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Case 2:13-cr-06071-FVS

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1 United States Attorney

MICHAEL C. ORMSBY

Eastern District of Washington 2 MARY K. DIMKE Assistant United States Attorney 3 402 E. Yakima Avenue, Suite 210 Yakima, Washington 98901 4 (509) 454-4425
5 6 7 8 9 10 11 12 13 14

IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON UNITED STATES OF AMERICA, CR-13-6071-FVS Plaintiff, vs. MICHAEL PETER SPITZAUER, UNITED STATES RESPONSE TO DEFENDANTS MOTION FOR REVOCATION OF DETENTION ORDER

Defendants. Plaintiff, United States of America, by and through Michael C. Ormsby, United States Attorney for the Eastern District of Washington, and Mary K. Dimke, Assistant United

15 States Attorney for said District, hereby submits this response to Defendants motion to 16 revoke Magistrate Judge Huttons detention order (ECF 30). 17 18 19

I.

Introduction

The Court should deny Defendants request for release pending trial because the

20 evidence shows that Defendant is a serious risk of flight, a serious risk to obstruct justice, 21 and a danger to the community. Defendant is charged with wire fraud, money laundering, 22 23

aggravated identity theft, and is subject to substantial forfeitures in an Indictment that alleges he orchestrated a $7 million investment scheme over the course of several years.

24 25

Defendant is subject to numerous judgments for millions of dollars. As a result,

26 Defendant keeps few assets in his name and he has a history of funneling money through 27

intermediary accounts, using trusts and corporate entities to house and hide assets, and he

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presented a financial picture to Pretrial Services (PTS) that is entirely inconsistent with his

2 lifestyle. In recent months, he had access to substantial amounts of cash, the whereabouts of 3 which are unknown. Such behavior and lack of candor with PTS is indicative of Defendants 4 5 6

inability to be supervised and unlikely willingness to comply with Conditions. Moreover, access to undisclosed assets and funds provide a mechanism for Defendant to flee, if he so

7 chose. These facts, combined with Defendants foreign citizenship and ties, his prior 8 conviction for lying about immigration matters, the 10-12 year penalty and deportation he 9 10 11

faces if convicted, establish that he is a significant flight risk. Defendant is a serious risk of obstructing justice. Not only is Defendant charged with

12 falsifying documents he sent to investors, purportedly from a lawyer, he continued his 13 fraudulent conduct while he was under investigation. He repeatedly contacted victims and 14 15 16

promised them payment. Of most significant concern, Defendant was recruiting new investors (victims) and promised those new investment funds to the prior investors, contrary

17 to the terms of the new investor agreement; which is the definition of a Ponzi scheme. 18 19 20 21

Defendant has a lengthy history of fraud. He was convicted of forgery in 1989 and of fraud in 1992 in Austria, and he was charged with fraud in Austria in 1997, but refused to return to face the charges. He has a 1998 false statements conviction in the U.S. for failing

22 to disclose his criminal history on his immigration forms. This history, combined with the 23 underlying charges and his fraudulent Ponzi-like behavior on the eve of Indictment, establish 24 25

that he is a danger to the community. After reviewing extensive briefing and hearing argument on this matter, Magistrate

26 27 28 United States Response to Defendants Motion For Revocation of Detention Order - 2

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Judge James Hutton ordered that Defendant be detained pending trial noting that Defendant

2 was not supervisable, and finding that Defendant was both a flight risk and a danger to the 3 community. ECF 29 at 1-2. 1 These determinations were correct and pre-trial detention is 4 5 6 7

warranted based on this record. II. Charged Conduct

Defendant is charged with a massive wire fraud scheme, alleging losses exceeding $7

8 million. He entered into deposit agreements with victim-investors, in which he agreed to 9 10 11

maintain their investments in an interest bearing account, which deposits would be controlled by an attorney and only moved by the attorney, after the parties gave written consent. In

12 fact, the agreements were not authorized by the attorney and the funds were not controlled by 13 an attorney. The funds were deposited into accounts, which were controlled by Defendant. 14 15 16

He immediately began spending the funds upon their receipt, for personal expenditures, to repay prior investors, and for Green Power expenses not authorized by the victims-investors

17 agreements. 18 19 20 21 22 23 government filed a reply (ECF 17), with under seal exhibits 1-17 (ECF 23). Defendant then filed a 24 25 supplemental response. ECF 20. The government is filing a CD of the audio recording of the

