Free Trial Brief - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Criminal Action No. 1:03-cr-00232-RPM

UNITED STATES OF AMERICA, Plaintiff, v. 1. EDWARD P. MATTAR, III, et al. Defendants.

DEFENDANT MATTAR'S CLOSING ARGUMENT

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TABLE OF CONTENTS

PRELIMINARY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ANALYTICAL SCHEMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. Analysis of Indictment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Grand Scale (Over-Arching) Conspiracy . . . . . . . . . . . . . . . . . . . 4 2. Scheme to Defraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Chronological Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Elements of Each Offense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1. Conspiracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2. Bank Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3. Wire Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4. False Bank Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5. Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6. Securities Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Analysis of Mens Rea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Closing Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. January 27, 1995 to April 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 2. May 1996 to January 20, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 3. January 21, 1998 through March 15, 1998 . . . . . . . . . . . . . . . . . 4. March 15, 1998 through July 23, 1998 . . . . . . . . . . . . . . . . . . . . 5. Closure of BestBank and Subsequent Events . . . . . . . . . . . . . . 6. Response to Government's Written Closing Argument . . . . . . . 16 18 23 32 36 43 45

B. C.

D. E.

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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Defendant, Edward P. Mattar, III, by his court-appointed counsel, Peter R. Bornstein, submits the following closing argument, urging a not guilty verdict, renewal of the Fed. R. Crim. P. 29 motion for judgment of acquittal made after the government rested its case, and for judgment or acquittal at the close of the evidence. PRELIMINARY STATEMENT Edward Mattar bought a small bank in 1989 after a full career in education and management. He was a businessman who had a law degree, which he never used as he never sat for a bar exam or sought admission to a state bar. BestBank was his largest investment and his nest egg, but because it was not his only business interest, he did not devote full time to it. Mr. Mattar traveled back and forth to Colorado on a regular basis. He was not, however, a passive owner of the bank. He actively watched over his investment and the activities of the bank including building a sub-prime credit card portfolio. BestBank was a special bank, i.e.,an industrial bank chartered by the State of Colorado. Industrial banks such as this one specialized in second mortgages in the subprime market. As he was not a professional banker, the Colorado regulators required that Mr. Mattar submit the bank's officers, directors and outside CPA auditor for their prior approval. Nevertheless, in the early years he grew the business to profitability adding ATM machines and small sub-prime credit card programs. Lacking a working knowledge of banking and credit cards, Mr. Mattar hired a succession of competent people. He hired Alan Boyd to be the president, a man who knew both general banking and credit card banking. Boyd has a solid reputation,

according to Frank Farrar, Ron Goldstein and Richard Fulkerson. Mr. Mattar hired Jack Grace who brought banking experience, educational and CPA credentials, and a bank

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examiner background to be the chief financial officer. Mr. Mattar hired John Schmalzer who was a CPA and had eleven years worth of bank examiner credentials to be the risk manager. Mr. Mattar hired Joe Bour, who had bank examiner credentials to work with John Schmalzer. Finally, Mr. Mattar hired other people with credit card and banking experience such as Jon Wiedemaier, Jack Hitt, and Marilyn Kilcrease. Edward Mattar hired competent consultants who were experienced banking lawyers to advise the bank; these included John Low and Tom Bieging. Mr. Mattar hired as consultants the GRA Thompson company whose contact was the former Colorado State Banking Commissioner, Ralph Mires. Mr. Mattar hired outside auditors from

Massachusetts whose loyalties were to him and not to Boyd or Grace. He also hired Coopers & Lybrand to advise the board on bank valuation. Mr. Mattar was blunt, gruff and hard to get along with. He asked probing questions of bank personnel and expected answers. He ran the board of directors meetings, writing the agendas and the minutes of each meeting. Mr. Mattar had a running confrontation with the federal regulators who kept the bank under constant scrutiny, but according to Richard Fulkerson, he enjoyed good relations with the state regulators. Against this backdrop, Edward Mattar had almost no contact with Douglas Baetz, Glenn Gallant, Melody Long, Peg Hirst and Dusty Durham. His name appears on few memos and letters to or from persons associated with Century Financial. There is no record of telephone contacts or meetings with the Century Financial principals and managers save one winter trip in 1997 to Florida. It is illogical and inconceivable that this man would get into bed with a den of thieves and join a fraud upon his own bank. It defies credulity to hire former bank examiners and experienced credit card people and ask them

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to guard the henhouse if you yourself are the fox. With his knowledge and with the intent to personally enrich himself, it is unreasonable and illogical that he would allow a fraud and conspiracy to take place in his bank. It is illogical and unreasonable to believe he would steal from himself or intentionally allow others to do so. What is reasonable and logical is that he and his bank were the victims of a cunning fraud perpetrated by people who controlled the key operations in the credit card part of the bank's business. Century controlled the finding of new customers, the servicing of the customers, the records of the credit card program, and after they purchased FICI, they controlled the processing function. He and the bank were victims of a fraud that was kept as a secret from the competent banking persons who were on the line day by day. He and the bank were the objects of lies, deceit and manipulation. What is logical and reasonable is that he is not guilty of any of the crimes for which he stands charged. ANALYTICAL SCHEMA To begin a closing argument in a complicated case such as this one, one should begin with an analytical schema. This requires: A. B. An analysis of the Indictment; A chronological breakdown of the major time blocks in which to analyze evidence; C. D. An analysis of the law governing each count; A reasoned application of what was and was not proven through the evidence of the case to the law governing each of the individual counts as charged; E. A critique of the government argument; and

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F. A.

A conclusion.

Analysis of Indictment A chart summarizing the Superseding Indictment is attached as an appendix hereto. 1. Grand Scale (Over-Arching) Conspiracy

The Grand Jury, and by extension, the government, chose to frame the Indictment in terms of a grand scale or over-arching conspiracy which begins with the written marketing agreement in February of 1994 and ends five and one-half years later with the closure of BestBank on July 23, 1998. (Superseding Indictment ["SI"] ¶¶ 16, 17-74). This claimed conspiracy began with the confederation of Glenn Gallant and Douglas Baetz (Century Financial Services) who were joined on January 18, 1995 by Edward Mattar, Alan Boyd and Jack Grace (BestBank). These five individuals and two corporations are alleged to embark on and to engage in a continuing criminal conspiracy through to the closure of the bank three and one-half years later. In other words, the Grand Jury said that there was a continuing business partnership, the purpose of which was criminal behavior. As alleged in the Indictment, the conspiracy had as its purpose to "obtain money to enrich themselves and each other through their joint business operations." (SI ¶14). The money Edward Mattar is alleged to have received illegally is his salary and all of the bonuses paid to him for the years 1995 through March of 1998. (SI ¶15a). It

encompassed all or nearly all of the business of marketing, selling, processing, servicing, and maintaining credit card portfolios of sub-prime accounts. The manner and means alleged to have been used to carry out the conspiracy is called by the Grand Jury the "BestBank/Century Enterprise." This enterprise encompasses all three of the credit card programs, namely the Secured Card Program from 1994 to 1996, the Universal Tour

