7753 1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK 2 - - - - - - - - - - - - - - X 3 UNITED STATES OF AMERICA, : CR 96 1016(S-1) 4 v. : U.S. Courthouse 5 Uniondale, New York BRUCE W. GORDON, WHO'S WHO 6 WORLD WIDE REGISTRY, INC., : STERLING WHO'S WHO, INC., 7 TARA GARBOSKI, ORAL FRANK OSMAN, LAURA WEITZ, ANNETTE 8 HALEY, SCOTT MICHAELSON, : STEVE RUBIN, and MARTIN 9 REFFSIN, : TRANSCRIPT OF TRIAL 10 Defendants. :March 16, 1998 11 - - - - - - - - - - - - - - X 9:35 o'clock a.m.
12 BEFORE:
13 HONORABLE ARTHUR D. SPATT, U.S.D.J. and a jury 14 APPEARANCES: 15 For the Government: ZACHARY W. CARTER 16 United States Attorney One Pierrepont Plaza 17 Brooklyn, New York 11201 By: RONALD G. WHITE, ESQ. 18 CECIL SCOTT, ESQ. Assistant U.S. Attorneys 19 For the Defendants: NORMAN
TRABULUS, ESQ. 20 For Bruce W. Gordon 170 Old Country Road, Suite 600 21 Mineola, New York 11501
22 EDWARD P. JENKS, ESQ. For Who's Who Worldwide 23 Registry, Inc. and Sterling Who's, Who, Inc. 24 332 Willis Avenue Mineola, New York 11501 25 (cont'd)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7754
1 APPEARANCES (cont'd):
2 GARY SCHOER, ESQ. For Tara Garboski 3 6800 Jericho Turnpike Syosset, New York 11791 4 ALAN M. NELSON, ESQ. 5 For Oral Frank Osman 3000 Marcus Avenue 6 Lake Success, New York 11042
7 WINSTON LEE, ESQ. For Laura Weitz 8 319 Broadway New York, New York 10007 9 MARTIN GEDULDIG, ESQ. 10 For Annette Haley 400 South Oyster Bay Road 11 Hicksville, New York 11801
12 JAMES C. NEVILLE, ESQ. For Scott Michaelson 13 225 Broadway New York, New York 10007 14 THOMAS F.X. DUNN, ESQ. 15 For Steve Rubin 150 Nassau Street 16 New York, New York 10038
17 JOHN S. WALLENSTEIN, ESQ. For Martin Reffsin 18 215 Hilton Avenue Hempstead, New York 11551 19
20 Court Reporter: HARRY RAPAPORT, CSR United States District Court 21 Two Uniondale Avenue Uniondale, New York 11553 22 (516) 485-6558
23 Proceedings recorded by mechanical stenography, transcript 24 produced by Computer-Assisted Transcription 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7755
1 M O R N I N G S E S S I O N
2
3 (Whereupon, the following takes place in the
4 absence of the jury.)
5 THE COURT: Mr. Trabulus.
6 MR. TRABULUS: There is an evidentiary question
7 concerning the admissibility of former testimony given by
8 Elizabeth Sautter.
9 Let me lay out what I believe is agreed by the
10 government and Mr. Gordon on this, and then your Honor can
11 rule on the admissibility of this.
12 Your Honor, I think the government is prepared to
13 agree that Elizabeth Sautter is unavailable. I have
14 spoken to her attorney, Mr. White has spoken to her
15 attorney. I am told if she were called to testify she
16 would assert her Fifth Amendment right on any substantive
17 question relating to Who's Who Worldwide.
18 I understand she is the subject of a grand jury
19 investigation.
20 Mr. White agreed that we don't have to go through
21 the formality of serving her with a subpoena and having
22 her assert her Fifth Amendment rights.
23 April 15th, 1995, Ms. Sautter testified at the 24 probable cause hearing held before Judge Seybert in the 25 civil forfeiture case. She was called by the claimants.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7756
1 She was
examined by the attorney for Who's Who Worldwide,
2 Vivian Shevitz. And she was cross-examined by Assistant
3 United States Attorney Gary Brown.
4 There are certain portions of her testimony which
5 are contained -- which is contained in the entirety in
6 Defendant's Exhibit GE for Identification.
7 I have taken those portions of her testimony
8 which I seek to introduce and outlined them with yellow
9 highlighter. And I have also curled the corners of the
10 page so your Honor in reviewing it can turn to those pages
11 readily.
12 THE COURT: What is the objection to the prior
13 testimony? That it was not taken under the same facts and
14 conditions that would be at the trial, or that the
15 government didn't have a full and fair opportunity to
16 examine the witness or what?
17 MR. WHITE: Your Honor, the government's
18 objection is under the rules the gove
rnment did not
19 have -- because of the specific posture of this hearing,
20 it didn't have the opportunity -- it had the opportunity,
21 but not the similar motive to develop the testimony during
22 the cross-examination and for this reason:
23 Mr. Trabulus is not 100 percent right that it was 24 part of the probable cause hearing. What this was is 25 after the government had made their seizure, was
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7757
1 challenged by Mr. Gordon, it ended up in front of Judge
2 Seybert on this day.
3 On this day, April 19th, Judge Seybert said there
4 is no need for a probable cause hearing.
5 Ms. Shevitz, Mr. Gordon's then attorney indicated
6 to Judge Seybert that she wanted to make a record that the
7 business was in fact shut down. Because as she explains
8 in here that would have triggered in h
er view a specific
9 doctrine in forfeiture law if the government shuts someone
10 down, I think it is called the Statewide Auto Parts case.
11 She said to Judge Seybert I need this testimony to take
12 the appeal.
13 The testimony is with respect to what the current
14 state of the business is on April 19th, 1995.
15 The indictment in this case ends on March 30th,
16 1995. So the government has two -- your Honor, the
17 testimony that Ms. Sautter gives with respect to what she
18 is doing in April of 1995 is not relevant. There is a
19 small part of it where she indicates prior to the
20 government's seizure it was their policy to give refunds.
21 That's the part that the government didn't have a similar
22 motive to cross-examine her about. Because Judge Seybert
23 said this has to do with what the current state of the 24 business is and not what they used to do bef
ore. So we 25 have a dual objective parts of it are irrelevant. Other
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7758
1 parts while relevant, the government didn't have a similar
2 motive to cross-examine.
3 THE COURT: I wish someone told me about this. I
4 know there is one case a key case, the Napoli case, which
5 was known for another fact. The fact that the trial judge
6 allegedly went into the jury room and told the trial
7 jurors to speed up their deliberations. Instead of
8 reversing on that ground, and I don't want to say why,
9 they picture on this former testimony that I believe that
10 became an issue and they went to the Supreme Court on
11 similar motive. And I would have liked to have taken a
12 look at that case.
13 MR. WHITE: I would like to take a look at it,
14 too.
15 MR. TRABULUS: I mentioned to Mr.
White I would
16 be seeking to do this, although I didn't say I would try
17 to do it this morning.
18 Your Honor, I believe the government did have an
19 attack on what Ms. Sautter was saying at the time, the
20 effect of the search and seizure ton if business. In the
21 course of doing that she said the lack of funds prevented
22 her or prevented the business from making refunds.
23 THE COURT: I have to take a look at the 24 transcript and take a look at the law. I certainly can't 25 make a decision on it now.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7759
1 MR. TRABULUS: Certainly.
2 Also the issue to the shutting down of the
3 business is relevant. It bears on the fact that
4 Mr. Gordon was unable to repay the loans.
5 THE COURT: You are bringing this in to show that
6 they made refunds?
7 MR. TRABULUS: Ye
s, and the business was
8 effectively shut down, and members were turned off to the
9 business by the publicity that they indicated they
10 demanded refunds about hearing about the raid, yes.
11 THE COURT: As far as the business being shut
12 down, that would be cumulative. It wouldn't be
13 necessary. There is evidence that the business was shut
14 down. A number of witnesses, as far as I recall,
15 testified to that. Has been repetitive and not relevant
16 really, as to whether the business was shut down or not.
17 This is a criminal case involving mail fraud and other
18 matters. It is not a lawsuit for damages. So whether the
19 business was shut down or not wouldn't be relevant. Even
20 if it were there is enough evidence as to that already.
21 You want to bring in about the refunds. Anything
22 else you want to bring in?
23 MR. TRABULUS: The refund policy and al
so members 24 were disaffected as a result of the raid and as a result 25 of that started demanding refunds.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7760
1 THE COURT: That's not relevant to this case.
2 How is that relevant to a criminal prosecution for mail
3 fraud, which is really that part of the case you are
4 talking about now?
5 MR. TRABULUS: It is relevant in several
6 different respects, your Honor. It is relevant in
7 showing -- I mean, the government has claimed that one of
8 the reasons that the loans were not loans is that there
9 was very limited repayment. And had the business been
10 successful or had the business been allowed to continue
11 the evidence will come out, there is some testimony going
12 to be adduced in the next couple of days that it was
13 anticipated at a certain point in time the company woul
d
14 generate enough income to pay Mr. Gordon a sufficient
15 amount to enable him to both repay the loans and meet his
16 tax liabilities.
17 THE COURT: That's a point. The business being
18 shut down and losing customers as a result of the raid,
19 which you say is relevant on the issue of the loans, which
20 is some of the tax charges.
21 Can I see that?
22 MR. SCHOER: Judge, I think it is also relevant
23 with respect to testing the credibility of the member 24 witnesses. 25 MR. TRABULUS: Right.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7761
1 MR. SCHOER: Because an argument could be made by
2 the defense that the reason that people were dissatisfied
3 was because the business was closed down; the benefits
4 were no longer available; the government notified them
5 that there was this criminal proceeding pe
nding. And I
6 think all those items could be argued and this is relevant
7 with respect to that.
8 MR. TRABULUS: May I hand your Honor Exhibit GE
9 which contains the testimony --
10 THE COURT: Yes.
11 (Handed to the Court.)
12 THE COURT: What is the rule involved,
13 Mr. White?
14 MR. WHITE: 804(b)(1).
15 THE COURT: It is a question of whether you had a
16 similar motive to develop the testimony by direct or
17 cross-examination. I would have to take a look at this.
18 And I believe the case is called Napoli, which I believe
19 went to the United States Supreme Court on this very
20 point, similar motive. I will have to take a look at it.
21 Ready to proceed?
22 MR. WHITE: One other issue.
23 Mr. Wallenstein informed me this morning that 24 Mr. Reffsin may testify today. He was not among the six 25 people that I was told would tes
tify either Monday or
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7762
1 Tuesday. He has got a bunch of complicated accounting
2 charts I had intended for the government's expert witness,
3 Mr. Rosenblatt to be here for this, your Honor, when and
4 if Mr. Reffsin testifies.
5 I would guess if we could at a minimum put him
6 off until tomorrow, or at least put off the government's
7 cross-examination of him until tomorrow.
8 I assumed he would not be up because they listed
9 six other people who would fill up Monday and Tuesday.
10 THE COURT: What are we going to have today?
11 MR. WALLENSTEIN: Judge, I am prepared to call
12 two witnesses in addition to Mr. Reffsin this morning.
13 They are both present and in the witness room now. One is
14 a character witness. I don't anticipate he will be very
15 long.
16 The second o
ne, your Honor, Mr. Razzino, I don't
17 think will be a terribly long witness. I would anticipate
18 an hour tops of Mr. Razzino all combined. My direct is
19 not very long. After that my only witness is
20 Mr. Reffsin. I have no problem with that if he is put
21 over until tomorrow.
22 THE COURT: Do you have a witness here also,
23 Mr. Trabulus? 24 MR. TRABULUS: Yes, I have Mr. Mendelsohn, the 25 trustee in bankruptcy, he is served a subpoena duces
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7763
1 tecum. I don't know how many things he has here, but I do
2 have a tape as well.
3 THE COURT: Any other witnesses here?
4 MR. TRABULUS: I have nobody else beside.
5 THE COURT: We will proceed with Mr. Reffsin 6 today then.
7 I would suggest that you have somebody from your
8 office call Mr. Rosenthal --
9 MR
. WHITE: Rosenblatt.
10 THE COURT: Call Mr. Rosenblatt and have him come
11 here right away. We will proceed with Mr. Reffsin. If we
12 can put your cross-examination over until tomorrow to a
13 reasonable hour, if it can be done I will do it.
14 Otherwise we will go ahead with that as well.
15 MR. NEVILLE: It will work out, Sandra Barnes is
16 coming in tomorrow to testify. She will be here at 1:00
17 o'clock, she is flying in from Arizona.
18 MR. WHITE: You are saying it is good to put the
19 cross-examination over until tomorrow?
20 MR. NEVILLE: I am trying to help out as usual,
21 yes.
22 MR. WHITE: I want to make sure I understand the
23 ground rules. 24 I assumed since he wasn't among the six people 25 listed as witnesses for Monday and Tuesday, he wouldn't be
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7764
1 testifying Monday or Tuesday.
2 Are the ground rules now that the defendants can
3 say they are going to testify, or don't have to say they
4 are going to testify the next day?
5 THE COURT: I don't know what you mean by ground
6 rules. What ground rules are you referring to? I have
7 never put down any rules for the defendants as far as when
8 they should testify.
9 MR. WHITE: I understand that.
10 THE COURT: Where did you get the ground rules
11 from? These are the White ground rules?
12 MR. WHITE: Your Honor, all I meant is that you
13 had asked the defendants at my request to advise the
14 government of the witnesses they would call Monday and
15 Tuesday to follow the procedure that the government
16 followed. All I want to know is your Honor exempting from
17 that request the defendants themselves as witnesses? You
18 see what I mean?
19 THE
COURT: I have no requests, and no
20 exemptions. I have no rules where the defendants are
21 concerned.
22 I request that if they want to they can tell us.
23 They are under no obligation to do so at any time. It is 24 different from your rules in which I asked you 25 specifically to do it.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7765
1 MR. WHITE: I understand that.
2 THE COURT: The difference is the burden of proof
3 in the case, and the fact that the defendants don't have
4 to do anything. They can rest right now and/or any other
5 time. They can change their mind and decide to rest at
6 1:00 o'clock this afternoon.
7 MR. WHITE: I understand that.
8 THE COURT: There are no rules for them.
9 If they want to, and it will accommodate you,
10 they can tell you. But they can change the order of
11 witnesses an
y time they want.
12 MR. WHITE: That's the answer to my question.
13 THE COURT: I don't know where you got the ground
14 rules from. I never made any ground rules.
15 MR. WHITE: I didn't mean that they were your
16 ground rules.
17 All I am saying is I assumed since he wasn't
18 among the six listed that he wasn't going to be called.
19 You are telling me that it is okay for them to say we are
20 going to call these six people and then call somebody
21 else. If that's okay, then fine. I will know that from
22 now on.
23 THE COURT: It is okay because I never said 24 otherwise. 25 MR. WHITE: I wanted to make sure.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7766
1 THE COURT: You just misunderstood it.
2 THE COURT: I thought you asked them who they
3 would call, that they would give a complete answer rather
4 than an incomplete one. If your Honor is saying it
5 doesn't make a difference then I have learned a lesson.
6 MR. WALLENSTEIN: Without belaboring the point,
7 your Honor, Mr. White and I have informally discussed the
8 fact that Mr. Reffsin is going to testify. Obviously he
9 has no obligation to do so. Therefore I did not list him
10 as a witness because he is the defendant.
11 On the other hand Mr. White knew full well he was
12 going to testify in this case.
13 THE COURT: We are wasting a lot of time with
14 idle chatter. Are you ready to go?
15 MR. WALLENSTEIN: I have the two witnesses I am
16 ready to call. In view of Mr. Mendelsohn's presence and
17 Mr. Trabulus' need to talk to him, I will go through my
18 two and perhaps we can take a break so Mr. Trabulus can
19 put Mr. Mendelsohn on. And Mr. Reffsin has to be here
20 anyway.
21 THE COURT: You u
nderstand the law on character
22 witnesses as far as cross-examination, Mr. White? You are
23 familiar with the most recent cases on character 24 witnesses? 25 MR. WHITE: I am, your Honor, there is Oshatz and
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7767
1 you can't ask guilt-assuming hypotheticals.
2 THE COURT: The two key cases are United States
3 against Russo, 110 F.3d 938, and more recently United
4 States against Tamblu, T A M B L U, 134 F.3d 490 decided
5 this year.
6 MR. WHITE: I am aware of the law on
7 cross-examination of characters judge.
8 THE COURT: Very well. Bring in the jury.
9 MR. WALLENSTEIN: I will get my first witness,
10 your Honor.
11 (Whereupon, the jury at this time entered the
12 courtroom.)
13 THE COURT: Good morning, members of the jury.
14 Please be seated.
15 A
gain, you have been diligent and patient. And I
16 assumed since there are no parking spaces, you must have
17 parked in Hofstra University, or in the coliseum across
18 the street. Or perhaps you parked in the Court in
19 Mineola. I don't know where you parked. My goodness, I
20 hear there were a lot of cars out there. But since you
21 get there very early you don't have to worry about that.
22 When I got there there were only two cars in the parking
23 lot, the whole parking lot. 24 I want to thank you again. It is nice to see you 25 after this respite.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7768
1 We are going to continue with the defendant's
2 case, but just one minute.
3 (Whereupon, at this time there was a pause in the
4 proceedings.)
5 THE COURT: You play proceed.
6 MR. WALLENSTEIN: Your Honor, the defense ca
lls
7 John Hall.
8 THE CLERK: Raise your right hand.
9
10 J O H N H. H A L L, J R, ,
11 called as a witness, having been first
12 duly sworn, was examined and testified
13 as follows:
14
15 THE CLERK: Please state your name and spell your
16 last name for the record slowly.
17 THE WITNESS: John H. Hall, Jr., H A L L.
18 THE COURT: Have a seat, Mr. Hall.
19
20 DIRECT EXAMINATION
21 BY MR. WALLENSTEIN:
22 Q Mr. Hall, good morning.
23 Can you tell us what you do for a living? 24 A I am an attorney. 25 Q Where is your practice?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7769 Hall-direct/Wallenstein
1 A In Garden City. I am with the law firm, Shaw,
2 Licitra, Eserino and Schwartz, E S E R I N O.
3 Q And what is your status in the firm?
4 A I am a member.
5 Q That means you are a partner in the firm?
6 A Yes.
7 Q And do you have a particular area of specialty that
8 you practice?
9 A Yes.
10 Q And what is that?
11 A Bankruptcy.
12 Q And for how long have you been practicing law?
13 A Since 1989.
14 Q For how long have you been practicing bankruptcy?
15 A Since 1990.
16 Q And would it be a fair statement that a good portion
17 of your practice is here in the Eastern District?
18 A Yes.
19 Q And are you acquainted with attorneys and accountants
20 who are regularly involved in bankruptcy proceedings in
21 this district?
22 A Yes.
23 Q And do you know Martin Reffsin? 24 A Yes. 25 Q Can you tell us how you know Marty?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7770 Hall-direct/Wallenstein
1 A I met Marty about 1991 when I joined th
is firm, in
2 September of 1990. Marty was the accountant for a client
3 of the firm who had a number of bankruptcy Chapter 11
4 petitions filed.
5 Q And did you have an opportunity to work with Marty in
6 the beginning of 1991?
7 A Yes, I did.
8 Q And can you tell us on approximately how many
9 occasions you had an opportunity to work with him in
10 connection with bankruptcy proceedings?
11 A With respect to the initial cases or over the full
12 period of time.
13 Q Over the full period of time, from then until now.
14 A Initially Marty was the primary accountant for a
15 client of ours. I think we had six chapter 11 proceedings
16 pending. I was involved with that client for a period of
17 about a little over three years. During that time frame I
18 believe I worked with Marty almost daily. The client was
19 a large real estate developer. There we
re many accounting
20 issues, and Marty was involved day to day with those
21 bankruptcy proceedings.
22 After that situation ended I retained Marty for
23 my clients, or recommended them to my clients on a number 24 of occasions over the years. 25 Q Can you tell us, having worked with Marty over the
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7771 Hall-direct/Wallenstein
1 years, what your opinion is of him as an accountant?
2 A Marty is a very professional accountant. He is very
3 astute. He is the type of accountant who can become
4 involved in books and records that are not organized and
5 not sufficient, and get down to the meat of the issue very
6 quickly.
7 Q And is he familiar with the tax laws as they pertain
8 to his accounting practice to your knowledge?
9 A To the best of my knowledge his comments with respect
10 to tax situations has been very good. It has been very
11 professional.
12 Q Now, would it be a fair statement, Mr. Hall, that the
13 function of an accountant who is working for a particular
14 client is to advance that client's position?
15 A With respect to his relationship to the client,
16 actually he is working for the client, so he would be
17 supporting the client's efforts.
18 Q As is the attorney, correct?
19 A As is the attorney.
20 Q Is it a fair statement that the accountant is not in
21 those respects an advocate for the Internal Revenue
22 Service?
23 A No, he is not. 24 Q Now, are you also familiar having worked with Marty 25 over the years, are you also familiar with other people
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7772 Hall-direct/Wallenstein
1 who have known Marty professionally?
2
A Yes, I am.
3 Q And have you had occasion from time to time to
4 discuss Mr. Reffsin with other people, attorneys,
5 accountants or others?
6 A Yes, I have.
7 Q And can you tell us whether or not he has a
8 reputation for truthfulness and honesty?
9 A As I said, he has the reputation as an accountant who
10 can go into a witness, take a look at the economic
11 situation as it relates to that business and come forward
12 with a truthful statement of the economic and financial
13 affairs of that business.
14 Q Would it be a fair statement that he has a good
15 reputation in the professional community for honesty,
16 veracity and truthfulness?
17 A Of the best of my knowledge he has.
18 MR. WALLENSTEIN: Thank you. No further
19 questions.
20 Your witness, Mr. White.
21
22 CROSS-EXAMINATION
23 BY MS. SCOTT: 24 Q Good
morning, Mr. Hall. 25 Now, you have testified that Mr. Reffsin is very
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7773 Hall-cross/Scott
1 professional and astute when it comes to evaluating
2 people's tax matters?
3 A I said with respect to all accounting, not
4 specifically tax.
5 Q Is it fair to say that you trusted Mr. Reffsin to
6 catch any errors that might have been made in a person's
7 accounting?
8 A That's usually why I would retain him or suggest that
9 he be retained by my clients because of his truthfulness
10 and his ability to take a look at records and accounting
11 systems and come to the meat of the situation.
12 Q And it was your belief that Mr. Reffsin always had
13 the capacity to see a mistake or an inconsistency in
14 accounting information that he was considering; is that
15 correct?
16 MR
. WALLENSTEIN: Objection.
17 THE COURT: Overruled.
18 MR. WALLENSTEIN: Form of the question.
19 THE COURT: Overruled.
20 A Yes.
21 Q Now, you stated that Mr. Reffsin impressed you as
22 someone familiar with the tax laws; is that correct?
23 A Yes. 24 Q And he had full knowledge of the requirements of the 25 tax laws to?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7774 Hall-cross/Scott
1 A The extent I would expect of an accountant, yes. Not
2 an attorney.
3 Q You also said that the accountant is an advocate for
4 the client that the accountant is representing; is that
5 right?
6 A Yes. I said that an accountant who is working for a
7 client is looking after his client's best interests.
8 Q Is it fair to say that Mr. Reffsin was a -- that he
9 worked zealously to further his client's interests?
10 A Yes.
11 Q Now, although an accountant is supposed to further
12 his client's best interest, nevertheless an accountant
13 should also provide accurate information regarding a
14 client's finances; is that correct?
15 A Yes.
16 Q Particularly an accountant should always provide
17 accurate information about the client's finances to the
18 Internal Revenue Service; is that correct?
19 MR. WALLENSTEIN: Objection.
20 THE COURT: Overruled.
21 A I would believe -- I would state, yes, an accountant
22 in respect to the numbers and figures they are working
23 with, that he should provide accurate information. 24 Q So that even if the client were telling the 25 accountant to provide false information, the accountant
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7775 Hall-cross/Scott
1 should nevertheless provide accurate inform
ation; is that
2 correct?
3 A Yes.
4 Q That's the accountant's duty; is that right?
5 A That's the accountant's duty.
6 Q Now, is it also fair to say that if a client requests
7 the accountant to do something illegal on behalf of the
8 client, that the accountant should make a full disclosure
9 and proceed in a legal fashion; is that correct?
10 MR. WALLENSTEIN: Objection.
11 THE COURT: As to the form, sustained. I don't
12 know what full disclosure means.
13 MS. SCOTT: I will move on.
14 Q Mr. Hall, are you familiar with the charges in this
15 case?
16 A Vaguely.
17 Q But you are not aware of any of the facts underlying
18 any of the charges, are you?
19 A Not to any great extent.
20 Q You don't have any personal knowledge of the facts
21 underlying --
22 A No, I do not.
23 Q You are not familiar with the governme
nt's proof in 24 this case, are you? 25 A No, I am not.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7776 Hall-cross/Scott
1 Q You have not been present in the courtroom over any
2 of the past nine weeks in this courtroom; is that correct?
3 A That's correct.
4 Q And so, you have not heard any of the testimony or
5 proof that has come out over the past nine weeks in this
6 trial, have you?
7 A I have not heard anything.
8 Q By the way, you were never a bankruptcy judge; is
9 that right?
10 A That's right.
11 THE COURT: Bankruptcy judge you said?
12 MS. SCOTT: I was clarifying a factual matter.
13 THE COURT: Not to my knowledge, he wasn't.
14 THE WITNESS: No, I wasn't.
15 MS. SCOTT: That's all I have.
16 MR. WALLENSTEIN: Thank you very much.
17 THE COURT: You have been almost promoted.
18
THE WITNESS: Thank you, your Honor.
19 THE COURT: I think it is a promotion anyway.
20 (Whereupon, at this time the witness left the
21 witness stand.)
22 THE COURT: You may proceed.
23 MR. WALLENSTEIN: I have to get my next witness. 24 I have no men in suits to help me. 25 THE COURT: Touche, Mr. Wallenstein.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7777
1 Right, Mr. White?
2 MR. WHITE: I guess I have to agree, your Honor.
3 (Whereupon, at this time there was a pause in the
4 proceedings.)
5 MR. WALLENSTEIN: Your Honor, the defense calls
6 Vincent Razzino.
7 THE COURT: Raise your right hand. Do you want
8 to rise, please.
9
10 V I N C E N T R A Z Z I N O ,
11 called as a witness, having been first
12 duly sworn, was examined and testified
13 as follows:
14
15 THE
COURT: Please be seated. State your full
16 name and spell your last name.
17 THE WITNESS: Vincent Razzino, R A Z Z I N O.
18
19 DIRECT EXAMINATION
20 BY MR. WALLENSTEIN:
21 Q Good morning, Mr. Razzino.
22 A Good morning.
23 Q Tells what you do for a living? 24 A I am a certified public accountant. 25 Q What is your present status? What is your present
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7778 Razzino-direct/Wallenstein
1 firm?
2 A I am a partner with Reffsin and Razzino.
3 Q And your partner is Marty Reffsin, the defendant in
4 this case; is that right?
5 A That's correct.
6 Q Can you tell us how long you have been a certified
7 public accountant?
8 A Since 1978.
9 Q Where did you go to school?
10 A Bernard Baruch college, City University of New York.
11 Q And from 1978
until the present, can you give us
12 briefly your professional history.
13 A Yes.
14 When I graduated from college I went directly to
15 the accounting firm of Peat Marwick Mitchell, P E A T.
16 THE COURT: Peat what?
17 THE WITNESS: Peat Marwick Mitchell, where I
18 spent nine years with the firm.
19 Q Is that a large accounting firm?
20 A At that time it was one of the big eight accounting
21 firms.
22 Q Can you tell us what the big eight accounting firms
23 are? 24 A What they are? 25 Q In layman terms?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7779 Razzino-direct/Wallenstein
1 A I guess they are the premier accounting firms in the
2 world, the largest.
3 THE COURT: Didn't two of them just merge?
4 THE WITNESS: Yes.
5 THE COURT: To become the very largest?
6 THE WITNESS: They have
become the big four, I
7 believe, at this time.
8 THE COURT: The big four, all right.
9 Q How long were you then with the big eight firm of
10 Peat Marwick?
11 A I spent nine years with them.
12 Q When did you leave them?
13 A In November of 1985.
14 Q What did you do when you left them?
15 A I joined one of their clients as CFO, the chief
16 financial officer.
17 Q And how long were you a CFO for that firm?
18 A For that firm, four years.
19 Q And after that?
20 A I spent the next two years with two other firms, two
21 other privately held companies.
22 Q Can you tell us what those companies were?
23 A One was a plumbing distributor. The other was a 24 provider of examinations for executives. 25 Q And subsequent to that?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7780 Razzino-direct/Wallenstein
1 A Subsequent to that I went to practice for myself.
2 Q You are familiar with the law firm of Rivkin Radler
3 and Kremer?
4 A Yes, I am.
5 Q And did you ever work for that firm?
6 A Yes, I did. I was their chief financial officer for
7 four years.
8 Q Can you tell us when you met Mr. Reffsin?
9 A I was introduced to Mr. Reffsin by a mutual friend in
10 I would say early 1994.
11 THE COURT: Early 1994?
12 THE WITNESS: Yes.
13 Q Did you begin at that point in time to work with him
14 on occasion?
15 A On occasion, yes, on a per diem basis I worked with
16 him.
17 Q And at some point the two of you decided to form a
18 partnership; is that correct?
19 A Yes. In July of 1995.
20 Q You have been partners since that time?
21 A Yes.
22 Q Now, in 1994, prior to the formation of the
23 partnership, you had occ
asion to work with Mr. Reffsin on 24 a per diem basis; is that correct? 25 A Yes, I did.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7781 Razzino-direct/Wallenstein
1 Q Did you have any occasion to do any work for
2 Mr. Reffsin's company with respect to a client known as
3 Who's Who Worldwide Registry, Inc.?
4 A Yes, I did.
5 Q Can you tell us what work you were doing for Who's
6 Who and just in general the time frame that you were doing
7 it?
8 A In general the time frame was from August of '94
9 through March of '95.
10 Q Did you have occasion to visit the offices of Who's
11 Who in Lake Success?
12 A Yes.
13 Q On how many occasions?
14 A There were a total of nine occasions in 1994.
15 Q And can you give us the inside and outside dates of
16 those occasions?
17 A The early parts of the four d
ays of that was in
18 August of 1994, and the balance was in November or
19 December, I would say split evenly between November and
20 December of 1994.
21 Q Is it a fair statement that you are familiar with
22 that because you reviewed your time sheets with respect to
23 it? 24 A Yes. 25 Q And are you acquainted with Maria Gaspar?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7782 Razzino-direct/Wallenstein
1 A I worked with her at the time I was at Who's Who on
2 site.
3 Q And she was an employee of Who's Who, correct?
4 A That's correct.
5 Q And would it be fair to say that she was the -- she
6 held the position of controller or chief financial
7 officer?
8 A I believe so. That was her title.
9 Q And did you have occasion -- can you tell us what her
10 function was with respect to the books of Who's Who
at
11 that time?
12 A She handled the day to day bookkeeping tasks of the
13 corporation.
14 Q Can you tell us what those are?
15 A She would handle the incoming checks, write deposits,
16 prepare checks, filing, that kind of a thing.
17 Q And when you would interact with her at Who's Who,
18 what was the purpose of your review?
19 A We would prepare a report on the six month activity
20 of the corporation.
21 Q Can you explain in non-accounting terms for those of
22 us who can't understand accounting terms.
23 A We had to put in financial statement form the 24 activity of the corporation for the six months. So it 25 would be reporting on their revenues or disbursements or
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7783 Razzino-direct/Wallenstein
1 expenses.
2 Q Did you do a thorough review of the books at that
3 time, or were you relying on something else in the
4 preparation of your report?
5 A Normally in the level of service we were providing
6 for them we would rely on the work prepared by the client.
7 Q In this case it would be Maria Gaspar?
8 A Yes.
9 Q Did you have occasion while you were at Who's Who to
10 have conversations with Maria Gaspar?
11 A Yes, sure.
12 Q Did you have occasions when you were functioning your
13 functions with respect to the Who's Who books to evaluate
14 her work as a bookkeeper or an accountant at some level?
15 A Certainly we would see the results of her work.
16 Q Can you give us your evaluation of her work as a
17 bookkeeper?
