HCTTUZ 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. December, : a.m. 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- 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
HCTTUZ (In open court, case called) THE COURT: We're still waiting on a couple of jurors. Is there anything that we need to talk about? MR. NAFTALIS: Not from the government. MR. WEITZMAN: No, your Honor. MR. JACKSON: Judge, last night I've been informed by Ms. Rosen I think I mistakenly referred to two different exhibits as Exhibit 0, one being the book Mr. Maiden wrote and the other one being the declaration. We intend to submit to the Court one as Exhibit 0 and the other as Exhibit, if there's no objection. THE COURT: And so the declaration is going to be 0? MR. JACKSON: Yes, your Honor. THE COURT: And the book excerpt will be? MR. JACKSON: Thank you, Judge. THE COURT: Thanks. We're starting on Mr. Carpi this morning, correct? MR. McRAE: I think we're finishing Mr. Campion's direct examination. THE COURT: Finish Mr. Campion's direct and go to Mr. Carpi? MR. NAFTALIS: Yes, your Honor. I think it's less than half an hour. (Pause) (Continued on next page) () 0-000
HCTTUZ Campion - Direct 0 (Jury present) THE COURT: Ladies and gentlemen, we're going to continue with the direct examination of Mr. Campion this morning. Mr. Campion, you remain under oath. Mr. Naftalis, please proceed. MR. NAFTALIS: Thank you, your Honor. GAVIN CAMPION, having been previously sworn, testified as follows: DIRECT EXAMINATION BY MR. NAFTALIS: Q. Mr. Campion, let me go back to some of your prior testimony. I asked you yesterday whether you signed any KIT Digital SEC filings. Do you remember that? MR. NAFTALIS: Could we bring up Government Exhibit in evidence. Q. And do you see this is the K for fiscal year ending December,? MR. NAFTALIS: Mr. Urbanczyk, could you please move forward to page of the PDF. Q. Do you see your name there in the middle that you signed it? A. Yeah. () 0-000
HCTTUZ Campion - Direct Q. Did this K contain false statement about KIT Digital's revenue? A. What year was it again? Q. The year ending. Q. Did Mr. Tuzman also sign this document? A. I actually can't see any signatures on, it to be honest. MR. NAFTALIS: Mr. Urbanczyk, do you want to blow up the bottom for Mr. Campion so he could see -- Q. Do you see S/Campion? A. Okay. Does that mean it's signed? Sorry, I don't know. I am taking signature to mean like -- Q. This is a digital copy of it, do you realize that? A. No, I don't understand how it works, I'm sorry. Q. Do you have any reason to disbelieve at that the S/Gavin Campion means that you signed it and this is a digital copy? A. No reason to believe that. Q. We can take that down. Now right before we broke yesterday we had talked -- you had given testimony about how you and Mr. Smyth had talked about confronting Mr. Tuzman about ending the elephant scheme? Q. And Mr. Smyth had suggested going to the authorities. Do you recall that? () 0-000
HCTTUZ Campion - Direct Q. And then you had suggested going to KIT Digital's board of directors? A. I said I was going to do that, yeah. Q. Let me direct your attention to approximately February of. Was there a KIT Digital board meeting then? Q. And where was it? A. In Prague. Q. Before that meeting, did you talk to Lars Kroijer, one of KIT's directors? A. Yes, I did. Q. And why did you do that? A. Well, Lars was the person I was friendliest with on the board, I think, most approachable. Q. What did you say to Mr. Kroijer and what did he say to you? A. I said to Mr. Kroijer Mr. Tuzman was bullying operations into things they absolutely shouldn't be doing. Q. And when you say "bullying operations," what do you mean? MR. McRAE: Objection, your Honor. THE COURT: Grounds? MR. McRAE: To the characterization, the term. THE COURT: Well, I think Mr. Campion is -- are you reporting the words you used in speaking with Mr. Kroijer? THE WITNESS: I believe I just used the exact words I () 0-000
HCTTUZ Campion - Direct used, to the best of my recollection. THE COURT: The objection is overruled. Go ahead. A. What was the question, sir? Q. When you "bullying," what did you mean by bullying? A. Mr. Tuzman's behaviors, from -- at times he was the most charming man on the planet, and other times he was incredibly aggressive, as in kind of shouting and swearing and telling me I have done a shit job. And you know, it was impossible to stand up to Mr. Tuzman without getting ferociously shut down with aggressive behavior, standing up, intimidating, he was -- THE COURT: Could we try to focus on what you said to Mr. Kroijer, please. Have you told us essentially what you said to Mr. Kroijer on this matter? THE WITNESS: Yes. Q. And did you say what, if anything, you wanted to do about this? A. I wanted his help. Q. Did you discuss the upcoming board meeting? Q. What did you say? A. Well, I said -- I was asking for help from Mr. Kroijer. Mr. Kroijer was hesitant to help. MR. McRAE: Objection, your Honor, to the characterization of Mr. Kroijer. Lack of foundation. THE COURT: Sustained. () 0-000
HCTTUZ Campion - Direct Q. You and Mr. Kroijer were speaking? Q. Just the two of you? Q. And you mentioned that Mr. Tuzman was bullying operations? Q. Did you talk to him about -- Mr. Kroijer about bringing this up to the board of directors of KIT Digital? Q. What did Mr. Kroijer say? A. He said two things. He said you know if we stand up to Kaleil we'll just get a little white letter, which is a phrase that was used with me a number of times when I escalated these behaviors to Mr. Kroijer. It meant, to get a little white letter, you're no longer on the board or anything. And he said we best go talk to Wayne Walker. Q. And who was Wayne Walker? A. He was a board member. I think lead director was his title at the time. Q. And with regard to this white letter, and you said you're no longer on the board, could you explain a little more? What do you mean you're no longer on the board? A. It was a phrase Mr. Kroijer used a few times with me when I tried to escalate things with him, you know, if we stand up to Kaleil, we'll just get a little white letter. He meant he () 0-000