Defendant is currently charged with ten counts of Wire Fraud for his scheme to steal money from investors, two counts of Aggravated Identity Theft for fabricating emails he falsely signed under the name of a Washington lawyer, and six counts of Money Laundering
1

The government filed a motion for detention, ECF 5, and Defendant filed a response, ECF 16. The

26 detention hearing held on December 20, 2013, as Exhibit 18. It is labeled Exhibit 18, since the 27 governments initial exhibits were labeled Exhibits 1-17. 28 United States Response to Defendants Motion For Revocation of Detention Order - 3

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for transactions where he spent the fraudulent proceeds. The Indictment seeks criminal

2 forfeiture of proceeds, including his current residence in Kennewick, Washington. 3 4 5 6

III.

Legal Standard

In reviewing the Magistrate Judges Detention Order, the District Court is to make its own de novo determination of facts, whether different from or adoption of findings of the

7 Magistrate Judge; ultimate determination of propriety of detention is also to be decided 8 without deference to the Magistrate Judges conclusion. United States v. Koenig, 912 F.2d 9 10 11

1190, 1192-1193 (9th Cir. 1990). The government may move for detention in a case that involves either a crime of

12 violence, 18 U.S.C. 3142(f)(1)(A), a serious risk that such person will flee 18 13 U.S.C. 3142(f)(2)(A), or a serious risk that [the defendant] will obstruct or attempt to 14 15 16

obstruct justice, or threaten, injure, or intimidate, or attempt to threaten, injure, or intimidate a prospective witness, 18 U.S.C. 3142(f)(2)(B). Although a defendant may not

17 be detained based solely on dangerousness unless one of the conditions listed in section 18 3142(f)(1) is present, see United States v. Twine, 344 F.3d 987 (9th Cir. 2003), in cases 19 20 21

involving serious risk of flight or risk of obstruction of justice, the court must also consider the nature and seriousness of the danger to the community presented by defendants release,

22 see 18 U.S.C. 3142(g)(4). The Ninth Circuit has held that danger may, at least in some 23 cases, encompass pecuniary or economic harm. United States v. Reynolds, 956 F.2d 192, 24 25

192 (9th Cir. 1992). In assessing pre-trial detention, the Court must evaluate several enumerated factors to

26 27 determine whether there are conditions of release that will reasonably assure the appearance 28 United States Response to Defendants Motion For Revocation of Detention Order - 4

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of the person as required and the safety of any other person and the community. . . . 18

2 U.S.C. 3142(g). These factors include: 3 4 5 6 7 8 9 10 11 12 13 14

(1) the nature and circumstances of the offense charged, including whether the offense is a crime of violence, or an offense listed in section 2332(g)(5)(B) for which a maximum term of imprisonment of 10 years or more is prescribed or involves a narcotic drug; (2) the weight of the evidence against the person; (3) the history and characteristics of the person, including (A) the persons character, physical and mental condition, family ties, employment, financial resources, length of residence in the community, community ties, past conduct, history relating to drug or alcohol abuse, criminal history, and record concerning appearance at court proceedings; and (B) whether, at the time of the current offense or arrest, the person was on probation, on parole, or on other release pending trial, sentencing, appeal, or completion of sentence for an offense under Federal, State, or local law, and; (4) the nature and seriousness of the danger to any person or the community that would be posed by the persons release. Id. The Court must balance all of these factors in determining whether a defendant

15 should be detained pending trial. 16 17 18 19 20 21

IV.

Argument

A. The Magistrate Judge properly determined that Defendant poses a significant flight risk. 1. Defendant is a foreign citizen and has foreign ties.

Defendant is a citizen of Austria. He is a legal permanent resident (LPR) in the

22 United States. Defendant asserts that [w]hatever ties [he] had to Austria were severed long 23 ago. ECF 30 at 9. However, Defendant told PTS that his mother and sister still reside in 24 25

Austria, with whom he has regular contact. ECF 13 at 1. Due to the nature of his businesses, he has contacts across the globe. The most recent primary investor in

26 27 Defendants business Green Power, which investor has provided over a million dollars, is a 28 United States Response to Defendants Motion For Revocation of Detention Order - 5

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resident of China. Recently, Defendant has been wire transferring funds to Senegal. In the

