Free Motion for Acquittal - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Case No. 03 CR 232 M UNITED STATES OF AMERICA, Plaintiff, v. 1. 2. 3. 4. 5. 6. 7. EDWARD P. MATTAR, III, THOMAS ALAN BOYD, JACK O. GRACE, Jr., GLENN M. GALLANT, DOUGLAS R. BAETZ, CENTURY FINANCIAL SERVICES, INC., and CENTURY FINANCIAL GROUP, INC.

Defendants.

MOTION FOR JUDGMENT OF ACQUITTAL OR, IN THE ALTERNATIVE, TO ENTER FINDINGS AND VERDICTS OF NOT GUILTY

COMES NOW Defendant Jack O. Grace, Jr., through his co-counsel, Daniel J. Sears, P. C. and Daniel T. Smith, and pursuant to F. R. Crim. P. Rule 29(b), respectfully requests this Honorable Court to enter a judgment of acquittal on Count 1, Conspiracy; Counts 2 ­ 44 (Bank Fraud); 47 ­ 49 and 50 - 54 (False Bank Reports); Counts 55 ­ 64 and 65 - 73 (Wire Fraud); Counts 75 through 88 (Money Laundering); and Count 90 (Securities Fraud) of the Second Superseding Indictment (hereinafter "Indictment") on the grounds that the government has failed to establish a prima facie case on each of the respective counts or, in the alternative, that the evidence is insufficient to prove Grace's guilt

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beyond a reasonable doubt, and that verdicts and judgments of acquittal should enter. [References to the trial transcript will be to day of trial, page and line as follows: "TD , p. , L "].

As grounds for said motion, Defendant Grace hereby states follows: INTRODUCTION While responding to the government's written closing submission, defense counsel must be mindful that closing arguments are not evidence, when presented on behalf of either party. The government's closing, however, is laced with references to testimony and a number of exhibits offered throughout this lengthy trial to bolster its arguments. The character of the government's opening of its closing presentation offers many assertions of Grace's knowledge that are not supported by the record, of Grace's acts and transactions that do not evidence the intent or import asserted by the prosecutors, or that lend credence to the government's opinions of how the evidence should be interpreted in adjudging Jack Grace's guilt or innocence. The prosecution's myopic view of the record bears striking resemblance to the regulators' cursory treatment of financial materials during the bank visitation in May, 1998, their narrow and short-sighted queries and evaluation of the credit card portfolio at FICI that led them to shut the bank's doors, the manner in which Assistant Dallas Regional Counsel, Carey DeMoss, and the bank examiners took turns quizzing bank employees during the 10(c) investigations just weeks after they closed the bank, and the prosecutors'

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presentation of the case to the federal grand jury more than three years ago that led to the charges being considered by the Court. It is particularly curious that, in characterizing the respective counts against Mattar, Boyd, and Grace, the government mentions only the three bankers, and completely ignores Baetz, Gallant, and the Century entities. For example, the names Baetz, Gallant and Century are not mentioned in the prosecutors' definition of the required elements in Count 1: Conspiracy, a charge that requires interdependence among the conspirators. Government's Closing Argument (hereinafter "Argument"), p. 1. Though this case was severed for trial, and each defendant's case must be considered separately, the charges returned by the federal grand jury allege that Jack Grace conspired with Mattar, Boyd, Baetz, Gallant and Century (Count 1), executed and caused others to execute a scheme to defraud BestBank with Mattar, Boyd, Baetz, Gallant and Century (Counts 2-44), joined Mattar, Boyd, Baetz, Gallant and Century Financial Group in making and causing false entries in BestBank's reports (Counts 47-54), devised another scheme and artifice to defraud with Mattar, Boyd, Baetz, Gallant and Century Financial Group to sell Mattar's stock (Counts 5--64), and a scheme to sell the subprime portfolio, and conducted, or aided and abetted, Mattar, Boyd, Baetz, Gallant, and Century in conducting financial transactions that they knew involved proceeds of unlawful activity (Counts 75-88). Argument, pp. 1-4 of 75. Though much of the charging document concerns the actions of Baetz, Gallant and Century in manipulating the portfolio in order to escape Century's financial responsibility to the bank, and the evidence established a veil

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of secrecy imposed on Century, BankCard Center, Berwyn and FICI employees, in hiding these actions from the bankers, the government attempts to impute knowledge to the bankers of these actions as part of a joint enterprise by excerpting testimony suggesting that Grace knew more than the evidence has demonstrated. For example, the government contends that Grace was "responsible for daily settlement of credit card activity, the bank's general ledger, and wire transfers". Argument, p. 6 of 75. This assertion completely ignores the testimony of government witnesses Jack Hitt and Anne Shatting, who testified that Grace only got involved in settlement if there was a balancing issue,[ TD 10 pg 630 L 4-12 ] and Shatting's testimony that Grace didn't understand the processing reports, [TD 11 pg 796 L 9-25 ] and was a "novice on settlement". [TD 11 pg 790 L 16-21]. The prosecutors suggest that Grace took steps to "hide the truth" about accounts having no plastics, and the withholding of monthly cardholder statements. Argument, p. 8 of 75. There is no evidence of any affirmative steps by Grace to "hide the truth" from anyone about accounts having no plastics, and that Century was withholding cardholder statements. In order to conceal a material matter, one must have knowledge of it, must have a duty to disclose it and, in terms of the specific criminal charges being considered by this Court, must have failed to disclose with the specific intent to defraud. The government's failure to sustain the respective fraud charges will be discussed below. The prosecution relies on Govt. Ex. 50, a January 27, 1995, memo from Wiedmaier to Schultz, which was copied to Grace, to suggest that Grace was

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aware of accounts that had not received cardholder payments. Argument, p. 10 of 75. Though the Wiedmaier memo does address overlimit accounts and the "contingent liability" that they could represent, it also suggests that "some progress has been made", though more needs to be done. Govt. Ex. 50, p. 2. It further states that "it appears the accounts have not been re-aged this month . . . " Id. Though Grace was copied on this memo, the government failed to establish what Grace actually knew about the effect of re-aging on these accounts, what he was told about the status of re-aging while Wiedmaier was exploring these issues, and how Grace felt about the corrective measures that Wiedmaier was pursuing. The government's argument then cites Govt. Ex. 840 as support for Wiedmaier's determination of a shortfall in cardholder payments. Argument, p. 10 of 75. Govt. Ex. 840 is a series of December, 1994, CD 121's. The evidence fails to show that Grace was ever presented these reports, that they were explained to him, or that he even understood what they depicted. The prosecution also references Govt. Ex. 841, a series of January, 1995, CD 121's, as the source of the data that Wiedmaier used in preparing Govt. Ex. 84, his January, 1995, memo purportedly, according to the government, "outlining fraudulent practices". Argument, p. 10 of 75. Again, there has been no showing that Grace accessed these reports, used them in his daily activities, or that he understood them, if he did, in fact, see them. The government alludes to Govt. Exs. 837-857, and Andrea Loschen's spreadsheet (Govt. Ex. #120), as demonstrating the shortfall. Argument, p. 10 of

