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BILL BOYD

Texas Bar No. 0278000


bill@boyd-veigel.com

RUSS A. BAKER
Texas Bar No. 24045440
russ@boyd-veigel.com

BOYD-VEIGEL, P.C.
P.O. Box 1179
McKinney, Texas 75070
Telephone: 972-562-9700
Telecopier: 972-562-9600

Attorneys for Armstrong

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

UNITED STATES OF AMERICA

Plaintiff No. CR 94 276 PJH

v. EXHIBITS TO
ARMSTRONG’S REPLY IN SUPPORT OF
CONNIE C. ARMSTRONG, JR. 28 U.S.C. § 2255 MOTION

Defendant

Armstrong submits these Exhibits to his Reply in support of his pending motion under 28

U.S.C. § 2255 and in traverse of the factual allegations and legal argument provided in the

government’s response of July 24, 2009.

EXHIBITS to Section 2255 Reply - Page 1


TABLE OF CONTENTS

Letter from Armstrong’s counsel to Ninth Circuit ..........................................................................3

Ninth Circuit’s Recall of its mandate, April 22, 2008 .....................................................................5

FBI Letter referencing prior investigation, September 23, 1988 .....................................................6

FBI Letter referencing prior investigation, February 8, 1988 ..........................................................8

Baker & McKenzie opinion letter, October 29, 1981 ....................................................................14

FBI memo disclosing political influence and lack of probable cause, March 8, 1991 ..................19

Financial report showing creditor’s claims, including $100 million whistleblower claim............23

Federal Express Original Complaint..............................................................................................34

Wall Street Journal article induced by Pelosi and Boxer ...............................................................41

Status memo from FBI deputy Director Potts to Howard Baker, Pelosi, and Boxer.....................43

Hearing transcript of January 13, 1997 discussing late-produced audio tapes ..............................44

Affidavit of FBI Special Agent Hatcher disclaiming prior knowledge of audio tapes ..................56

FBI memo showing prior authorization for tapes given to Hatcher by AUSA Yamaguchi ..........60

Hearing transcript of January 27, 1997 discussing late-produced audio tapes ..............................61

Government brief authored by Yamaguchi in opposition to law of the case instruction ..............69

Partial FBI 302 disclosing Hamilton Taft problems prior to Armstrong’s acquisition .................81

FBI 302 re. between FBI and counsel for bankruptcy trustee .......................................................84

FBI 302 wherein witness stated bankruptcy trustee was doing the work of the FBI.....................87

FBI memo regarding meeting between prosecution team and trustee to plan prosecution ...........89

EXHIBITS to Section 2255 Reply - Page 2


BOYD · VEIGEL
ATTORNEYS

July 30, 2007

CERTIFIED MAIL NO. 7004289000042213 9412


RETURN RECEIPT REQUESTED
Clerk of the Court
U. S. Court of Appeals for the Ninth Circuit
P. O. Box 193939
San Francisco, CA 94119-3939

Re: Court of Appeals Docket No. 00-10399; Filed 9114/00 -


USA vs. Armstrong; Appealed from N orthem District of California (San Francisco)
Our File No. 3964.060452

Dear Clerk:

I represent Connie Armstrong, Jr., who is the Defendant-Appellant in the above styled and numbered
cause.

On June 4, 2007, I sent your office a letter asking about the status of two pleadings filed in this case
by Mr. Armstrong. One of those matters was a pro se petition for panel rehearing and petition for
rehearing in banc which was apparently received and filed in your office on May 29,2002.

We received a prompt reply from you on June 13,2007 providing us with an order from the Court
which was filed in your office on January 31, 2003 (the" Order"). The Order denies Mr. Armstrong's
petition for rehearing and petition for rehearing in banco

Mr. Armstrong was never provided with a copy ofthe Order or given any notice as required by Rule
36, F.R.A.P., thatthe Court had denied the relief requested. It is my understanding of Rule 13 of the
Supreme Court Rules that he is entitled to file a petition with the Supreme Court for a writ of
certiorari within 90 days after entry of the Order, and, if no such petition is filed, he is entitled to
seek habeas corpus relief pursuant to 28 U.S.C. §2255 within one year after the time has expired for
the filing of a petition for certiorari.

Accordingly, it is obvious that, due to the lack of notice of the entry of the Order, Mr. Armstrong has
been prevented from exercising any further review of the proceedings which resulted in his
conviction. We therefore are requesting that the Court re-establish the date of the issuance of the
Order so that Mr. Armstrong will be able to retain his rights to take a further appeal and/or review
of the Order.

Since Mr. Armstrong is a federal prisoner who was entitled to have the Order and his conviction
reviewed by further proceedings authorized by law, his request should be given special consideration

McKinney, Texas 75070 972.562.9700 Fax 972.562.9600


r n ECnp'if
P.O. Box 1179

EXHIBITS to Section 2255 Reply


• SL- PageU 3
A Professional Corporation
m
July 30, 2007
Page 2

to take the steps other litigants


by the Court. Witho ut the aid of counsel, it was impos sible for him
filed in the Courts and to
can take to monito r the proces sing of pleadi ngs and reques ts for relief
ts, federa l prisoners like Mr.
insure that such reques ts are proper ly ruled upon. Unlike other litigan
tions regarding the promp t
Armstrong are unable to travel to the cOUlihouse or to take other precau
, we ask that Mr. Armstrong's
resolution of matters they have filed with the Court. Accordingly
Court and that the date of the
failure to timely file a furthe r review of the Order be excuse d by the
his legal right to seek a further
Order be re-esta blishe d so that Mr. Armst rong will be able to exercise
review of the Order and/or his conviction.

Very truly yours,

BB :vn BILL BOYD


0707290/060452

cc: Conni e C. Armst rong, Jr.

COMPLE TE THIS SECTION ON DELIVER Y

A. Signature
• Complete items 1, 2, and 3. Also complete :_c . . ~ Agent
item 4 if Restricted Delivery i,s desired.
• Print your name and address on the reverse
x - - I
LS 0 Addressee

so that we can return the card to you. B. R~ceived by ( Printed N~me) C. Date of Delivery

• Attach this card to the back of the mail piece,
or on the front if space permits.
j ~ 1
D. Is delivery addreS§ different from it~eS
1. Article Addressed to: If YES. enter delivery address trelow: 0 0
Fl.£.D _ ,.,-\j-\l
--~" ,',_.- .. -- . ~ -~ .- '--~I
DOC~E:. \ t.u---- Op.'l
.::r-
CI Certified Fee
Clerk of the Cour t ;i
CI
Return Receipt Fee
CI
(Endorsement Required)
!------ ....o.... ...j
U. S. Court of Appe als
:i=! Restricted Delivery Fee
P. O. Box 1939 39 3. 3 rvice Type
CO (Endorsement Required) 1---- ----- 1 lJQ. Certified Mail 0 Express Mail
ru San Francisco, CA 94119 o Registered .iJ Return Receipt for Merchandise
Total Postage & Fees '-'-_ _ _ _----' o Insured Mail '0 C.O.D.
Clerk of the Court 4. Restricted Delivery? (Extra Fee) DYes

U. S. Cour t of Appe als >ticle Number


1939 39 '-fer from service lat 7004 2890 0004 2213 941 2
P. O. Box
Domestic, Beturn Receipt 'f: ':>1'-' / . lXt;O<{ J ) - -102595-0
I

EXHIBITS to Section 2255 Reply - Page 4


2.M.1540
11 , February 2004
San Franc isco CA 9411
Case 3:94-cr-0027f JH Document 531 Filed 04/25, )8 Page 1 of 1

FILED
APR 22 2008

MOLLY C. DWYER, CLERK


u.s. COURT OF APPEALS

UNITED STATES OF AMERICA, No . 00-10399

Plaintiff-Appellee, DC# CR-94-276-CAL


Northern California
v. (San Francisco)

CONNIE ARMSTRONG, JR., ORDER

Defendant-Appellant.

Before: BROWNING, KLEINFELD and GOULD, Circuit Judges

Armstrong's letter is a construed as a motion to recall the mandate, and so

construed, the motion is granted. We recall the mandate issued on February 10,

2003.

The order issued on January 31, 2003 is withdrawn.

The panel has voted to deny the petition for panel rehearing .

The full court has been advised of the petition for rehearing en bane and no

judge has requested a yote on whether to rehear the matter en bane. See Fed. R.

App. P. 35.

The petition for panel rehearing and the petition for rehearing en bane are

denied. The mandate shall issue forthwith.

KBiResearch

EXHIBITS to Section 2255 Reply - Page 5


u.s. Departmen. ~C Justice

Federal Bureau of InveStlgatlOn

In Reply I Ploa-se Refer 1;0 450 Golden Gate Avenue


Ftle No San Francisco, California 94102

September 23, 1988

Mr. Joseph P. Russoniello


united states Attorney
Northern District of california
450 Golden Gate Avenue
Box 36055
San Francisco, California 94102
Attention: Mr. Flay Dawson
Assistant u. S. Attorney
Re: I~~~ ......~ _
PRESIDENT, dba
HAMILTON TAFT AND COMPANY,
SAN FRANCISCO, CALIFORNIA;
UNKNOWN SUBJECTS I dba
MAX FHARMA, INCORPORATED,
200 CRESCENT COURT, SUITE 1375,
DALI.AS TEXAS;
POSSIBLE WIRE FRAUD
Dear Mr. Russoniello: b -: i:

Referenced conference between Assistant U.s. Attorney


(AUSA) Michael Yamaguch~ and Special Agent (SA) I I
on September 14, 1988.
This letter is to confino. the above referenced
conference in which SA I I
delineated the details of the
allegation and the results or his investigation to date regarding
captioned matter. AUSA Mike Yamaguchi indicated based on what
was presented to him as well as his examination of documentation
pertinent to the captioned matter, there was insufficient

1 - Addressee
/1 - San FranClSCO ((196A-2868)
RES/bfa
(2 )

EXHIBITS to Section 2255 Reply - Page 6


Mr. Joseph P. Russoniello

evidence to support a violation of federal law at this time and


he would therefore decline prosecution. AUSA Yamaguchi added if
.