HCTTUZ Campion - Direct would be kicked off the board. Which I found very strange, because Mr. Kroijer was, to my mind, a very wealthy man. I didn't really know why -- MR. McRAE: Objection, your Honor. THE COURT: Sustained. Q. Mr. Kroijer discussed with you talking to Mr. Walker, who was also a board member? Q. You said he was the lead director? Q. Did you speak to Mr. Walker? THE COURT: When you say "lead director," what does that mean? THE WITNESS: To be honest, I was never entirely sure. THE COURT: He was just referred to as the lead director? THE WITNESS: Yes. THE COURT: Okay. Q. And did you speak to Mr. Walker? Q. When? A. The evening before the board meeting. Q. And so just to place things in time, you speak to Mr. Kroijer on one day, how many days later, this evening before the board meeting? () 0-000
HCTTUZ Campion - Direct A. The same day, that evening. Q. And did you speak to Mr. Walker? Q. Tell us where you first spoke to Mr. Walker. A. There was like a preboard dinner in a cafe, a restaurant in Prague, an area of Prague, and Lars' plan was to speak to Mr. Walker at that dinner. But it was like a chaotic dinner and it wasn't the right environment to do that, so we agreed we would offer Mr. Walker a ride home. I was driving and it was freezing outside, so it kind of happened together quite nicely. So we did that, we spoke in the car. Q. Who was in the car? A. Myself driving, Lars Kroijer sat to my right, and Mr. Walker in the back right seat. Q. What, if anything, did you say during this car ride? A. I told Mr. Walker -- well, I told Mr. Walker the exact same sentence. Q. Which was what? A. Mr. Tuzman was bullying operations into things they absolutely should not be doing. Q. What was your demeanor during this conversation? A. I was scared shitless. MR. NAFTALIS: With the Court's permission. THE WITNESS: Sorry. Bit nervous, sorry. Q. I was really scared. They were all, to my mind, great () 0-000
HCTTUZ Campion - Direct friends of Mr. Tuzman's, had been to school with him and all the rest of it. And I really felt this was going to come back on me in a really bad way, but I had to try to do something. But I was also really upset. So we drove, it was probably only a mile, maybe a little bit more, but a mile, and Lars said Gavin is raising some issues here. And we pulled up outside of the hotel -- MR. McRAE: Your Honor, object to the narrative as opposed to what he said and what the other person said. THE COURT: Sustained. Could you ask a question, please. Q. Let me come back to your demeanor. Were you displaying any emotions during this car ride when you said Mr. Tuzman was bullying operations? A. I was crying my eyes out at the time. Q. So you pulled up to the hotel? A. Yeah. Q. And what, if anything, did Mr. Walker say? A. He turned -- he said one thing, he said: That's your problem to deal with. Q. And then what happened? A. He got out of the car like faster than I have ever seen anyone get out of a car. Q. Do you remember what Mr. Walker was wearing or carrying that night? () 0-000
HCTTUZ Campion - Direct A. Yeah, I do. He was wearing a long black coat, he had like a satchel, like laptop document bag with him, and an umbrella. Q. So now after Mr. Walker exits the car, did you speak to Mr. Kroijer? Q. What did you say to him and what did he say to you? A. I was begging for help. Q. What did Mr. Kroijer say? A. He would bring it up at the board meeting the next day. Q. Let's talk about the board meeting that happened the next day. What, if anything, did Mr. Kroijer say about this issue? A. Before the board meeting actually started, he said that I raised some issues that he thought were worthy of discussing, and he talked -- he said Gavin raised the issue of bullying, I think, and he just kind of really didn't say much at all. He was very weak. I was looking at him going come on, man, you know. Q. And what, if anything, did Mr. Tuzman say? A. He shut it down very, very quickly. He said this was all fucking relationship issues, we're all going on a retreat in two weeks anyway, we know about that. I didn't know about any retreat. But it's all just relationship issues, we'll talk it out then. Let's get on with the board meeting. Q. What was Mr. Tuzman's tone of voice when he said this? A. Very sharp and aggressive. () 0-000
HCTTUZ Campion - Direct Q. This was approximately February? Q. Did there come a time when Mr. Tuzman resigned as CEO of KIT Digital? Q. When was that? A. March of. Q. So about a month after this Prague board meeting and the interactions with Mr. Kroijer? A. About that, yes. Q. In March of was there a company meeting in New York City? A. Yeah. Q. And by "company," I mean KIT Digital. A. Yeah. Q. Do you recall where this meeting was held? A. I have forgotten the name of the building, curved building, the Grace Building. Q. Which is where? A. It's by Bryant Park. Q. Before this meeting at the Grace Building, did you speak with Mr. Tuzman? Q. And specifically where? A. It was in like a cafe a couple hundred meters away. () 0-000
HCTTUZ Campion - Direct 0 Q. Who else was present? A. Robin Smyth. Q. How long did this meeting last? A. Maybe minutes or something. Q. At the beginning of the meeting, what, if anything, did Mr. Tuzman say? A. He asked me to take the CEO position of the company. Q. What did you say? A. No. Q. And after that, what, if anything, did Mr. Smyth say? A. Mr. Smyth told Mr. Tuzman that there was a $ million hole in the cash reserves of the company and Mr. Tuzman would need to pay that money in. Q. And when you say a $ million hole, what did you understand that to mean? A. The company money had been used to pay off the elephant. Q. And the cash reserves, was there specification about which cash reserves? A. In Dubai. Q. Specifically what in Dubai? A. Like the escrow account. Q. And when Mr. Smyth said Mr. Tuzman would have to -- can you repeat again what Mr. Smyth said to Mr. Tuzman about the $ million hole in the cash reserve? A. He said that Mr. Tuzman would need to pay the money in () 0-000