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75. This is illustrative of the government's efforts to suggest, after the fact, that Grace was aware of this information many years before Loschen's analysis. There is no evidence in the record that Grace took efforts to hide the truth about plastics not being issued, that he knew why plastics were not issued, or why monthly cardholder statements were being withheld. It was clear from Wiedmaier's testimony he had been assigned the responsibility of monitoring the credit card portfolio, and working with BankCard Center to resolve any problems. On cross-examination, Wiedmaier was asked his opinion of Grace: "Q Now, Mr. Haried asked you on a number of occasions whether you took these concerns regarding re-aging to (Grace), and you indicated that you did; but I noticed, curiously, Mr. Haried never asked you what Mr. Grace's concerns were. Mr. Grace never told you to keep silent about this? A No. Q Never told you to alter any records, did he? A No. Q As a matter of fact, nobody at the bank ever told you to alter anything, isn't that correct? A No, they did not?" T D4, p. 509, L13-25 and P. 510. Wiedmaier was asked about his feelings towards Grace: "Q As you sit here today, Mr. Wiedmaier, what are your feelings about Jack Grace? A I enjoyed working with him. Q All right. Was he always responsive to - A He was.

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Q - - issues you would bring up? A Yes. Q He was a friendly sort of individual? A Yes. Q Easy to get along with? A Yes. Q Never raised his voice? A No. Q Always accommodating to you when you would approach him about issues? A Yes, he was. Q Did you ever have any reason to question his honesty with you? A No." T. D5, p. 522, L14-25; p. 523, L1-8. Since Wiedmaier had been fired from his job, though it wasn't Grace who had discharged him, he had every opportunity to display his animosity towards his former employers. Notwithstanding, Wiedmaier testified that Grace encouraged him to pursue the issues, never imparted untruthful information to him, and did not impede him in any way. The government further argues that Century, in October, 1994, began falsely underreporting the number of accounts, so that the number of security deposits would more closely align with the number of accounts reported. Argument, p. 9 of 75. The government cites Govt. Exs. 123, 68 and 75 to support its contention. Govt. Exs. 68 and 75 are Credit Card Reports, which the

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evidence fails to show that Grace ever saw or understood, and Govt. Ex. 123 is a summary chart prepared by Andrea Loschen years after the bank was closed. They argue "Loschen's summary charts simply compile the data the defendants saw on a daily basis". Argument, p. 101 of 75. This type of bald assertion is not followed by any references to testimonial or documentary evidence, and there is no evidence that Grace was aware of activities by Century to underreport accounts. The government introduced cardholder statements to show that security deposits were charged to cardholder accounts. See e.g. reference to Weisen statement, Argument, p. 12 of 75. It contends that "Century withheld stacks and stacks of monthly cardholder statements, and Boyd and Grace knew that", citing D4 Tr 438; Ex. #58.2". (Emphasis added). Argument, p. 13 of 75. A check of the transcript and exhibit references fails to confirm this assertion. Wiedmaier testified that he saw stacks of statements in Schultz' office that apparently had had block codes placed on them. It is a far reach to contend that Grace knew about these. This type of overstatement is reflective of the disposition adopted by the government throughout its argument ­ assertions that find no evidentiary support. Somewhat later, they argue that "[t]he fact (Century) effectively `re-aged' accounts was apparent on cardholder statements, e.g. the Zertuche statements at Ex. #890.4 and 6." Argument, p. 15 of 75. There is no testimony that cardholder statements were sent to the bank, maintained at the bank, or that Jack Grace accessed and reviewed them.

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The government cites Melody Long's testimony that worksheets showing security deposits from Century's operating account were "delivered to BestBank". Argument, p. 12 of 75. There is no evidence that Jack Grace ever received or reviewed them. Again, the prosecution refers to worksheets by Dana Chamberlin prepared many years after the bank was closed. Argument, p. 13 of 75. "Mattar's and Boyd's intent to defraud is vividly demonstrated in Ex. #85." Argument, p. 16 of 75. Once again, the government, incredulously, overstates its case and draws inferences that are not supported by the record. Govt. Ex. 85 is a June 15, 1995, memo from Mattar and Boyd announcing that the American Banker, one week earlier, had listed BestBank number one among small community banks in America, and Colorado's best performing bank. The government's evidence not only did not indicate that this memo was untrue, but Commissioner Fulkerson confirmed that BestBank was highly regarded for its performance. [ TD 25 pg 3430 L 9-16 ] The prosecution charges that Mattar, Boyd and Grace "lied" in the Call Reports by ignoring data disclosed in the CD 121's. Argument, p. 20 of 75. The government's own experts identified charts that they had prepared, and testified that the data in the CD 121's was consistent with the bank's general ledger, and that the figures in the Call Reports were consistent with the general ledger. This is addressed below in connection with the Defendant's argument that Counts 4754 have not been proven. They contend that Mattar, Boyd, and Grace "knew" that cardholders were not receiving fulfillment packages. Argument, p. 32 of 75. The testimony of

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Mansueto, [TD 19 pg 1961 L 11-18 ] Nelson, [TD 21 pg 2473 L 20-23 ] Selinger, [TD 21 pg 2492 L 18-22 ] and Ballback, [TD 21 pg 2503 L 20-21 ] who each testified that they had never met or spoken to Grace, refutes this contention. Nevertheless, the government boldly asserts, as it did at trial, that Mattar, Boyd or Grace "never contacted the fulfillment vendors - NMR, Nordis, and Hurricane Golf ­ with questions". Argument, p. 32 of 75. It doesn't take much imagination to explain why, if Grace has no involvement with fulfillment, and was not aware of the problems, he doesn't call to "question" these people with whom he has had no contact. The government represents that "Grace and Wiedmaier had computers on their desks and access to all FDR reports", referencing [ TD4 Tr. 496:11; D5 Tr. 536:7; 531:3] There has been no testimony that Jack Grace sought or had access to all FDR reports, or that he even used them in his daily duties as CFO of BestBank. The government contends that "The FDR microfiche admitted in evidence shows that BestBank received all of those reports and more". (Emphasis added). Argument, p. 44 of 75. This again is a declaration that finds no support in the record. A simple review of the microfiche admitted into evidence as Govt. Ex. #88, or the paper printouts, Govt. Exs. 91 and 100, shows nothing on their face to demonstrate that Jack Grace received them or reviewed them, and there is no evidentiary support for this claim. In attempting to impute knowledge to Grace about information from the processors or other data or events concerning the portfolio, the government,

