v. 15 Cr. 536 (PGG) Trial New York, N.Y. November 29, :40 a.m. HON. PAUL G. GARDEPHE, District Judge -and a jury- APPEARANCES

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1 HBTTTUZ UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x UNITED STATES OF AMERICA, v. Cr. (PGG) KALEIL ISAZA TUZMAN, et al., Defendants x Before: Trial New York, N.Y. November, 0 :0 a.m. 0 HON. PAUL G. GARDEPHE, APPEARANCES JOON H. KIM Acting United States Attorney for the Southern District of New York A. DAMIAN WILLIAMS ANDREA M. GRISWOLD JOSHUA A. NAFTALIS Assistant United States Attorneys District Judge -and a jury- 0 GIBSON, DUNN & CRUTCHER, LLP Attorneys for Defendant Isaza Tuzman AVI WEITZMAN MARCELLUS A. McRAE BOIES, SCHILLER & FLEXNER LLP Attorneys for Defendant Amanat RANDALL W. JACKSON JOANNA C. WRIGHT () 0-000

2 HBTTTUZ 0 0 (In open court, jury not present) THE COURT: I received a letter from the government dated November that contains some extremely disturbing allegations about possible fabrication of evidence, including a claim that certain exhibits that have already been introduced were fabricated. Mr. Jackson, I assume you have read the letter. Have you had time to read the letter? MR. JACKSON: Indeed I did, your Honor. THE COURT: I don't want to take a lot of time to discuss it now because our jury is ready, but if you want to say anything now, you're welcome to do so. MR. JACKSON: I have a two-minute response that I could give to begin my response, Judge. I want to start out by saying that -- and this is important -- I have enormous, enormous personal affection and respect for the prosecutors in this case, all three of them. I have long experience with them. I am extraordinarily disappointed in the way that this was handled. The letter that was sent to the Court last night and the affidavit of Special Agent Amato are false. They contain numerous demonstrable falsehoods. We can definitively prove that every important allegation within those documents is false. Now let me just start out by saying -- and when we get () 0-000

3 HBTTTUZ 0 0 to a break later today we will walk through this and demonstrate this, but I want to start out by saying it's deeply problematic that what was submitted to the Court was an affidavit by Special Agent Amato that purports to be an affidavit engaging in some sort of the expert technical analysis. With all due respect to Special Agent Amato, she has no technical knowledge that is the requisite level of technical knowledge to engage in this type of analysis. By her own admission, she has been on the FBI for two years and has no technical experience. Because of that, I believe that the government was led to a number of errors, and also the overzealousness that pervaded I think a number of aspects of this case. First, the facial abnormalities that are alleged in the document, the alleged facial abnormalities. They don't exist. The primary facial abnormality that the government alleges exists in the document that we turned over to them, the related to the question of what Mr. Isaza Tuzman communicated with regard to ab initio of voiding. They claim that there's a 0:00 p.m. and a subsequent :00 p.m. in there and this is a facial abnormality reflecting fabrication. That exact bottom of the exists in multiple places within the government's own discovery. That with those times. I went back and took a look and I was able to find it in three minutes. () 0-000

4 HBTTTUZ 0 0 We also at this point, your Honor -- the core claim in the government's letter and in their affidavit is that Mr. Amanat deleted a bunch of s from the signature account. I want to point out there's no forensic or technical analysis whatsoever in this incredibly inflammatory letter and affidavit, no technical analysis whatsoever. They said they can't be sure because they can't see the underlying s. Well, we have gone back and looked. In fact, Mr. Amanat did not delete the s in the Omar Amanat Capital account. There are over 0,000 s in that account that the government failed to disclose to us were still on the server and misled us to believing had been completed, hampering our ability to appropriately plan for trial, and we do intend to seek a sanction for that. When we go back and look, the s in question are on the server as received. We're able to identify them. Ms. Rosen downloaded them. We have photographs of them, and we can do a demonstration in court. When we first -- we can do a demonstration in court that those s are actually on the Yahoo server at the Omar Amanat account. But putting all that aside, this whole theory is so preposterous it boggles the mind that the government did not engage in the most basic analysis to necessary to uncover the most basic problems in their theory. The idea that Mr. Amanat started fabricating s in 00 and 00, seven years before () 0-000

5 HBTTTUZ 0 0 his indictment when he could have easily sent the actual s, doesn't even make any sense. So the government has committed a tremendous error. I will stop right here. It's not an argument, it's not a matter of opinion, it is a fact. They blew it, just as the blew the fact that they put a false statement on the key allegation in this case in the indictment, and they have failed to own up to that because this has been a sloppy investigation and a sloppy prosecution. THE COURT: Obviously this is going to be a subject that we're going to spent a lot of time on, and I intend to get to bottom of it. I'm not going waste any more of the jury's time now. Mr. Smyth should take the stand. Mr. Rucco, prepared to proceed? DEPUTY CLERK: Yes, your Honor. MR. JACKSON: And Judge, I do want to note that before the one hour of sleep I got last night, I did file a letter through that relates to Ms. Chow. I don't believe she will be testifying until Monday, so I don't think there's any urgency, but I wanted to object to a number of Ms. Chow's charts. THE COURT: When will the government be ready to respond concerning Mr. Jackson's letter? MS. GRISWOLD: Is this filed on ECF? I missed it. So I will look at it and we'll put -- she is not going () 0-000

6 HBTTTUZ 0 0 to testify before Monday, if we could have until the end of tomorrow. THE COURT: Okay. Mr. Jackson objects to many of the charts that apparently you intend to introduce through the witness on the argument they are not summary charts. MR. WEITZMAN: Your Honor, and we join in the application. We'll be submitting our own application as well. It may not be lengthier than a sentence, but I want you to know that we join. THE COURT: All right. (Continued on next page) 0 () 0-000