HCTTUZ Campion - Direct personally. Q. And after Mr. Smyth said to Mr. Tuzman he had to put the money in personally, what did Mr. Tuzman say? A. He said that he would. He said he would have to go back to Colombia to get the money, that he like prepaid a builder there, and that he would have to go back and get the money back from the builder such that he could transfer it to Dubai. Q. When you say a builder, what do you mean? A. Like a construction builder. I think he was building a hotel or something. Q. Now this is in March of, this conversation? A. I believe so, yeah. Q. Did you subsequently speak to Mr. Smyth about whether Mr. Tuzman had put his own money into KIT Digital to fill this hole? A. Yeah, I asked him a few times. Q. Just to put it in time, when did you speak to Mr. Smyth about this? A. Over the next one, two, three weeks. Q. So was it one conversation or multiple conversations? A. It was multiple conversations. Q. To the extent that you remember, what was said at each conversation? Can you tell us what Mr. Smyth said? And try to distinguish between the conversations. A. Well, I remember earlier in the time frame Mr. Smyth was () 0-000
HCTTUZ Campion - Direct stressed that the money hadn't been paid in, but he expressed he was in communication with Mr. Tuzman and felt it was coming. And towards the ends of that time frame -- and it could have been four weeks, three or four weeks, some money came in. I think Mr. Smyth told me it was paid in two tranches. Q. Did Mr. Smyth say in total how much Mr. Tuzman sent in? A. I remember it was $ million in total. Q. Now this was an approximately March of, is that right? Q. Did there come a time when you left KIT Digital? Q. When was that? A. April of. Q. And can you describe the circumstances under which you left, sort of? A. I resigned. Q. Did there come a time when you moved back to Australia? Q. And roughly when did you move back? A. Like the autumn, the fall of that year,. Q. Have you lived in Australia since then? Q. Now between the time that you moved back to Australia in the fall of and, did you see Robin Smyth? () 0-000
HCTTUZ Campion - Direct Q. Approximately how many times? A. Eight times maybe, eight, nine times. Q. And do you remember where specifically, which locations you saw Mr. Smyth? A. Yeah, at his home, in a cafe in the Melbourne CBD, and at his golf club. Q. Generally who initiated these meetings? A. Generally Mr. Smyth. Q. And to your recollection, generally what, if anything, prompted these meetings? MR. McRAE: Objection, speculation, foundation. THE COURT: Sustained. Q. Did you speak to Mr. Smyth before these meetings to set them up? A. Yeah. Q. And then did you have conversations during these meetings? Q. Based on your conversations with Mr. Smyth, what was your understanding of what, if anything, was prompting him to set them up with you? A. Mr. Smyth was finding out information about the American government investigation into KIT Digital. Q. Now during these meetings between, approximately, and, did Mr. Smyth ever ask you to do anything for him? () 0-000
HCTTUZ Campion - Direct Q. What did he say? A. He was very scared of being blamed by Mr. Tuzman for the fraud, and asked me to commit to come over and tell the truth. Q. And when you say tell the truth, what did you understand that to mean? A. Tell the truth about what happened in the fraud. Q. Did Mr. Smyth ask you to lie for him? A. No. Q. Would you lie for Mr. Smyth? A. No. Q. Who directed you to commit the fraud at KIT Digital? A. Mr. Tuzman. Q. Now during these meetings between approximately and, did you discuss Rima Jameel with Mr. Smyth? Q. What, if anything, did Mr. Smyth say? A. Mr. Smyth was getting his information on the investigation from Rima Jameel. Q. And do you recall any information in particular that she had relayed to him that he then relayed to you? MR. McRAE: Objection, your Honor. THE COURT: Grounds? MR. McRAE: Hearsay. THE COURT: It's not offered for the truth. MR. NAFTALIS: It's offered for the fact it was said, () 0-000
HCTTUZ Campion - Direct the state of mind. THE COURT: I will hear the lawyers at the sidebar. (Continued on next page) () 0-000
HCTTUZ Campion - Direct (At sidebar) THE COURT: So what's he going to say that she was telling him. MR. NAFTALIS: The core of this is that Rima Jameel will say that she learned that the government had acquired the bank records for the escrow account in Dubai, and that Tuzman said to her what she then relayed to Mr. Smyth, that he was surprised the records would have been turned over, meaning Dubai would cooperate in that way. And I believe Mr. Smyth -- Mr. Campion will say Mr. Smyth said it looks like the government or whomever are following the money. THE COURT: Well, these are all statements made in furtherance of the conspiracy, as far as I can tell. Secondly, they go to -- I mean the last point, Tuzman's reaction, goes to his state of mind. MR. McRAE: I thought I heard in there a double hearsay issue, in other words, he -- THE COURT: Why are these statements not in furtherance of the conspiracy? MR. McRAE: Well, one thing -- THE COURT: It's one conspirator keeping another conspirator apprised of the government's investigation. MR. McRAE: Well -- MR. WEITZMAN: Your Honor, if I could address that real quickly, I don't think they laid the foundation that the () 0-000
HCTTUZ Campion - Direct reasons that they were keeping each other apprised was to further the conspiracy. He actually said the opposite, they wanted to cooperate at this point essentially, that he tried ratting out the conspiracy at an earlier date. So I think that they have to lay the foundation that this information was obtained in furtherance, in a cover up fashion, as opposed to a decision that they made to cooperate and tell the truth. MR. NAFTALIS: Your Honor, it certainly goes to state of mind, as you mentioned. THE COURT: Is your theory that Rima telling Smyth about the progress in the U.S. investigation, that your theory is that was a statement made in furtherance of the conspiracy? MR. NAFTALIS: It hadn't occurred to me until your Honor suggested it. THE COURT: Seems obvious it was in furtherance. MR. NAFTALIS: Rima is a fugitive still. THE COURT: The jury will not hear that. MR. NAFTALIS: Since they're in a conspiracy, they don't want to get caught. The fact they stopped committing the crime doesn't mean they are no longer communicating about what they did. MR. WEITZMAN: Rima Jameel's communication may have been in furtherance of the conspiracy, but they have to establish that Smyth is communicating with Campion in furtherance and planned to corporate or collude or to turn over () 0-000
