COURT REPORTER 2493 Rosenblatt-redirect/White 1 evidence at the trial was that indicate that Mr. Gordon 2 lived at the penthouse. 3 Look at Exhibit 648 as the lease to the 4 penthouse. Tell us who is listed as the occupant. 5 (Handed to the witness.) 6 A Bruce Gordon. 7 Q And does the lease -- does the lease indicate if 8 anyone else can live there besides Mr. Gordon? Look at 9 page two of the lease. 10 A The apartment shall be used for residential purposes 11 only and for no other use. The apartment may be occupied 12 by tenant and the other occupants and by no other 13 persons. 14 Q What does it say if the tenant is a corporation? 15 A If the tenant is a corporation, the apartment may be 16 occupied only by the designated occupants. 17 Q Now, take a look at Exhibit 1404. Do you have it in 18 front of you? 19 A I ha
ve it somewhere. I have it. 20 Q There has been a lot of talk about whether or not you 21 credited this particular agreement payment in calculating 22 Mr. Gordon's income; do you recall that? 23 A Yes. 24 Q And that Dr. Grossman payments are around $235,000? 25 A That's correct. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2494 Rosenblatt-redirect/White 1 Q Look at 1404 and tell us what the total figure is you 2 calculated for the additional taxable income for 3 Mr. Gordon from '91 to '94. 4 A It is approximately $900,000. 5 Q Okay. 6 So, if you subtracted out that whole 235,000, 7 what is Mr. Gordon's additional taxable income that was 8 not reported for those four years? 9 A Excuse me. You asked the additional taxable income 10 in the last question? 11 Q Yes. 12 A That was about a million dollars. 13 It would be approximately $800,00
0. 14 Q Over four years? 15 A Over four years. 16 Q Even if you gave them that; is that right? 17 A That's correct. 18 MR. WHITE: Your Honor, nothing further. 19 THE COURT: Anything else? 20 MR. WHITE: Your Honor, wait a moment. I am 21 sorry. 22 (Whereupon, at this time there was a pause in the 23 proceedings.) 24 MR. WHITE: Your Honor, I have no questions. 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2495 Rosenblatt-recross/Wallenstein 1 FURTHER RECROSS-EXAMINATION 2 BY MR. WALLENSTEIN: 3 Q Mr. Rosenblatt, were you privy between any 4 conversations between Mr. Gagliardi and Mr. Reffsin? 5 A No. 6 Q Do you know whether Mr. Reffsin and Mr. Gagliardi had 7 any questions -- had any conversations between the time of 8 the submission of the 433 and
the time of the submission 9 of this letter, Exhibit 421? 10 A I don't recall if Mr. Gagliardi stated there were 11 other conversations. I don't recall. 12 Q Were you privy to a conversation between the two in 13 which Mr. Reffsin asked Mr. Gagliardi whether he wanted 14 statements from all of the corporate bank accounts and 15 Gagliardi said, no. Just give me his personals? 16 A I am not aware of that. 17 Q And you didn't hear such a conversation? 18 A No, I wasn't there. 19 Q If such a conversation took place you would have no 20 way of knowing? 21 A I wasn't there. 22 Q Is it fair to say that you also don't know whether or 23 not this letter was written after a discussion between 24 Mr. Reffsin and Mr. Gagliardi or before? 25 A I have no way of knowing. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2496 Rosenblatt-re
cross/Wallenstein 1 Q And the documents that Mr. Reffsin transmitted to 2 Mr. Gagliardi on Mr. Gordon's behalf subsequent to the 3 writing of this letter may well have been written after a 4 conversation which occurred after Mr. Reffsin got the 5 letter; is that correct? 6 A I have no way of knowing. 7 MR. WALLENSTEIN: I have no further questions. 8 THE COURT: Anything else? 9 MR. TRABULUS: Very briefly. 10 THE COURT: Rest assured jurors, it is getting 11 briefer and briefer. We will be finished shortly. I want 12 to get through with this witness. 13 14 FURTHER RECROSS-EXAMINATION 15 BY MR. TRABULUS: 16 Q You testified about the lease that Mr. Gordon -- that 17 listed Mr. Gordon as the occupant? 18 A Yes. 19 Q Someone can be listed as an occupant without actually 20 spending full time in a place? 21 A I am sure.