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Program in 1995, and the All Around Travel Club Program, which began in May of 1996. The Grand Jury further alleged that the acts taken by the BestBank management and Board of Directors to insure adequate capitalization of the bank was part of the manner and means to carry out the conspiracy, as was the bank's financial statements, the bank's CALL reports, and the bank's internal credit card reports. (SI ¶¶44, 46, 47). The Grand Jury Indictment further goes on to allege that as part of the manner and means in carrying out the conspiracy, there was a sub-scheme to sell BestBank stock owned by Edward Mattar, as the sole shareholder of the bank, to Frank Farrar and Cerberus Partners, and a sub-scheme to sell the receivables in the credit card portfolio using Infusion Capital (David Taffet) as a broker (SI ¶50 ). Finally, it is alleged that as part of the manner and means in carrying out the conspiracy, there was a sub-scheme to overstate the value of Columbia Capital Stock in 1998 (SI ¶52) . The description of the overt acts committed in furtherance of the conspiracy begins on page 24 of the Superseding Indictment, ¶¶ 60-73. Included as overt acts in the conspiracy are twenty separate paragraphs from the manner and means sections, which are incorporated by reference in ¶ 61 . The means to carry out the conspiracy also include the overt acts which are pled as: A. B. C. The re-aging of secured credit card accounts by Century Financial Services; The making of payment adjustments and returns; The use of transaction code 22 in the FICI processing system, and the switch to the use of transaction code 21 in the FICI processing system; D. Other overt acts include Edward Mattar's withholding from the BestBank Board of Directors a report by John Schmalzer (Indictment ¶64);

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E.

The purchase of $2 million worth of delinquent accounts in the Secured Card Program;

F. G.

A spreadsheet sent to Frank Farrar in January of 1998 by Alan Boyd; The transferring of money from the Century operating account at BestBank to the Century account at Farmers and Merchants Bank in South Dakota;

H. I.

Statements made by Douglas Baetz to Olan Beard at FICI; The meeting in New York City between Edward Mattar and principals of Cerberus;

J. K. L. M. N. O. P.

Correspondence sent to Cerberus Partners in July of 1998; A telephone call with an Oregon stockbroker placed by Douglas Baetz; Telephone calls with David Taffet after the bank was closed; Each of forty-three separate bank fraud "executions;" Eight filed CALL reports with the FDIC; Nineteen separate wire transmissions; and Fourteen financial transactions made by the bank.

Clearly, the Grand Jury alleged a conspiracy the depth and breadth of which is allencompassing of nearly every banking transaction undertaken by BestBank during a fouryear period of time. A fair reading of the Grand Jury's Indictment says that no act or transaction which the bank took to operate and run its credit card programs was noncriminal. The credit card programs are alleged to be a fraud and a continuing crime from the beginning through to the end. The government was ordered to provide a bill of particulars to the defense concerning when the bankers are alleged to have joined an ongoing conspiracy. The

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government said in open court that the conspiracy was originally conceived and put into operation by Baetz, Gallant and Century in 1994, but that the bankers did not join that conspiracy until January of 1995. 2. Scheme to Defraud

The Grand Jury brought forty-three counts of bank fraud, nineteen counts of wire fraud, and one count of securities fraud against Edward Mattar. In each of these counts, it is alleged that there was a "scheme to defraud." That scheme to defraud is described by reference back to the manner and means of carrying out the criminal conspiracy, thereby interlocking the substance of the scheme to defraud with the manner and means of carrying out the conspiracy. In particular, the Superseding Indictment alleges and incorporates in the bank fraud counts ¶¶ 17-46, 62-65, and 67-68 of the conspiracy charge as a description of the scheme to defraud to support the bank fraud charge. ( SI ¶78). In the wire fraud counts, the Grand Jury re-alleged: ¶¶ 17-24 describing the BestBank/Century Enterprise; ¶¶ 33-46 describing the AATC program, and ¶¶ 1-11 describing the players also described the scheme to defraud for purposes of the wire fraud allegations. (SI ¶96, 101). As a result of the choices made in pleading this Indictment by the Grand Jury and the government, if the conspiracy claim fails, the scheme to defraud falls; and if the scheme to defraud falls, the conspiracy claim falls. The government made this pleading bed, and they have to lie in it. As the Tenth Circuit cautioned: The tactic of charging many defendants with a single massive conspiracy is fraught with the potential for abuse. Here, however, the government is hoisted with its own petard. United States v. Evans, 970 F. 2d 663, 674 (10th Cir. 1992). Outside the scheme to defraud are eight counts:

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A.

Counts 47 through 49 allege the knowing filing of false BestBank CALL reports;

B.

Counts 50 through 54 allege the knowing filing of additional false CALL reports;

C.

Counts 75 through 88 allege that various Century Financial initiated transfers of money from BestBank to Farmers and Merchants Bank and transfers of money from Security State Bank to BestBank were acts that constituted money laundering; and

D.

Finally, Count 90 alleges a securities fraud count which also incorporates specific conspiracy allegations of ¶¶1-10, 17-24, 33-46, and 63. (¶114).

That securities count relates to the so-called "offer" of Edward Mattar to sell his shares of BestBank stock to Cerberus Partners. B. Chronological Analysis The factual evidence in this case can be analyzed by breaking the facts or transactions into four chronological time periods. The main division is between those acts that took place before January 1998 (when Mr. Hitt and Mr. Bour discovered that Century was placing credits on accounts that would be otherwise considered delinquent), and those acts and transactions that occurred after January of 1998 (when the bank, as an institution, knew about the placing of credits and attempted to determine the scope, extent, and dollar value of those credits). This last phase ended when the State of Colorado Division of Banking closed BestBank on July 23, 1998. The first period of time from 1995 through January of 1998, in turn, can be further divided into two periods. The first period is that of the secured card portfolio, which was

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sold in large bulk to Bank First of South Dakota by an agreement dated December 22, 1995, and further consumated during the first half of 1996. The second chronological analytical time period is from the beginning of the AATC Travel Program and Unsecured Card Program beginning in May of 1996 and continuing to the discovery of the credits in January of 1998. The period from January of 1998 to the closing of BestBank can, in turn, be analyzed by dividing that chronology into two sections, the first being Century's use of transaction code 22 through the middle of March of 1998, and the second being the switch to transaction code 21 from the middle of March 1998 through to the close of the bank. Both of the transactions codes were used in a manner calculated to conceal from BestBank the use of payments to keep otherwise delinquent accounts current. Thus, for the purposes of an analytical framework, the four time periods are: A. B. C. D. January 27, 1995 to April 1996; May 1996 to January 20, 1998; January 21, 1998 to March 15, 1998; and March 16, 1998 to July 23, 1998.