18 A I found a number of errors when we went through the
19 bank reconciliations.
20 Q Can you describe some of those errors that you found?
21 A There were a number of occasions where
entries were
22 made opposite -- in an opposite direction of the way they
23 should have been. 24 Q Can you explain what you mean by that and what the 25 significance of that is?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7784 Razzino-direct/Wallenstein
1 A Well, if I can put it in layman terms, a revenue item
2 might be classified as opposite or negative expense item,
3 and vice versa.
4 Q Would it be fair to say that she classified money
5 coming in as money going out?
6 A That's fair.
7 Q That's layman terms for what you just said?
8 A Yes. But it wasn't just relegated to revenue type
9 items. Also on the expense side.
10 Q What type of other items were involved?
11 A Well, we had -- I am trying to recollect now. There
12 were maybe return items recorded in the wrong way.
13 Q Returns of goods?
14 A
Yes, goods and services, yes.
15 Q And when you -- withdrawn.
16 Were these the type of errors that one would
17 expect of someone who claimed to be the equivalent of a
18 certified public accountant?
19 A No. I wouldn't expect those.
20 Q Would it be fair to say that these are the types of
21 errors that would not even be made by someone with a solid
22 bookkeeping background?
23 A I think the errors -- I don't think you would expect 24 them from a solid experienced bookkeeper. 25 Q Is it fair to say that the types of errors that you
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7785 Razzino-direct/Wallenstein
1 determined Maria Gaspar made in the books of Who's Who
2 were the types of mistakes that would be made by someone
3 who was not a competent bookkeeper? Would that be a fair
4 statement?
5 A Yes, I think so.
6 Q We are not talking about a mistake made in adding a
7 column of figures that anybody can make? We are talking
8 about fundamental errors in classifying entries in the
9 books; is that correct?
10 A That's correct.
11 Q Did you ever have occasion to point out to her the
12 errors she was making to in essence criticizing her work?
13 A Yes. I pointed out every case of that that I came
14 upon.
15 Q And what was her reaction, if you can recall?
16 A Well, I put it to her very cordially. I don't think
17 she had very much of a reaction. I told her she needed to
18 make correcting entries.
19 Q You pointed out to her the specific errors she made?
20 A Yes.
21 Q Now, she was aware at that time -- withdrawn.
22 This was in August of 1994; is that correct?
23 A Yes. 24 Q And she knew at that time that you were acting on 25 behalf of Mr. Reffsi
n; is that correct?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7786 Razzino-direct/Wallenstein
1 A Yes.
2 Q By the way, in giving us your background earlier, are
3 you familiar with the subspecialty, if you will, of an
4 accountant in litigation support?
5 A Yes.
6 Q Could you describe that for the jury?
7 A Many times an attorney will ask for help in gathering
8 information about a case, where they have a little
9 experience in financial matters. So you go in and examine
10 books and records, accumulate information, and put it into
11 a form that the attorney can use the support -- to
12 support the client's case.
13 Q Is it fair to say that that function involves taking
14 raw data sometimes from an adversary and putting it into a
15 form to be used in the context of litigation?
16 A Yes.
17 Q And to explain i
t so that even attorneys can
18 understand it? Would that be a fair statement?
19 A As difficult as that could be, yes.
20 Q And have you had occasion to perform litigation
21 support for attorneys on occasion?
22 A On occasion I have, yes.
23 Q And do you still do that from time to time? 24 A From time to time. 25 Q Are you familiar with the loan and exchange accounts
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7787 Razzino-direct/Wallenstein
1 as used in the books of Who's Who Worldwide in 1994?
2 A I certainly was privy to the accounting entries that
3 went through the account, yes.
4 Q Can you describe what a loan and exchange account is,
5 what its use is and function is on the books of a
6 corporation?
7 A Many times there are activities, either receipts or
8 disbursements of a company that management has not decide
d
9 quite what they want to do with it, if it is in the nature
10 of a loan to an officer, or what might ultimately become
11 compensation to an officer or employee. It is almost a
12 suspense time account.
13 Q What do you mean by suspense account?
14 A It is a holding case where you put monies which were
15 perhaps disbursed which were in the loan of an individual,
16 and upon subsequent facts might turn out to be
17 compensation. But normally a loan account is set up for
18 loans.
19 Q Would it be a fair statement also that a loan and
20 exchange account when used as a suspense account is a
21 place to record entries that the bookkeeper is not
22 otherwise familiar with at the time the entries are made?
23 A Many times a bookkeeper may not know what to do with 24 a particular transaction and they might put it into a loan 25 account, particularly if it is o
n behalf of an officer or
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7788 Razzino-direct/Wallenstein
1 owner of a company.
2 Q And can you tell us what your function was with
3 respect, or the firm's function was with respect to the
4 loan and exchange accounts of Who's Who when doing the end
5 of the year books?
6 A We are not performing an audit, so we didn't go into
7 the underlying transactions in terms of whether -- what
8 the nature of them -- they were in particular.
9 Normally the client would come to us and tell us
10 that it was in fact a loan, which would then give us the
11 ability to leave it in that account as it is stated.
12 Q If the client said it was income it would go into a
13 salary or 1099 type account?
14 A If the client said it was income it would be
15 classified as income.
16 Q Would it be fair
to say in those circumstances the
17 accountant relies on the client's interpretation of the
18 underlying purpose of the entry rather than doing an audit
19 to determine what they really are?
20 A That's correct. You would not audit the
21 transactions. We are not engaged to do that.
22 Q If the client says it is a loan, we will pay it back,
23 you call it a loan and have no reason to inquire further; 24 is that correct? 25 A That's correct.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7789 Razzino-direct/Wallenstein
1 Q And so, you said you were not performing an audit.
2 Can you tell the jury what an audit is and under what
3 circumstances you would perform an audit?
4 A Well, an audit -- an audit is the highest level of --
5 the highest level of service that an accountant can
6 provide to a client. It really is looking at not o
nly
7 superficially entries, or looking at activity through the
8 eyes of the ledger, but you also go underneath those
9 transactions, you look at paper, documents to support the
10 transactions.
11 You look at more detailed records and you have to
12 give an opinion as to whether the company was in effect
13 fairly stating, or accurately stating -- technically, it
14 is fairly stating -- the results of the activity of the
15 corporation.
16 Q Under what circumstances would you audit the
17 corporate books?
18 A Audits are requested in a variety of situations.
19 They are required by law in many instances. Publicly held
20 companies, for instance, must be audit. Privately held
21 companies many times are not audited. They are only
22 audited if requested to do so by third parties. For
23 example, banks might ask them to have their statements 24 audit
ed or other creditors. Otherwise they are not very 25 common in privately held companies.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7790 Razzino-direct/Wallenstein
1 Q And Who's Who Worldwide was a privately held company;
2 is that right?
3 A As far as I was aware, yes.
4 Q And were you in the offices of Reffsin and Razzino in
5 January of 1996 when the offices were visited by postal
6 inspectors or other authorities?
7 A I don't recall if it was January specifically, but I
8 was in the office on one occasion when I was visited by a
9 postal inspector.
10 Q Was Mr. Reffsin present at that time?
11 A No.
12 Q Can you describe what happened.
13 A Well, I got a knock on the door. I asked who it
14 was. He identified himself as a postal inspector. So I
15 opened the door. Three gentlemen came rushing in. They
16 as
ked me who I was, where Mr. Reffsin was, and my -- what
17 my relationship was with Mr. Reffsin.
18 Q Can you describe your attitude?
19 A I tell you when gentlemen of that credentials come
20 into your office it is quite intimidating. I was
21 intimidated.
22 Q Do you recall the names of any of the individuals?
23 A Only one in particular. 24 Q And that would be? 25 A Mr. Biegelman.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7791 Razzino-direct/Wallenstein
1 Q And can you tell us what Mr. Biegelman said to you
2 and what Mr. Biegelman's attitude towards you was at that
3 time?
4 A I was very uncomfortable. As I said, he was
5 intimidating. He was very aggressive, not a very nice
6 man. That's all I can say about that. It wasn't a
7 pleasant experience.
8 Q And it would be a fair statement that you had nothing
9 whatsoever to do with whatever it was that he was looking
10 for at that time, and he didn't even want to talk to you,
11 he wanted to talk to Mr. Reffsin; is that correct?
12 A That's correct. He asked what my relationship was
13 and my involvement with Who's Who. And that was that.
14 Q Okay.
15 Would it be a fair statement that you have from
16 time to time in the course of your practice had some
17 involved with authorities from the Internal Revenue
18 Service?
19 A Yes.
20 Q And you participated in audits and examinations of
21 books of clients with the IRS?
22 A Yes.
23 Q And were those situations as intimidating as 24 Mr. Biegelman's visit? 25 A No, not at all.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7792 Razzino-direct/Wallenstein
1 MR. WALLENSTEIN: Thank you.
2 Nothing further.
3 MR. WHITE: Your Honor, may I proceed?
4 THE COURT: Yes.
5
6 CROSS-EXAMINATION
7 BY MR. WHITE:
8 Q Mr. Razzino, my name is Ron White. I am one of the
9 prosecutors in this case.
10 We have never met before, have we?
11 A No.
12 Q I want to ask you about your work with Maria Gaspar.
13 Now, that was for a very short period of time,
14 wasn't it?
15 A Yes. About four days in August, about 40 hours worth
16 of time, as I recall.
17 Q Now, you indicated -- let me make sure I understand
18 the process by which the books of Who's Who were being
19 prepared insofar as you could tell.
20 You said that Maria Gaspar would do stuff like
21 prepare the checks and note bank deposits and things like
22 that; is that right?
23 A Yes. 24 Q And she would make some sort of preliminary 25 indication, would she not, as to what
account those
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7793 Razzino-cross/White
1 expenses should go in?
2 A Yes. She would code the transactions.
3 THE COURT: She would what?
4 THE WITNESS: Code them to a particular account.
5 THE COURT: C O D E?
6 THE WITNESS: C O D E.
7 Q Now, you reviewed Mr. Gordon's loan and exchange
8 account, did you not?
9 A Not for specifics, no, not the specifics.
10 Q Now, after Maria Gaspar would code the accounts, you
11 or someone else from Mr. Reffsin's firm would come into
12 Who's Who periodically and review that; is that right?
13 A Yes.
14 Q And when you were doing that was anyone else working
15 with you?
16 A Yes.
17 Q And who was that?
18 A We had a couple of junior accountants who worked with
19 us.
20 Q Do you remember their names?
2
1 A Yes. One was Lori.
22 Q Lori Shekailo?
23 THE COURT: Spell that? 24 S H E K A I L O; is that right? 25 THE WITNESS: I believe so. To be honest, I do
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7794 Razzino-cross/White
1 not remember.
2 Q Who else did you work with?
3 A Bill Clark.
4 Q Did you ever work with a man named Michael Hynes,
5 H Y N E S?
6 A No, not at Who's Who.
7 Q Do you know that he did like you, per diem work for
8 Mr. Reffsin's firm?
9 A I understand that.
10 Q Okay.
11 Now, when you or someone else from Mr. Reffsin's
12 firm would go into Who's Who to review the books, you
13 would decide what account things went into, right?
14 A No.
15 Q If Maria Gaspar had improperly coded something, you
16 would correct the error, right?
17 A After discussion with the pr
oper individual at the
18 client.
19 Q Okay.
20 Give us an example of what you are talking
21 about.
22 A Well, the example would be with the loan account as
23 mentioned before, if I were to challenge an entry there 24 and asked a question about it, depending on the answers 25 that you would get, you would gather up as many facts as
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7795 Razzino-cross/White
1 you could about the nature of the transaction and then
2 discuss the appropriate accounting with the client before
3 you booked an entry to correct.
4 Q So I am confused.
5 Did you or did you not work on Mr. Gordon's loan
6 account?
7 A No, not in the specific transactions, no.
8 Q Well, as part of the review of the books, did you
9 review Mr. Gordon's loan account among others?
10 A No, I didn't.
11 Q So, you never reviewed anything at all to do with
12 Mr. Gordon's loan account?
13 A That's correct.
14 Q So, the example you just gave before was an example
15 and did not happen?
16 A Yes. An example.
17 I will give you one that did happen on security
18 deposits for example.
19 Q I just wanted to make sure I understand.
20 Once you had asked the relevant questions of the
21 relevant people, you make a determination, correct, of
22 what account it should be in?
23 A Generally we make the -- we advise the client as to 24 what we think the entry should be, the proper entry. 25 Q Okay.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7796 Razzino-cross/White
1 A It is usual with the client's acquiescence.
2 Q I want to know exactly what you are doing.
3 When you are at Who's Who Worldwide, you got an
4
entry that you think Maria Gaspar got down wrong. You go
5 and ask the relevant people what the facts are. You find
6 that out. Then what do you personally actually do?
7 A I prepare an entry and go over it with the client
8 before it actually gets handed to them --
9 THE COURT: Go over with the client before it
10 what?
11 THE WITNESS: Before it actually gets posted to
12 the books and records.
13 Q You said you went over it with the client. Who would
14 you go over it with?
15 A The first person would be Maria Gaspar. Most of the
16 questions I had were with Maria Gaspar.
17 Q And so, would it be fair to say that you would show
18 or explain to Maria Gaspar how she made an error and how
19 it should be in a different account?
20 A Yes.
21 Q Now, by the time you end up leaving is it fair to say
22 that as far as you can tell, everything is in the ri
ght
23 account now? 24 MR. WALLENSTEIN: Objection to the form of the 25 question.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7797 Razzino-cross/White
1 THE COURT: Sustained as to form.
2 MR. WHITE: Let me ask it a different way.
3 Q Did you correct any errors that you saw?
4 A We addressed every error that we saw, yes.
5 Q As far as you knew when you were finished doing the
6 books, they were as accurate as they could be?
7 A Yes.
8 Q So, therefore, then, if Maria Gaspar made any
9 mistakes you or somebody else from Mr. Reffsin's firm, in
10 all likelihood ended up correcting it?
11 A To the extent that we identified them, yes.
12 Q Is it correct one of the ways you would correct
13 things is by making adjusted journal entries?
14 A Yes.
15 Q That's where if she has it in a wrong column you make
16 an adjustment entry saying this should come out of column
17 A and go into column B; is that right?
18 A Yes.
19 Q And so, at the end of the year, December 31st of each
20 year, when you look at the books and records of Who's Who,
21 insofar as you could -- as you were concerned, they were
22 as accurate as could be; is that right?
23 A As far as -- yes, exactly. 24 Q Now, do you have any idea who if anyone give Maria 25 Gaspar instructions how to record things that you thought
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7798 Razzino-cross/White
1 were in error?
2 A I am not sure I understand the question.
3 Q Let me break it down.
4 You are there at Who's Who and you find an error
5 in Maria Gaspar's posting of something to an account; is
6 that right?
7 A Yes.
8 Q Do you have any idea if she did it on her
own or
9 somebody told her to do it that way?
10 A No.
11 Q Okay.
12 A Normally --
13 Q That's okay.
14 For example, you have no idea if Mr. Reffsin gave
15 her instructions how to record certain expenses of the
16 business, do you?
17 A No.
18 Q You don't know if Mr. Gordon gave her instructions
19 how to record items in the books and records, do you know?
20 A No.
21 Q Do you know what if any instructions Mr. Reffsin gave
22 to Mr. Gordon -- let me back up.
23 Do you know what instructions if any, Mr. Reffsin24 gave to Maria Gaspar how to record the company's statement 25 of Mr. Gordon's American Express bill?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7799 Razzino-cross/White
1 A No, I wouldn't be privy to that.
2 Q Talk about the loan and exchange account.
3 As you said before you
didn't have anything to do
4 with Mr. Gordon's loan and exchange accounts?
5 A No. It was there. The work papers were prepared.
6 But that wasn't my area.
7 Q Now, do you recall at Who's Who there was more than
8 one loan and exchange account?
9 A I believe so. I believe there was more than one.
10 Q There was one that was called Mr. Gordon's loan and
11 exchange account, and there were a couple of others,
12 right?
13 A I don't recall a couple of others.
14 Q Let me show you Government's Exhibit 661 in
15 evidence. And that's the trial balance for Who's Who
16 Worldwide for the end of the year 1993; is that right?
17 (Handed to the witness.)
18 A Yes.
19 Q Do you see the account 1200 where it says loan and
20 exchange BG?
21 A Yes.
22 Q And underneath that there is a whole series loan and
23 exchange accounts; is that correct?
24 A I see two others. 25 Q Take a look now at Government's Exhibit 662 in
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7800 Razzino-cross/White
1 evidence, which is the trial balance as of September '94,
2 and underneath Mr. Gordon's loan account are there other
3 loan and exchange accounts?
4 A Yes. There are three others.
5 Q Okay.
6 Would it suggest to you as a C.P.A. for almost 20
7 years that if items were specifically placed in
8 Mr. Gordon's loan account as opposed to some of the other
9 loan accounts that they were somehow attributable to him
10 as opposed to just up in the air?
11 MR. TRABULUS: Objection to form, your Honor.
12 THE COURT: Sustained.
13 Q Would it suggest to you that things that were put in
14 his loan account were there because they were attributable
15 to him?
16 A On the surface
the answer to that would be yes. But
17 that, of course, was subject to the bookkeeper putting it
18 there.
19 Q If it ended up in the general ledger each year,
20 that's because you and other people of Mr. Reffsin's firm
21 reviewed it; is that right?
22 A I don't know if those particular trial balances you
23 showed me were before or after our review. 24 Q But ultimately when you have the year end books, they 25 are after you and others from Mr. Reffsin's firm had
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7801 Razzino-cross/White
1 reviewed it; is that right?
2 A Not necessarily so. The client prepares a trial
3 balance at the end of the year. That trial balance is
4 usually the starting point of our review. So those trial
5 balances you showed me could be at the beginning of our
6 review process and not at the end.
7
Q Then you go and make your adjusting journal entries
8 and ultimately you decide what things go in what accounts;
9 is that right?
10 A We would review certain key accounts. If there are
11 errors we would discuss it with the client. Appropriate
12 adjustments would be recommended and made.
13 Q You said in response to Mr. Wallenstein that the
14 client would tell you if it were a loan or tell you if it
15 was income or compensation to him; is that right?
16 A It is a normal procedure.
17 Q And let me ask you, if a client told you that this
18 was a loan, you would presumably record it on the books as
19 a loan; is that right?
20 A Yes.
21 Q Now, if a client were borrowing a lot of money and
22 was already in debt up to his eyeballs and wasn't paying
23 it back regularly, would you begin to question as to 24 whether or not it was really a loan, even though
he told 25 you it was?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7802 Razzino-cross/White
1 MR. WALLENSTEIN: Objection.
2 THE COURT: Overruled.
3 Q You can answer the question.
4 A Could you repeat the question, please?
5 Q If a client was borrowing a lot of money and already
6 had millions of dollars in debt and it wasn't paying back
7 those loans to the corporation in any substantial amount,
8 would you begin to question as to whether or not they were
9 really loans, even if he told you that they were?
10 MR. WALLENSTEIN: Objection.
11 THE COURT: When you say "question", what does
12 that mean? In his mind or by doing something?
13 MR. WHITE: My question is, how would he
14 categorize it, as a loan or income?
15 THE COURT: Did you hear the question?
16 THE WITNESS: I did, and I have a question back.
17 I don't understand.
18 THE COURT: Listen, if you don't understand say
19 so and the lawyer will rephrase it.
20 You don't understand that?
21 THE WITNESS: Is this a hypothetical question?
22 Q Yes.
23 A Normally when you say he is up to his neck or 24 whatever in debt, is that corporate debt? Is this 25 personal debt?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7803 Razzino-cross/White
1 Q Let me break down the question for you.
2 You have someone who is the principal of a
3 corporation, okay.
4 Are you with me so far?
5 A Yes.
6 Q And he is borrowing money from his corporations, not
7 on one lump sum, but a rolling basis to pay his personal
8 expenses. Okay?
9 A Yes.
10 Q He has his company paying his American Express bills,
11 his car leases, his rent, okay?
12 That same person, it
s principal has millions of
13 dollars of personal debt to the Internal Revenue Service
14 and to a whole bunch of other parties.
15 Now, in reviewing the books you don't see any
16 substantial repayments of those amounts, okay?
17 So, you go to the client and ask him about it,
18 and he says, no, they are loans.
19 Now, under those circumstances, notwithstanding
20 the fact that he says they are loans, are you going to
21 record them as loans, or are you going to think of it as
22 income?
23 MR. TRABULUS: Objection. 24 MR. WALLENSTEIN: Objection. 25 MR. WHITE: Your Honor, this is
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7804 Razzino-cross/White
1 cross-examination.
2 THE COURT: One of the items in the hypothetical
3 question, I don't know if there was any evidence that he
4 was substantially in debt other tha
n to the IRS. I don't
5 know where you got that from.
6 MR. WHITE: Your Honor, it is listed on the 433's
7 that Mr. Gordon submitted.
8 THE COURT: What is listed?
9 MR. WHITE: Numerous other debts of tens of
10 hundreds of thousands of dollars.
11 THE COURT: What is the nature of the objection?
12 MR. TRABULUS: Mine was to form, your Honor.
13 THE COURT: In what way?
14 MR. TRABULUS: Also, your Honor, it assumed there
15 was no substantial repayment. I don't think that has been
16 established.
17 THE COURT: That objection is overruled.
18 Did you object, Mr. Wallenstein?
19 MR. WALLENSTEIN: Yes. My objection is that
20 number one, the hypothetical assumes he knows about the
21 personal debt. Number two, the form of the ultimate
22 question was: Do you record it as a loan after the client
23 tells you, or do you think it is income? And I don'
t 24 think it matters what he thinks. That's the basis of my 25 objection.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7805 Razzino-cross/White
1 THE COURT: That's the question, do you think it
2 is income?
3 MR. WALLENSTEIN: Yes.
4 THE COURT: Sustained.
5 MR. WHITE: I will change it.
6 Q Do you record that as a loan or do you record that as
7 income?
8 THE COURT: Well --
9 MR. WHITE: Your Honor, this is
10 cross-examination. I didn't interrupt their
11 cross-examination of other witnesses.
12 THE COURT: I think you did from time to time.
13 MR. WHITE: Not for questions like this, your
14 Honor.
15 MR. TRABULUS: My objection is that it is a
16 limited alternative, your Honor.
17 THE COURT: Mr. White, not only do they have a
18 right to do that. But they have an obligation to do it.
19 They have to do it.
20 MR. WHITE: Your Honor, I am just asking for the
21 same latitude that they have.
22 THE COURT: Whether you like it or not, just as
23 you did. 24 Now what is the nature of the objection? 25 MR. TRABULUS: Limited alternatives that it all
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7806 Razzino-cross/White
1 has to be recorded one way or another way.
2 THE COURT: Overruled.
3 Q Clear now?
4 Let me ask you the question.
5 Under those circumstances that I outlined, would
6 you record that as a loan or as income or compensation?
7 A Normally the clients indication that it is a loan
8 would be enough for it to remain as a loan on the books
9 and records of the company. If it is a matter of intent
10 of the client to repay. If it is his intention to repay,
11 then that's the way it would b
e classified.
12 Q Okay.
13 Are there ever circumstances that the facts may
14 indicate to you something different than -- let me
15 rephrase the question.
16 Q Would there ever be a circumstance that even though
17 the client told you he intended to repay it, the facts
18 were such that you would conclude that it wasn't really a
19 loan.
20 MR. TRABULUS: Objection.
21 MR. WALLENSTEIN: Objection.
22 THE COURT: Sustained.
23 Q Is it your testimony that under those circumstances 24 that I described before, if notwithstanding those, the 25 client says, no, that's the loan, you would still record
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7807 Razzino-cross/White
1 it as a loan? I wanted to make sure I understood your
2 question right.
3 A In your hypothetical example, yes, it would be a
4 loan.
5
Q Now, let me ask you a question.
6 If the client has substantial loans from his
7 corporations and is expecting to earn substantial amounts
8 from his corporation in compensation, such that they might
9 eventually cancel each other out, is the amount that he
10 expects to earn as compensation, would that be income?
11 MR. TRABULUS: Objection, your Honor.
12 THE COURT: Sustained.
13 MR. WHITE: I am not sure I understand why, your
14 Honor.
15 THE COURT: I don't understand the question.
16 Do you, Mr. Razzino?
17 THE WITNESS: No, I don't.
18 THE COURT: I didn't know what that meant. In
19 plain English.
20 MR. WHITE: I am sorry. I will rephrase it.
21 Q Let me use some numbers to be clear.
22 An individual owes the corporation let's say half
23 a million dollars. He expects sometime in the future that 24 his company will pay him compensation,
salary of 25 approximately half a million dollars, okay?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7808 Razzino-cross/White
1 A Okay.
2 Q Now, his intent is that at that time when they pay
3 him the half a million dollars -- when it comes time for
4 him to take the half a million, they would just cancel
5 each other out. He says, don't pay me the half a million,
6 but my debt to the corporation is cancelled out. Okay?
7 You are with me?
8 A So far.
9 Q Okay.
10 Now, the half a million that he expects in
11 salary, would that be income?
12 MR. TRABULUS: Objection. At what point in
13 time? Then or when he gets it?
14 THE COURT: I am assuming technically the company
15 makes a check out for 500,000, or would have made a check
16 out to the employee for 500,000, less deductions, or not
17 less deductions
, and the employee either pays the 500,000
18 back to the company, or says don't pay me the 500,000. I
19 assume that I earned it, but I am turning it over to the
20 company. That would be income to the man?
21 THE WITNESS: Yes, income to the individual at
22 that point when he earned it.
23 Q When he earned it, okay. 24 Now, let's take, if prior to the time he expected 25 to earn this money, he prepared a projection of his
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7809 Razzino-cross/White
1 income. If at the time he is preparing the projection he
2 expects to earn this money in the future, that should be
3 listed on that projection, right?
4 MR. WALLENSTEIN: Objection.
5 THE COURT: I think that that is very vague,
6 Mr. White. Sustained.
7 Q Well, again, let's use specifics then.
8 Let's take the year 1993, okay?
9 A Yes.
10 Q Sometime in the next five years the individual
11 expects he will earn this money from his corporation,
12 okay?
13 If in 1993 he is preparing a projection of his
14 income, should he list those amounts that he expects to
15 make in the next five years as income?
16 MR. WALLENSTEIN: Judge --
17 THE COURT: Can I hear that again, please.
18 I now know why I didn't become an accountant
19 among other reasons.
20 (Whereupon, the court reporter reads the
21 requested material.)
22 THE COURT: Do you know what that question
23 means? 24 THE WITNESS: I am very confused by that 25 question, Judge.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7810 Razzino-cross/White
1 THE COURT: I thought it was only me. All right,
2 sustained.
3 MR. WHITE: Let me try it again and in a
4 differe
nt way.
5 THE COURT: What do you mean by projection? Is
6 that a document?
7 MR. WHITE: Yes, your Honor.
8 THE COURT: Is a document in accounting called a
9 projection?
10 MR. WHITE: I will show him one that Mr. Reffsin 11 prepared.
12 THE COURT: All right, that will help.
13 Do you know what a projection is?
14 THE WITNESS: I have a good idea what a
15 projection is, your Honor.
16 THE COURT: Something about the future, right?
17 THE WITNESS: Yes, your Honor, it is about the
18 future.
19 THE COURT: Mr. Razzino, I don't remember all the
20 exhibits. Mr. White has this comprehension, he
21 remembers -- he has to, and I don't. So there may very
22 well be that there were projections in evidence that I
23 forgot about it. 24 Q Mr. Razzino, let me show you Government's Exhibit -- 25 THE COURT: Excuse me. You remember everythin
g
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7811 Razzino-cross/White
1 also, members of the jury.
2 Q 420-E for Edward, which is in evidence.
3 Is that part of a projection that -- that is part
4 of a projection that Mr. Reffsin submitted as part of
5 Mr. Gordon's offer in compromise to the IRS in August of
6 1993.
7 A Okay.
8 Q Do you see that?
9 At the top it has years ranging from 1991 to
10 1996; is that right?
11 A Yes.
12 Q And it talks about gross income in the line for
13 salaries, right?
14 A Yes.
15 Q And it projects Mr. Gordon's salary and gross income
16 out through 1996; is that correct?
17 A It appears to be doing that, yes.
18 THE COURT: What was the number of that exhibit?
19 MR. WHITE: 420-E, for Edward.
20 Q Now, using a specific example, if Mr. Gordon were
21 expecting to earn substantial compensation, such that --
22 let me withdraw the question.
23 If Mr. Gordon were to earn substantial 24 compensation that he was going to use to pay back his 25 loans from his corporations sometime between '92 and 1996,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7812 Razzino-cross/White
1 should that have been listed on this projection?
2 MR. WALLENSTEIN: Objection.
3 THE COURT: Overruled.
4 A Did you say this was prepared in conjunction with a
5 433-A?
6 Q Submitted as part of an offer in compromise.
7 My question is: This projection projects what
8 his income is, correct, or will be, rather?
9 A I assume. I don't see the assumptions. But my
10 assumption would be reading this, yes, that is what he is
11 projecting his income to be.
12 Q And that's the assumption that an IRS officer may
13 have when reading it; is that right?
14 MR. WALLENSTEIN: Objection.
15 THE COURT: Overruled.
16 A If it was used in conjunction with an offer in
17 compromise, I would say, yes.
18 Q Now, again, if money was anticipated to be earned by
19 Mr. Gordon in the years that are covered by this
20 projection, that should be listed under his income there;
21 is that right?
22 A I would think so, yes.
23 Q And it should be listed there as income even if it 24 was his intent to use that to pay back his loans from the 25 company, right?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7813 Razzino-cross/White
1 A Yes, I would assume so.
2 Q Now, you indicated that -- let me withdraw the
3 question.
4 Now, are you familiar with forms 433-A?
5 A No, I have never done one myself. I have done a
6 433-B, but not
a 433-A.
7 Q Are you familiar with Mr. Reffsin's handwriting?
8 A I think I would know it if I saw it.
9 Q If you can take a look at Exhibit 420-D, and if you
10 can look at the information there, everything except the
11 Bruce Gordon signature on the last page, and tell us if
12 you recognize that handwriting?
13 A Not absolutely, but it resembles Mr. Reffsin's
14 handwriting. I couldn't be absolutely sure.
15 Q Okay.
16 Let me show you 423 in evidence, and look at the
17 433-A form on top of that packet, that exhibit, and tell
18 us if you can recognize the handwriting on that.
19 (Handed to the witness.)
20 A I would say my answer is the same. It resembles
21 Mr. Reffsin's handwriting. I have not seen Mr. Gordon's
22 handwriting, so I don't know if that was his.
23 Q Now, in your review of the books and records for that 24 brief period in Who's Wh
o Worldwide, did you observe, 25 reflecting in those books, the payment by the corporation
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7814 Razzino-cross/White
1 of personal expenses of Mr. Gordon?
2 A Did I personally?
3 Q Yes.
4 A No.
5 Q If payments were made on behalf of the principal of a
6 corporation, and were then booked into this loan account,
7 that would be -- there be -- let me withdraw the
8 question.
9 At the time you were preparing and working on the
10 Who's Who Worldwide books, were you aware of the size of
11 Mr. Gordon's loan account?
12 A Yes, I believe so.
13 Q Do you remember approximately what it was?
14 A Gee, I would have to reflect on that for a minute.
15 Q Take your time.
16 A I am really trying to recollect. I believe it was a
17 couple of hundred thousand.
18 Q Now,
do you -- did you ever express any concerns to
19 Mr. Reffsin or Mr. Gordon that those loans could be
20 income?
21 A Never had a discussion. It was not my area. I
22 wasn't working on is it loan area.
23 Q Do you know if anyone else who worked for 24 Mr. Reffsin, like Mr. Hynes, ever had a discussion with 25 Mr. Reffsin where he said that he was concerned that those
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7815 Razzino-cross/White
1 loans were really income?
2 MR. WALLENSTEIN: Objection.
3 THE COURT: Can I hear the question?
4 (Whereupon, the court reporter reads the
5 requested material.)
6 THE COURT: Sustained.
7 Q Did Mr. Reffsin indicate to you that he felt he had
8 concerns that those loans were really income?
9 A Mr. Reffsin never had any such conversations with me.
10 Q Mr. Razzino, if you can take a
look at
11 Government's Exhibit 421 in evidence, which is in the
12 jurors' books, a letter from Mr. Gagliardi of the Internal
13 Revenue Service to Mr. Reffsin.
14 (Handed to the witness.)