~
further information could be obtained regarding the allegations /
.'
---
presented, he would reconsider his opinion.
Based on AUSA Yamaguchi's declination, our office will
close its investigation into the captioned matter.
Very truly yours,
RICHARD W. HELD
Special Agent in Charge

b7C::
By: I f
Superv~sory Speclal Agent

2*

EXHIBITS to Section 2255 Reply - Page 7


u.s. Department of Justice

Federal Bureau of Investigation

450 Golden Gate Avenue


In Reply, Please ReIer t.o San Francisco, CA 94102
FIle No February B, 1991

yt Ji$-~rtL! ,( ''''''! liI.'6enhtJ/


II nYlDIIIYt{J 1/~1fI '1 th11/1'!uM/ ')7l'N/U
Mr. william T. Mc Givern
united states Attorney
Vi,,1 /til II/If} flo,) '1 htloJ tJ ~~""illt1t .
Northern District of California
450 Golden Gate Avenue
P.O. Box 36055
San Francisco, California 94102
Attn: Mr. Michael Yamaguchi
Assistant u.s. Attorney
Re: Chip Armstrong, dba
Hamilton Taft and
company
#1 Market ~'Plaza,
Spear s~et Tower
r'

San Fr~cisco, Ca 94105


Possi~e Fraud by Wirer
Tax raud
00: San Francisco
Dear Mr. Me Givern:
Our office is SUbmitting the following information to
you for a prosecutive opinion as to 'whether a violation of
Federal Law has taken place.

The San Francisco Division first became cognizant of


the existence of Hamilton Taft and Company in August of 1988 when
I ~as interviewed at our office. I I was
the co-founder of Hamilton Taft and the other founder was one, -
I I who founded the company in ,1979. For your
information r Hamilton Taft is a service company which provides. a
b7C tax paying service on behalf of their clients. Hamilton Taft and
Company collects money from their ~us clients and in turn
pays their clients various feder~, state~ and local income
1 - Addressee 'nn,O '""\ I fJt, -~I~ 1
1 - 196A-2868 ~ I \ , 1/ 'V
PKM/sgc \
(2) \
Enclosures

b7C
EXHIBITS to Section 2255 Reply~!- 9(;ff-
D
Page d15t.:~
8
/ q / .L1 - rJ':: - q '?:J c-< -:- I 11
taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C I I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforernentionedtax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney's
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
opinion that basically stated that at the time a payroll is
rendered, that is paid by the employer, the funds representing
the withheld taxes belong to the federal government. The
employer becomes a trustee for those funds and as such the duties
and responsibilities of a trustee are mandated under common law.

EXHIBITS to Section 2255 Reply - Page 9


In addition various state and federal law mandates how a trustee
needs to act in his capacity as a trustee.
~
Although Hamilton Taft is not the employer but an ...::
"'.

independent agent, it was the opinion of Baker and McKenzie that


~
~ r
::l

~.F"'-l;;'--
the funds are still trust funds and the holder of these funds () I~~~ s~

(Hamilton Taft) still bears the responsibility of a trustee. ~\. -~


~ ~~
S::'~ ~
When interviewed by the Federal Bureau of Investigation ~~ ~
(FBI) I
in August of 1988, I went so far as to stat,e that some <:i::i:::-
individuals representing clients have stated that the collected j.~;.;.~
funds need to be put in a bank account separate from other funds ~ ."~
~ of that particular entity. In addition~ during his tenure at lJ~
"'~~, Hamil ton Taft, Hamil ton ,Taft considered themselves to be trustees "'-t..it ~i
, for those funds on behalf of the various .
taxing agencies. :L:"t>:;;
~ "~ i.'

By way of background information, I I


stated that in ~\ ~
August of 1984, Hamilton Taft was sold to the Cigna.Corporation ~~
the large insurance conglomerate out of Philadelphia, "~
Pennsylvania and Hartford, Connecticut. At that time, Hamilton
Taft had approximately 900 corporate clients and was -handling on
'"a daily basis, approximately $100,000,000 in client deposits.
According to a personality conflict developed
b7C between himself and one formally Executive Vice
President of cigna Corporat~on W 0 was placed by that corporation
as the person in charge of Hamilton Taft's operation. Because of
tbe persynality differences be~enl landl lonel I
I Jwas appointed as President of Hamilton Taft.

Shortly after leaving ,Hamilton Taft in the latter half~\


of 19~5,1 ,1stated he became aware th. at Hamilton Taft stc;rted 1
to lose approx1mately $100,000 per month. He noted that whlle he (.
was President of Hamilton Taft, that the company although not
highly profitable, was able to stay in a slight profit position.
He understands that Hamilton Taft hired another President but'the
company continued to lose, money in C.igna and soon thereafter
began to look for a buyer for Hamilton "Taft. In December of
1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to
Cigna Corporation as a down payment for the purchase of Hamilton
Taft. On February 29, 1988, Maxphrama Incorporated completed 'its
purchase of Hamilton Taft from Cigna Corporation. / .
____~'also stated to onel I former Executive
Vice President in charge of operations for Hamilton Taft provided
him with the foregoing information. r--1allegedly toldl Ion
February 27,1988 that~ I ~iml ! transfer
$5,000,000 by wire transfer to a brokerage house in New brl~ans,
Louisiana called the Howard Wiel Labluisse Friedricke Investment
Security Incorporated. Al1eqediy~toldl I that this wire
transfer was td'"purchase a Treasury B111 at 5 1/2% interest. r I
allegedly asked I Iwhy she was purchasing a Treasury" Birr--

EXHIBITS to Section 2255 Reply - Page 10


with such a short yield period, I I would not respond to
Mayl s question and just told him to do it. c::::::J told! I that
the $5,000,000 was exclusive~stomer funds which were put on
deposit with Hamilton Taft. ~told' ~that at the time the
transfer was made, Hamilton Taft did not have any funds of its
own.
~__I noted that the form 8-K report which,. was filed in -'-'.
the Securities Exchange Commission (SEC) by Maxphrama for the
purchase of Hamilton Taft, Maxphrama states it has used a
$5,000,000 Treasury Bill to secure a promissory note which funds
were used to conclude the ~urchase of Hamilton Taft from Cigna
Corporation. According tal Itold him that these funds
had been transferred to th~s brokerage firm from customer funds
in the custody of Hamilton Taft. According toL' . ~ also
advised thatl J

Ihad directed him to wire transfer $50,000


; -

in an unrelated transaction.
hJ--l:--\"'"
In order to assist you in preventing your opinion from fs
a historical point of view~ Yle are enclosing a copy of the actual r ~I~
7 [~

b7C
FD-302 noting interview Of, I
with appropriate copies of -J /~'~ '1\
documents provided byl to our agent. --/-t G
I
was also interviewed in December of
1988. I~--:===~Ih~a~d~b~e~e~n~hiired by Hamilton Taft as Treasurer-
Manager of the firm. I I is a Certified Public Accountant
I
(CPA) having become a CPA in the state of ta~;f:rnia
Ibasically stated that shortly after became
:': t986.
President of Hamilton Taft, she told him t a sewall e making
the day to day investment decisions regarding the funds of
Hamilton Taft. She instructed him not to make any investment
unless she okayed them. He explained to her that any monies b7C
collected from the clients only had a two or three day "window"
during which they could be invested prior to having to be paid to
taxing entities. Thereafter, all investments he made, other than
into commercial paper, were done at the direction ~ L
I I In connection with his responsibilitiesC: ~would
assist in the preparation of the monthly financial statements for
Hamilton Taft. Each month a meeting would be held to discuss a
just completed financial statement for the previous month. At
the close of such a meeting in April, 1988, after the close of
the April financial statements,l lstated that he had a
conversation with in her office. During this
conversation was bragging on the financial strength of
Maxphrama an ow axphrama was in the process of purchasing C &
H Nationwide Incorporated, a specialized trucking company.
Apparently, in order to sUbstanti~te herr statements and the
strength of Maxphrama, she showedL _ the Hamilton financial
statement which listed Hamilton Taft's assets in excess of
30,000,000. r I
financial picture was quite different than
the financial statements which he had prepared for Hamilton from
the month of April, 1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} - , :~: ~~'J~t::1JDL~~~ ~/~:.~~,
~r::'~:,:~~~ i,"'" t"'"'' ''''U' k'" '.' I

