usa v. spitzauer doc 31 filed 06 jan 14
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United States Response to Defendants Motion For Revocation of Detention Order - 1
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MICHAEL C. ORMSBYUnited States AttorneyEastern District of WashingtonMARY K. DIMKEAssistant United States Attorney402 E. Yakima Avenue, Suite 210Yakima, Washington 98901(509) 454-4425
IN THE UNITED STATES DISTRICT COURTEASTERN DISTRICT OF WASHINGTON
UNITED STATES OF AMERICA,
Plaintiff,
vs.
MICHAEL PETER SPITZAUER,
Defendants.
CR-13-6071-FVS
UNITED STATES RESPONSE TODEFENDANTS MOTION FORREVOCATION OF DETENTIONORDER
Plaintiff, United States of America, by and through Michael C. Ormsby, United States
Attorney for the Eastern District of Washington, and Mary K. Dimke, Assistant United
States Attorney for said District, hereby submits this response to Defendants motion to
revoke Magistrate Judge Huttons detention order (ECF 30).
I. Introduction
The Court should deny Defendants request for release pending trial because the
evidence shows that Defendant is a serious risk of flight, a serious risk to obstruct justice,
and a danger to the community. Defendant is charged with wire fraud, money laundering,
aggravated identity theft, and is subject to substantial forfeitures in an Indictment that alleges
he orchestrated a $7 million investment scheme over the course of several years.
Defendant is subject to numerous judgments for millions of dollars. As a result,
Defendant keeps few assets in his name and he has a history of funneling money through
intermediary accounts, using trusts and corporate entities to house and hide assets, and he
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United States Response to Defendants Motion For Revocation of Detention Order - 2
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presented a financial picture to Pretrial Services (PTS) that is entirely inconsistent with his
lifestyle. In recent months, he had access to substantial amounts of cash, the whereabouts of
which are unknown. Such behavior and lack of candor with PTS is indicative of Defendants
inability to be supervised and unlikely willingness to comply with Conditions. Moreover,
access to undisclosed assets and funds provide a mechanism for Defendant to flee, if he so
chose. These facts, combined with Defendants foreign citizenship and ties, his prior
conviction for lying about immigration matters, the 10-12 year penalty and deportation he
faces if convicted, establish that he is a significant flight risk.
Defendant is a serious risk of obstructing justice. Not only is Defendant charged with
falsifying documents he sent to investors, purportedly from a lawyer, he continued his
fraudulent conduct while he was under investigation. He repeatedly contacted victims and
promised them payment. Of most significant concern, Defendant was recruiting new
investors (victims) and promised those new investment funds to the prior investors, contrary
to the terms of the new investor agreement; which is the definition of a Ponzi scheme.
Defendant has a lengthy history of fraud. He was convicted of forgery in 1989 and of
fraud in 1992 in Austria, and he was charged with fraud in Austria in 1997, but refused to
return to face the charges. He has a 1998 false statements conviction in the U.S. for failing
to disclose his criminal history on his immigration forms. This history, combined with the
underlying charges and his fraudulent Ponzi-like behavior on the eve of Indictment, establish
that he is a danger to the community.
After reviewing extensive briefing and hearing argument on this matter, Magistrate
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Judge James Hutton ordered that Defendant be detained pending trial noting that Defendant
was not supervisable, and finding that Defendant was both a flight risk and a danger to the
community. ECF 29 at 1-2.1
These determinations were correct and pre-trial detention is
warranted based on this record.
II. Charged Conduct
Defendant is charged with a massive wire fraud scheme, alleging losses exceeding $7
million. He entered into deposit agreements with victim-investors, in which he agreed to
maintain their investments in an interest bearing account, which deposits would be controlled
by an attorney and only moved by the attorney, after the parties gave written consent. In
fact, the agreements were not authorized by the attorney and the funds were not controlled by
an attorney. The funds were deposited into accounts, which were controlled by Defendant.
