Free Brief - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CASE NO. 03-cr-00232-RPM UNITED STATES OF AMERICA, Plaintiff, v. EDWARD P. MATTAR, III, THOMAS ALAN BOYD, JACK O. GRACE, JR., GLENN M. GALLANT, DOUGLAS R. BAETZ, Defendant(s).

DEFENDANT BOYD'S CLOSING ARGUMENT/ARGUMENT IN SUPPORT OF JUDGMENT OF ACQUITTAL

The Elements of the Offenses Charged Where differences were encountered with the elements tendered by the government, they are noted following the elements proposed for each count. Count I: Conspiracy The Second Superseding Indictment Charges that five defendants, Douglas Baetz, Glenn Gallant, Edward Mattar, T. Alan Boyd and Jack Grace with conspiracy. By Order of the Court, the government committed to proving that on January 16, 1995, Mattar, Boyd and Grace each joined the already-existing conspiracy formed by Baetz and Gallant. Accordingly, Boyd submits that the elements of Count I are:

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1.

That each of the five defendants conspired with at least one other person

to commit at least one or more of the crimes alleged in Count I. 2. That at least one of the members of the conspiracy did at least one of the

overt acts alleged or referenced in paragraphs 60 through 73 of the Second Superseding Indictment for the purpose of furthering the objectives of the conspiracy. 3. That on or before January 16, 1995, the defendants Mattar, Boyd, and

Grace joined the conspiracy knowingly and voluntarily, and 4. That there was interdependence among the members of the conspiracy,

that is, that in some way or manner, the defendants intended to act together for their shared mutual benefit with the scope of the conspiracy charged.1 Counts 2-44: Bank Fraud The government must prove the following elements of Bank Fraud: 1. That Boyd, Grace and Mattar knowingly executed a scheme or artifice to

obtain money from BestBank. 2. That BestBank was a financial institution within the meaning of the law;

that is, that it was insured by the FDIC. 3. That Boyd, Grace and Mattar acted with intent to defraud;

At most, the evidence establishes not the single, overarching conspiracy described in Count 1, but rather three separate, unrelated conspiracies, beginning in 1998, connected to various efforts to dispose of the bank's assets. Under this view of the evidence, the court is obligated to acquit on Count I. United States v. Evans, 970 F.2d 663 (10th Cir. 1992); Tenth Circuit Criminal Pattern Jury Instructions 2.20. Boyd makes this argument without in any fashion conceding that the evidence establishes his involvement in any conspiracy related to the sale of the bank's assets. 2

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4.

That the false or fraudulent pretenses, representations or promises made

that the defendants made were material, meaning they would naturally tend to influence, or were capable of influencing the decisions of BestBank. Tenth Circuit Criminal Pattern Jury Instruction 2.58. Discussion The government has misstated the elements of bank fraud. 18 U.S.C. §1344 provides alternative means of committing bank fraud. They are: a scheme or artifice-- (1) (2) to defraud a financial institution; or to obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises. The indictment plainly alleged a violation of subsection (2), a scheme to obtain moneys, funds, credits, etc. In paragraph 77, the indictment tracks the language of subsection (2): "The goals of the scheme and artifice for Counts 2-44 were for [the defendants] to fraudulently obtain money from Bestbank to enrich themselves" (emphasis added). In paragraph 80, the indictment, again tracking the language of subsection (2), states: "The scheme was executed when the following money, funds, credits, assets and other property of Bestbank were paid as bonuses in approximately the amount listed for each count." (emphasis added). The indictment cited 18 U.S.C. §1344, without reference to a subsection.

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The government now asserts elements for a different theory of bank fraud, one not supported by the statute and not alleged in kind in the indictment. Here, below, are the elements tendered by the government: 1. [the defendants] knowingly executed a scheme or artifice to defraud Bestbank; 2. 3. [the defendants] acted with intent to defraud; The false or fraudulent pretenses, representations or promises made that were made were material, meaning they would naturally tend to influence, or were capable of influencing the decisions of BestBank. This is an erroneous restatement of the statute. It combines -- incompletely ­ the elements of both subsection (1) and subsection (2) of the statute. And it does not comport with the Tenth Circuit Pattern. The elements should track that portion of the statute noticed by the language of the indictment: 18 U.S.C. §1344(2). Count 46: Receipt or Acceptance of a Bribe by a Bank Officer The government must prove the following elements of receipt or acceptance of a bribe by a bank officer: 1. Boyd was an officer, director, employee, agent, or attorney of or for a

financial institution. 2. The financial institution was then insured by the Federal Deposit

Insurance Corporation. 3. Boyd corruptly accepted or agreed to accept something of value from

another person; and 4

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4.

Boyd intended to be influenced or rewarded in connection with some

business or transaction of the financial institution. Corruptly defined An act is done "corruptly" under this bank bribery statute if it is performed voluntarily and deliberately and done with the purpose of accomplishing either an unlawful end or result or accomplishing some otherwise lawful end or lawful result by any unlawful method or means. § 28.08 O'Malley, Grenig & Lee, Federal Jury Practice & Instructions (5th Ed. 2003) Counts 47-54: False bank Reports The government must prove the following elements of the crime of making a false bank report as charged in the Indictment: 1. 2. That BestBank was insured by the FDIC; That the defendants made, caused, counseled, procured or aided and

abetted, a false entry in BestBank's call report (as identified in each count); 3. 4. 5. That each defendant knew the entry was false when made; That the false entry was material; and That each defendant made the false entry with the intent to injure or

defraud BestBank, the FDIC, or a bank examiner. Tenth Circuit Criminal Pattern Jury Instruction 2.47. Counts 55-73: Wire Fraud The government must prove the following elements of the crime of wire fraud as charged in the indictment: 1. That the defendants knowingly devised, or intended to devise a scheme

or artifice to obtain money by means of false or fraudulent pretenses, representations or 5

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promises, that is, a scheme to sell Mattar's BestBank stock to Frank Farrar, (Counts 5557) and Cerberus Partners (Counts 59-60, 63-64), and to sell subprime accounts brokered through Infusion Capital (Counts 65-73); 2. That the defendants acted with specific intent to obtain money or property

by means of false pretenses, representations or promises; 3. That the defendants used or caused to be used interstate wire

communications facilities for the purpose of carrying out the scheme; 4. That the scheme employed false or fraudulent pretenses, representations,

or promises that were material; and 5. The scheme affected BestBank.

Tenth Circuit Criminal Pattern Jury Instructions, 2.57 Counts 75-88: Money Laundering The government must prove the following elements of money laundering as charged in the Counts 75-88: 1. That the defendants knowingly conducted or attempted to conduct a

financial transaction; 2. That the property involved in the financial transaction in fact involved the

proceeds of bank fraud or false bank reports; 3. That the defendants knew that the property involved in the financial

transaction represented the proceeds of some form of unlawful activity; and

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4.