Additionally, the actual closure events and post closure events bear on the analysis of the case. C. Elements of Each Offense 1. Conspiracy

In order to convict Edward Mattar of Count 1, charging conspiracy, the government must prove as to Edward Mattar five essential elements beyond a reasonable doubt: First: Edward Mattar agreed with at least one other person to violate the law. 9

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Second: One of the conspirators engaged in at least one overt act furthering the conspiracy's objective. Third: Edward Mattar knew the essential objective of the conspiracy. Fourth: Edward Mattar knowingly and voluntarily participated. Fifth: There was an interdependence among the members of the conspiracy; that is, the members in some way or manner intended to act together for their shared mutual benefit within the scope of the conspiracy charged. Tenth Circuit Pattern Jury Instruction § 2.19. The conspiracy referred to must be the one pled by the Grand Jury in the Indictment as further limited by the bill of particulars which the government refused to provide until the eve of trial. Sitting as the trier of fact, the Court cannot convict until and unless it determines there was a single conspiracy to commit the crimes of bank fraud, wire fraud, securities fraud, money laundering, and making false bank reports as alleged by the Grand Jury. It is not enough that Defendant Mattar was part of some other conspiracy different from the one charged in the Indictment or part of some two or more separate conspiracies instead of the single conspiracy charged in the Indictment. Tenth Circuit Pattern Jury Instruction on Multiple Conspiracies § 2.20; see also United States v. Edward, 69 F.3d 419, 432 (10th Cir. 1995). 2. Bank Fraud

In order to convict Edward Mattar of the crime of bank fraud, the government must prove five essential elements. This is because the Indictment alleges both a scheme and artifice to defraud BestBank and to fraudulently obtain money from BestBank to fund

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Century Financial Services, Century Financial Group, and other unnamed businesses. The five essential elements are: First: Edward Mattar knowingly executed a scheme or artifice to defraud BestBank by means of false or fraudulent pretenses, representations or promises; or alternatively First: Edward Mattar knowingly executed a scheme or artifice to obtain money or property from BestBank by means of false or fraudulent pretenses, representations, or promises. Second: BestBank was a financial institution within the meaning of the law, which means that the government must prove that BestBank was insured by the Federal Deposit Insurance Corporation. Third: Edward Mattar acted with intent to defraud. Fourth: The false or fraudulent pretenses, representations, promises that Edward Mattar made were material, meaning they would naturally tend to influence, or were capable of influencing the decision(s) of BestBank. Fifth: Edward Mattar placed BestBank at risk of financial loss. Tenth Circuit Pattern Jury Instruction § 2.58. 3. Wire Fraud

In order to convict Edward Mattar of the crime of wire fraud, the government must prove five essential elements: First: Edward Mattar knowingly devised or intended to devise a scheme to defraud or obtain money or property by means of false or fraudulent pretenses, representations, or promises, as described in the Indictment. Second: Edward Mattar acted with specific intent to defraud or obtain money or property by means of false pretenses, representations, or promises. Third: Edward Mattar used interstate wire communications facilities or caused another person to use interstate wire

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communications facilities for the purposes of carrying out the scheme. Fourth: The scheme employed false or fraudulent pretenses, representations, or promises that were material. Fifth: The scheme effected BestBank. Tenth Circuit Pattern Jury Instruction § 2.57. In addition, wire fraud law defines a scheme to defraud or to obtain money or property by means of false pretenses, representations, or promises as conduct intended to or reasonably calculated to deceive persons of ordinary prudence or comprehension. A "scheme to defraud" includes a "scheme to deprive another of money or property" and "a representation is false if it is known to be untrue or is made with reckless indifference as to its truth or falsity. A representation would also be false when it constitutes a half truth or effectively omits or conceals a material fact, provided it is made with intent to defraud." Tenth Circuit Pattern Jury Instruction § 2.57; see also United States v. Washita Construction Co., 789 F.2d 809, 817 (10th Cir. 1986). 4. False Bank Reports

In order to convict Edward Mattar of false bank reports, the government must prove four essential elements beyond a reasonable doubt: First: BestBank was a federally insured bank. Second: Edward Mattar made a false entry in a book, record or statement of BestBank. Third: Edward Mattar knew the entry was false when he made it. Fourth: Edward Mattar made the false entry with the intent to injure or defraud BestBank.

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5.

Money Laundering

In order to convict Edward Mattar of the crime charged of money laundering, it is necessary, first, to determine which of the two types of money laundering was charged by the Grand Jury; i.e., whether it was using the proceeds of unlawful activity to promote illegal activity or whether it was to knowingly conceal or disguise the ownership or control of proceeds of unlawful activity. The Superseding Indictment and the government allege the former, whereby the government must prove four essential elements beyond a reasonable doubt: First: Edward Mattar knowingly conducted a financial transaction as defined by the law. Second: Edward Mattar knew that the property involved in the financial transaction represented the proceeds of some form of unlawful activity. Third: The financial transaction involved the proceeds of specified unlawful activity as described in 18 U.S.C. §1956(c)(7) in this case being bank fraud and false bank reports per ¶109 of the Indictment. Fourth: Edward Mattar conducted the financial transaction with the intent to promote the carrying on of specified unlawful activity, that being bank fraud, and false bank reporting. Tenth Circuit Pattern Jury Instruction § 2.73. 6. Securities Fraud

In order to convict Edward Mattar of securities fraud, it is necessary that the government prove three essential elements beyond a reasonable doubt. The Tenth Circuit does not have a pattern jury instruction on securities fraud; however, O'Malley does: First: Edward Mattar offered or sold the securities described in the Indictment, which means his stock to Frank Farrar and Alan Boyd, on the one hand, and to Cerberus Partners and Alan Boyd on the other hand. 13