He immediately began spending the funds upon their receipt, for personal expenditures, to
repay prior investors, and for Green Power expenses not authorized by the victims-investors
agreements.
Defendant is currently charged with ten counts of Wire Fraud for his scheme to steal
money from investors, two counts of Aggravated Identity Theft for fabricating emails he
falsely signed under the name of a Washington lawyer, and six counts of Money Laundering
1 The government filed a motion for detention, ECF 5, and Defendant filed a response, ECF 16. The
government filed a reply (ECF 17), with under seal exhibits 1-17 (ECF 23). Defendant then filed a
supplemental response. ECF 20. The government is filing a CD of the audio recording of the
detention hearing held on December 20, 2013, as Exhibit 18. It is labeled Exhibit 18, since the
governments initial exhibits were labeled Exhibits 1-17.
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for transactions where he spent the fraudulent proceeds. The Indictment seeks criminal
forfeiture of proceeds, including his current residence in Kennewick, Washington.
III. Legal Standard
In reviewing the Magistrate Judges Detention Order, the District Court is to make its
own de novodetermination of facts, whether different from or adoption of findings of the
Magistrate Judge; ultimate determination of propriety of detention is also to be decided
without deference to the Magistrate Judges conclusion. United States v. Koenig, 912 F.2d
1190, 1192-1193 (9th Cir. 1990).
The government may move for detention in a case that involves either a crime of
violence, 18 U.S.C. 3142(f)(1)(A), a serious risk that such person will flee 18
U.S.C. 3142(f)(2)(A), or a serious risk that [the defendant] will obstruct or attempt to
obstruct justice, or threaten, injure, or intimidate, or attempt to threaten, injure, or
intimidate a prospective witness, 18 U.S.C. 3142(f)(2)(B). Although a defendant may not
be detained based solely on dangerousness unless one of the conditions listed in section
3142(f)(1) is present, see United States v. Twine, 344 F.3d 987 (9th Cir. 2003), in cases
involving serious risk of flight or risk of obstruction of justice, the court must also consider
the nature and seriousness of the danger to the community presented by defendants release,
see18 U.S.C. 3142(g)(4). The Ninth Circuit has held that danger may, at least in some
cases, encompass pecuniary or economic harm. United States v. Reynolds, 956 F.2d 192,
192 (9th Cir. 1992).
In assessing pre-trial detention, the Court must evaluate several enumerated factors to
determine whether there are conditions of release that will reasonably assure the appearance
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of the person as required and the safety of any other person and the community. . . . 18
U.S.C. 3142(g). These factors include:
(1) the nature and circumstances of the offense charged, including whether the offense
is a crime of violence, or an offense listed in section 2332(g)(5)(B) for which amaximum term of imprisonment of 10 years or more is prescribed or involves anarcotic drug;(2) the weight of the evidence against the person;(3) the history and characteristics of the person, including -
(A) the persons character, physical and mental condition, family ties,employment, financial resources, length of residence in the community,community ties, past conduct, history relating to drug or alcohol abuse,criminal history, and record concerning appearance at court proceedings;and
(B) whether, at the time of the current offense or arrest, the person was onprobation, on parole, or on other release pending trial, sentencing, appeal, orcompletion of sentence for an offense under Federal, State, or local law, and;
(4) the nature and seriousness of the danger to any person or the community thatwould be posed by the persons release.
Id. The Court must balance all of these factors in determining whether a defendant
should be detained pending trial.
IV. Argument
A.The Magistrate Judge properly determined that Defendant poses a significantflight risk.
1. Defendant is a foreign citizen and has foreign ties.
Defendant is a citizen of Austria. He is a legal permanent resident (LPR) in the
United States. Defendant asserts that [w]hatever ties [he] had to Austria were severed long
ago. ECF 30 at 9. However, Defendant told PTS that his mother and sister still reside in
Austria, with whom he has regular contact. ECF 13 at 1. Due to the nature of his
businesses, he has contacts across the globe. The most recent primary investor in
Defendants business Green Power, which investor has provided over a million dollars, is a
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resident of China. Recently, Defendant has been wire transferring funds to Senegal. In the
month of October 2013, Defendant wired via Money Tree, $45,500 to Senegal.