That the defendants conducted or attempted to conduct the financial

transaction with the intent to promote the carrying on of specified unlawful activity, including bank fraud or making false bank reports. Tenth Circuit Criminal Pattern Jury Instructions, 2.73. Count 89: Securities Fraud The government must prove the following elements of securities fraud, as charged in Count 89: 1. 2. That Boyd offered or sold shares of Columbia Capital stock; That in the offer or sale of Columbia Capital stock, Boyd used any means

or instruments of transportation or communication in interstate commerce or made use of the United States mails; and 3. In the offer or sale of the shares of Columbia Capital stock, Boyd directly

and indirectly either: (A) (B) employed any device, scheme, or artifice to defraud; or Obtained money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or Engaged in a transaction, practice or course of business which operated or would operate as a fraud or deceit upon the purchaser.

(C)

Count 90: Securities Fraud The elements of Securities Fraud as applied to Count 90 are: 1. That Boyd, Grace and Mattar offered or sold shares of BestBank stock to

Cerberus Partners;

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2.

That in the offer or sale of BestBank stock, Boyd, Grace and Mattar used

any means or instruments of transportation or communication in interstate commerce or made use of the United States mails; and 3. In the offer or sale of the shares of BestBank stock, Boyd, Grace and

Mattar directly and indirectly either: (A) (B) employed any device, scheme, or artifice to defraud; or Obtained money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or Engaged in a transaction, practice or course of business which operated or would operate as a fraud or deceit upon the purchaser. A Note on Attachments For ease of reference, exhibits admitted or referenced have been culled with the testimony of each witness the corresponding trial date, trial day, and transcript. Second, documents reflecting various contractual agreements and scripts have been culled and identified by exhibit number and date. Third, additions to the bonus criteria have been summarized and sorted by the corresponding pages within Exhibit 272. Introduction Between 1996 and 1998, Century Financial Services spent almost 50 million disguising the delinquencies of thousands of accounts that it did not want to purchase. (Ex. 1157, Attachment A, Affidavit of Melody Long, filed after the bank was closed). Century made the payments, known generically as "credits," for one and only one reason--to avoid its legal obligation to pay BestBank for delinquent accounts within the All Around Travel Club portfolio. 8

(C)

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Century's principals, Douglas Baetz and Glenn Gallant, created the scheme in direct response to changes in the Marketing, Processing and Operating Agreement negotiated in September 1996 by BestBank's new Risk Manager, John Schmalzer. (Ex. A160.2). Those changes required Century to buy back any account that went delinquent after 30 days. (Ex. 823). It was in October 1996 when Baetz and Gallant first saw burgeoning numbers of accounts approaching delinquency status, triggering their obligation to purchase in full the delinquent accounts from BestBank. That is when the first " AATC credits" were born. (See Opp report, Ex. 391, Col. Q). Baetz and Gallant exploited Century's unique access to the credit card processors. They--not the processor--chose which accounts would get credits. They--again, Baetz and Gallant, not the processor--chose a transaction code that disguised the credits as a "merchant return," which had the effect of automatically erasing any delinquency status on the accounts. And when Baetz and Gallant acquired their own processor, they changed the transaction code to an even more deceptive description, this time to an actual cardholder payment. Baetz and Gallant also ensured that only a few Century insiders knew the full extent of the scheme and the means by which it was executed. They tracked their expenditures with secret memos and masked their own internal records. And when the bank got close to the fraud, they changed the transaction code yet again, circulating the funds necessary to support the credits through another bank and commingling them with actual cardholder payments. It was a desperate effort by desperate men, determined to avoid their obligation to purchase bad accounts.

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The story of this case must begin with the credits. Understanding how the bank learned of them, when the bank learned of them, and how the bank responded to them, indeed, is the story of this case. The rest is so much noise. The Discovery of the Credits In late January 1998, BestBank employee Joe Bour called Penny McDowell, a supervisor at BankCard Center. He called to enlist her help in closing an AATC account. During their conversation, McDowell revealed that Century had been systematically applying large numbers of credits to customer accounts. (Ex. J12: Affidavit of Joseph Bour). McDowell had never mentioned the credits in any of their previous conversations, (D15, Tr. 1210), and Bour was shocked at what he had learned, (D31, Tr. 4389). It was no less a shock for Century. Not long after, Penny McDowell received a telephone call from her supervisor, Peg Hirst. "Tell me you did not discuss credits with Joe Bour," said Hirst in a tense, icy voice. (D31, Tr. 4390). McDowell, fearing for her job, said she did not. (Id.) Bour moved quickly. Concerned that the credits may not be backed by actual money, (D11, T. 736), he and a BestBank settlement officer named Jack Hitt immediately conducted a "cursory" review of cardholder statements. (D15, Tr. 1133). They estimated that accounts totaling $40-60 million might have received the so-called Century credits. (D15, Tr. 1240-41). That night Bour spoke by telephone to Risk Manager John Schmalzer, learning that Schmalzer, too, had performed a quick analysis of the credits. Schmalzer's figure was "markedly lower" than Hitt and Bour's. (D15, Tr. 1249).

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When Bour told Jack Grace of the credits, Grace became concerned. (D15, Tr. 1112). Alan Boyd was as well, leading Bour to conclude that "he [Boyd] would deal with this problem." (Ex. J12-2: Bour Affidavit) Mattar promised that as the sole shareholder of the bank he (Mattar) would address the issue. (Id.) True to the bankers' words, BestBank jumped on the problem, with Schmalzer taking the lead. His purpose was to identify the tainted accounts, assess whether they were kept current by virtue of the credits, and, if so, remove those accounts from the bank's books and allocate them to Century's participation account. (Ex. B87: FDIC interview with Schmalzer). Encountering Obstacles Early On As a first step in his audit, Schmalzer and Hitt promptly scheduled a trip to Century's offices in Florida. (Ex. 1356-5: travel documents showing trip booked on January 28). The meeting, which took place on February 5, included Lisa Nemetz and Peg Hirst from Century, as well as representatives from FICI. (Ex. 1356-5; D7, Tr. 2628). Nemetz had never before discussed the credits with any person from the bank. (D6, Tr. 783). She testified that at their meeting Schmalzer sought a list identifying the specific accounts on which credits had been placed. "I remember him asking for a report with the account numbers that were receiving credits." (D7, Tr. 22). She could have, she said, offered him a report titled "Trans Journal," which contained a "complete list of trancode 22s." (D7, Tr. 32). This was a daily or monthly aggregation of the credits, akin to the series of spreadsheets tracking the payments that Jack Hitt produced shortly after learning of them (and that later became Exhibit 314). But, 11