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Second: In the offer or sale of these securities, Edward Mattar made use of any means or instruments of transportation or communication in interstate commerce or made use of the United States mail. Third: In the offer or sale of these securities Edward Mattar knowingly and deliberately employed a device scheme or artifice to defraud. O'Malley, Grenig, Lee, Federal Jury Practice and Instructions § 62.03 (5th ed). D. Analysis of Mens Rea The government has failed to meet its burden of proof with respect to the evidence against him. One of the most striking examples of the government's failure involves the mens rea requirements for the crimes charged. For that reason, a brief analysis of the mens rea requirements is warranted. Conspiracy is a specific intent crime. The government is required to prove that Edward Mattar: (1) knew the purpose of the conspiratorial agreement; (2) deliberately joined the conspiracy; and (3) intended to act with the other conspirators for a shared mutual benefit within the scope of the charges in the Indictment. Tenth Circuit Pattern Jury Instructions 2.19; see also O'Malley, §§ 31.02, 31.04 and 31.05. The mens rea requirement for the forty-three counts of bank fraud are that the accused knowingly executed a scheme or artifice to defraud the bank, acting with the intent to defraud, the specific intent to deceive, and knowledge that the false pretenses, representations, or statements were false or untrue or made with reckless indifference to their truth or falsity. Tenth Circuit Pattern Jury Instruction §2.58; see also United States v. George, 477 F.2d 508, 512 (7th Cir. 1973).

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Similarly, the elements for the nineteen counts of wire fraud require the mens rea of the specific intent to defraud or the specific intent to obtain money or property by false pretenses, knowledge of the falsity, or reckless indifference to its truth or falsity of any representation or a knowing concealment of facts. See Tenth Circuit Patten Jury

Instruction §2.57; O'Malley, § 47.13. Also, to convict Mr. Mattar of securities fraud the government must prove that Mr. Mattar acted knowingly and deliberately in employing a scheme to defraud or in obtaining money by means of untrue statements, or deliberately engaged in a fraudulent or deceitful transaction, practice, or course of business. The false bank reporting charges require that the Defendant know that any false entry is false, and further requires that the false entry be done with the specific intent to injure or defraud the bank. Tenth Circuit Patten Jury Instruction §2.47. Finally, the money laundering counts each require that the accused acted knowingly with respect to the conduct and knowing specifically that the conduct was designed to conceal or disguise the proceeds of specified unlawful activity. Tenth Circuit Patten Jury Instruction §2.73. The Superseding Indictment alleges that Edward Mattar's involvement in the transactions contained in the Superseding Indictment charges were, for the most part, indirect. Consequently, in order to prove most of the charges against Mr. Mattar, the Government must prove the mens rea for aiding and abetting each of the criminal charges. Aiding and abetting requires that the Defendant participated in an activity with the intent to commit the crime charged. Therefore, aiding and abetting is also a specific intent crime. If the government failed to establish that Edward Mattar had the requisite mens rea for the substantive charge, he cannot be guilty of it as a complicitor. O'Malley,§18.01.

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E.

Closing Argument The evidence in this case shows that the Century Financial Group, including its

principals, Baetz and Gallant, executed a fraud against the bank, the purpose of which was to hide the true nature of delinquent accounts, continue the program with the funding of new accounts, and make as much money for Century Financial Group as possible. This fraud, however, was not initiated when BestBank and Century entered into its marketing and consulting agreement in January of 1994. Initially, this was a contractual arrangement between a bank and a company that would both market credit cards and service the credit cards. Century Financial Services was an experienced credit card marketing and servicing company located in South Dakota. Alan Boyd recruited them to assist BestBank to grow its existing credit card portfolio into a major profit center for the bank. During the early years of the agreement, Century engaged in conduct that could be considered a breach of contract which consisted of various methods to re-age secured accounts and unsecured accounts. Whenever the bank, through its managers and employees, found evidence of this breach of contract, they demanded that it stop. It stopped, but then Century morphed the process into one much more difficult to find, the posting or credits backed by real money. Mattar, too, would have demanded such practices stop, had he been the operational manager. At some unspecified time, probably during the summer or fall of 1997, the process that Century was using to hide non-performing credit card accounts from the bank, namely the posting of credits in multiples of $20.00, reached a critical mass. At that unspecified point in time, conduct that formerly should be labeled a breach of contract between the servicing company and the bank, turned into a fraud. Century used elaborate procedures

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to avoid detection of these credits, maintained a wall of silence and secrecy, and lied to bankers when they asked questions about the posting of credits to card holder accounts. There is no direct evidence that Edward Mattar knew about Century's fraudulent activities and certainly did not know that Century was engaged in a criminal conspiracy against his bank. The circumstantial evidence posited by the government failed to establish that Edward Mattar knew about Century's fraud. Not knowing of Century's fraudulent actions against the bank, and being lulled into a false sense of security by management systems reports, external auditors reports, and even the reports of examinations from bank regulators every six months to one year, Edward Mattar neither participated in a scheme to defraud his own bank nor did he join a conspiracy with those ends. The question always lingers in this case, why would Mattar defraud his own bank when he could make the same or more money without a fraud? The government invites this Court as a trier of fact to pile inference upon inference based on credit card reports that Mr. Mattar never saw and analysis by expert witnesses, made after the fact, that took years to compile in order to argue that Mattar should have known of Century's fraudulent activity. Should have known is equated with actual

knowledge. Not able to establish that Edward Mattar should have known, it is axiomatic that the government failed to establish that he knew about the fraudulent practices and knowingly participated in them. The government's theory of prosecution requiring the piling of inference upon inference should be rejected. As the 10th Circuit has stressed: An inference is reasonable if it "flows from logical and probabilistic reasoning," i.e., with experience serving as the touchstone, a jury's inference is permissible where there is a reasonable probability that the conclusion flows from the facts in evidence. The rule that prohibits the stacking of inference upon inference merely indicates that at some point along a 17