HCTTUZ Campion - Direct evidence or whatever it may be. I think that -- THE COURT: Stop. So what's the status as of April with Campion and Smyth vis-a-vis the government? MR. NAFTALIS: Neither of them had been arrested or approached. THE COURT: Neither of them have been arrested or approached by the government? MR. NAFTALIS: They're sort of in limbo. THE COURT: Have they talked about coming in to the government, coming in to see the government? Was there a plan to see the government? MR. NAFTALIS: No. The issue is they both moved back to Australia, they're both scared as to what could potentially happen. Mr. Smyth is worried that Mr. Tuzman will point the finger, and they're aware the government is creeping in on them. And in fact, we'll get to it in a bit, Mr. Smyth speaking to Mr. Tuzman about what is going on. So I'm happy to have it in for state of mind. I think your Honor is right, it's a co-conspirator statement, but state of mind really is fine. THE COURT: Well, I'm going to admit it on both grounds. I strongly believe it's a statement in furtherance of the conspiracy. Rima and Smyth had engaged in countless () 0-000
HCTTUZ Campion - Direct transactions involving this escrow account, and so they had great reason in connection with involvement of the conspiracy to be talking about the government's investigation of it. And I believe it was in that context that Smyth was telling Campion about it. And while it's true that these men later decided to cooperate after they were arrested, the time period that we're talking about preceded that. So I don't see it as part of a plan to cooperate with the government. MR. McRAE: Could I ask a question, I want to clarify the time, was this conversation with Rima Jameel April? MR. NAFTALIS: No, we are now in Australia. THE COURT: I thought you moved back to the fall of. MR. NAFTALIS: The fall of. I could ask him when in the sort of late to late ', but I don't necessarily know that he will be able to tell you it's ' or '. I am happy to ask. I don't think he knows. THE COURT: ' or '? I don't understand. MR. NAFTALIS: or '. In the couple years sitting in Australia sort of waiting, this conversation happens. MR. McRAE: And your Honor, I understand your ruling and I don't want to belabor it, but the reason I ask that question is I suspect this conversation may have occurred much later, which would be during period where these men, Smyth and () 0-000
HCTTUZ Campion - Direct 0 Campion, were colluding about their plans, what they will do if they got caught. But we made the objection, I wanted to clarify that. THE COURT: Are you -- is he capable of dating this conversation at all? MR. NAFTALIS: I will ask him. I'm not sure what they mean by "colluding." THE COURT: I think what they mean is saying to each other if we get arrested we're going to blame Tuzman. MR. McRAE: That's precisely what I mean. MR. NAFTALIS: I'm not sure what time period their theory of the case they're referring to, but for our purposes this is when the two of them are in Australia having their hands full, eight or nine meetings in person. But I will ask him to date it. I'm guessing he won't be able to. THE COURT: What is important to me is -- first of all, is it clear in his mind this conversation took place -- clearly it took place before they were arrested, there's no doubt about that. MR. NAFTALIS: It is clear in his mind that took place in Australia after everyone left the company. THE COURT: Right. MR. NAFTALIS: And they are both in Australia, and no one -- no one has never -- Smyth is not arrested until ', late ', I think it was the fall of ', so this is certainly () 0-000
HCTTUZ Campion - Direct before then. I will ask him to date it. THE COURT: Okay. MR. WEITZMAN: Sorry to belabor the point. Since he's going to lay the factual foundation first, I think it's appropriate for us to state further the company had already declared bankruptcy, I believe, or certainly the K came out referenced in the letters. I think the conspiracy is over by now, and what they're doing is keeping them apprised to essentially who might get arrested, which is different than the cover up theory, like they're doing to cover up. As far as state of mind, I understand your Honor's position. I want to emphasize the state of mind of the declarant, which is Rima Jameel, I don't think is relevant. MR. NAFTALIS: It's all of their state of minds, Smyth and Campion. MR. JACKSON: Your Honor, I briefly passed Mr. Smith a copy of the instruction. We're going straight into the next witness, so I just would ask if the Court -- this is cut and pasted from the Court's previous instruction, if the Court could read that at the conclusion of the direct. THE COURT: Okay. You ask me to read the instruction and I will. MR. JACKSON: Thank you, Judge. (Continued on next page) () 0-000
HCTTUZ Campion - Direct (In open court) MR. NAFTALIS: Your Honor, could I back up to reorient everyone? THE COURT: Yes. BY MR. NAFTALIS: Q. Mr. Campion, we were talking about the time period between the fall of and when you were living in Australia. Q. To be clear, where was Mr. Smyth living at that time when you saw him? A. I think he was in based in Australia. Q. And I asked you whether you ever -- then you said you had eight to nine meetings with Mr. Smyth over that time period. A. Approximately, yeah. Q. Then I asked if you ever discussed Rima Jameel. Q. Can you place it, if you remember, in that late to time period, when you talked about Rima Jameel with Mr. Smyth? A. I can remember one specific example. Q. Okay. A. Certainly into, so later in that period I spoke to Mr. Smyth at his house. MR. McRAE: Objection. Non-responsive beyond the time or the date. () 0-000