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Nemetz continued, "I couldn't give [Schmalzer] account numbers. That's what he asked for." (D7, Tr. 13). The pursuit of better, more useful reporting documents would become for Schmalzer and the bank an essential if difficult task. What was available from Century was simply deficient. (D31, Tr. 4479). The absence of any report tracking the credits by specific account numbers meant it was impossible for Schmalzer to know how many accounts were kept current by means of the credits. This was because he had to know the minimum payment due on each account before he could conduct any meaningful delinquency analysis. Lacking this vital information, he was adrift, no better off than he was with Hitt's spreadsheets. For it was conceivable that an account might have received a credit in an amount less than the minimum due, in which case its delinquency status would not have been affected by the credit. Or an account may have received both a credit and a cardholder payment, perhaps within the same month, combining to meet or exceed the monthly minimum due, in which case again it would be hard to say that the credit affected the account's delinquency status.2 The indispensability of knowing minimum payments was underscored by the testimony of Amy Oliver, the FDR representative called by the government. She emphasized that no banker can analyze delinquencies in a credit card portfolio unless and until he knows the minimum payment due on each account. (D8, Tr. 211). She
2

Schmalzer undoubtedly recognized, as did Jeff Opp, that many AATC accounts received both Century-paid credits and actual cardholder payments. In fact, Opp found that 28% of the portfolio, more than 166,000 accounts, received such double payments. (Ex. 393). 12

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added that the minimum payment is never a predetermined amount. That is to say, it is not fixed at $20. It is calculated, explained Oliver, by a computer program generated on the day each account cycles. (D8, Tr. 120). Schmalzer, then, left the meeting in Florida empty handed, without an accountby-account listing from which he could determine the minimum payment due on each account that received a credit. Neither the "Trans Journal" report identified by Lisa Nemetz nor the similar report created by Jack Hitt gave him what he needed. This meant Schmalzer would have to spend the next several months working with FICI to run computer queries against the entire portfolio, in an effort to extract the necessary information from the database. His February 28 Risk Management Report, seen by the bank's Board in March, alluded to the difficult task he now faced. "Management met with representatives of Berwyn Holdings and FICI to develop," he wrote, "enhanced management information system reports to enable better risk management of the credit card portfolios." (Ex. A175). The Bank Takes Protective Measures In the meantime, BestBank did not sit idle. Until Schmalzer could complete his inquiry, the bank acknowledged that it faced a category problem: the concept of "cardholder payments" was now somewhat problematic, clouded by the discovery that the source of at least some of these payments was not the cardholder but rather Century. So the bank's Credit Card Re-Cap Report, a summary of the portfolio submitted each month to the Board of Directors, noted for the first time in January that "payments" that month "[i]ncluded all non `Returns' credit items." (Ex. 76-6).

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This was not the only step the bank took in the wake of discovering the credits. At its February meeting, held in the middle of the month, the Board reviewed a memo from Jack Grace recommending that bonus payouts be slashed by 50%. (Ex. J56). The Board approved his recommendation. (Ex. 1528-5). What's more, at its March meeting a month later, the Board voted to amend the Operating Agreement to require Century to fund a second loss reserve account. (D28, Tr. 3769). Most important, the bank steadily compelled Century to increase its participation account, which grew from $23 million in January to more than $43 million at the end of June. (Compare Ex. 76-8 with Ex. 76-11). Through the winter and spring of 1998, Schmalzer repeatedly informed bank management and the Board of Directors that "the Bank is Well Capitalized," and that "Century continues to repurchase all 30+-day delinquencies," indeed that it "continues to repurchase $1 million per month in excess of that required." (Ex. A175, Ex. A176, Ex. A177: monthly Risk Management Reports). Schmalzer Poses the Crucial Question In the first half of March 1998, Schmalzer drafted a "Third Party Internal Control Policy," reviewed by the Board at its meeting on March 17. (Ex. A11; Ex. 1529-5). Among other things, the policy framed Schmalzer's task with regard to the credits--"test for credits utilized to keep accounts current"--and posed the all important question: "Are such credits identified for inclusion in Century's participation?" (Ex. A11-6). Charles Wolfshlag, a Board member and BestBank's Cashier, as well as a key government witness, agreed that the credits were of no "concern" so long as they were applied on accounts not owned by the bank, accounts allocated to Century through the 14

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participation agreement. (D28, Tr. 3773). Wolfshlag understood that Schmalzer's job was to investigate the credits, a task Schmalzer was "always" doing. (D28, Tr. 3762). The Switch to Tran Code 21 Schmalzer, it bears stressing, disapproved of the $20 payments Century paid to accounts on behalf of cardholders, and he ordered Century "to immediately stop" them. (Ex. B87: FDIC interview with Schmalzer). By early March, from all appearances, the payments had indeed ended. The relevant reports showed plainly that Tran Code 22 payments, the processing tool by which Century posted the payments, were being phased out. (Ex. 879: collection of Transaction Balance Summaries showing drop-off of 22 payments through March). Although Tran Code 22's ended, they were reincarnated under a different scheme, devised by Century to continue both the payments and their concealed source. The new scheme involved a circuitous flow of money. Beginning on March 10 and followed each day thereafter, a Century employee wired funds from the company's Operating Account at BestBank to a South Carolina bank. Then that same Century employee wired the money to the lock-box at FICI-affiliated Security State Bank, in Abilene, in the process coding the funds as Tran Code 21. Once in the lock-box, the wired funds, now bearing the description "Cash Payment--Thank You," were commingled with actual cardholder payments. Finally, all of the money in the lock-box, including the indistinguishable Tran Code 21 payments, was wired to the Payments In

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Process Account at BestBank, in Boulder. (Ex. 775: chart tracking movement of wire transfers).3 Lisa Nemetz testified that once the Tran Code 21 money was mixed with real cardholder payments there was no way BestBank, by examining the processing reports, could trace its source or distinguish it from true payments. (D6, Tr. 870-71). She also testified that Century was carefully monitoring the cash necessary to support the credits, in a daily memo called a Monetary Transaction report, circulated only among Century employees . (D6, Tr. 851; see also Ex. G71 through Ex. G155: "Monetary Files" memos). The new approach was complicated. It was time consuming. It was also a secret, a calculated response to the bank's demand that the credits stop. Schmalzer told lead-FDIC examiner Terry Quanstrom that "he [Schmalzer] wasn't aware that the . . . 21 transactions were taking place until July 1998 . . . he thought [the payments] were going away, and didn't realize that Century had employed a different mechanism to accomplish the same thing." (Quanstrom Depo. at 303-04). Lisa Nemetz, however, knew about the switch to Tran Code 21. (D6, Tr. 864). So did Penny McDowell and Peg Hirst, (Ex. 238: email discussing switch). Yet none shared their knowledge with the bank. And of course Melody Long knew, too. (D19, Tr. 2091). In fact, it was her daily, written request for a wire-transfer from Century's Operating Account at BestBank to Century's corporate bank in South Carolina, a request that had to be approved by the
3