EXHIBITS to Section 2255 Reply - Page 11


~
pparent to~ lin looking at the financial
statement showed him that someone had taken the April,
1988 financ~a statements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
reta)U:d earnt'ngs at approximately $200,000. , Istated he
toldL _ . during this conversation that he thought the
financ~al statements which she had showed him for Hamilton Taft
were a fabrication and not rl:prese:ta~ive of Hamilton Taft's
actual financial condition. _ ~ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
~~~_rnoted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
oil I is incorporated as part of this communication.
It should also be noted that onel was I
interviewed in september of 1988 regarding his former employment
with Hamilton Taft. At the time of this interview,c::J stated
that he was self-employed as a consultant specializ~ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withc::J is
attached hereto.

This matter was informally presented to the united


states Attorney's office which concluded that there was a lack of (.
evidence to support the violation of any federal law at that
time. Our case was subsequently closed. I IttI j J.'j(J ; : .'. ". /$. ' .~..-,..
~/Dd tl~/ w(J~ rJ~ . ..,..,,~.fJ _~,~M:.,•.'"

On December 24, 1990 7 -the. o~fiqe receiy..etf~complaint S/,.; :..~j:A.


Icall from one I ~L .Cont.r~~ler "and CPA. I I
( stated that he was the current Controller of Hamilton Taft and
that he was calling the FBI because he felt that his employer was). < }11
cheating the Internal Revenue Service - (IRS) by not paying ta~es (--/1'li'~ I-J; ,'iiI
owing to not only the I~S but other taxing entities wh~n th~Y J ;~~
wer,e due. I - ~advlsed that at least $20,000,000 J.n cl~ent rJIJ ' ! --~:'t
funds have been transferred to accounts controlled by Chip ~B~ .
Armstrong, the new CEO of Hamilton Taft. I I stated that
tbe:e f"rdS were used to purchase one or more companies in Texi?-s.
I ~ stated that Hamilton Taft had approximatel: 100
emp oyees in San Francisco in July of 1990. I t advised
.

Armstrong is basically operating a Ponzi scheme, ut~lizing the


tens of millions of dollars which are sent to Hamilton Taft for
the ultimate payment of tax liabilities sustained by Hamilton
Taft I s clients. I ~ has documentation, to support his claims r~~ t; ~r\ ~
and is scheduled to present same to t~e rBI on Jar:uary 13" ~991 7"~t:"S~'" ~
at 10: 00 am. I I furth 7r stated that th 7re ~s an ongo~ng , i.; ~:-% ~:
procedure for prov1d~ng lul11ng letters to c11ents who actually ~~~< ~
comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~ ~, ~
\ "" ;= 'f\.~ ~
~, ~" ~ s.;- 'R ~
5 ~~ ~~'.~ ~':,~
~ \.)~~ . :
~,~ ~
~ '(";,:""1 ... ~""
~ ..t"- 1 .;::"....
• ~t··

EXHIBITS to Section 2255 Reply - Page 12


, . . . t;,.i
~~'

~~~~.
'-:
b7e

notice from the IRS. , ~ states that a letter on Hamilton


Taft stationery is generated to the IRS berating the IRS for
having made an error in showing at least the front copy of a
check drawn on Hamilton Taft/s checking account allegedly
demonstrating that payment was actually made on a particular date
for a particular tax liability_ These checks were never sent to
the IRS but a copy of the letter was sent to the client, thereby
stalling the clients further inquiries.
Please contact us at your earliest convenience so that
we might discuss this matter in greater detail.
Sincerely yours,
RICHARD W. HELD
Special Agent in Charge

By: b7C

6*

EXHIBITS to Section 2255 Reply - Page 13


r:'::;AN~(;:=·=-. ,:,:... ... ::=~ . . .:. 9":",·:":'
"'H: .... C
:- ~ o :..&. = ..... .. :.
~

"1I: ruPt'
'- ':-"'C,-.
:,c .. ( ,,·
"O .. G .. o~c.
.. ::.l:e .... l'r.,;·
• .: .... =CN
-·""'· ... G";a ... a.!: .
.... 0 · ' 0
:'..I~·c-

........... ~.;.(' ::r: .. - -':':_~'U: .

Octc=er 19, 1981

Mr. :·iarc Paiva


~amilton Taft & COffi?any
1255 Post Street
San Francisco, CA 94109

Re: Charac:erization of Funds ~ichheld by Employer


'E'or Tax Payments

Dear Marc:

Per your request, this letter Q1SCUSSes the characteri-


zation of funds withheld by employers from employee pay
checks in satisfaction of federal and sta~e income taxes,
Social Security taxes, and state ~nemployment insurance '.
taxes. This letter is limited to a discussion of the In-
ternal Revenue Code ("I.R.C."), t~e California Revenue and
Taxation Code ("Cal. Rev. & Tax. Code"), ;:he California
Unemployment Insurance Code ("Cal. U. Com. Code"), and the
general responsibilities and duties of a trustee as reflected
in the California Civil Code ("Cal. Civ. Code").

An employer is required to withhold from the wages of


employees amounts in respect of federal income taxes (I.R.C.
§ 3402], Social Security taxes [I.R.C. § 3102], state income
taxes [Cal. U. Corn. Code § 13020], and state unemployment
insurance "taxes [Cal. U. Com. Code § 986]. The employer is
liable for the deduction and witr.holding of taxes. I.R.C. 5
3403: Cal. U. Corn. Code § 13021.

Characterization of Withheld Funds

Funds that are withheld or collected as income tax or


Social Security Tax are to be held by the employer as " a
special f:..1nd in trust for the United States." LR.C. § 750l.
u.s ..... Hill, 368 F.2d 617,66-2 ::.S.T.C. ~[9736 at 87382 (5th

EXHIBITS to Section 2255 Reply - Page 14


:-: :'. r c ? ..= ':
:.: 3 j. .J
, 'C ::.:)0-2r :::?, ~ ~ ; ~
?-".:ls:e :'·... 0

2i.~., 1966~. ="...!~ds Lhat are .....'l.-:::~eld cr :::: __ ~cr:ed as s~ate


inco~e c~x 3re ~o be held by ~~e
employer aE "3 special fund
in tr'Jsc for the S't'ate ot Cali=ornia rCcl. -,:. Com .. Cocie §
ll

13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax


.:i r e t 0 be \.; i t h he 1 d "i n t r L1 st. Cal . - U • - Ca ~ . :: 0 d e § 9 8 6 • The
II

duty to keep Withheld taxes as a trust arises as the taxes


are withheld from wages regardless of the or~scribed dace for
~ayment to the government and does not termi~ate until the
taxes are paid over. ';stleforc ' I . U.S., 75-1 U.S .T.C. I! 9464
( D. ~1 i nn. 1975).

During the ?eriod the funds are held i~ trust, the person
holding the f~ndsassumes, with a few except~ons discussed
~elow, the duties and resDonsibilities of a ~rustee as such
duties and responsibiliti~s are mandated under common law.
~arsh v. Home Federal Savinas & Loan Assn, 66 Cal. App. 3d
674, 136 Cal. Rptr. 180 (4th D.C.A. 1977). In general, a
trustee is a fiduciary and is bound to act in the highest
good faith toward his beneficiary, must make full disclosure
of material facts, must not acquire any adverse interest, and
must not use his position to gain any advantage over the
beneficiary or to make any special ~rofit. Cal. Civ. Code §§
2228-2233. A trustee normally should not ~ingle trust
property with his own, but if he do.es willfully mingle the
trust funds with property of his own, he is absolutely liable
for their safety and for the value of thei~ use. Cal. Civ.
Code §§ 2236.

A trustee has a general duty to invest funds for the


benefit of the beneficiaries, but he must account over to the
beneficiaries any interest earned. Cal. eiv. Code § 2262.
In investing, reinvesting, or otherwise managing trust property,
a trustee must exercise the judgment and care which people of
prudence, discretion, and intelligence exercise in the management
of their own affairs. Cal. eiv. Code § 2261. California law
provides a-fairly liberal description of the type of investment
a prudent person would make, including every kind of property,
real, personal, or mixed, and every kind of investment which
a prudent person might enter into. Id.

Notwithstandin~ the foregoing, the parties to the trust


may alter or waive any of the standard pro~isions and duties.
Rest. 2d, Trusts § 216. It is possible for the parties to a
trust arrangement to authorize commingling of funds, to authorize
the trustee to retain any income rrom the trust assets, and

EXHIBITS to Section 2255 Reply - Page 15


.' : r. ~·1 arc r' 2 V i..J
>: tobe r .2 9, : 9S1
?age Three

:0 consent ~o various ki~ds of investmen~s. The ~ase G[


:·;acsh Va HOi7le Federal Savir.qs &. Loan Assn. I 66 C::. ';?p . .,)0
6 7 4 , 1 36 Cal.. R~ t: r--:. 1 8 0 (4 t h D. C .. rl.. 1 9' 7 7), i spa =- tic u 1 a t 1 Y
instructive. At issue in Marsh was the proprie~~ and
:egality or ':he lIimpoundll or llreserve" accounts :::.lstomar-ily
required by savings and loan 2ssocia~ions and ba~Ks in
connection with residential ~ortgages to insure ~ayment of
~axes and insurance.. The suit was a class action seeking
general and punitive damages and seeking an acco~nting of
interest on the impound accounts, which were customarily held
~ithout interest.

The Court first determined that the impound accounts


~onstituted trusts, not escrOws. It then considered in
detail the nature of a trust and the duties of a trustee,
observing that the beneficiary of ' the trust may ~aive the
right to any income and may authorize the commingling of
Eunds. Thus, the Court noted that the deed of trust authorizing
the impound account stated specifically that the payments by
the plaintiff would be held by Home Federal "in its general
fund without interest," and concluded that the parties had
agreed that the trustees could commingle and use the trust
funds, but did not have to account for any interest earned.
9.