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rational continuum, inferences may become so attenuated from underlying evidence as to cast doubt on the trier of fact's ultimate conclusion. In other words, the chance of error or speculation increases in proportion to the width of the gap between underlying fact and ultimate conclusion where the gap is bridged by a succession of inferences, each based upon the preceding one. U.S. v. Summers, 414 F.3d 1287, 1295 (10th Cir. 2005) (internal citations and quotation marks omitted); see also United States v. Rahseparian, 231 F.3d 1257, 1262 (10th Cir. 2000) (`[w]e will not uphold a conviction, however, that was obtained by nothing more than `piling inference upon inference,' or where the evidence raises no more `than a mere suspicion of guilt'") (internal citation omitted). Here there is a chain of inferences made from the processor's reports to lead to an inference of knowledge of the Century placed credits. Then the prosecution seeks to lead the trier of fact to a final inference of active participation. To do so they take 75 pages of inferences. Under different circumstances, this court has stated that "[a] jury may draw an inference only where that inference can be made beyond a reasonable doubt." United States v. Rahseparian, 231 F.3d 1257, 1264 (10th Cir. 2000); United States v. Krohn, 573 F.2d 1382, 1389 (10th Cir. 1978). This is certainly true where the inference goes to an ultimate conclusion underpinning criminal liability, e.g. satisfying an element of a crime necessary for conviction. Summers, 414 F.3d at 1295, n. 4. The end result should be a not guilty verdict as to all counts. 1. January 27, 1995 to April 1996

The time frame of the secured card portfolio of January 27, 1995 to April of 1996, begins with the memo from Jon Wiedemaier to Bill Schultz and his response, essentially ended with the agreement to sell the performing part of the portfolio to Bank First in South Dakota (See Exhibits 1111, 1112, 1113). The substantive counts that are alleged to have 18

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taken place during this first time period are the bonus payments alleged in Counts 2 through 11 (10 counts) and the CALL reports alleged in Counts 47 and 48. Additionally, the conspiracy is alleged to have begun during this period of time. In the first instance, the evidence fails to establish that there was a scheme to defraud BestBank or a conspiracy to engage in bank fraud and false filing of required documents. More importantly, there is no evidence that Mr. Mattar knew about any scheme to defraud the bank, knew that any bonuses he received were based on fraudulent statements of earnings on the bank's books, or knew that any numbers reported on the CALL report were inaccurate. The government's evidence consists entirely of the testimony of John Wiedmaier, the testimony of Bill Schultz, and bank records from that period of time. It is submitted that the charts and summaries prepared by the government witnesses Chamberlin and Loschen for this time period are irrelevant, if not worthless. Their value is nil because there is no evidence that anyone at the bank, at any level, prepared data in this format or looked at data similar to this format. They simply were not in existence for upper level bank management to scrutinize. Jon Wiedmaier is the main government witness who testified about this period of time. Mr. Wiedmaier prepared memos and received letters, the substance of which was to warn the bank that there was a potential for a $2 million loss because some card holders had not sent in their security deposits by borrowing against their accounts, and nonperforming accounts were being re-aged by Century at its Bank Card Center. Jon Wiedmaier was hired on March 17, 1994, to take responsibility for credit card issuing and monitoring third party providers. The timing of his hiring coincides with the

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initiation of the relationship between Century Financial Services and BestBank, which signed their marketing agreement as of February 22, 1994. As Mr. Wiedmaier admitted, one of his jobs was to police the credit card portfolio. (Exhibit 102-Hiring Letter). Q: "Isn't the reason the bank hired you was because the bank and Century were setting up shop; isn't that why they hired you? Setting up the credit card shop. A: "There was going to issuing of credit cards. Whether it was going to be Century or not, I didn't know at that time." (pp. 556557) Q: "It was still your job to police the portfolio wasn't it?" A: "That's correct." Q: "It was still your job to create monitoring policies to make sure that you, the manager of the portfolio, knew what Century was doing, didn't you­wasn't it?" A: "Yes." Q: "And, you didn't do it." A: "No I didn't, . . ."(pp. 606-607) In fact, Mr. Wiedmaier admitted under cross examination at p. 607, that from June of 1995 through to his termination in August of 1996, he failed to do his job of policing the credit card portfolio and the activities of Century Financial Services and the Bank Card Center. It turns out that Mr. Wiedmaier's lack of knowledge of sub-prime lending is important. For example, he did not know that performing accounts at a forty percent level was considered customary in the industry. Mr. Wiedmaier wrote a memo to Jack Grace on June 8, 1995, to which Mr. Mattar responded on June 12, 1995. (Exhibits 84 and 104). Mr. Wiedmaier had claimed that 18,000 secured card accounts had been re-aged and that the bank was in jeopardy of

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suffering a loss somewhat in excess of $2 million. Mr. Mattar's memo called into question Mr. Wiedmaier's data, its accuracy and his logic "relative to the relative risk in the portfolio." Mr. Mattar suggested: I would not at all be adverse to your devoting as much time as is necessary to going through each file on a case by case count by account basis in order to determine the precise details. In any event, it seems to me that in two to three weeks you should be able to provide me with a more accurate report. I await the results. (Exhibit 104). Mr. Wiedmaier's claim that 18,000 secured accounts had been re-aged was supposedly based on an FDR report which he claimed to have in his possession. When questioned as to the credibility of that claim, Mr. Wiedmaier was unable to produce a reaging report that supports his claim of 18,000 accounts. Of the 455 pages of documents he took with him from the bank, this critical document was not included. (pp. 644-645). Mr. Wiedmaier testified under cross examination as follows: Q: "Have you tried in the last ten years, since you started meeting with the FBI, to go back and get this mystery re-aging report that you say supports your claim of 18,000 accounts?" A: "I have not." (D5, pp. 646-7). More importantly, the government never introduced a document to support Mr. Wiedmaier's claim during the trial of this case. Despite the fact the Mr. Wiedmaier knew that there was an agreement signed to sell accounts to Bank First in December of 1995, he professed not to remember how many accounts were sold or their dollar value. And. He professed not to remember that Bank First paid a $2 million premium to purchase the accounts. He professed not to remember that the bank never lost a dollar on the secured 21

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card portfolio despite his memos warning of a potential loss. He professed not to remember whether Century Financial honored its agreement to purchase all delinquent accounts in its Secured Card Program, and he refused to admit that his warning was a false alarm. Q: "Your memos warned the bank that they could lose $2 million or so didn't they?" A: "That's correct." Q: "You turned out to be wrong didn't you Mr. Wiedmaier?" A: "I had no way to know that, but what I was doing was correct at the time." (p. 558) Mr. Schultz testified that he had been in charge of the Bank Card Center from the time they moved to Thornton, Colorado in 1995 through to 1996. It was at the Thornton center that the Century Financial Services serviced the secured cards. While he was at the Bank Card Center, they did the daily settlement for the bank. Mr. Schultz was an insider at Century Financial Services. Nevertheless, he claimed that the re-aging of accounts was done at Century's home office in Florida and not at the Bank Card Center. Despite being given immunity and having spent a large number of hours with FBI agents, government prosecutors, and other government investigators, Mr. Schultz failed to testify that there was a fraud being perpetrated on the bank, that the bank knew of such a fraud, and that the bank participated in such a fraud. This testimony simply does not support the prosecution's theory concerning what occurred during this first phase or time period. There is no logical reason to date Mr. Mattar's alleged joinder into a conspiracy as January, 1995 based on two memos neither of which he received. Nor is it logical to date his alleged involvement as beginning in February, March or April of that year. In May and