7 HBTTTUZ Smyth - cross 0 0 (Jury present) THE COURT: Ladies and gentlemen, we're going to resume the cross-examination of Mr. Smyth. Mr. Smyth, you remain under oath. Mr. McRae, please proceed. MR. McRAE: Thank you, your Honor. ROBIN SMYTH, (Continued) having been previously sworn, testified as follows: CROSS-EXAMINATION BY MR. McRAE: Q. Mr. Smyth, yesterday we were talking about the side letter for restructuring reserves in connection with the WWB acquisition. Sir, isn't it a fact that in 0 you were aware that Kaleil informed both KIT digital and WWB's counsel that there was a side letter regarding the use of restructuring reserves in connection with that acquisition? MR. WILLIAMS: Objection, foundation. MR. McRAE: I'm asking was he aware of it, that is the foundation. A. I can't recollect. THE COURT: The objection is overruled. Q. Sir, let's take a look at KIT Exhibit. Sir, can you see -- this is a February st, 0 from a Mr. Pablo Goldstein to you, amongst others? () 0-000

8 HBTTTUZ Smyth - cross 0 0 MR. McRAE: Your Honor, I would like to admit KIT Exhibit into evidence. MR. WILLIAMS: No objection to the 0: . MR. McRAE: I'm offering the entire exchange. MR. WILLIAMS: Including the top to Mr. Weitzman? MR. McRAE: No. THE COURT: Then you need to be more precise, Mr. McRae. On the copy I have, I don't see -- MR. McRAE: Your Honor, I understand, but the one that I have that would be admitted doesn't have this other portion, so it doesn't have the issue that the government is concerned about. That's why I'm seeking to admit it. THE COURT: So the exhibit that Mr. McRae is offering, you have no objection to, Mr. Williams? MR. WILLIAMS: No. THE COURT: KIT Exhibit is received. (Defendant's Exhibit KIT received in evidence) Q. Sir, this from Mr. Goldstein, he was someone who was affiliated with WWB, is that correct? MR. McRAE: Let's highlight the reference -- so we can publish this document, highlight the reference to attachments. () 0-000

9 HBTTTUZ Smyth - cross 0 0 Q. Sir, can you see in this communication that there is a series of communications regarding the supplemental agreement and supplemental letter which is attached to this correspondence, if we could actually go in perhaps about four pages. Sir, do you see this is a February 0 letter agreement regarding allocation of purchase price in connection with the WWB acquisition? Q. I would like to direct your attention to the first paragraph, the last sentence, where it says: In order to ensure that the cost required to manage the post-acquisition operation exchange, KIT and WWB have agreed to allocate a portion of the purchase to cover the post-acquisition integration cost. Do you see that? Q. Let me direct your attention to third paragraph here. That says KIT and WWB have agreed to allocate the sum of $,00,000 from the purchase price to cover the post-acquisition integration costs. Do you see that? Q. And then finally the first sentence of the fourth paragraph where it says pursuant to the APA, the APA would be the purchase agreement in connection with the WWB acquisition, is that right, sir? () 0-000

10 HBTTTUZ Smyth - cross 0 0 A. That's correct. Q. It says KIT shall remit the sum of $,00,000 at closing to the trust account of Scott Orth. Do you see that? A. I do. Q. Sir, Scott Orth was counsel for WWB? Q. Sir, this transaction occurred in 0, is that right? Q. And sir, WWB did sign a restructuring reserve side letter, isn't that right? Q. And it's your understanding, obviously, that David Pedley was counsel for KIT digital in connection with the WWB acquisition? Q. Sir, let me direct your attention back to first the that we were looking at, the cover, that was the from Pablo Goldstein to, amongst others, you, and let's go over a few people here. In addition to you, Ariel Matzkin is also CC'd on this document, copied. Can you tell the jury who Ariel Matzkin was? A. I can't remember. Q. Do you have a recollection of whether Ariel Matzkin was also someone affiliated, working with WWB? A. There was at person with Pablo, but I can't remember his () 0-000

11 HBTTTUZ Smyth - cross 0 0 name off hand. Q. Focusing your attention here on the reference to attachments, you can see that the attachments to this included a document response to inquiries regarding supplemental agreement. Do you see that? Q. And supplemental letter agreement, do you see that? Q. The supplemental letter agreement there that's referenced, that's the restructuring reserve letter that we looked at, correct? A. I believe so, yes. Q. And sir, David Pedley is also a recipient of this , correct? Q. And Lou Schwartz actually became the general counsel of KIT digital at some point, right? A. A long after time after that, yes. Q. But also copied on this , correct? Q. Now sir, you never received any correspondence from any attorney saying that side letters could not be used in connection with any of KIT digital's acquisitions, isn't that right? A. Not from recollection, no. () 0-000

12 HBTTTUZ Smyth - cross 0 0 Q. And sir, isn't it also true that you never received any correspondence from any attorney saying that KIT digital could not place restructuring reserves for acquisitions in an escrow account over which KIT digital had sole control? A. I don't believe I received any communication, no. Q. And sir, you're not aware of any documents where a lawyer told you that the use of restructuring reserves and side letters was unlawful, correct? A. I don't remember receiving any correspondence from lawyers, no. Q. And sir, no lawyer ever wrote to you that restructuring reserves in KIT digital's acquisitions could not by treated as part of the purchase price, correct? A. Could you repeat the question? Q. Sure. You never received correspondence from a lawyer that restructuring reserves in KIT digital's acquisitions of other companies could not be treated as part of the purchase price of those companies, correct? A. I believe that's the case. Q. And sir, isn't it also true is that WWB never sued KIT digital following the acquisition of WWB, to your knowledge? A. Not to my knowledge, no. Q. Isn't it also true that WWB, to your knowledge, never claimed to you that KIT digital had engaged in any wrongdoing in connection with the acquisition of WWB? () 0-000