Both Tran Code 21 and 22 transactions were treated as cardholder payments. A Tran Code 22 was a "retail payment," while a 21 was a "cash payment." Ex. 28. 16

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bank, that triggered each day's movement of money. (See Ex. 1075 through Ex. 1078 and Ex. 1082 through Ex. 1084). Not a single one of her requests, however, mentioned Tran Code 21, still less did they identify the reason for the recurring wire transfers, namely, to finance the credits that Century was applying to accounts with what the government believes was BestBank's assent. If the bank did indeed know about the switch to Tran Code 21, there was no reason for Long to conceal the purpose behind the wire transfers. For that matter, there was no reason for any Century employee, at any level, to conceal the Tran Code 21 payments if the bankers knew about the fraud. Yet the government could not locate even a single witness to testify that he or she told the bank about the switch in Tran Codes. Nor could the government offer a plausible explanation for the switch to Tran Code 21 in the first instance. If its conspiracy notions are right, the fraudulent application of the credits could well have continued under Tran Code 22. There was no need, save deceiving the bank, to create a bewildering, convoluted scheme to move money around the country. The government, for what it is worth, does offer an implausible explanation for the switch to Tran Code 21. Turning to Olan Beard's testimony, it suggests the switch was necessitated by an issue, reportedly noticed by BestBank, related to balancing the number of payments received in the so-called "lock box" with the number of payments posted to accounts. The "solution," according to Beard's "understanding," was to create the Rube-Goldberg-money-moving device described above, to circulate money out of the bank and return it under cover of Tran Code 21. (See Govt's Closing Argument at 42; see also D29, Tr. 4131). 17

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Beard, however, as the Operations Manager at FICI, was hardly in a position from which he could expound on settlement problems experienced at the bank. Jack Hitt was in such a position; so was Michael Cavcey, another settlement officer at the bank. Yet neither testified that BestBank ever experienced the type of problem Beard recalled, an evidentiary deficit casting doubt on Beard's eight-year-old memory. Plus, by his own admission Beard could not recall how the bank's supposed settlement "problem" related to Tran Code 22. (D29, Tr. 4132). Of course, if his memory were accurate, that is to say, if the genesis of Tran Code 21 truly were the settlement difficulties he described, the "problem" he conjured was intimately connected to Tran Code 22. Indeed, Tran Code 22 was the problem, for which, according to the government, Tran Code 21 was the answer. That Beard can't remember suggests not that he is malicious or ill-intentioned, but rather that he was recalling a different, unrelated incident. Secrets Beget More Secrets The switch to Tran Code 21, of course, did not end the need for secrecy. By March, the bank was demanding to see just how Century was spending its money, insisting that Century's comptroller Melody Long itemize the company's monthly expenses. On March 24, shortly after the Tran Code 21's began, Long faxed a report, reviewed by both of Century's owners, to Jack Grace. As she put it, the report purported to be "a detailed breakdown of monies needed thru the end of the month [and] what it is for," intended to give the bank "a better understanding of where the money goes." (Ex. L102-2).

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For Long, the word "understanding," as in "a better understanding of where the money goes," has a special, technical meaning. In fact, it's the meaning normally conveyed by the word "misunderstanding." Her report, which set forth every conceivable expense--commissions for telemarketing firms, costs related to fulfillment, payroll, insurance, computers, even telephones--said not a peep about either the credits or the change to Tran Code 21, despite that the credits by this point represented the single biggest expense on Century's ledger, approximately $2 million a month. (D20, Tr. 2341). Two days later, on March 30, Long sent a similar accounting to Alan Boyd. She titled this one "Monthly Cash Requirements," and it too omitted any mention of the credits, much less the use of Tran Code 21 to continue them. (Ex. 1158). A better understanding indeed. If the bank knew about the credits, surely Long would have been itemized them in what she herself described as a "detailed breakdown of the monies [Century] needed." The Illusion of a Solution In April, confident that the credits had ended, Grace, Schmalzer, and a junior banker named Robert Ogburn traveled to FICI. Expense reports make clear that their "main" purpose was to engage the FICI programmers "in creating a better reporting system." (Exs. 1358.9 and 1359). On his return, Schmalzer assured BestBank's Board of Directors that "Management continues to actively work with Berwyn and FICI to establish enhanced Management Information System reports that will enable better analysis of the quality of the portfolio, as well as reserve adequacy." (Ex. A177: April Risk Management Report).

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By May, the bank was beginning to inch toward what it believed was a resolution of the problem. Toward the end of the month, Jack Grace faxed to Melody Long an analysis of the credit card portfolio "as of 5/18/98." (Ex. 1133). It showed that Schmalzer had identified 145,109 accounts that had received "[c]redits within the Last 60 Days," of which 43% or 62,397 showed no cardholder payments, what he dubbed "inactive" accounts. (Id.) According to the figures, these accounts, which the bank now regarded as delinquent, carried a balance of more than $30 million. They appropriately belonged to Century, obligated to purchase them as part of its participation agreement. The document sent to Long also indicated that the $30 million necessary to cover these newly-discovered delinquent accounts was on reserve in the bank. In fact, in a response hand-written in the margin and faxed back to Grace, Long stated that the $30 million sum was "fully purchased w/partic." (Ex. 1133; see also D20, Tr. 2356). Additionally, the fax and its figures noted that the bank had identified still more delinquent accounts, accounts that were 30 days or more past due and totaling slightly more than $5 million. Again, according to the calculations sent to Long, the money to cover these 30-day-delinquent accounts was on deposit in the bank, and again Long noted in the margins her hand-written assent to its seizure by the bankers. The backand-forth fax between Grace and Long demonstrated as well that apart from the $35 million the bank had already taken, another $8 million remained in Century's reserve account. (Ex. 1133). The final calculations on the shared document, Exhibit 1133, concluded that Century would have to deposit additional reserves equaling $436,570. Long quibbled

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with this figure, expressing in the margins her view that Century instead owed only $15,079 in additional reserves. It was an impressive display of chutzpah on her part. For as Long knew only too well, the bank's understanding of the problem, as expressed in Exhibit 1133, was woefully incomplete. As she would later admit to FDIC investigators, Century owed the bank considerably more than a few thousand dollars of additional reserves, and its rightful ownership of nonperforming accounts far exceeded the $35 million that Grace and Schmalzer calculated. After the bank closed, Long told the FDIC that Century had paid approximately $49 million in credits and payments alone, dwarfing the figure contained in Exhibit 1133, which represented $35 million in receivable balances. (Ex. 1157: Declaration of Melody M. Long). Long knew the bank was demanding a fraction of what Century actually owed. Rearranging the Proverbial Deck Chairs on the Titanic Blinded by Century's deception, Schmalzer soldiered on, continuing his ultimately futile effort to quarantine the problem posed by the credits. His May 31 Risk Management Report touted the improved MIS reports he was getting from FICI, stating they "enabled" him to identify "additional nonperforming accounts approximating $40 million," up from the $35 million identified in May. (Ex. A178-2). "These accounts will be segregated and placed in Century's participation," he added, a step that "will require an additional $10 million from Century, either in the form of additional reserves or an increased participation." (Id.)

