Free Supplement - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

Document 755-2

Filed 05/19/2006

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Philip A. Feigin
Attorney at Law 303.628.9509 [email protected] Denver

ROTHGERBER
JOHNSON 8 LYONS LLP
Colorado Springs Casper

One Tabor Center, Suite 3000 1200 Seventeenth Street Denver, Colorado 80202-5855 Telephone 303.623.9000 Fax 303.623.9222 www.rothgerber.com

May 16,2006

Matthew T. Kirsch, Esq. Assistant United States Attorney District of Colorado U.S. Department of Justice 1225 Seventeenth Street, Suite 700 Denver, CO 80202
Re: United States of America v. Norman Schmidt, George Alan Weed, Peter A. W. Moss, Charles Lewis, Jannice McLain Schmidt, Michael Smith and George Beros, United States District Court for the District of Colorado, Criminal Case No. 04-CR-103-RB

Dear Mr. Kirsch: In your letter to me of May 12, 2006, you asked that I review the materials you enclosed in connection with the above-captioned matter and in light of the opinions I expressed in my letter of May 25, 2005 to Assistant United States Attorney Wyatt B. Angelo, Esq. Pursuant to your request, I have reviewed the following materials:
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Memorandum of Conversation, Darren McGee ("McGee"), August 4, 2005, Bates No. 03 15023-03 1025; Memorandum of Interview, Cliff R. Seigneur ("Seigneur"), August 2, 2005, Bates NO. 03 15018-03 1022; Memorandum of Conversation, Ailish Keating ("Keating"), July 26, 2005, Bates NO. 0315031-031033; Memorandum of Interview, Mike Huffman ("Huffman"), July 20, 2005, Bates No. 03 15026-031027; and Memorandum of Interview, Carol Hall, Troy Hall (the "Halls"), July 14, 2005, Bates No. 03 15072-031075

and the documents identified by:
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Bates No. 03 15042-0315059; Bates No. 04241 8 1-0424208;

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Matthew T. Kirsch, Esq. May 16,2006 Page2 Bates No. 0424210-0424266; Bates No. 0424269-0424343; and Bates No. 0424526-0424528

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To the extent particular documents within these ranges of Bates numbered documents is germane to my discussion, I will identify them specifically. Of the interviews conducted, four were of people who invested funds one way or another in Smitty's Investments LLC ("Smitty's"), Rocky Mountain Sports Promotion, Inc. ("RMSP") or High Track Team, LLC ("HTT"). In those interviews, two additional investors were identified. The investments were made as follows: November 2002 Prior to February 2003 February 6,2003 unknown March 12,2003 March 25,2003 May 1,2003 May 20,2003 June 2003 Halls A. Dutta Halls Sheryl Hall McGee Keating Seigneur Hal 1s Seigneur McGee $14,500 $5,000 $5,000 $1,000 $10,000 $4,000 $25,000 $45,000 $25,000 (converted) $2,000 Smitty's unknown Smitty's unknown Smitty's Smitty's Smitty's RMSPIHTT RMSPIHTT RMSPIHTT

McGee (and Keating) and Seigneur received a Smitty's Investments LLC Cooperative Private Placement Agreement ("CPPA") I reviewed previously.' In this document, the following points are noted: The investment purported to return 10% per month.
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At 1.B., it is stated that "[tlhese funds will be used to buy, sell, lease or trade, on a loss free, pre-sale agreed basis, in medium term notes and other banking and governmental financial instruments to the mutual benefit of Party A and the LLC as designated by the trader and the trading bank."

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As noted previously, "prime bank schemes" are typified by claims the investments are riskless ("loss free"). "Medium term notes" are also typical instruments described in such schemes.

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' E.g., Volume 2, Interview Report, Greg S. Hector, accompanying materials
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Matthew T. Kirsch, Esq. May 16,2006 Page3 Reference is made to a trader and the trading bank, although they are never identified and their purported role is never described.

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At 2., reference is made to the International Chamber of Commerce of Paris, France and to ICC Publications 322,400 and 500. At 4., the investment was required to warrant that the funds invested were of "non-criminal origin." At 8., strict confidentiality is required. The agreement us to be construed under the laws of England or the U.S. Seigneur's materials included an Investor Qualification Summary that included the statement: In accordance with Articles 2 to 5 of the Due Diligence Convention and the Federal Banking Commission Circular of December, 1998, concerning the prevention of money laundering and article 305 of the Swiss Criminal Code, the following information may be supplied to banks andlor other financial institutions.. .2 It was also noted in victim interview memoranda that reference was made by the Schmidts to the involvement of Lloyd's of on don^ in the program. Based on the overall document, the points I noted and statements made describing the program to the victims as reported in their interviews, there is no doubt in my mind that this CPPA was part of a so-called "prime bank scheme" as I described in my earlier letter. It is my further opinion, consistent with the opinion I set forth in my prior letter, that the investments made in the Smitty's program by (probably) all of the investors you brought to my attention in the materials you provided on May 12, 2006 constituted investment contracts and therefore securities under the federal Securities Act of 1933, in that they involved an investment of money in a common enterprise with the expectation of a profit based on the essential managerial efforts of the promoter or a third party. It is also my opinion that in offering and selling those securities, Norman Schmidt and Jannice McLain Schmidt made untrue statements of material fact and omitted to state material facts that made statements they made, in light of the circumstances under which they were made,

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Memorandum of Interview, Cliff R. Seigneur, Bates No. 0424191 Memorandum of Conversation, Darren McGee, Paragraph 4., Bates No. 03 15023; Memorandum of Interview,

Carol Hall and Troy Hall, Paragraph 3, Bates No. 03 15072

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Matthew T. Kirsch, Esq. May 16,2006 Page4

misleading in violation of federal anti-fraud provision. I make general reference to my analysis in my prior letter. More specifically, Jannice McLain Schmidt completely mischaracterized the nature and impact of the cease and desist order issued by the Nebraska securities authorities when she was asked about it by the ~ a l l sMs. Schmidt went so far as to utilize a Colorado post office box for .~ the Halls to in a ploy to avoid further Nebraska violations. She further went on to assert to the Halls that churches had been helped by the spin-off benefits of the investment program, and that Lee Iacocca, the Bush family, the Rockefellers, Chrysler Motors, foreign governments and the World Bank were all involved in the in~estment.~ addition to being grossly false and In fraudulent, such claims are simply silly. There is also a question as to whether the follow-on investments in RMSP and HTT constituted securities. Unquestionably, they did and do. Like their predecessor, Smitty's, an investment in RMSP and HTT was to pay a 10% per month return. The investors were to have no role in the generation of that return. It is clear that the arrangement entailed an investment of money in a common enterprise with the expectation of a profit based on the essential managerial efforts of the promoter or a third party. Thus, at a minimum, the arrangements were investment contracts and securities. That concludes my supplemental report. Respectfully,

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Memorandum of Interview, Carol Hall and Troy Hall, Paragraph 6, Bates No. 03 15073 Id., Paragraph 9

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