Significantly, if Defendant is convicted, he in all likelihood will lose his LPR status since he
is charged with aggravated felonies, and then will be deported after serving his sentence.
There is no reason to believe Defendant will remain in the United States to face charges,
serve a substantial amount of prison time, then ultimately be deported.
Defendant contends that he cannot leave the country because he does not have a
passport. ECF 30 at 8. However, this is not entirely accurate. Defendant is in possession of
an LPR card, which enables him to travel outside the United States. Moreover, Defendant
could walk into an Austrian Embassy or Consulate and apply for a passport and there is no
way to prevent Defendant from doing so. Since Defendant already has a conviction for lying
to immigration authorities to obtain status in this country (see below), the Court cannot rely
on Defendants word not to obtain travel documents.
Moreover, government counsel has consulted with the Department of Justice, Office
of International Affairs (DOJ OIA) regarding extradition from Austria. According to the
DOJ OIA, Austria will not extradite its nationals. Thus, if Defendant flees to Austria, where
he has family and citizenship, the United States will not be able to extradite him to the
United States to face these charges. This is significant because Defendant has already
avoided facing charges by refusing to return to a country where he had been charged with
fraud. Defendant was charged with another fraud scheme in Austria in 1997, but
successfully defeated Austrias request to extradite him, arguing that the extradition treaty
was invalid. As a result, he never faced that charge in court. SeeExhibit 19, Article:
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Austrian Fights Extradition. There is no basis for the Court to believe that Defendant will
remain in the United States to face these current charges.
2. Defendant has a prior conviction for providing false statements with
respect to immigration matters.
Defendant was convicted in 1998 in the Western District of Washington for false
statements, 18 U.S.C. 1001, for failing to report his prior criminal history from Austria,
significantly his prior fraud convictions, to U.S. immigration authorities on his application to
become an LPR in the United States. ECF 13 at 8. Having already lied to immigration
authorities to obtain status in this country, the Court should have no comfort that Defendant
will abide by any condition not to travel or obtain any travel documents, such as a passport.
3. Defendant faces a 10-12 year penalty and deportation if convicted.
Defendant faces a guideline range of 97 to 121 months of imprisonment on the wire
fraud and money laundering offenses. He faces a two-year mandatory sentence on the
Aggravated Identity Theft charges, which would run consecutively to the sentence on the
underlying charges. As a result, Defendants range if convicted is 10 to 12 years of
imprisonment. The government is also seeking forfeiture of his residence and a money
judgment in the amount of nearly $5,000,000. These types of penalties provide a significant
incentive to flee, especially since post-incarceration deportation is a virtual certainty.
4. Defendants use of intermediary accounts, trusts and corporations to hide
assets, and his lifestyle are inconsistent with his financial representationsto PTS, and such actions provide a potential source of funds to flee.
Defendant attempted to portray himself to PTS as having few assets. Defendant
contended that he has less than $661 in two bank accounts. ECF 13 at 2. Due to
Defendants significant outstanding judgments against him (ECF 13 at 2, see also
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http://www.tri-cityherald.com/2013/12/12/2728423/green-power-owner-faces-several.html);
Defendant utilizes corporate entities and trusts to hold assets so they cannot be seized. This
makes his assets incredibly difficult to track. With respect to the issue of Defendant being a
risk of flight, the government has concerns about Defendants access to funds, his use of
intermediary accounts to move funds, use of corporations and trusts to house assets, and his
initial failure to disclose these financial matters to PTS. As Magistrate Judge Hutton noted,
Defendant has utilized a frankly very complicated and misunderstood web of financial
dealings. He has a number of entities that appear to be receptacles for or payment vehicles
for moneys that have come into this business over time. When I am told that he has limited
funds and I am told that he cannot show, or hasnt shown or demonstrated at this point, that
he has legitimate income from the operation of this business, it causes significant concern to
the court. SeeExhibit 18, 16:05-16:45.