13 HBTTTUZ Smyth - cross 0 0 A. Not to my knowledge. Q. And sir, isn't it also true that you never claimed that anyone at WWB was involved in any fraud that you have committed, correct? A. No, I never claimed that. Q. And sir, you testified on direct examination that Peerset was another accompany acquired in 0 by KIT digital. True? Q. A structuring reserve was used in connection with the acquisition of Peerset in 0. True? Q. And Peerset also signed a restructuring reserve side letter in connection with that acquisition. True? Q. That restructuring reserve letter provided that KIT digital had control over the reserves in that side letter agreement. True? Q. To your knowledge, sir, Peerset never sued KIT digital for anything. True? Q. Sezmi was another company that KIT digital acquired in 0 where KIT digital used a restructuring reserve. True? Q. Sezmi signed a restructuring reserve side letter. True? () 0-000

14 HBTTTUZ Smyth - cross 0 0 Q. Sezmi had a reinstructing reserve side letter that the gave KIT digital control over the reserve funds in that side letter. True? Q. Sezmi never sued KIT digital for anything. True? A. To my knowledge. Q. Let's talk about Petru and Project T. Sir, you discussed Tom Petru during your direct examination, right? Q. You stated that Mr. Petru was the managing director of a company based in Prague called Visual Connection which KIT acquired in 00, right? Q. And you stated Tom Petru was involved in your accounting fraud scheme sometime between 00 and 0? Q. And you interacted with Mr. Petru in that same 00 to 0 time period? Q. And sir, Tom Petru ran a business called Visual Connection? MR. McRAE: Your Honor, I have been informed that it's Petru. To avoid confusion I will -- Petru. Q. Sir, Tom Petru ran a business called Visual Connection which KIT digital acquired in October 00? () 0-000

15 HBTTTUZ Smyth - cross 0 0 Q. And after KIT digital acquired Visual Connection, the company was renamed KIT digital Czech, correct? A. Yes, something like that, true. Q. And you testified on direct that Thomas Petru -- or actually Thomas Petru -- subsequently bought back the company known as KIT digital Czech from KIT digital around November 00, correct? Q. And in 00 when KIT digital sold Thomas Petru's company back to him, the company was rebranded as Visual Unity, right? A. After a period, yes. Q. So just to understand the chronology, the company went from being Visual Connection before 00 to KIT digital Czech in late 00 to Visual Unity in late 00, right? A. I think it was 0 it changed its name to Visual Unity, but around that time, yes. Q. So Mr. Petru's company, Visual Connection, later Visual Unity, was a systems integrator, right? Q. Meaning it was a technology company that provided services to integrate between broadcasts and software based media systems, right? A. I'm not technical, but I believe it did that sort of work, yes. () 0-000

16 HBTTTUZ Smyth - cross Q. And sir, Visual Connections supplied and deployed technology for, amongst others, TV stations? A. It did. Q. And Mr. Petru was the president of systems integration when he worked for KIT digital, right? A. At a period, I believe that's right, yes. Q. In between 00 and 0, KIT digital partnered with Mr. Petru's company, Visual Connection in Prague, to provide systems integration services to clients in Europe, right? A. Could you repeat that question? Q. Sure. Between 00 and 0, KIT digital partnered with Mr. Petru's company, Visual Connection -- THE COURT: I'm confused because you elicited that KIT acquired the company in 00, so -- MR. McRAE: That's why it's a span of 00 to 0, because then there was the spin off back when -- THE COURT: The time period is confusing because the status changed. MR. McRAE: That's true. THE COURT: So you need to focus -- if you talk about partnering, you need to talk about a time period where it was an independent company, because for part of the period it was not an independent company, it was a part of KIT digital. MR. McRAE: Very well, your Honor, thank you. Q. Sir, in around 0, 0, KIT digital partnered with () 0-000

17 HBTTTUZ Smyth - cross 0 0 Mr. Petru's company, Visual Connection, which was later Visual Unity, in Prague to provide systems integration services to clients in Europe, correct? A. There is one occasion, I can't remember the years, but yes, they did partner, yes. Q. But in 00, KIT digit decided it no longer wanted to own Visual Connection, right? MR. WILLIAMS: Objection, specificity, digital decided. THE COURT: Sustained. Q. Sir, amongst others, you made a decision as part of management that KIT digital would no longer own the Visual Connection as part of its business, right, in 00? A. It was Kaleil's idea, and I was part of the process to sell off that division, yes. Q. That was my question, that you were one of the people that made that decision, right? A. And I was involved in the sell off, yes. Q. And the decision was to spin off the company by selling it back to Mr. Petru? Q. And KIT digital wanted to still contract with Visual Connection to provide services to customers who needed systems integration after that sell off? THE COURT: Sustained. () 0-000

18 HBTTTUZ Smyth - cross 0 0 Q. Sir, you, amongst others at KIT digital, still wanted to partner with Visual Connection to provide services to customers who needed system integration, right? A. Actually I don't think I did. Q. But there were others within KIT digital who wanted to work with Visual Connection to provide systems integrations services to clients in Europe, correct? MR. WILLIAMS: Objection, too vague. THE COURT: Sustained. Q. Sir, isn't it a fact that after the spin off there was still a relationship between KIT digital the entity known as Visual Connection where services were provided in the form of system integrations to customers? Q. Thank you. One of the reasons -- and sir, do you remember testifying about a document which is actually -- let's bring it up, it's Government Exhibit. Do you recall testifying about this document on direct examination? Q. This was the Project T document, right? Q. So this document sets forth in or about the time of 00, November, what KIT digital's thinking was with respect to Project T, correct? () 0-000