2 month of October 2013, Defendant wired via Money Tree, $45,500 to Senegal. 3 Significantly, if Defendant is convicted, he in all likelihood will lose his LPR status since he 4 5 6

is charged with aggravated felonies, and then will be deported after serving his sentence. There is no reason to believe Defendant will remain in the United States to face charges,

7 serve a substantial amount of prison time, then ultimately be deported. 8 9 10 11

Defendant contends that he cannot leave the country because he does not have a passport. ECF 30 at 8. However, this is not entirely accurate. Defendant is in possession of an LPR card, which enables him to travel outside the United States. Moreover, Defendant

12 could walk into an Austrian Embassy or Consulate and apply for a passport and there is no 13 way to prevent Defendant from doing so. Since Defendant already has a conviction for lying 14 15 16 17

to immigration authorities to obtain status in this country (see below), the Court cannot rely on Defendants word not to obtain travel documents. Moreover, government counsel has consulted with the Department of Justice, Office

18 of International Affairs (DOJ OIA) regarding extradition from Austria. According to the 19 20 21

DOJ OIA, Austria will not extradite its nationals. Thus, if Defendant flees to Austria, where he has family and citizenship, the United States will not be able to extradite him to the

22 United States to face these charges. This is significant because Defendant has already 23 avoided facing charges by refusing to return to a country where he had been charged with 24 25

fraud. Defendant was charged with another fraud scheme in Austria in 1997, but successfully defeated Austrias request to extradite him, arguing that the extradition treaty

26 27 was invalid. As a result, he never faced that charge in court. See Exhibit 19, Article: 28 United States Response to Defendants Motion For Revocation of Detention Order - 6

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Austrian Fights Extradition. There is no basis for the Court to believe that Defendant will

2 remain in the United States to face these current charges. 3 4 5

2.

Defendant has a prior conviction for providing false statements with respect to immigration matters.

Defendant was convicted in 1998 in the Western District of Washington for false

6 statements, 18 U.S.C. 1001, for failing to report his prior criminal history from Austria, 7 8 9

significantly his prior fraud convictions, to U.S. immigration authorities on his application to become an LPR in the United States. ECF 13 at 8. Having already lied to immigration

10 authorities to obtain status in this country, the Court should have no comfort that Defendant 11 will abide by any condition not to travel or obtain any travel documents, such as a passport. 12 13 14

3.

Defendant faces a 10-12 year penalty and deportation if convicted.

Defendant faces a guideline range of 97 to 121 months of imprisonment on the wire

15 fraud and money laundering offenses. He faces a two-year mandatory sentence on the 16 Aggravated Identity Theft charges, which would run consecutively to the sentence on the 17 18 19

underlying charges. As a result, Defendants range if convicted is 10 to 12 years of imprisonment. The government is also seeking forfeiture of his residence and a money

20 judgment in the amount of nearly $5,000,000. These types of penalties provide a significant 21 incentive to flee, especially since post-incarceration deportation is a virtual certainty. 22 23 24 25

4.

Defendants use of intermediary accounts, trusts and corporations to hide assets, and his lifestyle are inconsistent with his financial representations to PTS, and such actions provide a potential source of funds to flee.

Defendant attempted to portray himself to PTS as having few assets. Defendant

26 contended that he has less than $661 in two bank accounts. ECF 13 at 2. Due to 27

Defendants significant outstanding judgments against him (ECF 13 at 2, see also

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http://www.tri-cityherald.com/2013/12/12/2728423/green-power-owner-faces-several.html);

2 Defendant utilizes corporate entities and trusts to hold assets so they cannot be seized. This 3 makes his assets incredibly difficult to track. With respect to the issue of Defendant being a 4 5 6

risk of flight, the government has concerns about Defendants access to funds, his use of intermediary accounts to move funds, use of corporations and trusts to house assets, and his

7 initial failure to disclose these financial matters to PTS. As Magistrate Judge Hutton noted, 8 Defendant has utilized a frankly very complicated and misunderstood web of financial 9 10 11

dealings. He has a number of entities that appear to be receptacles for or payment vehicles for moneys that have come into this business over time. When I am told that he has limited

12 funds and I am told that he cannot show, or hasnt shown or demonstrated at this point, that 13 he has legitimate income from the operation of this business, it causes significant concern to 14 15 16

the court. See Exhibit 18, 16:05-16:45. Use of intermediary accounts. By way of example, in February 2013, Defendant

17 directed a new investor from China to route his investments to Green Power through an 18 intermediary account. On February 5, 2013, the Chinese investor sent J.C., a Green Power 19 20 21

employee, $985,000 to her (J.C.s) personal account. From that money, she then obtained a $495,724 cashiers check, which was used to pay Green Powers rent at the Port of Pasco.