The statute and cases indicate that the trust funds


created by I.R.C. § 7501, Cal. U. Com. Code § 986, and Cal.
U. Com. Code § 13070 are subject to some modification of the
general rule. Thus, although normally a trustee must segregate
the assets of a trust and not commingle the assecs with his
personal funds, see Cal. eiv. Code § 2236, it is not generally
required that the-Iunds withheld for taxes be held separately
from the general accounts of the corporation or chat they be
deposited in a separate bank account, Slodov v. ~.S., 436
U.S. 238, 78-1 U.S.T.C. ,[ 9447 at 84,206 (1978); Newsome v.
U.S., 431 F.2d 742, 70-2 U.S.T.e. ~ 9504 at 84,1~9 (5th Cir.
1970). The Treasury or the Franchise Tax Board, as the case
may be, may specially require that withheld taxes be put into
separate accounts, however, in the event the employer has
failed previously to make appropriate deposits, payments, or
returns for such taxes, I.R.C. § 7512; Cal. Rev .. & Tax. Code
5 18492.

Furthermore, there is nothing in the statute or any


regulation or case with which we are acquainted to imply that
the government is entitled to any additional interest on the
trust funds doring the period such funds are held in trust.
Thus, it would follow that if an employer decided to forego
interest on the trust funds, he, too, could do so.

EXHIBITS to Section 2255 Reply - Page 16


:·1 r. :·1.3 r c ? a \. i 3-
Oc tobe r :2 9, 1981
?age four

~ole of Co11ec~ing Ager.~

The foregoing discussion has considered the situation of


an emclover. There does noe appear to be any case law, regula-
tion, or statute dealing wit~ an :~dependent agent who actually
pays over the taxes to the sovernment. The funds presumably
are still trust funds, and che holder of those funds still
bears the responsibilities of a trustee. Presumably, however,
the collecting agent may use the f~nds in the same manner as
the employer ~ight have, ana is noe required, insofar as the
Internal Revenue Service or the Franchise Tax Board are
concerned, to segregate the =unds from the general fund of
the collecting agent.

Penalties

The normal penalty for a breach of fiduciary duty by a


trustee is the amount of the loss to the beneficiary. A simi-
lar penalty is imposed by I.R.C. § 6672 or Cal. Rev. & Tax.
Code § 18815: any person required to collect, account for,
and pay over withholding taxes who willfully fails to collect,
account for, or pay over such tax, is liable for a penalty
equal to the total amount of the tax evaded, not collected,
not accounted for, or paid over. ~

The test is " w illfullness." Basicallv, "willfullness"


does not require anintent to deprive the government of its
taxes, Newsome v. U.S., suora, 70-2 U.S.T.C. at 84,151, but
can be evidenced merely by use of the withheld funds for any
other corporate purpose, regardless of any expectation that
adequate funds would be available at the due date for the
taxes. WavchofE v. U.S., 79-2 U.S.T.C • • 9602 at 88,195
(S.D. Tex. 1979). Any person who voluntarily and consciously
risks the withheld taxes in the operation of a corporation is
subject to liability under I.R.C. § 6672 (Cal. Rev. & Tax.
Code § 18815) if subsequently the corporation is unable to
remit the withheld taxes. ~ewsome v. U.S., supra.

In addition to the civil penalties, however, there are


also ciminal penalties. I.~.C. § 7202 provides that any
person required to collect, account for, and pay over any tax
who willfUlly fails to collect, account for, or pay over such
tax shall be guilty of a felony and, upon conviction thereof,
shall be fined not more than S10,000, or imprisoned not more

EXHIBITS to Section 2255 Reply - Page 17


:·lr. :·larc Pa'.'.:..3
October 29, :981
?age Five

than five years. o~ both, together with the costs of prosecu-


tion. Cal. Kev. & Tax. Code § 19408 imposes a fine of nat
mOre than $2,000 or imprisonment [no staeed maximuml, or both
for the similar offense. Although the penalties under these
sections have been imposed only rarely and only in particularly
egregious situations, there is considerable need to be con-
cerned about the potential criminal penalties as well.

If you have any questions or comments.concerning the


foregoing, please do not hesitate to contact us.

t;;jY,
~id L. Kimpert

DLK/aw

..

EXHIBITS to Section 2255 Reply - Page 18


Memorandum

To . SAN FRANCISCO (196A-SF-93255) (P) Date


Date 3/8/91
3/8/91

From sAJ. . .___-----1


sAJ _ (SQ' 5) b7C

Subject CHIP ARMSTRONG, Jr., dba


Hamilton Taft and Company
1 Market Plaza
Spear Street
street Tower
San Francisco, California
FBW; MFi Tax Fraud;
00: SAN FRANCISCO

The purpose of this_memo


this memo is to'document
tO'document events
events that
that
";'::'::~;;"""';~~I"-I:.G.iiIIol~e since ~brua:;y
~~;;;:"":~~Io6..JII'oIIIel...,e
~~~~________~was
9
6bruary 13 II ~
19 whi,?h is the date
which
~was last interviewed by the writer.
date that
On
that
~~~~ On that
that
__________
___________ provided a numbe
~provided numbs ocuments to iter which
iter which
have been disse ~na e y he writer to qA ~A the IRS
or the
or IRS
C~ere in San Francisco, telephone number 556-6850.
C~here 556-6850. ItIt should:
should:
also be noted. noted. that a copy of these documents along with aa summqry summ~ry
of the writer's review of San Francisco file 196A-2868 has has been
been
prepared and disseminated to AUSA MICHAEL YAMAGUCHI at 556-1328. 556-1328.
A copy of this this summary
summary is a matter of record under aa separate
separate
communication which is a part of this file.
Due toto the
the fact that AUSA
AUSA YAMAGUCHI was on annual
annual leave
leave
and did not return to his office until March 4, and/or 5, 1991 1991 no
no
overt investigation was undertaken. This matter was referred to to
YAMAGUCHI
GUCHI because of his previous
revious referral which he handled ~
~
)7C Mr. Y
~g..arding HamHton
re ardin Haml on Taft -in
w'
in which he subsequently
subse entl QIilCl
handled
for
f r- j.n:p
~
~_

I
0]
_
pros e cntiOIL This
l.sck OJ prosecution..
lJlck
_it
This matter was
was handled under--SF
it was
was investigated by S .
and was closed ~h
196A-2868 and
under--SF 196A-2868
--- -7
-7
August, 1988.
with regard to
with to information supplied
supplied byl byl writer
writer I
was reluctant to
was to initiate
initiate any
any overt
overt investigation
investigation for
for fear
fear that-
there potential liagility
~uld~ Eotential
there would~ liability qttached
attached wherein the
governin~nt £.QB1dJ2e
governm~nt £QB1d1;!e accused..Q.t
accused.Qf initiatipg thethe pownfall
downfall ,of
captioned company
captioned byjthe mere
COmpany bvl'the mere fact that
that it was
was making
making overt
overt
inquiries. [I ..- ' .has provided detailed informat.ion
,has which,I ~
information which
of this date, has'been
of has· been unable to be
unable to be thoroughly corroborated.
corroborated.
is being
Progress is
Progress being mademade to
to effect such coriOEorat2on.
effect such corroDorat2on. .
I. I. I~ expressed apprehension in
expressed apprehension in his
his mind
mind regarding
regarding
the "extensive
the "extensive"n time-it
time-it was taking for the
was taking the government
government to to decide
decide
whether or
Whether or not
not to
to initiate
initiate an
an investigation
investigation and
and to effect some
to effect some
criminal process. He
criminal He was
was told
tolc:1 tbat
that the
the government
government haJl._:t.Q ......ll9.;.~_
@~_
ha_g._:t.Q.........
victim before
victim before any
any process
process would
would bebe forthcoming.
forthcoming. He
He was
was further
further

EXHIBITS to Section 2255 Reply - Page 19


196A-SF-93255
PKM/sgc

advised on more than one occasion by the writer of the potential


civil !iability mi~t attach to the revelation to the
liability which miggt
general public that the FBI was conducting or maybe conducting an
investigation into certain alleged criminal activities on tne
the
part of Hamilton Taft. '.

Nonetheless, on February 1-1, 1991~r=


]Ll, 1991~r= Ilsaw
saw fit to
contact the congressional offices here in San Francisco of
congress persons NANCY PELOSI and BARBARA BOXER. ~
Congress
~t'
~presentat' PELOSI's office to whom
on resswoman PELOSI/s
spoke ave arne of an investi ative re orter e
CQDtactjng.. with b~s infdrmat-ion.
~hould consider contacting.. Fel;>ruar~,';
On Fepruar}!'_12.';
infOrmat.iQD. Qn
writ~r as well
~1, the w~it~r wall as ~gentl
~gentl Cln repo~ed
lof the eIn repo~ed
-~ receiving telephone calls from an attorney at the Department of
jnquiry as to the FBI and/or IRS' connection if
Justice making inquiry
any with Hamilton Taft.
b7C
On February 13, 1991, during the interview of~I
ofl~ ________
___
conducted by the writer, he was again questioned as to the reason
for making calls to the aforementioned oonaressional
conaressional offices. He
stated that he was concerned about I

Ifollowing his resignation from Hamilton


~T-a-Y-~t--o-n--F-le-~b--'r-u-a-r-Y~1~1~,~1~9~9~1~.
"'rrl-a,'""'I'.rll"!"'~t--o-n--"F~le""'tb""'r""'u"'a""r-Y~1~1~,~1!"'!9!!"'!!9!!"'!!1~. I
Itt should be noted that
I Il
during this interview on February 13, 1991 re-iterated that fact fact.-
that!
thatl !I
1
1
again reminded of potential civil liability problems tnat
I J--'
I He was J----
that might ~
£n?ue from the publicatiQD
gn?ue publicatigo Qf the possibl~nterest possibl~nterest of the FBI
with res~9t resE§.g~~-Hamilton to-Jiamilton £af~. £af~.