19 HBTTTUZ Smyth - cross 0 0 Q. And one of the reasons KIT digital wanted to spin off Visual Connection was because KIT the digital wanted to focus on its largest enterprise clients, correct? MR. WILLIAMS: Your Honor, we're going to make the same objection. MR. McRAE: Your Honor, the witness testified this document sets forth KIT digital's thinking. I'm eliciting what's in the document that the witness said is KIT digital's thinking. THE COURT: You didn't reference the document in your question, so the objection is sustained. MR. McRAE: I could -- okay. BY MR. McRAE: Q. Sir, isn't it true that in this exhibit that we're looking at, which is Exhibit, the government's exhibit, that KIT digital sets forth that one of the reasons that it wants to spin off Visual Connection was because KIT digital wanted to focus on its largest enterprise clients. MR. WILLIAMS: Objection, your Honor. Thomas Petru wrote the document, so we need specificity as to who is doing what here. MR. McRAE: Your Honor, that's counter to the testimony that's been elicited, and there's no foundation as to who actually authored it. () 0-000

20 HBTTTUZ Smyth - cross 0 0 THE COURT: You need to establish foundation for who authored the document. BY MR. McRAE: Q. Sir, did you write this document? A. I don't believe I did, no. Q. But you testified about it extensively on direct examination, right? A. I testified I received this document. Q. And you read the document, right? A. I did. Q. You're familiar with the contents enough of the document to testify about it during your direct examination, right? A. I testified about parts of it in my direct examination. Q. Right. And I'm going to talk to you about the parts of this document that you also talked about on direct examination. For example, the three bullet points on this page that we're looking at that set forth some of the reasons why KIT digital expressed that it wanted to spin off the business. Do you see those three highlighted bullet points? MR. WILLIAMS: Objection, your Honor, that doesn't do it. THE COURT: Well, the question was does he see the three highlighted bullet points. He can answer that question. MR. WILLIAMS: The objection was KIT digital wanted. THE COURT: The question is does he see the three () 0-000

21 HBTTTUZ Smyth - cross 0 0 highlighted bullet points. He can answer that question and we'll see what the next question is. You haven't established a foundation for who wrote this section. Until you do, I'm going to sustain objections. You can proceed as you deem appropriate. MR. McRAE: Maybe for efficiency, could I have a sidebar? Because I want to understand the foundational issue. THE COURT: No, you can't have a sidebar. Q. You testified about this document -- THE COURT: You established he testified about the document. Next question. Q. Sir, you received this document, correct, in 00 at some point, in November? Q. And with the document in front of you, do you see these three bullet points? Q. Sir, wasn't it your understanding in 00, consistent with what is stated here in this -- THE COURT: Sustained. MR. McRAE: I didn't -- THE COURT: Just ask a question. When you say consistent with what is stated here, that's an argument. So please ask questions. Do not make argument. MR. McRAE: Very well, your Honor. () 0-000

22 HBTTTUZ Smyth - cross 0 0 BY MR. McRAE: Q. Sir, isn't it a fact that you understood that among the reasons that KIT digital wanted to spin off Visual Connection are the three bullet points stated here? MR. WILLIAMS: Same objection, your Honor. THE COURT: Sustained. Q. Sir, isn't it a fact that KIT -- that you understood that KIT digital wanted to spin off -- THE COURT: It's the same problem. We don't know who you're talking about when you say KIT digital. It's a large company. It establishes nothing to ask about KIT digital. So the objection is sustained. MR. McRAE: Okay. Your Honor, may I have a sidebar? THE COURT: No. MR. McRAE: I'm trying to understand the basis -- THE COURT: I told you that questions about KIT digital in this context are not helpful because they don't reveal anything to the jury because KIT digital is a large company, sir, and you understand that questions about what KIT digital as an entity wanted are not helpful, so please don't pose your questions in that fashion. MR. McRAE: I won't. Your Honor, since he was an officer of the company, I thought that he spoke for the company. THE COURT: You're welcome to ask what he thought was () 0-000

23 HBTTTUZ Smyth - cross 0 0 appropriate. You're welcome to ask what Campion or Mr. Tuzman or some other officer of the company thought was appropriate. We're not going to speak of KIT digital as an entity. It's not appropriate. And I said this a number of times, so I don't want any more questions along that line. MR. McRAE: I'm not going to do that. I was merely trying to ask if because he was an officer of the company he could obviously bind the company as an agent, which is why it would make sense to ask what KIT digital thought. THE COURT: No, it doesn't make sense to ask what KIT digital thought for the reasons I said several times now. MR. McRAE: Then I will rephrase the question. THE COURT: Please rephrase. BY MR. McRAE: Q. Sir, wasn't it your understanding that you wanted to sell off Visual Connection -- one of the reasons was that you wanted to sort of shed some of the less developed markets with low cost margin expectations that were attendant with that portion of KIT digital's business? A. That wasn't the reason that we sold off KIT digital. Q. I'm not asking about we, I'm asking about you? A. That wasn't the reason I sold off KIT digital. Q. Sir, nonetheless though, one of the reasons that you wanted to sell off Visual Connection was also because of a difficulty with overdemanding clients with a ratio of revenues to () 0-000

24 HBTTTUZ Smyth - cross 0 0 expectations, right? A. No. Q. Those weren't your reasons? A. No. Q. Okay. And so you also didn't have as a reason that one of reasons you wanted to sell off this portion was that you had customers that had demanding payment conditions and collections, right? A. No. Q. You had your own reasons for wanting to sell off Visual Connection, right? True or false. A. Kaleil had reasons. Q. I'm not asking about Kaleil, I'm asking about you. You had other reasons why you wanted to sell off Visual Connection other than what is stated in this document, correct? A. My reasons were the reasons -- Q. Yes or no. MR. WILLIAMS: We object. THE COURT: Were you in favor of selling the entity that was then known as KIT digital Czech? Were you in favor of that? THE WITNESS: Yes. THE COURT: Okay. Q. And sir, you were in favor of it, but it wasn't for the reasons that I posited to you, correct? () 0-000