22 Q You heard the gentleman from the penthouse who said 23 they didn't want to have this penthouse to be used as a 24 bed and breakfast? 25 A This or any of the other apartments. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2497 Rosenblatt-recross/Trabulus 1 Q He testified also that the lease contemplated there 2 being visitors, do you recall that? 3 A I am sure. 4 Q One can be listed as an occupant without actually 5 occupying the place; am I correct? 6 A Sure. 7 Q You testified as a follow up Mr. Gagliardi in this 8 letter, 421-A, asked for documentation of current income 9 and expenses; is that correct? 10 A Yes. 11 Q And that appears under the paragraph number one 12 there; is that correct? 13 A I can't see it. 14 Q All right, I will read it. 15 Never mind, withdrawn. 16 The fact that he
would ask for that, does it 17 suggest that the form itself did not provide that? 18 A It's possible. 19 Q Now, it also says that you must document your current 20 income and expenses and provide verification of any 21 unusual expenses or encumbrances claimed. 22 Does that suggest to you that there would have to 23 be verification as to why an unusual expense was 24 necessary? 25 A No. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2498 Rosenblatt-recross/Trabulus 1 MR. TRABULUS: No further questions. 2 THE COURT: Anything else? 3 MR. WHITE: No, your Honor. 4 MR. WALLENSTEIN: No, your Honor. 5 THE COURT: All right. 6 You may step down. 7 (Whereupon, at this time the witness left the 8 witness stand.) 9 THE COURT: Members of the jury, my compliments 10 to you again. You have been very patient -- I c
an't see 11 the last juror. 12 You have been very patient through this testimony 13 involving accounting procedures and things of that kind, 14 in which your attention could have strayed, but you 15 didn't. I have been watching you carefully. You have 16 been listening with interest to all of this testimony. 17 That is exactly what your obligation is to do. 18 We thank you for that. 19 We will recess until 9:30 tomorrow morning. 20 Please do not discuss the case either among yourselves or 21 with anyone else. You may not even want to discuss these 22 accounting principles with anybody. 23 Keep an open mind. Come to no conclusions. Have 24 a nice evening and we will see you at 9:30 tomorrow. 25 JUROR NO. 1: Thank you. HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2499 1 THE COURT: Good evening. 2 (Whereupon, at thi
s time the jury leaves the 3 courtroom.) 4 THE COURT: Did you find out who will testify 5 tomorrow? Did you tell counsel who is coming on tomorrow, 6 Mr. White? 7 MR. WHITE: I didn't hear you, your Honor, I am 8 sorry. 9 THE COURT: Did you give counsel the name of 10 witnesses for tomorrow? 11 MR. WHITE: I think they are going to be the same 12 as we had for today, Ms. Ringer, Ms. Rieger. And the 13 other two I think are. 14 MR. JENKS: I am reminding Mr. White Behrmann, 15 Rotatori, and Beck. 16 MR. WHITE: Also possible is Mr. Smith. 17 MS. SCOTT: William Smith. 18 MR. WHITE: And Jack Heinbaugh. 19 MR. TRABULUS: Your Honor, I have the hard copy 20 of the letter I faxed this morning, does your Honor wish 21 it? 22 (Case on trial adjourned until 9:30 o'clock a.m., 23 Tuesday, February 3, 1998.) 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 2500 1 I-N-D-E-X 2 W-I-T-N-E-S-S-E-S 3 PAGE LINE 4 R I T A R I E G E R........................... 2283 6 DIRECT EXAMINATION............................... 2283 16 5 A N D R E W R O S E N B L A T T............... 2299 1 6 CROSS-EXAMINATION................................ 2299 4 VOIR DIRE EXAMINATION............................ 2301 1 7 CROSS-EXAMINATION................................ 2302 1 CROSS-EXAMINATION................................ 2314 1 8 REDIRECT EXAMINATION............................. 2433 7 RECROSS-EXAMINATION.............................. 2464 6 9 RECROSS-EXAMINATION.............................. 2473 1 FURTHER REDIRECT EXAMINATION..................... 2491 1
10 FURTHER RECROSS-EXAMINATION...................... 2495 1 FURTHER RECROSS-EXAMINATION...................... 2496 14 11 12 13 14
15 16 17 18 19 20 21 22 23 24 25 HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