Use of intermediary accounts. By way of example, in February 2013, Defendant
directed a new investor from China to route his investments to Green Power through an
intermediary account. On February 5, 2013, the Chinese investor sent J.C., a Green Power
employee, $985,000 to her (J.C.s) personal account. From that money, she then obtained a
$495,724 cashiers check, which was used to pay Green Powers rent at the Port of Pasco.
She also purchased a cashiers check in the amount of $43,000, which was issued to
WADOT, which maintains a mortgage on Defendants home. SeeECF 23, Exhibit 9. From
February to August, 2013, J.C. has withdrawn over $200,000 in cashfrom this account that
she provided to Defendant.
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Access to Cash: In addition to the $200,000 J.C. gave Defendant in the past 10
months, on October 25, 2013, Defendant withdrew $28,000 in cash from Key Bank Account
XXXX6137, which is his personal account. Defendant told the PTS that the balance on this
account is approximately $300, which is accurate now. However, the government has
concerns about where the $28,000 cash withdrawal is currently located. Defendant asserted
in his brief that the funds were wired to Senegal, ECF 27 at 5, however, the records show
that Defendant wired only $6,700 to Senegal on October 25, 2013. The remainder is
unaccounted for. Moreover, the most recent bank statement the government has obtained
for this account shows that from September 19 to October 2013, Defendant received $94,380
in deposits and he withdrew $63,372.40. SeeECF 23, Exhibit 10. In his personal account,
he received $86,000 from Green Power Senegal. Access to money in substantial amounts
such as these provides the ability for Defendant to flee.
Moreover, Defendants lifestyle is entirely inconsistent with him having only $660 in
cash available to him.
Offer to Purchase $2.5 million home: In early 2013, Defendant made an offer to
purchase a home in Kennewick, Washington for $2.5 million. He intended to put the title in
the name of another trust, the Crotana trust. SeeECF 23, Exhibit 11. This is significant for
two reasons. First, this is another example of Defendant attempting to use trusts to hold
assets. Second, Defendant failed to disclose the existence of this trust and any assets of this
trust during his initial interview with PTS. Third, as of January 2013, Defendant believed he
had sufficient assets to make a down payment on a $2.5 million house, and an anticipated
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income stream where he would be able to make payments on the balance of the loan. This
appears to be inconsistent with the financial picture he now paints.
Familys lifestyle: Defendants teenage sons regularly post on social media about
their expensive toys. One of his sons drives a Hummer, and both recently acquired new
gaming systems. SeeECF 23, Exhibit 12 . On December 4, one son posted a photo of
himself with over a hundred pair of athletic shoes, and posted a photo of himself holding
approximately $1,500 in cash. Seeid. In this photo, Defendants minor son is holding more
money in cash than Defendant claimed to possess to the PTS Office. There must be a source
of income that pays for this lifestyle. This is significant because such as income stream has
not been disclosed to PTS and is a source of funds for potential flight.
Defendant also has a history of using corporate entities and trusts to hold assets:
Prarex Intl Limited: Prarex International is a company associated with Defendant.
He has offered to post as part of his bond five cars valued at approximately $100,000 that are
titled in the name of Prarex International (ECF 13 at 2). Defendant now claims that there are
no other assets in the name of Prarex assets.
The government is aware of at least two prior Bank of America accounts in the name
of Prarex International, that appear to have been closed in June 2012. The signature card for
Bank of America account XXXX9602, dated November 10, 2010, in the name of Prarex
International Limited, Defendant listed himself as the President, Secretary, and Treasurer of
Prarex International Limited. See ECF 23, Exhibit 13.