25 HBTTTUZ Smyth - cross 0 0 A. They weren't the reasons, no. Q. And sir, you also talked about uncollectible -- you talked about toxic assets during your direct examination. Do you remember that? Q. You described them as uncollectible revenues or uncollectible receivables? Q. You understand that receivables can be uncollectible for a variety of reasons? Q. Even large companies that are successful have uncollectible receivables on their books on occasion, right? Q. The fact that a company has an uncollectible receivable doesn't mean that it involves fraud, right? Q. Uncollectible receivables are also sometimes known as bad debts, correct? Q. You recall, sir, testimony that in 00 this was shortly after the great recession in the United States? Q. And sir, is it your understanding that as a result of that great recession, there were a lot of financial companies that () 0-000

26 HBTTTUZ Smyth - cross had assets like mortgage backed securities that were illiquid? MR. WILLIAMS: Objection, relevance, foundation. THE COURT: Sustained. Q. Sir, do you recall that the term used to describe assets during the great recession, toxic assets was actually termed during the 00, 00 financial crisis? A. No, I don't know that. Q. Are you aware that there are businesses is that actually specialize in purchasing uncollectible receivable or toxic assets? A. It's not my area of expertise, but I imagine there are companies that do that, yes. Q. And you're aware there's an entire industry in this country of purchasing and selling bad debts? A. I don't know that industry. Q. Sir, isn't it true -- you're aware, sir, that the U.S. Federal Reserve, the central bank of the U.S., bought toxic assets to rescue banks -- THE COURT: Sustained. Q. Sir, you understand it's not illegal to sell or purchase toxic assets? MR. WILLIAMS: Objection, vague. THE COURT: Sustained. Q. Sir, isn't it true that you testified on direct examination that toxic assets were uncollectible revenue from fake () 0-000

27 HBTTTUZ Smyth - cross 0 0 perpetual licenses? THE COURT: In the context of this case? MR. McRAE: Yes. A. Some of the toxic assets were, yes. Q. Sir, there is no document in which you ever informed Kaleil that the toxic assets that are described in Government Exhibit were comprised of sham licenses. True or false? A. There's no document. Q. Sir, isn't it also true that in 00 you were aware that Kaleil described the sale price of Visual Unity as being based on the value of Visual Unity's assets? MR. WILLIAMS: Objection, vague, foundation. THE COURT: Sustained. Q. Let's look at KIT exhibit. Sir, you recognize this document as containing a couple of s, one of which is from Thomas Petru, dated November, 00 to you. Do you see that? Q. Do you see the subject line, first reading of the SPA, the purchase agreement? Q. And we could move up for a second, there's also another on top of this, from you to Rima Jameel, correct? MR. McRAE: Your Honor, I would like to admit exhibit () 0-000

28 HBTTTUZ Smyth - cross. MR. WILLIAMS: We object. This is all hearsay, your Honor. MR. McRAE: Not offered for the truth, your Honor. MR. WILLIAMS: Could I confer with Mr. McRae? THE COURT: Yes. (Pause) MR. WILLIAMS: Your Honor, we still object. It's hearsay. 0 0 MR. McRAE: Your Honor, it's for state of mind, I'm happy to do it here or do it at sidebar to have the discussion. THE COURT: I'm still trying to find the document. MR. McRAE: I can give you another copy. May I approach? THE COURT: Yes. (At sidebar) THE COURT: Is this a one-page document? MR. McRAE: I believe -- THE COURT: I only have one page. MR. McRAE: It's two-sided, two pages, but the back side I don't think is substantive. THE COURT: All right. MR. McRAE: The question that I'm asking him is really with respect to this paragraph eight right here. So the prior question here was this witness having his -- understanding his () 0-000

29 HBTTTUZ Smyth - cross 0 0 state of mind that Kaleil was selling Visual Unity based on the value of its assets. This is an from Mr. Petru to Mr. Smyth where he talks about Kaleil doing that very thing. I'm not offering it for the truth, I'm offering it for the state of mind not only of Kaleil but Mr. Smyth as well. And reason it's relevant is if you're doing a sham transaction, the value of the property and the assets are totally irrelevant. Clearly it's probative of the fact this was a substantive real transaction because it's a value asset-based transaction that's obviously relevant to state of mind of Mr. Smyth, it's relevant to Kaleil's state of mind, and it's relevant. MR. WILLIAMS: Your Honor, our objection was this is obviously a statement from Kaleil to Thomas Petru, and the fact that it's still hearsay because it reflects a conversation between Kaleil and Petru, Mr. McRae wants to prove a fact that Kaleil wanted to sell Visual Connection based on some valuation based on the assets, and he's offering this to prove that fact. So it is not offered for anyone's state of mind, it's offered to prove a fact that he posed to the witness in the form of a question, so that's why we are objecting. MR. McRAE: I'm offering it for that it was said and it was received. THE COURT: The problem is that the underlying point is hearsay, because what you want to argue from this is the () 0-000

30 HBTTTUZ Smyth - cross 0 truth, in other words, that Kaleil mentioned -- and again, it's so garbled it's hard to know what the jury could make of this, but the line in question, I will quote it, "Kaleil mentioned that in case of lower quality of assets, the loan will be dollar to dollar decreased. Where is it?" Now I don't know what the jury is supposed to draw from that, but leaving that aside, to the extent that you're offering this, you're doing it to for the truth, that Kaleil actually said this, that's the assertion for which that you're trying to introduce this, and I am sustaining the objection. MR. McRAE: I will use it to refresh his recollection. THE COURT: That's fine. (Continued on next page) 0 () 0-000