On Wednesday, March 6 1991, the writer received a~


telephone call from SAJ
~N:,
; JIRS CID who advised that he
had been called by a M-. RALPH :IN W, an investigative reporter
for the Wall street Journal here in San Francisco. The purpose
of KING's call to SWAIN was to confirm that the IRS was
conducting~DY§stigation regarding Hamilton Taft.
conducting~nY§stigation On the
morning of March 6, 1991, the writer reviewed message slips that
had arrived on Tuesday, March 5, 1991, the writer having been on
sick leave that day and one of, them was from RALPH KING of the
Wall street Journal. The writer did not return KING's phone
res~g to a page, for a telephone calIon
call, however, in res~g
~h-~) 1991, the writer became connected
the afternoon call of ~h-_6J)
street Journal. The usual inquiries were
to Mr. KING of the Wall street,Journal.
t~at, is we can neither confirm
made and the usual response, t~at,
and/or deny the existence of any investigation was provided to
perturped £y
Mr. KING who seemed perturbed thi§
~ ~espOQse.
~espon~.

EXHIBITS to Section 2255 Reply - Page 20


196A-SF-93255
PKM/sgc
PKMjsgc

On March 6, 1991,1 rr head


head of
of corporate
corporate
security of Sun Micro Systems Inc. atat 2550
2550 Garcia
Garcia Ave.,
Ave., Mountain
Mountain
View, California 94043 telephone number
94043,1 telephone number (415) 336-0496 was
(415) 336-0496 was
called by the writer in response to call that he
call that he had
had made to our
made to our
office on March 5, 1991.
that his office
office had
had
been contacted by was
was
accompanied by an attorney
attorneJ one (ph)
(ph) who
who advised
advised that
that
oflI
the purpose of .. _
_contac J.cro
lcro Systems was to
Systems was to
advise Sun Micro Systems that it had been
been tBe
the victim
victim of
of aa fraud
fraud
perpetrated by Hamilton Taft' on Sun .-.Micro
Micro systems
Systems andand numerous
numerous
Taft. I
other corporate clients of Hamilton Taft. I ~dvised
'advised
the writer that he would fax certain documents
documents up up to
to San
San
5uggestiqn. These
Francisco at the writer's suggesti~n. These documents'included
documents· included aa .
copy of
of· the service agreement that( exists betw~en
thal: exists Sun. .l~icl;"o
betw~en Sun .Mic1;"o .. .
systems and Hamil ton Taft dated (October 1,
Systems 1981 as
1, ..__.1987 as well
well as
as copies
copies
of certain Federal tax forms whicn had been executed
had been executed by
by employees
employees
of Hamilton Taft Company. I~ Ilalso
also advised
advised the
the writer
writer
that II rpad
ad of his own volition convened
several of the corporate representatives
convened aa meeting
representatives who
who he he had
of ""~~,1
meeting of
had contacted
""~~}:'~~
..0,
contacted .t~/;r:~·,:'-
_.':~
.t~~('-_~,':;~'.'.J _'J_'- .. ' /
" ;~
.Jr

presumably in the first


presumably first week of March telling
telling these these corporations
corporations
who are
who are current and/or former clients of Hamilton
Hamilton Taft, Taft, that
that they
they
had in
had in fact been ,defrauded
defrauded by
by Hamilton Taft. Sun
Sun Micro-Systems
Micro-Systems
reluctantly
reluctantly agreed to this meeting which
to "host" this which was was to
to take
take place
place .ft"' .I"'"
during the afternoon
during afternoon of
of March 1991 at
March 8, 1991 Sun Micro
at Sun Micro System's
System's "';
offices in Mountain View. ,1'
,i' "" '

.' ,.. /, '~


nf ,,[)if/,
:':' ;

Of the
Of the mornin:
mornin: ofof March
March 7, H91, II
7, 1991, Ithrobgh
I,throtgh' .....
his associatel
Security-.
l,
I, an investigator
investigator for
Department of un Micro Systems, facsirniled
the COJ;.porate
for the Co~porate
Securit~Department facsimiled 16/pages
l~~ages 0,£ oj
documents
documents to the writer. The
The most salient point of these
point of t~ese
documents was
documents letter to
was aa letter to Sun Micro systems
Sun Micro Systems dated
dated February
February 13,13, "', ,'.' '
1991 from the ,.IRS in-- Fresno..
1991 Fresno. The The let}:er
letter refers
refers toto aa particular
particular ,/' ;) >')'
tax identification
identification number utilized by Sun Micro Systems
number utilized by' Sun Micro Systems and . and . '~:
references aa tax
references tax period
period ending
ending september
september 30, 1990.'- The
30 I 1990.; The letter
letter ~,l~:?,.,.
}}
goes on
goes to thank
on to thank taxtax payer
payer (Sun
(Sun Micro Systems)
Systems) forfor its
its reply
reply t·t -.~, '; if
'

dated January 25, 1991 and its payment of $260,784.25 in


dated January 25, 1991 and its payment of $260,784.25 in penaltyJ;'..... penaltyJ,
fees and
fees and for
for its
its late
late deposit
deposit ofof ($5,215,
($5,215, 684.86).
684~86). The
The " - .,~
Signifirn:e of th~S ~mmunication is that Sun Micro
signifiri:lD:e Of th~S ::mmunication is that Sun Micro Systems Systems ...
.,'' ..
t h r o u g h _ _ h a s represented, as of March
t h r o u g h L J h a s represented, as of March 7, 1991, that 7, 1991, that
did 1nact
it did
it lnac~ sen sen tt ee appropriate
appropriate money
money that
that is
is $5,215,684.86
$5,215,684.86
Hamilton via a wire in
to Hamilton Taft via a wire transfer in order to pay
to Taft transfer order to pay employment
employment
tax obligations
tax obligations do do and
and owing
owing the
the IRS
IRS for
for the
the tax
tax period
period ended
ended
September 30
September 30 rr 1990.
1990. PerPer an agreement of
an agreement of which writer is
the writer
which the is inin
receipt, that is, the
receipt, that is, the service agreement between Hamilton Taft and
service agreement between Hamilton Taft and
Sun Micro
Sun System~, Hamilton
Micro System?, Hamilton TaftTaft is
is responsible
responsible for for the
the
payment of~--L~e
payment ot~--L~e penalti~§4
penalti~§4 It
It is
is an
an inference
inference drawn
drawn by by Sun
Sun
33

EXHIBITS to Section 2255 Reply - Page 21


196A-SF-93255
PKM/sgc

Micro Systems personnel that this document tends to corroborate


what I I was alleging in his representations to the
government. '
On the afternoon of March 7, 1991, AUSA YAMAGUCHI was
personally visited by the writer and a brief update was provided
to him of events that have taken place. On March 8, 1991, copies
of the aforementioned facsimiles were provided to AUSA YAMAGUCHI
fore his review. On March 8, 1991, Mr. YAMAGUCHI suggested to
,that efforts continue to accumulate enough probable
the writer -that
cause to cause the issuance of a search warrant for the offices
b7C at Hamilton Taft at the earliest possible date.

The following corporations have been contacted by


by ]
I land/or his attorney and ~d~~~ed
~d~~~ed that they' have been the
victims of fraud perpetrated on them by Hamilton Taft. These
corporations are costal
Costal Savings Bank, Sun Micro Systems, American
West Airlines, and one or two chemical companies located at the
east coast. In addition, I I I
I advised writer that he
has been contacted by representat~ves
representat~ves of Lloyds of London
Insurance company with respect to Hamilton Taft. It is "'y,nkno..wIl
is-y,nkno~~
~~~~~~~dyal~!!!p~;~_!,~~_,~. wil.~ , h_e,Y,~~,},~E?i~~
~~~~~~tdyal~!!!p~;~_!,~~_,~.wil.~ ~,~!~,!:~ ~~,~_ ___ "_9! ..J)},e
h_e,Y,~~,},~E?i.~~,~~~!~,!:~~~,~, J)}.e
meetl.ng_",Lo-.-oe" ··he~d_~"a_t,.Sun",,M~c_ro __ Systems
me~t~ng_"",I:.o-;-oe,,··he~d_~,at,.Sun.,M~c_ro systems, ().ff~~es
().f:!:~pes afternoon
,on the .afternoon
o~March
at-March 8, 1991.

San Francisco at San Francisco, California:


Investigation is continuing.

4*

EXHIBITS to Section 2255 Reply - Page 22





SUMMARY OF CREDITORS CLAIMS

CONSOUDATED ESTATE

• Scheduled
Amounts
Proof of
Oalm
Maximum
Potential

Hamilton Taft Customer Claims $ 91 ,925,180.61 $ 90,790,426.62 S 95,1

• Hamillon1aft Claims

Hamilton 'Tafl Trade Claims


82,975.21 198,393.09

1,346,135.60
204,873.85

1,535,6Hl.13

Other Hamlllon TsH Claims 0.00 112.298.770.21 \ 12,298, 770.2.1

Remington Claims 505.932.59 970,665.90

Dresdner Claims 10007.25

TOTAL $ 94,419.148.42 $ 205 •.255,006.4Q $ 2'0,181.093.92

TOTAL CLAIMS EXCLUDiNG SOLODOFF S 100,1


DRESDNER PETAOIL,.EUM

• Scheduled
Proor 01
Claim
Maximum
Potential
Amounts

Dresciner Petroleum Claims 371.376.03 651,060.93 731.286.55


/:OlIlOhtdoc C-1

• EXHIBITS to Section 2255 Reply - Page 23





NOTES TO LISTS OF CLAIMS

1. The list of claims includes all claims and


amendments filed on or before October 18, 1991. The listing of a
• claim or amend~ent filed after the bar date of september 30, 1991
does not constitute a waiver of the trustee's right to object to
the claim on the ground that it was untimely filed.