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recurrently, suggests that certain information "was available to BestBank", e.g. (the meaning of block codes - Argument, p. 28 of 75), (the number of block codes - Argument, p. 29 of 75), (access to ZD screens ­ Argument, p. 44 of 75), (all FICI reports and cardholder statements - Argument, p. 45 of 75). Whether the evidence shows that this information "was available" to the bank is far from demonstrating that Grace knew about these things and used them, with the required mens rea to defraud others. The prosecution also recites, with favor, testimony that was elicited from its witnesses on direct, but completely ignores the testimony offered on crossexamination that casts a different light on the truth of the matter. For example, in describing Jack Grace's role at the bank, it contends that "Jack Grace was a "primary decision-maker at the bank", citing Wolfschlag's direct testimony. Argument, p. 6 of 75. If one looks at what Wolfschlag said on cross, however, the following was offered: Q All right. In the hierarchy of bank management, Mr. Mattar, Mr. Boyd, and Mr. Grace, did you ­ in your experience, did Mr. Grace have the capacity to veto any of the policy decisions by Mr. Boyd and Mr. Mattar? A No. [ TD 22 p. 2620, L14-18 ] One must examine the entirety of Wolfschlag's testimony on almost all issues to assess the value and significance of what he had to say. His direct and cross tell two entirely different stories. The government asserts that Melody Long "testified she discussed AATC credits with Grace in the first quarter of 1997". Argument, p. 34 of 75. As discussed below, however, the government had provided her prior FDIC

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testimony to Grace during discovery, and certainly had to be aware of it, that clearly disclosed that she could not recall whether any such discussions occurred before 1998. See TD 20 p. 2206 L20 through P. 2207L3; p. 2208 L25 through p. 2209 L7. The above examples demonstrate the unreasonableness of many of the government's assertions, and how their claims are inconsistent with the record in this case. Other instances where the evidence is clearly inconsistent with the charges brought against Jack Grace are demonstrated in the arguments below. In its effort to prove that Jack Grace knowingly joined a conspiracy with the specific intent to commit the crimes of Bank Fraud, Wire Fraud, Securities Fraud, Money Laundering, and Filing False Bank Reports, the government called thirty-five witnesses. Not one witness presented evidence that shows that Grace knowingly joined a conspiracy. Not one witness testified to Grace's acts or transactions that establish that Grace intentionally defrauded his own employer, BestBank. Not one witness provided evidence that Grace knowingly filed false bank reports. Not one witness testified that Grace knowingly wired material as part of a scheme to defraud. Not one witness testified that Grace intentionally participated in money laundering. And not one witness testified that Grace intentionally committed securities fraud, as alleged in the Indictment. Rather, the government presented to this court, and piled into this courtroom, mountains of paper, the greater volume of which were never shown to have been reviewed by Grace. The government's theory, apparently, was to infer

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that Grace must have known, at some point in time, that he was a part of a conspiracy and various schemes to defraud. It is well-settled law in the Tenth Circuit that the federal crime of conspiracy requires interdependence between the various participants. The government clearly showed that Baetz, Gallant, and Durham actively worked together in their criminal enterprise. However, the evidence further demonstrated that these same individuals did everything in their power to conceal their crimes from their co-workers, their retained advisors, and the bankers at BestBank. From early on in her employment at the BankCard Center, Penny McDowell was instructed by her superior Peg Hirst to never talk to anyone at the bank. [TD 31 Pg. 4386 L 1-9]. The President of All Around Travel Club, Michael Mansueto, testified that Baetz told him of the credits, and why they were being applied. Yet, Mansueto never talked to Durham about the issue, even though he knew that Durham was the architect of applying the credits. [TD 19 Pg. 1973 L 18-25]. Mansueto, the head man at AATC, suggested that he never knew the extent of the credit program [TD 19 pg. 1975 L1-6], and never told his long-time friend and the head of customer service, Liz Sadler, of its existence. [TD 19 pg. 1976 L11-14]. To further effectuate this secrecy, Baetz, Gallant, and Durham lied to their own employees, business partners, and affiliated companies. Prior to the bank's closure, they never told Olan Beard of FICI of the credits program. Even after the closure, they lied to Beard, telling him that the program resulted from rebates on long distance charges. [TD 30 pg. 4181 L 12-17]. McDowell was told a similar

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lie by Hirst, that the credits were applied to accounts whose travel packages had been delayed. [TD 31 pg. 4371 L18-21]. David Taffet repeatedly tried to obtain the raw data records on the credit card portfolio (i.e. the tape), but was stonewalled. In Govt. Ex. 503, Dusty Durham told Taffet that he would do his best to get him the requested material, but that he was simply too busy at the time to be able to help. And, of course, through omission, Baetz, Gallant, and Durham deceived Grace, as there was no evidence that any of them ever told Grace or the other defendants of the fraud. Meanwhile, the bankers were doing everything they could to keep what appeared to be a very successful business functioning, and within regulatory requirements. In early 1995, when it came to light that Century may have been re-aging accounts, President Boyd wrote to Baetz and Gallant to demand corrective action on those issues which were addressed in Def. Ex. J095. Anne Shatting testified that the bank wanted more control over settlement and, thus, hired Jack Hitt away from BankCard Center, in order to bring settlement inhouse. [TD 11 pg. 780 and 781 L 1-15]. It is important to note that Hitt was never told about re-aging by Schultz, Nemetz or anyone else while he was at BankCard Center. Throughout the time period of the indictment, the bankers were constantly striving to hire qualified employees, and gain the best information they could on the card program. Bour and Schmalzer, both ex-bank examiners, were brought into the bank, and were given significant authority. Robert Ogburn, an economist with a master's degree, was hired specifically to aid in the effort to get better

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information out of FICI. One must ask why, if these Defendants were actively involved in a conspiracy to defraud the bank, they would hire qualified men, particularly, former bank regulators, and give them the authority to discover the crime. At separate times, Jack Grace directed Weidmaier, Bour and Ogburn to pursue concerns they had with the portfolio and, at no time, did he stand in the way of their efforts. As 1998 progressed from the winter to spring, and then into the summer, Schmalzer and Ogburn pressed for better information from FICI, and finally began to gain an understanding of the credits issue. On May 31, 1998, Schmalzer computed the potential loss at forty million dollars but, apparently, satisfied himself that this was completely secured by Century's participation account. Def. Ex. A178 Later, on July 10, 1998, having estimated the potential loss at forty-seven million dollars, he wrote to Baetz and demanded that Century remit approximately $1.7 million dollars, the amount in excess of Century's participation. FDIC Regulator Quanstrom was aware of this demand, and testified that Century did pay the $1.7 million dollars to the bank. Govt. Ex. 1435, p. 341 L 14-25 and p. 342 L 1-3. The utter lack of interdependence, which is demonstrated in the government's case, is further exemplified when one considers that Schmalzer's efforts to quantify the credits issue, is shared with the Board of Directors of the bank. Def. Ex. A178. One does not promote interdependence among criminal actors by giving free reign to a qualified bank staff to uncover criminal misdeeds.

