Free Reply to Response - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

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Filed 04/10/2006

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Action No 04-cr-00103-REB UNITED STATES OF AMERICA Plaintiff, v. 1. NORMAN SCHMIDT, 2. GEORGE ALAN WEED, 3. PETER A.W. MOSS, 4. CHARLES LEWIS, 5. JANNICE McLAIN SCHMIDT, 6. MICHAEL SMITH, and 7. GEORGE BEROS, Defendants. _____________________________________________________________________ GOVERNMENT'S CONSOLIDATED REPLY TO DEFENDANTS NORMAN SCHMIDT'S AND GEORGE ALAN WEED'S RESPONSES AND OBJECTIONS TO GOVERNMENT'S SECOND SUPPLEMENT TO JAMES PROFFER (joined by defendants Charles Lewis, Jannice McLain Schmidt, and George Beros) _____________________________________________________________________ The United States (the government), by Wyatt Angelo and Matthew T. Kirsch, the undersigned Assistant United States Attorneys, replies to defendants Norman Schmidt's and George Alan Weed's responses and objections [Doc. #s 691 and 692, respectively] to the Government's Second Supplement to James Proffer [Doc. # 677] as set forth below. The government first responds to those objections which apply to groups of statements. Additional objections that pertain only to one or two statements are then addressed individually.

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Objections to Statements as Outside the Time Frame of the Charged Conspiracy 1. Statements 323 & 324: Norman Schmidt's objection to these statements as beyond the time frame of the alleged conspiracy is well taken as the statements were submitted, but it results from typographical errors in the James Log. The date for both of these proffered statements should be April 2003, rather than April 2005. Attachment 1 is a James Log which corrects these errors.1 2. Norman Schmidt's other objections to these statements are based on his contention that Rocky Mountain Sports Promotions, LLC (RMSP) was not a part of the conspiracy. The Second Superseding Indictment alleges that RMSP was an entity used in the conspiracy. See ¶¶ 4(b), 10 [Doc. # 526]. Paragraphs 2-7 of the Government's First Supplement To James Proffer [Doc. # 592], which are re-incorporated here, summarize the evidence which supports this allegation. Finally, the fact that Michael Huffman was not a conspirator is irrelevant; there is no requirement that a statement be made by one conspirator to another to be admissible pursuant to Rule 801(d)(2)(E). United States v. Williamson, 53 F.3d 1500, 1519 (10th Cir. 1995); United States v. LeRoy, 944 F.2d 787, 789 (10th Cir. 1991). Objections to Statements Made to Gary Herbert 3. Statements 325-329: Norman Schmidt objects to these statements on the grounds that they did not promote the objectives of the conspiracy, control damage to the conspiracy, or prompt attorney Gary Herbert to respond in a way The corrected log also fixes a typographical error in the Bates number listed for statement 344. 2
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that facilitated carrying out the conspiracy. These statements were made to Mr. Herbert by co-conspirator Leon Harte for the purposes of Mr. Herbert's legal representation of Harte, Norman Schmidt, the Reserve Foundation Trust, and the Reserve Foundation, LLC in various lawsuits brought by investors. See Herbert Depo., pp. 13-40 (Excerpts attached as Attachment 2.) The allegations and claims in those suits were based on the fraudulent nature of the investment promoted by Harte and Schmidt through the Reserve Foundation Trust and the Reserve Foundation, LLC. Defending those claims was necessary to prevent the discovery of conspiracy through the civil discovery process, to allow the conspiracy to continue, and to allow the conspirators to keep the conspiracy's proceeds. 4. Norman Schmidt also suggests that statements 327 through 329 were not actually statements made by co-conspirator Harte or himself. The relevant excerpts of Mr. Herbert's deposition make clear that, while the statements may not be quotations of Mr. Harte or Norman Schmidt, they constitute paraphrases of their statements. See Attach. 2, pp. 19, 32-33, 41. 5. Finally, Norman Schmidt contends that statement 328 was made outside the time of the charged conspiracy. The statement was made in 2001, squarely within the charged conspiracy, which is alleged to have existed from 1999 through 2004. See Second Superseding Indictment, ¶ 1.

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Objections Concerning the Timeliness of the Government's Inclusion of Certain Statements 6. Statements 330, 331, 333-337, 341-350, 352, 354, & 355: In the government's original James Proffer [Doc. 290], the government indicated that, given the volume of the evidence in this case, it might attempt to supplement its original proffer based on discovery of additional statements. See id. at 1-2.2 Also, a number of these statements were not available to the government when the original James Proffer was filed in December 2004. Statements 330-332, 337, and 341 were first provided to government agents during trial preparation interviews in July 2005. The remaining approximately fifteen statements were, as the defendants suggest, in the government's possession in December 2004 and were simply missed during the review of the voluminous evidence conducted to prepare the original James Proffer. 7. Given that there is still no trial scheduled in this matter and that the defendants have estimated that they will need through the end of this year to finish their review of the evidence, it is difficult to see how the defendants are prejudiced by the government's addition to its James Proffer of the approximately fifteen additional statements that the government previously possessed. Considering the statements now, on the other hand, is more efficient than doing so at trial and provides all parties more certainty for trial preparation purposes. For these Neither the Court's Supplemental Scheduling Order [Doc. # 584] nor its Second Supplemental Scheduling Order [Doc. # 658] specifically address whether the Second Supplement to James Proffer was to be limited only to statements pertaining to new allegations in the Second Superseding Indictment. 4
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reasons, the government asks that the timeliness challenge to all of these statements be rejected. Additional Substantive Objections to Particular Statements 8. Statements 330 & 331: Jannice McLain Schmidt's representations to Mr. Peterson concerning the success and profitability of the fraudulent high-yield investment program to a potential investor are essentially boasts about the quality of the investment program and were intended to assure Mr. Peterson that she could deliver the promised returns if he invested. Her representation about being a "church-going lady" was similarly designed to re-assure Mr. Peterson that his investment with her was safe and that her other representations could be believed. 9. Statement 332: Defendant Schmidt objects to only one of the three grounds for advanced for admissibility of this statement ­ that it was a statement designed to give directions. Based on the lack of objection on the two other grounds advanced, this objection appears moot. The objection is also logically unsound; there is no reason that a conspirator cannot give directions to an innocent third party to facilitate a conspiracy's objectives. Here, the statement gave directions to investor Troy Hall in an attempt to induce him to solicit additional investments in the fraudulent high-yield investment program. 10. Statement 333: This statement constitutes the contents of an agenda for a meeting between the conspirators prepared by co-conspirator Michael Vallone. The clear import of the statement is to alert his co-conspirators to dangers posed by the SEC's potential discovery of their activities. Statements by a conspirator 5