2. NScheduled Amount» means the amount stated to be


owing to the creditor in the Schedules of hssets and Liabilities

• filed by the respective Debtors. The nproof of Claim Amount" is


the amount claimed to be owing by the creditor in a proof of claim
filed __ with the Court. If no' proof of cla im was filed, the
"Maximum Potential Cl aim" is the Scheduled Amount. If a proof of
claim was filed, the hMaximum Potential claim" is the "Proof of
Claim Amount", regardless of whether the proof of claim amDunt
amount is

• higher or lower than the Scheduled amount. The llMaximum potential


Claim- does not constitute any admission by the trustee that the
claim is allowable in the amount stated, and all objections are
reserved.

3. All duplicate claims have been eliminated for the


purpose of the list. If a proof of claim was filed against more
than one Debtor, it appears only once.
4. The list of claims does not include any
intercompany claims of any Debtor against another Debtor, or of
any non-Debtor affiliate against a Debtor.

• 5. The list of claims does not include any


classification as to priority.


WTS1U,DOt C-2
• EXHIBITS to Section 2255 Reply - Page 24

COHBOLIDIl'mD E6n'I'E •
"iIAHILTOH n r r CUS1"OWlm CI..JUNS

MAXIMUM
PROOF OF CLAIM Ital. POTENTIAL
CREDITOR AMOUNT ~ CLAIM

ACTION I~STRUMENTS CO., INC. $92,092.84 ,654.31 $96,654.31


ADVo-Sl{STEM. INC. SI, J7g~e36.0e 51. ,288.32 $1,'796,288.32.
AIR C1I.BLE, INC. S24~966.22 $24,966.22
AI..I...E1iI FOAM CORPORATION $3,:226.23 53.,;226.23
• AMERICA WEST AIRLINES, INC.
AMERICAN MleROSYSTEHS, INC.
AMERICAN NUUM COFlPOR}l.TION
$834,725.41
5267,401.62
$32,198.85
$268,237.64
$32,198.85
S834, 7.25.41
$:268,237.64
$32,798.85
AMERICAN RESIDBNTlAL ESCRO~ $849.&8 $849.69
AMERICAN RESIDENTIAL MORTGAGE $156,040.21 5175,862.00 S l.7S •. 862.00
ANAL rTI 'KEM $31,194.29 . $31,194.29 $31,l84.29
ARRAY TECRNO~OGY CORP. $35,106.01 $35,106.01
~~~OCIA~ED COIN AHUSEHENT co $8,407.12 saO,2HL 74 S10,218.74
ATLAS HOTELS INC. SH>7,024.91 $166,601.00 $H'6,607.00
BI\LCO.!< PAYROLL COH.PANY 512,211.47 $12,211.41
BARCLAY HOLLANDER CORP $3,617.50 617.50
BEEBE ORCHARD CO. S14,489.1B $14,489.18
~L~E CResS & SLUE SHIELD OF TX $1,156,576.16 S1,2S7,~23.41 ,623.47
BLUE GOOSE GROWERS INC. 5214,931.33 931.33
• BLUE GOOSE GROWE~S, INC.
BOARD OF TROSTEES, STANFORD
BOSTON & MAINE CO~RTATION
$6,285.72

$845.20
$296,991. 48
$6,285.72
S296,991.46
$845.20
BOSTON & MAINE CORPORTATION $5,572.54 $5.512.54_
aOYLE MIDWAY INC, $4,314.91 $4,314.!H
BOYLE-MIDWAY $7,61£!.24 S7,618.24
BRINKMANN INSTRUMENTS $'72,034.16 $72,034.16
BRtlNSWICK SEAT COMPANY $1,096.8S $1,096.88
BUD ANTLE, INC. 5229,477.87 $229,477.87
BUD ANTLE, I Ne • $890,046.01 S890, 046. 0')
BW I rp INTERNATIONAL, INC. $310,691.23 5386,932.78 $18&,932. IS
C .. R CLOTHIERS $324,523.13 5324,523.13
CALIFORNIA PACIFIC KED. CTR. Sl,106,353.90 $1,102,264.05 Sl,l02,204.0S
CARTEX CORPORATION $24,663.04

S24,663.04
c)l.STLE &. coox.s $1,899.86 51,BS9. B6
CASTLE & COOKE PROPERTIES $28,I14B.13 $28,648.13
CASTLE & COOKE RESIDENTIAL S74,se8.42 S74,59B.42-
CAST~E ~ COOKE. INC. $223,640.91 $223,640.91
CASTLE COOKE RETAIL. INC. $21,522.14 $27,522.14-
CITY OF PIEDMONT 53,518.58 $3,57.9.58
$2,843.17

CITY OF PINOLE $1,211.71 $1,221. 71
CITY 01:1' PINOLE $3,232.54 $3,232.54
CLA.'ts CC:RPQAATION $164,378,45 $164,332.89 $164,332.89
CLEVITE aRIDGESTONE CO. $2,733.94 52,733.94
COAST FEDERAL BANK 57,476.29 5'7,476.29
caVIA PARTNERSHIP $1,793,303.81 $1, ]92, 401. En 51,792,401.B1
C'JANOKEH $49,063.07 $49,063.07 549,063.07
U~GUSSA CORPORATION $146,680.78. s9n,077.10 $971,077 10
• DEL MANUFACTURING COMPANY
OELAWARE SEAT COMPANY
DELHI GAS PIPELINE CORPORATIOII
522,552.14
$14, gO!'>. 38
547.209.72
$22,851.14

S50, 209.72
522, as!. 14
S14,905.3B
$50,209.72
DIAMOND WALNUT GROWERS $.5,996.84 $',421.34 57 ,421. j4
DOLE FOOD COMPANY, INC. 51,592,062.34 53,142,906.64 $3,142,906.64
DONNELLEY RECEIVABLE lNC. SlOB.26 $108.26
DUBLIN/SAN RAMON SRVCS DSTRCT $45,012.29 $45,352.57

$45,352.57
ELECTRIC POWER RESEARCH INST. S117, 9SD. 60 $138,982.22 $138,982.22
ENSR CORPOAATION DELAWARE 5nO,506.19 $110.506.56 $110,506.56

" ~.

01/19/92

• EXHIBITS to Section 2255 Reply - Page 25



COHSOLII.U.'1'ED BInATE
v..rr CUS':OOKl!:R
B.AKIL'l'ON 'UFT ClJ\IHS

HllXIMUM

• CR.EIH'!OR
SCHEDULED
AMOUNT
PROOF OF CLAIM
AMOUNT
POTENTIAL
CLAIK
FEDERAL EXPRESS CORPORATION ..s..:J,_"-', 530,432,796.91 $28,319,089.05 S28,.319,089.DS
FIRST CAPITAL LIFE INSRNCE CO. $1:27,193.73 $139,054.00 5139,054.00
GENSTU STOW PRODUCTS COMPAID;: 551B,023.:.15 $603,765.00 $603,165.00
GLENDALE AOVEN'l'I Sf MED. CTR. $625,353.80 $625,109.60 $625,109.80

• GUCKENHElMER ENTERPRrSES, INC.


GUCKENHilKER OF TEXAS, INC.
H. 1). HUDSON )oo!MU1"AC'TlJRING CO.
$95,403.19
$95.403.19
S9,072.69
$100,556.49
$98,091.81
59,474.00
$101,862.64
S9B,091.Bl
S9,474.00
$101,862.64
BBO & COMPANY OF GEORGIA $420,317.BO $421,924.80 $4.21,924.BO
REJl.LTRQUEST LTD. $:203,803.91 S230, 626. Ol $230,626.01
J.E.G. rooDS, INC. 51,027.79 Sl,027.79
JBB SPIRITS INC. Si.l9 4.46 S894.46 $B94.46

• JIM BEAM BRANDS CO.


KAY TEA ROSE, INC.
KEMPER SECUR!TIES GROUP
S157,962.79
516,422-.46
51,078.13
S157,862.19
$16,814.'98
$1,078.73
$1,018.73
S 15 j , B62 .19
S16,B14.96
$1,078.03
LANAI COMPANY, INC. 5114, B88 .19
5114,888.19 $114,B88.19
LANAI COMPANY. INC. p,SSO.91 $3,550.91
LONG BEACH CONTAINER TERMINAL S9,899.80
S9.899.80 $9,186.79 S9,7B6.79
$9,786.79
LOCASAR~S ENTERTAINMENT CO. $218,065.99 ~2:n,a57.32 $2.31,851.32

• LUCASF'lLH, LTD.
KABON, NUGENT & COMP AllY
HASON, NUGENT & OOKPNAY
$21,432.34
$954,798.68
S2,OOD.OO
S2.00D.OO
$22,175.B4
$985,407.53
S12,17S.B4
59B5,407.53
$2,000.00