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Perhaps the lack of evidence in the government's case can best be explained by the missing witness or witnesses. Seldom does the government bring a "white collar criminal fraud prosecution" without the cooperation of an immunized insider witness. In the case at bar, the government immunized numerous witnesses. The oddity is that most of them, such as Long [TD 20 pg 2233 L 25 and 2234 L 1-6], Nemetz [TD 6 pg 805 L 9-11], and Mansueto [TD 19 pg 1961 L 2-10] testified that they believed that they had no need for immunity, as they didn't feel that they had done anything wrong. When one analyzes the government's theories in this case if, in fact, there really was an overriding conspiracy between the charged defendants and the unindicted coconspirators, then certainly there are any number of likely candidates to fill the role of the insider informant-witness. The government portrayed John Carney as a CPA, who was a stooge for Mattar. Carney was then foisted onto Century, according to the government's story. Who better to know the insides of a scheme to defraud than the man in charge of the numbers. Dusty Durham was Century's man-in-charge of carrying out the "credits fraud", yet the government chose not to call him. They apparently decided that their presentation of his testimony in the Baetz/Gallant trial didn't fit their theory of the case in this proceeding. It strains all credulity to believe, if this conspiracy was operating inside BestBank, that the government wouldn't believe that John Schmalzer was a knowing participant. The evidence shows that the government had a cooperative agreement with him yet, once again, didn't even call him. And finally, who better

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to point the finger directly at the "bankers" than the alleged convicted coconspirators, Baetz and Gallant. The government possesses extraordinary measures under USSG §5K1.1 and 18 U.S.C. §3553(e) to extract testimony from convicted offenders, whose aim is to reduce sentence exposure. COUNT 1 THE GOVERNMENT HAS FAILED TO PROVE A SINGLE CONSPIRACY BETWEEN MATTAR, BOYD, GRACE, AND DOUG BAETZ, GLENN GALLANT AND CENTURY, AS ALLEGED IN THE INDICTMENT, AND IN CONFORMANCE WITH THE NOTICE PROVIDED TO THE DEFENSE PRIOR TO TRIAL Count 1 of the Indictment alleges that the five individually-named defendants and Century conspired to commit bank fraud, to offer and receive gifts for procuring loans, to make false bank reports, and to commit the crimes of wire fraud, money laundering and securities fraud. Paragraph 13, Indictment, pp. 4-5 of 54. The alleged purpose of the conspiracy was for Mattar and Boyd to receive salaries and bonuses (subpara. a), for Baetz and Gallant to pay Boyd $250,000 (subpara. b), for Grace to take two bonuses in '97 and '98 (subpara. c), for Baetz and Gallant to receive more than $5 million during 1994 through July, 1998 (subpara. d), and for the two Century entities to receive more than $150 million during 1994 through July, 1998 (subpara. e). Para. 15, Indictment, pp. 5-6 of 54. The manner and means used in carrying out the alleged conspiracy were through the BestBank/Century "Enterprise" (¶¶ 17-24), the BestBank Secured Card Program (¶¶ 25 to 31), the BestBank/Century Unsecured Credit Card Program (¶¶ 32 -43), Agreements to Ensure BestBank's Capital Needs (¶¶ 4445), False Statements to Conceal Fraudulent Conduct (¶¶ 46-47), a Scheme to

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Sell BestBank stock (¶¶ 48-49) and Subprime Credit Card Accounts (¶¶ 50-51), and to overstate the value of Columbia Capital stock (¶¶ 52-59). Pp. 6-24 of 54, Indictment. a) Failure to prove the conspiracy alleged, and consistent with the pretrial notice by the government, of when Grace joined the conspiracy. During pretrial proceedings, in response to the Defendants' request for a bill of particulars, and upon a directive from the Court, the government represented that the three bank defendants joined the ongoing conspiracy initiated by Baetz and Gallant on January 16, 1995. The evidence presented by the government fails to establish that Grace joined the alleged conspiracy on January 16, 1995, or that he joined any conspiracy with the charged codefendants to commit the specific criminal offenses alleged in the indictment. In the Baetz/Gallant trial, the jury was instructed, consistent with the Tenth Circuit Pattern Jury Instructions, that five elements must be established to sustain a conspiracy to commit an offense against the United States: "First: the defendant agreed with at least one other person to violate the law; Second: one of the conspirators engaged in at least one overt act furthering the conspiracy's objective; Third: the defendant knew the essential objective of the

conspiracy; Fourth: the defendant knowingly and voluntarily participated; and

Fifth: there was interdependence among the members of the conspiracy; that is, the members, in some way or manner, intended to act together for their shared mutual benefit within the scope of the conspiracy charged."

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United States v. Glenn M. Gallant and Douglas R. Baetz, Case No. 03 CR 00232-RPM, Trial to Jury, Day 19, Partial Transcript of Proceedings, pp. 7-8; compare Tenth Circuit Pattern Jury Instructions, § 2.19 (2005), p. 104. See United States v. Rahseparian, 231 F.3d 1267, 1272 (10th Cir. 2000) cert. den. 532 U.S. 974 (2001). See also United States v. McVeigh, 153 F.3d 1166, 1196 (10th Cir. 1998) cert. den. 526 U.S. 1007 (1999). As noted in the Comment section of the pattern instruction, requiring "interdependence" among co-conspirators under 18 U.S.C. §371, had previously been peculiar to Tenth Circuit law, but now appears to have become settled law among the Circuits. Comment, Tenth Circuit Pattern Jury Instructions, § 2.19 (2005), p. 105. "The conduct of the alleged coconspirators, including the defendant, may be diverse and far-ranging, but it must be interdependent in some way. (Emphasis added). United States v. Horn, 946 F.2d 738, 740 (10th Cir. 1991) citing United States v. Daily, 921 F.2d 994, 1007 (10th Cir. 1990) cert. den. 502 U. S. 952 (1991) overruled on other grds, United States v. Wiles, 102 F.3d 1043 (10th Cir. 1996) (materiality is issue of fact to be determined by jury). The activities of the defendant whose case in being considered must facilitate the venture as a whole in order to establish the required interdependence. United States v. Horn, supra at 741. Interdependence exists if `the alleged

coconspirators were united in a common unlawful goal or purpose", and if a defendant's activities facilitated the endeavors of another alleged coconspirator, or facilitated the venture as a whole. United States v. Daily, supra at 1007.

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The common theme throughout the government's presentation concerned how Century, Baetz and Gallant re-aged cardholder accounts, manipulated the portfolio by use of the product control file, and applied credits in order to escape the indemnification requirements of the operating agreements. William Schultz testified that no one at BestBank issued holds on accounts [TD 3 p. 219, L11-23], or delayed delinquencies by entering "Paid Ahead" in the system [TD 3 p. 219, L6-10]. He was aware that Dusty Durham had security access to change the product control file for the portfolio. [TD 3 p. 217, L20-25, p. 218, L1-6]. Lisa Nemetz worked with Schultz at BankCard Center, reported to Melody Long, and was in charge of settlement. She prepared journal entries for Century, but never sent them to the bank. [TD 6 p. 818, L2-16]. She confirmed that Dusty Durham had authority to query cardholder accounts [TD 6 p. 837, L14-18] and that she was aware of the re-aging of accounts and the application of credits by Century, but never disclosed these practices to the bank, other than discussing credits with Jack Hitt sometime in February, 1998. [TD 6 p. 897, L7-25, p. 898 and 899]. She received copies of Marie Simpson Weinmaster's monetary transaction memos, but never sent them to the bank. [TD 6 p. 817, L1-16]. During a meeting with John Schmalzer and Jack Hitt in February, 1998, when Schmalzer was seeking reports on the $20 credits, neither she nor anyone else from Century (i.e. Dusty Durham or Peg Hirst) offered any information on the application of the credits. [TD 6 p. 807 and 808, L1-6]. Nemetz also testified that one couldn't identify credits by looking at a ZD screen. [TD 6 p. 812, L3-18].

