Free Reply - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Action No. 03-cr-00232-M UNITED STATES OF AMERICA, Plaintiff, v. 1. 2. 3. EDW ARD P. MATTAR, III, THOMAS ALAN BOYD, JACK O. GRACE, Jr., Defendants.

GOVERNMENT'S REBUTTAL ARGUMENT

United States of America by Michael P. Carey and John M. Haried, Assistant U.S. Attorneys for the District of Colorado, submits the following combined argument in rebuttal to the final arguments and motions for judgment of acquittal filed on December 11, 2006 by the defendants, Edward P. Mattar [Document 1088], Thomas Alan Boyd [Document 1089], and Jack O. Grace [Document 1086]. The government's argument will address what these defendant bankers knew and when they knew it, what these defendants did in the face of this knowledge, the affect of what they did on the books and records of the bank, on the Call Reports, and how their false and incomplete disclosures

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affected the Board of Directors, the regulators, and the potential purchasers of either the stock of the bank or its assets. Knowledge: Secured Credit Cards The secured credit card program was not an enterprise created in a vacuum independently of the defendants. It was a joint venture of 5 men and 2 corporations that formed a single venture in which each participant brought a specialized function. From the banker/defendants point of view, Baetz and Gallant and Century were known entities. Boyd had worked with them in South Dakota and in Chicago. In April 1994, to effectuate the business plan put in motion by Mattar, Century relocated to Thornton, to buildings adjacent to Bestbank, to be the exclusive marketer for the bank's credit card portfolio. This plan is evidenced by the operating agreement [Ex.41] that provided that Bestbank was responsible for the following: 1. managing, supervising, and monitoring the Card Program as it sees fit; Section 2.1(a) 2. employing services of third party servicers such as FDR; Section 2.1(c) 3. approving all marketing materials; Section 2.3 4. establishing all charges and fees; Section 2.5 5. evaluate and approve or disapprove all applicants; Section 2.7

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6. develop credit criteria and underwriting standards; Section 3.1 7. issue Secured Cards to approved applicants upon the opening of a Security Deposit Account in an amount not less than $250.00; Section 3.2 As compensation for performing these obligations, in addition to indemnification for "loss accounts", Bestbank was to receive as interest income, its cost to fund all charges placed on accounts plus 6% of the total outstanding card receivable balance. In return, Century was obligated to provide consulting services as requested by the bank. In addition, Century was responsible for developing and supervising the marketing organizations and performing all servicing functions (based on the bank's criteria). Section 2.1. For its compensation, Century was to function as the merchant receiving all fees and charges posted to the cardholder accounts. Section 4.3. Obviously, there was concerted effort between the businesses. But a division of labor where in Century put into practice the bank's established program requirements does not somehow relieve the bankers of all subsequent responsibility and criminal liability for the operation of the credit card portfolio. In less than a year, in a letter dated September 23, 1994, these defendants, as members of the Board of Directors, were informed of numerous

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complaints that were received by the Colorado Division of Banking concerning high pressure sales tactics that failed to make full disclosures and that were directed at young unsophisticated consumers as well as the elderly. In January 1995, W iedmaier in the performance of his job, reported the manifestation of these warnings. Wiedmaier reported to Mattar, Boyd, and Grace what he was seeing in the FDR transactional data. Wiedmaier didn't take from the bank the data reports that he used, but now, 11 years after the fact, the defendants maintain that the W iedmaier memos, in reality his summary charts, are void without the government presenting the underlying data. In 1995 there was no challenge to the existence of the data. And to obfuscate the meaning of W iedmaier's disclosures, Mattar now suggests that W iedmaier's failure over the past ten years to obtain any of the reports that he used is conclusive evidence that W iedmaier's warning was wrong. How could he obtain the reports? Mattar fired him, his association with the bank ended, and financial privacy restrictions would have precluded disclosure even if he had tried. Yet his failure to secure what was not challenged in 1995 is now a critical report, the absence of which compels the conclusion say each of these defendants, that W iedmaier is not credible. The defense argues that the absence of the summarized data today somehow relates back to his lack of believability in 1995 when he made the disclosures and is the justification that Mattar, Boyd, and Grace took no corrective action. W iedmaier's warning was not a false alarm. Wiedmaier projected the

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loss to Bestbank at $2 million. Simply because Bestbank sold a portion of the secured card portfolio to BankFirst and required Century to pay back to Bestbank $1.5 million of its portion of the sale proceeds and required Century to pay over the remaining $500,000 of sale proceeds as a reserve for losses does not invalidate W iedmaier. It confirms his warning. The $2 million in projected losses was exactly what these bankers demanded that Century pay to make up its shortfall. Shifting any future risk of loss to BankFirst (Ex.1164) and requiring Century to pay in $2 million in 1996 does not cure the false numbers reported in the Call Reports for June and December 1995. W iedmaier reported problems that were grossly inconsistent with the operating agreement - problems that showed criminal manipulation of the portfolio. These fraudulent transactions were not contractual misunderstandings or a simple business problem as characterized in defense arguments, but were losses that approximated Mattar's total shareholder equity in the bank. Ex.1204. Knowledge of CD 121 Reports Each of these defendants knew of the existence, substance, and function of the CD 121 Reports. The CD 121s were not the only reports that these bankers received, but they are management reports that provides a snapshot of the portfolio contemporaneously with the transactional event. The CD 121 is organized into 15 sections of transactional data that is repeated in other FDR processor reports, sometimes in more detail, as in the Reaging Report. However,

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simply because there is another report that is specific to a topic, does not mean, as these defendants conclude in the most convoluted argument, that therefore reaging can not be seen in the CD 121 reports or that the CD 121 reports did not provide the tools needed to track performance of the bank's primary asset. As demonstrated by Bill Schultz using CD 121 reports, by calculating the change in total delinquencies from a date in mid month to the end of the month and then comparing that difference to the number of payments received in the same time period should, with the addition of closed accounts, be equivalent numbers. But they were not - reaging was occurring - data was manipulated - and the status of the portfolio was falsely reported. The banker/defendants had the CD 121 Reports. 1. Mattar said so in Ex.1416 ". . . we have the capacity to monitor any aspect of the card program because the FDR access is here. . ." 2. Grace presented CD 121 reports to Shaw at the visitation. Ex.1379. 3. Boyd's letters Exs.58 and 1017 demonstrate the use of data from CD 121 reports in 1995 and in 1998. 4. Hitt said that the Bank had CD 121 reports in the first quarter of 1996 when he began employment at the bank. 5. Loschen matched the CD 121 data to the numbers reported on the Call Reports for 1995. 6. W iedmaier said that he used the CD 121 reports in drafting parts of his summary memos. 7. Schwartz, the defendants expert witness, concluded that from his analysis the bankers (Mattar, Boyd, Grace) had the CD 121 reports.