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June of 1995, Mr. Mattar was involved in the internal discussions about Century's re-aging of accounts and its failure to obtain security deposits from some customers. Internal discussions about a business problem simply do not equate with joinder into a criminal conspiracy. These discussions and memos also do not equate with participation with Century in a scheme to defraud. After June of 1995, the government introduced no evidence that Mr. Mattar was participating in the bank's attempt to resolve the re-aging issue, the security deposit issue, the requirement that Century purchase bad accounts, and the sale of nearly 20,000 cards to Bank First in South Dakota. Knowledge that the bank was attempting to determine the scope and to resolve these issues is not proof that the bankers were engaged in criminal activity or evidence of Mr. Mattar's individual culpability. Therefore, the government has failed to prove by a reasonable doubt standard: (1) Mattar's entry into a criminal conspiracy; (2) the participation in the scheme to defraud; (3) the criminality of the bonus payments up through April of 1996; and (4) the knowing filing of false information in the CALL reports of July 1995 and January 1996. 2. May 1996 to January 20, 1998

In May of 1996, BestBank was in the process of closing out the Secured Card Program at a substantial profit and closing out the Universal Tours Program, which was started and canceled fairly quickly. Century proposed to market the credit cards in conjunction with the All Around Travel Club Program that was being created by Mr. Mansueto, along with Douglas Baetz and Glenn Gallant. The time period ends in January of 1998 when Jack Hitt and Joe Bour went to John Schmalzer and Jack Grace with the results of their discovery that Century had been putting on $20.00 credits to card holder accounts. Also, during this time frame, the processor was switched from First Data

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Resources (FDR) to First Independent Computers (FICI). The substantive counts that are alleged to have taken place during this time period are the bonus payments alleged in Counts 12 through 26 (15 counts) and the CALL reports alleged in Counts 49, 50, 51 and 52. Additionally, there are eight bank fraud counts, namely Counts 32 through 39, and three wire fraud counts, Counts 55 through 57. The two key witnesses who testified regarding this period of time were Jack Hitt and Joe Bour. Jack Hitt has been in the credit card business since 1980 and brought fourteen years worth of experience when he was hired in September of 1994 by Century Financial Services to work in the accounting department of the Bank Card Center in Thornton, Colorado. He worked there for approximately sixteen months, until he was hired away by BestBank to work in its accounting and settlement department. During those sixteen months, he was unaware of any pattern or practice undertaken by the Bank Card Center to re-age the secured card portfolio: Q: "All right sir. Now, prior to coming to BestBank, you had worked with Lisa Nemetz?" A: "Yes sir." Q: "You had worked with Bill Schultz?" A: "Yes sir." Q: "Did you have a good working relationship with them?" A: "I did, except for the transition from . . . bank card center over to BestBank." Q: "And that was because of the upset that BestBank was pulling you away from bank card center?" A: "That's correct."

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Q: "And so I assume bank card center considered you a valuable employee, and they needed you to pursue their responsibilities." A: "I would think­I would hope so." Q: "All right sir. Now, before coming over to the bank in January of 1996 did Ms. Nemetz or Mr. Schultz tell you anything about what Century was doing was with card holder accounts by way of re-aging accounts?" A: "No, I don't ever recall that conversation." Q: "They never told you about that, did they?" A: "No sir." (pp. 661-662) When BestBank determined to move the daily settlement processing from Century employees at Bank Card Center to bank employees at the bank, they first hired Anne Shatting, and then Jack Hitt. This move gave BestBank more control. Eventually, Joyce Holmgren and Mike Cavcey were added to the department. Jack Hitt, however, by virtue of his experience was the person most able to read, understand, and process the daily reports needed to settle the accounts between BestBank, Visa, and Century Financial. It was Jack Hitt's assignment to prepare the monthly MIS reports from the CD-121 reports, the CM-051 reports and other reporting data. These monthly MIS reports were given to the chief financial officer, Jack Grace, and some but not all, went to Mr. Mattar and the Board of Directors: Q: "Mr. Hitt, before you came to work at BestBank was the BankCard Center handling all functions of credit card settlement for the bank?" A: "Yes, as far as preparing the entries." Q: "Making a record of whatever entries had to be prepared?" A: "That's correct." 25

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Q: "That was all happening in 1995 at the bank card center." A: "Yes." Q: "And one of the reasons that you came to the­to work at BestBank was to assist BestBank in moving the settlement function, or creating a dual settlement function at BestBank?" A: "I'm not sure if I would agree with the dual." Q: "Okay." A: "But, the actual function of making the entries, settling with Visa and Mastercard, yes." (p. 690) In January of 1998, Mr. Hitt along with Joe Bour were given an assignment by Jack Grace. As a result of this assignment, they discovered that Century was posting $20.00 credits to the card holder accounts. Despite working with these results on a daily basis for several years, Mr. Hitt had never analyzed them in a way that led to that conclusion before 1998. In fact, he was embarrassed by this fact. Q: "All right sir how did this issue of credits first come up, if you recall?" A: "I don't." Q: "How was it first brought to your attention?" A: "I don't recall exactly how it was brought to my attention." Q: "Mr. Hitt, isn't it true that Joe Bour is the first one to discover that there was some balancing problem?" A: "Yes sir." Q: "And he brought it to your attention?" A: "Yes sir." Q: "And you together conducted a review to determine why there was this balancing between accounts and card holder payments?" 26

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A: "That is correct." Q: "All right sir. And Mr. Hitt, is it fair to say that you were somewhat embarrassed that you hadn't discovered this problem before?" A: "Yes sir very much so." Q: "As a matter of fact, you felt that this kind of impugned your abilities, did you not?" A: "Pretty much yes." Q: "All right because you had been reviewing processing reports all this time?" A: "Yes but not as an analysis." Q: "Correct. So, Mr. Hitt is it fair to say that without Mr. Bour bringing this problem to your attention, it is likely you wouldn't have discovered it?" A: "I would have to say yes." (pp. 659-660) The switch over from FDR as the processor to FICI as the processor delayed the discovery of the credits. As Mr. Hitt explained, it took him quite some time to learn how to read the CD-121s produced by First Data and Anne Shatting was never able to decipher the reports without his assistance. Q: ". . . in your experience at the bank, did Ms. Shatting ever become capable of translating the FDR processing reports?" A: Only­not being able to translate without me there. (p. 703) Q: Mr. Hitt, is­in the course of preparing these MIS reports were you learning more and more about how to read the CD121s produced by First Data? A: Yes I was. (p. 716) During the conversion of card processors, Mr. Hitt was unable to prepare a MIS report for the month of October 1997, and his report for November of 1997 shows missing 27