31 HBTTTUZ Smyth - cross 0 0 (In open court) BY MR. McRAE: Q. Sir, why don't I have you take a look at the document, we're not going to publish it, and let me have you focus on what will be highlighted to ask you if this refreshes your recollection that in November 00 Kaleil was describing the sale of Visual Unity based on the value of its assets. A. There is a difference -- Q. I asked yes or no if it refreshes your recollection. A. I can't answer that as yes or no. Q. Okay, then we'll move on. Sir, KIT digital provided a loan to Mr. Petru to buy his company back from KIT digital, correct? Q. And sir, this loan to Mr. Petru was secured by assets of Visual Connection? A. I believe that's correct, yes. Q. And so if Mr. Petru was unable to make payment on the loan, KIT digital could, under its agreement, take back the assets of Visual Connection, correct? A. I can't remember the details of the loan, but I believe that would be right, yes. Q. And sir, you are the one who organized the loan is what you testified to on direct examination in this case, right? A. I organized the documents, yes. () 0-000

32 HBTTTUZ Smyth - cross 0 0 Q. And sir, you transferred the $ million through an escrow account that Rima Jameel was operating, correct? A. With Kaleil's knowledge, yes. Q. Sir, my question was whether you transferred it, correct? A. I organized the transfer. Q. And you don't have a single document that reflects that you ever told Kaleil that you were transferring that money, correct? A. I don't have a recollection of an to that effect. Q. And sir, you testified on direct examination that under the loan agreement that Mr. Petru was not supposed to pay KIT digital any money up front for this transaction, correct? A. I'm a bit confused. The SPA? Q. Yes. In other words, in connection with the acquisition by Mr. Petru of this spin-off entity, your testimony was that Mr. Petru was not to pay any money up front for that acquisition, correct? A. There was an amount in the SPA, but Thomas Petru personally wasn't going to pay any money. Q. And sir, you're familiar with what is called no money down transactions. You heard that term before. A. No, I haven't. Q. Sir, you also told KIT digital's auditors that Mr. Petru was going to be paying $ million over time to KIT digital, isn't that right? That's what you testified on direct. () 0-000

33 HBTTTUZ Smyth - cross 0 0 A. I don't recollect that. Q. And you recall testifying on direct examination that Mr. Petru was supposed to pay $,000 every month for his loan from KIT digital? Q. Sir, you're familiar with the concept of seller financing where a seller of an item gives the buyer a loan or credit in order to purchase the item? A. I don't think that's applicable in this case. Q. I'm not asking that. That was not my question. My question is: Are you familiar with the concept of seller financing where a seller of an item gives the buyer a loan or credit in order to purchase the item? Yes or no. A. Particularly in housing. Q. Sorry? Q. In fact, you just brought up housing, so you have seen this in the context of where a seller of a home allows a buyer to pay for the house over time in exchange for a mortgage on the property that secured payment, right? Q. So there's nothing illegal to your knowledge about loaning money to a purchaser with the condition that the purchaser pay back the loan over time, right? MR. WILLIAMS: Objection, vague and form. () 0-000

34 HBTTTUZ Smyth - cross 0 0 THE COURT: Sustained. Q. Sir, to go back to your example of houses, there's nothing illegal, to your knowledge, about the seller of a home loaning money to a purchaser of a home with the condition that the buyer of the home pay back the seller over time, correct? Q. And sir, isn't it a fact that you don't have any documents showing that you ever told Kaleil that the receivables that were toxic assets in the document that we were looking at, Exhibit, were the result of any fraudulent transactions, correct? A. Got a lot of documents, none come to mind, no. Q. Sir, let's take a look at Government Exhibit, and let go to the next page. Sir, do you remember talking about this document that has some red line changes on it during your direct examination? Q. And if we could go to the first page or just one page prior, sir, do you remember testifying about the removal of the reference to toxic assets in this draft document? Q. And sir, let me just direct your attention also if we could go to the cover that encloses this document, both you and Kaleil here with respect to the addresses on the first part of this page, these are communications on your KIT () 0-000

35 HBTTTUZ Smyth - cross 0 0 digital addresses, right? Q. They're not on the gmail addresses that you testified to that you used for fraud, right? Correct? Q. And sir, getting back to the removal of toxic assets, you're not aware of any rule that required that the particular word "toxic" assets be used in this document, correct? A. I don't know of any rule. Q. And sir, the fact that -- you in the course of your career, you negotiated numerous acquisitions of companies, right? Q. You have been involved in numerous other business transactions in the course of your career, isn't that true? Q. Sir, in your experience, it's not uncommon for there to be an iterative process in terms of transaction documents, meaning where you have several draft versions of documents until you get a final, right? (Continued on next page) () 0-000

36 HbtWtuz Smyth - Cross BY MR. McRAE: Q. And sir, the fact that a party changes or omits a word in a deal document doesn't mean that there's anything illegal about that, in your experience, correct? MR. WILLIAMS: Objection, your Honor. Far too vague and broad. THE COURT: Overruled. Q. Your answer was correct, right, sir? Yes. Q. Thank you. And sir, let's go into the body of the document, page of. We're not going to go over all of these redlines, but I want to ask you about one. Sir, isn't it true that one of the changes that was, I believe -- well, that's attributed to Kaleil is the one that says, and we're looking at it right here. MR. McRAE: I'm assuming this is being published. Great. Thank you. Q. -- where it says, "If Petru Systems were to default on its purchase price payments at any time, the company," which is defined on the first page of the document as KITDigital, "may claim default and assume ownership of Petru Systems." Do you see that? A. I see that. () 0-000