22 She also purchased a cashiers check in the amount of $43,000, which was issued to 23 WADOT, which maintains a mortgage on Defendants home. See ECF 23, Exhibit 9. From 24 25

February to August, 2013, J.C. has withdrawn over $200,000 in cash from this account that she provided to Defendant.

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Access to Cash: In addition to the $200,000 J.C. gave Defendant in the past 10

2 months, on October 25, 2013, Defendant withdrew $28,000 in cash from Key Bank Account 3 XXXX6137, which is his personal account. Defendant told the PTS that the balance on this 4 5 6

account is approximately $300, which is accurate now. However, the government has concerns about where the $28,000 cash withdrawal is currently located. Defendant asserted

7 in his brief that the funds were wired to Senegal, ECF 27 at 5, however, the records show 8 that Defendant wired only $6,700 to Senegal on October 25, 2013. The remainder is 9 10 11

unaccounted for. Moreover, the most recent bank statement the government has obtained for this account shows that from September 19 to October 2013, Defendant received $94,380

12 in deposits and he withdrew $63,372.40. See ECF 23, Exhibit 10. In his personal account, 13 he received $86,000 from Green Power Senegal. Access to money in substantial amounts 14 15 16

such as these provides the ability for Defendant to flee. Moreover, Defendants lifestyle is entirely inconsistent with him having only $660 in

17 cash available to him. 18 19 20 21

Offer to Purchase $2.5 million home: In early 2013, Defendant made an offer to purchase a home in Kennewick, Washington for $2.5 million. He intended to put the title in the name of another trust, the Crotana trust. See ECF 23, Exhibit 11. This is significant for

22 two reasons. First, this is another example of Defendant attempting to use trusts to hold 23 assets. Second, Defendant failed to disclose the existence of this trust and any assets of this 24 25

trust during his initial interview with PTS. Third, as of January 2013, Defendant believed he had sufficient assets to make a down payment on a $2.5 million house, and an anticipated

26 27 28 United States Response to Defendants Motion For Revocation of Detention Order - 9

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income stream where he would be able to make payments on the balance of the loan. This

2 appears to be inconsistent with the financial picture he now paints. 3 4 5 6

Familys lifestyle: Defendants teenage sons regularly post on social media about their expensive toys. One of his sons drives a Hummer, and both recently acquired new gaming systems. See ECF 23, Exhibit 12 . On December 4, one son posted a photo of

7 himself with over a hundred pair of athletic shoes, and posted a photo of himself holding 8 approximately $1,500 in cash. See id. In this photo, Defendants minor son is holding more 9 10 11

money in cash than Defendant claimed to possess to the PTS Office. There must be a source of income that pays for this lifestyle. This is significant because such as income stream has

12 not been disclosed to PTS and is a source of funds for potential flight. 13 14 15 16

Defendant also has a history of using corporate entities and trusts to hold assets: Prarex Intl Limited: Prarex International is a company associated with Defendant. He has offered to post as part of his bond five cars valued at approximately $100,000 that are

17 titled in the name of Prarex International (ECF 13 at 2). Defendant now claims that there are 18 no other assets in the name of Prarex assets. 19 20 21

The government is aware of at least two prior Bank of America accounts in the name of Prarex International, that appear to have been closed in June 2012. The signature card for

22 Bank of America account XXXX9602, dated November 10, 2010, in the name of Prarex 23 International Limited, Defendant listed himself as the President, Secretary, and Treasurer of 24 25

Prarex International Limited. See ECF 23, Exhibit 13. There was at least one other Prarex International Bank Account, of which the

26 27 government is aware, Bank of America Account XXXX9617. In February of 2011, an 28 United States Response to Defendants Motion For Revocation of Detention Order - 10

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uncharged victim, E.V.R., from the Netherlands, wired $600,000 to this account. See ECF

2 23, Exhibit 14. Defendant routinely paid Green Power business expenses from this account, 3 as well as used it for personal expenses. See id. In addition, in September 2011, Green 4 5 6