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Pulling other bankers into the chase for the credits, Schmalzer continued to refine the queries he ran to the FICI database. (See, e.g., Ex. C5: internal FICI document reflecting bank's query-instructions). Each one yielded more information. On July 10, after telling the BestBank Board that "Century is in default of its contract," (Ex. A179: June Risk Management Report), Schmalzer faxed a letter to Doug Baetz, informing the Century principal that BestBank had now identified just shy of $47 million of delinquent accounts, and that Century's participation account was short $1.6 million: BestBank has identified numerous credit card accounts that have been reflected as current due to internal credits; however, no payments have been received from the cardholders within 90 days. These accounts should have been reported as 90+ days delinquent. Consequently, these accounts totaling $46,940,468 have been allocated to Century's participation. Assigning these accounts to Century's participation then leaves the remaining participation and Century's reserve deficient per our contract. Specifically, the sum of Century's reserve and participation fails to cover $1,655,468 that is 60+ days delinquent and the required five-percent of all current accounts. Please contact us immediately to arrange a plan to cure the default. (Ex. Y133). Baetz must have read Schmalzer's demand letter and breathed a sigh of relief. Like his aid-de-camp Melody Long, Baetz knew that Century had applied a staggering volume of credits during the life of the AATC program. He knew the truth about the number of nonperforming accounts rotting inside the AATC portfolio, something that would take Jeff Opp several years and several millions to piece together. What Baetz knew, in short, was that the bank didn't know the half of it. He 22

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quickly paid the arrears demanded in Schmalzer's letter. (Quanstrom Depo. at 341-42). Less than two weeks later, BestBank was closed, duped to the very end by Baetz, Long, and others in the Century retinue into defending the merits of Schmalzer's inquiry and the conclusions he and the bank drew from it. (See Ex. 414: letter from Olan Beard to John Schmalzer). Summarizing the Government's Case for Knowledge The government's position--that Mattar, Grace, and Boyd knew about the credits well before January 1998--rests on four basic claims: (1) that the credits were so obvious in the many processing reports available to the bank that they could only have been applied with the approval of the bank; (2) that various Century employees, before 1998, discussed the credits in a series of supposed conversations with different bankers; (3) that a handful of consumer complaints received by the bank disclosed the credits to bank management; and (4) that several documents authored or received by Boyd and Grace demonstrate their knowledge of the credits. None of these items bear the weight the government has placed on them, particularly when viewed in light of the prosecution's obligation to eliminate any reasonable doubt as to the guilt of the three defendants. The Processing Reports: An Object Lesson in Hindsight Bias Consider first the key government contention, that "[n]umerous BestBank records disclosed information about AATC credits to Mattar, Boyd, and Grace." (Gov't Closing Argument at 39). The government goes on to list the various reports, including the daily CD-121's from FDR, which revealed high numbers of Tran Code 255 "returns"; an FDR "SD041" report demonstrating that returns exceeded sales on a day in November 23

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19964; Jack Hitt's monthly MIS reports showing incongruously low payments and low delinquencies; BestBank journal entries tracing the withdrawal of money from the Century Operating Account; and the FICI Transaction Balance Summaries disclosing big numbers of Tran Code 22 and (later) Tran Code 21 items. The government cites a few other reports as well, but its point is made: the credits, says the government, were so apparent that only a participant in the conspiracy could have missed them. In reading these processing reports, the government has one big advantage over the defendants. The reports now speak with the omniscience of hindsight, something the bankers sorely lacked as events unfolded, raw and unmediated, unaccompanied by the "How To" manual that eight years of close study has given the government. Knowing today that Century's credits helped keep the bank afloat, the prosecutors can readily present processing reports and ask `how could they not have seen the credits?' Were this a civil suit, the question would be a good one. But this is a criminal case, and so it is more appropriate to ask questions of the prosecutors, since it is they who bear the burden of proof. Here are just a few: Why, if the credits were so obvious, did experienced settlement bankers like Jack Hitt and Michael Cavcey miss them? Why did Joyce Holmgren, who did not testify but who also worked in settlement, miss them? How about Joe Bour? Or Charles Wolfshlag, the bank's Cashier who signed many of the Call Reports that rested on what the government insists are the obviously suspect reporting documents?

That day, November 25, 1996, happens to be the only day for which there is such evidence in the record. 24

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They all missed the credits, despite their many years in banking. Unless they too are members of the conspiracy (are they unindicted co-conspirators?), the reason is plain, if all too human: perception is flawed. What is obvious today is less so then. As Jeff Opp's work-product attests, it's easier to find something when you know what you're looking for. And speaking of Jeff Opp, there's one last question for the government. If the credits were so obvious, why was the government impelled to give him millions of dollars and 14 full-time employees to create and build an entirely new database to identify the credits? Conversations About the Credits: the True State of the Record As for the claim that Century employees discussed the credits with various bank officials before 1998, the government is being quite unforthcoming about the state of the record. Granted, as the government's brief points out, Schultz, McDowell, and Long all testified (McDowell at her deposition) that they discussed the credits with bankers before 1998. But each witness went on to say, under cross-examination, that he or she could not be certain of the date, that any discussion of credits could well have occurred after January 1998, when the bankers concede there were conversations about the credits, indeed lots of them. (D4, Tr. 314-15: Schultz; D20, Tr. 2219: Long; D31, Tr. 4408: McDowell).5
5

The government used McDowell's testimony during her civil deposition to suggest she spoke about the credits with John Schmalzer in 1997. But in that deposition, McDowell, who was clearly addled at the time, indicated she could not recall whether the conversation with Schmalzer occurred in 1997 or 1998. It is almost certain that it occurred in 1998. Schmalzer, whom the government has not accused of any wrongdoing, was unequivocal in his recollection: he never had any discussion with 25