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to other conspirators which are designed to protect the conspiracy from discovery are probative of the conspiracy's existence and its membership, and are designed to control damage to the conspiracy as well. 11. Statement 338: The proffered statement is one made by defendant Norman Schmidt to Gary Herbert concerning defendant Schmidt's discussion with other conspirators or the contents of Mr. Herbert's letter concerning the insurance coverage on invested funds. The letter was prepared in June 2002. The context of the deposition suggests that this statement paraphrases a statement by defendant Schmidt. See Attach. 2, p. 55. 12. Statements 339 & 340: These statements informed Gary Herbert that Michael Smith and Michael Vallone were members of Norman Schmidt's organization and explained why they would be requesting a similar version of the June 2002 insurance letter initially prepared for Jannice McLain Schmidt. This letter was a focal point of the Capital Holdings marketing program. Schmidt's identification of the other members of his organization within this context shows the existence of the conspiracy and identifies its members and, inferentially, their roles. 13. Statement 343: Charles Lewis left a note containing this statement on the desk of a Capital Holdings employee who kept investor accounting records and prepared the monthly statements sent to investors. The purpose of the statement was to inform the employee as to the disposition of the funds and to make sure that the investor was credited appropriately for his investment. Absent such information, there was a real risk that the investor would not be properly credited, that a monthly statement would not be generated or would be 6

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incorrect, and, as a result, that the investor would complain to authorities or make inquiries to regulatory agencies. 14. Statements 348 & 349: There is no logical reason that statements cannot conceal one objective of the conspiracy ­ to defraud investors ­ and also promote the conspiracy's additional objective of allowing its members to spend investors' money as they saw fit. 15. Statement 351: This statement from George Beros to Norman Schmidt was made in the context of wire transfer directions. It facilitates the conspiracy's objectives by identifying C.B. Morris to Schmidt as the person who brought two investors into the Monarch Capital Holdings high yield investment program for the purposes of explaining why Mr. Morris should receive a payment. 15. Statement 353: The Court has found that both Michael Smith and John Schlabach were members of the charged conspiracy. See Order re: James Proffer [Doc. # 441] at 8. There is no requirement that the particular conspirator who made a statement be identified before such a statement is admissible; the law requires only that the declarant, whomever it may have been, was a conspirator. See United States v. Lopez-Gutierrez, 83 F.3d 1235, 1242 (10th Cir. 1996); United States v. Wilson, 532 F.2d 641, 645 (8th Cir. 1976). 16. Statement 354: Defendant Weed raises a number of objections to statement 354, all of which are essentially objections on other evidentiary bases such as authenticity or relevance. These objections are premature. To the extent that the Court wants to address them preliminarily, the government has attached the

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fax cover page containing the statement and the letter which was found next to it during the search of one of the offices used by Jannice McLain Schmidt. See Attach. 3. This letter forms the basis for the government's "editorializing" concerning the statement's context. Respectfully submitted this 10th day of April, 2006, WILLIAM J. LEONE United States Attorney District of Colorado

s/ Matthew T. Kirsch MATTHEW T. KIRSCH WYATT ANGELO Assistant U.S. Attorneys 1225 17th Street, Suite 700 Denver, CO 80202 Telephone 303-454-0100 Facsimile 303-454-0402 Email: [email protected]

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CERTIFICATE OF SERVICE (CM/ECF) I hereby certify on this 10th day of April, 2006, I electronically filed the foregoing GOVERNMENT'S CONSOLIDATED REPLY TO DEFENDANTS NORMAN SCHMIDT'S AND GEORGE ALAN WEED'S RESPONSES AND OBJECTIONS TO GOVERNMENT'S SECOND SUPPLEMENT TO JAMES PROFFER (joined by defendants Charles Lewis, Jannice McLain Schmidt, and George Beros) with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Peter Bornstein, Esq. [email protected] Thomas Hammond, Esq. [email protected] Declan J. O'Donnell, Esq. [email protected] Ronald Gainor, Esq. [email protected] Paul B. Daiker, Esq. [email protected] Daniel T. Smith, Esq. [email protected] Thomas Goodreid, Esq. [email protected]

s/Matthew T. Kirsch Matthew T. Kirsch Assistant United States Attorney 1225 17th Street, 7th Floor Denver, CO 80202 Phone: (303) 454-0100 Fax: (303) 454-0402 Email: [email protected]

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