HCTTUZ Campion - Direct THE COURT: Sustained. Next question. Q. When in? Do you know if it was early on late? A. I think earlier. Q. And what did Mr. Smyth say to you at this meeting at his house? A. That Rima -- MR. McRAE: Objection, hearsay. THE COURT: Yeah, I ruled on that. Your objection is overruled. You may answer the question. A. Mr. Smyth said that Rima Jameel had let him know that the Dubai bank accounts had been subpoenaed by the U.S. government. Q. And when you say Dubai bank accounts -- A. And that the banks had provided the information. MR. McRAE: Objection, vague as to Dubai bank accounts. THE COURT: Could you explore that? Q. What did you understand Dubai bank accounts to mean? A. The escrow account. Q. By escrow accounts, which escrow accounts? What were they used for? MR. McRAE: Objection, compound and foundation. MR. NAFTALIS: I'll lay the foundation. THE COURT: I think the foundation is already in the record, but it was compound. Q. So when you say the bank accounts in Dubai, which specific () 0-000
HCTTUZ Campion - Direct bank accounts are you referring to? MR. McRAE: Objection, mischaracterizes the testimony. THE COURT: Overruled. You may answer the question. A. The KIT Digital bank accounts. Q. And were these bank accounts used in connection with the integration costs? MR. McRAE: Objection, foundation. Q. We talked about an escrow account yesterday -- A. Yeah. Q. -- that Mr. Tuzman directed Mr. Smyth send the money through to pay off the fraudulent elephant? Q. And this was a bank account that Rima Jameel controlled? MR. McRAE: Objection, lack of foundation and leading. THE COURT: Overruled. There was testimony on this. You may answer the question. Q. When you were talking about the fact that the U.S. government had obtained -- this is according to Mr. Smyth, had obtained the Dubai bank accounts, and they had been turned over, did you talk about whether these were the bank accounts that you, Mr. Smyth, and Mr. Tuzman used in connection with the fraud? A. Not specifically, I don't think. Q. Were there any other bank accounts that Rima Jameel () 0-000
HCTTUZ Campion - Direct controlled other than the ones that were involved in the fraud? MR. McRAE: Objection, lack of foundation. THE COURT: Sustained. Let me ask a question, you say that according to Mr. Smyth the U.S. government had obtained the Dubai bank accounts, what do you mean by that, they had obtained? What did he tell you that the government had obtained regarding the Dubai bank accounts? THE WITNESS: The bank statements. THE COURT: The bank statements. Okay. Go ahead, Mr. Naftalis. Q. And did Mr. Smyth, during this conversation, indicate whether or not he had been in touch with Mr. Tuzman or whether Ms. Jameel had been in touch with Mr. Tuzman? A. Yes, he did. MR. McRAE: Compound, your Honor, there was an or. THE COURT: Sustained. Q. So you're talking about the Dubai bank accounts, the records for them had been turned over to the U.S. government, correct? Q. And Ms. Jameel reports that they had been turned over to the U.S. government? Q. Did Ms. Jameel indicate whether she had been in touch with () 0-000
HCTTUZ Campion - Direct Mr. Tuzman at this time? MR. McRAE: Objection, lack of foundation. THE COURT: Overruled. A. Mr. Smyth said that she had said she had. Q. What did Mr. Smyth say that Ms. Jameel said about her conversation with Mr. Tuzman? A. That Mr. Tuzman was surprised and upset that the bank records had been handed over. Q. And do you remember what else, if anything, Mr. Smyth said about the government's investigation? A. Yeah, he used a phrase like they're following the money. Q. And who is the "they're" there? A. The U.S. government. Q. Now during these meetings in Australia between approximately late and, did Mr. Smyth say whether he himself had spoken to Mr. Tuzman since the time they had both left KIT Digital? A. Yeah, he did. Q. And do you recall when in the time period -- then did Mr. Smyth then relay some of what Mr. Tuzman had told him to you? A. Earlier in the time period, and yes. Q. And what did Mr. Smyth say that Mr. Tuzman said? A. Said Mr. Tuzman had called him and said why did we do it, Robin, and was laughing about it. () 0-000
HCTTUZ Campion - Direct Q. What did you understand the "it" to be? A. The fraud. Q. Now during these meetings between and ', did you discuss the details of the fraud that you committed with Mr. Smyth and Mr. Tuzman? A. Some details, yeah. Q. And why? A. Well, that was led by me. I wanted detail of what had gone on. Q. Why did you want detail? A. I don't know, really. Q. Were you part of every conversation between Mr. Smyth and Mr. Tuzman? A. I wouldn't think so. Q. Were you part of every email communication between Mr. Smyth and Mr. Tuzman? A. Again, I have got kind of no way of knowing, but I wouldn't think so. Q. Were you part of every email communication between Mr. Smyth and Ms. Jameel? A. No. Q. Were part of every phone conversation between Mr. Smyth and Ms. Jameel? A. No. Q. Were you part of every conversation between Mr. Stransky () 0-000
HCTTUZ Campion - Direct and Mr. Smyth? A. None of them. Q. So what do you recall Mr. Smyth telling you? MR. McRAE: Objection, vague as to time. THE COURT: Yes, could we try to date this somehow? MR. NAFTALIS: Your Honor, I think this is a series. Q. To the extent you can recall, we're looking at the late to time period, can you distinguish in your mind when Mr. Smyth told you certain things? A. To a degree. Q. Can you just try -- with the Court's permission, if we could ask an open ended question, if you could let us know at the beginning what did you learn, and then as meetings progressed what did you learn. A. So -- MR. McRAE: Objection, calls for a narrative, and vague as to subject matter. THE COURT: Well, the conversations took place between late and, right? THE WITNESS: Yes. THE COURT: And you're going to start by beginning with the earlier conversations and then you're going to take us up until, right? THE WITNESS: Where I can, yeah. THE COURT: All right. Your objection is overruled. () 0-000