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Amy Oliver was not the BestBank client representative at FDR, but was called by the government to testify that the servicer can elect which processing reports that it wished to receive, how frequently, and in what form. [TD 8 p. 168, L11-14]. The servicer can also enter nonmonetary transactions [TD 8 p. 179, L17-21 and p. 180, L1], such as when to issue plastics [TD 8 p. 190, L9-14], altering delinquencies by keying in at the terminal or by sending them in batches [TD 8 p. 188, L19-21], or overriding default descriptions [TD 8 p. 188, L4-7]. Mike Cavcey testified that he rarely interacted with Jack Grace on settlement matters, and that no BestBank employees had the ability to input data into the processing system. [TD 16 p. 1348, L2-11]. Joe Bour, a former state bank examiner, who was told by Penny McDowell of Century's application of the credits in January, 1998 [TD 15 p. 1129, L1-7], and quit the bank because of his concern after being advised of the practice [TD 15 p. 1115, L2-15]. In a sworn affidavit, he, however, stated "I did not believe at this time that Mr. Mattar, Mr. Boyd, or anybody else employed at BestBank was involved in the fraud." Def. Ex. J012, p. 3 of 3. When asked at trial if he still held that belief, Bour stated that he did. [TD 15 p. 1142, L9-14]. Frank Farrar, a former prosecuting attorney, judge, sophisticated banker, and former Attorney General and Governor of the State of South Dakota, also testified that he did not believe that he had been deceived by Jack Grace or anyone else at the bank when he was conducting due diligence in pursuit of his interest in acquiring Mattar's stock in 1997. [TD 12 p. 879, L5-15].

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Jon Wiedmaier presented the best opportunity for the government to establish that the bank defendants joined a Baetz/Gallant conspiracy in January, 1995. His testimony, however, did not support the government's theory. A January meeting between Wiedmaier and Bill Schultz at BankCard Center, and a follow-up memo to Grace dated January 27, 1995 (Govt. Ex. 50), raised a concern regarding the practice of re-aging by Century. It cannot, however, be realistically contended that the three bank defendants joined hands with Baetz and Gallant in a conspiratorial arrangement to re-age the cardholder accounts on January 16, 1995, with the intent to defraud the bank. The evidence is to the contrary. A Schultz memo, in response to Wiedmaier's January 27th memo, promised that corrective measures would be taken by BankCard Center (Govt. Ex. 51). On May 16, 1995, Boyd directed a letter to Baetz and Gallant pointing out that the bank did not have direct access to certain information concerning the portfolio, and admonished Baetz and Gallant against further re-aging of the portfolio (Govt. Ex. 58). Wiedmaier testified that he and Grace had worked

together to develop audit procedures to address the problems [Def. Ex. J110, p. 2], and Grace urged that no accounts be placed on the system until a security deposit was received, and that charge-off's be taken in a timely fashion (Govt. Ex. 80). A re-age policy was proposed by Wiedmaier on June 6, 1998 (Govt. Ex. 83). Wiedmaier went on to testify, however, that although it was his responsibility to address these issues, he did nothing to institute the policy. [TD 5 p. 608, L1225 and p. 609, L1-17].

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Wiedmaier prepared a report on June 6 that addressed further problems in collecting security deposits and issuing plastics, and timely charging off accounts (Govt. Ex. 84). On June 23, 1995, Wiedmaier directed a memo to Grace

suggesting that BankCard Center had re-aged 18,768 accounts in May (Govt. Ex. 86). The government's evidence, however, failed to confirm Wiedmaier's representation in the memo that 18,000 accounts had, in fact, been re-aged in May. To the contrary, Mr. Haried asked Wiedmaier about the paragraph that asserted the re-aging, and the source of his information. [TD 4 p. 487, L14-23]. Wiedmaier testified that it came from FDR reports, such as a CM 998 [TD 5 p. 641, L12-15]. On cross, however, Ms. Grady challenged Wiedmaier's contention that the processing report he referred to [Govt. Ex. 845.46] showed that 18,000 accounts had been re-aged. Wiedmaier admitted that the report he was looking at only concerned PRIN 2000 for month-end. [TD 5 p. 643 L 15-18]. To support Wiedmaier's assertion that over 18,000 accounts had been re-aged in May, the government never produced the processing reports that showed that 18,000 accounts had been re-aged in May, 1995. Upon cross-examination by Grace's counsel, Wiedmaier affirmed that the bank didn't participate in the re-aging activity, and didn't encourage Century or BankCard Center to engage in it. [TD 4 p. 502 L 5-8]. Though Wiedmaier testified that he was dissatisfied with the bank's response to these raised concerns [TD 5 p. 546, L14-20], it cannot be realistically contended that this alleged "misfeasance" rose to the level of Grace joining a scheme with Baetz, Gallant and Century to defraud the bank. To the contrary, on

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cross-examination by Grace's counsel, Wiedmaier acknowledged that Grace was responsive to his concerns, never dismissed the significance of the issues that he was raising, and that Grace did not impede his work in any way. [TD 5 p. 541, L11-18]. Wiedmaier complained that, in his opinion, not enough was being done by bank management to effectuate his recommendations before he was dismissed in August, 1996, but cross-examination by Boyd's counsel suggested that Wiedmaier, himself, did not take proactive action in implementing audit controls or in policing the portfolio. [TD 5 p. 564, L2-6]. Jack Hitt was involved in the settlement process at BankCard Center until he was hired by BestBank. [TD 10 p. 627, L15-23]. Hitt was never told about reaging by Schultz or Nemetz while he worked with them at BankCard Center. He testified that Grace was not involved in the settlement process at the bank, unless some balancing issue was presented. [TD 10 p. 630, L4-12]. Hitt recalled that sometime in 1996, he was comparing delinquencies and payments in the CD 121 reports, and noted that the delinquencies were decreasing by a larger number than cardholder payments. [TD 10 p. 631, L13-20]. Hitt stated that Shatting assigned him to look at the CD 121 delinquencies and payments. [TD 11 p. 654, L1-7]. Shatting and Hitt then went to Grace to describe the issue. Hitt initially testified that Grace told him that he would look into the issue. [TD 10 p. 632, L5-7]. Though he originally recalled that Grace advised him that there wasn't an issue [TD 10 p. 556, L6-24], on cross-examination, he admitted that he really couldn't remember what he said to Grace or how Grace responded. [TD 11