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One other conversation concerning the credits should be addressed. Shortly after learning of the credits in January of 1998, Cashier Charles Wolfshlag spoke to Boyd about them. As the government described their conversation, Boyd said "there [were] no credits were being applied." (Gov't Closing Argument at 36, quoting D22, Tr. 2582). Wolfshlag, however, gave conflicting accounts of his conversation with Boyd, and the government selected the inculpatory one. Asked "[w]hat did Mr. Boyd tell you at that time?," Wolfshlag responded: "Basically that there was nothing illegal going on. That I didn't have to worry about it." (D28, Tr. 3778). There is a difference between the two accounts of the conversation, especially if (as it is) reasonable doubt is the standard by which Boyd and the other bankers are to be judged. Wolfshlag put it best. He candidly acknowledged that "I couldn't tell you the exact words [ ] used" during his conversation with Grace and Boyd. (D22, Tr. 2605). The government should have noted the true state of the record. Besides, the government's preferred version of the conversation strains credulity. At the time the two men spoke, the existence of the credits (as opposed to their extent and ultimate effect on the portfolio) was not doubted, not least by Boyd. Penny McDowell had revealed them, Joe Bour and Jack Hitt had cursorily analyzed them, and Boyd had been briefed on them. Denying their existence at this time, even from the government's perspective, makes no sense. It is far more likely that Wolfshlag's alternate account of the conversation with Boyd is accurate, namely, that Boyd denied any illegality related to the credits, not that he denied the credits themselves.

McDowell or any other Century employee about the credits before January 1998. (Quanstrom Depo. at 302-03). 26

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Cardholder Complaints: Less than Meets the Eye The government also relies on a couple of cardholder complaints to bolster its case that Mattar, Boyd, and Grace knew about the credits before 1998. (Gov't Closing Argument at 34). To be sure, in 1997, a time when the bank was averaging about 20,000 new accounts per month, (Ex. 391), it did receive a smattering of complaints from cardholders, mostly from individuals seeking to close an account they felt should never have been opened. Some enclosed their monthly statements, which showed the credits even if they weren't the reason for the complaint. One cardholder mentioned the credits in his letter. (Ex. 1459). The letters would be damning evidence if it weren't for the way they were handled: all customer complaints sent to the bank were forwarded, without review, to Century for investigation and a response. Marcia Bishop, Alan Boyd's secretary, testified that customer complaints received at the bank were sent to Century, where a Century employee would research the nature of the complaint and draft a written response. Century would then return the ghost-written response to the bank for Boyd's signature. To Boyd, affixing his signature to the document was a purely ministerial function, performed without examining or evaluating the complaint or its enclosures. (D23, Tr. 2845-47). Century's Penny McDowell, to whom Bishop faxed the complaints, corroborated in whole Bishop's description of the process, designed precisely to minimize the extent to which the bank was involved. (D31, Tr. 4378-83).

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Documents Revealing Knowledge: Context Matters (So Does Proof) Lastly, insisting they reflect the bankers' assent to the credits, the government relies on a group of documents received or authored by Boyd and Grace before 1998. (Gov't Closing Argument at 33-34). The first such document is an August 1996 memo from BankCard Center's Bill Schultz to his bosses Baetz and Gallant, a copy of which was sent to Boyd. (Ex. 64). It stated that "11,000 credits of $60.00 per account, and additional credits of $45.00 on over 8,0000 accounts . . . will appear on cardholder statements with a descriptor of `Annual Fee.'" That's a total of 19,000 credits, applied to accounts in August or September of 1996. Yet according to Jeff Opp, the very first AATC credit did not appear until October of 1996, and then there were only 12 of them. (Ex. 397: chart tracking credits by month). In August and September of that year, according to Opp, there were no credits applied to any AATC accounts. (Id.) What's more, as Schultz himself admitted, the AATC portfolio had nowhere near 19,000 delinquent accounts in August 1996, since the program had just begun a few months earlier. (D3, Tr. 267). At that point, the portfolio was scarcely ripe for a device designed to forestall delinquencies. Lest there be any doubt regarding the meaning of Schultz's memo, recall that at the very time he was writing, August 1996, Century was applying credits in the form of reversals, or cancellations, not to AATC accounts but to thousands of accounts under the Universal Tours program. Universal Tours was an unrelated travel club that was being phased out in the summer and fall of 1996. Schultz conceded that those Universal Tours reversals--what are effectively credits to the bank that funded 28

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them--included the annual fees mentioned in his memo. (D3, Tr. 265-66). Melody Long confirmed that at the time of the Schultz memo Century was closing out and reversing Universal Tours accounts. (D21, Tr. 2383-84). Next, the government turns to a series of monthly reports Melody Long sent, in 1997, to Grace and Boyd. These reports tracked the number of "deals" or new sales made each month and included two additional columns, distinguishing accounts cancelled for reasons related to buyers remorse from those cancelled for nonpayment (this was an important distinction to the bank; see below). The column for the former category was titled "Cancels/Credits"; the latter was titled "Chargeoffs." (See, e.g., Ex. 1411). The government suggests the inclusion of the word "credits" in the column header reveals that Grace and Boyd knew Century was making payments on behalf of cardholders. (Gov't Closing Argument at 34). The problem is that precious little evidence shows that's how Grace and Boyd understood the reports. In all likelihood, they interpreted "credits," a ubiquitous term in the credit card industry, to carry the same meaning as "cancels." Long's reports, after all, lumped the two words into a single category, which she called `Cancels/Credits,' signaling that any difference in meaning between the two was immaterial. Besides, a cancelled credit card amounts to just that: a "credit," insofar as the balance on the nowcancelled account is "credited" back (or paid back) to either the cardholder or the bank, depending on which funded the balance. So when Boyd and Grace saw "credits" on Long's reports, they could hardly be expected to know that it was a reference to Century's systematic and fraudulent effort to disguise delinquency rates in the portfolio.