There was at least one other Prarex International Bank Account, of which the
government is aware, Bank of America Account XXXX9617. In February of 2011, an
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uncharged victim, E.V.R., from the Netherlands, wired $600,000 to this account. SeeECF
23, Exhibit 14. Defendant routinely paid Green Power business expenses from this account,
as well as used it for personal expenses. See id. In addition, in September 2011, Green
Power issued a cashiers check to Prarex International in the amount of $64,000. SeeECF
23, Exhibit 15. In 2011, three cashiers checks were purchased, totaling $190,000, from this
account, which were remitted to WA DOT Capital, which holds the mortgage on
Defendants home. See, e.g., ECF 23, Exhibit 16. This is another example of Defendant
utilizing a corporation to house assets that could fund flight. Moreover, since Defendant
appears to be in control of the assets of this corporation and has in fact benefitted from the
assets of the corporation, those assets, if any, should be disclosed to PTS.
Beacon Light: Defendants current home, (which is the subject of Count 13 and a
forfeiture allegation), is in the name of Beacon Light, a trust he claims is owned by his
children. ECF 13 at 2. The house was purchased initially by Beacon Light, a limited
liability company, over which he was President. SeeECF 23, Exhibit 17. This home was
purchased with funds he stole from Exoterm Holdings, that were laundered through one of
J.C.s bank accounts, as set forth in the Indictment. This is yet another example of him using
a corporate entity and/or a trust to hide assets.
Defendant has mastered the skill of using corporate entities and trusts to house assets
and funnel money to purchase personal items, such as cars and houses, to avoid those funds
being seized for prior judgments. The existence of funds in trusts and corporations, for
which Defendant has access to those funds, should have been disclosed to PTS. More
importantly, any such funds are a potential source of means to Defendant in the event he
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intends to flee. Defendants practice of taking Green Power assets and putting them in
corporate names and/or trusts, then informing PTS that he has minimal assets to contribute
toward a bond is indicative of the fact that Defendant is being deceitful, and cannot be
trusted by the Court to comply with conditions of release.
5. Defendants failing business provides no incentive to remain in the UnitedStates.
Defendant contends that he is not a flight risk because that would require him to
abandon Green Power, his business. ECF 30 at 8. In fact, Green Power, has been evicted
from the Port of Pasco. SeeExhibit 20, Article: Green Power Loses Tenancy at Port of
Pasco; Exhibit 21, FBI 302 of Pasco Port Director. The article notes that the plant was never
completed and in fact was closed by the Department of Ecology in 2009 because he lacked
the necessary permits. SeeExhibit 20. To date, Green Power has failed to produce a
functional plant. The current state of his business would provide no reason for Defendant to
remain in the United States.
6. Defendants behavior since March of 2013 does not lessen his current risk
of flight.
Defendant contends that he is not a flight risk since he did not flee after learning he
was under investigation in March of 2013. ECF 30 at 9. First, there is a significant
difference at this point; there is a pending indictment. Defendant requested that the
government postpone indictment and entered into a tolling agreement in April of 2013. At
the request of Defendant, the tolling agreement was extended again in September of 2013.
In December 2013, Defendant sought another extension of the tolling agreement, which the
government denied. This Defendant had been stalling facing charges, but now he is no
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longer able to prolong this prosecution. What was previously a potential, is now a reality.
Second, the government has significant concerns about Defendants behavior while he knew
he was under investigation. Defendant was contacting victims, which contact substantially
increased as indictment grew closer, in which he was making unfounded promises to pay
them. In addition, any payment he promised was intended to be paid from new investor
money. While Defendant was attempting to prolong facing charges, he continued to commit
Ponzi-scheme like behavior. His email communications indicate an intent to pay off existing
investors with the new investors funds, which the Magistrate Judge noted smacks of a
Ponzi-scheme or other type of artifice or device that would be inappropriate. Exhibit 18,
27:30-27:47.