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holes in the data. The same is true for the December 1997 report. According to Exhibit 09, Mr. Hitt requested that Century, through Peg Hirst, ask FICI to develop a report that would provide information to the bank similar to what they were getting from the CD-121s, the CM-051s, and the CM-995s. (p. 731) In Mr. Hitt's opinion, the reports that FICI was sending to the bank were deficient, "they were not providing us the information we needed to report monthly totals." (p. 732) Q: "Did you ever­did FICI ever produce the kind of report that you felt was the equivalent of a CD-121? At least until­up until the time that you left?" A: "I don't recall a report coming out other than­there was one report in those documents that we referred to earlier." Q: "The transaction balance summary?" A: "Yea, but it was like a month to date total on all the tran code 22s, 21s." Q: "The one that you ran later?" A: "Yes." Q: "Okay. But on a regular basis, did FICI produce the kind of report that contained the summary of information equivalent to one of those CD-121s?" A: "I don't recall ever having one other than those." Regardless of the state of BestBank's institutional knowledge as of January 1998, the question remains what did Edward Mattar know and when did he know it? Mr. Mattar received the credit card reports prepared by Jack Hitt, which he included in the packets that went to the Board of Directors. It is improbable that he ever received the CD-121s on a daily or regular basis from FDR. And it is unlikely that he even knew how to read the daily reports or the monthly reports. As Jack Hitt explained:

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Q: "Now let's talk about Mr. Mattar's management style. His management style was not to drop in on your closet and see how you were doing from time to time was it?" A: "No." Q: "And his management style was not to walk into your office and ask you, `can I see what you are looking at on the screen of the PC'?" A: "No sir." Q: "And you knew that in his office he didn't have one of those PCs right?" A: "My recollection no." ... Q: "And it wasn't his management style to say `teach me how to read one of these CD-121 reports right?" A: "That's correct." Q: "Or the CM-051s?" A: "Correct." Q: "Or later on when you were converted to FICI, the card pack transaction reports?" A: "Correct." Q: "So when you converted, he didn't walk into your area and ask you or Holmgren or Cavcey how to­now that we've changed from FDR to FICI, how do I read one of these things he never did that, did he?" A: "No." Of equal importance, the evidence did not establish that Edward Mattar had access to any credit card reports beyond those that were in the packets that went to the Board of Directors. The Government also failed to introduce any evidence as to whether or not Mr. Schmalzer, Mr. Grace and Mr. Boyd augmented Mr. Mattar's knowledge through verbal 29

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interaction. Whatever Mr. Grace may or may not have known, there is no evidence in the record to determine how much or how little he imparted to Mr. Mattar. Likewise, there is no evidence in the record to determine how much knowledge or how little knowledge Mr. Boyd imparted to Mr. Mattar. Finally, there is no evidence in the record to determine how much or how little knowledge Mr. Schmalzer communicated to Mr. Mattar beyond that which he put into his risk management reports and other reports that were equally available to Board members as well as to Mr. Mattar. Joe Bour, who has an MBA degree and was a safety and soundness examiner of banks with the Colorado Division of Banking, participated in the examination of BestBank in 1996. He went to work for BestBank in the Spring of 1997, having been hired by Jack Grace and John Schmalzer to work with Mr. Schmalzer in the risk management area of the bank. He knew nothing of the posting of credits by Century until a chance telephone conversation with Penny McDowell. Penny McDowell was the manager of the Bank Card Center and worked for Century Financial Group. Q: "And would you describe the circumstances under which you learned of credits?" A: "I'd been speaking to Penny McDowell with the bank card center regarding a customer complaint that we had, we were trying to get their account closed. And during that conversation, she asked me if I was aware that they were posting credits to the accounts." Q: "And after your conversation with Penny McDowell what if anything did you do?" A: "I went to Jack Hitt and asked him if he could pull information that would collaborate [sic] which he had been talking about." Q: "And after your conversation with Jack Hitt, what if anything did you do?" 30

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A: "We did an analysis of the credits that we had come up with, took a look at what we thought the risk was to the institution and we arrived at a number." Q: "And what was the number that you determined?" A: "Somewhere between $40 and $50 million dollars." This conversation took place in January of 1998. John Schmalzer was an experienced bank examiner who had a working knowledge of BestBank due to his having been the lead examiner in the 1995 examination. He went to work with BestBank in 1996 after leaving the FDIC. Mr. Schmalzer was on the government's list of witnesses for this trial. He was not released from his subpoena until late October. If he could have testified that he and other members of the BestBank's senior management team knew that Century was posting credits before Penny McDowell let the cat out of the bag in January 1998, the government surely would have called him. The failure to call Mr. Schmalzer, who was granted immunity by the government, leads to the inference that his testimony would not have been favorable to the government's theory of this case. In any event, the evidence from Mr. Quanstrom is that the bank, as an institution, learned about the posting of credits to card holder accounts by Century Financial Group in January of 1998. (Exhibit 1388). Therefore, the government has failed to prove by the reasonable doubt standard: (1) Mattar's entry during this time period into the criminal conspiracy driven by the actions of Baetz and Gallant; (2) His participation in a scheme to defraud his own bank; (3) Mattar's knowledge that delinquencies were hidden by credits; (4) The criminality of accepting bonus payments during this period of time; (5) That the CALL reports were

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wrong and his knowledge of any wrongly reported numbers in the CALL reports; (6) The eight bank fraud substantive counts; and (7) The three wire fraud counts. 3. January 21, 1998 through March 15, 1998

During the time period between the learning of the credits by the bank and the change of the transaction code from 22 to 21, the bank management attempted to determine the true nature, extent and dollar value of the credits that had been posted. The counts that relate to this third period of time are Counts 27 and 28 relating to the bonuses paid to Edward Mattar and Alan Boyd and Count 53 being a false reporting count relating to the CALL reports. Lisa Nemetz was the settlement manager of the credit card portfolio for Century Financial working at the Bank Card Center. Ms. Nemetz worked there from January 1995 to November 1998. Ms. Nemetz reported to Melody Long and to no one at BestBank. She worked with the BestBank settlement department consisting of Anne Shatting, Jack Hitt, and Joyce Holmgren. (pp. 722-723) Ms. Nemetz testified that she was aware of credits being placed on card holder accounts beginning in 1996. (p. 773) These credits were placed there primarily by Keith Dusty Durham. (p. 790). She did not believe she had done anything criminal.