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There is a further point about the "Cancels/Credits" reports, essential to understanding how the two bankers interpreted them. The numbers listed under the relevant "Cancels/Credits" column are not divisible by $20. They are instead divisible by $543, which happens to equal the amount charged to the card at the time the customer purchased his or her membership in AATC. (See, e.g., Ex. 1155). What this means is that Long was counting not credits but accounts, and that was precisely what the bank wanted to know, because it had recently started assessing a $48 fee against Century for each account terminated for reasons other than nonpayment (most likely, buyer's remorse). (Ex. 465-23: amendment to Operating Agreement indicating fee applied only to canceled accounts not otherwise subject to the participation agreement). To levy the fee, the bank had to distinguish terminated accounts from participated accounts; Long's reports offered the necessary distinction. Her reports were neither intended nor understood to supply information about the credits. Finally, the government points to a letter Alan Boyd wrote to the Century principals on December 29, 1997, in which he too combined "reversals" and "credits" into a single term. He wrote: "The following will be deducted from the receivable proceeds": Restricted Cash Reserve Century Participation Reserve for Reversals/Credits Total: $30.00 $150.00 $125.00 $305.00 (5% of $600.00) (25% of $600.00) (Minimum based on experience)

(Ex. 1007-2) (emphasis added). No doubt Boyd was adopting the same convention Melody Long used in her reports. That is to say, he joined into a single phrase two things that for him were effectively identical. Not surprisingly, he prepared his letter 30

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around the time when the bank was routinely receiving Long's "Cancels/Credits" reports. ( Compare Ex. 1411, dated Dec. 30, with Ex. 1007, dated Dec. 29.). And he too distinguished participated accounts from reversed or cancelled accounts. * * * The Beginning of the Story Now that the story of the credits has been told, the noise of the government's case can be quieted. Ed Mattar purchased an industrial bank, changed its charter, and turned it into a bank insured by the FDIC. He and the Board of Directors wanted to grow a credit card bank. In its early years, when the bank was known as Key Bank, it sponsored a small secured card portfolio, which it later sold at a profit. (Wolfshlag, D22, Tr. 2733). But the Board envisioned a bigger portfolio, one that could compete with the emerging credit card banks. The Board wanted BestBank to shine in that market, and to achieve that goal it hired Alan Boyd as President and Jack Grace as Chief Financial Officer. The bank grew and so did its demands for staff. Boyd and Grace responded, hiring experienced managers. One of their first was Jon Wiedmaier, a man with 23 years of experience in credit card management. Hired in March 1994, Wiedmaier's marching orders were clear, put in writing by his boss Alan Boyd. "Your functions," said Boyd, will "generally include" recommending and implementing "Polices and Procedures for credit review, . . . security control, fraud prevention, . . . third party provider monitoring systems, . . . network reporting, management reporting systems and personnel." (Ex. 102). Boyd trusted Wiedmaier to

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work alone, telling him that "much of what is expected [ ] will be directly performed by yourself." (Id.). Boyd had just asked Wiedmaier to take control of the bank's

fastest-growing asset, its credit card portfolio, but as his performance would reveal, Wiedmaier was no match for the job. For instance, despite casting his job responsibilities expansively--"I monitored the activities of Century Financial, who were operating the credit card operation, and thus managing the delinquency of those accounts." (D4, Tr. 400). Wiedmaier had to admit that he did not review any procedure manuals used at the BankCard Center (J091 and J101); did not read the operating agreement between Century and BestBank (D5, Tr. 570); never drafted any procedures for auditing Century (D5, Tr. 563); and never questioned whether Century was, as required, repurchasing delinquent accounts. The last task, Wiedmaier said, "wasn't my role." (D5, Tr. 571). It was his role, indeed, it was central to his role. Wiedmaier did not perform his job. Wiedmaier's lack of attention to the credit card portfolio was particularly apparent in a series of memos he wrote, memos that were admitted at trial. None referenced Century's obligation to buy delinquent accounts--hardly a surprise given that Wiedmaier did not read the Operating Agreement requiring Century to purchase delinquent accounts. (Ex. 84; D5, Tr. 583-85). Equally troubling, he characterized accounts with a "0" credit line as posing a "potential liability for the Bank." (Ex. 50.2). And in a memo to Grace, copied to Boyd and Mattar, he recommended that unused, fully secured accounts should be closed out and the cash deposits returned to the cardholder, opining that an inactive account with a fully-funded security deposit

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represented a risk of loss to the bank (Ex. 84). Mattar questioned Wiedmaier's logic, and properly so. (Ex. 104). Hindsight or Spin? Nevertheless, the government used Wiedmaier to disparage the credit card portfolio despite that Wiedmaier himself, when he was at the bank, never employed the tools the government placed in his hands at trial. The government led him through an exercise with the CD-121's to demonstrate an argument that only the government makes: that the CD-121's displayed a suspicious "gap" between cardholder payments and delinquencies. The government took Wiedmaier through the "gap" analysis with CD-121's from December of 1994. But Wiedmaier had to admit that he never used CD121's for that purpose, (D5, Tr.623), and never brought that kind of analysis to the attention of his bosses, (D5, Tr.626). Cardholder payments, he repeatedly asserted, were never "critical information". (D5, Tr. 624-25). The government's "gap" exercise was also lost on Bill Schultz, Wiedmaier's primary contact at the BankCard Center. Like Wiedmaier, Schultz brought with him years of experience in the credit card industry. When asked if he had used the CD121's for evidence of re-aging, Schultz said: "No, that wouldn't have been one of the reasons I would have really looked at the [CD]121". (D3, Tr.149). In fact, Schultz said, he had never conducted the "gap" analysis at all: Q: Now, Mr. Schultz, going to Government's Exhibit 57, did you ever conduct that kind of math during your work at the BankCard Center? No. If we wanted to get a good number for reaged accounts from ­ for that time period in 1995 for any month, who would we call? 33

A: Q:

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A:

First Data.

(D3, Tr. 243). Schultz also denied that re-aging occurred, and he agreed that the "gap" noted by the government in Exhibit 843--a CD-121 from March 1995--could be explained by reversals resulting from Century "cleaning up" inactive accounts, a project he first reported to Wiedmaier in his memo of January 27, 1995. (Schultz, D3,Tr.237240; see also Ex. 51). No doubt the person best suited to validate the government's "gap" analysis was Amy Oliver. After all, Oliver helped create the CD-121, and professed to have "pretty intimate knowledge of it." (D8, Tr. 98). But the government never asked Oliver what she thought of its "gap" analysis of the CD-121's. The government hired Andrea Loschen to place still another gloss on the portfolio--the comparison of "gross active accounts" to cardholder payments--a comparison rooted in data reported on the CD-121. (See Ex. 118). No other witness, however, embraced this comparison, and for good reason. Oliver testified that "Gross Active Accounts" are not accounts with a payment "due." "I agree with you," Oliver said, "You cannot equate that [gross active accounts] with accounts that have had a payment due." (D8, Tr. 224). Oliver noted that gross active accounts included accounts that posted purchases, reversals, fees, and, most important, payments. (D8, Tr. 191). This would explain why Loschen's own attempt to segregate a percentage of accounts that received payments from the Gross Active Accounts was, as she put it, "just too difficult." (D23, Tr. 2946). Her comparison of payments to Gross Active Accounts sheds no light on the past.