B. The Magistrate Judge properly determined that Defendant poses a risk ofdanger to the community.
While the concept of dangerousness typically focuses on crimes of violence, in fact,
white collar crimes pose serious dangers. The legislative history of the Bail Reform Act of
the 1984 makes clear that Congress intended that the safety of any other person or the
community language in Section 3142 was expected to be given a broad construction. See
Report of the Senate Committee on the Judiciary, S. Rep No. 225, 98th Cong., 1st Sess. 12
(1983) (the reference to safety of any other person is intended to cover the situation in
which the safety of a particular identifiable individual, perhaps a victim or witness, is of
concern, while the language referring to the safety of the community refers to the danger that
a defendant might engage in criminal activity to the detriment of the community. The
Committee intends that the concern about safety be given a broader construction than merely
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danger of harm involving physical violence.). This legislative history was cited with
approval in United States v. King, 849 F.2d 485 (11th Cir. 1998).
Courts have appropriately construed the statute to find that protection of the
community from economic harm is a valid objective of bail conditions. See United States v.
Reynolds, 956 F.2d 192, 193 (9th Cir. 1992) (post-conviction for mail fraud and witness
tampering, the Court held that for purposes of detention, danger may, at least in some cases,
encompass pecuniary or economic harm); see also United States v. Giordano, 370
F.Supp.2d 1256, 1270 (S.D. Fla. 2005) (no question that an economic danger, like that
posed by a serial defrauder, falls under the broad umbrella of dangerousness as that term is
used throughout the Bail Reform Act); United States v. Madoff, 586 F.Supp.2d 240, 253
and n. 11 (S.D.N.Y. 2009) (Court accepted that in certain circumstances an economic or
pecuniary harm may give rise to a consideration of danger for purposes of pretrial detention
and noted that [t]he question appears to become one of propensity to commit further crimes,
even if the resulting harm is solely economic).
Defendant has a lengthy criminal history for fraudulent conduct. Defendant has a
1989 forgery conviction from Austria, and a 1992 fraud conviction in Austria. He was
released from an Austria prison in 1995, obtained a passport and traveled to the United States
within a matter of weeks. When he arrived in the United States, Defendant lied on his visa
application about having a prior criminal history to enter the country. He subsequently lied
on his legal permanent resident application about having a prior criminal history, which led
to a 1998 federal false statements conviction. Defendant was charged with another fraud
scheme in Austria in 1997, but successfully defeated Austrias request to extradite him,
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arguing that the extradition treaty was invalid. As a result, he has not faced that charge in an
Austrian court.2
Defendant engaged in the instant conduct from 2007 to the present. As recently as
last week, Defendant sent victims emails indicating he was on the verge of receiving $37.5
million in the near future, which the government believes is equally fraudulent. More
importantly, he has promised the new investors funds to the prior victims, when the contract
provides the funds are to be used for other purposes. Despite the fact Defendant was facing
fraud charges, Defendant has continued a pattern of deceit, which he has been doing for
nearly 30 years. His repeated fraudulent conduct, which continued to occur just days before
indictment, establish that he is a danger to the community.
C.The Defendant poses a risk of obstructing justice and the Magistrate Judgeproperly determined that Defendant is unsupervisable .
1. Defendant has contacted his victim-investors numerous times since
learning of the federal investigation, as recently the week prior to
indictment, promising to pay them back.
2Defendant contends that it is alleged that [he] was convicted of crimes in Austria in 1989 and
1992. ECF 30 at 13. In fact, his 1998 false statements charge was for failing to disclose on his
LPR application that he had previously been arrested, charged, convicted, and imprisoned for fraud
in the Republic of Austria. SeeExhibit 22, Superseding Indictment, CR 97-279R WDWA.
Defendant was convicted and sentenced to six months of incarceration. SeeExhibit 23, Judgment.
The governments sentencing memorandum in that case references his prior foreign convictions. See
Exhibit 24, Govt Sent. Memo at 1-3, and attachments. Even Defendants sentencing memorandum
refers to his prior Austrian convictions. SeeExhibit 25, Def. Sent. Memo at 2. For Defendant to
refer to the prior foreign convictions as allegations is further indicative of his lack of candor.