HCTTUZ Campion - Direct We'll start with the first series of conversations beginning in late. Q. To the extent you can remember, in late early, what details of the fraud did Mr. Smyth communicate to you? A. I asked Mr. Smyth how big the elephant was or how many dodgy licenses there were. He told me million. I remember it really well because fuck -- I swore again, but I swore in response to that. I remember more in ' and probably later in Mr. Smyth, who would consistently say I hadn't done anything wrong, then let me know that, quote, he had had me sign a couple of licenses. Q. When you say a couple of licenses, what do you mean? A. The dodgy licenses. Because I was furious with him that he had me do that. I should have checked them, right? And then in Mr. Smyth let me know that he hired a lawyer, he let me know that the insurance was covering it, there was like some company insurance that covers those lawyers. And he let me know that he had put -- his phrase was a package of evidence together. Q. Let's stop there. When do you recall this conversation about the package of evidence taking place? A. Very much later on in that period, so in. Q. And can you tell the jury -- do you remember where you were? () 0-000
HCTTUZ Campion - Direct 0 A. Yeah. Q. So where was this conversation? A. On Mr. Smyth's -- Mr. Smyth's house on his back terrace, like the outside paved area. Q. This was in Australia? A. Sorry, yeah, in Australia. Q. What do you recall Mr. Smyth saying to you? A. A number of things, that he put a package of evidence together, that he was going to go and tell the government everything if he ever got picked up, was his phrase, but I guess that means arrested, that he was going to explain that there was a, quote, culture of fraud. He explained the terrible mental health position he was in at that time as well. MR. McRAE: Objection, your Honor, move to strike. THE COURT: The last part? MR. McRAE: Yes. THE COURT: That motion is granted. Q. Mr. Smyth mentioned this package of evidence. Did he say where it was? A. He didn't say actually where it was. Q. What did you say to him about the location of the package? A. I said to him: You're not keeping it here, are you? As in, not in his house. Q. In general terms, why did you say that? A. I was concerned there were people in and around KIT Digital () 0-000
HCTTUZ Campion - Direct that -- THE COURT: We're not going to get into that. MR. McRAE: Objection. Q. So did he say where it was? A. No. Q. Did Smyth say what was in this package, other than it was evidence? A. Not that I remember, no. Q. Did you ever see the package? A. No. Q. Now did there come a time when Smyth was arrested? Q. And when do you recall that happening? A. Late. Q. What, if anything, did you do immediately after you heard that Mr. Smyth had been arrested? A. I went to his house. Q. Why did you do that? A. I didn't know -- have the contact details for his wife. Q. What happened when you got to the house? A. I knocked on the door, there was no answer. I went to leave, I went and knocked again, I went back to my car about a hundred meters away, and then I decided to leave a note. Q. Leave a note for who? A. Robin Smyth and his wife. () 0-000
HCTTUZ Campion - Direct Q. And why did you want to leave a note? A. Because, as I think I just said, Mr. Smyth was very concerned that he would be blamed for all of this. MR. McRAE: Objection, your Honor. THE COURT: Sustained. Q. What do you recall writing in the note? A. That I would support him. I mean words to that effect, I can't remember the words. Q. What do you mean by "support?" A. Mr. Smyth had asked me to -- MR. McRAE: Objection. THE COURT: Overruled. A. Mr. Smyth asked me to come in and testify in his defense if he ever got picked up. Q. And to be clear, did Mr. Smyth ever ask you to lie for him? A. No. Q. Would you lie for Mr. Smyth? A. No. Q. You said he was arrested in late? Q. Have you communicated in any way with Mr. Smyth since he was arrested other than this note? A. Just the note. Q. How long after Mr. Smyth was arrested were you approached by the U.S. federal agents in Australia? () 0-000
HCTTUZ Campion - Direct A. Four months or so later, I guess. Q. And you testified, I believe a couple days ago, that you voluntarily flew to the United States to meet with the government? Q. And you pled guilty to crimes that you committed at KIT Digital? Q. And you committed those crimes with the defendant Kaleil Isaza Tuzman? MR. NAFTALIS: No further questions, your Honor. THE COURT: All right. Ladies and gentlemen, we're going to break into Mr. Campion's testimony to hear testimony from a short witness, and then we'll come back for the cross-examination of Mr. Campion. So Mr. Campion, you can step down, and the government will call its next witness. MR. JACKSON: Your Honor, at this time we request that the Court read the instruction to the jury. THE COURT: You want me to read the instruction now before we hear any testimony? MR. JACKSON: Yes, your Honor, it relates to the testimony that was just given. THE COURT: I see. Ladies and gentlemen, I have read () 0-000
HCTTUZ Carpi - Direct this instruction to you before, I'm going to read it to you again, and I will be giving you additional instructions about this matter at the close of the trial. You have heard evidence related to alleged accounting fraud at KIT Digital. Some of this evidence has referenced Enable, a company about which you have heard evidence. You should be aware that Omar Amanat is not charged in Counts Five and Six of the indictment, which relate to alleged improper transactions in accounting at KIT Digital. I will give you further instructions on all of the counts in the indictment, of course, at the conclusion of the case. All right. Would you please call your next witness? MR. NAFTALIS: Yes, your Honor, the government calls Peter Carpi. PETER WINSTON CARPI, called as a witness by the Government, having been duly sworn, testified as follows: DIRECT EXAMINATION BY MR. NAFTALIS: Q. Mr. Carpi, where did you go to school? A. University of Pennsylvania undergrad, and then Stanford University for grad school. Q. And what kind of grad school? A. For masters in business. () 0-000
HCTTUZ Carpi - Direct Q. Where do you currently work? A. Wellington Management. Q. And how long have you worked at Wellington Management for? A. Since 00. I joined out of undergrad. I did leave for two years to go back to grad school and came back to Wellington. Q. Can you explain to the jury what type of a firm Wellington is. A. We're an investment management firm. We invest assets on behalf of large institutions that aggregate assets for individuals. Q. Can you describe some of the types of clients that Wellington manages money for? A. Sure, ranges from sovereign governments to state and local governments, corporation whose have pools of capital for their employees, retirement accounts, endowments, foundations like a university, those are all typical types of clients. Q. Do you manage pension funds as well? A. Which kind? Q. Pension funds? Q. Where is Wellington based? A. We're headquartered in Boston. Q. And currently, what are Wellington's assets under management? () 0-000