HAINE CENTRAL RAIL~OAOS CO. $411.01 S411.01
MCCUTCHEN,DOYLE,BROWN& ENERSEN $99.993.14 $100,959.51 $100,959.51
Me! TELgCOMUNrCATIONS CORP. $102.95 $102.95
METROHEDr,.. COKPANY $60,6B5.10 S6.l
S6l ,317.00 $61,317.00
HILLS COLLEGE
MILLS S2,163.98
$2,163.98 Sl1,508.89
$11,508.89 Sl1, 50a, 89
511,508,89
MONROE SYST~MS FOR BUS1~SS S660,777.55 $650,177. SS ~660,j77.SS
INC
HT. DIABLO HOSPITAL Sl46,OJ3.47 SH.a,724.1>0 5160,724.60
NATIONAL DAT~ CORP. $6B,911.30 $84, .l4 7. B2 $80\1,141.£12
NATION~ DAT~ PAYMENT SYSTEMS S14,454.42 514,454.4'
NEe ELECTRO~ICS, INC. 5285,282.60 S33D,S9l.G9 5330,591. 69

• NEIMAN-MARCOS GROUP, INC.


NORTHLAND PLASTICS I~C.
NORWEST PUBLISHING CO.
52,665,121.26
$7,234.95
$45,237.26
S553,250.70
p,690.1B
$553,:250.70
5553,:250.70
57,690.1B
$45,237.26
NUXEM AOQOI5ITION CORPORAT10N $79.62 .$19.62
N1.7KEH TECHNOLOGIES OORPORATION
N1.7KEM $24,700.27 $24,100.27 $24,100.21
OAIro TlU\.NSPORT CO., LTD. $2,209.85 52,209.85
OAKLAND ATHLETrCS BAS~BALL co. $90,365.04 590,499.42 590,499.42

• CBS FINANctAL SERVICES


OCEANIC CONSTRUCTION COMPAm.'
PAYLESS 5BOE SOURCE
$4.779.92
S38,607.53
5271,349.31 Sl,052,856.30
$4,179.92
$38,607.53
Sl,052,B56.1C
POL~TECHNIC UNIVERSITY S581,564.39 $640,704.98 $6.40,704.98
R.IL nONNELLEY "" SONS COMPANY $4,243,286.64 $5,143,366.45 $5,143 • .366.5&
RECLU'l'T , COLEMAN INC. $1,8B8,208.34 $2,4?l,860." $2.471,850.77
$2,471,850.7"/
RECKITT & COLEMAN INC. S246,309.1) S246,309,17

• RICHMOND WHOLESALE ME~T


Rl'ITERSIDE SE1I.T COMPANY J
MO GENERAL INC.
CO.
INC.
S4.3,424.27
$16,828.57
$4,420.63
$45,222.87

$4,643.63
$45,222.8")
$45,222.81
$16,828.51
S4,643.63
RM MARKETING INC. $5,231.14 $5,231.14
ROCHESTE~ INSTITUTE OF TECH. Sl05,673.S7 $105,673.57
ROOT-LOWELL MANUFAC7URING CO. $35,745.10 $36,340.00 $36,340.00
ROSS STORES, INC. $701,843.46 5101,843.46 S"1 0 1 • 84.3 . .4 6
• S , S CREDIT COKPANIES, INC.
S.D. WARREN CO.
5158,'329.53
53,206,607.68 S3,206,607.68
$158,929.53
$3,206,607.68

02/19/92
C-4

• EXHIBITS to Section 2255 Reply - Page 26



CONSOLrO~D ESTATE

HAMILTON :rAPT ctlSTOHER l:LAINS

KJl"XIMUH

• CREDITOR
SCHEbULEO
AMOUNT
PttooP' OF c:LAIH
AMODN'J'
POTENTIAL
CLAIM

SANO!~ NATIONAL LABORATORIES $300,000.00 S300,OOO.00


SCM CHEMICALS, INC. $'206,809.05 $207,834.04 $20'.834.04
SCM METAL PRODUCTS, INC. 549,347.49 $65,785.93 $65,765.9.3
SCOTT CONTAINER PRODUCTS GROUP $S.3,553.33 $53,553.33 $53,553.33

• SCOTT PAPER COMPANY


SCOTT PAPU COloU>ANY
SCO'l"r POLY.Ml!:RS
$7,086,901.47
$44,471.87
$6,294.42
57.0136,801. 47
$44,471.8,)
S6,294.42
$7,086,901.47
SU,4H.Bi
$6,294.42
SCOTT WORLDWIDE, INC. SEl30.33 $830.32 S830.32
SIGNET ARMORLITE, INC. $50,.105.99 $50,105.99
SIGNE'ICS COMPANY 56,212,016.45 56,:a2, OHi. 4S 56,212,016.45
SINAI HOSPI~AL OF DETROIT 51,377,666.01 $1.561,207.10 $1,561 , 207.70

• SINAI MANAGEMENT SERVICES


SI'l'KJ\ CORPORATION
SONY AVIATION SERVICES
co. S17,195.19
S12,D41.S0
$l,539.67
$17,773."73
$12,588.32
S2,B38.13
$1'},773.73
512,588.32
$2,83B.13
SONY CAPITAL CORP, S982.72 $1,572.12 $1,572.72
SONY CHEMICAL CORP. OF AMERIC~ $967.24 $967.24 $9&7.24
SONY CLASS 1 CAL S420.24 $1,010.24 ~il,OlO. 24
SONY CORPORATION OF AMERICA S414,189.1S 5541,129.92 $'541,129,92
• SONY USA INCORPORATED
SONY USA, INC.
SOS CALIFORNIA DIVISION
$5,978.17

Sl,590.29
$10,347.03
$2.366.56
510,347.03
S2,:ibG.S6
$1.590.29
50S ENVIRONMENTAL TCHNLG, INC. -S675.S3 $8,362.82 $8,362.82
SOSTAA 53,836.03 $6 1 306.52 $6,306.52
50UTRLAND CORP. EMPLOYEES TRU. 5178,993.18 5178,993.14 S178,993.14
'SPRINGFIELD SUG~ , PRDCTS CO. $351,.36(1.47 $446,261.18 $446,261.19
SPRINGFIELD TERMINAL RAIL. co. $51,705.83 551,705.83
SPRINGFIELD TERMINAL RAIL. CO. 5188,420.35 $296 1 014.77 $296,014.77
STANFORD UNIVERSITY HOSPITAL 53,512,722.32 $.3,512,722.32 p,512,722 • .l2
STATE OF ARKANSAS 550,011. S6 S50,01l.Se.
SUN MICROSYSTEMS FEDERAL, INC. :)23,660.37 524,011.79 $24,011 • .,e
SUN MlcR05YSTEMS or CALIFORNI~ 53,085.14 53,070.86 $3,070.86
SUN MICROSYSTEKS, INC. $801,887.97 5191,227_64 $791,22'.64

• SUN MICROSYTEMS EU~OPE, INC.


SUN-MAID GROWERS OF CALlFOiUHA
SUNBELT BEVERAGE CORP.
$528.51
p,B}4.2S
$235,422.69
$991.44
$9,163.44
5239,938.37
$991.44
59,163.44
S239,93B.3?
SUNSWEET GROWERS, INC. $)3,141.02 $14,925.70 $14,925.'70
BYaRON TRANSITION CORPORATION S8,671.61 ~BJB03.44 S8,80l.44
T.D.S. FOODS, INC. 511,306.08 S12,23S.50 512,2.35.50

• TANDEM COMPUTERS, INC. Sl,950,838.1B $2,794,142. $2, '94,142.85


TANDEM TELECOMMUNICATIONS SYST $40,708.11 S40,106.11
TEXAS OIL " GAS CORPORATION S30,SB1.22 $53,299.35 $5.3,:299.35
'I'm: ALL AKERICAN GOIlRMET CO. $8.30.74 SJJ,974.00 $33,914.00
THE CHRONICLE PUBLISHING CO. $1,08a,&32.47 $1,163.471.01 ilJ 163, 471.01
THE COOPER COMPANIES, I~C. SI8,.316.15 S18,2B9.24 51B,28':':I.:24
THE 1WB COMPANY $11,455.66 532,566.74 532,566.74
THE KENDALL OOMPANY $1, OHI, 911. 96 $1,320,460.00

51, 460.00
THE 'KENDALL OOloU>ANY OF NEVADJ\ 5331. 74 $331.74
THE Pur...t..HAN COMPANY $687. 92,{1, 28 57.36,111.75 $136,111.75
THE STATE BAR OF CALIFORNIA $36,787.19 S36, 787.19
THE VINTAGE CLUB S.20, 32B.O!:' 523,61.3 S7 $23,613.51
THE'R.K1I.L1tEM $S7,303.54 $57,303.S4 557,303.54
TRANS-ADVD SYSTEMS, INC. $11,169.40 $11,169.40
UNGERHANN-BASS, INC. $1, 844.17


$1,101,103.57 51.1Q1,/03.57
UNITED SAVINGS BANK 595,71LlS ~96,6?S. 7S 596,675.15
VALLEY FIG GROWERS 55,988.90 $7,227.26 $7,227.26
,/ ~ • f

02/19/92
c-s
• EXHIBITS to Section 2255 Reply - Page 27

COMSOLln~~ BB~

HAMILTON 'rAPT C::US'l'OMER c:LJI.IM5

MA..XIMUK

• CREDITOR
SCHEDULED
AMOUNT
PROOF OF CLAIM
AMOUNT
POTENTIAL
CLAIM

VERBATIM CORPORAT10N S391,051.78 $451,398.96 5451,39B.95


WAHIAWA WATER CO., INC. $473.90 S473.90
WAIALU~ SUGAR CO •• INC. $46,401.38 546,407.38