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8. In Ex.1164, Grace states in a memo to Long dated August 1,1996, "we can use the CD 121 as a source for the number of new cards . . ." 9. If the source of the information contained in a Call Report is the CD 121 and each defendant signed the Call Report certification, it is a fair inference from their own statements that upper level management had access to and did scrutinize these reports. The summary charts compiled by Loschen consolidated the CD 121 data that these defendants saw. The summary charts are no more than an organizational tool. Rather than introduce a 2 page CD 121 for each prin (there were 3 prins in the secured card time period 1000,2000,3000) for the approximately 400 days of the secured card time period - January 1995 into the first quarter of 1996 - summary charts were prepared to consolidate this data. In either format, the data is the same, and the data demonstrates: 1. Cardholder payments were low. Ex.118. The ratio of payments made to the approximate number of accounts with a payment due 1 varied from 1 in 3, to as disproportionate as 1 in 5. 2. Delinquency numbers were manipulated, falsely reported as low, and were inconsistent with the number of payments received. 3. A significantly large number of active accounts did not have a plastic credit card issued for that account. Ex.123 4. A comparison of a CD 121 report to the corresponding Credit Card
Gross Active Accounts is not exactly but is substantially the num ber of accounts with a paym ent due. D8 Tr. 115-116. This num ber is slightly different from the Net Change Receivable Num ber that defendants used in MIS Reports Ex.303. Net Change Recv.# is Ever Active Accounts m inus Never Active Accounts. This calculation is slight higher than the figure for Gross Active Accounts.
1

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Report (Exs.75 and 76) as summarized in Ex.123 shows not only the shortage of plastic credit cards, but also shows that 1 out of 2 and then increasing to 2 out of every 3 accounts did not have a security deposit. 5. Of primary importance, these reports demonstrate an increased risk to the bank that is not addressed in the ALLL calculation. 6. W hether the analysis begins with the number of payments reported on a CD 121 or begins with the deposits made at Bestbank from the BankCard Center as exemplified in Ex.242, the conclusion is the same: the number of payments received cannot support the extraordinarily low number of reported delinquencies. Hawk testified that his bank expected losses for a subprime portfolio to be about 55 percent. D15 Tr. 1092:1. W hile these conclusions were evident, each defendant argues that while he had the education, qualifications, and experience commensurate with his position at the bank, he just didn't know. This scheme was just so complicated and so sophisticated that it was beyond each and everyone's ability to detect. Yet in the first quarter of 1996, when Hitt was given the assignment to analyze payments from CD 121 reports, he immediately saw the inconsistency between the number of payments and the number of delinquent accounts and reported his findings. It is only in argument that the defendants don't understand the scheme.

What did the defendants do

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First, they wrote letters and memos. Exs.58, 78, and 81. In fact lulling letters. That is a letter that gives an impression that the manipulation of the portfolio must stop when from Ex.117 the evidence shows that the portfolio expanded and from the evidence summarized in Exs.118,119, and122, nothing changed. There was a consistent pattern of activity. These letter/memos show that these defendants adopted the scheme and through concerted action and non-action supported the fraud. W hat they did was to allow the scheme to continue. There is not a shred of evidence that when fraudulent practices were discovered, these defendants put a halt to the practice as claimed in argument by Mattar. This statement is a contrived fact unsupported by any reference to the transcript. The CD 121 data compiled in the Loschen summaries shows just the opposite - business continued as usual - throughout the life of the secured card program. - the program continued - the program expanded - late fees and annual fee charges far exceeded cardholder initiated charges - accounts without security deposits were put on the system and maintained in the portfolio as performing assets with no risk of loss

In June and July 1995 the security deposits were paid by Century and charged to the card holder. W hile there was a spike in "security deposits" the affect was not

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to lower the risk of loss to the bank as would normally occur with a security deposit. Instead, by charging the security deposit to the card holder account as a cash advance, the bank paid out that money to Century and increased its risk. This practice increased the bank's receivables which was the basis on which it was paid interest. Ex.41.9. Simple concerted action for the benefit of all defendants. The daily deposit tickets [Ex.242], the withdrawals from the Century Operating Account, and the corresponding deposit into the Security Deposit Account, Exs.1384 and 1391, are facts easily seen and the meaning is clear. W hat the banker/defendants did was to continue to fund accounts contrary to the Operating Agreement but consistent with the fraud. Accounts without security deposits and accounts without an initial payment were entered onto the processing system, counted as a receivable by the bank and charged fees and interest to the cardholder that was paid over to Century (Exs.119 and122) before there was a contractual obligation to repay from the cardholder. In short, they prematurely funded accounts in order to build a pyramid. Knowing that the data that was the source of the information for the Call Report was false, that the data had been manipulated in ways that increased the risk of loss to the bank, each defendant recorded or allowed to be recorded this inaccurate information, as if it were true, calculated the executive bonus on this misstated data, turned a blind eye and received their pay. Mr. Bornstein says it best when he says that after June 1995 there is no evidence introduced by the

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government that there was an attempt to resolve reaging, security deposit issues, or the requirement that Century purchase bad accounts. Mattar Brief, p.23. The bankers were part of the scheme. They controlled the flow of money, and the portfolio continued to expand consistent with the wants of Mattar, Boyd, Grace, Baetz, and Gallant. There were no limitations. The defendants offer in argument their domino theory of innocence. Since the processor reports (CD 121s) are consistent with the Call Reports and the Call Reports are consistent with the bank's GL - there are no false statements. What these defendants illogically claim is that this consistency negates falsity. If the source material is known to be false-consistency of reporting does not transform an overstated asset or an understated Allowance for Loans Losses into an accurate report of condition. The filed Call Reports include and repeat the errors of the false and manipulated data from the processor records. The bonus payments and formula were criticized in various examination reports. Yet these defendants argue as if Carney was never on the witness stand and the bonus formula was developed by an outside neutral third party rather than drafted in various years by Mattar, Grace, or Boyd. Exs.1196,1197,1201,1215, and 1216. Carney was a pawn, dependent on Mattar for his livelihood, who was selectively provided data by Grace, who received card program analysis from Boyd, who was the shill providing financial reports as requested and cloaking those reports with an auditor's certification when each of