37 HbtWtuz Smyth - Cross 0 0 Q. And so, sir, your understanding of this is that if Mr. Petru failed to make payments to KITDigital, KITDigital would have the right to assume ownership of Mr. Petru's company? Is that what that says? A. I believe that says that, yes. Q. Let me now direct your attention to a couple of other documents that are admitted in evidence. Let's start with Government Exhibit. Sir, do you recall testifying about this document, which is dated December, 0, on direct examination? Q. And sir, if you look at this document do you recall that one of the things that's discussed it in, and I know it's a couple of pages, but was something about an OB van? Do you remember that? Q. And on your direct examination, you stated that this chain showed you and Kaleil discussing round tripping money to Mr. Petru; do you recall that? Q. Sir, that was a false statement, wasn't it? A. No. Q. Sir, for one thing, there's no portion of this chain where you use the term "round tripping," right? A. No. () 0-000

38 HbtWtuz Smyth - Cross 0 0 Q. And the term "back end" is never used in this , is it? A. I can't remember the -- every word, but I would say no. Q. And sir, do you recall testifying that you had to send two payments to Mr. Petru to make payments back to KITDigital for loans? Do you remember that? Q. Now, sir, instead of sending payments back to KITDigital, do you recall this discusses that in one instance, Mr. Petru used the money for another purpose? Q. Do you recall? Q. And do you recall that that other purpose was Mr. Petru saying, as you testified on direct examination, that he used the money towards the purchase of an OB van? Do you remember that? Q. And one thing that you didn't talk about during your direct is what an OB van is. Sir, you know what an OB van is, don't you? A. I do. Q. It's called an outside-broadcasting van, right? Q. Sir, isn't it a fact that an OB van is kind of like a weather van or weather truck with a satellite uplink and () 0-000

39 HbtWtuz Smyth - Cross 0 0 downlink that functions like a mobile operating system? A. Well, to be more precise, it's a television station outside broadcasting, and the difference is broadcasts and everything like that, it actually gets the vision and sends it to the television station. MR. McRAE: Your Honor, I have a photo available. Would it be OK if I showed that just for context? THE COURT: Yes. MR. McRAE: Let's mark it as KIT Exhibit and just show -- not the text, just show the van itself. Perfect. Permission to publish that, your Honor. THE COURT: You have to ask the witness about it, sir. MR. McRAE: OK. Q. Sir, do you recognize this as an OB van? A. Well, it could have anything inside, but that's what an OB van looks like. MR. McRAE: May I publish it, your Honor? MR. WILLIAMS: No objection. THE COURT: is received. You may publish it. MR. WILLIAMS: Just to be clear, just the picture. THE COURT: Yes, just the picture, not the accompanying text, is received. (Defendant's Exhibit KIT received in evidence) BY MR. McRAE: Q. This is what we just talked about, you said that this looks () 0-000

40 HbtWtuz Smyth - Cross 0 0 like an OB van, right? A. Yes, sir. THE COURT: Why is it called an OB van, do you know? THE WITNESS: Outside broadcasting. THE COURT: Outside-broadcast van. Thank you. BY MR. McRAE: Q. Sir, outside broadcast, or OB, vans are used for things like sporting events, isn't that right? Q. And weather reporting? A. I don't know about weather reporting. I know about sporting events and concerts. Q. And sir, are you familiar in your experience with what's contained inside an OB van? A. I've been in one, yes. Q. And can you just describe from your recollection what you saw? A. Monitors, lots of dials. It's a technical, technical inside for transmitting vision. MR. McRAE: Your Honor, I've conferred with counsel. I have another photo of the inside of the van I'd like to show. MR. WILLIAMS: No objection. THE COURT: All right. What's it marked as? MR. McRAE: This is part of the same exhibit, your Honor, which is. We're just going to not publish it at () 0-000

41 HbtWtuz Smyth - Cross 0 0 this point and just focus on the interior, which is on the second page. Q. Sir, let me ask you, does that look to you like the inside of the OB van that you saw? MR. McRAE: Your Honor, may I publish this? THE COURT: Yes. That picture of the interior will be received as well, and you may publish it. MR. McRAE: So the jury can see this. Thank you. THE COURT: We'll regard it as part of. MR. McRAE: Thank you. Q. Sir, isn't it true that, in your experience, OB vans cost millions of dollars? Q. And that's because of all the technology included inside, right? A. That's correct. Q. And in 00 to 0, KITDigital was in the OB van in Europe, right? A. It was. Q. And the OB van was a real product and service that KITDigital was involved in during that time period, right? Q. Sir, isn't it also true that in that same time period, 00 to 0, KITDigital was in the OB van business with Mr. Petru () 0-000

42 HbtWtuz Smyth - Cross 0 0 to supply OB vans to be Czech national broadcaster, known as Czech TV? A. If I remember, one OB van we supplied Czech TV with was made by one of our -- the other subsidiaries. Q. And sir, isn't it true that you had communications with Kaleil where he discussed the OB van business that KITDigital was involved in in the Czech Republic? MR. WILLIAMS: Objection. Time period would be helpful. THE COURT: Sustained. Q. Between 00 and 0. A. Could you repeat the question? Q. Sure. Isn't it true, sir, that between 00 and 0, you had communications with Kaleil where the two of you discussed the OB van business KITDigital that was involved in? A. I can't remember the specific discussion, but it was a subsidiary of ours, so I would imagine we had discussions about the OB van business. Q. Let me show you KIT Exhibit. Do you recognize this as a March, 0, from Kaleil to you and Mr. Joe Mullin? MR. McRAE: Your Honor, I'd like to just admit a portion of this. Your Honor, I'd like to just offer the portion that's on the screen. () 0-000