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Defendant has been aware of the federal criminal investigation since approximately
March of 2013, when the parties began pre-indictment negotiations, which were
unsuccessful. Defendant became aware of the substance of the investigation and who the
likely charged victims were due to his participation in a government reverse proffer. Since
that meeting, Defendant has regularly contacted the victim-investors, making promises that
he would repay the funds. Those contacts substantially increased as indictment approached.
Defendant was aware that an indictment would be presented the week of December 9, 2013,
because the parties had a tolling agreement as to the statute of limitations, which was set to
expire in mid-December.
Chakra Energy victims (paragraphs 9-14 of Indictment): Chakra representative G.B.
was interviewed on October 24, 2013, during which he reported that Defendant contacted the
Charka victims in September 2013 and promised them payment. G.B. also reported that
Defendant had contacted his father, D.B. the day before the interview, October 23, 2013, and
promised he would pay back the money by the end of the month. SeeECF 23, Exhibit 1 at p.
3. Moreover, on December 5, 2013, five days before the Indictment was returned, Defendant
emailed victim G.B., attached a contract, and told the victim that Defendant would get paid
on the contract in either December or January, and that Defendant would pay the victim out
of any proceeds. He also offered to give G.B. 3% of shares of Green Power. SeeECF 23,
Exhibit 2.
Bailey Wastepaper victim (paragraphs 23-26 of Indictment): Defendant has made
several attempts to contact A.B. via telephone, email and text message from December 4 to
December 6, 2013, which were the days preceding the indictment. SeeECF 23, Exhibit 3.
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Canadian Partners (paragraphs 15-22 of Indictment): B.G., a representative of the
Canadian Partners group, was interviewed on October 9, 2013. He reported that Defendant
had called him in the past few weeks, prior to the interview, to tell B.G. that B.G.s refund
was coming. SeeECF 23, Exhibit 4. On December 5, 2013, Defendant emailed a
representative of the Canadian Partners Group, and informed them he had a new contract, for
which he would receive payment in December or January. SeeECF 23, Exhibit 5.
Defendant promised the victims that they would get paid out of the contract. Significantly,
the attached contract is for the sale of units to convert waste to fuel. Based on the
governments investigation, there is certainly reason to question the legitimacy of this
contract. But more importantly, Defendants promise to use the new investors money to pay
the prior victims is substantially similar to the fraud with which he is charged. The new
contract provides that in December 2013 or January 2014, Green Power is permitted to
withdraw 15% in advance in order to buy material, equipment, and machineries. It says
nothing about paying off prior investors. If this contract is legitimate, Defendant is
potentially committing fraud on the new investor; this appears to be yet another Ponzi-like
scheme against the new investors.
Defendant contends that these emails do not show that Defendant intends to pay the
investors from the 15% advance and thus his behavior is not fraudulent. ECF 30 at 12. His
contention is entirely inconsistent with Defendants statements in the emails. SeeECF 23,
Exhibit 2 at p. 2 (I attached a contract which will pay either in December or latest January I
want to get you paid out of this.); see alsoECF 23, Exhibit 5 at p. 1 (As we spoke on the
phone, here is a copy of the signed contract with payment guarantee from our Buyer. If
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agreeable to you we would like to get you paid out of the first money we receive from this
contract, which will be hopefully in December but the latest in January.). Defendant then
contends that it is just as likely that the email referred to payment after Defendant received
full payment for selling the new investor the machinery. This is an absurd suggestion, given
that Defendant has never in the history of the companydelivered any product to an investor.
In addition, Defendants attempts to recruit money on the eve of Indictment is suspicious.
The government believes it is highly unlikely that Defendant informed this new investor that
(1) these funds were going to a new investor; in fact, the contract states what the funds could
be used for: material, equipment, and machineries; and (2) Defendant was facing imminent
federal charges. Defendant contends that that there is nothing untoward about his attempts to
repay investors. ECF 30 at 16. However, there is something very wrong about paying
existing investors with new investor money unbeknownst to a new investor; it is called a
Ponzi scheme and it is illegal. What is readily apparent is that Defendant does not
understand that he cannot take money from investors under certain pretenses and then intend
to use the money for other purposes. This is precisely the reason he was indicted and he was
engaging in the same conduct while he was under investigation and facing indictment.