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these defendants knew Carney for what he was yet took their pay and bonuses. Why join the conspiracy Mattar offers in a rhetorical question: W hy would Mattar defraud his own bank? This is the same question that Mattar posed to Bour in January 1998 when Bour disclosed the practice of credits and accused Mattar. Simply because it was not Mattar's bank. If the measure of ownership is the amount of money paid in, then Century owned the bank. The bank is an independent entity, controlled by individuals with a fiduciary responsibility to it, and functioning in a regulated industry. Initially, the primary component of capital of the bank was Mattar's purchase of the common stock, recorded at $500,000. Ex.1193. Yet Century contributed in those extraordinary transactions $10,000,000. Mattar took out in bonuses more than10 times the amount of his initial stock purchase. Mattar was not investing for the future. He was taking his money in the present and as quickly as it came in. Grace was utterly dependent on Mattar and Boyd and the bank as an employer for his livelihood. His employment history prior to Bestbank shows his desperate need for employment. Ex.1370. And to repay his obligations, Grace like Carney, acted as the shill in reporting the financial condition of the credit card portfolio. Only when the secret of credits was known to an outsider would Grace get a bonus to insure his continued participation. Boyd wanted money, he would take what Mattar got plus a little extra from

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Baetz and Gallant but under the table. Boyd created a loan to Century that was fully secured with a 14% interest rate and a 100% origination fee. A loan that he participated to his former wife. She put up $250,000 and got back interest plus $125,000 of the loan origination fee. Boyd put up $100,000 and got back interest plus $225,000 of the loan origination fee. It is telling that not a single factual argument is proffered by any defendant to challenge the criminality of the secured card program and the carry over affect of the false data onto the Call Reports and in the bonus criteria. Boyd's argument went so far as to skip over the secured card period, saying "[t]he story of this case must begin with the credits. . . . The rest is so much noise." Boyd Brief, p.10. W ell, not so fast. The defendants' willingness to participate with Baetz and Gallant in subsequent credit card programs when they knew that these men concealed non-performing loans by any number of false transactions demonstrates a clear intent to continue the criminal enterprise. The argument for Grace simply concludes that Grace was not aware of the activities of Baetz and Gallant. There is not a single citation to the transcript, not a single reference to an exhibit, not a single reference to what was the basis for the attorney's conclusion, while all the time ignoring as if not in evidence Exs.50, 51, 58, 80, 84, and 86. Boyd offers a specious argument based upon W iedmaier suggesting a policy on reaging. Reaging has a two meanings. There is the use of the word

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meaning a practice that is done to disguise the delinquency status of an account. This type of reaging can be accomplished by resetting the delinquency counter, or by posting simultaneous debits and credits, or by posting a fictitious merchant return for an account. The second meaning for the word reaging is as a definition of an industry practice that recognizes unforeseen hardship experienced by an account holder and does not penalize the card holder who has demonstrated a bona fides intent to repay the loan by making 3 consecutive monthly payments. W iedmaier when proposing a policy on reaging clearly was referring to the industry practice that waives penalty charges on an account when the cardholder demonstrates an intent to repay the loan. Counsel for Boyd knows these different uses of the term but misdefines the term in an attempt to impart a single meaning to the term to discredit W iedmaier. Mattar suggests that because he hired employees to perform credit card program functions that his act of hiring of others negates his knowledge and relieves him of all responsibility for any criminal conduct. Even when he was confronted by W iedmaier - shown the data - he still claims that he had no knowledge. W iedmaier did his job. He notified his employer of criminal activity, activity that was inconsistent with a valid program. Mattar tells half the story when he says that W iedmaier's hiring coincides with the start of the business relationship with Century. The rest of the story is that W iedmaier who had credit card experience, who did his job, who discovered criminal activity, who reported

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manipulations of data that were inconsistent with a valid program, who had the ability to analyze a program was terminated from his employment at precisely the moment when the first credits in the form of merchant returns were placed on travel club accounts in August 1996. Not a coincidence. The defendants cannot deny their own guilty knowledge by arguing that their subordinates didn't detect the fraud. Boyd Brief, p.24. That flawed line of argument breaks down immediately: W iedmaier, Bour, and Hitt did detect the fraud, and they reported it. W olfschlag immediately recognized the fraud inherent in credits once Bour told him. Hitt and Shatting pointed out the shortfall in cardholder payments to Grace in 1996. In each instance, Mattar, Boyd, and Grace told their subordinates not to worry, nothing wrong or illegal was occurring. W hy didn't Hitt figure out all the aspects of the fraud on his own? He was a $35,000-a-year settlement clerk, not a high-level manager. Once a shred of information was disclosed, these employees recognized that the transactions were a fraud. Despite all of the facts to the contrary, Boyd attempts to "spin" his way out of the incriminating facts surrounding premature funding of secured and AATC accounts by now claiming (Boyd Brief, p.39-44) that premature funding was ok. Boyd's argument is mendacious. In 1995, Boyd specifically articulated that premature funding of secured accounts was prohibited because it caused BestBank's books to be "inflated and

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overstated from a collectability standpoint." Ex.58.2. Boyd reiterated BestBank's policy against premature funding in Exs.78 and 81. Wiedmaier testified that BestBank's policy required that the security deposit was to be paid up front. D4 Tr. 406:16. BestBank approved the secured card telemarketing script, Ex.46, pursuant to the operating agreement, Ex.41.3. The script, together with BestBank's welcome letter to new cardholders, Exs.47 and 49, clearly required that cardholders had to submit a signed application and a $250 security deposit to receive a Bestbank Visa account. Similarly, under AATC, BestBank approved the telemarketing scripts, Exs.14- 18, pursuant to the operating agreements, Exs.41.3 and 465.5. Those scripts, together with BestBank's welcome letter to new cardholders, Ex.11, clearly required that cardholders had to submit a signed application and $20 initial payment to receive a BestBank Visa account. Even Boyd's letters addressing cardholder complaints articulated that the cardholder was not liable on the AATC debt unless he had submitted the signed application and $20 payment. Exs.1455.2 and 1456.2. BestBank's policy against premature funding of AATC accounts was specifically articulated in its Third Party Internal Control Policy, Ex.1475.22 - .28. Now Boyd argues that the policy was "never adopted" simply because its implementation was delayed 90 days to hire an internal auditor. Apparently Mattar, Boyd, and Grace ­ as voting members of the Board ­ didn't feel that as of