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p. 656, L14-18]. He also couldn't recall if there was any follow-up on the issue. [TD 11 p. 656, L8-13]. On cross-exam, Grace's counsel asked: "Q Mr. Carey asked you about taking your spreadsheets to Grace and whether he did any follow-up. You certainly had no reason to believe that Grace knew what a TC 22 was when you went to him? A No, sir." [TD 11 p. 775, L7-11]. Hitt recollected that Alan Boyd brought Frank Farrar into his office in December, 1997. [TD 10 p. 571, L1-7]. Hitt put together a spreadsheet of the portfolio (Govt. Ex. 331), and sent a copy to Farrar. [TD 10 p. 575, L18-20]. In January, 1998, Hitt and Joe Bour discovered an imbalance between cardholder payments and the credits being applied to cardholder accounts by Century. [TD 10 p. 600, L23-25 and p. 601, L1-25]. Bour became concerned about the

discovery, and resigned from the bank. Hitt admitted that he was embarrassed that he had not detected the problem earlier [TD 11 p. 660, L10-13], but admitted that there was nothing in the processing reports that would have tipped him off. [TD 11 p. 763,13-15]. Mr. Carey asked him: "Q Could you see that the payments were being made by Century during the daily settlement process? A No, sir." [TD 11 p. 763, L13-15]. Hitt also confirmed that no one from the BankCard Center or Century had ever advised him that Century was changing delinquency dates on cardholder accounts, either while he worked there, or after he went to work for the bank. [TD 11 p. 661, L22-25 and p. 662, L1-3]. Grace requested that Hitt and Schmalzer travel to Florida to look at the Century operations in late January or early February, 1998. [TD 11 p. 674, L15-

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18; p. 673, L22-25]. He recalled Jack Grace placing a $2.8 million limit on the Century operating account in February, 1998, which was later lifted. [TD 10 p. 636, L22-25]. Anne Shatting testified that she had difficulty getting information from Century. She hired Hitt away from BankCard Center to bring the settlement process over to the bank. [TD 11 p. 781, L20-24]. Shatting recalled that the MIS reports were given to Jack Grace at first, but she ceased delivering them to Grace because Grace didn't understand them. [TD 11 p. 796, L9-25]. She [TD 11 p. 790, L16-21].

characterized Grace as a "novice on settlement".

Shatting also testified that Boyd wanted more control over settlement and, therefore, brought settlement in-house. [TD 11 p. 780, L25 and 781, L1-15]. Though Grace assisted Bob Ogburn in gathering and disseminating information to the bank regulators for the May 26, 1998, visitation, and to Frank Farrar, David Taffet, and Ron Goldstein when they were interested in acquiring Mattar's stock or selling portions of the portfolio, the testimony of Bob Ogburn established that he, in fact, prepared the static pool analysis from processor reports received from FICI, and assembled the financial material in Govt. Ex. 1379 [TD 31 p. 4470, L16-19] ­ the two-inch notebook given to Quanstrom and Shaw at the beginning of the visitation. The evidence also established that Grace had no personal interest in any of the transactions to sell Mattar's stock or to market the portfolio through Infusion. Moreover, the government failed to demonstrate that Grace knowingly prepared or disseminated any information that he knew to be false at the time.

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The government has failed to establish that Grace facilitated the criminal venture as a whole, as alleged by the government, that he knew the essential objectives of the conspiracy to commit the specified criminal offenses and, having knowledge of the conspiratorial arrangement charged in the indictment, that he knowingly joined and participated therein. When the conspiracy is to commit an offense against the United States under 18 U.S.C. §371, rather than a conspiracy to defraud the United States or any agency thereof, the government must prove an agreement to violate the specific law(s) charged. United States v. Menesses, 962 F.2d 420, 426 (10th Cir. 1992); United States v. Salameh, 152 F.3d 88, 145-46 (2d Cir. 1998); United States v. Alston, 77 F.3d 713, 718 (3d Cir. 1996). A conspiracy to commit an offense against the United States is known as the "offense clause". A conspiracy to defraud the United States is known as the "defraud clause". Alston, supra at 718. When the grand jury indicts under the "offense clause", the government must prove whatever mens rea that is required by the substantive offense or offenses that are the object(s) of the conspiracy. United States v. Feola, 420 U. S. 671, 685-86 (1975) (citing Anderson v. United States, 417 U.S. 211, 226 (1974). "As Justice Jackson once stated, conspiracy, `chameleon-like, takes on a special coloration from each of the many independent offenses on which it may be overlaid'". Alston, supra at 718 quoting from Krulewitch v. United States, 336 U.S. 440, 447, 69 S. Ct. 716, 720, 93 L. Ed 790 (1949). Since bank fraud [18 U.S.C. §1344], false bank reports [18 U.S.C. §1005], wire fraud [18 U.S.C. §1343], and securities fraud [15 U.S.C. §77q(a)]

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each require the specific intent to defraud or deceive, and money laundering [18 U.S.C. §1956] requires the intent to promote specified unlawful activity, the conspiracy charged requires no lesser showing of mens rea than the specific intent required for each of the underlying offenses. The evidence adduced in the present case simply does not establish an interdependence between Grace, Mattar and Boyd, and Baetz, Gallant and Century, to violate the laws charged, and Grace's specific intent to defraud, in conformance with the manner and means of furthering the conspiracy charged in the indictment. The government, prior to trial, informed the three banker defendants that the government's evidence would establish that they joined Baetz, Gallant and Century in their ongoing conspiracy on January 16, 1995. The government's presentation has failed to sustain such a showing. b) Proof of a conspiracy different than the one alleged. The U. S. Tenth Circuit Court of Appeals has adopted the following Pattern Jury Instruction as it concerns multiple conspiracies: "Conspiracy: Evidence of Multiple Conspiracies Count ___ of the indictment charges that [the defendant was a] [ the defendants were all] member[s] of one single conspiracy to commit the crime of ___________________. [The defendant has] [Some of the defendants have] argued that there were really two or more separate conspiracies, instead of the single conspiracy charged in the indictment. You must determine whether the single conspiracy, as charged in the indictment, existed, and if it did, whether the defendant was a member of it.

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Proof of several separate conspiracies is not proof of the single, overall conspiracy charged in the indictment, unless one of the several conspiracies which is proved is the single conspiracy charged in the indictment. If you find that the defendant was not a member of the conspiracy charged, then you must find the defendant not guilty, even though the defendant may have been a member of some other conspiracy. This is because proof that a defendant was a member of some other conspiracy is not enough to convict. But proof that a defendant was a member of some other conspiracy would not prevent you from returning a guilty verdict, if the government proved that he was also a member of the conspiracy charged in the indictment." Tenth Circuit Pattern Jury Instructions, §2.20, p. 107 (2005). See United States v. Schlei, 122 F.3d 944, 971 (11th Cir. 1997) cert. den. 523 U.S. 1077 (1998). The present case has been tried to the Court, without a jury. The jury was excused due to extraordinary circumstances arising from unexpected health conditions experienced by Grace's counsel. Whether the above instruction would have been tendered to the jury panel rests within the discretion of the trial court. On the other hand, the same legal principle should be applied by the finder of fact if the Court determines that the facts justify the application of the multiple conspiracy concept. In the Comment section, the Tenth Circuit cites United States v. Edwards, 69 F.3d 419, 433 (10th Cir. 1995) cert. den., Chaplin v. United States, 517 U.S. 1243 (1996), in support of the proposition that a defendant is entitled to acquittal by a jury "if it finds that the defendant was not a member of the indicted conspiracy but rather was involved in

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another conspiracy". United States v. Edwards, supra at 433. See also United States v. Thomas, 114 F.3d 228, 246 (D.C. Cir. 1997) cert. den. 522 U.S. 1033 (1997). Defendant Grace does not concede that he was involved in any conspiracy. But should the Court find that he engaged in any conspiratorial enterprise, it must be the single, overall conspiracy with Mattar, Boyd, Baetz, Gallant and the Century entities charged by the grand jury. Some separate alleged conspiracy with Alan Boyd, John

Schmalzer and/or Ed Mattar cannot support a conviction under Count 1. The case of United States v. Ailsworth, 138 F.3d 843, 848 (10th Cir. 1998) cert. den. 525 U.S. 896 (1998) (quotation omitted), noted in the Comment section, is instructive. It holds that a variance between pleading and proof arises when "the evidence adduced at trial establishes facts different from those alleged in an indictment." The Ailsworth decision

looks at whether a defendant convicted of a conspiracy different from the one alleged has suffered "substantial prejudice". United States v.