Nevertheless, she was given immunity from prosecution, which she did not request. (p. 780-781). When asked about communicating the fact that credits were being applied by Century Financial to bank personnel, she denied any communications until a meeting in Ford Lauderdale, Florida, in February of 1998. Q: "Did you tell Jack Hitt that Century was applying credits on behalf of card holders?" A: "Not that I recall." 32

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Q: "Didn't tell Alan Boyd?" A: "No." Q: "Didn't tell Jack Grace." A: "No." Q: "No special reports were generated for the bank to alert the bank to Century's claim that it wasn't keeping up with sending out travel packages?" A: "Not that I'm aware of." Q: "And, you knew, at least from the information that was being given to you, you believe that these credits were being applied for what your bosses told you was a legitimate purpose right?" A: "As travel packages weren't being distributed." (pp. 842843) As far as Mr. Mattar is concerned, Ms. Nemetz met him one time at a Conoco gas station the day she started working at the Bank Card Center. Other than that, she had no contact with Edward Mattar. In February of 1998, Ms. Nemetz made her one and only trip to the Century offices in Fort Lauderdale, Florida. She was there to attend three days of meetings, although she could not remember any of the meetings save the one meeting at which the subject of credits came up. She testified that Peg Hirst, Jack Hitt, and John Schmalzer were present with her at the meeting. Keith Dusty Durham was in and out of the meeting. She remembered that Mr. Schmalzer asked about credits and which accounts were receiving them, and that he did not get an answer during the meeting. Q: "And as to Mr. Schmalzer, what did he say about credits?" A: "He wanted a report of the accounts that were receiving credits." 33

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Q: "And did anyone else speak of this issue of credits?" A: "No I mean, during the meeting, Peg was, you know, writing notes down, Peg Hirst." (p. 5, Day No. 7) Q: "Let's go to the meeting, the actual meeting with Mr. Schmalzer. Mr. Schmalzer asked for a report with the account numbers that were getting credits. That's your testimony right?" A: "That is." Q: "Was one produced for him at the meeting?" A: "No." Q: "To whom did he ask, make that request?" A: "Peg Hirst." Q: "Did Peg Hirst give him an answer that said I will give you such a report within a week or ten days?" A: "Don't remember." Q: "Did Peg Hirst say she would actually ever get such a report?" A: "Don't remember." Q: "How did the­Peg Hirst respond to Schamlzer's request." A: "I don't know." Q: "How did Dusty Durham respond to Schmalzer's request for such a report?" A: "I'm not sure Dusty was there. I said he was in and out." Q: "Did anyone from the Century side of the meeting make a response to Mr. Schmalzer's request?" A: "I don't remember." Q: "So you remember the request, but you remember no response?" 34

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A: "No I don't. I mean, the report would have been generated at the request of Peg. So you would have to ask her what happened." (pp. 29-30, Day No. 7) In answer to follow-up questions, Ms. Nemetz said that the report could not have been generated by Peg Hirst from her own data; but that she would have had to request such data and report from FICI. Olan Beard, the manager at FICI, testified that neither Peg Hirst, Dusty Durham, nor anyone else at FICI ever requested from his company a report such as the one Mr. Schmalzer asked for in February of 1998. Moreover, he testified that when he asked Doug Baetz and Dusty Durham for the reason why only fifty percent of card holder payments were coming through the lockbox in San Antonio, Texas, the answer he was given was not that Century was making payments on behalf of card holders. Rather, Mr. Beard was told that payments were coming in from Western Union and Quick Collect. In other words, when asked during this time period for a direct answer to a direct question, Baetz and Durham lied to Olan Beard. The inference to be drawn from this testimony is that the bank not only was kept in the dark about the application of the credits through January of 1998, but when they learned of the credits and sought to determine how many accounts received credits, the dollar volume of the credits, and the nature and extent of the credits, Century Financial continued to hide the truth from the bank. If the truth was hidden from the bank as an institution, it was surely hidden from Mr. Mattar; and Mr. Mattar's actions relative to taking his bonus or authorizing the bonus for Alan Boyd was not done with knowledge or intent to deviate from the formula authorized by the Board of Directors. Therefore, the government has failed to prove by the reasonable doubt standard: (1) Mattar's entry during this time period into the criminal conspiracy driven by the actions

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of Baetz and Gallant; (2) His participation in a scheme to defraud BestBank; the criminality of accepting bonus payments; and (3) that the CALL reports were wrong and his knowledge of any wrongly reported numbers in the CALL reports. 4. March 15, 1998 through July 23, 1998

The final analytical time period is between the time that the transaction code was changed from 22 to 21, which was around March 15, 1998, through to the closing of BestBank by the Colorado Division of Banking on July 23, 1998. The substantive counts that are alleged to have taken place during this fourth time period are bonus payments alleged in Counts 29, 30 and 31; the transfer of money to Century Financial Group's operating account at BestBank as alleged in Counts 40 through 44; the CALL report as alleged in Count 54; the wire fraud counts relating to the negotiations for the sale of stock to Cerberus Partners as alleged in Counts 58 through 64 (7 counts); the wire fraud counts relating to the use of David Taffet and Infusion Capital to find potential purchasers for credit card receivables as alleged in Counts 65 through 73 (9 counts); the money laundering counts as alleged in Counts 75 through 88 (14 counts); and the securities fraud count as alleged in Count 90 relating to the "offer to sell" shares of bank stock to Cerberus Partners. Finally, the conspiracy is alleged to have continued through to the closing of BestBank on July 23, 1998. John Schmalzer as a former FDIC examiner with many years experience, was the lead examiner on the 1995 examination of BestBank by the FDIC. In 1996, he was hired by BestBank to be its Risk Manager. As Risk Manager, he was given the authority to report directly to the BestBank Board of Directors thereby bypassing senior management. (See Exhibit 1503, p. 7).

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Schamlzer's monthly Risk Management Reports to the Board of Directors shows increasing attempts to obtain better management information in order to understand the nature of the credits that had been revealed in January of 1998. In the Risk Management Report from March 31, 1998 (Defendants' Exhibit A176), Mr. Schmalzer wrote: management is actively working with Berwyn and FICI to establish enhanced m