43 HbtWtuz Smyth - Cross 0 0 THE COURT: Any objection? MR. WILLIAMS: Yes, your Honor. It's hearsay, same issue as before. THE COURT: All right. I need to see the full document. MR. McRAE: Sure. THE COURT: Can you hand it up. MR. McRAE: Yes. THE COURT: All right. I'll need to talk to the lawyers at sidebar. MR. McRAE: Your Honor, I was just trying to refresh recollection. THE COURT: OK. BY MR. McRAE: Q. Sir, taking a look at this document, does it refresh your recollection that in the 00 to 0 time period, KITDigital was in the business of supplying OB vans to, amongst others, Czech TV? THE COURT: Hasn't he already testified to that? MR. McRAE: Yes, but that wasn't my only question. THE COURT: That he's already testified to, as far as I know. MR. McRAE: Yes, your Honor. THE COURT: Do you have another question? MR. McRAE: Yes, I do, but he didn't answer that one. () 0-000

44 HbtWtuz Smyth - Cross 0 0 Do you want me to move on? THE COURT: I think he's already testified that KITDigital was in the OB van business in Europe. MR. McRAE: Right. THE COURT: And more specifically with Petru. MR. McRAE: Since there was an added time, I was trying to reorient the witness to where we were. THE COURT: I mean, if you are interested in March 0, you're welcome to ask him about March 0. MR. McRAE: Thank you, your Honor, MR. WILLIAMS: Our only objection, your Honor, is that he hasn't testified that he has a failure of recollection. THE COURT: That's true. MR. McRAE: Yes. THE COURT: That's true, but you're certainly welcome to direct his attention to March 0 and ask whether KITDigital was in the OB van business in Czechoslovakia. MR. McRAE: Thank you, your Honor. BY THE COURT: Q. Sir, isn't it true that in the period 00 to 0, Czech TV was a significant customer of KITDigital? A. At various points, yes. Q. Isn't it also true that in 0, Mr. Petru had a contract with Czech TV and KITDigital to service an OB van for Czech TV? A. Yes, there was one OB van. I don't know the exact dates it () 0-000

45 HbtWtuz Smyth - Cross 0 0 spanned, but yes. Q. Thank you. Let's go back to Government Exhibit, which is admitted. Now, sir, this was the we were talking about Mr. Petru using money for the OB van. Do you remember that? Q. And you were annoyed that Mr. Petru used the money that was, that he had for the OB van because you wanted to use it for round tripping, right? A. I don't understand the context of the question. Q. All right. Let me break it up. You were annoyed that Mr. Petru used money to pay for an OB van as opposed to sending it back to you, correct? A. I was annoyed that he used money I sent him for a purpose other than what I sent it to him for. Q. Right, and that purpose was that you wanted him to send the money back to you so that you could use it for round tripping, right? A. I wanted him to send it back to pay two payments against the loan. Q. OK. Sir, is it your testimony that in making those two payments back to you for what you described as the loan, that that was your way of getting money back from Mr. Petru for round tripping? A. The two payments coming back was a round trip. () 0-000

46 HbtWtuz Smyth - Cross Q. OK. And so, sir, isn't it true that you were so annoyed with Mr. Petru that you said in this document, "Tomas, actually, it was not more important." Sir, the "it" that you were referring to was Mr. Petru's statement about using the money for the OB van, right? Q. And you went on to say, "If you want to change my specific instructions, can you please advise me first," right? Do you see that? A. I do see that. Q. And sir, isn't it a fact that in his correspondence with you, Kaleil did not express annoyance at the fact that Mr. Petru had used this van -- excuse me, used funds for purchasing the OB van? A. I, I can't say -- well, he wanted to -- he wanted to discuss it to try and -- Q. That's not my question. I'm saying in this correspondence -- MR. WILLIAMS: Objection. He's talking over the witness again. He cut him off. A. I don't know whether that's a "yes" or a "no" answer. Q. In this exhibit, which is Exhibit, which is a series of communications, isn't it true that Kaleil never expresses annoyance to you about Mr. Petru using money to buy the OB van? THE COURT: Do you need to see the whole ? () 0-000

47 HbtWtuz Smyth - Cross 0 0 THE WITNESS: I'm, it's -- Q. Please, take your time. A. Not specifically, no. Q. Sir, isn't it also true, if we could take a look at what we're looking at here, that what Kaleil actually says is, "Guys, please allow me to do all the interactions here. Please don't communicate directly with each other; it doesn't work," and there's a smiley face? Do you see that? A. I do. MR. McRAE: Let's now pull up what's already admitted, Government Exhibit. Q. Sir, do you also see -- MR. McRAE: Let's go to page. Thank you. Q. -- that after you write -- MR. McRAE: Let me go down a little bit. Q. After you write to Kaleil on December, 0, "Kaleil, this is very annoying. I was totally clear. This is what happened last time, totally disregards clear instructions, then says he does not understand. I need the four payments." Sir, in that exchange, you were referring to Mr. Petru, right? Q. And you see that Kaleil's response to you is, "I think I'm working well with him," and he asks, "Can you explain to me what you mean, am on DV and if easier, so I can revert to him." () 0-000

48 HbtWtuz Smyth - Cross 0 0 Do you see that? Q. Revert means to respond to him? A. I believe so. Q. Right. Now, sir, isn't it true that in your follow-up response, sir, didn't you say to Kaleil that you needed the four payments by December? Right? A. Can you show me the response? Q. Sure. Right? A. It says four payments, yes. Q. And sir, do you remember testifying on direct examination that Kaleil was the person at KITDigital who dealt mostly with Mr. Petru? A. Yes, after. After this point in time, yes. Q. Sir, that was a false statement, wasn't it? A. I don't believe so. Q. Isn't it a fact that you negotiated the sale of Mr. Petru's business back to Mr. Petru? I just said after this time. Q. And sir, you also signed the contract with Mr. Petru spinning off his company? Q. And sir, let's take a look at KIT Exhibit. Sir, do you recognize the bottom of this page as an () 0-000