Power issued a cashiers check to Prarex International in the amount of $64,000. See ECF 23, Exhibit 15. In 2011, three cashiers checks were purchased, totaling $190,000, from this

7 account, which were remitted to WA DOT Capital, which holds the mortgage on 8 Defendants home. See, e.g., ECF 23, Exhibit 16. This is another example of Defendant 9 10 11

utilizing a corporation to house assets that could fund flight. Moreover, since Defendant appears to be in control of the assets of this corporation and has in fact benefitted from the

12 assets of the corporation, those assets, if any, should be disclosed to PTS. 13 14 15 16

Beacon Light: Defendants current home, (which is the subject of Count 13 and a forfeiture allegation), is in the name of Beacon Light, a trust he claims is owned by his children. ECF 13 at 2. The house was purchased initially by Beacon Light, a limited

17 liability company, over which he was President. See ECF 23, Exhibit 17. This home was 18 purchased with funds he stole from Exoterm Holdings, that were laundered through one of 19 20 21 22

J.C.s bank accounts, as set forth in the Indictment. This is yet another example of him using a corporate entity and/or a trust to hide assets. Defendant has mastered the skill of using corporate entities and trusts to house assets

23 and funnel money to purchase personal items, such as cars and houses, to avoid those funds 24 25

being seized for prior judgments. The existence of funds in trusts and corporations, for which Defendant has access to those funds, should have been disclosed to PTS. More

26 27 importantly, any such funds are a potential source of means to Defendant in the event he 28 United States Response to Defendants Motion For Revocation of Detention Order - 11

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intends to flee. Defendants practice of taking Green Power assets and putting them in

2 corporate names and/or trusts, then informing PTS that he has minimal assets to contribute 3 toward a bond is indicative of the fact that Defendant is being deceitful, and cannot be 4 5 6 7 8 9

trusted by the Court to comply with conditions of release. 5. Defendants failing business provides no incentive to remain in the United States.

Defendant contends that he is not a flight risk because that would require him to abandon Green Power, his business. ECF 30 at 8. In fact, Green Power, has been evicted

10 from the Port of Pasco. See Exhibit 20, Article: Green Power Loses Tenancy at Port of 11 Pasco; Exhibit 21, FBI 302 of Pasco Port Director. The article notes that the plant was never 12 13 14

completed and in fact was closed by the Department of Ecology in 2009 because he lacked the necessary permits. See Exhibit 20. To date, Green Power has failed to produce a

15 functional plant. The current state of his business would provide no reason for Defendant to 16 remain in the United States. 17 18 19 20 21

6.

Defendants behavior since March of 2013 does not lessen his current risk of flight.

Defendant contends that he is not a flight risk since he did not flee after learning he was under investigation in March of 2013. ECF 30 at 9. First, there is a significant

22 difference at this point; there is a pending indictment. Defendant requested that the 23 government postpone indictment and entered into a tolling agreement in April of 2013. At 24 25

the request of Defendant, the tolling agreement was extended again in September of 2013. In December 2013, Defendant sought another extension of the tolling agreement, which the

26 27 government denied. This Defendant had been stalling facing charges, but now he is no 28 United States Response to Defendants Motion For Revocation of Detention Order - 12

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longer able to prolong this prosecution. What was previously a potential, is now a reality.

2 Second, the government has significant concerns about Defendants behavior while he knew 3 he was under investigation. Defendant was contacting victims, which contact substantially 4 5 6

increased as indictment grew closer, in which he was making unfounded promises to pay them. In addition, any payment he promised was intended to be paid from new investor

7 money. While Defendant was attempting to prolong facing charges, he continued to commit 8 Ponzi-scheme like behavior. His email communications indicate an intent to pay off existing 9 10 11

investors with the new investors funds, which the Magistrate Judge noted smacks of a Ponzi-scheme or other type of artifice or device that would be inappropriate. Exhibit 18,

12 27:30-27:47. 13 14 15

B. The Magistrate Judge properly determined that Defendant poses a risk of danger to the community. While the concept of dangerousness typically focuses on crimes of violence, in fact,

16 white collar crimes pose serious dangers. The legislative history of the Bail Reform Act of 17 18 19

the 1984 makes clear that Congress intended that the safety of any other person or the community language in Section 3142 was expected to be given a broad construction. See