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March 1998 there was any urgency in closely monitoring Century's handling of credits and fulfillment problems. Nonetheless, the Board's policy was clearly stated, and delaying implementation was hardly a repudiation of the policy. Further, it is clear that Boyd has not thought out the incriminating implications of his argument. Apparently, Boyd now contends that BestBank's policy was to lend a subprime borrower grossing less than $12,000 per year either $129 on a "secured" account without an application and security deposit, or $543 on an AATC account without an application and $20 payment. If that really was BestBank's policy, then: -The defendants never disclosed it to the Board. D22 Tr. 2543:13; 2545:9; D28 Tr. 3775; D28 Tr. 3775:16. - Mattar, Boyd, and Grace were knowingly and intentionally making extraordinarily high risk "loans". -BestBank's ALLL obviously would have had to factor in that extra risk. That didn't happen, of course, because BestBank's reserve ratios were just 2% for "secured" cards and 12% for "unsecured" cards in June 1995 (Ex.273.10), and just 2% for "current" cards and 23% for "30-59 day" cards in September 1996 (Ex.273.11). -It is a fair conclusion from the evidence that W olfschlag would not have voted to approve BestBank's ALLL in light of the increased risk. -It is a fair conclusion from the evidence that W olfschlag would not have

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signed BestBank's Call Reports because ALLL would have been understated on all of them. -It is a fair conclusion from the evidence that W olfschlag would not have voted for Mattar's and Boyd's bonuses for the same reasons. In short, the evidence shows that Mattar, Boyd, and Grace knew that secured and AATC accounts were prematurely funded, but they chose to continue the practice because it increased BestBank's income and because it provided funds to Century to buy non-performing accounts or fund credits. Travel Programs: Universal Tours - AATC Armed with the knowledge of the manipulation of data in the secured card program, knowing that the secured card program was a financial loss without the kickback of $2 million from Century, Mattar, Boyd, and Grace entered into a new and expanded credit card program. AATC was an ambitious program designed to build this pyramid of "bank assets" to an amount that dwarfed the funds paid out in the secured card time period. Please refer to the Chamberlin summary chart of deposits into the (Century) Operating Account, Ex.573. MIS Reports In June 1996, simultaneous with the initiation of the AATC card program, MIS reports, Ex.303, were developed by upper level management and specifically by Grace. The MIS Reports are a spreadsheet of data that was selected from the CD 121 Reports. The MIS transfer and compile data from the CD 121 (later the

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FICI Cardpac Transaction/Balance Summary) and add several lines of computations that were of interest to these defendants. The MIS are an organizational tool to facilitate an analysis on a monthly basis of the performance of the card programs. The MIS are a summary chart that reduces the portfolio performance data in a CD 121 to its most basic and essential terms. A report that tells the reader at a glance the performance of the bank's primary asset. The MIS initially were provided to the Board of Directors. The MIS reports selected 21 items of data from the CD 121. The terms used on the MIS are not identical to the terms used on a CD 121 but the data is taken from the CD 121 and shows a clear understanding of a CD 121. For instance, the first 4 lines on the MIS demonstrate that accounts were added to the processor system yet plastic credit cards were not provided to the account holder. The MIS term "New Cards Issued" equates to the term "Plastics" as found in the Management Data on page 2 of a CD 121. The MIS term "Canceled Cards" equates to the term "Closed" on page 2 of a CD 121. And the term "Number of Cardholders" on the MIS is the difference between those two numbers. Using the MIS for November and December 1996 as an example, Ex.303.6-.7, the MIS report reader sees that 3,109 plastics were issued, 1,864 cards were canceled in November, and by determining the difference between the Net Change Recv. in November to that number in December (79,804 minus 63,753 = 16,051) the consistent reader sees that there were 16,051 accounts

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added in November but no more than 3,109 plastics credit cards issued to account holders. MIS Reports - No longer provided to the Board In September 1996, as a result of the amendments to the Operating Agreement Ex.41 and the addition of the Participation Agreement Ex.823, Century became liable for the delinquent accounts. Delinquent accounts are termed "Aging of Receivable #" on the MIS. The number and dollar amount of delinquent accounts are the definitive measure of the performance of the portfolio. Delinquent accounts are the result of the number and dollar amount of payments. Payments are the driving factor in the measure of performance. Again, using the bank's MIS for November 1996 as an example, there were 63,753 accounts, 8,590 payments, and 3,526 total delinquent accounts in all cycles of delinquency. A simple analysis of MIS reports would show the number of accounts that Century was required to purchase. In October 1996 the MIS Reports were no longer provided to the Board. The number and dollar amount of payments, in addition to correlating to delinquency numbers, also drives income/revenue issues. There is the blatant inconsistency between the number of cardholder payments in the bank's portfolio, and Bestbank as "The Best Performing Colorado Bank". The performance of the portfolio is inconsistent with a profitable business. Farrar, Hawk, and Shaw

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reached this conclusion when they saw the data. The bank's Board did not. They did not see the data. Discovery of Credits Credits were first applied in August 1996. Ex.64. and at that time, primarily to the Universal Tours accounts. Opp determined that credits were first placed on AATC accounts in October 1996. And because of Opp's analysis, the defense argues that Ex.64 should be discounted as measure of when Boyd learned of credits. This argument is again to miss the obvious. Opp's criteria for his calculation of credits excluded all Universal Tours accounts. Opp's definition of credits during the FDR time period was: (a) accounts initially opened in the AATC portfolio after May 1996, (b) transactions using TC 255 "Return" (c) transaction in $20 increments (d) descriptor "AATC 1-800-819-4269" Exs.368 and 369 Therefore, the $45 and $60 credits described in Ex.64 and in Exs. 886.3 and 887.3 with the descriptor "Annual Fee Thornton Co Credit" were not included in Opp's figures. Each defendant ignores evidence that does not fit within the structure of their story line and argues that credits were not discovered until January 1998. To maintain this date, the defendants must ignore (1) all of the cardholder complaint letters, (2) the testimony of Long that she spoke to Grace about credits

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certainly before 1998 and to her recollection during the first quarter of 1997, (3) the memo Ex.64 that Schultz copied to Boyd in August 1996, and (4) the testimony of McDowell that she discussed credits with Schmalzer in August 1997 shortly after she started at the BankCard Center. Finally, the defendants must ignore (5) Grace's knowledge of the settlement process that Merchant Returns as listed on a CD 121 were netted against sales or (6) that Merchant Returns as reported on CD 121 reports were only Century transaction or (7) that the change in the settlement template as shown in Ex.294 that accounted for a change to TC22 . W hen the defendants argue that credits were discovered in January 1998, what they really mean is that credits were discovered in January 1998 by an outsider, someone previously not privy to the secret. Even when moving the discovery of the credits to January 1998, no defendant took the common sense step of investigating the reason for the credits. And the inference to be drawn from no action on their part is compelling. Mattar, Boyd, and Grace knew of the credits and knew the reason for the credits. It was not a secret to them. There was no reason for them to inquire of Century or AATC. There was no reason for them to analyze fulfillment and contact NMR, Nordis or Hurricane Golf. There was no reason for them to investigate this fulfillment issue-why not- because they knew that accounts were setup without the initial $20 application fee and until a card holder paid the $20, the enterprise