15 Q If you can take a moment and read that to yourself,
16 Mr. Razzino.
17 A Okay.
18 Q Take a look at paragraph 6 of that letter, the one
19 that is numbered 6.
20 Those are items that Mr. Gagliardi is requesting
21 that Mr. Reffsin produce; is that correct?
22 A Yes.
23 Q And number 6 says -- let me back up. 24 Number 3 says, original cancelled checks and bank 25 statements for all accounts for which you are a signator
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7816 Razzino-cross/White
1 for the months of April through October of 1993, correct?
2 A Correct.
3 Q Now, if Mr. Gordon were the signator, not just on his
4 own personal bank account, but on other bank accounts as
5 well, would that fit in that category of paragraph 3?
6 A Yes.
7 Q Look at number 6, which says: Verification of all
8 monthly payments, if not paid by your personal check.
9 Do you see that?
10 A Yes.
11 Q Now, if Who's Who Worldwide were paying Mr. Gordon's
12 personal monthly bills, like his rent, like his cable
13 bill, like his American Express bill, would that fit under
14 paragraph 6?
15 MR. TRABULUS: Objection, your Honor.
16 THE COURT: On what ground?
17 MR. TRABULUS: Well, your Honor, I think it
18 assumes something which has no support in the record,
19 particularly with regard to the rent.
20 THE COURT: Overruled.
21 Q You may answer.
22 A I would say, yes.
23 Q And look at paragraph 9 where it says, copies of all 24 motor vehicle registrations --
25 A Excuse me, paragraph 9?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7817 Razzino-cross/White
1 Q I am sorry, it is on page 2. You have to take it out
2 of the plastic.
3 A Yes.
4 Q Paragraph 9 says: Copies of all motor vehicle
5 registrations, title certificates, and/or leasing
6 agreements for vehicles you own or operate. Do you see
7 that?
8 A Yes.
9 Q Now, if Who's Who were leasing a BMW or a Mercedes
10 Benz that Mr. Gordon was operating, would that fit under
11 paragraph 9?
12 A It says vehicles you own or operate. I suppose if
13 you operate, the vehicle should be listed there.
14 Q Now, how long do you say you have known Mr. Reffsin?
15 A Early 1994, January or February.
16 Q Now, would it surprise you to know that in response
17 to this letter, none of the things you just said were
18
responsive were actually given to the IRS by Mr. Reffsin?
19 MR. WALLENSTEIN: Objection.
20 THE COURT: Sustained.
21 Q According to the answers you just gave, if you were
22 answering this letter you would have given those things,
23 wouldn't have you? 24 MR. WALLENSTEIN: Objection. 25 THE COURT: Sustained.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7818 Razzino-cross/White
1 MR. WHITE: Your Honor, can I have one moment?
2 THE COURT: Sure.
3 We will take a ten-minute recess at this time.
4 Members of the jury, please do not discuss the
5 case. Keep an open mind.
6 (Whereupon, at this time the jury left the
7 courtroom.)
8
9 (Whereupon, a recess is taken.)
10
11 (The following takes place in the absence of the
12 jury.)
13 THE COURT: One of the jurors -- one or more?
14 THE CLE
RK: One, your Honor.
15 THE COURT: Said that on Wednesday I had stated
16 something about telling them on Monday approximately how
17 long the trial would take. They wanted to know if I could
18 give them any approximate idea of how long the trial will
19 take.
20 Can I give them an approximate idea?
21 MR. WALLENSTEIN: Your Honor, once Mr. Reffsin 22 has testified I have concluded. I don't know about
23 anybody else. I expect he will take the rest of today. 24 MR. TRABULUS: Your Honor, I think the defense 25 case will probably be over sometime on Wednesday or
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7819 Razzino-cross/White
1 Thursday from what I can tell from speaking to other
2 counsel. I am not calling Ms. Barnes, but other defense
3 counsel are. She is not showing up here until tomorrow
4 afternoon, I understand.
5 THE COURT: Assuming that the defense case ends
6 by Thursday at the -- giving it the later date. We then
7 have to have motions and we have to go over the charge.
8 MR. TRABULUS: There could be a rebuttal case,
9 your Honor.
10 THE COURT: That's true.
11 I can safely advise them that they will not get
12 the case until sometime the following week. The
13 summations will take at least an hour or two, right?
14 MR. WALLENSTEIN: Two is better.
15 THE COURT: I mean all of them I am talking
16 about.
17 Figuring I will have to spend a good part -- at
18 least a half a day, maybe a day, going over the charge,
19 and assuming the case or the testimony ends next week, we
20 will have to either do this on Friday, which I can't do, I
21 don't think. So I will have to do it on Monday. So the
22 summations will be on Tuesday, and they will get the case
23 on W
ednesday. 24 I will tell them that by the end of next week 25 they will have the case probably.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7820 Razzino-cross/White
1 Let's bring them in.
2 MR. WALLENSTEIN: Judge, are you restricting our
3 time on summations?
4 THE COURT: Of course.
5 MR. JENKS: Are you giving each lawyer a time
6 limit?
7 THE COURT: A time limit? Of course.
8 MR. SCHOER: What is that going to be?
9 THE COURT: The answer is yes. That's
10 responsive, isn't it?
11 MR. WALLENSTEIN: Can you tell us what the time
12 limit will be?
13 THE COURT: No, not now. We will talk about it.
14 I will listen to every reasonable request and then do what
15 I want to do. So you better think about the period of
16 time that you want. I am going to give you a good period
17 of time -- at least my v
iew of what a good period of time
18 is. Which may not coincide with yours. You will have
19 adequate time to sum up. With ten lawyers and a lot of
20 repetition more than an adequate amount of time to sum
21 up.
22 THE CLERK: Jury entering.
23 (Whereupon, the jury at this time entered the 24 courtroom.) 25 THE COURT: Please be seated, members of the
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7821 Razzino-cross/White
1 jury.
2 One of your members spoke to Mary Ellen Kirschner
3 and said that the judge stated on Wednesday that on Monday
4 he would tell us approximately how long the trial would
5 take.
6 Now, I don't remember my exact words on
7 Wednesday, and I will not read them back now, but I
8 believe I did mention that I will try to give you an
9 approximate idea, always approximate.
10 I do not kno
w how long the trial will take.
11 My approximate estimate is that you will get the
12 case sometime next week, not this week. And probably,
13 probably it will be the latter part of the week. But it
14 could be earlier, or even it could be later than that.
15 Now, that's about all I can tell you,
16 approximately the latter part of next week you will have
17 the case.
18 Now, that means that all the testimony will be
19 over. I will have to go over with the lawyers my charge
20 on the law, which is long. It will probably take a day
21 for me to talk to them about that, and for which you will
22 not be here while that goes on. So there will be a hiatus
23 while you will not be here. The summations will take at 24 least a day. And then I will instruct you on the law 25 which will take the good part of a day also.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REP
ORTER 7822 Razzino-cross/White
1 So, my best estimate is the latter part of next
2 week. It could be later.
3 You see, I always leave myself a little room.
4 All right, you may proceed.
5 MR. WHITE: Thank you.
6
7 CROSS-EXAMINATION (cont'd)
8 BY MR. WHITE:
9 Q Mr. Razzino, if you can turn to Exhibit 420-E, like
10 in Echo, which is the projection that we were looking at
11 before.
12 Do you see that?
13 A Yes.
14 Q Do you see the heading starting with expenses and
15 payments?
16 A Yes.
17 Q And after that there is a whole series of various
18 expenses and debts that are owed by Mr. Gordon. Do you
19 see that?
20 A I see a list of expenses, right.
21 Q Do you see after other expenses, after cleaning and
22 withholding taxes, are payments to wife by court order?
23 A Yes. 24 Q O
utstanding judgments is the next line? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7823 Razzino-cross/White
1 Q And then required payments pursuant to agreement with
2 Justice Department; do you see that?
3 A Yes.
4 Q Am I correct that there are no loans from Who's Who
5 Worldwide to Mr. Gordon listed on that projection form?
6 A No, I don't see that.
7 Q There are other debts and obligations listed there;
8 is that right?
9 A Yes.
10 Q Just not that one.
11 Now, if you could turn to the front page of that
12 packet you have, which is Exhibit 420.
13 Now, I want to -- if you can follow along with
14 the second paragraph while I read it aloud.
15 Taxpayer is presently trying to clean up his life
16 and move forward. He is 60 years of age and he will never
17 be able to pay the substantial sums o
f taxes, penalties
18 and interest owed to the government. In addition, he is
19 liable for substantial amounts to other parties which he
20 will not be able to pay. We have prepared a projection of
21 income for the next five years. And even if he increases
22 his earnings substantially over the next five years, he
23 won't come close to earning enough to pay all his 24 obligations. Do you see that? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7824 Razzino-cross/White
1 Q Now, that projection that says he won't come close to
2 earning enough to pay all his obligations is the
3 projection we just looked at, right?
4 A If you say so. I don't know.
5 MR. WALLENSTEIN: Objection to the form of that
6 question.
7 MR. WHITE: I will withdraw it.
8 Q The language in the letter that I just read talks
9 about a pr
ojection of income, and it says that he won't
10 come close to earning enough to pay all his obligations.
11 That's what it says there, right?
12 A All of his obligations, correct.
13 Q Okay.
14 The projection you looked at before, 420-E,
15 doesn't list an obligation to Who's Who Worldwide, does
16 it?
17 A I don't see it there.
18 Q So is it fair to say that this letter is indicating
19 Mr. Gordon can't even pay those obligations listed on the
20 projection, much less anything else?
21 MR. WALLENSTEIN: Objection.
22 THE COURT: Can I hear that question,
23 Mr. Reporter. 24 (Whereupon, the court reporter reads the 25 requested material.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7825 Razzino-cross/White
1 THE COURT: I am troubled by the "much less
2 anything else." Sustained as to form.
3 MR.
WHITE: Let me ask the question without that
4 part.
5 Q Is it fair to say that this letter says that
6 Mr. Gordon will be unable to pay any of the obligations
7 listed on that projection?
8 MR. WALLENSTEIN: Objection.
9 THE COURT: Overruled.
10 A In the short period of time you have given me to look
11 at this, in the outer years there are positive cash flows
12 indicated.
13 Q Let's look at that, okay.
14 For 1994 -- I am sorry, for 1995, the positive
15 cash flow is a grand total of $11,000; is that right?
16 A $11,572.
17 Q For 1996 the grand total of the positive cash flow is
18 under $10,000; is that right?
19 A 9,357.
20 Q So, is it fair to say that if that -- let me back
21 up.
22 The positive cash flow is what a taxpayer has
23 left over after he has taken his salary, paid his taxes, 24 other monthly expenses, that
is what he has got left over, 25 right?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7826 Razzino-cross/White
1 A Normally, yes, that's the way it is projected.
2 Q As an accountant, is that what you understand it
3 means by net cash flow?
4 A Net cash flow in this context tells me after his
5 salary and expenses listed that he will have money left
6 over.
7 Q Okay.
8 Now, and so that money left over, ten or eleven
9 thousand dollars in those two years is everything he has
10 got left over, right, according to this projection?
11 A It says --
12 MR. WALLENSTEIN: Objection.
13 THE COURT: Overruled.
14 A Based upon the projection here, given the income and
15 the expenses listed, that's what it indicates, right.
16 Q All right.
17 And that's -- okay.
18 If someone had additional expenses, additiona
l
19 debts that they had to pay, like a loan to Who's Who
20 Worldwide, it would have to come out of what is left here,
21 this net cash flow; is that right?
22 A If that was his only source of income, his salary, I
23 would say, yes. 24 Q Right, right. 25 You said that in late '94, when you were looking
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7827 Razzino-cross/White
1 at the Who's Who books, Mr. Gordon's loan account was a
2 couple of hundred thousand dollars; is that right?
3 A That's my recollection, yes.
4 Q Is it fair to say that 11,000 one year and 10,000
5 another year, that's not going to put a big dent in a
6 couple of hundred thousand dollar debt?
7 MR. WALLENSTEIN: Objection.
8 THE COURT: Sustained as to form.
9 Q You said a couple, is that two, three, four --
10 A A couple of meaning two.
11 Q Two, taking that figure.
12 If Mr. Gordon took every last dollar listed here,
13 11 thousand one year, and nine thousand approximately
14 another year, and paid every dollar of that, 20 some odd
15 thousand dollars back to Who's Who, it would still be 1
16 tenth of what he owed; is that right?
17 A At that point in time, yes.
18 Q So, is it fair to say that if these, if these
19 projected figures are accurate, and as you said, they are
20 the only income and expense that he has, that he would not
21 be able to repay loans of say, $200,000 to Who's Who
22 Worldwide?
23 MR. WALLENSTEIN: Objection. 24 THE COURT: Overruled. 25 THE WITNESS: If that's the only income and these
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7828 Razzino-cross/White
1 are the only expenses, yes, he could pay a portion, and
2 not all.
3 Q And the portion, based on your own knowledge would be
4 a small one, right, about ten percent of it?
5 A Based on this, yes.
6 Q If you turn to 420, the cover page, follow along as I
7 read the last paragraph on page one.
8 In few of the circumstances discussed above, and
9 the fact that the taxpayer is over 60 years of age, he
10 wishes to attach the -- file the attached offer and
11 compromise. He has talked to various relatives. And
12 because of his age and desire to clean up his situation,
13 they have agreed to lend him some money. The offer
14 presented is based on the sum of money which he feels he
15 can borrow. He has no other assets.
16 On page 2 you see it is signed under penalty of
17 perjury by Mr. Gordon; is that right?
18 A Right.
19 Q Now, if at the time, in August of 1993, when this
20 letter was being written -- I am sorry, when this o
ffer
21 and compromise was being submitted, Mr. Gordon had the
22 ability to take loans from Who's Who Worldwide, then he
23 could have borrowed from other sources, couldn't he? 24 A I presume so, assuming he had people he could borrow 25 money from, yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7829 Razzino-cross/White
1 Q Okay.
2 What I am saying is, the letter references
3 borrowing money from relatives; is that right?
4 A Right.
5 Q And if in addition to the relatives, if at this point
6 in time Mr. Gordon had the capacity, the ability, to get
7 loans from Who's Who Worldwide, he could have in theory
8 have borrowed from the company, right?
9 A I don't know the financial well-being of the company
10 at that time. I don't know if they could have afforded to
11 lend him any money.
12 Q Okay.
13 But
if he were able to take such loans, he could
14 take them for whatever reason he wanted; is that right?
15 MR. WALLENSTEIN: Objection.
16 THE COURT: Sustained.
17 Q If you assume for the moment that he had the capacity
18 to take those loans, they could be used, for example, to
19 pay the IRS, right?
20 MR. WALLENSTEIN: Objection.
21 THE COURT: Overruled.
22 A I would say yes, if he had the capacity.
23 Q If he had the capacity, he could borrow money to buy 24 Armani suits; is that right? 25 A I suppose if he could borrow money he could borrow it
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7830 Razzino-cross/White
1 for whatever purpose.
2 Q Once he has borrowed it, he could spend it for
3 however he wants you are saying; is that right?
4 A I would assume so, yes.
5 Q If he could borrow it to buy an Armani suit,
he could
6 borrow it to pay back the IRS, too, right?
7 A I suppose so.
8 Q And, so, when it says here the offer presented is
9 based on the sum of money that he feels he could borrow,
10 and it is talking about what he can borrow from his
11 relatives, it doesn't mention that he can also borrow it
12 from the company to pay back the IRS; is that right?
13 A It doesn't say that here.
14 Q Exactly. It doesn't say he could borrow it from the
15 company, does it?
16 A It says he has talked to relatives, various relatives
17 it says here.
18 Q If you can turn to 420-D, which is in that packet.
19 Now, that's the form 433 that we looked at
20 before.
21 A Yes.
22 Q Now, I want to ask you about several of the items on
23 this. 24 First of all where it says box number 1, 25 taxpayer's name and address. Do you see that?
H
ARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7831 Razzino-cross/White
1 A Yes.
2 Q And as an accountant, you are familiar with IRS
3 forms, correct?
4 A A great many of them, yes.
5 Q And is it fair to say that where it asks for your
6 name and address, you are supposed to put your current
7 address?
8 A You put an address where you could be reached.
9 Q Okay.
10 If you look at the last page of this form can you
11 tell us when it was signed by Mr. Gordon?
12 A July 8th, 1993.
13 Q And the address listed there is 10 Bluff Road in box
14 1; is that right?
15 A Yes.
16 Q Let me show you Government's Exhibit 618, which is in
17 evidence, a lease of a condominium unit for 10 Bluff Road
18 in Glen Cove, where Mr. Gordon is the tenant. And let me
19 ask you to take a look in this middle box and tell me when
20 it
says that that lease ends?
21 A It says term 18 months, beginning June 1, 1991, and
22 ending November 30th, 1992.
23 Q November of '92? 24 A Yes. 25 Q And that's about eight months prior to the form that
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7832 Razzino-cross/White
1 you just saw; is that correct?
2 A The original -- yes, it is 8 months, if there are no
3 extensions to the lease.
4 Q Let me show you Government's Exhibit 617, which is
5 evidence, a group of checks to the landlord of 10 Bluff
6 Road.
7 (Handed to the witness.)
8 Q Could you look at the last check in that package and
9 tell us the date on that.
10 A The last check I am looking at is number 1634, dated
11 November 25th, 1992, for $4,500.
12 Q So, the last rent check is November of 1992, some 8
13 months before this form is even fill
ed out; is that right?
14 A Yes.
15 Q Okay.
16 If you can turn to the next page of the 433 form,
17 and this is Exhibit 420-D --
18 A I am not with you.
19 Q I am sorry.
20 I will take it back out of your way.
21 Now, that page three of that form, look at box
22 18. It asks for securities, parenthesis, stocks, bonds,
23 mutual funds, money market funds, government market 24 securities, etcetera, close quote. 25 Do you see that?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7833 Razzino-cross/White
1 A Yes.
2 Q Now if somebody owned 75 percent of a company, should
3 that be listed in that box?
4 MR. WALLENSTEIN: Objection.
5 THE COURT: On what ground?
6 MR. WALLENSTEIN: The witness has not testified
7 that he is familiar with this form. He has in fact
8 testified that he has never filled o
ut one of these
9 forms. There is no indication that the instructions are
10 anywhere in evidence. We don't know what is supposed to
11 be in that box.
12 THE COURT: Mr. Razzino, looking at this form
13 which you say you have not seen before, and that you are
14 not familiar with, if you look at box 18 and the notation
15 for what box 18 is supposed to list, could you then answer
16 the question?
17 THE WITNESS: Based on my experience, not with
18 this form, but with others, this normally is referring to
19 investment securities.
20 THE COURT: Like in the stock market?
21 THE WITNESS: Stock market type investments.
22 Q Now, are you saying, Mr. Razzino, that to be listed
23 on that form you have to own shares in a publicly traded 24 company? 25 A I didn't say that. I said to me when I read
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
7834 Razzino-cross/White
1 securities, stocks, bonds, mutual funds, it normally
2 connotes to me investments in mutual funds, publicly
3 traded securities, or privately traded securities.
4 Q If someone invested money to start a company and
5 thereafter owned 75 percent of it, wouldn't that fall into
6 that category?
7 A It depends on what there is on the form. There is
8 normally another place to put it.
9 Q Okay.
10 Let's take a look at the other place. Look at
11 the next page; line 22, where it says securities, right?
12 A Is that the same securities we just referred to?
13 Q It says from line 18?
14 A A summary number, yes.
15 Q You are supposed to list your equity in the asset,
16 right?
17 A It has a column for equity in the asset, that's
18 right.
19 Q Now, if you owned -- so, should it -- if you owned 75
20 percent of a company that had some value -- let me
21 withdraw the question.
22 If you owned 75 percent of the shares of a
23 company, should it be listed in that box 18, line 22? 24 A It could be listed elsewhere. 25 Q Okay, but it should be listed, is that right, if it
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7835 Razzino-cross/White
1 is an asset?
2 A I think if you have a personal asset it should be
3 listed someplace, yes.
4 Q Look down on page 3, 28, there is another catch-all
5 category, right, other assets?
6 A Yes, correct.
7 Q Suppose the business were worth -- let's pick a
8 figure, a half a million dollars, and you owned 75 percent
9 of that business, that was the equity in the business, 75
10 percent of that figure, that should go somewhere, right?
11 A Yes.
12 Q Okay.
13 Box 28, it
says other liabilities there; is that
14 right?
15 A Yes.
16 Q Now, if you own -- if an individual owed his
17 corporation money, had a loan from them, and actually was
18 supposed to pay it back, that's a liability of his; is
19 that correct?
20 A Yes.
21 Q And liabilities should be listed in this form under
22 box 28; is that correct?
23 A That depends. 24 Q Okay. 25 A If in the assets that you referred to he has already
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7836 Razzino-cross/White
1 considered the loans, then you wouldn't want to double up.
2 Q Let me back up and see if I understand that.
3 If irrespective of how much the company is worth,
4 the individual owes that company money and has to pay it
5 back, then that should be listed as a liability; is that
6 right?
7 A If you want to gr
oss it up on both sides, the answer
8 is yes, you show the liability on one side, yes. And you
9 show the asset reduction on the other side, because the
10 loans would show up as an asset of the corporation. Do
11 you follow? The loan itself is an asset of the
12 corporation.
13 Q I do.
14 A Presumably he owns 75 percent of that given your
15 example.
16 Q Now, is it correct though that neither the ownership
17 of the corporation nor that -- nor any such liability is
18 reflected on this form?
19 A I don't see either, no.
20 Q If you did it the way you suggested to make it
21 balanced, they should both be listed; is that right?
22 A If you were going to gross them out, yes.
23 Q In fact, neither are listed, right? 24 A I don't see them here. 25 MR. WHITE: Your Honor, may I have just one
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT RE
PORTER 7837 Razzino-cross/White
1 moment?
2 THE COURT: Sure.
3 (Whereupon, at this time there was a pause in the
4 proceedings.)
5 Q Mr. Razzino, if you can turn to page 4 of that
6 document where it says necessary living expenses.
7 A Yes.
8 Q And let's look at line 42 that talks about rent. Do
9 you see that?
10 A Yes.
11 Q Now, is it your understanding that a taxpayer is to
12 provide his actual expense on this form?
13 A I never really studied the rules on this form. I
14 have never prepared one.
15 Q Okay.
16 Mr. Razzino, have you ever been involved in your
17 career as representing someone before the IRS?
18 A Yes.
19 Q And have you ever done that in connection with any
20 collection matter?
21 A No.
22 Q Have you ever done it in connection with any audit
23 type matter?
24 A Yes. 25 Q Now, in the audit matters when you represented
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7838 Razzino-cross/White
1 someone before the IRS did they actually fill out one of
2 those power of attorney and declaration of representative
3 forms?
4 A Yes.
5 Q And when you do that, is it fair to say that you are
6 fully empowered to act on behalf of the taxpayer in the
7 areas that he specified?
8 A In the areas that the client specifies, yes.
9 Q And he does that on a form, right? The client does
10 that on a form?
11 A Correct.
12 Q And if you take a look at 420-C, that's the form,
13 right?
14 A 420-C?
15 Q Yes, C. It should be before the thing that you are
16 looking at right now.
17 A Yes, that's the form.
18 Q Now, when someone represents a taxpayer to the IRS
19 they o
bviously represent the taxpayer's interest; is that
20 right?
21 A We are advocates for our clients.
22 Q Now, is it correct, though, that the representative,
23 of course, still has an obligation to provide the IRS with 24 accurate information when they ask for it? 25 A Absolutely.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7839 Razzino-cross/White
1 Q So, he can advocate based on the true facts, but he
2 can't give the IRS untrue facts; is that fair?
3 A That's fair.
4 Q So, he always has to operate within the constraints
5 of giving the IRS fair and accurate and complete
6 information; is that right?
7 A That's correct.
8 Q And once the IRS has the fair and accurate and
9 complete information, then they can negotiate, they can
10 dicker over how much the taxpayer owes or should pay; is
11 that right?
12 A Yes.
13 MR. WHITE: Your Honor. I have no further
14 questions.
15 THE COURT: Any redirect?
16 MR. TRABULUS: Your Honor, I have some questions
17 before redirect.
18 THE COURT: Yes, surely.
19 MR. TRABULUS: I would like to confer briefly
20 with Mr. Wallenstein.
21 (Mr. Trabulus confers with Mr. Wallenstein.)
22
23 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7840 Razzino-cross/Trabulus
1 CROSS-EXAMINATION
2 BY MR. TRABULUS:
3 Q Good morning, Mr. Razzino. We met briefly a few
4 weekends ago; is that right?
5 A Yes.
6 Q Even then we didn't discuss the facts of the case,
7 did we, you and I?
8 A That's correct.
9 Q Mr. Razzino, when you were dealing with Maria Gaspar
10 and advising her of some of the entries she had made were
11 erroneous, su
ch as registering an expense as earnings, and
12 vice versa, did she ever tell you that Mr. Gordon told her
13 to do that?
14 A No.
15 Q Now, did you yourself in the work you did have any
16 conversations directly with Mr. Gordon when you were at
17 Who's Who Worldwide concerning the accounting issues that
18 you were dealing with?
19 A No.
20 Q You were asked one question in particular in which
21 Mr. White asked you about what should have been done if
22 Who's Who Worldwide was paying Mr. Gordon's rent. And I
23 am going to show you portions of my copy of what is marked 24 as Exhibit 759 in evidence. 25 I am going to just show you a check number 115
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7841 Razzino-cross/Trabulus
1 for $2,000 payable to Publishing Ventures, Inc., April
2 1st, 1993.
3 On whose account is
that drawn?
4 A It is drawn on National Westminster Bank, Bruce
5 Gordon, personal account.
6 Q It is not drawn on the account of Who's Who
7 Worldwide?
8 A No.
9 Q Just taking another check, November 30th, 1993, to
10 Publishing Ventures, $2,000, the account is also that of
11 Bruce Gordon?
12 A Yes.
13 MR. TRABULUS: I have no further questions.
14
15 REDIRECT EXAMINATION
16 BY MR. WALLENSTEIN:
17 Q Mr. Razzino, Mr. White asked you some questions with
18 respect to the form 433-A, the collection information
19 statement which is in evidence here; is that correct?
20 A Yes.
21 Q And that would be Government's Exhibit 420-D.
22 A Yes.
23 Q Is that correct that IRS forms such as this come with 24 instructions to tell you, or the taxpayer, how to fill it 25 out or explain problem areas?
HARRY RAPAPO
RT, CSR, CP, CM OFFICIAL COURT REPORTER 7842 Razzino-redirect/Wallenstein
1 A That's fair to say. Mostly all come with some sort
2 of instructions.
3 Q Some sort of instructions, correct?
4 A Yes.
5 Q Would you take a look, please, at what has been
6 marked as Defendant's Exhibit ED, Echo Delta?
7 THE COURT: In evidence?
8 MR. WALLENSTEIN: No, identification.
9 (Handed to the witness.)
10 MR. WALLENSTEIN: I have a copy for the Court as
11 well.
12 (Handed to the Court.)
13 Q Have you seen that form before?
14 A Maybe in passing. I never had to refer to it.
15 Q Would you take a moment to look it over? And would
16 you tell me, does that appear to be an Internal Revenue
17 Service Form?
18 A Well, it does have the Department of Treasury,
19 Internal Revenue Service logo. It appears to be an IRS
20 form, yes.
21 Q You are familiar with IRS forms, and that's the way
22 they look, correct?
23 A Yes. 24 Q On the top it indicates that it is for Form 433-A; is 25 that correct?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7843 Razzino-redirect/Wallenstein
1 A Correct.
2 Q And that's the form we are referring to,
3 Government's Exhibit 420-D?
4 A Yes, that's correct.
5 Q And would it be fair to characterize this Exhibit,
6 ED, as instructions for the preparation of Form 433-A?
7 A Yes, fair.
8 MR. WALLENSTEIN: I offer that in evidence.
9 THE COURT: Any objection?
10 MR. WHITE: May I have a moment to speak to
11 Mr. Wallenstein?
12 THE COURT: Sure.
13 (Mr. White confers with Mr. Wallenstein.)
14 MR. WHITE: Your Honor, I have no objection.
15 THE COURT: Defendant's Exhibit ED, Easy Dog, in
16 evid
ence.
17 (Defendant's Exhibit ED received in evidence.)
18 Q Now, Mr. White asked you questions -- I am referring
19 now to the 433-A.
20 In Section 1 it indicates the taxpayer's name and
21 address; is that correct?
22 A That is correct.
23 Q Would it be fair to say that that information should 24 be supplied either by the taxpayer to the IRS if filling 25 out the form, or by the taxpayer to the accountant or
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7844 Razzino-redirect/Wallenstein
1 whoever else is preparing the form for him; is that
2 correct?
3 A That is correct.
4 Q So, if Mr. Reffsin filled out this form, he got the
5 information from Mr. Gordon, or he should have, correct?
6 A Yes.
7 Q Now, taking a look at the instructions, and that's
8 Exhibit ED just admitted in evidence, and on the
9 right
-hand column of that form it indicates, Necessary
10 Living Expenses; is that correct?
11 A Yes, correct.
12 Q And would it be fair that that indicates those
13 expenses that are necessary, that is what you need, rather
14 than what you would like to spend?
15 A I think since it is titled Necessary Living Expenses,
16 it would be what you need.
17 Q In fact, would you take a look at that and read the
18 sentence directly under the word: Necessary Living
19 Expenses.
20 A It says expenses must be reasonable for the size of
21 your family, geographic location and unique circumstances.
22 Q Is that an indication that the IRS is looking for
23 what you really need rather than what you would like to 24 spend? 25 A It appears that that is what they are asking for,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7845 Razzino-redirect/Wal
lenstein
1 what you need, not what you would like.
2 Q Now, you testified in response to Mr. White's
3 questions that this particular 433-A, and I am referring
4 again to Government's Exhibit 420-D, does not indicate
5 that Mr. Gordon owns 75 percent of the corporation.
6 A That's correct. I don't see any reference to it.
7 Q No reference to it anywhere on the form, correct?
8 A Correct.
9 Q Do you know whether Mr. Gordon did own 75 percent of
10 the corporation?
11 A I don't know that.
12 Q Do you know whether Mr. Reffsin knew whether or not
13 Mr. Gordon owned 75 percent of the corporation at the time
14 that this form was prepared?
15 A I don't know.
16 Q Would it be a fair statement that if Mr. Gordon owned
17 any percentage or no percentage of the corporation, he
18 would be the one who would supply that information to
19 Mr. Reffs
in?
20 A That's correct.
21 Q So, if, for example, in early 1993, or in the Spring
22 of 1993 Mr. Reffsin had been shown stock certificates
23 signed by Richard Grossman and Joyce Grossman indicating 24 that they or their family trusts owned 100 percent of 25 Who's Who Worldwide, Mr. Reffsin would be entitled to rely
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7846 Razzino-redirect/Wallenstein
1 on that representation in indicating that Mr. Gordon did
2 not own any percentage; is that correct?
3 A That's correct.
4 Q Now would you take a look at that power of attorney.
5 I don't remember the exhibit number. Do you have it?
6 A Yes. It is Exhibit 420-C.
7 Q That's why I can't find it, it is right in front of
8 me.
9 That is, again, the standard IRS form; is that
10 correct?
11 A It is the standard power of attorne
y form, yes.
12 Q And Mr. White asked you whether or not it would be a
13 fair statement that by executing this power of attorney
14 Mr. Reffsin would be fully empowered to act on behalf of
15 Mr. Gordon? And you said that that would be a fair
16 statement; is that correct?
17 A Correct. Only for those matters which the client
18 gave him permission --
19 Q Which would be delineated in the form?
20 A Correct.
21 Q Would it also be a fair statement that while he is
22 fully empowered to act, he can only act on information
23 provided to him by the client? 24 A That's correct. 25 Q Now, you testified that it is the accountant's
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7847 Razzino-redirect/Wallenstein
1 function when advocating a position before the Internal
2 Revenue Service to advocate true facts and provide fair,
3 accurate and complete information; is that correct?
4 A Correct.
5 Q And would it also be a fair statement that the
6 information he gets come from the client?