20 Report of the Senate Committee on the Judiciary, S. Rep No. 225, 98th Cong., 1st Sess. 12 21 (1983) (the reference to safety of any other person is intended to cover the situation in 22 23 24

which the safety of a particular identifiable individual, perhaps a victim or witness, is of concern, while the language referring to the safety of the community refers to the danger that

25 a defendant might engage in criminal activity to the detriment of the community. The 26 Committee intends that the concern about safety be given a broader construction than merely 27 28 United States Response to Defendants Motion For Revocation of Detention Order - 13

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danger of harm involving physical violence.). This legislative history was cited with

2 approval in United States v. King, 849 F.2d 485 (11th Cir. 1998). 3 4 5 6

Courts have appropriately construed the statute to find that protection of the community from economic harm is a valid objective of bail conditions. See United States v. Reynolds, 956 F.2d 192, 193 (9th Cir. 1992) (post-conviction for mail fraud and witness

7 tampering, the Court held that for purposes of detention, danger may, at least in some cases, 8 encompass pecuniary or economic harm); see also United States v. Giordano, 370 9 10 11

F.Supp.2d 1256, 1270 (S.D. Fla. 2005) (no question that an economic danger, like that posed by a serial defrauder, falls under the broad umbrella of dangerousness as that term is

12 used throughout the Bail Reform Act); United States v. Madoff, 586 F.Supp.2d 240, 253 13 and n. 11 (S.D.N.Y. 2009) (Court accepted that in certain circumstances an economic or 14 15 16

pecuniary harm may give rise to a consideration of danger for purposes of pretrial detention and noted that [t]he question appears to become one of propensity to commit further crimes,

17 even if the resulting harm is solely economic). 18 19 20 21

Defendant has a lengthy criminal history for fraudulent conduct. Defendant has a 1989 forgery conviction from Austria, and a 1992 fraud conviction in Austria. He was released from an Austria prison in 1995, obtained a passport and traveled to the United States

22 within a matter of weeks. When he arrived in the United States, Defendant lied on his visa 23 application about having a prior criminal history to enter the country. He subsequently lied 24 25

on his legal permanent resident application about having a prior criminal history, which led to a 1998 federal false statements conviction. Defendant was charged with another fraud

26 27 scheme in Austria in 1997, but successfully defeated Austrias request to extradite him, 28 United States Response to Defendants Motion For Revocation of Detention Order - 14

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arguing that the extradition treaty was invalid. As a result, he has not faced that charge in an
2

2 Austrian court. 3 4 5 6

Defendant engaged in the instant conduct from 2007 to the present. As recently as last week, Defendant sent victims emails indicating he was on the verge of receiving $37.5 million in the near future, which the government believes is equally fraudulent. More

7 importantly, he has promised the new investors funds to the prior victims, when the contract 8 provides the funds are to be used for other purposes. Despite the fact Defendant was facing 9 10 11

fraud charges, Defendant has continued a pattern of deceit, which he has been doing for nearly 30 years. His repeated fraudulent conduct, which continued to occur just days before

12 indictment, establish that he is a danger to the community. 13 14 15 16 17


2

C. The Defendant poses a risk of obstructing justice and the Magistrate Judge properly determined that Defendant is unsupervisable . 1. Defendant has contacted his victim-investors numerous times since learning of the federal investigation, as recently the week prior to indictment, promising to pay them back.

18

Defendant contends that it is alleged that [he] was convicted of crimes in Austria in 1989 and

19 1992. ECF 30 at 13. In fact, his 1998 false statements charge was for failing to disclose on his 20 LPR application that he had previously been arrested, charged, convicted, and imprisoned for fraud 21 in the Republic of Austria. See Exhibit 22, Superseding Indictment, CR 97-279R WDWA. 22 23 The governments sentencing memorandum in that case references his prior foreign convictions. See 24 25 Exhibit 24, Govt Sent. Memo at 1-3, and attachments. Even Defendants sentencing memorandum Defendant was convicted and sentenced to six months of incarceration. See Exhibit 23, Judgment.