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would not incur the cost of a fulfillment package. The discovery of credits and the calculation of the increased risk to the bank in January 1998 by Bour, an outsider to the scheme, meant to Mattar, Boyd, and Grace that they no longer had a secret but the handwriting was on the wall. It now was just a matter of time before the regulators learned of the credits and the magnitude of the credits. W hen the regulators understood the scheme and the unsecured risk that these credits represented to the bank, the bank would be closed. Therefore, the race to the vault began. The regulators didn't yet know it was a race, but Mattar, Boyd, and Grace knew, and they weren't going to tell Fulkerson. The defendants ran not to close the doors on Century, but to expand the portfolio. In the following 6 months, between January and July 1998, the credit card portfolio added 200,000 (383,905 to 583,727) new accounts (Ex.389) each one funded by Bestbank with $543 from depositors that added $108,000,000 in new loans. The defendants raced to the vault to loot what they could. W hen confronted by Bour and knowing that credits masked the performance of the portfolio, knowing the number of credits, knowing that the affect of the credits was over $90 million, but, the defendants argue, not knowing the precise affect, they ignored Bour and allowed the portfolio to expand, and the problems to increase, and took their bonuses. Defendant Boyd was not confident of the outcome of the race. He and Grace could bluff W olfschlag with a simple denial when he questioned them after

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speaking to Bour. But Joe Bour was different. Bour challenged them, took action and quit, and he had friends at the Colorado Division of Banking. Therefore, Boyd setup an out of the way meeting with Bour. They met at a LePeeps Restaurant on South Colorado Blvd. in Denver. Boyd who had known of credits at least since August 1996 tries to lull Bour with the same explanation Baetz presented to Beard: maybe these credits are payments from W estern Union. Boyd and Baetz are using the same fictitious explanation. All payments were recorded in the processor records. There were no mystery payments. This concept of "special" unrecorded payments was suggested by Boyd a second time in January 1998, when Boyd attempted to inflate the payment history that had been provided to Farrar. In December 1997, in completing what he thought was his assignment, Hitt prepared an analysis of the AATC program and gave it directly to Farrar. Ex.331. The numbers that Hitt provided are identical to the numbers reported on the MIS Ex.303. The payment numbers were accurate but extremely low. Farrar was not going to invest millions to purchase a share of the bank and take on Boyd as his partner, with a portfolio performance as represented by Hitt. Boyd resolved the issue of poor performance by inflating the dollar amount of the payments received. Ex.333. Not only does the payment column include credits as cardholder payments, but in addition, Boyd inflated the payments received, and then explained the augmented number with the suggestion that payments were missed by Hitt. But Hitt didn't miss any

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payments. All payments regardless of where the payment was received, were posted to the cardholder account and reflected in the processor records. W ithin days of being confronted by Bour and the analysis of credits by Hitt in Ex.314 Mattar, Boyd, and Grace were confronted on February 2, 1998 with the October 1997 Report of Examination and a demand for an MOU. Now less confident of the outcome, the defendants prepared a cash flow analysis in an attempt to persuade the regulators that Bestbank could maintain the portfolio without Century. This analysis was hand delivered to Fulkerson on March 18, 1998. Ex.1375. Yet full and honest disclosure was not made. The analysis made no reference to credits. The analysis made no reference to the fact that Hitt was able to quantify current credits and could recognize that credits were posted as "Returns" under the FDR system. The analysis made no reference that Hitt determined that 178,986 credits were posted in December 1997 or that if credits were multiplied by the average account balance, an additional $97,189,398 was at risk in December 1997. There was no reference in this material that credits were continuing and that Grace was tracking credits on a daily basis. Exs.929 and 899. There was no reference in this material to an accurate projection of the number of cards that are being added to the portfolio. The material presented to Fulkerson was again an attempt to lull the recipient by providing a false and misleading analysis. It was again a blatant attempt by the defendants to delay scrutiny of the portfolio and allow for the payment of $5 million in first quarter

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1998 bonuses. On April 20,1998, regulators meet with the defendants and the bank's other Board members. The purpose was to review the examination conducted in October 1997, Ex.1372 and the proposed MOU. Yet, again there was no disclosure of credits at this meeting. No disclosure of an attempt to quantify the problem. The examination report, the proposed MOU, and the Fulkerson/Siebold reply to the bank Ex.1376 sets an ominous tone on April 20, 1998. On the following day, in a clear example of bad faith, Mattar and Boyd took their bonus payments. Grace took his one week later. In quantifying the affect of the credits, the defendants' want to ignore not only Hitt's work, Ex.314, but also a fundamental fact about delinquency: a single cardholder payment only satisfies the payment due for one cycle. Therefore, if an account is already delinquent one or more cycles, a single cardholder payment did not make it current. The defendants pretend that delinquent AATC accounts could be made current with a single cardholder payment, regardless of how many credits had been applied in previous cycles. Based upon that false premise, they advance their argument that despite their knowledge about the massive scale of $20 credits, they could not reasonably estimate the receivable balance of the non-performing accounts ­ or increase BestBank's ALLL ­ because they didn't know which accounts received a cardholder payment in a cycle subsequent to cycles with only Century credits. However, there simply were not enough

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cardholder payments each month to keep even 50% of the accounts current, or to explain the very low reported delinquencies in the Credit Card Reports, Exs.68, 75, 76, or in the processors' system reports, Exs.840 - 884. Actions of the Regulators The unarticulated premise of the 25 pages of defense argument devoted to what the regulators did and did not do is that a violation of a policy provides transactional immunity to the bankers. The FDIC asset classification policy did not apply to an analysis of assets in a subprime portfolio that was extremely high risk, Quanstrom Deposition p.95, or to an asset in a portfolio tainted by fraud. D24 Tr.3067:10. The suggestion that there is a correlation between the validity of the examiners' decision when classifying assets in July 1998 and the intent of any defendant at a prior time is nonsensical. Crimes occurred even if the bank were solvent on July 23, 1998. Reliance on the opinion of Schwartz The defendants' reliance on the testimony of Schwartz is misplaced, and it again demonstrates an attempt to devise an exculpatory story line regardless of the facts. Schwartz offered 2 opinions: (1) that CD 121 Reports were used by the bankers completing the Call Reports in June 1995 and thereafter; (2) Bestbank would have been in better condition financially had Century complied with the terms of the Operating Agreement. Opinion #2 however was premised on the false assumptions that :