Ailsworth, supra at 849; United States v. Edwards, supra at 432 citing Kotteakos v. United States, 328 U. S. 750, 773-74, 66 S. Ct. 1239, 125253, 90 L. Ed. 1557 (1946); Berger v. United States, 295 U.S. 78, 82 (1935). Had the present case been tried to a jury, the Court would have decided if the pattern instruction on multiple conspiracies should be given to the jury. If so, the jury would have been given the opportunity to acquit if it found that multiple conspiracies, rather than the single conspiracy alleged, had been proven by the government. Had the government

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introduced evidence of acts and declarations of co-conspirators [e.g. Baetz, Gallant, and Durham (unindicted)] prior to proving that Grace had joined the conspiracy alleged in Count 1, Grace would assuredly have been prejudiced by the admission of such evidence, over his objections of lack of foundation under F. R. Evid. Rule 801(d)(2)(E). See Kotteakos v. United States, supra; United States v. Varelli, 407 F.2d 735, 742-44 (7th Cir. 1969) cert. den. Saletko v. United States, 405 U.S. 1040 (1972). Since neither Baetz, Gallant, nor Durham testified, Grace was deprived of his right to confront and cross-examine each as the utterer of his out-of-court statements offered by the government. Even though Grace's trial was to the Court, if the government failed to establish that he joined the conspiracy on January 16, 1995, consistent with its pretrial notice, Grace was prejudiced by the admission of the various acts and declarations of alleged co-conspirators, as exceptions to the hearsay rule, prior to its proving his participation in the conspiracy charged. Whether the single conspiracy charged has been proven beyond a reasonable doubt is a question to be answered by the trier of fact. United States v. Powell, 982 F.2d 1422, 1431 (10th Cir. 1992) cert. den. 508 U.S.917 (1993). F. R. Evid. Rule 801(d)(2)(E) provides that a statement is not hearsay if it is offered against a party and is "a statement by a coconspirator of a party during the course and in furtherance of the conspiracy". The key requirements under Rule 801(d)(2)(E) are: (1) that the statement be by a coconspirator of a party, (2) that it be made during

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the course of THE conspiracy, and (3) that it be in furtherance of THE conspiracy. F. R. Avid. Rule 801(d)(2)(E). "The" conspiracy contemplates the conspiracy charged, not some separate conspiracy, or any conspiracy at all. The government has introduced a substantial volume of settlement and processing reports that it infers provided notice to Grace of the false reporting by Century of the status of cardholder accounts. The testimony and documentary evidence, however, fail to sustain a showing that Grace accessed or used these reports in his daily activities as CFO, or that he understood them. A review of the testimony of Jack Hitt, Anne Shatting, and Mike Cavcey, all government witnesses, shows that Jack Grace was not routinely involved in the settlement process and, as Anne Shatting complained, when she and Hitt took the documents used in settlement to Grace, she became frustrated because Grace didn't seem to understand them, and could not intelligently discuss them with her and Hitt. [TD 11 p. 796, L9-25]. No testimony has established that reviewing and understanding settlement data, processing statements, or credit card reports were within the purview of Grace's duties as chief financial officer, or provided him notice of what Century was doing with the accounts. To the contrary, the testimony of Schultz, Nemetz, Hitt, Shatting, Bour, Cavcey, Mansueto, Beard, McDowell, and Weinmaster clearly established that Century did not disclose to Grace its actions in re-aging accounts and making $20 cardholder payments in order to escape its indemnification obligations under the operating agreements.

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Part of the manner and means charged in the conspiracy alleges that Grace and the co-defendants participated in a scheme to sell BestBank stock [¶¶ 16, 49], and to overstate the value of Columbia Capital stock [¶¶ 52 and 58]. As one of the overt acts in furtherance of the conspiracy, the indictment charges that Grace sent correspondence to Cerberus Partners concerning Columbia Capital and BestBank on July 22, 1998 [¶70]. This is the only act in which Grace is alleged to have individually committed an act in furtherance of the conspiracy. Other overt acts incorporated in paragraph 61 concern the alleged activity of other co-defendants, but not Grace [¶17 (entering into written marketing agreements), ¶24 (transferring funds to fund the card programs), ¶25 (marketing the programs), ¶29 (Baetz, Gallant and Century not issuing plastics, withholding cardholder statements, and placing block codes on accounts), ¶36 (Baetz, Gallant and Century applying credits to accounts), ¶38 (failing to deliver travel packages), ¶39 (not issuing plastics, withholding cardholder statements, placing block codes on accounts, and masking delinquencies), ¶40 (not repurchasing non-performing accounts), ¶41 (misrepresenting non-performing accounts causing the books and records to be misstated), ¶53 (Baetz and Gallant purchased Columbia Capital Corporation which acquired FICI), ¶54 (converting the processing from FDR to FICI), ¶55 (filing false statements with the SEC), ¶56 (causing others to file false statements with the SEC), and ¶59 (pledging Columbia Capital stock to secure obligations to the bank)]. Some of the acts allege that the bankers, knowing of fraudulent acts by Baetz and Gallant or Century's inability to indemnify for losses, continued to fund new accounts,

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receive fees and income, or permitted use of sales proceeds to fund credits [see ¶¶ 27, 30, 31, 35, 42, 43]. Para. 32 relates to the offering and discontinuation of the Universal Tours program. Para. 33 concerns the AATC program and

promised fulfillment. Para. 44 charges that the bankers increased the bank's capital by negotiating a premium on Century's purchase of a participation and by selling preferred stock. Para. 58 contends that, in July, 1998, the bankers

entered into an agreement to exchange part of the subprime credit card portfolio for Columbia Capital stock, and that Grace and Boyd formed Card Receivables Company. Paragraph 45 has been stricken. First of all, the government has not established that Grace became aware of Century's, Baetz' and Gallant's fraudulent acts until well after the bank was closed, and the evidence clearly established that Century had not failed to meet its known indemnification obligations until Schmalzer requested that it make up a deficiency in July, 1998, right before the bank closed. Moreover, the government has not demonstrated that there is anything improper about a bank raising capital by selling preferred stock or selling participations, even at a premium, or forming a subsidiary to hold credit card receivables. It is well-recognized that overt acts need not themselves concern illegal activity, and an overt act need not be committed by the defendant whose case is being considered. See e.g. United States v. Khamis, 674 F.2d 390, 393 (5th Cir. 1982); United States v. Wieschenberg, 604 F.2d 326, 331 (5th Cir. 1979). The overt act, however, must be in furtherance of the alleged conspiracy. Id. The distinct nature of the alleged manner and means, and the diversity of the overt