The debts to these investors have been outstanding for years, since 2007 to 2009. The
fact that Defendant was contacting them as the federal investigation is ongoing and
approaching an indictment, is not a coincidence. Importantly, Defendants contacts with the
victims are particularly significant in this case, which involves mostly foreign investors. The
timing of these communications leads the government to believe that Defendant is trying to
lull the investors into believing that funds may be forthcoming so that the victims will cease
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cooperating with the government. In a foreign case, the government must rely on the
voluntary cooperation of foreign victims. The government does not have subpoena power
over such victims. As a result, if Defendant is able to convince them that money is
forthcoming and they stop cooperating with the government, it would significantly impact
the ability of the government to prosecute Defendant.
2. Defendant is currently charged with and has a prior history of fabricatingdocuments, which falsely represent they are authored by attorneys.
In this criminal case, Defendant is charged with Aggravated Identity Theft (Counts
11-12) for sending his victim-investors emails, falsely representing that the emails were from
a lawyer. In those emails, Defendant used an email address that indicated it was associated
with S.C., a lawyer licensed in Washington, based in Issaquah, and he also signed the emails
on her behalf. SeeECF 23, Exhibit 6. In fact, the government has determined through IP
addresses that these emails were sent from Defendants home in Kennewick. These emails
imply that Defendant wants to return investors funds to the victims, but in fact, the lawyer is
advising him not to do so. At the time of the emails, Defendant had already spent the
investors funds and the funds were not available to be returned to the investor. The
government has located numerous instances (beyond these two emails), where Defendant
sent communications to victim-investors that were purportedly from attorney S.C. See, e.g.,
ECF 23, Exhibit 7.
This is not the first time Defendant has engaged in such conduct. On November 27,
2007, Defendant sent an email to investor-victim W.F. (referenced in paragraphs 27-29 of
the indictment), in furtherance of his scheme to convince the investor to send Defendant
funds. SeeECF 23, Exhibit 8. In the email, Defendant forwarded an email that he said he
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received from his attorney G.G., which states that we got an understanding with IRS
Special Agent Hugo Sanchez that based on [Defendants] acceptance and agreeing to extend
the voluntary freeze on all your accounts and assets until January 15th
, 2008, that he agreed
to release the freeze no later than Tuesday, January 15, 2008. The government has
confirmed with the IRS that no Special Agent by the name of Hugo Sanchez existed and
confirmed that attorney G.G. did not author that email.
Defendants repeated conduct of fabricating documents, including communications
falsely stating they are from a lawyer, demonstrates that he is a risk to obstruct justice and
would be difficult to supervise in any meaningful fashion. Moreover, as the Magistrate
Judge noted, there is no way to supervise a defendant like this. Since Defendants family
will have access to electronic devices, such as phones, computers, etc., there is no way to
prevent him from reaching out to more potential victims while on pretrial release. See
Exhibit 18, 27:50-28:20.
The evidence establishes that defendant presents a serious risk of flight, a serious risk
of obstruction of justice, and that he is a danger to the community. Defendant is asking the
Court to trust him and his promise to appear at future court hearings and not engage in
additional criminal and obstructive behavior. Yet everything about the nature and
circumstances of this case and Defendants history shows that he cannot be trusted.
Dated this 3rd day of January, 2014.
MICHAEL C. ORMSBYUnited States Attorney
s/ Mary K. DimkeMARY K. DIMKEAssistant United States Attorney
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I hereby certify that on January 3, 2014, I electronically filed the foregoing with the
Clerk of the Court using the CM/ECF System which will send notification of such filing to
the following: Chris Black.
s/ Mary K. DimkeMary K. DimkeAssistant United States AttorneyUnited States Attorneys Office402 E. Yakima Ave., Suite 210Yakima, WA 98901(509) 454-4425
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