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(1) any account that received a payment was current, thereby excluding all accounts from his consideration that received only 1 cardholder payment and then only credits; (2) Century made the required purchases of delinquent accounts in the preceding months even though Century did not have the financial ability to honor its indemnification agreement for more than $10 million; (3) the termination fee would be paid even though contrary to the specific provisions in the Operating Agreement Ex.465.23; (4) the 4% reserve provision was premised on the portfolio net of the delinquent accounts when his calculation applied the 4% expense to the entire portfolio. Defendants' Post January 1998 Actions How do the defendants now seek to justify their post-January actions? They claim their hands were tied: they did not know "whether [credits] altered reported delinquencies," and, therefore, they could not disclose the "credit issue" outside BestBank until "Schmalzer had determined the full magnitude of the problem." Grace Brief, p.47. The defendants make their "our-hands-were-tied-by-our-ignorance" argument this way: "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

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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." Boyd Brief, p.12. Grace makes the same argument, Grace Brief, p.47, as does Mattar, Mattar Brief, p.39. The defendants' argument conflicts with the facts and common sense: First of all, the defendants are simply wrong. In fact, there was a daily FICI report that tracked credits by account number: the FICI Transaction Journal by Tran Code report. Hitt included several examples in his January 1998 research that he gave to Grace. Ex.314E, pages .35 -.38. Another example is Ex.33.25. Opp and Beard testified about the report. D16 Tr. 1479:2; 1487:3; 4284:12. The defendants are simply ignoring the facts and looking for excuses. Second, contrary to the defendants' assertion, it is not "conceivable" that a $20 credit was less than the minimum payment due. The minimum payment on all AATC accounts was $20 or 1.67% of the account balance, "whichever is more." Ex.498.13 (BestBank cardholder agreement). To have a minimum payment due greater than $20, the account balance would have to exceed $1,197 (i.e., $1,197 times .0167 = $20). Because the AATC accounts had a $600 credit limit, the defendants' "it's conceivable" argument is specious. Thus, Mattar, Boyd, Grace, and Schmalzer did not need to look at each cardholder account statement to determine the minimum payment due. Even if they did want to look

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at the cardholder statements, they were available at BestBank on FICI's on-line data system. D29 Tr. 4136:6. Third, common sense told Mattar, Boyd, and Grace that Century was applying credits to accounts without cardholder payments in order to conceal true delinquencies. All of the evidence shows that, including the cardholders' statements and the testimony. The defendants are simply offering up unsupported, unbelievable speculation in search of a defense. Similarly, the defendants are grasping for excuses when they argue they could not act until Schmalzer came up with a dollar figure for the bad accounts ­ the accounts Century had promised to buy. As you examine each of the following components of this defense argument, the defendants' bad faith is apparent. Defendants' claim We couldn't quantify the "full magnitude of the problem." Grace Brief, p. 47. The evidence showed that they could quantify the bad accounts, and Hitt did quantify it in January 1998. However, Mattar, Boyd, and Grace were in too deep and were too greedy to admit the truth. First, all Mattar, Boyd, and Grace had to do was look at the low number of real cardholder payments on the FDR CD-121 reports (Exs.858-874) and FICI Transaction Balance Summary reports (Exs. 874883), or look at the high number of accounts without plastics on the FDR CM-051 reports (Exs.858 - 874) to see how few performing accounts there were. The information about low payments and low plastics was also presented to Mattar,

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Boyd, and Grace on Hitt's monthly MIS reports, Ex.303. The FICI Transaction Balance Summaries for November 1997 through March 1998 reported the tran code 22 credits for each day. See Exs.875 - 879. Similarly, Hitt's January 1998 research specifically quantified the accounts receiving credits. See Ex.314A, pp. 1-6. So did BestBank's funding analysis spread sheets for February 1998 (Ex.929), and March 1998 (Ex.899). To calculate a rough dollar amount of the bad accounts, all Mattar, Boyd, and Grace had to do was multiply the number of accounts receiving credits each month times the average balance. As that simple calculation illustrates, once Mattar, Boyd, and Grace had started down the road of reaging delinquent accounts via $20 credits, the losses piled up so fast that the alternatives were either to keep going or to face the authorities. Defendants' claim We "jumped on the problem." Boyd Brief, p.11. If, as the defendants now claim, they first learned in January 1998 that AATC credits concealed millions of dollars in non-performing accounts receivable, their subsequent actions certainly didn't show it. They never called Mansueto, Selinger, or Ballback to find out what was happening with credits or fulfillment. D19 Tr. 1952:12; D21 Tr. 2491:24; D21 Tr. 2503:3. They didn't conduct their own investigation or even actively participate in Schmalzer's. Instead of stopping or even slowing the funding of new AATC charges, they did the opposite: the AATC portfolio grew an incredible 43 percent in the next five

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months!

All this information was reported in the Credit Card Recap Reports

provided to the Board. Ex.76, pp. 6 and 11. The defendants' talk now is belied by their actions then. They never stopped soliciting or funding new accounts ­ not even up to the end. On the two days preceding BestBank's closure, July 21 and 22, 1998, they transferred more than $1,200,000 to Century. Exs.1348 and 1349. They never "jumped on" anything. Defendants' claim We were mislead by Century. Century "assured" us that Century's participation and reserves exceeded the bad accounts. Grace Brief, p.47. This argument is specious. Mattar, Boyd and Grace had known since 1995 that Century systematically engaged in fraud to conceal delinquencies. In January 1998, Bour and Hitt dramatically pointed out yet more systematic fraud on a massive scale. Now the defendants would have us believe that they had no idea of the "full magnitude of the problem" because Century "assured" them "that the accounts affected by the credits were covered by Century's participation and reserves," citing a May 28, 1998 memo, Ex.1133. The bankers were "assured" by mere words from Century? Hardly. The calculations in Ex.1133 were a farce. Someone at BestBank (unknown) determined (unknown how) that 145,109 accounts had received credits in the last 60 days. For reasons not explained, they reduced the 145,109 accounts by 43 percent to reach a figure of 62,397 "inactive accounts" accounts.