7 A Yes.
8 Q So, if the client lies to the accountant, the
9 accountant may not have any way to know that; is that a
10 fair statement?
11 A That's a very fair statement.
12 Q Would it also be a fair statement that there are gray
13 areas in the tax code?
14 A That is also a fair statement.
15 Q An understatement in fact.
16 And would it be a fair statement that one of
17 those gray areas is whether certain dollar figures are
18 considered to be income or loans?
19 A I believe those are judgment calls made by the
20 client.
21 Q And in fact, whether or not a particular dollar
22 amount is income or a loan is a function of a variety of
23 factors, not just what do we ca
ll them; is that correct? 24 A Yes. 25 Q If a client says to you, I am going to pay it back,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7848 Razzino-redirect/Wallenstein
1 even if it takes me the rest of the my life, then it is a
2 loan; is that a fair statement?
3 A A fair statement.
4 Q You can't say, well, it is income, so it is income?
5 A Yes -- if he says it is income and he is not going to
6 pay it back, it is income.
7 Q Is it a fair statement based on your experience with
8 the IRS that if a taxpayer says it is income, the IRS
9 considers it income, no further questions?
10 A On the subject of audit, that's true.
11 Q And if the taxpayer says it is a loan, the IRS
12 doesn't necessarily take their word for it?
13 A The same answer, subject to audit, yes.
14 Q There are factors that the IRS uses in determining as
15 to whether a particular dollar amount is income or a loan;
16 is that correct?
17 A I believe so, yes.
18 Q One of which is intent? If the taxpayer intends to
19 repay it, it is an indication that it is a loan; is that
20 correct?
21 A Usually they require a little bit more than just
22 intent.
23 Q All right. 24 But, intent is one of the factors that they use? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7849 Razzino-redirect/Wallenstein
1 Q Would it be a fair statement that in advocating a
2 client's position before the Internal Revenue Service, the
3 question of whether a particular amount is a loan or
4 income is one of those areas where the IRS and the client
5 may have diametrically opposed positions?
6 A In many cases that's true, yes.
7 Q And in that case the accountant can advocate
the
8 client's position based upon the numbers and argue a
9 particular position without giving inaccurate or
10 incomplete information?
11 A Absolutely, you can argue your client's case.
12 Q Even though the IRS disagrees with you?
13 A Yes.
14 Q And would it be a fair statement that sometimes a
15 taxpayer wins and sometimes the IRS wins?
16 A Yes, that's true.
17 Q I am done with that, just to focus you.
18 Do you know whether or not Mr. Reffsin gave Maria
19 Gaspar any instructions whatsoever with respect to how to
20 book the numbers?
21 A I don't recall Mr. Reffsin instructing Maria Gaspar
22 on bookkeeping.
23 Q Did you ever have any conversation with Mr. Reffsin24 where he indicated he had so instructed Ms. Gaspar? 25 A Only with respect to correcting entries.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
7850 Razzino-redirect/Wallenstein
1 Q Where he had indicated that he had corrected entries
2 or --
3 A Where he had gone over those corrections with Maria.
4 Q And told her that there were errors?
5 A Yes.
6 Q Okay.
7 You yourself never gave her any instructions; is
8 that correct?
9 A No.
10 Q All right.
11 Do you know whether Mr. Hynes was privy to any
12 conversations between Mr. Reffsin and Ms. Gaspar?
13 A I am not aware of any.
14 Q You are not aware of any.
15 MR. WALLENSTEIN: May I have just a moment,
16 Judge?
17 THE COURT: Surely.
18 (Mr. Wallenstein confers with Mr. Reffsin.)
19 Q Mr. Razzino, at the time that you were doing the work
20 on the books of Who's Who, that was in August and the fall
21 of 1994, correct?
22 A Right.
23 Q And at that time the bankruptcy petition had already
24 been filed; is that right? 25 A I believe so, yes. I believe that was in March of
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7851 Razzino-redirect/Wallenstein
1 '94.
2 Q Right.
3 So, Who's Who was actually operating as a debtor
4 in possession at that time; is that correct?
5 A Right.
6 Q And would it be a fair statement then that the books
7 and records of Who's Who were at that time under the
8 scrutiny of the bankruptcy court, and certainly under the
9 jurisdiction of the bankruptcy court?
10 A Yes.
11 Q Now, would you take a look at Exhibit 420-E, the
12 projections that Mr. White was asking you about.
13 Would you know when in time these were made?
14 A No, I don't know that.
15 Q Well, they were submitted as part of the offer and
16 compromise that you have there, and that's dated July of
17 1993; is that correct?
18 A Yes.
19 Q And do you know at that time -- withdrawn.
20 Exhibit 420-E, the projection indicates actual
21 dollar figures for 1991, correct?
22 A That's correct. It says actual.
23 Q And everything else is rejected; is that right? 24 A That's correct -- hold on -- every other one says 25 annual or monthly. It doesn't say actual.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7852 Razzino-redirect/Wallenstein
1 Q That's an indication it is a projection?
2 A Yes, that's the way I interpret it.
3 Q Is it a fair statement that a projection is: We
4 think this is going to happen?
5 A Yes, a projection, right.
6 Q And there is some basis in reality based on past
7 performance, but nobody has 20/20 foresight; is that
8 correct?
9 A Yes. That's the best guess.
10 MR. WALLENSTEIN: No
further questions. Thank
11 you.
12
13 RECROSS-EXAMINATION
14 BY MR. WHITE:
15 Q Mr. Razzino, I would like to ask you about this new
16 document that Mr. Wallenstein showed you, the instructions
17 for the 433, Defendant's Exhibit ED.
18 A Yes.
19 Q I want to make sure I understand you correctly. Is
20 it your testimony that when the taxpayer fills out the
21 necessary living expenses as part of that form, he should
22 not put his actual expenses, but only those that are
23 necessary? Is that what you are saying? 24 A Once again, reading the instructions to the form I 25 just looked at this morning, it appears to me that
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7853 Razzino-recross/White
1 necessary living expenses, I would interpret it as
2 necessary.
3 Q So what is the answer to my question? Should
a
4 taxpayer put his actual expenses or simply that portion of
5 the actual expenses which are necessary?
6 A I would say which are necessary as opposed to actual.
7 Q Okay.
8 So, let me give you an example to make sure I
9 understand this.
10 Suppose a taxpayer lives single person, no
11 family, no dependents, no dog, lives in a mansion with a
12 swimming pool and a tennis court, and he rents it for
13 $20,000 a month, okay?
14 When that person is filling out a form 433 like
15 this, what is he putting on that line for rent?
16 A Is this a hypothetical question?
17 Q Yes.
18 A I would say that each one of these necessary
19 expenses, when you submit a document like this to the IRS
20 they don't just accept it at face value. So, if you
21 indicate necessary is living in a mansion that that number
22 will be challenged.
23 Q Exactly.
24 Isn't it a case that you are supposed to put your 25 actual expenses and then the IRS determines if it is
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7854 Razzino-recross/White
1 reasonable or necessary?
2 A No. You put what you feel is your necessary
3 expenses. They may feel subject to challenge it.
4 Q My example, if you live in a place where you pay
5 $20,000 a month rent, clearly extravagant, what do you put
6 on this form?
7 A On this form I believe you are putting down what your
8 necessary expenses are in conjunction with the filing.
9 I.e., you never may intend to stay there. I give you a
10 hypothetical, he moves out --
11 Q No. Answer my question.
12 He is living there. He intends to continue
13 living there. And I want to know what that guy writes on
14 this form?
15 A If he intends to continue li
ving there? Then that
16 would be in his mind a necessary expense, and it would go
17 down exactly what he is paying.
18 Q Okay.
19 So, if that person is incurring expense, and
20 expects to continue to incur them, he obviously thinks
21 they are necessary, right?
22 A Yes, I would think so.
23 Q So, if someone six or eight or ten thousand dollars a 24 month on an American Express card, and intended to 25 continue doing that, they should put that on the form,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7855 Razzino-recross/White
1 right? That would therefore be a necessary expense?
2 A It is subjective. If he feels it is necessary he
3 would put it down as a necessary expense.
4 Q So, what you understand -- I want to make sure it is
5 clear.
6 What you understand "necessary" to be is well, if
7 you are going to s
pend it -- if you intend to spend it,
8 then you must feel it is necessary and you are supposed to
9 put it on the form?
10 A Yes.
11 Q Okay.
12 Mr. Wallenstein asked about the issue of the
13 taxpayer going over whether something is loans or income
14 with the IRS. You say he sometimes discusses it and there
15 are gray areas and sometimes the IRS and the taxpayer
16 disagree; is that right?
17 A Yes.
18 Q Do you know if in connection with Mr. Gordon's offer
19 and compromise, Mr. Gordon or Mr. Reffsin ever raised that
20 issue?
21 A I have no way of knowing. I wasn't involved.
22 Q And if you look at the 433 we talked about, it
23 doesn't talk about loans, does it? 24 A No. I didn't see any reference. 25 Q Right.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7856 Razzino-recross/White
1 So, that
issue could never have come up because
2 the IRS didn't know that there were loans?
3 MR. WALLENSTEIN: Objection.
4 MR. TRABULUS: Objection.
5 THE COURT: Well, I will sustain the objection.
6 It could be other means of transmitting that information.
7 Q Looking at that form there is no mention of the
8 loans; is that right?
9 A That's correct.
10 Q So they find out about it -- unless they find out
11 about it some other way, there is no reason to have this
12 debate, is it a loan or income or otherwise?
13 MR. WALLENSTEIN: Objection.
14 THE COURT: You are saying based on that document
15 alone?
16 MR. WHITE: Yes.
17 THE COURT: Overruled.
18 Based on that document alone the question is.
19 THE WITNESS: Based on that document alone there
20 is no reference to the loan.
21 Q I would like to go back to something you mentioned
22 with Mr. Wallenstein and earlier on the direct.
23 You worked you say on Who's Who, if I understood 24 you correctly, briefly in August of 1994, and then again 25 in November and December of 1994; is that correct?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7857 Razzino-recross/White
1 A That's my recollection, yes.
2 Q And to the best of your recollection, how long did
3 you work there in August? Was it just at few days?
4 A 40 hours, four days.
5 Q Okay.
6 And then in November and December when you were
7 there, Maria Gaspar wasn't there, was she?
8 A No. My recollection is she left in the fall, October
9 of 1994.
10 Q Okay.
11 So, by the time you came back in October --
12 November, December, 1994, Maria Gaspar was already gone?
13 A That's correct.
14 Q And so, your comments with respect to Ms. Maria
15 Gaspar's bookkeeping abilities are based on four days
16 contact with her?
17 A Yes, 40 hours, yes.
18 MR. WHITE: No further questions.
19
20 RECROSS-EXAMINATION
21 BY MR. TRABULUS:
22 Q Mr. Razzino, Mr. Wallenstein asked you a question
23 concerning the taxpayer's address on the form, and he 24 asked you whether it was information that was to come from 25 a taxpayer; do you recall that?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7858 Razzino-recross/Trabulus
1 A Yes.
2 Q As a tax preparer, were there ever instances in which
3 you as a preparer paying -- preparing for a taxpayer to
4 sign, simply copied an address from the year prior form?
5 A Yes, I can say that I have done that, yes.
6 Q Now, I am going to show you, if I can find the
7 exhibit --
8 (Whereupon, at this time there was a pause in
the
9 proceedings.)
10 MR. TRABULUS: Bear with me a moment.
11 THE COURT: Yes.
12 (Whereupon, at this time there was a pause in the
13 proceedings.)
14 Q I am going to show you my copy of what is marked in
15 evidence as Exhibit 409.
16 Do you see that as a U.S. individual income tax
17 return for 1991?
18 (Handed to the witness.)
19 A That's correct.
20 Q And it is for Bruce Gordon, right?
21 A Yes.
22 Q And it gives a 1983 Marcus Avenue address, right?
23 A Yes, it does. 24 Q And it also has a 1991 wage and tax statement for 25 Mr. Gordon, a W-2 that gives an address of 10 Bluff Road;
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7859 Razzino-recross/Trabulus
1 isn't that correct?
2 A Yes, that is correct.
3 Q And the document itself was prepared by Mr. Reffsin;
4 is that corre
ct? Do you recognize this that he has signed
5 it as a tax preparer?
6 A Yes.
7 Q It is dated April 13th, 1992?
8 A That's when Mr. Gordon signed it. It was prepared on
9 April 9th, 1992.
10 Q That's when Mr. Reffsin signed it?
11 A Correct.
12 Q I would like to ask you some questions concerning the
13 collection -- information on the collection statement.
14 Under the -- and that would be Exhibit 420-D that
15 you were questioned about, right?
16 A ED.
17 Q And you were asked some questions concerning
18 necessary living expenses; is that right?
19 A My interpretation, yes.
20 Q If you look at the instructions, under the heading:
21 Necessary Living Expense, there are instructions for
22 particular items; is that correct?
23 A Yes. 24 Q And so, for rent, it says enter your monthly rent 25 payment, right?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7860 Razzino-recross/Trabulus
1 A That's correct.
2 Q And so, for that particular one, one would know to
3 enter the actual rent payment; is that correct?
4 A That's correct.
5 Q Now, for groceries, which is item 43, there is no
6 specific instruction, right?
7 A No, there is no specific instruction for groceries.
8 Q So, unlike the case of rent where it tells you to
9 actually list what you are paying for rent, it doesn't ask
10 you if you like to eat a couple of ounces of caviar a day,
11 under groceries to put down thousands and thousands a day
12 for your needed necessary groceries; is that correct?
13 A Yes.
14 Q There are individualized instructions with regard to
15 other particularized items; is that right?
16 A Yes.
17 Q For utilities it tells you to include the total
1
8 utilities, right?
19 A That's correct.
20 Q For transportation, it tells you to do your average
21 monthly expense for gasoline, oil, parking, public
22 transportation; is that right?
23 A Correct. 24 Q For medical expenses, it tells you to show recurring 25 medical expense only and not to use or include occasional
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7861 Razzino-recross/Trabulus
1 ones; is that right?
2 A Yes.
3 Q So, if I were to tell you that in this case there was
4 testimony that on one of these forms payments that were
5 attributed to medical expenses of a non-recurring type for
6 Mr. Gordon's wife were not listed, that is not saying it
7 was supposed to be listed; is that right?
8 A If it is an occasional expense, the form indicates
9 you wouldn't need to.
10 Q Right.
11 There is another
place for other expenses,
12 right? That's the last item, 51; is that right?
13 A No.
14 Q I am sorry, you are looking at the instructions. Do
15 you have the form itself?
16 A Yes, I have the form.
17 Q The form itself has a catch-all provision for other
18 expenses?
19 A Yes, number 51.
20 Q And there is no specific instruction for that,
21 right? On the set of instructions there is nothing there;
22 is that right?
23 A No, there is nothing there. 24 Q Is it fair to say that there is nothing in the 25 instructions which will override the general listing that
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7862 Razzino-recross/Trabulus
1 it is to be what is necessary; is that fair to say?
2 A That's fair.
3 Q So, in the case of other expenses a fair
4 interpretation is you have to just list whatever is
5 necessary; is that correct?
6 A Correct.
7 Q Even if it is less than what you are actually
8 spending; is that correct?
9 A That is correct.
10 Q Now, Mr. White asked you whether or not from the
11 particular form that yourself, you yourself had in front
12 of you, you would be able to tell whether or not there
13 were loans made to Mr. Gordon; is that correct? In other
14 words, that an IRS agent would be able to tell that
15 looking at the collection information statement? Do you
16 remember Mr. White asking you that?
17 A Yes. There was no reference to loans on this form.
18 Q In terms of whether or not an IRS agent would be
19 informed about loans, is it fair to say that one might not
20 look just to this document, but to other documents
21 available to the IRS?
22 A Sure.
23 Q Such as, for example, corporate income tax returns?
24 A They would look for corporate income tax returns or 25 any other document to give better or additional evidence.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7863 Razzino-recross/Trabulus
1 Q So if the corporate income tax returns disclosed
2 loans, that would be an indication -- withdrawn.
3 That could be something that the IRS could
4 consider?
5 A Absolutely.
6 Q And it might even eliminate the necessity to refer to
7 it on another document; is that correct?
8 A That's would be if they cross-referenced both
9 documents.
10 THE COURT: Is this a good time to take a break?
11 MR. TRABULUS: I am merely done, your Honor, I
12 could just go another minute.
13 THE COURT: Go ahead.
14 Q You were asked some questions about whether or not
15 there should be disclosure of whether Mr. Gordon had the
16 power to cause
loans to be made to himself? Yes? Do you
17 recall that?
18 A I don't quite remember it phrased that way, but --
19 Q Let me just ask you: If among the documents given to
20 the IRS in connection with the collection information
21 statement, was a compensation agreement that indicated
22 that Mr. Gordon was the president of the company,
23 responsible for his day to day affairs, and, indeed, was 24 the director of the company, would that be an indication 25 that he indeed had the power to cause loans made to
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7864 Razzino-recross/Trabulus
1 himself?
2 A Not a compensation agreement itself. It would be
3 certainly an indication of income.
4 Q If the compensation agreement indicated he himself it
5 was the president, controlled the day to day affairs,
6 indeed, was also a director of the co
mpany, would it
7 indicate to you that he might have the power, not
8 necessarily derived from the agreements itself, but he
9 might necessarily be a person who could cause the company
10 to make loans to himself?
11 A Yes.
12 MR. TRABULUS: I have no further questions.
13 MR. WALLENSTEIN: Judge, I have a brief
14 re-redirect.
15 THE COURT: We are going to wait.
16 MR. WHITE: I do, too, your Honor.
17 THE COURT: All right.
18 Members of the jury, we will recess for lunch
19 until 1:30. Keep an open mind. Do not discuss the case.
20 See you at 1:30. And have a nice lunch.
21 (Whereupon, at this time the jury left the
22 courtroom.)
23 (Luncheon Recess.) 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7865 Razzino-recross/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 THE COURT: Please be seated, members of the
6 jury.
7 You may proceed.
8
9 V I N C E N T R A Z Z I N O ,
10 called as a witness, having been previously
11 duly sworn, was examined and testified as
12 follows:
13
14 MR. TRABULUS: I have no further questions.
15
16 FURTHER REDIRECT EXAMINATION
17 BY MR. WALLENSTEIN:
18 Q Is it a fair statement in your examination of the
19 books and records of Who's Who, the -- that the loan and
20 exchange account we were talking about contained all the
21 information with respect to the loans to Bruce Gordon?
22 A It is a fair statement.
23 Q If you were looking to hide something from the 24 Internal Revenue Service is it a fair statement that you 25 would not put it on the books like that?
HARRY RAPAPO
RT, CSR, CP, CM OFFICIAL COURT REPORTER 7866 Razzini-redirect/Wallenstein
1 A I think quite the opposite. I think sitting in the
2 loan account it would be pretty obvious to whoever wanted
3 to look at it.
4 Q There was no efforts made here by Mr. Reffsin or
5 anybody else for that matter to hide the numbers from the
6 IRS; is that correct?
7 MR. WHITE: Objection. Form and substance. This
8 is direct.
9 THE COURT: Sustained as to form.
10 Q From your examination of the books and records, could
11 you determine whether or not there was any effort made to
12 hide these numbers from the Internal Revenue Service?
13 A I don't think I understand your question.
14 Q From your examination of the books and records of
15 Who's Who, could you tell whether or not there were loans
16 and other payments to Bruce Gordon listed on the books?
17 A If you
did an audit you could. Remember, we didn't
18 do an audit. But if it was obvious we could tell, yes.
19 If it wasn't obvious, we didn't look on every single
20 transaction that occurred.
21 Q There was in fact a loan exchange account?
22 A Yes, more than one.
23 Q Those loan and exchange accounts included matters, or 24 items, rather, which were paid by the corporations on 25 behalf of Bruce Gordon, such as American Express bills,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7867 Razzini-redirect/Wallenstein
1 correct?
2 A Yes.
3 Q And the purpose of putting them in the loan and
4 exchange account was to demonstrate that they were in fact
5 monies loaned to Bruce Gordon in one fashion or another,
6 correct?
7 A That's correct, as opposed to showing them as
8 deductions or tax deductions.
9 Q And they would in fac
t then not be a deduction to the
10 corporation?
11 A No. If you put it in the loan account, they would --
12 it would be a suspense item, and, in fact, the corporation
13 would pay taxes on it.
14 Q And, in fact, this corporation did pay taxes on it,
15 did it not?
16 A Yes.
17 Q Now, you were asked some questions earlier with
18 respect to the amount of time you spent with Maria
19 Gaspar.
20 A Yes.
21 Q And you were asked -- you indicated that you spent
22 about 40 hours, four full days, in the course of August of
23 1994; is that correct? 24 A Correct. 25 Q And would it be a fair statement that we are talking
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7868 Razzini-redirect/Wallenstein
1 about now ten-hour days?
2 A That's correct.
3 Q And these were non-occasional contacts? It would be
4 a fair statement that the bulk of that time was spent with
5 her working on the books and talking about the books?
6 A Well, she had her own office and we generally worked
7 in the conference room. But we were back and forth all
8 day long.
9 Q A fair amount of contact during that time?
10 A Yeah, I would say a fair amount.
11 Q And would it also be a fair statement that during
12 those four days you were not doing the day to day
13 bookkeeping of the company? That was her function,
14 correct?
15 A That's correct. I didn't do any bookkeeping.
16 Q What you were doing those four days was reviewing the
17 previous eight-months worth of entries she had made; is
18 that a fair statement?
19 A A fair statement.
20 Q As a result of which you were in a position to
21 determine whether or not she was making appropriate
22 entries and to criticize tho
se which you considered to be
23 inappropriate? 24 A Yes. 25 Q Now, going back to Exhibit ED, the instructions for
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7869 Razzini-redirect/Wallenstein
1 the collection information statement.
2 Would it be a fair statement that the purpose for
3 this statement is for the Internal Revenue Service to find
4 out how much money they could get from the taxpayer who is
5 in a position where he owes them money at that point?
6 A That's a fair statement.
7 Q And, in fact, this particular collection information
8 statement, the 433-A, was submitted along with an offer in
9 compromise; is that correct?
10 A That's the normal procedure.
11 Q And an offer in compromise is an offer to the
12 government to pay less than the full amount owed in full
13 satisfaction of the amount owed; is that cor
rect?
14 A That's correct.
15 Q Would it be a fair statement that IRS procedures in
16 conjunction with that are to find out everything they can
17 about the taxpayer so they can get as much money as
18 possible?
19 A I would suppose so.
20 Q And when they talk about necessary living expenses,
21 it is your understanding that IRS is looking for those
22 things that a taxpayer needs to live on, but not
23 necessarily that which he would like to live on; is that 24 correct? 25 A Yes. It says necessary living expenses.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7870 Razzini-redirect/Wallenstein
1 Q And, in fact, would it be a fair statement that the
2 IRS policy is something akin to, well, you don't need two
3 pair of socks, you can wash one of them, we want the money
4 for the other one?
5 A I suppose you can look
at it that way.
6 MR. WALLENSTEIN: Thank you.
7 I have no further questions.
8
9 FURTHER RECROSS-EXAMINATION
10 BY MR. WHITE:
11 Q Now, Mr. Razzino, let me ask you about the example
12 that Mr. Wallenstein just gave you, two pairs of socks.
13 Is it fair to say, since Mr. Wallenstein was
14 asking your opinion about it, that the IRS wants to know
15 if you do have two pairs of socks, so they can tell you,
16 no, you only need one?
17 A I think they would like to know that, but they don't
18 ask for it.
19 Q Now, in response to some of Mr. Trabulus' questions,
20 he asked you about the line on the form for groceries on
21 the 433 form; do you recall that?
22 A Yes.
23 Q And the -- and the example he gave you is if a 24 taxpayer was spending a lot of money each month on caviar, 25 do you remember that question he asked you?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7871 Razzini-recross/White
1 A Yes.
2 Q Didn't you tell me when I was asking you the
3 questions before, that if the taxpayer was making those
4 expenditures and intended in the future to continue making
5 those expenditures, then that meant he thought they were
6 necessary and they should be listed? Is that a fair
7 statement of what you said before?
8 A That's my opinion, yes.
9 Q Okay.
10 That's your opinion as an accountant of 20 years,
11 right?
12 A That's right.
13 Q Now, so in Mr. Trabulus' example, if the taxpayer
14 were spending extravagant sums on caviar every month, and
15 intended to continue doing that, apparently he thought
16 that was necessary and it should be listed, right?
17 A If the taxpayer intended to maintain that level of
18 expense, and he con
sidered it necessary, I would say, yes,
19 necessary expenses would be listed on the form.
20 Q Exactly.
21 And then he would list that, and perhaps the IRS
22 might say, well, I am not going to give you credit for
23 spending all that money on caviar. You are still going to 24 have to make a payment, and it will be up to you, either 25 you cut out your caviar, or you cut out something else?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7872 Razzini-recross/White
1 A I would think that anything on the form would be
2 subject to challenge by the IRS.
3 Q Let me see if I understand.
4 As far as you know, your understanding is if the
5 taxpayer is incurring those expenses and expects to
6 continue to do that, it is necessary and, therefore,
7 should be listed?
8 A Based on what I just read here this morning that
9 would be my
interpretation.
10 Q Mr. Trabulus asked you about the situation where
11 certain facts were disclosed on other forms, like
12 corporate tax forms. Do you remember that?
13 A Yes.
14 Q And he asked you if -- I think this is a quote, if
15 that would eliminate the necessity of disclosing it on
16 other documents. Do you remember that question?
17 A Vaguely.
18 Q All right.
19 Let me ask you, if in your experience, 20 years
20 as an accountant, dealing with the IRS, if someone is
21 filling out an IRS tax form and a question asks for them
22 to list something can they not disclose something just
23 because they think it is mentioned on another document? 24 MR. TRABULUS: Objection to form, your Honor. 25 THE COURT: Overruled.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7873 Razzini-recross/White
1 A That depends on t
he nature of the document. It
2 depends on the facts and circumstances of the case.
3 Generally speaking, no.
4 Q A taxpayer has to sign a form under penalty of
5 perjury that that document that they are signing is
6 correct, right?
7 A That's correct.
8 Q And they don't -- unless they indicate it somewhere,
9 it is not that, well, you can go look at that other form I
10 filed two years ago and that will tell you the same
11 information, so I will not include it here? You can't do
12 that, right?
13 A Generally, no. The answer is no.
14 Q Mr. Trabulus asked if Mr. Gordon had a compensation
15 agreement it would indicate he, he had the power to make
16 loans for himself; do you remember that?
17 (The witness nods his head.)
18 Q Now --
19 THE COURT: Did you answer that question?
20 THE WITNESS: Yes.
21 MR. WHITE: I am sorry.
22 THE WITNESS: If I recall it is in his capacity
23 as president or some other official of the company. 24 Q Right. 25 Now, even if that indicated -- grant that for a
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7874 Razzini-recross/White
1 moment, even if that indicated that he had maybe -- let me
2 go back.
3 Even if such an agreement implied that he had the
4 hour -- he had the power to make loans to himself, if you
5 look at the 433 form we looked at this morning, that
6 doesn't mention any loans; is that correct?
7 A That's right.
8 Q If you put the two together, it would indicate maybe
9 he has the power to, but if he actually extended loans to
10 himself that would be listed on the form, right? Isn't
11 that a fair conclusion?
12 A I suppose so.
13 Q And Mr. Trabulus asked you about going and looking at
1
4 corporate tax returns, right? You said an IRS agent can
15 do that; is that right?
16 A Yes.
17 Q You are not familiar with the procedures followed by
18 the IRS collection division, are you?
19 A No, not -- not really.
20 Q And an IRS revenue officer in the collection division
21 might not have any reason to go check the corporate
22 returns if it was unknown to him that the taxpayer had an
23 ownership interest in the corporation, right? 24 MR. WALLENSTEIN: Objection. 25 THE COURT: Sustained.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7875 Razzini-recross/White
1 Q You just answered in response to -- let me back up.
2 Let me make sure I understood you right.
3 You said in response to Mr. Wallenstein's
4 question a few moments ago, that the purpose of the 433 is
5 to find out as much as possible about the taxpayer so
that
6 the IRS can get the most money possible; is that a fair
7 statement?
8 A I said it is a fair statement. But you will recall
9 that I don't have a lot of experience with 433-A's.
10 Q Okay.
11 You also indicated yes in response to
12 Mr. Wallenstein's question that the purpose of a 433 was
13 to find out how much money the IRS can get from the
14 taxpayer; is that right?
15 A I said based on what I have seen here I would say it
16 is a fair conclusion.
17 Q Now, Mr. Wallenstein asked you questions about
18 Mr. Gordon's loan accounts; do you remember that?
19 A Yes.
20 Q And didn't you indicate before that you didn't have
21 anything to do with Mr. Gordon's loan account?
22 A It was not my area.
23 Q Now about -- now, he also asked you about whether or 24 not Who's Who pays taxes on Mr. Gordon's loan account. 25 Were you involv
ed in preparing the tax returns?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7876 Razzini-recross/White
1 A No.
2 Q Now, Mr. Trabulus showed you rent checks from
3 Mr. Gordon to Publishing Ventures.
4 Do you recall that?
5 A Yes.
6 Q And those were prior to the July of 1993 date on that
7 offer and compromise form; is that right?
8 A Yes.
9 Q Would you know if, for example, Mr. Reffsin told
10 Agent Jordan that if Mister -- that Mr. Gordon moved into
11 the condominium in April of 1993, four months before the
12 offer in compromise was filed?
13 MR. WALLENSTEIN: Objection.
14 THE COURT: Can I hear the question again,
15 Mr. Reporter.
16 (Whereupon, the court reporter reads the
17 requested material.)
18 Q Is it fair to say that you don't know one way or
19 another as to when Mr. Gordon moved int
o that condominium?
20 A That's right, I didn't know.
21 MR. WHITE: No further questions.
22 THE COURT: Anything else?
23 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7877 Razzini-recross/Trabulus
1 FURTHER RECROSS-EXAMINATION
2 BY MR. TRABULUS:
3 Q Mr. Razzino, Mr. White asked you some questions
4 concerning the interpretation of "necessary" and
5 "necessary living expenses," and I would like to know if
6 you believe the form 433-A would have to be filled out the
7 same way if instead of saying necessary living expenses on
8 it, it simply said "living expenses?"
9 A I might interpret it differently if it said "living
10 expenses," and not "necessary."
11 MR. TRABULUS: No further questions.
12 MR. WALLENSTEIN: Nothing further.
13 THE COURT: Anything else?
14 MR. WHITE: No, your Hon
or.
15 THE COURT: You may step down.
16 (Whereupon, at this time the witness left the
17 witness stand.)
18 THE COURT: Call your next witness, please.
19 MR. TRABULUS: Your Honor, at this point I will
20 call a witness, Allan Mendelsohn. And I have to go
21 outside and get him.
22 THE COURT: Very well.
23 (Whereupon, at this time there was a pause in the 24 proceedings.) 25 THE COURT: Raise your right hand.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7878
1
2 A L L A N M E N D E L S O H N ,
3 called as a witness, having been first
4 duly sworn, was examined and testified
5 as follows:
6
7 THE CLERK: Please be seated.
8 State your full name and spell your last name.
9 THE WITNESS: Allan Mendelsohn,
10 M E N D E L S O H N.
11 THE COURT: Your first name?
12 THE
WITNESS: Allan.
13 THE COURT: How do you spell that?
14 THE WITNESS: Two L's, two As.
15
16 DIRECT EXAMINATION
17 BY MR. TRABULUS:
18 Q Good afternoon, Mr. Mendelsohn.
19 Mr. Mendelsohn, are you an attorney?
20 A Yes, I am.
21 Q Do you serve as a bankruptcy trustee?
22 A Yes, I do.
23 Q Are you the bankruptcy trustee for Who's Who 24 Worldwide? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7879 Mendelsohn-direct/Trabulus
1 Q Now, Mr. Mendelsohn, I would like to ask you, what
2 has happened with regard to the sale of the assets of
3 Who's Who Worldwide? Can you tell us?
4 A Which assets are you referring to?
5 Q Well, do you know what happened to the furnishings
6 and appointments at 1993 Marcus Avenue, Lake Success?
7 A I believe those were sold. However, I don't believe
8 the trustee or the bankruptcy estate had anything to do
9 with their removal from that facility. I believe that was
10 done by the corporate -- corporations prior to the time I
11 was appointed as trustee.