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Loschen's study of changes in the "Ending Principal Balance," data taken directly from CD-121's, proves a positive performance within the portfolio. (See Ex. 122). It shows a steady increase of account balances that did not consist of fees and interest, a sign, if considered, that fewer and fewer cardholders were accruing fees and interest on their accounts. (D23, Tr. 2955-56). Equally unenlightening is Loschen's comparison of the "Number of Cards" in Schultz's Credit Card Reports, (see Ex. 75), to the total number of accounts reported in the CD-121's, (see Ex. 123). As Schultz testified, his Credit Card Reports do not reflect total number of accounts from CD-121's. (D3, Tr. 246). Schultz could not recall where he got his figures for "Number of Cards," except to speculate: "[I]t [m]ust have been another FDR report that we used to get that number." (D3, Tr. 249). As Opp and Oliver both pointed out, FDR's report the on "number of accounts" included accounts that had balances of $0. (Opp. D17, Tr. 1597; Oliver, D8, Tr. 193).6 The bank's focus should naturally have been on the dollar value of the portfolio.7 The government offered no other evidence to explain Schultz's reports or Loschen's comparisons.

Question (to Opp, by the Court): Do you agree with that, that [column] M includes these accounts that are still on the books but there's a zero, there's no activity in the accounts and there's a zero balance? Answer (by Opp): I do, your Honor. (D17, Tr. 1597). To that end, Loschen's study in Ex. 124 demonstrates that, dollar for dollar, Schultz's report of the value of the "total file" matched the CD-121 report. The exception is December 1995, because the CD-121 did not yet segregate the accounts sold to BankFirst. 35
7

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The Re-aging That Wasn't Still, to advance a 1995 conspiracy theory, the government endorses what its own evidence proves was untrue: that FDR had produced an "account by account listing" which identified 18,776 accounts re-aged during the month of May 1995. (Ex. 86, June 23, 1995 memo to Jack Grace from Jon Wiedmaier). That claim was rebutted by Wiedmaier's own descriptions of a CM-998, the testimony of Amy Oliver, and Exhibit 845.10, a CM-998 that showed only 2096 accounts reaged in May, 1995. On direct examination, Wiedmaier described the CM-998 as a report of re-aging "done on the system for the month." (D4, Tr. 484-5).8 Amy Oliver explained that a "system" is composed of smaller groups, called "PRINS." (See Ex. 96; D8, Tr. 202-4). Oliver confirmed that the CM-998 is a report of the entire system. (D8, Tr. 196-197.). But when confronted with Exhibit 845.10, Wiedmaier for the first time claimed there was "another report for month end," one that reported by PRIN. (D5, Tr. 641). That report, he insisted, supported his calculation of 18,768 accounts, a claim belied not only by FDR's definition of a CM-998, but by Wiedmaier himself. Wiedmaier left BestBank 14 months later with 455 documents relating to his work there, which he claimed he needed for "protection." (D4, Tr. 447). Missing from the collection was the "account by account listing" that, he claims, reported 18,776 accounts reaged in the month of May. Likewise, no such report was found among the

This was not the first time Wiedmaier described the CM-998 as the gold standard for quantifying re-aging within an entire system. In an April, 1995 report, he described the CM-998 as "a month-end report . . . that identifies all accounts in account number sequence that have been re-aged during the month." (Ex. J101.6). 36

8

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"fiche" that Berwyn Holdings produced to the government, (see D8, Tr. 198-200, dialogue between Court and Haried), or among records reviewed by Oliver during her work on the case: Q (Grady to Oliver): Okay. And just to be clear, have you seen a CM-998 in preparation for your testimony in this case reflecting that 18,000 and some odd accounts had been reaged per the CM-998 during the month of May 1995? Have you seen a reaging report reflecting that? A: (D8, Tr. 197). Wiedmaier's memos were taken seriously enough to warrant a "face to face meeting" at the bank with Baetz and Gallant, and Wiedmaier was permitted to attend and defend his claims. But, as he describes it, some of his accusations were denied, and he was told "that some of the practices were not going on, and I would have to correct them and identify situations that would indicate that they were still going on." (D4,Tr. 487-8). If Wiedmaier's claims of an "account by account listing" had been true, he would have produced it in the face of Baetz and Gallant's denials. He produced no such report because none existed. The government now makes a ridiculous counter: if 50% of Prin 1000 was reaged, then 50% of Prins 2000 and 3000 must also have been re-aged (Gov't. Closing Argument, at 14, n.1). This is a specious attempt to provide a last minute cure for an accusation that was fallacious at its inception. FDR's Amy Oliver offered no testimony to support this argument. Andrea Loschen, whose work focused entirely on the secured card portfolio, offered no testimony to support this argument. None of the I don't believe so.

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government's witnesses were asked. Even Jon Wiedmaier made no claim that he would support such an analysis. One Good Reason to Prohibit Re-aging­­Wiedmaier Himself In stark contrast to his present day claim that the bank was not using "good banking practices," Wiedmaier--on his own volition in June 1995--urged Alan Boyd and Jack Grace to permit re-aging by the BankCard Center, giving the "Manager of the BankCard Center" the responsibility of "reconciling and/or explaining any discrepancies between the Re-Age Request forms and the Report of Delinquency Adjustments." (See Ex. 83-3) "Well--as I recall," Wiedmaier testified, "I initiated [the proposal] myself, because there was obviously a need to do that." (D4,Tr. 500). It is no wonder that Alan Boyd did not follow that recommendation. (Ex. J108). To permit re-aging would have required a diligent auditor, and Jon Wiedmaier had not proven himself to be that person. Wiedmaier's present-day, but extremely vague claim that he discovered Century applying simultaneous debits and credits and then "verbalized it" to Alan Boyd sometime after June 1995, (D5, Tr. 714), rings of self-promotion, and is wholly inconsistent with his sparse history of "sampling" the portfolio, (D5, Tr. 610). If, indeed, the practice of posting debits and credits was apparent enough to be noticed by Wiedmaier, it went undetected by anyone at the BankCard center. Even Lisa Nemetz, who was living with Bill Schultz at the time, didn't know about a practice of applying simultaneous debits and credits to cardholder accounts. (D6, Tr. 847-48). Apart from a

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small number of cardholder statements, the government offered no evidence quantifying the frequency of the practice. More Noise: BestBank's Lending Policies The government confuses BestBank's credit card-lending policies with regulated disclosures made during the marketing process. These disclosures appear in marketing scripts, (see Ex's. 14, 15, 46), and welcome-letters sent to cardholders, (See Ex. 47; Ex. 49). BestBank maintained written loan polices that set out underwriting criteria. The underwriting criteria is what determined whether a card accou