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Then they multiplied that 62,397 by an average balance of $466 per account, and came up with a loss (i.e., "100% reserve") figure of $32,324,879. If they had not taken out 43 percent of those accounts, and, instead, had multiplied the 145,109 accounts times the $466 average balance, they would have calculated a loss figure of $67,620,794 ­ a whopping figure substantially in excess of Century's participation. The calculations in Ex.1133 didn't "reassure" the bankers; that memo was merely talk between co-conspirators using fanciful assumptions to make the loss numbers lower. Based upon the hard data before them, Mattar, Boyd, and Grace could see that the participation and reserves were inadequate to cover the bad accounts during 1997 and 1998. Hitt's MIS reports, Ex.303, showed that cardholder payments were very low, well below 30 percent of accounts. Hitt's January 1998 investigative spreadsheets, Ex. 314A, pp. 1-6, quantified the number of accounts receiving credits for the life of the AATC portfolio. A simple comparison tells the story: in December 1997, for example, 176,626 AATC accounts received credits (Ex.314A.1), and the average balance of AATC accounts in December was $569.78 (Ex.884.5). By multiplying those numbers, Mattar, Boyd, and Grace could get a rough estimate of the receivable balance of accounts reaged by credits in December 1997: 176,626 times $569.78 = $100,637,962. By comparison, the total of Century's participation, the reserve account, and BestBank's ALLL on December 31, 1997, was just $27,600,000. Exs.762 and

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1392. The $73,000,000 difference was the reason that Mattar, Boyd, and Grace could not disclose the truth. Defendants' claim The FICI reports were inadequate, so Schmalzer had to get "better, more useful reporting documents." This claim is merely a poor excuse for their four month delay quantifying, to any extent, the bad accounts. In truth, the FDR and FICI reports were adequate. They were good enough for Hitt to prepare his spreadsheets, Exs.303 and 314. The FDR CD-121 reports and FICI Transaction Balance Summaries reported the number and dollar amount of the credits. Mattar, Boyd, Grace, and Schmalzer did not need more reports, they are simply looking for an excuse for their inaction. Defendants' claim We were fooled by the switch from TC22 credits to TC21 credits. Schmalzer misled Quanstrom when he claimed that BestBank was fooled by the switch from TC22 "retail payment" to TC "other payment." Beard testified that Grace participated in making the switch. D29 Tr. 4132:11. BestBank decided that payments had to go through BestBank's Cardholder Payments at Security State Bank in Abilene. D29 Tr. 4131:10; D30 Tr. 4287:18. Before the switch, the TC22 credits were being taken directly from Century's Operating Account. So in March 1998, the TC22 credits were phased out, and the TC21 credits were phased in. The switch was clearly disclosed in several BestBank documents.

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For example, the March 1998 funding spreadsheet, Ex.899, was prepared for Grace by Ogburn. D31 Tr. 4521:12. It reported the complete elimination of TC22 credits from 3/12/98 to 3/27/98. The corresponding rapid increase in TC 21 items was reported in the FICI Transaction Balance Summaries. Ex.879.73 shows the last TC22 credits on March 27, 1998. On the same day the TC21 transactions immediately skyrocketed in number. Compare Ex.879.73 (23,974 TC21 transactions on 2/27/98) with Ex.878.36 (1,207 TC21 transactions on 2/14/98). Despite the elimination of TC22 items, delinquencies remained astoundingly low: 2.4% for February 1998 and 2.4% for April 1998. Ex.884.13 and 884.25. The defendants could not reasonably believe that delinquencies would remain the same after the elimination of $4,000,000 a month in TC22 credits. After the switch, BestBank even tracked the TC21 "other payment" items. See Exs.1302.6, 1304.6,1539, and #C005.4. BestBank was not fooled by the switch from TC22 to TC21. Defendants' claim We were justified in relying on Schmalzer because he would not abet the fraud or conceal the truth. The evidence disproves this excuse. Schmalzer knew about the AATC credits, yet he, like Mattar, Boyd, and Grace, did not act to stop the fraud. Schultz talked to Schmalzer about credits sometime after Schultz left BankCard Center in mid-1997. D4 Tr. 314:13. McDowell also spoke to Schmalzer in 1997 about AATC credits being applied multiple times to same

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account. D31 Tr. 4407:7 - 4409:9. In January 1998, when Bour first discussed his discovery of AATC credits, Schmalzer told Bour he estimated BestBank's loss at $40,000,000. D15 Tr. 1248:15. Schmalzer withheld his knowledge of credits from the Board and regulators, in lock-step with Mattar, Boyd, and Grace. Bour discussed massive AATC credits with Schmalzer in January 1998, but Schmalzer's Risk Management Reports for February, March, and April 1998 were utterly silent about credits. Exs. #A175, #A176, and #A177. Schmalzer's Credit Reviews for the same period likewise were silent. Exs. #G005, #G006. Instead, Schmalzer's Risk Management Reports continued to make a representation that, because of credits, he knew was false: "Century continues to purchase all 30+ day delinquencies." Ex. #A175. Also, Schmalzer (in lock-step with Grace) stood silent on credits when Andrew Shaw and Terry Quanstrom discussed the AATC program on May 26, 1998, during the May visitation. D24 Tr. 3175:16; D27 Tr. 3708:16. It was not until after Shaw and Quanstrom left BestBank that Schmalzer began reporting about credits. The first obtuse disclosure came at the June 1998 Board meeting, in Schmalzer's 5/31/98 Risk Management Report (Ex. #A178) ­ fully four months after Bour's revelations! Schmalzer credited "[t]he enhanced Management Information System reports" for enabling "the identification of additional nonperforming accounts approximating $40 million." Ex. #A178.2.

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Nowhere did Schmalzer mention credits, or the long history of credits. Nowhere did Schmalzer explain that back in January, Hitt and Bour had identified a much larger segment of non-performing accounts receiving credits, or that Hitt and Bour had quit over it. No, Schmalzer was in lock-step with Mattar, Grace, and Boyd. However, they all been forced to begin acknowledging the credits because of the regulators' investigation. Schmalzer and Grace did not admit their knowledge about credits until the regulators returned to BestBank in late June 1998 and confronted Schmalzer and Grace with the fact of credits. D27 Tr. 3718:6; Ex.1388.16. It was not until July 15, 1998, that Schmalzer presented Michael Tapp of the FDIC with information showing that 150,000 to 200,000 accounts had received $20 credits in the preceding 60 days. Ex. #B087.3. Nonetheless, the AATC program marched on. Schmalzer was holding out on the regulators, because on July 10, 1998, he had already crafted a memo to Baetz claiming that $46,940,460 of accounts receivable should already have been purchased by Century under its indemnification obligation. Ex. #Y133. However, Schmalzer intentionally understated the problem. Olan Beard's July 17, 1998 letter to Schmalzer (Ex.414) reveals Schmalzer's deception. Beard described Schmalzer's query: "[Y]our report requested credits (TC22) and "Other Payments" (TC21) within the past 60 days and no payment (TC20 or TC21 other than "Other Payment") within the past 90 days, that were current or 1-29 days