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acts, the majority of which do not concern activity in which Grace engaged or participated, demonstrate the lack of interdependence between Grace and the charged and unindicted co-conspirators to further the charged conspiracy. The evidence fails to establish, beyond a reasonable doubt, that Jack Grace, being cognizant of the illegal objects of the charged conspiracy, knowingly joined the charged conspiracy with Baetz, Gallant, Century, Mansueto and Durham (both unindicted co-conspirators), and thereby became a willful participant. The government has attempted to build it case against Grace by piling inference upon inference. It's thesis has been that Grace was CFO, as CFO, Grace was in charge of all financial matters at the bank, in such capacity, Grace had access to settlement data and processing reports (not established), that the reports reflected delinquencies, accounts without plastics, and the application of block codes (Schultz and Hitt testified that the CD 121's didn't show re-aging [TD 3 p. 217, L20-25 and p. 218, L1-6], and there has been no showing that Grace reviewed these reports), and by having access to this information, he was aware of the mounting delinquencies and bad accounts (not proven), and being so aware of such information, he continued to fund the portfolio, calculated bonuses for Mattar and Boyd, improperly took bonuses himself in December, 1997, and April, 1998, prepared false Call Reports, committed wire fraud, money laundering and securities fraud. It is well-recognized that a conviction must result from substantial evidence and, in determining whether substantial evidence exists, the evidence may include the drawing of "reasonable" inferences. A conspiracy conviction

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cannot, however, be sustained by nothing more than the government's "piling inference upon inference". United States v. Migliaccio,, et. al., 34 F.3d 1517, 1521 (10th Cir. 1994) citing United States v. Fox, 902 F.2d 1508, 1513 (10th Cir. 1990)(citations omitted). See also United States v. Jones, 44 F.3d 860 (10th Cir. 1995). The government, in the present case, has charged Grace with conspiracy to commit specific federal offenses ­ bank fraud, offering bribes to procure loans, making false bank reports, wire fraud, money laundering, and securities fraud. Para. 13, Indictment. It did not charge him under 18 U.S.C. §371 with

participating in a conspiracy to defraud the FDIC, an agency of the United States. Thus, it is essential that the government prove an agreement to violate the laws charged. United States v. Migliaccio, supra at 1521 citing United States v. Davis, 965 F.2d 804, 814 (10th Cir. 1992) cert. den. 507 U.S. 910 (1993) (holding various actions of state insurance commissioner insufficient evidence of agreement to bribe a public official). Mere knowledge of, or acquiescence in, the object of a conspiracy does not make one a conspirator. United States v. Butler, 494 F.2d 1246, 1249 (10th Cir. 1974). COUNTS 2 TO 44 THE EVIDENCE FAILS TO SUSTAIN A CONVICTION OF BANK FRAUD THROUGH GRACE'S TAKING BONUSES IN DECEMBER, 1997, AND APRIL, 1998, AND/OR IN CALCULATING THE MATTAR AND BOYD BONUSES, AND PRESENTING THEM TO THE BOARD. Paragraph 76 alleges that Mattar, Boyd and Grace, and Baetz and Gallant, executed a scheme and artifice to defraud BestBank, a financial institution. The purported goal was to obtain bank money to enrich themselves

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and each other, and for Baetz and Gallant to fraudulently obtain bank money to fund the Century companies and their other businesses. Counts 32 to 44 involve transfers of monies from the bank into Century's operating account. It is clear that the transfer of these funds was pursuant to the various operating agreements, and included funds with which to cover services relating to telemarketing, processing services, customer service to cardholders, fulfillment, employee salaries, and other operational expenses relating to the credit card portfolios. Grace did not transact these transfers, did not conduct operational activities concerning the marketing, servicing and processing of the credit card portfolio, and did not authorize the wiring of funds pursuant to a common scheme with Baetz and Gallant to defraud the bank. He and others (i.e. Shatting and Wolfschlag) approved wire transfer requests from Melody Long, after each confirmed that funds were available in the operating account to cover the amounts requested. The offenses charged in the forty-three counts are "bank fraud". Counts 244 allege a scheme and artifice created by, or participated in, by all five individually-named defendants to defraud BestBank. Paragraph 76, Indictment, p. 28 of 54. Paragraph 77 charges that the five individual defendants entered the scheme to "fraudulently obtain money from BestBank". Bank fraud under 18 U.S.C. §1344 requires that the charged defendant knowingly execute a scheme or artifice (1) to defraud a financial institution, or (2) to obtain moneys or other assets of the institution by means of false or fraudulent pretenses, representations, or promises. Title 18, United States Code, §1344;

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United States v. Rackley, 986 F.2d 1357, 1360-61 (10th Cir. 1993); United States v. Bonnett, 877 F.2d 1450 (10th Cir. 1989). See United States v. Brandon, 298 F.3d 307, 310 (4th Cir. 2002). The body of the bank fraud counts alleges the first of the statutory manner and means of committing bank fraud, though the alleged scheme incorporates paragraphs 17 through 46, which allege false or fraudulent pretenses, representations, or promises - mostly by Baetz and Gallant. Counts 2 through 25, and 27 through 30, concern the payment of bonuses to Mattar and Boyd from January, 1995 through October 14, 1997, and from January 22, 1998, through April 23, 1998. Grace was paid bonuses in December, 1997, and April 30, 1998 (Counts 26 and 31). The government asserted before trial that the bank defendants joined the conspiratorial enterprise with Baetz and Gallant on January 16, 1995. Since Counts 2 through 44 specifically incorporate paragraphs 17 through 46 of the conspiracy count, it would seem to follow that the government contends that the bankers also joined the scheme to defraud on January 16, 1995. Paragraph 78, Indictment, p. 28 of 54. Though not specifically stated in the bank fraud counts, the government's evidence seems to contend that the bankers joined the illegal arrangement when they discovered that Century was re-aging accounts. As discussed above, the evidence presented through witness Wiedmaier fails to establish that Grace engaged in a conspiracy and a scheme to defraud the bank with Baetz and Gallant and his fellow bankers. Wiedmaier testified that Grace was always responsive to his concerns [TD 5 p. 541, L11-18], did not impede his pursuits, and did nothing to discourage him from getting to the bottom of the

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problems with BankCard Center [TD 5 p. 543, L8-23]. Though Wiedmaier complained that the bankers were not doing enough to address the issues, this alleged misfeasance cannot constitute entering into a scheme to commit illegal acts, i. e. bank fraud. To commit the crime of bank fraud as charged in this case, the defendant (1) must knowingly execute, or participate in executing, a scheme or artifice to defraud BestBank, (2) the bank must be insured by the FDIC, (3) he must act with intent to defraud, (4) the false or fraudulent pretense