12 Q Now, let's proceed to the facilities of Sterling
13 Who's Who located -- their office facilities on Lexington
14 Avenue.
15 Do you know if there was any sale of the
16 furnishings and equipment there?
17 A Yes. I believe with respect to the Marcus Avenue
18 property and the Who's Who location in Manhattan, it is my
19 understanding that some of the assets was put, were put in
20 storage, and the trustee did pursuant to bankruptcy court
21 order did liquidate those physical assets.
22 Q The trustee meaning yourself?
23 A Yes. 24 Q You had auctioneers or people doing it for you? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT
REPORTER 7880 Mendelsohn-direct/Trabulus
1 Q Do you know how much was realized from those assets?
2 A You are referring to the Marcus Avenue and the
3 Lexington Avenue furnishings, fixtures and equipment?
4 Q Yes, if you can isolate that?
5 A I believe in the neighborhood of $85,000.
6 Q Do you know how much the original costs was? Do you
7 have an estimate?
8 A No.
9 Q On such sales do you know what the percentage is
10 usually realized in relation to the original cost?
11 A It varies from sale to sale, depending on what you
12 are selling.
13 Q Now, with respect to the penthouse that was located
14 in New York City, which Sterling had a lease on, was there
15 also a sale of the furnishings and appointments there?
16 A Yes, there was.
17 Q Can you tell us some of the things that were sold
18 there?
19 A Artwork, couches,
furniture, all the furnishings,
23 Q Do you know how much was realized from that sale? 24 A I think it was approximately $43,000. 25 Q Do you have any sense of what the original cost of
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7881 Mendelsohn-direct/Trabulus
1 those items were?
2 A No, I don't.
3 Q Now, when those assets were sold, was that supposed
4 to be -- was that for the benefit of Who's Who Worldwide's
5 bankrupt estate?
6 A Yes, it was.
7 I want to go back to your last question because I
8 don't think I answered it fairly.
9 Q That's okay.
10 A When you asked if I have any knowledge as to what the
11 cost basis of some of those assets were, I don't have a
12 recollection as I sit here today, but I do
n't want you to
13 think that I didn't have any idea as to what the cost
14 basis was, because in fact there was some litigation with
15 Mr. Gordon over the documents that evidenced the purchase
16 and acquisition of those assets. So they are part of the
17 record somewhere.
18 I just don't, as I sit here today have an
19 independent recollection. But if I reviewed the court
20 file I could refresh my recollection as to what the cost
21 of a lot of those items were.
22 Q And you came here to say pursuant to subpoena, did
23 you not? 24 A Yes. 25 Q You brought various documents with you, did you not,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7882 Mendelsohn-direct/Trabulus
1 sir?
2 A Yes.
3 Q And as you sit there now without reviewing the
4 documents, do you have a rough idea as to what the
5 ballpark o
f what the penthouse furnishings and
6 appointments and so forth, altogether, what their original
7 cost was?
8 A No, I don't.
9 Q Did you bring any documents with you that would
10 refresh your recollection as to that?
11 A I don't know if I did or didn't. I gave you all of
12 the documents.
13 I am not certain that anything there would relate
14 to the cost of the personal property.
15 Q Okay.
16 Just tell me if anything in there refreshes your
17 recollection as to the cost basis.
18 (Handed to the witness.)
19 THE COURT: Are those exhibits from the last
20 witness? If so, let's get rid of them.
21 MR. WHITE: I will take the old ones.
22 THE WITNESS: That one is mine.
23 (Whereupon, at this time there was a pause in the 24 proceedings.) 25 A It appears that Exhibit S to the notice of
HARRY RAPAPORT, CSR, CP, CM
OFFICIAL COURT REPORTER 7883 Mendelsohn-direct/Trabulus
1 cross-motion dated March 6, 1996, may contain some -- some
2 receipts as to certain of the personal property.
3 Q Well, I just asked you if that refreshes your
4 recollection as to what the cost of the property was?
5 A It does, because, again, part of the evidence in the
6 trustee's cross-motion were the original documents. So if
7 your question is do I have any idea what they cost, I
8 don't have as I sit here today. But there were documents
9 either produced or discovered by the trustee that
10 evidenced that.
11 Q And is it at least your recollection that the
12 original cost was many times what was realized at the
13 sale?
14 A Yes, I believe that that is true.
15 Q Now, Mr. Mendelsohn, do you recall when it was that
16 you first were appointed as trustee?
17 A I believe somet
ime late in 1995.
18 Q Originally you were what was called the Chapter 11
19 Trustee?
20 A Yes.
21 Q Eventually the case became a Chapter 7 liquidation?
22 A On my motion, I requested the Court convert the case.
23 Q You became the Chapter 7 trustee; is that right? 24 A Yes. 25 Q And you basically preside over the liquidation; is
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7884 Mendelsohn-direct/Trabulus
1 that correct?
2 A Yes.
3 Q In the course of that is one of your duties to file
4 tax returns for the corporation to the extent any are
5 required?
6 A Yes.
7 Q Have you filed any corporate tax returns for Who's
8 Who Worldwide?
9 A I believe my accountants in this case is called Kahn
10 Consulting, Inc., I don't have an independent recollection
11 as to whether tax returns were filed. I file s
omewhere in
12 the neighborhood of 50 to 100 tax returns a year for
13 various bankrupt entities, it is something sent to me to
14 my -- by my accounts to file, and I eventually send them
15 away.
16 Q Have any of the creditors of Who's Who Worldwide been
17 paid anything?
18 A Do you mean -- the nature of --
19 Q Let me back up.
20 Part of your responsibility as trustee is to
21 collect the assets from the liquidation of Who's Who
22 Worldwide and, and see to it after other expenses are
23 paid, creditors share in those assets; is that right? 24 A Yes. 25 Q Have any creditors received anything from those
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7885 Mendelsohn-direct/Trabulus
1 assets yet?
2 A To my knowledge the only creditors paid any funds in
3 the Who's Who cases relate to the administration of the
4 estate, which is legal fees, accounting fees.
5 Q Do you know how much the accountants have been paid
6 thus far?
7 A No, I do not.
8 Q Do you know how much the attorneys have been paid
9 thus far?
10 A I don't know as I sit here today.
11 Q Are you aware that the attorneys have applied for
12 approximately $300,000 in compensation?
13 A Yes.
14 Q Do you know they were paid a portion of that?
15 A Yes.
16 Q Was that about 75 percent of it?
17 A I don't recall.
18 Q Do you know that the accountants put in a bill for
19 about $100,000?
20 MR. WHITE: Objection. Leading.
21 THE COURT: Sustained as to form.
22 Q Let me ask you, are you familiar with a condominium
23 located at 200 Hummingbird Road in Searington? 24 A Yes. 25 Q And that condominium was owned at one point by PVI,
HARRY RAPAPORT, CSR, CP, CM
OFFICIAL COURT REPORTER 7886 Mendelsohn-direct/Trabulus
1 Inc., is that correct?
2 A Yes.
3 Q And you as trustee on behalf of the estate of Who's
4 Who Worldwide sought to recover that condominium from PVI,
5 Inc., is that correct?
6 A That's correct.
7 Q And what happened -- who owns the condominium now?
8 A I do, as trustee.
9 Q Now, is it your attention that it be sold and the
10 proceeds used to pay off creditors?
11 A That's my intention with respect to every asset in
12 this case because of the competing claims of the United
13 States Government and with respect to certain forfeiture
14 claims that they allege, and pursuant to orders of this
15 Court my intentions are irrelevant, because there is an
16 order directing what is getting done.
17 Q Let me ask you this: Take a situation in which
18 someone purchased a five-year
membership in Who's Who
19 Worldwide, a year before Who's Who Worldwide went into
20 liquidation.
21 Have you as trustee notified such a person that
22 there might be money available for a pro rata refund?
23 A I would typically send out that notice. That is a 24 notice generated by the Clerk of the Court at my request 25 and throughout my counsel's request when we are in a
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7887 Mendelsohn-direct/Trabulus
1 position to notify creditors that it appears likely there
2 will be a distribution on generally unsecured claims.
3 Q Do you know if there are any members of Who's Who
4 Worldwide or Sterling who are scheduled to receive any
5 money arising out of a liquidation of Who's Who Worldwide?
6 A Nobody is scheduled to receive any money until there
7 is a final meeting and the Court, the bankrupt cour
t
8 directs how to distribute the proceeds. So there is no
9 plan right now to make a distribution to any known or
10 unknown creditors. At the point of time there are
11 sufficient funds that it appears likely that generally
12 unsecured creditors of Who's Who will get a distribution,
13 a notice will be generated for them to have an opportunity
14 to file claims, which then gives me or my attorney the
15 opportunity to review the claims to see if they are
16 entitled to a distribution.
17 Q Is it your expectation that the notice will go to all
18 members of Who's Who Worldwide?
19 A I don't have an expectation. As I said, I don't
20 necessarily know if a notice will go out.
21 Q Well, there are certain creditors of Who's Who
22 Worldwide who participated in the bankruptcy proceeding;
23 is that not correct? 24 MR. WHITE: Objection. Leading questions.
25 THE COURT: Sustained as to form.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7888 Mendelsohn-direct/Trabulus
1 Q Reed Elsevir, as far as you know, is that Who's Who
2 Worldwide's largest creditor?
3 A I believe so, yes.
4 Q And do you know whether any members of Who's Who
5 Worldwide have filed any claims?
6 A I don't know.
7 Q Do you know whether anybody has attempted to assert
8 any claims on behalf of them?
9 A I don't know.
10 Q Do you know if any efforts are being made to contact
11 them to let them know some money was available for them?
12 A I thought I answered that question. We don't know if
13 any money is available for them until we have finished
14 liquidating assets. At this point in time you have
15 liquidated all the assets and you can compare it to --
16 THE COURT: You will have to slow down a little
17 bit, Mr. Mendelsohn.
18 THE WITNESS: You have told me that before,
19 Judge.
20 THE COURT: Do you want to repeat the answer,
21 please?
22 MR. TRABULUS: I will move to strike the answer
23 thus far. I don't believe it is responsive. 24 THE COURT: Do you want to then ask the next 25 question?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7889 Mendelsohn-direct/Trabulus
1 MR. TRABULUS: Yes.
2 Q Mr. Mendelsohn, how many creditors have thus far
3 appeared one way or another within the bankruptcy
4 proceeding?
5 A Reed Elsevir has appeared by counsel. There was an
6 official committee of unsecured creditors that appeared by
7 counsel during the status of the Chapter 11 case and even
8 subsequently.
9 Other individual creditor representation I am not
10 aware of any.
11 Q So, is it fair --
if I understand your last answer,
12 you are not aware of anybody representing any members; is
13 that correct?
14 A Not true. The official unsecured creditor's
15 committee is the representative of the body of all
16 creditors holding unsecured claims.
17 Q Are you aware as to whether or not that committee has
18 asserted any claims on behalf of any members?
19 A No, I am not aware of that.
20 Q You don't know one way or another?
21 A That's correct.
22 Q What happened to the furnishings and equipment within
23 the condominium? Was that also acquired by you? 24 A Which condominium? 25 Q 200 Hummingbird Road.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7890 Mendelsohn-direct/Trabulus
1 A I guess it was a week ago Friday when I went to
2 secure the premises and change the locks, it was vacant.
3 There wasn't a sti
ck of furniture in the place.
4 Q Now --
5 MR. TRABULUS: Bear with me a moment.
6 (Whereupon, at this time there was a pause in the
7 proceedings.)
8 (Mr. Trabulus confers with the defendant Gordon.)
9 Q Do you know if the stuff -- the furnishings that had
10 been there had been moved into the warehouse and
11 subsequently sold?
12 A I don't know. I have requested the tenant who
13 apparently moved out to -- and I am in communication with
14 his attorney, Mr. Sarnoff, to make further inquiry again.
15 This all happened within two weeks.
16 (Mr. Trabulus confers with the defendant Gordon.)
17 MR. TRABULUS: I have no further questions.
18 THE COURT: Anything else?
19 MR. WHITE: Yes, your Honor.
20
21 CROSS-EXAMINATION
22 BY MR. WHITE:
23 Q Now, Mr. Mendelsohn, when -- let me back up. 24 It was in early 1996 -- let me back up
even 25 further.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7891 Mendelsohn-cross/White
1 You were appointed in late 1995; is that right?
2 A Yes.
3 Q And is it correct that it was in early 1996 that you
4 or your representatives first took possession of the
5 penthouse apartment on East 54th that was being rented by
6 Who's Who?
7 A I believe that's correct.
8 Q Now, and ultimately you said in response to
9 Mr. Trabulus' questions that the furnishings in that
10 apartment, most of the them were sold, and the proceeds
11 went to the debtors' estate; is that right?
12 A Yes.
13 Q You mentioned that there was litigation over those
14 furnishings; is that right?
15 A Yes.
16 Q Now, were you personally sued in that litigation?
17 MR. TRABULUS: Objection, your Honor.
18 THE COURT: Sustained.
19 Q Now, can you tell us what position, if any,
20 Mr. Gordon took in that litigation with respect to whether
21 or not the furnishings in the penthouse were personal?
22 MR. TRABULUS: Objection.
23 THE COURT: Overruled. 24 A Mr. Gordon took the position that all of the property 25 located in the penthouse belonged to him personally.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7892 Mendelsohn-cross/White
1 There were also -- there was also a tremendous amount of
2 litigation over our right to seize certain books and
3 records which were located in that penthouse that
4 Mr. Gordon had claimed were the subject of attorney/client
5 privilege.
6 MR. TRABULUS: Objection. Move to strike.
7 THE COURT: Motion granted. Strike out the last
8 answer, that Mr. Gordon claimed, that part of the answer
9 is stricken. The jury is instructed to
disregard it. Pay
10 no attention to that.
11 Mr. Mendelsohn, let me show you a copy of
12 Exhibit 814, which is in evidence, which is entitled
13 adversary complaint.
14 (Handed to the witness.)
15 Q Do you see that?
16 A Yes, I do.
17 Q And that document indicates Bruce Gordon -- among
18 other things it says Bruce Gordon, plaintiff, against
19 Allan B. Mendelsohn, Solomon Green and Ostrow PC, Nicholas
20 F Kajon, K A J O N, and Christine Jagde, J A G D E,
21 defendants. Do you see that?
22 A Yes.
23 Q The Allan B. Mendelsohn referred there, is that you? 24 A Yes. 25 Q And you indicated, did you not, that Mr. Gordon took
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7893 Mendelsohn-cross/White
1 the position in this litigation that the contents of the
2 penthouse were his personal property; is that righ
t?
3 A Among other things, those were one of his
4 allegations, yes.
5 Q Now, if you can take a look at page 3, paragraph 15
6 of that document, do you see that?
7 A Yes, I do.
8 Q Would you follow along with me as I read it outloud.
9 It says: The penthouse was in part used for Gordon's
10 personal use. He often stayed at the penthouse with his
11 infant child. Do you see that?
12 A Yes.
13 Q And paragraph 18 says: Gordon subsequently advised
14 the trustee that he wished to remove personal effects from
15 the debtor's penthouse which he also used as a residence.
16 Do you see that?
17 A Yes.
18 Q And is that what you were referring to when you said
19 it was his position that the furnishings in the condo were
20 his personally?
21 A Yes.
22 We had started again, a proceeding to attempt to
23 sell all the property that was
located at the penthouse 24 apartment. And that's when we were served with this 25 lawsuit and also an order to show cause and temporary
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7894 Mendelsohn-cross/White
1 restraining order to try and enjoin us from selling the
2 personal property that was located there.
3 Q Now, let me also show you Government's Exhibit 642,
4 which is in evidence.
5 Now, 642 is a letter dated January 25th, 1996,
6 and it is from Mr. Gordon to Neil Ackerman. Do you see
7 that?
8 A Yes, I do.
9 Q Let's look at this for a moment.
10 In the first paragraph it mentions --
11 MR. TRABULUS: Objection, your Honor. It is
12 certainly beyond the scope of the direct. It is a
13 document that this particular witness had nothing at all
14 to do with it.
15 THE COURT: As far as your first objection,
16 that's overruled. As far as your second objection that's
17 overruled. I guess that means it's overruled in toto.
18 Q I want to ask you some questions about this,
19 Mr. Mendelsohn.
20 A Uh-huh.
21 Q The first paragraph says as you know -- back up.
22 Dear Neil:
23 As you know, Christine Jagde of Solomon Green and 24 Ostrow would not let me remove personal papers and objects 25 from the apartment on 54th Street.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7895 Mendelsohn-cross/White
1 Can you tell us who she is?
2 A An associate with the law firm of Solomon Green and
3 Ostrow. They are the attorneys in this case. She was
4 acting under my instructions.
5 Q Now, I wonder if you can follow along while I read
6 the fifth and sixth paragraph.
7 It says, quote, I have brought personal objects
8 that I have
paid for to the apartment, and objects given
9 to me as gifts from friends, employees, relatives and my
10 parents. I want an immediate release of these objects and
11 furniture. Christine would not let me remove my personal
12 camera, my stereo, my sculptures, art and furniture, that
13 does not belong to Who's Who Worldwide. These must be
14 released immediately.
15 Now, can you tell us what -- prior to this
16 letter, to this date, January of '96, what is it that
17 Christine Jagde had done in connection with the penthouse?
18 A She changed the locks.
19 Q Now, did you also indicate that -- let me stay with
20 the furnishings at the penthouse.
21 Now, when you were appointed trustee, did you and
22 your attorneys make any effort to get the books and
23 records of the corporations from Mr. Gordon? 24 MR. TRABULUS: Objection, your Honor. 25 THE COURT: Sustai
ned.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7896 Mendelsohn-cross/White
1 Q Were you ever provided with books and records of the
2 corporation by Mr. Gordon?
3 MR. TRABULUS: Objection, your Honor.
4 THE COURT: Sustained.
5 MR. WHITE: I have no further questions.
6 THE COURT: Anything else?
7 MR. WALLENSTEIN: I have a couple of questions,
8 Judge.
9
10 CROSS-EXAMINATION
11 BY MR. WALLENSTEIN:
12 Q Good afternoon, Mr. Mendelsohn.
13 Mr. Mendelsohn, would it be a fair statement that
14 in the context of the present Chapter 7 proceeding, that
15 the administrative expenses get paid first?
16 A Yes.
17 Q And the debtor, in this case Who's Who Worldwide, has
18 an accountant who has been appointed by the Court,
19 correct? Or recommended to the Court --
20 A I don't understand your quest
ion.
21 Q The debtor has an accountant, correct?
22 A I don't know if the debtor does or doesn't have an
23 accountant. 24 Q Well, are you aware that Mr. Reffsin, Martin Reffsin, 25 is the debtor's accountant in this proceeding?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7897 Mendelsohn-cross/Wallenstein
1 A The debtor is no longer in possession. So, do you
2 mean did the debtor in the course of the case have an
3 accountant?
4 Q I guess that's what I mean.
5 A Okay.
6 Q I am a criminal guy, not in bankruptcy.
7 During the post-petition period, the debtor had
8 an accountant who was acting and operating on his behalf;
9 is that correct?
10 A All I can tell you is that if the docket reflects
11 that an order was entered retaining, because all
12 accountants would have to be retained by court order. If
13
there was an order authorizing Mr. Reffsin or his firm to
14 be retained by the debtor, they are accountants of record.
15 Q Would his fees or his firm's fees with respect to
16 that be considered an administrative expense?
17 A Only to the extent allowed.
18 Q To the extent that the Court would permit the fees to
19 be paid?
20 A Right.
21 Q When you testified earlier that the attorneys and the
22 accountants had been paid, you were talking about the
23 attorneys representing the trustee? 24 A I was talking about the Chapter 7 administration 25 claims, not the Chapter 11 unpaid administration claims
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7898 Mendelsohn-cross/Wallenstein
1 that existed as of the conversion date.
2 Q What happens to them?
3 A They continue to have Chapter 11 administration
4 claims, which are paid i
n advance of generally unsecured
5 creditors to the extent allowed.
6 Q Do you know if any of them had been paid yet?
7 A I presume that some of debtor's counsel were paid
8 because they continued to work on the case, but I don't
9 know. In bankruptcy if you are being paid you are
10 required to disclose it to the Court. And I believe that
11 there were applications made for payment by the attorneys
12 who represented Who's Who during the Chapter 11 case.
13 Q Do you know whether or not Mr. Reffsin made an
14 application for fees for his company?
15 A I don't have independent knowledge of that as I sit
16 here.
17 Q Do you know if any of those claims had been paid, any
18 of his claims had been paid?
19 A I don't know.
20 Q You indicated that Mr. Gordon took the position that
21 the furnishings and other items in the penthouse apartment
22 were perso
nal items, correct?
23 A Yes. 24 Q Would it be a fair statement that you took the 25 opposite position?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7899 Mendelsohn-cross/Wallenstein
1 A Yes.
2 Q And your position was that those belonged to the
3 debtor, to the company?
4 A Yes.
5 Q Have those competing claims been resolved?
6 A I believe so. I believe there may be an appeal still
7 pending.
8 Q Is it a fair statement that it was resolved in your
9 favor?
10 A Yes.
11 Q So the Court determined they were corporate
12 possessions and sold under your jurisdiction as trustee?
13 A The bankruptcy court determined, yes.
14 Q Would the same be true of the furnishings in
15 Hummingbird Road?
16 A I testified earlier there were none.
17 Q There were none when you took it over as far as you
18 know?
19 A Correct.
20 MR. WALLENSTEIN: I have nothing further.
21 THE COURT: Anything else?
22 MR. TRABULUS: Bear with me a moment.
23 (Whereupon, at this time there was a pause in the 24 proceedings.) 25 MR. TRABULUS: No further questions.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7900 Mendelsohn-redirect/White
1
2 FURTHER REDIRECT EXAMINATION
3 BY MR. WHITE:
4 Q If Mr. Reffsin were the accountant for the debtor
5 prior to the time you were appointed as trustee, you said
6 he would have what is called a Chapter 11 claim?
7 A Yes, but again, the problem is I was trustee in two
8 separate instances here. I was appointed initially
9 Chapter 11 Trustee. From the period of time while the
10 case proceeded while I was a chapter 11 operating trustee,
11 until the point in time where the case is conver
ted, any
12 administrative claim, whether for legal fees, accounting
13 fees, professional fees of any kind, are treated the same
14 as Mr. Reffsin's claim, because it would have been a
15 Chapter 11 administration claim. From the point of
16 January, I believe, 1996, when the Court converted the
17 case to a liquidation under chapter 7, the Chapter 7
18 administration claims jump ahead of the Chapter 11
19 administration claims.
20 Q Let me see if I can simplify this.
21 If Mr. Reffsin did work for the debtor and hasn't
22 gotten paid regardless of the priority, he has a claim; is
23 that correct? 24 A Yes. 25 Q He can ask it be paid, he might be first in line,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7901 Mendelsohn-redirect/White
1 last in line, but he has a claim?
2 A Correct.
3 Q Mr. Trabulus also asked y
ou about the customers, and
4 you said they would have generally unsecured claims; is
5 that right?
6 A Yes.
7 Q If they wanted to make a claim, right?
8 So, is it correct then in terms of priority that
9 before any customer could ever get paid, Mr. Reffsin and
10 the accountants and the lawyers and everybody else would
11 have to get paid first?
12 A I believe that's correct, with one exception, that
13 when you are dealing in any kind of a business that dealt
14 with consumers, and if any of these could be construed as
15 a consumer deposit, the bankruptcy code gives its special
16 priority to consumer depositor creditors, and they jump up
17 the ladder, so they are not a true generally unsecured
18 claim.
19 Q Okay.
20 MR. WHITE: No further question.
21 THE COURT: Anything else?
22 MR. WALLENSTEIN: No, your Honor.
23 THE COURT: Y
ou may step down. 24 (Whereupon, at this time the witness left the 25 witness stand.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7902
1 THE COURT: You may proceed.
2 MR. WALLENSTEIN: Your Honor, I believe
3 Mr. Trabulus has something else prior to my next witness.
4 MR. TRABULUS: Yes. I have a tape that I wish to
5 play.
6 Your Honor, pursuant to stipulation,
7 Defendant's Exhibit GF for Identification can be
8 introduced in evidence.
9 THE COURT: Any objection?
10 MR. WHITE: Let me just look at it, your Honor?
11 (Whereupon, at this time there was a pause in the
12 proceedings.)
13 MR. WHITE: No objection.
14 THE COURT: Defendant's Exhibit GF, George Fox,
15 in evidence.
16 (Defendant's Exhibit GF received in evidence.)
17 MR. TRABULUS: It is a tape recording dated March
18 28th, 199
5. It is not a telephone conversation. It is a
19 live conversation. It was made by a confidential
20 informant working for the government at the premises of
21 Who's Who Worldwide. The principal voice on the tape is
22 that of Mr. Gordon.
23 THE COURT: You don't have a transcript, right? 24 MR. TRABULUS: There is no transcript. 25 THE COURT: All right.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7903
1 (Tape is begun.)
2 MR. TRABULUS: Make it as loud as possible.
3 THE COURT: I can't hear it. Maybe the jury's
4 and your hearing is better than mine. I can't hear it.
5 MR. TRABULUS: It may have to get a little
6 louder.
7 THE COURT: The roaring is loud. The voice is
8 low.
9 MR. WHITE: I will turn it up as loud as you want
10 then.
11 (Tape is begun.)
12 MR. WHITE: You see, that is what happens.
13 THE COURT: My hearing is reduced now, if I have
14 any hearing at all.
15 MR. TRABULUS: The quality gets better.
16 (Tape is played.)
17 MR. TRABULUS: Okay, you can stop it.
18 (Audio tape is stopped.)
19 MR. TRABULUS: That's it.
20 I have nothing further at this point.
21 THE COURT: Very well.
22 MR. WHITE: Your Honor, may I have a moment to
23 consult with Mr. Wallenstein? 24 THE COURT: Sure. 25 (Mr. White confers with Mr. Wallenstein.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7904
1 MR. WALLENSTEIN: Your Honor, may we approach for
2 a moment?
3 THE COURT: Come up.
4
5 (Whereupon, at this time the following took place
6 at the sidebar.)
7 MR. WALLENSTEIN: My next and my last witness is
8 Mr. Reffsin. I was planning on there being other
9 witnesses testifying
today. I wasn't sure whether that
10 was going to happen or not. Given the hour, I think that
11 Mr. White gets somewhat of an unfair advantage, in that if
12 I put him on now he gets the night to prep his cross after
13 having heard the direct. Frankly I can use a little bit
14 more time.
15 Given the hour, and realizing that it is not
16 quite 3:00 o'clock, it would be my application to break
17 and put Mr. Reffsin on first thing tomorrow morning.
18 THE COURT: Well, how many other witnesses are we
19 going to have? How long is this going to extend?
20 MR. WALLENSTEIN: I don't know. I don't have any
21 more witnesses.
22 THE COURT: Anybody else going to put witnesses
23 on? The time has come to give us an idea of what will 24 happen? 25 MR. TRABULUS: I told Mr. White, the two people I
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
7905
1 indicated last week I will call, Ms. Liggett and Post I
2 will not call. So at this point I have no further
3 witnesses, and I believe Mr. White and I will enter into a
4 stipulation. There may be some testimony I will read into
5 the records.
6 THE COURT: Certainly you can change your mind.
7 MR. TRABULUS: That is my present intention.
8 THE COURT: You can put anyone you want. But I
9 want to know present.
10 MR. TRABULUS: That's my present expectation.
11 Anything else? Anybody have any other
12 witnesses?
13 MR. NEVILLE: I am calling Sandra Barnes.
14 THE COURT: She is coming in tomorrow afternoon?
15 MR. NEVILLE: Yes.
16 THE COURT: So if we can take her testimony
17 tomorrow, we will be able to -- well, we will be able to
18 have a pre-summation charge conference on Wednesday and
19 sum up on Friday, and I will have to c
ancel all my
20 appointments on Friday, and go to the jury on Friday.
21 MR. WHITE: I am not sure that that schedule will
22 hold, your Honor, because I think the cross-examination of
23 Mr. Reffsin will be kind of lengthy, so Ms. Barnes will go 24 into Wednesday, how ever we order it. 25 THE COURT: I think we ought to start with
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7906
1 Mr. Reffsin today, and continue with him tomorrow morning,
2 and go with Ms. Barnes on Tuesday afternoon, tomorrow
3 afternoon, and finish her on Wednesday, and then if we can
4 have our pre-charge conference on Wednesday, we will go
5 over to Monday for summations. I feel that that might
6 make more sense. You should be able to start Mr. Reffsin 7 this afternoon.
8 MR. WALLENSTEIN: As you wish.
9 THE COURT: Thank you.
10 Do you want to start no
w or take a recess?
11 MR. WALLENSTEIN: I will take a recess.
12 THE COURT: Good thinking.
13 MR. WHITE: May I ask so we know the procedure?
14 If Mr. Reffsin goes to 4:30 or something
15 approaching that, do you want me to start then, or can we
16 break --
17 THE COURT: If Mr. Wallenstein consents, we will
18 break. If not we will go ahead to 5:00.
19 MR. WALLENSTEIN: If I got to go you have to go.
20 Let's see how far we get.
21 THE COURT: What is good for the goose is good
22 for the gander.
23 24 (Whereupon, at this time the following takes 25 place in open court.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7907
1 THE COURT: Ladies and gentlemen, we will take a
2 ten-minute recess now. Please do not discuss the case.
3 Keep an open mind. Then we will proceed when you come
4 back.
5 (Whereupon, at this time the jury leaves the
6 courtroom.)
7
8 (Whereupon, a recess is taken.)
9
10 THE CLERK: Jury entering.
11 (Whereupon, the jury at this time entered the
12 courtroom.)
13 THE COURT: Please be seated, members of the
14 jury.
15 You may proceed.
16 MR. WALLENSTEIN: Your Honor, the defendant calls
17 Martin Reffsin.
18 THE CLERK: Please raise your right hand.
19
20 M A R T I N R E F F S I N ,
21 called as a witness, having been first
22 duly sworn, was examined and testified
23 as follows: 24 25 THE CLERK: Please state your name and spell your
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7908
1 last name slowly for the record.
2 THE WITNESS: Martin Reffsin. R E F F S I N.
3 THE COURT: Have a seat, Mr. Reffsin.
4
5 DIRECT
EXAMINATION
6 BY MR. WALLENSTEIN:
7 Q Good afternoon, Mr. Reffsin.
8 A Good afternoon.
9 Q Mr. Reffsin, what do you do for a living?
10 A A certified public accountant.
11 Q How long have you been a certified public accountant?
12 A I passed the exam in 1971.
13 Q And have you been practicing since then?
14 A Yes, I have.
15 Q And would you tell the jury your professional
16 background.
17 A I graduated CCNY in 1965. I went there at night. I
18 held some accounting positions while I was going at
19 night. When I graduated I went to work for Touche Ross
20 and Company in their tax department. I was a principal at
21 Arthur Young and Company. In 1976 I went with Kenneth
22 Leventhal and Company and set up their tax department in
23 New York. I also have lectured for the Foundation for 24 Accounting Education, the educational arm of the America
n 25 Institute of Certified Public Accountants.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7909 Reffsin-direct/Wallenstein
1 THE COURT: I think you should get back a little
2 bit from the microphone.
3 Q Relax.
4 A Okay.
5 Q I know that's hard, but relax.
6 You say you taught for the educational arm of the
7 American Institute of Certified Public Accountants?
8 A Yes.
9 Q What happened when you left Leventhal, or when did
10 you leave Leventhal?
11 A In late '78 or early '79, and I went out on my own
12 completely.
13 Q And have you been on your own, or in your own company
14 since that time?
15 A Yes, I have.
16 Q And what is the nature of your accounting practice?
17 A It runs the gamut. For many years I was considered
18 somewhat of an expert in the real estate community, real
19 es
tate, development, construction. And during the 80's, a
20 major portion of my practice was real estate developers
21 and operators.
22 Q All right.
23 Did there come a time -- withdrawn. 24 Are you married? 25 A Yes, I am.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7910 Reffsin-direct/Wallenstein
1 Q Do you have children?
2 A Yes, I have two children, two grandchildren.
3 Q Did there come a time that you met Bruce Gordon?
4 A Yes.
5 Q Can you tell us when that was approximately?
6 A Approximately in 1980.
7 Q And in what connection?
8 A He was introduced to me by a law firm in New York to
9 do his accounting work.