HCTTUZ Carpi - Direct A. Roughly a trillion dollars. Q. One trillion dollars? A. With a T, yes. Q. And what is your current position at Wellington? A. I am an analyst and a portfolio manager. Q. Let's start with, first, what positions have you had over your course at Wellington? A. That's it. Q. Since 00 you have been an analyst? A. Yeah. Q. When you say you're an analyst, what do you mean by that? A. I look at -- my role as an analyst is to look at public equities, so companies traded on stock exchanges. And I make recommendations to a portfolio manager on whether or not to invest in certain public equities with the goal of trying to outperform the market on behalf of our clients. THE COURT: When you say "equities," do you mean stock or something else? THE WITNESS: Stock, yes. Q. And you used the word "portfolio manager," and said you were now a portfolio manager. First, what is a portfolio manager? A. Someone that runs a fund on behalf of clients, and that portfolio manager will typically also manage analysts, a team of analysts. () 0-000
HCTTUZ Carpi - Direct Q. Does the portfolio manager typically make the ultimate investment decision? Q. And can you explain the relationship between an equity analyst and the portfolio manager? A. It can vary depending on which portfolio and which team it is, but generally an analyst will do an analysis of the stock or whatever the investment is and make a recommendation to the portfolio manager, and there's usually a back and forth dialogue about the pros and cons of the investment. Ultimately, the portfolio manager makes the investment or not. Q. And you said you are now a portfolio manager as well? A. A very small one, yes. Q. How long have you been a portfolio manager for? A. A few months. Q. And at Wellington, are you part of any particular team? A. Yes, we're called the emerging companies team. That's the name of the main products that we manage, and that name reflects the nature of the investments, which are micro cap, very small public companies. Q. And when you say micro cap, can you give a sense of what you mean by that? A. Sure. So again, it's the smallest of the companies that are publicly traded on the stock change, and that could range in market cap of a $0 million of value for the company up to () 0-000
HCTTUZ Carpi - Direct roughly a billion. Q. Do you focus on U.S. equities, international equities? A. U.S. Q. So traded on U.S. stock exchanges? Q. Let me direct your attention back to around 0 to, that time period. Roughly how much money did the emerging companies team within Wellington manage? A. A few billion. Q. And that's out of the trillion? A. It was less, maybe it was 00 to 00 billion at the time. Q. So just a portion of -- A. Yeah. Q. And at that time, on average, how many of the companies that you followed did Wellington invest in at any one time? A. Maybe a dozen to two dozen. Q. And of this dozen to two dozen, how closely did you research these companies? A. As closely as I could. Q. Mr. Carpi, are you familiar with a company called KIT Digital? Q. How are you familiar with it? A. It was one of the investments that I recommended during at that time frame. () 0-000
HCTTUZ Carpi - Direct Q. And did Wellington invest in KIT Digital? Q. Beginning approximately when? A. Probably roughly 0, 0, that time frame. Q. At that time did it have a different name? A. There was a predecessor company called Roo Group that we had invested in at that time, yes. Q. And how long did Wellington invest in KIT Digital on behalf of its clients? A. We probably sold the last of our shares in time frame. Q. We'll come back to that. Between approximately 0 and, do you recall who the CEO of KIT Digital was? A. Kaleil Tuzman. Q. Did ever meet Mr. Tuzman? Q. Did you ever talk to him? A. Yep. Q. Now let me talk about your work as an analyst. In researching a company like KIT Digital, what sources of information did you consider when making an investment recommendation? A. Ideally as many as I can that are relevant to the investment. The common ones are financial statements and discussions with management, including statements that they () 0-000
HCTTUZ Carpi - Direct 0 make in their public conference calls and other events that are public. Q. And when you mentioned these filings, are these the SEC filings? Q. Between approximately 0 and, did you review KIT's SEC filings? A. Sure. Q. Did you review their Ks? A. Yep. Q. Their Qs? A. Yep. Q. Their other filings, like their Ks? To be clear, not necessarily all of them and not every page of them, but yes, definitely. Q. Mr. Carpi, did you make investment recommendations based on KIT Digital's SEC filings, in part? Q. Did you rely on KIT Digital's SEC filings being accurate? Q. Can you explain to the jury why? A. Well, if the financial filings aren't accurate, I don't know what my clients hold. That's critical for evaluating whether it's a good investment or not. That's the first place to go for the truth. () 0-000
HCTTUZ Carpi - Direct Q. And did you focus on any particular parts of KIT's SEC filings in doing your research? A. Well, this particular company is a technology company that was focused on streaming video. It was an early stage company, so it wasn't profitable yet. And so revenue, cash flow, the amount of cash that the company had, as it was consuming cash, in other words, finding out how long they would have a runway before they needed to raise more capital, those were the things that I looked for. Q. Let's talk about a couple of those financial metrics that you mentioned. You mentioned revenue. Can you explain more fully to the jury why revenue was important to you in making your investment decisions? A. Revenue is the beginning of what will ultimately become earnings. Once you have sold your service, you bring in revenue, then you have expenses that you deduct from that, and what is left over is profits or losses. In this case, it was probably largely losses during my time of holding. So it's the beginning of my analysis in terms of how quickly is the company growing, how quickly will they get to break even and start making money. That's critical to me because I don't want to have to give the company more capital of my clients' to fund ongoing losses. So the revenue level and revenue growth rate were particularly important to me. Q. And you mentioned that cash was also important? () 0-000