26 refers to his prior Austrian convictions. See Exhibit 25, Def. Sent. Memo at 2. For Defendant to 27 refer to the prior foreign convictions as allegations is further indicative of his lack of candor. 28 United States Response to Defendants Motion For Revocation of Detention Order - 15

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1 2

Defendant has been aware of the federal criminal investigation since approximately March of 2013, when the parties began pre-indictment negotiations, which were

3 4

unsuccessful. Defendant became aware of the substance of the investigation and who the

5 likely charged victims were due to his participation in a government reverse proffer. Since 6 that meeting, Defendant has regularly contacted the victim-investors, making promises that 7 8 9

he would repay the funds. Those contacts substantially increased as indictment approached. Defendant was aware that an indictment would be presented the week of December 9, 2013,

10 because the parties had a tolling agreement as to the statute of limitations, which was set to 11 expire in mid-December. 12 13 14

Chakra Energy victims (paragraphs 9-14 of Indictment): Chakra representative G.B. was interviewed on October 24, 2013, during which he reported that Defendant contacted the

15 Charka victims in September 2013 and promised them payment. G.B. also reported that 16 Defendant had contacted his father, D.B. the day before the interview, October 23, 2013, and 17 18 19

promised he would pay back the money by the end of the month. See ECF 23, Exhibit 1 at p. 3. Moreover, on December 5, 2013, five days before the Indictment was returned, Defendant

20 emailed victim G.B., attached a contract, and told the victim that Defendant would get paid 21 on the contract in either December or January, and that Defendant would pay the victim out 22 23 24 25

of any proceeds. He also offered to give G.B. 3% of shares of Green Power. See ECF 23, Exhibit 2. Bailey Wastepaper victim (paragraphs 23-26 of Indictment): Defendant has made

26 several attempts to contact A.B. via telephone, email and text message from December 4 to 27

December 6, 2013, which were the days preceding the indictment. See ECF 23, Exhibit 3.

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Canadian Partners (paragraphs 15-22 of Indictment): B.G., a representative of the

2 Canadian Partners group, was interviewed on October 9, 2013. He reported that Defendant 3 had called him in the past few weeks, prior to the interview, to tell B.G. that B.G.s refund 4 5 6

was coming. See ECF 23, Exhibit 4. On December 5, 2013, Defendant emailed a representative of the Canadian Partners Group, and informed them he had a new contract, for

7 which he would receive payment in December or January. See ECF 23, Exhibit 5. 8 Defendant promised the victims that they would get paid out of the contract. Significantly, 9 10 11

the attached contract is for the sale of units to convert waste to fuel. Based on the governments investigation, there is certainly reason to question the legitimacy of this

12 contract. But more importantly, Defendants promise to use the new investors money to pay 13 the prior victims is substantially similar to the fraud with which he is charged. The new 14 15 16

contract provides that in December 2013 or January 2014, Green Power is permitted to withdraw 15% in advance in order to buy material, equipment, and machineries. It says

17 nothing about paying off prior investors. If this contract is legitimate, Defendant is 18 potentially committing fraud on the new investor; this appears to be yet another Ponzi-like 19 20 21

scheme against the new investors. Defendant contends that these emails do not show that Defendant intends to pay the

22 investors from the 15% advance and thus his behavior is not fraudulent. ECF 30 at 12. His 23 contention is entirely inconsistent with Defendants statements in the emails. See ECF 23, 24 25

Exhibit 2 at p. 2 (I attached a contract which will pay either in December or latest January I want to get you paid out of this.); see also ECF 23, Exhibit 5 at p. 1 (As we spoke on the

26 27 phone, here is a copy of the signed contract with payment guarantee from our Buyer. If 28 United States Response to Defendants Motion For Revocation of Detention Order - 17

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agreeable to you we would like to get you paid out of the first money we receive from this

2 contract, which will be hopefully in December but the latest in January.). Defendant then 3 contends that it is just as likely that the email referred to payment after Defendant received 4 5 6

full payment for selling the new investor the machinery. This is an absurd suggestion, given that Defendant has never in the history of the company delivered any product to an investor.

7 In addition, Defendants attempts to recruit money on the eve of Indictment is suspicious. 8 The government believes it is highly unlikely that Defendant informed this new investor that 9 10 11

(1) these funds were going to a new investor; in fact, the contract states what the funds could be used for: material, equipment, and machineries; and (2) Defendant was facing imminent

12 federal charges. Defendant contends that that there is nothing untoward about his attempts to 13 repay investors. ECF 30 at 16. However, there is something very wrong about paying 14 15 16

existing investors with new investor money unbeknownst to a new investor; it is called a Ponzi scheme and it is illegal. What is readily apparent is that Defendant does not

17 understand that he cannot take money from investors under certain pretenses and then intend 18 to use the money for other purposes. This is precisely the reason he was indicted and he was 19 20 21

engaging in the same conduct while he was under investigation and facing indictment. The debts to these investors have been outstanding for years, since 2007 to 2009. The