10 Q And did you do it?
11 A Yes, I did.
12 Q Would it be a fair statement that you have done
13 Mr. Gordon's accounting work, or for those of his
14 companies off and on du
ring the years since the early
15 80's?
16 A Yes, that's correct.
17 Q And other than being his accountant, do you have any
18 social relationship with Bruce Gordon?
19 A None at all.
20 Q Now, in the early 90's, or late 80's, Mr. Gordon
21 started a company called Who's Who Worldwide; is that
22 correct?
23 A Yes. 24 Q Can you tell us whether you had anything to do with 25 Mr. Gordon beginning that company?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7911 Reffsin-direct/Wallenstein
1 A Yes. I started with Mr. Gordon with Who's Who
2 Worldwide, mid-to late 1990, doing the accounting work.
3 Q Now, at that point in time, is it a fair statement
4 that Mr. Gordon had a liability to the Internal Revenue
5 Service?
6 A Yes, I believe he did.
7 Q Did you subsequently become familiar with his IRS
8 pro
blems in that regard?
9 A Yes, I did.
10 Q Can you tell us what you know about it?
11 A He owes approximately three and a half million
12 dollars in combined income taxes, penalties and interest.
13 In addition, he owes $250,000 to the Department of
14 Justice.
15 Q And what is the nature of that debt to the Department
16 of Justice?
17 A It was for promoter penalties, commonly known as 6700
18 penalties.
19 Q Can you explain what those are?
20 A Those are penalties which were enacted to penalize
21 tax shelter promoters who were theoretically presenting
22 tax shelters creating excess in deductions.
23 Q Did you have anything to do with the accounting work 24 that ultimately wound up in Mr. Gordon owing those 25 penalties to the Internal Revenue Service or to the
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7912 Reffs
in-direct/Wallenstein
1 Department of Justice?
2 A I was the accountant for the company that was the
3 impetus for these tax shelters.
4 Q At the time you did the work, can you explain what
5 the company was and what it was doing?
6 A Television media work. M E D I A, Corp. It
7 functioned as an advertising agency in putting together
8 advertising programs for their just entities.
9 Q Can you explain how it is that there were penalties
10 and taxes imposed upon Mr. Gordon as a result of his
11 operation of that company?
12 A When I got involved the law firm, Adler Greenberg,
13 Hindy, George Hindy was the tax partner.
14 THE COURT: Adler --
15 A Adler, Greenberg, Hindy, H I N D Y.
16 George Hindy was the tax partner. And he
17 prepared the legal document, or the legal letter that
18 outlined the tax shelter, the tax shelter deals.
19 Ba
sically it was under the internal penalty code
20 you could take advertising deductions in the year
21 incurred. If you paid a million dollars for advertising,
22 and it is over a three year period, you can deduct the
23 million dollars in the year you incurred it. You didn't 24 have to take it over the three years. 25 Q Is it a fair statement that subsequently, in later
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7913 Reffsin-direct/Wallenstein
1 years, the Internal Revenue Service determined that those
2 tax shelters were inappropriate and what they termed as
3 abusive?
4 A That's correct.
5 Q As a result of that Mr. Gordon sustained tax
6 liability and promoter penalties; is that correct?
7 A That's correct.
8 Q Is it fair to say also that you had nothing to do
9 with the setting up of the shelters, all you did was keep
10 the books?
11 A That's correct.
12 Q And it was after the fact that the IRS went back and
13 said, no, what you did before was now no good?
14 MR. WHITE: Objection to the form of the
15 question.
16 THE COURT: Sustained as to form.
17 Q Can you explain how it came about that the Internal
18 Revenue Service declared these tax shelters to be abusive
19 and inappropriate?
20 A At that period in time in the mid-80's, the Internal
21 Revenue Service attacked all these tax shelters including
22 non-recourse notes. The deductions that were taken on the
23 tax shelter were generated by non-recourse notes. 24 Q What happened to those deductions? 25 A They were disallowed.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7914 Reffsin-direct/Wallenstein
1 Q After the fact?
2 A After the fact, yes.
3 Q At the time t
hey were taken they were okay, but later
4 on the IRS decided they were not; is that correct?
5 MR. WHITE: Objection to the form of the
6 question.
7 THE COURT: He is summing up what the witness
8 already said as I let you do on a number of occasions.
9 Overruled.
10 Q Is that a fair statement, Mr. Reffsin?
11 A Would you repeat it, please?
12 Q Would it be fair to say with respect to the tax
13 shelters the IRS said the deductions are okay, and later
14 on said, no, no, the deductions you took before are no
15 good?
16 A Well, the IRS doesn't say the deductions are okay.
17 They come in after the fact and make a determination as to
18 whether the deductions were okay. They came in and made
19 the determination that the deductions were not okay.
20 Q And those deductions that were disallowed after the
21 fact are what gave rise to Mr. Gordon's three
and a half
22 million dollar liability to the IRS and to the Department
23 of Justice; is that correct? 24 A The tax portion, yes. 25 Q And the penalty portion, what you described as the
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7915 Reffsin-direct/Wallenstein
1 promoter penalties, the 6700 penalties, they had to do
2 with his activities in connection with the promotion of
3 the shelters?
4 A Yes, that's correct.
5 Q It had nothing at all to do with you?
6 A That's correct.
7 Q There came a time that there was an agreement
8 negotiated between Mr. Gordon and the Department of
9 Justice; is that correct?
10 A Yes.
11 Q That agreement is in evidence here and we have seen
12 it and it is described as the collateral agreement; is
13 that correct?
14 A Yes.
15 Q Did you have anything to do with the
negotiation of
16 that agreement?
17 A No.
18 Q Do you know who did?
19 A The law firm -- I can't think of the name offhand.
20 Q If I told you Sherman and Sterling would that refresh
21 your recollection?
22 A Yes.
23 Q What is the name of the law firm that negotiated the 24 agreement? 25 A Sherman and Sterling.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7916 Reffsin-direct/Wallenstein
1 Q They are a Wall Street firm; is that correct?
2 A Yes, I believe so.
3 Q Or what we call a Wall Street firm, a firm out of
4 Manhattan with a lot of partners and a lot of money; is
5 that right?
6 A Yes.
7 Q Now, there came a point in time that Mr. Gordon began
8 to operate Who's Who Worldwide Registry, Inc.; is that
9 correct?
10 A Yes.
11 Q And when was that?
12 A Sometime in th
e middle 1990's.
13 Q Can you tell me what the function of you and your
14 firm was in connection with Who's Who from mid-1990 up
15 through 1994?
16 A Well, for the initial years until they got their own
17 bookkeeping staff, we the bookkeepers. We came in once a
18 month and did bank reconciliations, summarized the
19 activities and my staff posted to a general ledger to
20 determine -- to summarize the activity for a particular
21 period. And we did the tax returns at year end.
22 Q Now, by summarizing the activity, what do you mean?
23 A Well, at that time Liz Sautter was the person who was 24 the administrator who prepared all the checks. Someone 25 from my office would go in, do a bank reconciliation, to
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7917 Reffsin-direct/Wallenstein
1 make sure that we had a firm -- we had a fix on the p
roper
2 general ledger balance. Journal entries were prepared
3 from the information. And we then posted to a general
4 ledger on a monthly basis.
5 Q Okay.
6 Let me stop you for a minute.
7 A Yes.
8 Q Can you explain what a bank reconciliation is.
9 A When the bank statement comes in at the end of the
10 month or the beginning of the month, you take the bank
11 statement, open it up, and you determine what checks
12 cleared, what checks didn't clear, and you verify the cash
13 or I should say the deposits that go through the bank
14 statement for that month. And you generalize it, or we
15 generalized it.
16 Q What do you mean by generalize?
17 A We would take the checks that are written, and we
18 would post them to a general ledger.
19 The deposits which were made were summarized and
20 we made journal entries each month reflecting the
21 appropriate income and reflecting the appropriate cash
22 deposits in each of the bank accounts. At points there
23 were more than one bank account. 24 Q Asking you to back up one more time, and bearing in 25 mind you are the only accountant in the room except for
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7918 Reffsin-direct/Wallenstein
1 Mr. Rosenblatt, what is a journal entry, what do you use
2 it for?
3 A Okay.
4 Basically a journal entry is a procedure in which
5 you -- let's start from the beginning.
6 We use double entry accounting. For every debit
7 there is a credit. Therefore, if there is a deposit made
8 into the bank account, then we have to record the deposit
9 and the offset to that is either to income or to some
10 other account. So generally it is income. So we set up a
11 journal entry debiting the depo
sit into the cash account,
12 the appropriate cash account, and crediting the
13 appropriate income account or other account depending on
14 what it is. That's a journal entry.
15 Q Can you explain debits and credits in short terms?
16 A Debits to the left and credits to the right.
17 Q What does that mean?
18 A Debts generally represent -- in assets they represent
19 increases in the asset accounts. In expense accounts they
20 represent increases in the expense accounts.
21 Credits generally represent decreases in the
22 asset account and decreases in the expense accounts. When
23 you get to liabilities and income debts represent 24 reductions in liabilities. Credits to the liability 25 account represent increases to the liabilities.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7919 Reffsin-direct/Wallenstein
1 Again, for every --
generally every asset or
2 liability account in the balance sheet is an offsetting
3 income or expense account in the profit and loss
4 statement.
5 Q Now, you indicated that your company, or you or your
6 representatives would come in and do the monthly bank
7 reconciliations and do the postings to the journal and the
8 general ledger; is that correct?
9 A That's correct. We would record all the checks.
10 Occasionally we would also -- during the early periods
11 they had no bookkeeper and they didn't go outside for
12 payroll information. So we also -- somebody would set up
13 the payroll analyses as well.
14 Q Now, other than the payroll analysis, did you do any
15 analysis of the contents of the journals or the ledger
16 during the course of the year?
17 A We try to keep track of those items that might be
18 particularly -- might be particularly differen
t. We would
19 segregate them to determine what was done before.
20 Generally the analysis was basically done from an income,
21 expense asset liability.
22 Q You indicated you did the tax returns each year?
23 A That's correct. 24 Q Those are the corporate tax returns? 25 A That's correct.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7920 Reffsin-direct/Wallenstein
1 Q And did you -- did the books of Who's Who contain
2 what we have referred to here as a loan and exchange
3 account?
4 A Yes, they did.
5 Q Can you explain how that was set up and why.
6 A When the person came in and did the analysis of the
7 depositors checks, they made the items -- there may be
8 items within the deposits or checks which were made out
9 were questionable as to what they were. They weren't
10 obvious. They weren't an obvious vendor
. It wasn't
11 obviously income. And the loans and exchange accounts
12 were used as a type of expense account until at some point
13 in time it was determined what those items were.
14 Q And how often would you do that?
15 A On a monthly basis.
16 Q There is -- withdrawn.
17 Do you know the names of some of the people who
18 did some of these analyses on behalf of your firm and the
19 periods when they worked?
20 A Yes. Michael Hynes worked for me for several years:
21 His daughter Liz helped out occasionally. She did
22 analytical work, payrolls, and so forth.
23 Lori Schaikailo did it for me about a year. 24 S C H A I K A I L O, I believe it is. 25 Q Now, the corporations themselves, did you obtain any
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7921 Reffsin-direct/Wallenstein
1 knowledge at any time with respect to th
e ownership of
2 Who's Who?
3 A Well, initially we assumed that Bruce Gordon owned
4 100 percent of Who's Who.
5 Q And what led you to that assumption?
6 A There is no reason to assume otherwise.
7 Q And what period of time are we talking about?
8 A '90, '91.
9 Q Did that assumption change at any point in time?
10 A Yes. In '92, based on discussions with the Grossmans
11 we found out that they owned 25 percent.
12 Q When did that discussion take place?
13 A February, March, '92.
14 Q Was that an in-person discussion or telephone?
15 A Telephone.
16 Q Who did you have the discussion with?
17 A The only discussion I had was with Richard Grossman
18 for about five minutes.
19 Q Can you tell us what that discussion was?
20 A Well, there was a loan on the book for $25,000 due to
21 Richard Grossman. We were not aware that there was any
22 stock involved with the transaction. Mr. Gordon never
23 told us. At one point in February of '92, Mr. Gordon 24 asked if we would calculate the interest on the 125,000 25 based on the payment schedule at the rate of 15 percent.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7922 Reffsin-direct/Wallenstein
1 And then he requested that I speak to Mr. Grossman to
2 determine if he was satisfied with the calculation of the
3 interest.
4 In addition, there was a fax -- Mr. Grossman
5 indicated that there was going to be a transfer, which is
6 how I found out about the stock, that there was going to
7 be a transfer of the stock to his pension or trust. And
8 he requested, I think it was an ID number, for Who's Who
9 Worldwide.
10 Q You mean a federal tax ID number?
11 A A federal identification number, right.
12 And I discussed
the interest with him, and the
13 whole conversation took maybe five minutes.
14 Q What part of the conversation dealt with the
15 ownership of the stock of Who's Who?
16 A None of it. The ownership of the stock of Who's Who
17 came about via the fax.
18 Q And what was that?
19 A It was just a fax with respect to the identification
20 numbers, because she was transferring his ownership to the
21 trust. The fax indicated that.
22 Q And that's the first time you learned that Bruce
23 Gordon did not own 100 percent of Who's Who? 24 A That's correct. 25 Q And what percentage did Dr. Grossman own at that
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7923 Reffsin-direct/Wallenstein
1 time?
2 A 25 percent. There was a little mix up as to whether
3 it was 20 or 25 percent. 25 percent.
4 Q And that was, you said, in Februa
ry, March of 1992?
5 A That's correct.
6 Q Did there come a time, a subsequent time that you
7 learned that Mr. Gordon claimed to earn a different
8 percentage, or the Grossmans claimed to own a different
9 percentage?
10 A Yes. In early 1993, very early 1993, late '92 or
11 early '93.
12 Q Can you explain how that came about?
13 A We had a discussion regarding what was a combination
14 discussion, a discussion regarding the loan exchange
15 accounts. And in addition, he indicated to me he did not
16 own 75 percent of the stock.
17 Q He, being Bruce Gordon?
18 A Bruce Gordon, yes.
19 Q And what did he say he owned?
20 A He said he owned none. He said he had a compensation
21 agreement.
22 Q And this is when in time?
23 A Late February, early March. 24 Q '93? 25 A Uh-huh.
HARRY RAPAPORT, CSR, CP, CM OFFICI
AL COURT REPORTER 7924 Reffsin-direct/Wallenstein
1 Q Up to that time you believed he owned 75 percent?
2 A That's correct.
3 Q Based on Dr. Grossman telling you in March of 1992,
4 he owned 25 percent?
5 A Based on the fax, yes.
6 Q In early 1993 you had a discussion with him with
7 respect to the loan account?
8 A Yes.
9 Actually, it was late 1992 I had a discussion
10 with respect to the loan account.
11 Q Did you at any point in time see stock certificates
12 evidencing ownership of the stock of Who's Who Worldwide?
13 A Yes. When he said he didn't own it I asked him to
14 produce a copy of the stock certificate. At that point I
15 wanted to know if that was a fact.
16 Q And did he produce the stock certificates?
17 A Yes, he did.
18 Q What did the stock certificates indicate?
19 A That Joyce Grossman owned 75 percent
.
20 Q And the other 25?
21 A Still owned by the trust.
22 Q The Grossman trust?
23 A Yes. 24 Q And those would be the stock certificates we have 25 seen here in evidence; is that right?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7925 Reffsin-direct/Wallenstein
1 A Yes.
2 Q When you saw them, were they signed by the Grossmans?
3 A Yes.
4 Q And did you have any reason to believe that those
5 were not genuine signatures?
6 A No.
7 Q Did you have any reason to believe at that time that
8 the Grossmans did not own 100 percent of Who's Who?
9 A No.
10 Q Now, can you tell us the discussions you had with
11 Bruce Gordon relative to the loan exchange account in
12 about December of 1992, early '93?
13 A They were ongoing discussions, in the 1992
14 discussions I indicated the loan accounts are
getting much
15 too high and they would have to be repaid. He insisted he
16 will repay them.
17 I said, okay, I want to see what is going to
18 happen. He promised that there would be a repayment.
19 So, we let the loan account stand at the time,
20 and in fact, in January of 1993 there was a repayment.
21 Q How much of a repayment was there?
22 A Around $235,000.
23 Q Can you explain how that repayment came about? 24 A There was a -- there were monies received from 25 Richard Grossman, $200,000 in one clip and then another
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7926 Reffsin-direct/Wallenstein
1 $35,000.
2 When it was received which was placed into a
3 loans and exchange account because at that time nobody
4 knew what it was.
5 When we spoke to Mr. Gordon sometime later, he
6 indicated that it was a repaym
ent of his loan.
7 Q Now, did you handle the -- withdrawn.
8 Did you do an analysis of the loans and exchange
9 accounts of Who's Who as it relates to Bruce Gordon and
10 others?
11 A That was done annually for purposes of preparing the
12 tax returns and to determine if there was anything in
13 there to be transferred out into some other account.
14 Q Is it a fair statement that there were loan and
15 exchange accounts maintained by Who's Who during all the
16 periods of its existence?
17 A Oh, yes.
18 In 1991 the person posting the general ledger at
19 the time, there would be monies received from certain
20 individuals, payments to certain individuals, and they
21 didn't know, so they kept setting up loans and exchange
22 accounts. Each year we would go through and determine
23 what they were. 24 Q And did you personally prepare an analysis of tho
se 25 accounts in order to assist the jury in its determination?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7927 Reffsin-direct/Wallenstein
1 A Yes, I did. I prepared a summary.
2 Q I will show you what is marked as
3 Defendant's Exhibit EA, Easy Abel?
4 THE COURT: Identification?
5 MR. WALLENSTEIN: Identification.
6 (Handed to the witness.)
7 Q Mr. Reffsin, do you recognize what is before you as
8 Defendant's Exhibit EA for Identification?
9 A Yes, I do.
10 Q Tell us what that is?
11 A It is an analysis of the various loans and exchange
12 accounts from the inception through June 30th, 1994.
13 Q And from inception, you mean back in 1989, 1990?
14 A That's correct.
15 Q And did you prepare this document?
16 A Yes, I did.
17 MR. WALLENSTEIN: I would offer that in evidence.
18 THE COURT: Any obj
ection?
19 MR. WHITE: May I have a brief voir dire, your
20 Honor?
21 THE COURT: Surely.
22
23 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7928 Reffsin-direct/Wallenstein
1 VOIR DIRE EXAMINATION
2 BY MR. WHITE:
3 Q Mr. Reffsin, when did you prepare this?
4 A Several weeks ago.
5 Q And have you since then revised it?
6 A This is a summary of what was in the general ledger
7 account that you have in evidence.
8 Q Have you prepared this or revised it during the
9 course of this trial in light of the testimony that you
10 heard?
11 A In light of the testimony, no.
12 Q In light of the documents in evidence?
13 A No. This is just a summary. I may have revised it
14 in errors, if I made a mistake picking something up in
15 tying in the accounts, I may have made a revis
ion, yes.
16 Q But you worked on this analysis based on the
17 documents in evidence during this trial?
18 A That's correct.
19 Q Is there any information on this document that -- on
20 your summary, that comes from a document not in evidence?
21 A No.
22 MR. WHITE: One moment, your Honor?
23 THE COURT: Yes. 24 (Whereupon, at this time there was a pause in the 25 proceedings.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7929 Reffsin-direct/Wallenstein
1 MR. WHITE: Your Honor, I have no objection.
2 THE COURT: Defendant's Exhibit EA, Easy Abel in
3 evidence.
4 (Defendant's Exhibit EA received in evidence.)
5 MR. WALLENSTEIN: Thank you, your Honor.
6
7 DIRECT EXAMINATION (cont'd)
8 BY MR. WALLENSTEIN:
9 Q Mr. Reffsin, after you prepared Exhibit EA, did you
10 also cause that document to b
e blown up?
11 A Yes, I did.
12 Q I will show you what is marked as
13 Defendant's Exhibit EA-1.
14 Is this the blowup of Exhibit EA?
15 A Yes, it is.
16 Q Any difference between this other than the size
17 proportions?
18 A No.
19 MR. WALLENSTEIN: I offer it.
20 THE COURT: Any objection?
21 MR. WHITE: No objection, your Honor.
22 THE COURT: Defendant's Exhibit EA-1 in
23 evidence. 24 (Defendant's Exhibit EA-1 received in evidence.) 25 MR. WALLENSTEIN: Our charts are not quite as big
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7930 Reffsin-direct/Wallenstein
1 as the government's, and I need to borrow this.
2 If I do it from here would everybody see it?
3 THE COURT: I think you better put it in front of
4 the jury.
5 MR. WALLENSTEIN: Mr. Jenks, can I borrow your
6 assistance?
7 MR. JENKS: Sure.
8 MR. WHITE: I will do it.
9 Would you take help from me?
10 MR. WALLENSTEIN: I will take help from you. I
11 am not mechanically inclined.
12 MR. JENKS: I will supervise it, your Honor.
13 THE COURT: Good work, Mr. Jenks.
14 MR. JENKS: Thank you, your Honor.
15 A JUROR: I can't see it.
16 THE COURT: You have to make the enlargement much
17 larger.
18 MR. WALLENSTEIN: Unfortunately, we don't have
19 the government's budget.
20 MR. TRABULUS: Move it closer.
21 MR. WALLENSTEIN: If it gets closer, I can't see
22 it.
23 MR. WALLENSTEIN: Is that close enough? 24 JUROR NO. 5: No. 25 JUROR NO. 4: It is a waste.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7931 Reffsin-direct/Wallenstein
1 THE COURT: You ought to duplicate the small
2 ones.
3 MR. WALLENSTEIN:
I have already done it.
4 I will leave this one.
5 THE COURT: Leave it and hand out the small
6 ones.
7 MR. WALLENSTEIN: There is no exhibit numbers on
8 them. Just pass those around.
9 (Whereupon, the exhibit/exhibits were published
10 to the jury.)
11 THE COURT: We have some extra ones here.
12 MR. WALLENSTEIN: I have plenty.
13 Q Mr. Reffsin, now that the jury has copies of this
14 document, can you explain for the jurors while they look
15 at it what it is.
16 A What I did, I took the exhibits, and I went back to
17 inception, and I said, okay, let's go through each of the
18 loan and exchange accounts year-by-year to determine what
19 is in them, what was posted to them, and what were items
20 that I knew were attributable to Mr. Gordon and what were
21 items that were not attributable to Mr. Gordon.
22 Part of the problem that existed,
unfortunately,
23 is the general ledgers that the government has as 24 exhibits, are not necessarily adjusted general ledgers. 25 Q What do you mean by that?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7932 Reffsin-direct/Wallenstein
1 A We as accountants come in, and the ledgers are
2 maintained. There are balances in accounts. We do some
3 analysis work subsequently and find there were errors.
4 Maybe there was an expense account that something was
5 charged as an expense, that should have been charged as an
6 asset, and vice versa. And we would make adjustments to
7 the general ledger accounts.
8 Unfortunately the person who is doing the
9 bookkeeping in our office didn't go back and post those
10 adjustments. They would just carry forward the adjusted
11 balances to the balance sheet account at the beginning of
12 the substan
tive year.
13 So, in order to get the proper balances going
14 forward, I had to do an analysis and pick up the correct
15 numbers in each year.
16 Q So, what you are saying is this document now
17 represents what the correct numbers should be?
18 A For each year, that's correct.
19 Q And can you tell us just in general terms how this
20 differs from the figures that the government put forward
21 through Mr. Rosenblatt?
22 A Well, generally, if you take all the loan and
23 exchange accounts together, it doesn't differ. If you 24 take only Mr. Gordon's loan and exchange account it does 25 differ because there is no recognition of errors in
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7933 Reffsin-direct/Wallenstein
1 posting that may have occurred during the course of the
2 year.
3 In other words, there may have been an exp
ense
4 paid on behalf of Mr. Gordon, and the person who was
5 posting at the time didn't know it belonged in account
6 2200 and put it into account 2300. There were also, in
7 the earlier years, you will notice that there are monies
8 coming in from various people. At the time when they came
9 in, whoever posted it, didn't know what they were. They
10 were just items identified as coming from various people,
11 and going to various people.
12 In fact, in most cases they were really payments
13 on behalf of, and receipts on behalf of Mr. Gordon.
14 Q All right.
15 Now, there are certain entries beginning about
16 halfway down in 1992, a number of entries that have
17 letters in parenthesis next to it.
18 A Yes.
19 Q Some debit entries and some credit entries with those
20 indications. Can you explain that, please.
21 A Yes.
22 The A entry --
the government in doing its
23 analysis of Mr. Gordon's income year-by-year just took the 24 net change in Mr. Gordon's account per that general ledger 25 and said, okay, that's the income attributable to
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7934 Reffsin-direct/Wallenstein
1 Mr. Gordon for that year. That's not correct.
2 Q Why is that not correct?
3 A Those were unadjusted numbers.
4 For example, if you look at 1992, you will see
5 where the A is, you will see just above it 167,078.01, and
6 you will see $70,000 below it.
7 The $70,000, as was previous testimony was the
8 down payment for the apartment for PVI.
9 Q That's the condominium at Hummingbird Road?
10 A That's correct.
11 The whole 237,000 was attributed to Mr. Gordon
12 because that was the net change in his account. But you
13 can't do that. You have t
o go back and really analyze
14 each account, which we did at the end of the year. But
15 those trial balances do not.
16 Q The $237,000 figure that you referred to was the
17 government's figure attributable to Mr. Gordon's loan
18 account for 1992; is that correct?
19 A That's correct.
20 Q And you are saying 167,000 is attributable to
21 Mr. Gordon, and the other 70 represents the down payment
22 as an asset of PVI?
23 A That's correct. 24 Q And can you explain the B entry. 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7935 Reffsin-direct/Wallenstein
1 There is a lot of commotion about an entry made
2 on December 31st, 1992 for $313,086.20, which was the net
3 checks paid to the Grossmans for their payroll.
4 Q That was the $400,000 that Dr. Grossman says he
5 received net of taxes; is that correct?
6 A That's correct.
7 In fact all that there was was a journal entry
8 which set up the expense account and payroll recorded the
9 tax liabilities, and the 313,000 was the net offset.
10 If you look down at 1201, you will see there were
11 three checks for $156,543.10. The 313,000 was really just
12 an offset to those checks.
13 Q That offsets two of those checks, right?
14 A Two of those checks, right.
15 Q And that was the money that Dr. Grossman testified he
16 received from the company in the form of two checks, one
17 to him and one to Joyce Grossman; is that right?
18 A That is correct.
19 Q He also testified that one was returned?
20 A That is correct.
21 Q And that another check was issued, correct?
22 A Yes. But the return didn't come in until January of
23 1993. 24 Q And would it be fair to say that that return check is 25 r
eflected as item C in the debit and credit column?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7936 Reffsin-direct/Wallenstein
1 A That's correct.
2 Q So, the two checks labeled B in the debit column
3 under account 1201 are the two checks that went to Richard
4 Grossman?
5 A Yes.
6 Q The check labelled C in the debit column is the one
7 that was ultimately returned?
8 A That's correct.
9 Q And then the check labelled C in the credit column,
10 that represents the return of that check; is that correct?
11 A Yes.
12 Q So that for a period of time from mid-December until
13 sometime in January of 1993 the company had actually paid
14 three times 156,000, whatever that number turns out to be?
15 A Yes, that is correct.
16 Q Now, there is also an item labelled D. Can you
17 explain that?
18 A Yeah.
19 The item D in 1993, there were some payments that
20 were made on behalf of PVI that were charged to the loan
21 and exchange account. Again, PVI was just activated in
22 December of 1992 because of the acquisition of the condo.
23 And that, too, had to be taken out of the loan and 24 exchange account and put into the loan receivable from 25 PVI.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7937 Reffsin-direct/Wallenstein
1 Q Now, would you take a look, please, in 1993, under
2 account number 1201, there is an item there labelled,
3 received from Grossman for BG, January of 1993, $235,911.
4 A That's right.
5 Q Can you explain that item, and where else it appears
6 on this analysis and what it means.
7 A What I did is I took all the activities for the year,
8 and I spread them to the appropriate entity or person
9 involved, so t
hat you can get a correct analysis of what
10 monies Bruce Gordon took and put back, what monies the
11 Grossmans got and returned, and also the payments in 1992,
12 early 1993 that were attributable to the purchase of the
13 condo.
14 Of course, you also have some normal payroll
15 items. Mr. Gordon would make some loans occasionally to
16 some of the employees, there were some garnishments, so
17 you had some loan and exchange activities attributable to
18 regular payroll.
19 Q All right.
20 Looking at the column you headed allocable to
21 BG.
22 A Right.
23 Q Can you explain what that column, the entire column 24 represents? 25 A What it does, it represents all the activity, debit
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7938 Reffsin-direct/Wallenstein
1 and credit, in other words, increases and decreases t
hat
2 were directly attributable to Bruce Gordon.
3 Q And would it be a fair statement that the numbers in
4 parenthesis are decreases in that amount, and the numbers
5 without parenthesis are increases?
6 A Yes.
7 Q And the numbers without parenthesis are monies he
8 took out of the company, and the monies in parenthesis are
9 monies he repaid to the company; is that correct?
10 A Yes, that's correct.
11 Q And the net effect of that column is the outstanding
12 cumulative balance of money he owed to the company as of
13 June 30th, 1994; is that correct?
14 A That is correct.
15 Q And can you show us where on here there were
16 repayments by Mr. Gordon or on behalf of Mr. Gordon to the
17 company to reduce his loan balance?
18 A Well, you can see in 1990 there were cash receipts --
19 there was cash received from various individuals and
20 e
ntities which Mr. Grossman was involved with. So he paid
21 some money, for example, to Carroll Temkin, T E M K I N.
22 The person posting it put it into 2210, another loan and
23 exchange accounts and the payment of $13,500. 24 There are credits received from their just 25 entities and some cash that was received from Mr. Gordon.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7939 Reffsin-direct/Wallenstein
1 Q The figures -- the figures in parenthesis in the BG
2 column here represent the cash received or the monies
3 received from other entities; is that correct?
4 A That's correct.
5 Q So there were repayments in 1990; is that right?
6 A Yes.
7 Q What was the balance he owed the company at the end
8 of 1990?
9 A What I did is on an annual basis I took the amount,
10 you will see on the left-hand side where it says annual
11 total cumulative balance, I took the net activity each
12 year and gave you cumulative balance which effectively
13 ties into the adjusted trial balance.
14 Q So, if I am reading this correctly, in 1990 he took
15 out $68,369,000, $369; is that correct?
16 A Yes, net.
17 Q He took out more than that, paid back some and that's
18 the net number?
19 A Right.
20 Q And in 1991 he borrowed another 170,000; is that
21 correct?
22 A Yes.
23 Q And in 1992 he borrowed another substantial sum; is 24 that correct? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7940 Reffsin-direct/Wallenstein
1 Q And then in early 1993 he paid back a substantial sum
2 of money; is that correct?
3 A Yes, in January of 1993, the $235,000 is a repayment.
4 Q And would it be fair to say then that the annual
5 number
for 1993, he actually paid back $67,000 more than
6 he took out?
7 A Yes.
8 Q So, at the end of 1993, the balance that he owed the
9 company is less than he owed them at the beginning of
10 1993?
11 A That's correct.
12 Q And then in 1994, at least for the first six months,
13 he again paid back more than he took out?
14 A Yes.
15 Q Correct?
16 A Yes.
17 Q Further reducing the loan balance by June 30th of
18 1994?
19 A Yes.
20 Q The bankruptcy petition was filed in March of 1994?
21 A Yes.
22 Q Can you tell us whatever affect the Who's Who
23 Worldwide bankruptcy had on the loan and exchange account? 24 A It put a stop to all plans of repayment at that 25 point, because under the bankruptcy petition those loans
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7941 Reffsin-direct/Wallenstein
1 became an asset of the estate.
2 You can only do something with it then with the
3 approval of the creditors or the bankruptcy court.
4 Q Can you explain that a little bit further?
5 A When you go into bankruptcy any asset that exists on
6 the books of the corporation at that time, the debtor's
7 books, is an asset of the estate.
8 Q The loans that Mr. Gordon owed to the company were
9 assets of Who's Who?