HCTTUZ Carpi - Direct Q. Can you explain why cash is important? A. So the company was losing money, and every time I or other shareholders have to put more money in to fund the losses, we get diluted. So my clients hold less of the company if someone else gives the company more money. So my goal is to maintain the largest ownership position of my clients as possible with the least amount of my clients' capital. That's why the cash balance is relevant. Q. Can you explain to the jury the relationship between -- if any, between ownership dilution and when a company raises capital, just if there are multiple capital raises, what affect that can have on your ownership stake. A. Sorry, that might not have been clear. So if I -- if my clients hold ten percent of the company, if I buy ten percent of the value of the company in its stock and the company has to go out and raise more capital, if they do it with equity, they issue more stock. So maybe there were a hundred shares and held ten of them on behalf of my clients, they issued two more shares, then I hold ten out of versus a hundred. I have been diluted. So my clients hold and own less of the company. Q. Now let's talk a bit more about your analysis of the KIT Digital's financial statements. First, can you explain what a model is? A. It's usually a spreadsheet that starts with historical () 0-000
HCTTUZ Carpi - Direct financials, revenue, cash, and things of that nature, and projects forward what future -- those future metrics are going to look like. So if revenue is growing ten percent a year historically, you might start with the base assumption that revenue will continue to grow at ten percent a year forward. And therefore, you can project out what the cash needs of the company are going to be and when it will get to break even and start earning money and how much it will earn, and that determines its future value. Q. And you mentioned the historical results of the company. What was your source, if any, of KIT Digital's historical results? A. That's the easiest part of the model, because that comes straight from the SEC filings. Q. So you take the information and plug it into the model? A. Correct. Q. And do an analysis based on that? Q. And that ultimately leads to an investment recommendation? MR. NAFTALIS: Mr. Urbanczyk, could we please bring up Government Exhibit in evidence. Q. Mr. Carpi, do you see this is KIT Digital's K for the year ending December,? () 0-000
HCTTUZ Carpi - Direct Q. Did you review it at the time it was released? A. I'm pretty certain I did. I don't recall specifically. Q. Just so the jury understands, can you explain how the information from KIT Digital's financial statements get into your model? A. Since I started in 00, that's changed. It used to be by hand. Now the data from the filings are extracted automatically into my file from computer systems that do this for us. Q. And let's first go to page F, which is of the PDF, page. MR. NAFTALIS: Your Honor, some of jurors screens are not working. THE COURT: Ladies and gentlemen, I'm sorry, but we have to have the technicians come to do what they did before. Sorry, we'll get back to you very shortly. (Continued on next page) () 0-000
HCTTUZ Carpi - Direct (Jury not present) THE COURT: You can step down, Mr. Carpi. We'll resume as soon as the technical problem is dealt with. MR. JACKSON: Thank you, your Honor. (Recess taken) THE COURT: The witness should retake the stand. You can bring in the jury. (Continued on next page) () 0-000
HCTTUZ Carpi - Direct (Jury present) THE COURT: Please continue, Mr. Naftalis. MR. NAFTALIS: Thank you, your Honor. We're on Government Exhibit, is which is KIT Digital's K for the year ending December,. And if we could go to page F. And Mr. Urbanczyk, I think it's the th page of the PDF. Q. Mr. Carpi, you can follow along or flip. I'm looking for the income statement. A. I got it. Q. You see we're on the income statement? Q. Can you explain to the jury what the income statement is, very briefly? A. This starts at the top with revenue, which is the sales of the company, and then it deducts expenses, and at the bottom you get the earnings of the company. Q. So looking at the top line, you said it starts with revenue? Q. And here it reflects or KIT Digital reports that its revenues for the year ending was about $ million. Do you see that? Q. For the prior year it was about million dollars? () 0-000
HCTTUZ Carpi - Direct A. Right. Q. And for the prior year, 0, it was about $ million? Q. Did you rely on those numbers being accurate in making your investment decisions? Q. Mr. Carpi, if you had known that these revenue numbers were inflated with fake revenue, would that have been important to you in making your investment recommendations? A. Gosh, yes. Q. Can you explain why? A. Well, number one, I can't trust the numbers if they're inflated or inaccurate, and then again, I don't know what my clients hold, don't know what the valuation of the company is. And then if there a real number, I don't have the real number. I couldn't even try to put a right valuation on it. Q. You used the word "valuation." When you use the word "valuation," what do you mean? A. So I referred to what micro cap generally means, a hundred million market value to a billion, roughly, that span. That's what all the value of the shares of these companies are collectively worth, and who determines that is the market, it's people like me, it's the people who buy and sell the stock. It's often based on some multiple of the earnings or expected future earnings of a company. () 0-000