22 fact that Defendant was contacting them as the federal investigation is ongoing and 23 approaching an indictment, is not a coincidence. Importantly, Defendants contacts with the 24 25

victims are particularly significant in this case, which involves mostly foreign investors. The timing of these communications leads the government to believe that Defendant is trying to

26 27 lull the investors into believing that funds may be forthcoming so that the victims will cease 28 United States Response to Defendants Motion For Revocation of Detention Order - 18

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cooperating with the government. In a foreign case, the government must rely on the

2 voluntary cooperation of foreign victims. The government does not have subpoena power 3 over such victims. As a result, if Defendant is able to convince them that money is 4 5 6 7 8 9

forthcoming and they stop cooperating with the government, it would significantly impact the ability of the government to prosecute Defendant. 2. Defendant is currently charged with and has a prior history of fabricating documents, which falsely represent they are authored by attorneys. In this criminal case, Defendant is charged with Aggravated Identity Theft (Counts

10 11-12) for sending his victim-investors emails, falsely representing that the emails were from 11 a lawyer. In those emails, Defendant used an email address that indicated it was associated 12 13 14

with S.C., a lawyer licensed in Washington, based in Issaquah, and he also signed the emails on her behalf. See ECF 23, Exhibit 6. In fact, the government has determined through IP

15 addresses that these emails were sent from Defendants home in Kennewick. These emails 16 imply that Defendant wants to return investors funds to the victims, but in fact, the lawyer is 17 18 19

advising him not to do so. At the time of the emails, Defendant had already spent the investors funds and the funds were not available to be returned to the investor. The

20 government has located numerous instances (beyond these two emails), where Defendant 21 sent communications to victim-investors that were purportedly from attorney S.C. See, e.g., 22 23 24

ECF 23, Exhibit 7. This is not the first time Defendant has engaged in such conduct. On November 27,

25 2007, Defendant sent an email to investor-victim W.F. (referenced in paragraphs 27-29 of 26 the indictment), in furtherance of his scheme to convince the investor to send Defendant 27

funds. See ECF 23, Exhibit 8. In the email, Defendant forwarded an email that he said he

28 United States Response to Defendants Motion For Revocation of Detention Order - 19

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received from his attorney G.G., which states that we got an understanding with IRS

2 Special Agent Hugo Sanchez that based on [Defendants] acceptance and agreeing to extend 3 the voluntary freeze on all your accounts and assets until January 15th, 2008, that he agreed 4 5 6

to release the freeze no later than Tuesday, January 15, 2008. The government has confirmed with the IRS that no Special Agent by the name of Hugo Sanchez existed and

7 confirmed that attorney G.G. did not author that email. 8 9 10 11

Defendants repeated conduct of fabricating documents, including communications falsely stating they are from a lawyer, demonstrates that he is a risk to obstruct justice and would be difficult to supervise in any meaningful fashion. Moreover, as the Magistrate

12 Judge noted, there is no way to supervise a defendant like this. Since Defendants family 13 will have access to electronic devices, such as phones, computers, etc., there is no way to 14 15 16 17

prevent him from reaching out to more potential victims while on pretrial release. See Exhibit 18, 27:50-28:20. The evidence establishes that defendant presents a serious risk of flight, a serious risk

18 of obstruction of justice, and that he is a danger to the community. Defendant is asking the 19 20 21

Court to trust him and his promise to appear at future court hearings and not engage in additional criminal and obstructive behavior. Yet everything about the nature and

22 circumstances of this case and Defendants history shows that he cannot be trusted. 23 24 25 26 27

Dated this 3rd day of January, 2014. MICHAEL C. ORMSBY United States Attorney s/ Mary K. Dimke MARY K. DIMKE Assistant United States Attorney

28 United States Response to Defendants Motion For Revocation of Detention Order - 20

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I hereby certify that on January 3, 2014, I electronically filed the foregoing with the

2 Clerk of the Court using the CM/ECF System which will send notification of such filing to 3 the following: Chris Black. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 United States Response to Defendants Motion For Revocation of Detention Order - 21

s/ Mary K. Dimke Mary K. Dimke Assistant United States Attorney United States Attorneys Office 402 E. Yakima Ave., Suite 210 Yakima, WA 98901 (509) 454-4425