10 A Yes, that's correct.
11 Q Right?
12 A Yes.
13 Q Monies owed to the company?
14 A Yes.
15 Q In the absence of the bankruptcy petition, would you
16 be able to reclassify those loans as income to Bruce
17 Gordon?
18 A If that was the way it was to be handled, yes.
19 Q Did you in fact do so at any time?
20 A The understanding that Mr. Gordon and I had is if the
21 loans were not fully repaid by 1994, sometime in 1994
,
22 that he would -- it would be reflected in income. I would
23 not continue the loans and exchanges. 24 Q Did you prepare his 1991 return? 25 A Yes, I did.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7942 Reffsin-direct/Wallenstein
1 Q Did you pick up any additional income for him in 1991
2 as a result of his loans?
3 A Not in 1991, no.
4 Q How about in 1992?
5 A In 1992, no, I did not.
6 Q What about his 1993 returns?
7 A Yes.
8 When we had the discussion at the end of 1992, I
9 told him the loans and exchanges, either they had to have
10 repayments, or you had to pick it up in income.
11 He said there would be repayments. I said okay.
12 And he said he would try to repay it within a reasonable
13 period of time. And I said fine.
14 In 1993 he paid back $235,000, which was a
15 substantial p
ortion of the balance that he owed.
16 Q And that loan was paid back by a loan from his
17 brother-in-law?
18 A Yes.
19 Q That's what he told you?
20 A Yes.
21 Q And when you prepared his 1993 tax returns did you
22 pick up any additional income over and above what he had
23 actually drawn in salary? 24 A Yes, I did. I told him when we finally analyzed the 25 account that the 235, a substantial payment, but there was
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7943 Reffsin-direct/Wallenstein
1 still a substantial unpaid balance.
2 The agreement was in 1993 he would pick up an
3 additional $50,000 in income.
4 Q That's what you picked up on his return, correct?
5 A That's right.
6 Q That's how his income got to be $91,000?
7 A That's correct.
8 Q Now, once the bankruptcy petition was filed, how did
9 it affect your planning with respect to the repayment of
10 the loans?
11 A From my viewpoint there was nothing I could do. It
12 was up to the bankruptcy court or the trustee to determine
13 what happened with those loans.
14 In fact, they were receivables from Mr. Gordon.
15 Q Now, you were the accountant for the debtor in
16 possession for Who's Who in the bankruptcy petition?
17 A Yes.
18 Q And have you filed a claim for compensation for that
19 work?
20 A Yes, I did.
21 Q How much are you owed?
22 A $37,000.
23 Q Have you been paid anything? 24 A No. 25 Q Would your position as the accountant for the debtor
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7944 Reffsin-direct/Wallenstein
1 have any affects on your ability to reclassify the assets
2 of the corporation, the loans due from Bruce Gordon
to
3 call them income to Bruce Gordon or salary?
4 A No, I couldn't do that without the approval of the
5 attorneys or the creditors.
6 Q By the attorneys, you mean the attorneys for the
7 creditors or the United States Trustee?
8 A At that time Mr. Ackerman, who was the attorney for
9 the debtor, would have to say, okay, pick it up as income.
10 Q Is it fair to say that reclassifying the loan from
11 Bruce Gordon to salary for Bruce Gordon would change the
12 corporate asset to a corporate expense; is that correct?
13 A Yes. There was no way the creditors would approve
14 that.
15 Q When it changed it from a corporate asset to a
16 corporate expense, what effect it would that have on the
17 corporation's tax liabilities?
18 A The corporation would get a deduction and reduce the
19 tax burden.
20 Q The monies that Bruce Gordon borrowed from Who's Who
21 over the years, where did those monies come from in terms
22 of corporate funds?
23 A From the normal operations of Who's Who Worldwide. 24 Q Would it be fair to say then that's that came from 25 the pre-tax dollars of the corporation?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7945 Reffsin-direct/Wallenstein
1 A Oh, yes, definitely.
2 Q Can you explain that.
3 A There is no way we would take a deduction for
4 anything that was attributable directly to Bruce Gordon
5 unless it was deemed to be an expense of the corporation.
6 Therefore, appropriate accounting, whether tax or
7 any kind of accounting, would be segregate as a loan until
8 such time as it was determined as to whether it was or was
9 not a loan.
10 Q But in terms of the actual dollars is it a fair
11 statement that if Bruce Gordon borrowed for instance
12 $100,000 from Who's Who that the corporation in fact had
13 paid tax on that $100,000 as income to the corporation?
14 A Yes.
15 Q Let me continue with the bankruptcy proceeding.
16 There came a time when there was a directive by
17 the bankruptcy court that logs of the use of the penthouse
18 apartment and the Manhasset condominium be maintained; is
19 that correct?
20 A Yes, it is.
21 Q Can you tell us how that came about?
22 A Well, the attorneys for Reed Elsevir the primary
23 attorneys for the creditors was concerned about the 24 ongoing operation of Who's Who Worldwide Registry. 25 Part of the criteria for determining how they
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7946 Reffsin-direct/Wallenstein
1 would get paid, because there was a judgment, would be to
2 garnish the assets of the corporation, and dispose o
f it,
3 so they could get paid.
4 Q And can you tell us when the meeting was at which
5 there was ultimately a determination with respect to the
6 maintenance of logs?
7 A The August 9th hearing before the Court.
8 Q That's the bankruptcy court over in Westbury?
9 A Yes, on Pravado Road.
10 Q How did you get -- did you go to that hearing?
11 A Yes. I was requested by the attorneys to be at the
12 hearing.
13 I met Mr. Gordon and Ms. Gaspar at Neil Flaum's
14 office because he didn't know where the bankruptcy office
15 was.
16 Q Where is Neil Flaum's office?
17 A 500 Old Country Road, at the corner of Glen Cove Road
18 and Old Country Road.
19 Q When you arrived at Mr. Flaum's office, you met
20 Mr. Gordon and Ms. Gaspar there?
21 A Yes.
22 Q How had they got there?
23 A Mr. Gordon's car. 24 Q Both came together?
25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7947 Reffsin-direct/Wallenstein
1 Q They came from Lake Success, from the Who's Who
2 office?
3 A Yes.
4 Q And tell us what occurred during the course of the
5 hearing at the bankruptcy court.
6 A Well, there were some witnesses. There were a lot of
7 discussions between the attorneys in terms of coming up
8 with some sort of an arrangement that would be acceptable
9 to both parties. And with respect to the logs, the
10 attorneys for Reed Elsevir requested the maintenance of
11 the logs, and the judge, Judge Eisenberg, said okay.
12 Q By the way, how did you get from Flaum's office to
13 the bankruptcy court?
14 A We drove in my car.
15 Q All right.
16 How long does it take?
17 A Five minutes.
18 Q Straight down Old Country Road and down Elliso
n
19 Avenue one block; is that correct?
20 A Yes.
21 Q And when you left the bankruptcy court after having
22 received the directive to maintain the logs -- by the way,
23 that was a prospective directive? 24 A Yes. 25 Q No such logs had been maintained before that day; is
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7948 Reffsin-direct/Wallenstein
1 that correct?
2 A To the best of my knowledge.
3 Q And was there anything specific that the bankruptcy
4 courts directed with respect to logs?
5 A Just a prospective record who would be utilizing from
6 that time to September.
7 Q Anything specific with respect to the contents of the
8 logs? What were they supposed to contain?
9 A The dating, the names of the people who were -- you
10 know, who were at the meetings with Mr. Gordon or whoever,
11 and what they
did.
12 Q When you left the bankruptcy court after having heard
13 that directive -- by the way, was Mr. Gordon in court when
14 the directive was made?
15 A Yes.
16 Q Was Ms. Gaspar?
17 A Yes.
18 Q Did the three of you leave together?
19 A Yes, we did.
20 Q Where did you go?
21 A I drove them back in my car to his car, and I went my
22 way and they went theirs.
23 Q When you left them at Mr. Flaum's office upon 24 returning, you didn't have any further contact with either 25 of them that day; is that right?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7949 Reffsin-direct/Wallenstein
1 A No.
2 Q No, it is not right, or no, you didn't have the
3 contact?
4 A No, I didn't have the contact.
5 Q Now, was there any discussion in the car when you and
6 Maria Gaspar and Bruce Gordon were prese
nt with respect to
7 the logs during the trip from the bankruptcy court to Neil
8 Flaum's office?
9 A Yes. Mr. Gordon was sort of screaming, ranting and
10 raving. He didn't want to maintain the logs. He didn't
11 want to give Reed Elsevir any advantage of anything. My
12 response was you have no choice. You have to maintain the
13 logs.
14 Q Did you say anything else with respect to the logs?
15 A No.
16 Q Now, you heard Maria Gaspar testify in this court; is
17 that correct?
18 A Yes.
19 Q You heard her say you told her to falsify the logs;
20 is that correct?
21 A Yes, I did.
22 Q Is that true?
23 A No. 24 Q Did you ever have any such conversation with her? 25 A Absolutely not.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7950 Reffsin-direct/Wallenstein
1 Q You also heard her testify
you were in the car for 25
2 minutes on the drive from the bankruptcy court back to
3 Lake Success and that's when you told her to falsify the
4 logs; is that correct?
5 A Yes, I heard it.
6 Q Was she telling the truth with respect to the drive
7 itself?
8 A The 20 minutes in my car?
9 Q The 20 minutes in your car from the bankruptcy court
10 to Lake Success?
11 A Absolutely not.
12 Q She was not telling the truth with respect to what
13 the conversation was either; is that correct?
14 A Not with respect to me.
15 Q Now, you heard her testify that there came a time
16 when she discussed the logs with you?
17 A I heard her say that, yes.
18 Q Is that true?
19 A I only had a two minute discussion with respect to
20 the logs.
21 Q Who was the discussion with? When was it and what
22 was said?
23 A It was in the office
. The only reason it came up 24 from my view point is because Neil Ackerman asked me -- 25 Mr. Gordon was not responding to Mr. Ackerman's request
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7951 Reffsin-direct/Wallenstein
1 for the information. So, when I was over there -- he
2 asked me to talk to Bruce and see what was happening with
3 the logs.
4 When I was over there I asked Bruce to see what
5 was happening with the logs.
6 I was shown a couple of pieces of paper. There
7 were dates, maybe five or six entries. There were dates
8 and there were names. I don't even remember who the names
9 were. But there was no explanation as to what went on.
10 And I turned to Bruce, and I said, Bruce, these are not
11 adequate. I said, the Court requested that you indicate
12 what kind of business was going on when you were there.
13 I also
indicated to him that if there is anybody
14 else that he can remember was a party -- your attention
15 that he met at the apartments, that he should put it on.
16 Q And what was his response?
17 A Fine.
18 Q Was Maria Gaspar present during that conversation?
19 A Yes, she was.
20 Q And that was the only conversation you had with
21 respect to the logs; is that correct?
22 A The only conversation.
23 Q Did you ever a conversation directly with Maria 24 Gaspar with respect to the creation of the logs? 25 A No.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7952 Reffsin-direct/Wallenstein
1 Q So, when Maria Gaspar testified that you told her to
2 falsify the logs, was that true?
3 A Absolutely not.
4 Q You heard Ms. Gaspar testify that you gave her names
5 to put in the logs?
6 A That's absolutely untrue.
7 Q Did you even know the names that she mentioned?
8 A A number of them, no.
9 Q You knew the name Debra Benjamin, right?
10 A Yes.
11 Q And did you know any of the other names that appeared
12 in those logs at the time?
13 A Just Liz.
14 Q Liz Sautter?
15 A Yes.
16 Q And what about Tara Green, Tara Garboski?
17 A Never had any involvement with those people?
18 A No.
19 Q Suzanne Konopka?
20 A No.
21 Q Tracey Colletti?
22 A No.
23 Q Harold Sims? 24 A No. 25 Q Did you ever hear those names before this case began?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7953 Reffsin-direct/Wallenstein
1 A No.
2 Q Prior to the logs being submitted to the bankruptcy
3 court through Neil Ackerman, did you ever see the final
4 version that was submitted to the Court?
5 A
Mr. Ackerman had faxed over a group of documents that
6 were going to be submitted. But I didn't look very
7 closely at them.
8 Q Did you have any input into the creation of those
9 documents which were submitted to the bankruptcy court?
10 A Other than what I just said, no.
11 Q Now, with respect to your role in Who's Who, did you
12 have any day to day role in the management of the company?
13 A The management? No.
14 Q Other than being an outside accountant, did you have
15 any role in the company?
16 A No. As a matter of fact we had very little role.
17 Q Would you have any reason to be aware of any meetings
18 taking place at either the penthouse in Manhattan or the
19 condo in Manhasset?
20 A Certainly not with those individuals.
21 Q All right.
22 Have you ever been to the condo in Manhasset?
23 A No. 24 Q Have you ever been to the pe
nthouse in Manhattan? 25 A No.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7954 Reffsin-direct/Wallenstein
1 Q Have you ever been to Bruce Gordon's home?
2 A No.
3 Q Now, you were paid by Who's Who for the work that you
4 did on a time basis?
5 A Yes.
6 Q Is that correct?
7 A Yes.
8 Q And with respect to the work involving the bankruptcy
9 court, other than that outstanding bill for $37,000, were
10 you compensated for any services you rendered to Who's Who
11 in connection with the bankruptcy?
12 A No. In fact, I had an arrangement where I took over
13 the bookkeeping -- for the preparation of the trustee
14 reports for Maria Gaspar when she left. We were supposed
15 to get 75 percent of the billing, because we gave them a
16 substantially reduced billing. And we never got paid that
17 either.
18 Q Now, can you tell me whether you personally or
19 through your associates or employees had any reason to
20 review Maria Gaspar's work?
21 A I occasionally got involved with Maria Gaspar,
22 especially with respect to the trustee reports.
23 Q Can you explain that, please. 24 A Having done a lot of bankruptcy work I had the 25 trustee reports pretty much set up on my computer so she
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7955 Reffsin-direct/Wallenstein
1 can just fill in the information necessary. I gave her
2 the information, the disks, so she could copy it. But she
3 had difficulty -- she had difficulty presenting the
4 information.
5 For example, a simple bank reconciliation as we
6 discussed before, you start off with the opening balance,
7 and you have the outstanding checks, and you come up with
8 a total.
9 She couldn't present it in what we could call a
10 reasonable accounting fashion.
11 Q And did you have occasion to discuss her shortcomings
12 with her?
13 A I would call her on the phone and tell her she is to
14 make the appropriate changes. That the total should be
15 below the number and if it was over to the far right, I
16 told her to move it over. Just more cosmetics.
17 Q How would you characterize her work in terms of
18 normal accounting procedures and principles?
19 A I would say she was a mediocre bookkeeper.
20 Q Did you ever tell her that in so many words or not in
21 so many words?
22 A No.
23 Q Did you have occasion, however, to criticize her 24 work? 25 A On the telephone conversations and the preparation of
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7956 Reffsin-direct/Wallenstein
1 the rep
orts.
2 Q How did she take the criticism?
3 A I thought at the time she took it well.
4 Q How often did you have the opportunity to criticize
5 her?
6 A Well, the first couple of months' reports had to be
7 redone a couple of times.
8 Q Now, you heard her testifying that she was the chief
9 financial officer.
10 How would you characterize her work with respect
11 to what is already done -- ordinarily done by a chief
12 financial officer?
13 A She was not at the level of a chief financial
14 officer.
15 Q What level would you put her at?
16 A Bookkeeper.
17 Q Do you know whether or not that's the level that
18 Mr. Gordon put her at?
19 A I don't think Mr. Gordon considered it one way or
20 another.
21 Q You heard her testify that she had no access to the
22 financial information of the company?
23 A Well, I don't kn
ow why -- she had the same access 24 that we did. 25 Q She indicated there was some information that was
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7957 Reffsin-direct/Wallenstein
1 kept locked away?
2 A During her period of time we kept all our files in
3 the bottom drawer in her office. And she had the key to
4 those files in her desk.
5 Q Do you know if she had occasion to access those files
6 when you were not present?
7 A I think she did. I think she used those -- yes, she
8 did have access to the files.
9 Q Do you know what use she made of them?
10 A She prepared or attempted to prepare the opening
11 entries for the '94 general ledger.
12 Q There is testimony in this case which you heard with
13 respect to the offer and compromise submitted to the
14 Internal Revenue Service on behalf of Mr. Gordon.
15 A
Yes.
16 Q When did that come about?
17 A Mr. Gordon suggested we go through the offer and
18 compromise sometime in April. And I said, okay.
19 I started to prepare information for the offer
20 and compromise sometime in April.
21 THE COURT: April of what year?
22 THE WITNESS: April of '93.
23 Q All right. 24 Can you explain what you were doing in terms of 25 preparation of the offer and compromise and why you were
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7958 Reffsin-direct/Wallenstein
1 doing it.
2 A Well, what I did is I tried to prepare a projection
3 for five years because I knew the IRS would want that.
4 There were some questions which remained which
5 had to be determined. One was the Department of Justice.
6 When we did the original projections, or we did
7 the original offer and compromise, we didn't
anticipate
8 getting off the hook for the Department of Justice. We
9 thought that that would remain, and that whatever we
10 settled with the government for would be in addition to
11 that. That's why the projections were prepared that way.
12 Q So the offer and compromise that offers $150,000 to
13 compromise his tax liability does not include the $254,000
14 liability to the Department of Justice; is that correct?
15 A That's correct, it didn't.
16 Q And it was your intention to pay back $404,000?
17 A That was the original offer, yes.
18 Q And what was your expectation with respect to that
19 when you made the offer?
20 A Well, I thought when they looked at the corporation
21 we probably would be hit with 500 to a million dollars.
22 Q What is the basis for that?
23 A The corporation was just starting out. It did 24 relatively well in 1992, although I ju
st about worked on 25 the numbers for 1992 at the time we did the projections.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7959 Reffsin-direct/Wallenstein
1 I had no idea what 1993 was going to show at that time.
2 But the company was growing. Again, it was just
3 an offer.
4 Q When you made the offer you were preparing the
5 figures as you knew them to be at the time you made the
6 preparation; is that correct?
7 A Yes. I knew that the loan was substantially paid
8 down in early 1993. I wasn't aware of the 1993 activity
9 that was going on there because I don't go in and do the
10 bank reconciliations or anything like that. And no
11 determinations were made at that point.
12 Q If you turn back again to Exhibit EA that is in front
13 of you, at the time you made the offer in compromise --
14 the offer -- you knew that the $235,00
0 reduction shown
15 for account 1201, had already been made at the time you
16 made -- is that correct?
17 A Yes.
18 Q But the increase of 168,000 and change had not yet
19 been made; is that correct?
20 A The activity. That's the activity for the year. We
21 had no idea what it would be. I was not aware what he was
22 taking out in 1993 until we got through with 1993.
23 Q So, you don't become aware of what he has actually 24 drawn or borrowed from the company until the end of 1993, 25 beginning of 1994?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7960 Reffsin-direct/Wallenstein
1 A To some extent, but with mispostings and all that, it
2 is hard to determine until the account is analyzed.
3 Q And you don't do that until after the books of the
4 year are closed?
5 A Or close to that.
6 Q At the time you prepare
the compromise you are still
7 in the spring, nowhere near to closing the books?
8 A Absolutely not.
9 Q And would it be a fair statement then at the time of
10 putting together the offer and compromise that Mr. Gordon
11 had reduced his loan balance by a substantial amount and
12 substantial percentage as of that point in time?
13 A Yes.
14 Q Now, going back to the offer.
15 Have you prior to or subsequent to this
16 particular offer and compromise had occasion to do other
17 offers and compromises with the Internal Revenue Service?
18 A Yes, I have.
19 Q Are you familiar, therefore, with what the Internal
20 Revenue Service expects and is looking for with respect to
21 an offer in compromise?
22 A Yes.
23 Q When you prepared the offer in compromise did you do 24 so on an IRS form? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OF
FICIAL COURT REPORTER 7961 Reffsin-direct/Wallenstein
1 Q Did that form contain instructions?
2 A Yes, it did.
3 Q Look at Defendant's Exhibit EC, Easy Charley for
4 Identification.
5 (Handed to the witness.)
6 MR. WALLENSTEIN: Both pages, Judge.
7 (Handed to the Court.)
8 Q Do you recognize that document, Mr. Reffsin?
9 A Yes, I do.
10 Q Tell us what it is?
11 A Instructions for the preparation of the offer that is
12 put on the form 656, which is the offer in compromise
13 form.
14 Q And that's the exhibit that is in evidence here as
15 Exhibit 420; is that correct?
16 A Yes.
17 Q And these particular instructions, how did you obtain
18 it?
19 A They come attached to the form.
20 Q And did these particular instructions come from the
21 version of the form that you used to submit to the
22 Inte
rnal Revenue Service?
23 A These particular instructions -- during the course of 24 1993 there was a modification of the form, not the 25 instructions, but the form.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7962 Reffsin-direct/Wallenstein
1 Q Do you know what the modification was?
2 A Theoretically it was supposed to make the
3 presentation of the offer easier, the face of the form.
4 But everything else was basically the same. All the
5 instructions was basically the same.
6 Q And the instructions here, particularly page 5 of the
7 instructions, is there any change between what is shown
8 here on page five, and the page of instructions that you
9 used and followed in preparation of the offer in
10 compromise which is in evidence in this case?
11 A No, not.
12 MR. WALLENSTEIN: I offer it in evidence, your
13 Honor.
14 THE COURT: Any objection?
15 MR. WHITE: May I have a voir dire, your Honor?
16 THE COURT: Yes.
17
18 VOIR DIRE EXAMINATION
19 BY MR. WHITE:
20 Q Mr. Reffsin, so I am clear, these are not the
21 instructions to the Form 656 you submitted in July of
22 1993; is that correct?
23 A No. They are the backup for the subsequent form 24 issued in September of '93. 25 Q So, these are the instructions to a subsequent form?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7963 Reffsin-direct/Wallenstein
1 A Yes.
2 Q They are not the instructions that relate to the form
3 that you actually submitted?
4 A Well, they are exactly the same. Nothing has
5 changed.
6 Q Right now I am asking you, these pieces of paper,
7 Defendant's Exhibit EC, are not the instructions to the
8 form you submitted; is that corre
ct?
9 A I made two submissions. I submitted the corrective
10 form --
11 Q I am talking about July of 1993.
12 A Yes, that's correct.
13 Q And so I understand, your testimony is that the
14 instructions that did relate to the form that you
15 submitted in July of '93, at least page 5 of it is exactly
16 the same?
17 A Yes.
18 Q And when was the last time you looked at the
19 instructions for the form you actually submitted so you
20 can tell us today that this is exactly word for word the
21 same?
22 A I saw page 3 and 4 -- there are six pages of
23 instructions. Part of it are basically your rights. And 24 those I saw just about two weeks ago. 25 This particular page I saw about a week and a
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7964 Reffsin-direct/Wallenstein
1 half ago, two weeks ago.
2
Q This page, not the corresponding page for the form
3 you filled out?
4 A No. I saw it at the time I filled it out, not now.
5 Q You just gave testimony comparing this page 5 with
6 the page 5 for the form you submitted?
7 A Yes. I believe to the best of my knowledge they are
8 basically the same.
9 Q They are basically the same?
10 A Yes.
11 Q You are not saying they are word for word the same?
12 A No. I couldn't say they are word for word, because I
13 couldn't remember word for word.
14 MR. WHITE: With that understanding the
15 defendant -- I mean the government has no objection.
16 THE COURT: Defendant's Exhibit EC, Easy Charley,
17 in evidence.
18 (Defendant's Exhibit EC received in evidence.)
19 MR. WALLENSTEIN: The defendant doesn't have any
20 objection, either.
21 MR. WALLENSTEIN: With your permission I will
22 distribut
e copies to the jury.
23 THE COURT: Yes. 24 (Whereupon, the exhibit/exhibits were published 25 to the jury.)
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7965 Reffsin-direct/Wallenstein
1 Q Mr. Reffsin, when you prepare the offer in
2 compromise, you follow these instructions; is that
3 correct?
4 A Basically.
5 Q You also follow your experience in dealing with the
6 Internal Revenue Service with offers in compromise; is
7 that correct?
8 A Yes.
9 Q You submitted the offer to Frank Gagliardi?
10 A Yes.
11 Q And when did you submit the offer?
12 A Somewhere around July of 1993.
13 Q And did you have -- withdrawn.
14 Can you tell me what the status of all of the
15 corporations that we heard about was at that time?
16 A Sterling wasn't even operating at that point. I
17 believe the first a
mount that went over to Sterling was
18 sometime in July, August, or September.
19 PVI was created at that time. They owned a
20 condo. But for all intents and purposes that was an asset
21 of the corporation and didn't generate any revenue. So
22 there was no -- there really was no other entity operating
23 at that time other than PVI. 24 Q Now, did you have any discussions with Mr. Gagliardi 25 relative to the offer in compromise?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7966 Reffsin-direct/Wallenstein
1 A Yes.
2 We sat down. When I submitted the offer in
3 compromise we sat down and talked about it, because I
4 explained to him about the projections, and that I didn't
5 know what to do with the Department of Justice, and that
6 it was in there.
7 He said he would check with the Department of
8 Justice to check if it
was compromisable or not.
9 Q Ultimately did it turn out to be a compromisable
10 liability?
11 A Yes, surprisingly enough.
12 Q How long did it take for that to happen?
13 A Oh, it was weeks later.
14 Q You heard testimony here and you have seen the
15 documents here with respect to the support for the offer
16 in compromise that was submitted?
17 A Yes.
18 Q And can you explain the letter that you wrote to
19 Mr. Gagliardi?
20 A Which one?
21 Q Good question. I am glad you asked.
22 Exhibit 420, that's a letter signed by Mr. Gordon
23 submitted to the IRS along with the offer in compromise; 24 is that correct? 25 A Yes, it is.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7967 Reffsin-direct/Wallenstein
1 Q It is on your letterhead?
2 A Yes, it is.
3 Q Are they your words or Mr. Gordon
's?
4 A Combination.
5 Q Particularly, the final paragraph of that page, are
6 those your words or his, and where did the information
7 come from?
8 A That was discussions with him as to where he would
9 get the money from.
10 Q Is it a fair statement that Mr. Gordon told you he
11 had a source to obtain funds?
12 A Yes.
13 Q And was that a source independent of Who's Who?
14 A Yes, it was.
15 Q Now, with reference to the offer itself, the Form
16 656, which I believe is somewhere in that packet, if you
17 look through it.
18 A May I take it out?
19 Q Sure.
20 (Whereupon, at this time there was a pause in the
21 proceedings.)
22 Q Do you have that?
23 A Yes, I do. 24 Q And on what basis did you prepare that? 25 A Discussions with Mr. Gordon.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
7968 Reffsin-direct/Wallenstein
1 Q All right.
2 A Originally he wanted to offer them $50,000, and I
3 said that was absurd. We agreed to offer them $150,000,
4 based on the fact that the DOJ was up in the air, it was
5 questionable.
6 Q At the time you made the $150,000 offer did you
7 understand that the DOJ liability would have to be paid in
8 addition to it?
9 A Yes, that was my understanding.
10 Q And can you tell us whether or not you expected the
11 IRS to expect the $150,000 offer?
12 A No. I expected them to come back and request
13 information with respect to Who's Who Worldwide Registry.
14 Q And did they do that?
15 A No, they didn't.
16 Q What did they come back and do?
17 A They just merely came back and asked for verification
18 of the expenses reflect on the 433-A.
19 Q And that's part of this exhibit as well
; is that
20 correct, the 433-A?
21 A Yes, uh-huh.
22 Q Now, Mr. Gagliardi wrote you a letter requesting
23 verification of certain expenses; is that correct? 24 A Yes. 25 Q And --
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7969 Reffsin-direct/Wallenstein
1 A I don't know if it is in here.
2 Q Let me show you Government's Exhibit 421.
3 (Handed to the witness.)
4 Q Do you recognize that?
5 A Yes, I do.
6 Q And that's the letter that Mr. Gagliardi wrote to
7 Mr. Gordon care of you to obtain further information; is
8 that correct?
9 A Yes. That's correct.
10 Q Now, after you received this letter did you have a
11 conversation with Mr. Gagliardi?
12 A Yes, I did.
13 Q Tell us what the conversation was.
14 A Basically we went over each of the items in terms of
15 what he was looki
ng for. Because I told him that with
16 respect to the corporation, the amount of checks and
17 everything else was quite voluminous.
18 His answer to me is I just want verification of
19 the income and expenses.
20 Q Did you offer to obtain for him what he had asked for
21 here in item three, and that's the cancelled checks on all
22 accounts for which Bruce Gordon was a signator?
23 A Yes. We had the discussion. If he wanted them I 24 would have supplied it to him. 25 Q Approximately how many checks would it have involved
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7970 Reffsin-direct/Wallenstein
1 for the six-month period that he was talking about?
2 A Hundreds, hundreds.
3 Q How many such accounts were there?
4 A There was the merchant accounts, the regular
5 operating accounts. I think there were two operating
6 acco
unts at the time.
7 Q Did those accounts include checks for the normal
8 expenses of operating the business?
9 A Yes, they did.
10 Q Would that include the payroll?
11 A Yes.
12 Q And how many employees were there at Who's Who
13 Worldwide at that time?
14 A Who's Who Worldwide at that time, probably about 50,
15 60.
16 Q Do you know how much of they were paid?
17 A Weekly.
18 Q Weekly?
19 A Uh-huh.
20 Q And you are talking about at least 60 checks a week
21 for a six-month period just for payroll?
22 A Yes.
23 Q Is that correct? 24 You explained all that to Mr. Gagliardi? 25 A Yes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7971 Reffsin-direct/Wallenstein
1 Q What was his response? Did he still want the checks?
2 A He said I just want to verify the income and
3 expen
ses. That's what I want to do.
4 Q Mr. Gordon's income and expenses?
5 A Yes.
6 Q Not the corporate, correct?
7 A That's correct.
8 Q And what did you do to provide him with verification?
9 A Most of the Mr. Gordon's personal income and expenses
10 went through his personal account. The only items that
11 went through the Who's Who accounts were checks like
12 American Express, which was not -- which would not
13 necessarily designate Bruce Gordon. It could be anybody.
14 Q Now, he also sought motor vehicle information.
15 A Yes.
16 Q Did you discuss that with him?
17 A That I don't recall.
18 Q Did you discuss that with Bruce Gordon?
19 A I am not sure. It sort of just got by the wayside.
20 Q Okay.
21 What about anything to indicate the ownership of
22 the corporation, did you ask Mr. Gordon to supply that
23 information?
24 A He had already done that. At that point there was no 25 reason to -- Mr. Gordon, as far as I was concerned didn't
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7972 Reffsin-direct/Wallenstein
1 own anything of the corporation.
2 Q And as far as you knew at that point in time
3 Dr. Grossman and Joyce Grossman or their family entities
4 owned 100 percent of Who's Who; is that correct?
5 A Yes.
6 Q And that's based upon you having seen the stock
7 certificates produced to you showing they owned 100
8 percent of the issued and outstanding stock?
9 A 75 percent. I knew they owned 25 percent based on
10 the prior discussions.
11 Q So, you were aware based upon everything you had
12 available to you that the Grossmans owned 100 percent of
13 the issued and outstanding stock; is that correct?
14 A Yes, direct and indirectly.
15 Q There was also a collateral agreement with the
16 Department of Justice?
17 A Yes.
18 Q And that's part of Exhibit 420 there, I believe?
19 A Yes.
20 Q Was that provided to Mr. Gagliardi with the initial
21 offer in compromise?
22 A Yes, part of the package.
23 Q It was a fair statement that Mr. Gagliardi was aware 24 or had the material to determine where Mr. Gordon's money 25 was going to come from?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7973 Reffsin-direct/Wallenstein
1 A Yes.
2 Q And what about the financial records -- withdrawn.
3 Was he provided with any of the financial
4 information of Who's Who Worldwide that he could use in
5 conjunction with the collateral agreement?
6 A Well, he was given, as far as I was concerned, the
7 only functional financials he needed, which was the
8 compens
ation agreement.
9 Q And that's the agreement that is already in evidence
10 as well?
11 A Yes.
12 Q Correct?
13 A Yes.
14 Q And that indicated that Mr. Gordon was entitled to
15 certain funds from Who's Who Worldwide?