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delinquent." Ex. 414.2 (emphasis added). FICI's data, gathered and reported by the FDIC, showed that 310,000 accounts had received 2, 3, 4, 5, 6 and even 7 AATC credits. Ex.1388.15. Thus, Schmalzer's $46,940,460 figure was intentionally understated because he excluded all accounts delinquent more than 29 days. Also, under Schmalzer's query, a single cardholder payment would exclude an account despite a history of prior credits. Schmalzer's query intentionally understated the delinquent accounts, because a single minimum payment only cures one cycle of delinquency. D8 Tr. 120:22; D23 Tr. 2991:22. Schmalzer's $46,940,460 figure was patently understated, because if you divide it by Schmalzer's minimum number of accounts receiving credits ­ 150,000 ­ the average balance of those accounts is a mere $313. That makes no sense. Finally, Mattar, Boyd, and Grace knew that Schmalzer's $46,940,460 figure was grossly low, because it was grossly inconsistent with the low number of payments in the MIS reports, Ex.303, the high number of credits shown in Hitt's research, Ex.314, and the number of credits shown in BestBank's funding spreadsheets, Exs.929 and 899. Mattar, Boyd, and Grace did not wait from January to July to act because they needed more information or because they were waiting for Schmalzer. They never acted because they had no viable way out of the impending losses, and because they were still getting massive bonuses. Greed blinded them. Taffet wire fraud arguments

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BestBank and Century hired Taffet to sell the entire AATC portfolio, not just BestBank's portion. The defendants falsely claim that they were only selling BestBank's portion of the AATC receivables; therefore, they didn't have to disclose anything about AATC credits because credits only affect accounts in Century's participation. Boyd Brief, p.68. The May 1998 "offering book" assembled by Taffet and approved by Boyd and Grace, Ex.498, stated that BestBank and Century "seek to dispose of a combined pool of credit card receivables in excess of $200 million dollars." Ex.498.2. They stated that the AATC "combined pool" had a balance of $217,483,366 as of 5/11/98. Ex.398.62. Those descriptions correspond to the entire AATC portfolio on May11,1998, not just BestBank's portion: AATC Org 601 610 611 Total for AATC on 5/11/98 minus Century's participation 5/11/98 BestBank's share of AATC on 5/11/98 End Reg Bal $178,101,725 + $18,998,512 + $20,382,184 = $217,482,421 - $35,663,185 $181,819,236 #762.33 Exhibit #881.25 #881.27 #881.28

Further, it was fraudulent of the defendants to withhold from Taffet and his potential purchasers information about the credits for other reasons: (1) in the

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contract they had promised Taffet complete disclosure and to not "omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements are made," Ex.489.2; (2) they represented that Century was purchasing all delinquent accounts, Ex.498.2; and (3) they knew that the credits concealed delinquent accounts that Century had promised to purchase, but had not purchased. Defendants' argument The fraud committed through the $20 credits is not undone by a claim that Century's participation "covered" some ­ or even all ­ of the accounts receiving credits: Century promised to buy 59+ day delinquent accounts in total ­ i.e., the entire balance ­ not to just apply a $20 credit each month and leave the nonperforming account on BestBank's books to generate interest income and late fee income for Century and BestBank. Merely allocating non-performing accounts to Century's participation did not satisfy Century's contractual obligation, and leaving the non-performing accounts on BestBank's books falsely inflated BestBank's assets and income. Every month BestBank funded interest charges on the outstanding balances of non-performing accounts. That falsely inflated interest income eventually became income to BestBank ­ and became bonuses ­ when Century paid BestBank its cost-of-funds plus 6% interest.

Cerberus wire fraud arguments

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The fraud scheme perpetrated against Cerberus was not limited to nondisclosure of credits. Boyd attempts narrow the scope of the fraud scheme to only credits. Boyd Brief, p.70. In fact, the evidence showed that the defendants represented to Cerberus that BestBank was unusually profitable, D26 Tr. 3637:8, Ex. 531, that Century was fulfilling it's indemnification obligation, D26 Tr. 3610:12, and that delinquencies were very low, D26 Tr. 3621:7. Mattar, Boyd, and Grace withheld any disclosure of the fact that BestBank only appeared profitable because Century was applying $20 credits and concealing true delinquencies. Mattar, Boyd, and Grace knew that $20 credits affected the value of Mattar's BestBank stock Boyd weakly argues that credit's "did not affect any assets owned by the bank," so the defendants could withhold information about credits from Cerberus. Boyd Brief, p.70. That argument is specious. Cerberus' valuation of Mattar's stock was dependent upon the performance of all of the AATC accounts, not just the accounts owned by BestBank. Ex.458.2; D26 Tr. 3615:19; D28 3797:19. In fact, BestBank and Cerberus specifically negotiated about BestBank supplying delinquency information for all BestBank credit card accounts. Ex.470.28; D26 Tr. 3542:19. The elements of wire fraud do not require that the government prove that the defendants knew that each particular wire communication contained fraudulent representations. A wire communication is "in furtherance" of a scheme

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to defraud if it is incidental to an essential fact of the scheme, or a step in the plot. U.S. v. Janus, 135 F.3d 1319, 1323 (10 th Cir. 1998). The particular document transmitted need not contain a false representation. U.S. v. Kennedy, 64 F.3d 1465, 1476 (10 th Cir. 1995). Farrar wire fraud arguments The defendants' scheme to defraud Farrar doesn't rest solely on the Hitt and Boyd spreadsheets. Boyd tries to limit the acts constituting the fraud scheme to the Hitt spreadsheet, Ex.331, and Boyd's follow-up spreadsheet, Ex.333. Boyd Brief, p.62. The scheme was broader than those two documents. Mattar, Boyd, and Grace built a house of cards and presented it to Farrar as a highly profitable bank. Exs.323 and 327.6 - .14. They omitted disclosure of low payments, low plastics, and credits. Boyd is confused when he claims Hitt's spreadsheet "overlook[ed] one entire System." Hitt's spreadsheet isn't wrong. In his brief, at p. 63, Boyd says Ex.303.5 is for December 1996. It's not. It's for October 1996. Perhaps that explains why Boyd claims, erroneously, that Hitt's spreadsheet conflicts with Ex.303. It doesn't. Of course, what's telling is Boyd's convoluted attempt to explain away the truth in Hitt's numbers when he says: "W e receive some payments that are posted as a reduction in the Travel Club membership. These payments are posted as a merchant transaction credit to the account instead of a credit card payment. The net effect is the same." Ex.333.2. Obviously, Boyd is describing AATC credits, and this shows he knew about

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credits before Bour and Hi