Comments by Bob Grimes
July 5, 2007 – 8:30 a.m. to 3:00 p.m.
GOVERNMENT’S CLOSING ARGUMENT
AUSA Eric Beste gave a closing statement that focused on Gary Lenz and Joseph Reichner. Beste argued that Lenz and Reichner were part of senior management and therefore had to know about the sham deals, partner paper and barter deals. Beste argued that Peregrine’s problem deals had to be discussed at forecast meetings, where Lenz and sometimes Reichner were present.
AUSA Beste asked the jury to consider that if backdating is no big deal, why put the wrong date on a contract.
Beste’s main arguments were displayed in a PowerPoint presentation. When he referred to a pertinent e-mail that illustrated his point, the e-mail would appear on the screen. The arguments were not new; for example, Beste insists that Joe Reichner’s letter offering KPMG a $250,000 incentive to sign the Boeing and Honeywell deals was a side letter and not a marketing fund, as the Defense has argued.
AUSA Beste outlined the three different types of charges; Conspiracy, Securities Fraud, and Wire Fraud. Beste listed each element of these charges that the Government is required to prove. According to the Government, the main two elements that the jury needs to focus on are whether Lenz and Reichner willfully joined the existing conspiracy at Peregrine and whether Lenz and Reichner did so with the intent to help further the ongoing fraud at Peregrine.
AUSA Bhandari took over after AUSA Beste finished. Bhandari used a sophisticated PowerPoint presentation to help explain and emphasize his main arguments. Bhandari’s closing argument focused on defendants Patrick Towle and Daniel Stulac.
AUSA Sanjay Bhandari argued that Patrick Towle and Daniel Stulac were both CPAs and knew that what they were doing at Peregrine was wrong.
Bhandari pointed out the main evidence against defendants Towle and Stulac. For example, Bhandari stated that Lynn Morimoto testified that Towle instructed her to white out the dates on fax headers.
One of Bhandari’s PowerPoint titles was “Too Many Red Flags to Miss”. Bhandari explained that accounts receivable that were more than 90 days overdue should have been a red flag to Daniel Stulac. Bhandari argued that this type of aging receivable was evidence of side deals.
Bhandari also said that the German auditors’ concerns should have been a red flag for Stulac because they were auditors and therefore Stulac should have taken their concerns more seriously. Furthermore, Bhandari argued that the German auditors’ concerns turned out to be legitimate.
Peregrine collections department employee Felicia Alpren testified that she told Towle that some of Peregrine’s non-paying customers told her that they were not obligated to pay. Bhandari argued that this was a red flag for Towle. Bhandari stated that Towle should have investigated the matter.
Bhandari’s argument was mainly a summary of previous testimony that could be incriminating for the defendants, but in his closing words, Bhandari listed “Defense Theories”. Bhandari listed the arguments that he anticipates the Defense will use in their closing statements. The first one was “Blame subordinates or other divisions”. Bhandari argued that the defense counsel will try to focus the blame for their actions on other people. For example, Bhandari anticipates that Attorney Iredale will argue that Reichner did not know that his division at Peregrine was involved in many shady deals.
The second bullet point was “Its all so confusing”. Bhandari said that he believes the defense attorneys will argue that accounting rules and selling software are both extremely confusing and therefore it is understandable that the defendants may have not understood that wrongdoings were going on at Peregrine. Bhandari asserted that accounting rules and the software business are not confusing.
Bhandari predicted that the attorneys for the Defense will argue that “This isn’t what it looks like”. Bhandari told the jury that if it looks like a side letter, it is a side letter. He cautioned the jury not to be fooled into believing that things are not what they appear to be.
AUSA Bhandari said that the defense will try to shift blame by minimizing their client’s roles at Peregrine. His title for this topic was “I’m just a relationship guy/little guy/baby partner”.
In his last bullet point “Generalities”, Bhandari alerted the jury to listen for vague general statements by Defense Counsel in their arguments. Bhandari states that generalities cannot be used to explain away these defendants’ actions. Bhandari asked the jurors to listen for specific evidence that explains the defendants’ actions.
Tomorrow, attorney Gene Iredale will argue on behalf of his client, Joseph Reichner.
July 6, 2007 – 8:30 a.m. to 1:15 p.m.
ARGUMENT BY GENE IREDALE
The word had circulated that Gene Iredale was going to make his summation in the Peregrine case today. The audience section of the courtroom was full or almost full most of the day. Iredale sincerely thanked the jury for their attention over the past three months of trial, and he told them how important it is for individuals to sit in judgment when another individual is accused by the government. He emphasized that each of these four defendants is entitled to be judged separately from the other defendants.
Iredale said that Joe Reichner always acted in good faith while he was at Peregrine, and never had the intent to defraud. Reichner was an outsider who came to Peregrine after Gardner, Gless, Powanda and Cahill had already started the conspiracy.
Attorney Iredale reminded the jury of testimony regarding Reichner’s heated arguments with Cahill, and that Reichner (and Lenz) were fired by Gardner in January of 2002.
There was testimony at trial that Reichner did not work very hard at Peregrine, and that many people felt that he acted like he was semi-retired. Iredale pointed out that if Reichner was lazy or not particularly competent in the software industry, these were not crimes. Iredale argued that when Reichner was finally becoming aware of the fraud at Peregrine, in November and December of 2001, he was trying to make positive changes, and finally complained “people go to jail for things like this”. Iredale said that was why Joe Reichner was fired.
Steve Gardner testified that Reichner participated in the fraud, and Iredale said Gardner was lying to try to persuade the Government to recommend less than the 20 year maximum sentence. Gene Iredale said that the Government had avoided generating any written reports from Gardner, so that he could not be cross-examined with inconsistent statements. Attorney Iredale looked directly AUSAs Bhandari and Beste as he challenged them to provide a legitimate explanation for the fact that Gardner was interviewed 13 times, over approximately 50 hours, without any written notes or reports which could potentially be used to cross-examine Gardner.
Iredale said that Gardner had lied to Reichner, and that put Reichner in good company. Gardner had also lied to the SEC, the employees of Peregrine, the Peregrine board (including Bill Richardson), the analysts, and the public. Iredale played a series of eight to ten videos for the jury that showed Gardner giving persuasive and confident presentations to shareholders, investors, and Peregrine employees, talking about the consistent strong performance of Peregrine.
Iredale displayed a number of e-mails between the insiders, primarily Gardner, Gless, Powanda, and Cahill, and he argued that these insiders were careful not to let confidential information about their improper actions be known to others.
Iredale showed the jury lists of corporations that Peregrine had acquired, including Knowlix, Barnhill, Harbinger, and Remedy. The shareholders and officers of these companies had been paid primarily in Peregrine stock, so it was important for them to do thorough due diligence of Peregrine, with teams of lawyers and accountants. The improper actions of Gardner and Gless were so carefully concealed that the teams of experts from the other corporations could not detect them, and Iredale argued that it is not unreasonable to conclude that Joe Reichner also could not detect them.
On Tuesday morning, attorney Tom Bienert will present his final argument on behalf of Gary Lenz. He will be followed by Kate Leff on behalf of Patrick Towle and then Mike Attanasio on behalf of Dan Stulac. The Government will then present its rebuttal argument.