16 A Definitely.
17 Q Okay.
18 Now, in conjunction with the offer in compromise,
19 you also submitted the 433-A; is that correct?
20 A Yes, that's correct.
21 Q And would you tell the jury what that is?
22 A It is the financial statement for an individual
23 taxpayer going in for an offer in compromise. 24 Q Now, where was the information that appears on the 25 433-A obtained from?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7974 Reffsin-direct/Wallenstein
1 A The asset information was to be obtained from Bruce
2 Gordon. The liability information was obtained from Bruce
3 Gordon's prior -- I saw it today -- a prior 433-A. I did
4 update a couple of the numbers because the interest would
5 have changed on the liability. And there was some charge
6 account numbers there that changed slightly.
7 Q What about the information as to where Mr. Gordon
8 resided?
9 A That information was given to me by Bruce.
10 Q He told you he was living at 10 Bluff Road at the
11 time?
12 A Yes.
13 Q And it is a fair statement you were never there so
14 you don't know of your own knowledge; is that right?
15 A No. I didn't know where Bruce was actually living.
16 Q Now, with respect to the column in the 433-A entitled
17 necessary living expenses, can you tell us what your
18 understanding is with respect to what the Internal Revenue
19 Service is seeking in that category?
20 A They are seeking the expenses necessary for the
21 taxable to
live.
22 Q And what definition do they use for "necessary?"
23 A What he actually is required to spend. There are 24 national averages with respect to certain of the 25 expenditures that are reflected, such as clothing and
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7975 Reffsin-direct/Wallenstein
1 food, and so on, that they use as their guidelines.
2 Q And with respect to those national averages, can you
3 put down on your 433-A form a figure that is different
4 from those national averages in those categories?
5 A You can, but it wouldn't be accepted.
6 Q And why is that?
7 A Because they go by the national averages.
8 Q So, if you spend ten times that amount they don't
9 care?
10 A I have been through one where they scratched out all
11 the numbers and put in the number they had in there, that
12 they had for the nat
ional average.
13 Q What is your understanding of what the Internal
14 Revenue Service is looking for in terms of an offer in
15 compromise and the collection information stated?
16 A In fact, Mr. Gagliardi sat down and told him, if you
17 want the spiel that they give you.
18 Q What did they tell you?
19 A Basically any assets you have can be liquidated. To
20 the extent of the value of those assets they want to be
21 paid, plus whatever else you can get.
22 Q Now, are there items which have priorities over the
23 Internal Revenue Service claim? 24 A Generally, for example, if you own a home, and you 25 have a mortgage on there, on that home, that would be a
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7976 Reffsin-direct/Wallenstein
1 priority claim which the IRS could not supersede.
2 Q The mortgage?
3 A The mortgage ba
lance, whatever it might be.
4 However, they can put a lien on the balance of
5 the value if they want to.
6 Q To the extent that the equity in your home would
7 exceed the mortgage balance, would the IRS have the right
8 to force the sale of your home?
9 A They do have the right, but they generally don't.
10 Q What about other assets?
11 A Any other assets which can be liquidated and
12 transferred into cash.
13 Q Other than a first mortgage on your home, do you know
14 of any other debts that an individual might have which
15 might have priority over the Internal Revenue Service
16 claim?
17 A Theoretically there are judgments -- once a judgment
18 is filed, a judgment which would attach to all of the
19 assets of a particular taxpayer, if it was filed prior to
20 the IRS lien, would have priority over the IRS lien. I
21 have had occasions where th
ey ignored that.
22 Q And have you had experience with the Internal Revenue
23 Service in terms of offers in compromise, where they 24 simply have ignored everything and gone after whatever 25 they could get?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7977 Reffsin-direct/Wallenstein
1 A For example, Mr. Gagliardi actually asked no
2 questions with respect to any of the liabilities that were
3 reflected on the 433-A.
4 Q What was his focus?
5 A What you can afford to pay.
6 Q So, would it be a fair statement then that the IRS is
7 strictly looking for getting every penny they can from you
8 without regard to what you need?
9 A That's correct.
10 Q Let me direct your attention to the testimony of
11 Steve Adler. Do you recall that?
12 A Yes.
13 Q How did you meet Mr. Adler?
14 A Mr. Adler and I worked ver
y closely together on
15 another client.
16 Q And that was a client he spoke of earlier?
17 A Yes.
18 Q And how is it that Mr. Adler became involved in this
19 particular situation?
20 A Well, Mr. Gordon had indicated that he wanted to
21 clean up some things, which I had no objection to, and
22 that he didn't want to pay a fortune.
23 Steve, who was a single practitioner, would do 24 the work for a reasonable fee. 25 Q And when did you have that discussion with
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7978 Reffsin-direct/Wallenstein
1 Mr. Gordon?
2 A Sometime in February.
3 Q What year?
4 A 1993 -- I am sorry, 1994, my years are getting --
5 Q What was the discussion?
6 A Basically we had the loans between -- the primary
7 focus originally were the loans between Who's Who
8 Worldwide and Ste
rling and PVI.
9 Because the activity between Sterling and PVI
10 that generated the loans really occurred in the last part
11 of 1993 and early '94, we had come to some understandings
12 with respect to the loans and how they would be repaid.
13 But they weren't officially put in note fashion.
14 The same thing with PVI notes. Because in PVI,
15 the first check that was made out was in December of
16 1992. But in fact, monies went into PVI up to around
17 April, May and even June of 1993.
18 Q So, the documents he was asked to prepare then
19 memorialized the previous transactions?
20 A Yes.
21 Q With respect to his preparation of the minutes of the
22 corporation, the board meetings and so on, do you know how
23 it came about that Mr. Adler obtained the information to 24 put into those documents? 25 A Mr. Gordon indicated he wanted to get the records
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7979 Reffsin-direct/Wallenstein
1 cleaned up. I didn't see any need for it. But it was
2 kind of unusual to do that. So he requested that
3 Mr. Adler prepare standard minutes which would in effect
4 be the election of the president and various officers, and
5 also the voting agreement with respect to the stock that
6 the Grossmans owned.
7 Q Did Mr. Gordon provide the information to Mr. Adler?
8 A Yes, he did.
9 Q When and where did that happen, if you recall?
10 A I recall it happened -- I believe we had a meeting
11 sometime in the middle of March at 750 Lexington Avenue.
12 I have it on my time records, but Mr. Adler doesn't. And
13 I think that's where Mr. Gordon brought up the cleaning up
14 of the stock records.
15 Q And would it be a fair statement that in closely held
16 corpo
rations that the non-existence of records reflecting
17 corporate action is not unusual?
18 A That's generally.
19 Q The actual existence of the records would be the
20 exception rather than the rule?
21 A Yes. I had instances where they couldn't find the
22 corporate books.
23 MR. WALLENSTEIN: Judge, is this a good point to 24 break? 25 THE COURT: Very well.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7980 Reffsin-direct/Wallenstein
1 Do you want to remove that with the assistance or
2 alone?
3 MR. WALLENSTEIN: Now that I have done it once I
4 can do it myself.
5 THE COURT: If you wish me to come down, I will
6 move it for you.
7 Members of the jury, we will adjourn now to
8 tomorrow morning at 9:30.
9 Those jurors who asked me about Friday, I don't
10 know at this point. If we finish the testi
mony on
11 Wednesday, on Thursday I will go over the law with the
12 lawyers the entire day. You will not be here.
13 If we finish the testimony on Thursday, then we
14 will go over on Monday to go over the law and we will
15 start the summations on Tuesday. That would avoid you
16 waiting while we do this.
17 If we finish the law on Tuesday, I will go over
18 the law on Wednesday, and Thursday we will have summations
19 and Friday charge, and off we go.
20 I don't think that is going to happen. I can't
21 promise it will happen. I don't think so.
22 So, I don't think we will be working on Friday.
23 I have a whole long calendar on Friday that I 24 would have to cancel, and I will do it in a minute. 25 However, I don't think it will have to happen.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7981 Reffsin-direct/Wallenstein
1 As we go along I will give you my predictions
2 from day to day. It is like the weather. As you get
3 closer to the storm you know more about it. Not that
4 there is any storm here. It is all calm and clear and
5 quiet and peaceful.
6 And tomorrow morning we will recess. Do not
7 discuss the case with among yourselves or anybody else.
8 Keep an open mind until the case is over and all the
9 evidence is adduced. You know the defendants don't have
10 to adduce any evidence, or produce any evidence. I told
11 you that over and over again. You can't concern
12 yourselves with whether they do that. However, they are
13 producing some evidence, and I will talk to you about it
14 at the proper time when the summations are over in my
15 instructions to you on the law. And then for the first
16 time you start talking about the case, one to another,
17 listening to each oth
er's view with great deference,
18 patience and understanding.
19 So, we will recess until 9:30 tomorrow morning.
20 Have a nice evening.
21 (Whereupon, at this time the jury left the
22 courtroom.)
23 (Whereupon, at this time the witness left the 24 witness stand.) 25 THE COURT: With regard to this testimony by Liz
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7982
1 Sautter, I have had a chance to read it.
2 Also I missed the case that sets the law. It is
3 not United States against Napoli. He is the second named
4 defendant. It is United States against Salerno. It was a
5 very interesting case.
6 Have a seat. I am about to tell you about United
7 States against Salerno,, a fascinating case.
8 In this long trial that took months, a case
9 involving bid-rigging in the construction industry, the
10 jury w
as deliberating, and apparently they were
11 deliberating for quite some time, when the judge for some
12 reason apparently went to the marshal and actually
13 apparently may have spoken to some of the jurors, and
14 allegedly said, when are they going to reach a verdict, or
15 words to that effect, indicating they should speed up
16 their actions. It is a most unusual case. So they did
17 speed up their actions.
18 It was guilty on all counts for all defendants.
19 The defendants took an appeal. There were two
20 major grounds. One was that the judge went and interfered
21 with the jury.
22 The second ground was that the government refused
23 to use grand jury testimony by several witnesses, and 24 offered, just as Mr. Trabulus is offering, unavailable 25 witnesses. I think they were going to take the Fifth
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTE
R 7983
1 amendment, and the judge refused to allow the testimony
2 in.
3 The Second Circuit confronted with this odd
4 situation, did another thing that I don't want to
5 characterize, but they sent it back for a hearing. Who
6 was to hold the hearing? The Chief Judge of the district,
7 in which this judge was. This judge who was to hold a
8 hearing in deference to his colleague allowed affidavits
9 to be submitted and not testimony.
10 Well, the marshal testified that the judge did
11 just what the defendants said the judge did.
12 The Judge sent an affidavit in saying the judge
13 did not recall this incident.
14 The Second Circuit got the case back again, and
15 what were they to do with this.
16 They let alone the first ground and went to the
17 second ground, the testimony that was not allowed in, and
18 they said we don't t
hink it is a similar motive, the judge
19 was right.
20 Up to the United States Supreme Court.
21 Reversed. The testimony should have gotten in. We are
22 sending it back to the Second Circuit to determine if it
23 was reversible error -- as to whether it was harmless or 24 substantial error. 25 In the major opinion, in United States against
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7984
1 Salerno, Napoli is the second named defendant, 974 F.2d
2 231, in a magnificent opinion by that man there
3 (indicating), Judge George Pratt, he set the rules that
4 guide the judges, and he laid it out for us, and he said
5 the following:
6 The text of the similar motive requirement
7 inherently requires a comparison between what the
8 examiner's motive was at the time of the prior testimony
9 and what it would be if the witness was
actually available
10 at the current proceeding.
11 The government urged that they didn't have the
12 same motive to cross-examine a hostile witness at the
13 grand jury then they would at the trial. So therefore
14 they had no similar motive and it was not admissible.
15 Therefore the Judge was correct and the judgment should be
16 affirmed.
17 Judge Pratt went through the Supreme Court
18 decision. And it says that the Federal Rules of Evidence
19 are to be treated like any other statute. They are to be
20 read with regard to their plain meaning.
21 What does similar motive mean?
22 Well, "similar" means having characteristics in
23 common, very much alike, or comparable. It does not mean 24 identical interests, just very much alike, similar. 25 Likewise, the word motive, means something within
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
7985
1 a person that incites him to action.
2 The text of 804(b)(1) makes it clear that
3 opportunity to examine is not enough. Just like in this
4 case the government had an opportunity to examine
5 Ms. Sautter, is it?
6 MR. TRABULUS: Sautter, yes.
7 THE COURT: It is not enough. The similar motive
8 requirement insures that an opportunity was a meaningful
9 one.
10 Was there a meaningful opportunity to
11 cross-examine.
12 When you are talking about a grand jury testimony
13 you want to read in as opposed to as opposed to a
14 forfeiture action interim hearing on whether the business
15 was closing down and could afford the pay lawyers and all
16 of those things which we had in our case, when you have a
17 grand jury vis a vis a trial, a criminal trial, you have
18 the same issue, guilt or lack of guilt. It is not the
1
9 same issue in the forfeiture action. There is nothing
20 like it, as we will see.
21 The issue in the previous testimony sought to be
22 admitted must be substantially the same because then it
23 would have been sufficiently tested by cross-examination. 24 The way to see that is to look at the issues. 25 Are the issues similar? No, not in this case.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7986
1 Would a reasonable cross-examiner under the
2 circumstances of the hearing in whether the company should
3 give back -- the government should give some money back to
4 the company, or things of that kind, would a reasonable
5 examiner in that case have a similar motive to examine the
6 witness?
7 Well, there would be one similarity, and that
8 would be credibility, the same as here. The government
9 would try to attack the credibili
ty of the witness if she
10 hurt the government's case. That's normal
11 cross-examination.
12 The problem is that in the hearing before Judge
13 Seybert she precluded the government from cross-examining
14 on credibility several times, as I will show in you a
15 minute.
16 So, the only similar issue, credibility, the
17 government was precluded.
18 So, we now have to look to what actually took
19 place in the previous hearing.
20 It is undisputed that the government had an
21 opportunity to examine her. But on what? A different
22 issue and not on credibility. How could I let that
23 testimony in if the government was precluded from 24 attacking her credibility. And they ended up -- my 25 colleague, Judge Pratt, if you think I worked hard, forget
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7987
1 it. He didn't
end until 10:00, 10:30 at night.
2 We conclude that the government's questioning of
3 Bruno, B R U N O, and blank, before the grand jury
4 comported with the principal purpose of cross-examination
5 to challenge whether the declarant was sincerely telling
6 what he believed to be the truth.
7 They said, notwithstanding that it was in the
8 grand jury, the government in examining these two
9 witnesses in the grand jury room did vigorously attempt to
10 discredit these witnesses. They made vigorous on the spot
11 examinations with sarcasm and ridicule, in the grand jury
12 room. They gave them a going-over.
13 Finally, the AUSA flatly told Bruno, quote, there
14 are strong concerns on the part of the grand jury that
15 your testimony here has not been truthful today. Quite a
16 statement to make before the grand jury. You are supposed
17 to be impartial there.
18 Quote, in sum, it is apparent from the grand jury
19 minutes that the government's examination of both Bruno
20 and -- I will have to give the other name, DeMatteis,
21 D E M A T T E I S, was the equivalent of what would have
22 been done if the opportunity to examine them had been
23 presented at trial. The government was afforded a full 24 and fair opportunity to test the truth of these 25 declarant's testimony which it vigorously exercised.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7988
1 We conclude that the government had a similar
2 motive which it in fact acted upon to examine these
3 witnesses before the jury -- before the grand jury. Thus,
4 the grand jury testimony of Bruno and DeMatteis should
5 have been admitted under Rule 804(b)(1).
6 They thereafter went ahead and said, was it
7 material?
8 Yes, they previousl
y held it had been material.
9 So they reversed the convictions.
10 An interesting delving into an evidentiary point,
11 which was in my view totally unnecessary. Because if I
12 were sitting on the Second Circuit, which I am going to do
13 in April, I would have reversed it on the spot because of
14 what the Judge did.
15 However, as a result of deference, which they
16 certainly wouldn't have given me, I tell you that -- as a
17 result of this deference, we have a very clear rule of law
18 which we now apply, Mr. Trabulus. You are fortunate that
19 they had to come down with a different rule.
20 Now, let's take a look at the testimony of
21 Elizabeth Mary Sautter, S A U T T E R.
22 She was asked how many employees there were,
23 which was 140. 24 How many members? 25 75,000. And the employees are very nervous since
HARRY RAPAPORT, CSR, CP
, CM OFFICIAL COURT REPORTER 7989
1 this happened.
2 She was asked about the refunds that are due.
3 And she answered, I don't know every single refund. I
4 know there are many building up.
5 How is that happening?
6 She answers that people are calling up.
7 We heard from the news articles that we are a
8 scam. And they are saying they want their money back.
9 Refunds previously?
10 Yes. We kept them in a file to be refunded. We
11 would wait for their merchandise to be returned to us. I
12 guess the merchandise is the plaque, whatever. And upon
13 receipt of the merchandise we would credit them.
14 Do you know how much is due at the present time?
15 No.
16 Can you estimate?
17 Thousands. I am not good with numbers.
18 Thousands of members who want refunds or
19 thousands of dollars? I am not sure about that.
20
Then the cross-examination by, is this Gary Brown
21 who did this cross-examination?
22 MR. TRABULUS: Yes.
23 THE COURT: A very good lawyer. He didn't have 24 much of a chance because the issue was curtailed. 25 Page 76.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7990
1 Question: So, no one ever told you that Judge
2 Jordan told you that the company, Worldwide Registry used
3 false advertising and false books, etcetera?
4 Ms. Shevitz says, I object to this. It has
5 nothing to do with the finances this witness knows about.
6 Mr. Brown, it goes, or goes to credibility, your
7 Honor.
8 The Court: On a very limited basis. I don't
9 want to get into credibility. I want specifics here in
10 terms of the viability of this business at the present
11 time.
12 The bottom of page 81.
13 Question: Now, in your s
tatement, I believe --
14 this is cross-examination.
15 Now, in your statement, I believe you indicated
16 the following: You said, inside quote, I'm told by
17 Ms. Gette, G E T T E, that in the 1994-95 Who's Who
18 Executive Club Registry, some associate club members are
19 directors of a women's health center, and a bank president
20 as well as a Pizza Hut.
21 Ms. Shevitz: I will object to this. This goes
22 beyond the scope of the direct.
23 Mr. Brown: Judge, it goes on to credibility. 24 The Court: Go on to a different area. 25 I might say in passing that this has -- I don't
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7991
1 think it is so material because further on in the
2 cross-examination she was asked questions:
3 How much was the refund you owed?
4 Answer: I don't know how much.
5 Question: So you don
't know how much this debt
6 is?
7 Answer: I didn't go through everybody's account
8 to see how much is due to each person.
9 It is clear to me under the standards of United
10 States versus Salerno that there was not a similar motive,
11 that the government didn't have an opportunity to
12 cross-examine on the very basic question of the
13 credibility of the witness, but on a very narrow issue,
14 which in my view was insufficient. They did not have a
15 meaningful opportunity to cross-examine.
16 Contrary to what occurred in Salerno, the
17 government's examination, if the witness were here, would
18 be far more extensive, it would go into credibility and go
19 into many, many other things, which that limited hearing
20 did not afford them the opportunity to do.
21 MR. TRABULUS: Your Honor, Mr. Gordon requests
22 permission to be able to go to the wash room
.
23 THE COURT: Does he wish to miss the last part of 24 this? He knows what the answer will be, doesn't he? 25 MR. TRABULUS: I believe so, your Honor.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7992
1 THE COURT: Let him go.
2 So, I hold that the government did not have an
3 opportunity and similar motive under the rule to develop
4 the testimony by direct, cross or redirect examination.
5 So I am excluding the testimony.
6 Tomorrow we will have the direct, finish the
7 direct, and cross-examination of Mr. Reffsin. And then we
8 will have Ms. Barnes at 1:00 o'clock or 1:30, or 2:00
9 o'clock, since I have a judge's meeting, we will be having
10 lunch from 1:00 to 2:15 tomorrow. And if that is going to
11 be it, and I am not saying it should be it, or will be it,
12 if that is going to be it, we will finish sometime on
1
3 Wednesday, probably. If we do, we will take the rest of
14 the day and Thursday on the charge, and have summations on
15 Monday and the charge on Tuesday. That's what it looks
16 like.
17 MR. WHITE: Judge, can I ask a clarifying
18 question?
19 THE COURT: Yes.
20 MR. WHITE: My understanding is that it is not
21 Mr. Trabulus, but Mr. Neville or somebody else who is
22 actually going to call Sandra Barnes. And I just wanted
23 to make sure that as I understood your Honor's ruling from 24 last week -- 25 THE COURT: What ruling?
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7993
1 I am only kidding.
2 MR. WHITE: That's right, you made a lot of them
3 last week.
4 That if the testimony of Sandra Barnes is
5 presented with respect to custom and usage in the
6 industry, that the government could then in rebutt
al
7 introduce some statement --
8 THE COURT: A very redacted statement, that since
9 the purpose of introducing this testimony is that
10 everybody else does it, and, therefore, they had no
11 intent, they thought it was proper, they had no intent to
12 defraud anybody, they did what they did in good faith.
13 You can bring in evidence that they were told by
14 a judge that they were told don't do it. But I will have
15 to be able to see what -- remember what you say.
16 You will certainly not give them the judgment.
17 MR. WHITE: No. My sense was wrong, and maybe
18 they can correct me. But the defendants thought if they
19 pulled a little switcheroo, and Mr. Neville called
20 Ms. Barnes other than Mr. Trabulus --
21 THE COURT: Pulled a what?
22 MR. WHITE: A switcheroo.
23 MR. TRABULUS: There is no switcheroo. 24 THE COURT: I would think Mr. Nevill
e would use 25 that kind of language, switcheroo, and not you,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7994
1 Mr. White.
2 MR. WHITE: I am sorry.
3 I believe it is a distinction without any
4 difference, who calls the witness and induces, and who
5 asks the question. It is being offered ostensibly to show
6 everyone's knowledge, to impute it to everyone.
7 MR. TRABULUS: Your Honor, it is not a
8 switcheroo. I was going to call her and ask questions in
9 two areas, one would have been Mr. Gordon being present as
10 she gave the testimony herself concerning Reed's practices
11 and use of mailing lists; two, custom and usage.
12 I will not call her. And I doubt that the other
13 defendants are going to elicit testimony concerning
14 Mr. Gordon's testimony alone without them being present.
15 I thought that would open th
e door to evidence coming in
16 that Gordon was subsequently told something about the
17 judgment.
18 I think the custom and usage evidence will not
19 open the door to that. That's my understanding. I
20 decided not to call her because I don't want to
21 accidentally open any doors.
22 THE COURT: If the testimony of Ms. Barnes is
23 that there was a custom and usage in the Who's Who trade 24 to use mailing lists, to write letters saying you are 25 nominated, and to call and say you were nominated and
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7995
1 that's what everybody did, and it was well known in the
2 industry, I will allow evidence -- I don't know who was
3 there at the time. Certainly Mr. Gordon was, that
4 Mr. Gordon heard a judge say you should not do that.
5 Now, if only Mr. Gordon heard that, I will give a
6
very strong curative charge, which is the reason I will
7 not let the judgment in in the first place, that no other
8 defendant is bound by that. It is not offered against any
9 other defendant, and you can't concern yourself with any
10 other defendant. Unless there is evidence that the other
11 defendants knew about that. I don't know if you have such
12 evidence.
13 MR. WHITE: The only evidence, your Honor, is
14 obviously Who's Who Worldwide who is a defendant, and
15 Mr. Gordon, that's it.
16 THE COURT: That's right.
17 MR. WHITE: The government would agree that you
18 should give such a charge.
19 THE COURT: Okay.
20 MR. TRABULUS: In that event I would request in
21 the alternative, one, that her testimony should not be
22 considered by Mr. Gordon at all and thus obviate the need
23 for a charge. If your Honor does not wish to do that I 24 wou
ld ask for a severance from the other defendants. I am 25 not calling Ms. Barnes.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7996
1 THE COURT: I lost the first alternative. I
2 think I lost you about five minutes ago.
3 MR. TRABULUS: I know I am going quickly, your
4 Honor, and I will slow down.
5 I am not calling Ms. Barnes. The other
6 defendants are calling her. I am perfectly happy not to
7 refer to her testimony on summation, because I in my
8 judgment do not want any kind of instruction being given
9 to the Court -- to the jury, rather, concerning any
10 federal judge telling Mr. Gordon that --
11 THE COURT: I will not say federal judge. I am
12 going to say a judge.
13 MR. TRABULUS: In any event, either way. To me I
14 would rather go on the state of the record as it is today,
15 without calling Sandra Barnes, th
an to have that come in
16 and have that instruction.
17 So, on that basis, I would ask if she is called
18 that your Honor simply give an instruction that her
19 testimony is not to be considered at all with regard to
20 Mr. Government I will not refer to it in my summation. I
21 will only refer to any evidence such as it is in the
22 record concerning Mr. Gordon's knowledge of mailing lists
23 and there is that evidence. 24 In that event, your Honor, if your Honor is not 25 prepared to do that --
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7997
1 THE COURT: I lost you. Prepared to do what?
2 MR. TRABULUS: Your Honor, I want to do whatever
3 I can to avoid the instruction that your Honor indicates
4 that your Honor is contemplating giving. It is not within
5 my power to prevent the other defendants from calling
6 Ms. Ba
rnes.
7 So, what I am suggesting is in lieu of giving
8 that instruction which your Honor says that your Honor
9 will give to simply instruct the jury not to consider her
10 testimony with regard to Mr. Gordon.
11 In the alternative, if your Honor does not wish
12 to do that and still, if they call Ms. Barnes, and is
13 inclined to give the kind of instruction your Honor is
14 saying, I would ask for a severance at this point.
15 MR. JENKS: It is all premature, your Honor.
16 As far as the corporation is concerned, I don't
17 necessarily adopt Mr. Trabulus' position. I want to first
18 here what Ms. Barnes has to say in the courtroom, because
19 I may very well like what she says in the courtroom and
20 ask that you give an instruction and ask them to consider
21 her testimony with respect to the corporation.
22 With all due respect to Mr. Trabulus and even
2
3 Mr. White, these arguments are all premature. Ms. Barnes 24 is not even sworn. She has not been given an opportunity 25 to be heard yet. And we don't know for sure if we are
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7998
1 going to call her.
2 THE COURT: I will consider what you said,
3 Mr. Trabulus, and I will consider what Mr. White says
4 about that.
5 In other words, if you want to enter into a
6 stipulation or concession or statement by the defendant
7 that he does not adopt anything that Mrs. Barnes says
8 about their being a custom and usage in the industry.
9 MR. WHITE: Your Honor, it is hard to say without
10 laughing. It is laughable.
11 THE COURT: Was I laughing?
12 MR. TRABULUS: I wasn't.
13 MR. JENKS: You are the only one that wasn't.
14 MR. WHITE: It is meaningless. What it amounts
15 to is Mr.
Trabulus wants to get the benefit of Ms. Barnes'
16 testimony without balancing the scale. The way they are
17 accomplishing that -- come on, we understand what is going
18 on here, the way they are accomplishing that is
19 Mr. Neville is calling her instead. It is a distinction
20 without a difference.
21 THE COURT: I don't know about that. But I
22 certainly will have a problem with what you suggest,
23 Mr. Trabulus, both prongs of what you suggest. 24 However, you can make the formal motion at the 25 proper time, and I will consider it.
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 7999
1 MR. WHITE: Your Honor, can I also ask one other
2 question with respect to Ms. Barnes' testimony?
3 THE COURT: Yes.
4 MR. WHITE: Your Honor said repeatedly last week
5 about that they could introduce her testimony only if they
6 could
show that it was a custom and usage in the
7 industry.
8 THE COURT: I assume everybody has looked up the
9 law on custom and usage and know it cold by now.
10 MR. WHITE: I did do research over the weekend on
11 custom and usage. I didn't find any in the context of
12 criminal cases. It arose more I found in negligent cases
13 and contract cases under the UCC as to what the custom and
14 usage in a particular industry was. And that would inform
15 how you interpreted an ambiguous contract term, or whether
16 a defendant in a negligent case had, you know, met the
17 standards of care relative which was common in the
18 industry.
19 My question was -- I know your Honor said you
20 don't issue advisory opinions, but from what I know, and I
21 have never spoken to Sandra Barnes. But from what I can
22 glean the defendants will not be able to show that she is
23 a
ware of the custom and usage in the industry. 24 All the cases I looked at the proponent of the 25 custom and usage evidence called an expert witness who
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 8000
1 testified about his or her knowledge of the entire
2 industry, the multiple competitors in an industry.
3 As I understand what Ms. Barnes knows, she knows
4 what Marquis Who's Who does. And the defendants are
5 offering that for purposes of showing what was known in
6 the industry.
7 Just from the documents produced it shows that
8 this information was a closely guarded secret. They
9 regarded it as a trade secret. The documents they
10 produced to us they did so on the condition that we give
11 them back after the trial. They are stamped highly
12 confidential on them. Marquis Who's Who withheld 20 times
13 more documents from
the government than they did from the
14 defense, on the ground that they were highly secret trade
15 secrets they didn't want to give out.
16 I guess what I would ask is I don't know if a
17 procedure could be followed where they first question her
18 outside the presence of the jury to find out if she can
19 even lay this foundation.
20 If they can't, as I understand it, there is no
21 purpose for her testimony.
22 THE COURT: I feel that is a reasonable request.
23 I disagree with you in several other matters, 24 however. One is that this is not the manufacturing of 25 computer industry. This is a relatively small industry,
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 8001
1 even though there are a number of Who's Who, as I heard
2 from the testimony. But this is not an international
3 worldwide industry where they have plants i
n every
4 company.
5 Secondly, I disagree with you that an expert has
6 to testify as to custom and usage. Most of the time, in
7 fact, it is not an expert. Lay people in the industry do
8 it all the time in contract cases. There is not a case I
9 have tried in a contract case that didn't have testimony
10 involving custom and usage, custom and usage how to
11 package envelopes, how to dress codes on Fridays, whatever
12 it is they have custom and usage all the time. It is not
13 unusual. It may be unusual in a criminal case, but I
14 don't think that's a reason not to use it.
15 So, I think we will take that testimony out of
16 the presence of the jury first.
17 MR. WHITE: Thank you.
18 THE COURT: We will see you at 9:30 tomorrow
19 morning.
20 (Case on trial adjourned until 9:30 a.m.,
21 Tuesday, March 17th, 1998.)
22
23
24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER 8002
1 I-N-D-E-X
2 W-I-T-N-E-S-S-E-S 3 PAGE LINE 4 J O H N H. H A L L, J R,................. 7768 10 DIRECT EXAMINATION............................... 7768 20 5 CROSS-EXAMINATION................................ 7772 22
6 V I N C E N T R A Z Z I N O.................. 7777 10 DIRECT EXAMINATION............................... 7777 19 7 CROSS-EXAMINATION................................ 7792 6 CROSS-EXAMINATION................................ 7840 1 8 REDIRECT EXAMINATION............................. 7841 15 RECROSS-EXAMINATION.............................. 7852 13 9 RECROSS-EXAMINATION.............................. 7857 20 FURTHER REDIRECT EXAMINATION..................... 7865 16 10 FURTHER RECROSS-EXAMINATION...................... 7870 9 FURTHER RECROSS-EXAMINATION...................... 7877 1 11 A L L A N M E N D
E L S O H N.............. 7878 2 12 DIRECT EXAMINATION............................... 7878 16 CROSS-EXAMINATION................................ 7890 21 13 CROSS-EXAMINATION................................ 7896 10 FURTHER REDIRECT EXAMINATION..................... 7900 2 14 M A R T I N R E F F S I N................... 7907 20 15 DIRECT EXAMINATION............................... 7908 5 VOIR DIRE EXAMINATION............................ 7928 1 16 DIRECT EXAMINATION (cont'd)...................... 7929 7 VOIR DIRE EXAMINATION............................ 7962 18 17
18 E-X-H-I-B-I-T-S
19 Defendant's Exhibit ED received in evidence...... 7843 17 20 Defendant's Exhibit GF received in evidence...... 7902 16 Defendant's Exhibit EA received in evidence...... 7929 4 21 Defendant's Exhibit EA-1 received in evidence.... 7929 24 Defendant's Exhibit EC received in evidence...... 7964 18 22
23 24 25
HARRY RAPAPORT, CSR, CP, CM OFFICIAL COURT REPORTER