WAIALUA SUGAR CO., INC. $43,371.27 $43,377,27

• WAS'I"E CBEM CORPORATION


WBF TECHNOLOGIES
WILLIAM KARSH RICE UNrvIRSITY
S22,385.18
$421.44
534.26
$22,385.78
$421.44
534.26
WILLIAM MARSH RICE UNIVERSITY 5829,l67.24 $829,201.50 5829,201.50
WINCUP, INC. S980.19 5990.19 S980.19
WOODBRIDGE CORP. sea,031.42 $88,031.42
WOODBRIDGE FOAM FABRICATING S18,528.81 S18.S2B.81

• WOODBRIDGE
HooDBRIOGE
WOODBRIDGE
HOLDINGS, INC.
INOAC, INC.
SALES & ENGINEERING
$458.47
$30,799.40
$4,285.'36
$209,353.81 $209;353.81
$30,199.40
S4.2QS.96

Totalt 591,925,180.61 $90,790,426.62 $95,123,932.26


02/19/92
6

• EXHIBITS to Section 2255 Reply - Page 28


• , CONSOLID~ ESTAXB

B.AMILTOH TA1"".r BMPLOYEE CI.Ji.YMS


MAXIMUM
SCHEDULED PROOF OF cr.l\I:X POTENTIAL
CREDITOR AMOUNT AMOUNT CLAIM

AFLA1<., ZlBJ. 51,340.06 $1,340.06 51)340.06


MA!lU., JAIME S558.69 S558.5B
SS58.5B $556.58
ARMSTRONG, BOONE $i,07S.SB $2,684.B9
$2.684. B9 $2,684.89


ASDOUJlIAN, JEI\NNE $124.78 S724.78 S724.78
BENIPAYO, CONSUELO
CONSUELa SB21.76 $3,903.90 53 / 903.90
BERNSTEIN, MATTHEW sioa.77 $708.71 5708. n
BE~EY, ELIZABETH LABRADO S1,606.80 $1.606.80 Sl,606.S0
ilLACHAASKI, DAN $1,003.89 $1,003.89 51,003.89
BRISCOE, EDWARD E. $6,167.64 S/1.J9i.Ol $71,397.01
SULDA, ERLnm~ 5574.74 $514.74 5574.14


BtJ'R.R.F!ARDT, DIANE 5527.81 $527.BO $527.80
BUSENBARRICK, DIANA S580.03 $643.28 $643.28
CALLAHAN, PATRICIA $160.35 $160.35 $160.35
CARRIZALES, JUAN-JOSE $334. BS $334.89 5334.89
5334,89
CATAH, RODEL $335. &2 $335.62 $3.35.62
CHANG, ALBEJIT $1,120.66 $1,120.66 .!il, 120. 66.
CHENG, ).!ELODY $2,OSO.65 $2,050.65 $2,050.65
CONOVER, SALLY $439.B7 5439.87 S439.97
• CORPUS, ANDREW
CROWE, CINDY
DANCEL I JUnE
$416.60
$2,255.22
::;56L01
S416.59
$2,255.22
$561. 01
~416.
S2,25!>.22
$561.0:'1
59

DAVIS, ELIZABETH $341.60 $101.09 S101. 09


DAV!SSON, ROBE:RT $1,624.08 $2 •. 986.56 $2,986.56
DE LA CRU Z I DAN 1£L S6'14.45 $674.45
DIKALANTA, VICTO~IA $2,094.36 $2,094.36 $2,094.36
OtJNN, DORA E.
DtJNN, DORA $1,709.85
$1,709.B5 $1,211.85 S? ,211. as
57,211.
ERESE, JR., JOAQUIN $634.00 $634.00 $634.00
~SPIRITI.l, AImE~ $759.73 Sl,670.13 $1,670.13
FELCZAX, JOHN SSOO.68 $500.68
fIFIELD, THOMAS 8. 5634.94 5634.93 $634.93
FITCH, URSULA $1, sa3. J3 $1,583.3)
FITCH, URSULA
• FONG, MICHAEL
PORESTI I JAMES
$914.88
$1,117.83
S1B4.93
$974. BS
S1,ll"1.83
S1,l1"1.83
$784.9)
$914.88
$1,117.83
$7e4.93
GAINEs, BRIMI $751. 14 $751.14 $751.14
GAYO, MICHELLE S470.64 $470.64 $470.64
GOFMAN, RDZALIA $1,946.10 $1,946.10 Sl,946.10
RAAAlS, DARRELL $298.64 5298.64 529B.64

• BOLLOWAY, FREDERIC
HUNPHRIES, THOMAS
A • aACH:KJ>.
J AHJ A RACH:KJ>. T
KEEL I JAMES
S690.34
$2,366.Bo
$6'1-.01
$1,623.93
$5,90B.El2
$2,366.60
567.01
$1,623.92
55,908.82
52,366.80
567.01
$1,623.92
KLEINBERG, JERRY 53,674.74 $3,674.14
\tRAU'l'HAM'ER, KtrRT S2,000.00 52,000.00
KWOK GLORIA $1,646.86 $1,646.86 $1,646.B5

• LAFLIN, FlOBERT
LANDIG, MICHAEL
LAU, STEVEN
$144.03
$2,119.46 S1,391.B.3
$16,000.00
$16,000-00
$744.03
$1,391. 83
OOQ. 00
SHi, 000.
LEE, curoY $453.44 5453.44 $453.44
LILLEF, .JOHN SI,189.50 $3,321.45 $3,321.45
MAGEE, ELIZABETH 51,643.53 $1,643.53 51,643.53
HANLEY, P1l.UL $988.10 5988.10 $988.10

• MJl.THERS, LINDA
MENDOZA, ARACELI
MILLER, HARILl{N
SlBB.54
SlBB.S4
$432. BB
$38.86
S288.54
$432.88
538.86
$288.54
5432.88
531,,. 136
$31.,.

02/19/92
C·7
C-7

EXHIBITS to Section 2255 Reply - Page 29
• , CONSOLID~D B8~ATE

HAMILTON TAn BKPLOY'E!: CLAIMS

• CREDITOR
SCHEDULED
AMOUNT
PROOF OF CLAIM
AMOUNT
MAXIMUM
POTENTIAL
CLAIM

HIL.LS, TOSY $1,462.40 $1,462.40


MON'.l:'kND, IRENE s:nO.75 $310.'5
MUNIZ, BE'J.""l:'E J. $311:1.1.3 5463.90 S46l.90

• MURPHY, KATflLEEN
MG, DON
OBERHOLTZER, DONNA
5&64.14
5414 .10
SSB4.B4
$564.14

5884.94
SS64.14
$414.70
SSB4.84
PMAOAN 1 EDWIN $387.54 SlS1.S;I $387.54
PATERA, JEnNIFER $411. 9B S41L9B $411.9B
QUIGLEY, JOHN $240.52 5240.52 $240.52

. ROY, JO'flAN'NA
SAHAROFF, BASIL
SANCHEZ. LORENE
SARMIENTO, ROMULO
51,011. S9
$620.14
$1.39
$453.98
S2,09B.B8
$620.14

$1,703.33
$2,098.88
$6:20.14
$1.39
$1,703.33
SCHORA, BARSRA Sl,BHL 71 511,115.l'1 $11,715.11
S HEENAN. RICHA.R.D Sl,296.45 Sl,298.45 51,298.45
SrKlN, ROBERT $717.70 S737.70 Si3i.iO
S'l'RUTZ, STEPHEN 51,88:2. 10 $1,882.10 Sl,882.10

• SOSHANSK~,

TARTAXOVSK~,
ANATOLY
'XABANGCtl'R1t., TONY
YEVGENIYA
TUR.t,A • FLORA MlER.XEY
$667.20
$193.00
SlOO.02
$427.20
5667.20
5793.00

S427.20
5661.20
S793.00
$lOO.02
$427.20
TUTT, GEORGE 5346.37 $346.37 5346.37
TYLER, JAMES WM. 52,043.44 51..4,501. 17 S14, 501 . .,.,
VIRAY, DIVINA (DEBBIE) S721. 56 S72l.S6 S121.S6
WATSON, iCATIE $848.00 S848.00 S848.00
ZAMBRANA, LILLIAN $835.03 SBlS.03 5B35.03

Total: $B2,975.21 $198,393.09 $204, a73. as


.


02/19/92


EXHIBITS to Section 2255 Reply - Page 30

CONSOLIDATED ~S~TE

IiA.MILT'OH T..I\.l"'X TR.1U)E CIJUMS

• CREDITOR
SCHEDULED
AAOUHT
PROOF OF CLAII-I
AMOUNT
MAXIMUM
POTENTIAL
CLAIM

191 ASSOCIATes $3,250.00 S3,250.00


191 P,SSOCIATES $1,236.35 $1,236.35
ACCOUNTANTS, INC. $640.00 5640.00

• Jl.LCA TEL FJUDEN


ALHAMBRA NATIONAL WATER co.
ALLNET COMMUNICATION SERVICES
$144.45
$148.10
$3,455.30 S2,B)7.8:2
SHoll .45
$148.10
$2,837.92
APOLLO COMMUNICATIONS 5119.57 $119.57 5119.57
APTITI1DE TESTING ~B75.00 587S.00 S875.00
A.RA CORY ~426.S6 $439.05 $439.05
AA'I'RU:R. ANDERsEN 51,598,525.00 $432,.397.00 S432,297.00

• ASSOCIATEO LIHOUSINES
ASSOCIATED LOOSE LEAF
AT'T
5692.94
SaSL33
51,759.09
$779.76
$851.33
$179.16
$851.33
$1,759.09
AT&T $55.31 SSS.31
AT&T $542.28 $542.28
AT&T $1,475.39 Sl,'75.39
BANe ONE LEASING CORP. 57,390.40 P ,390 .4Q

• BANK OF KAWAU
BEKINS
BOISE CASCADE OFFlCE PRODUCTS
$1,360.25
5170.13
5571. S3
Sl, )60. 25
$170.13
$571.53
$1,360.25
S170.13
BROOK FURNIT(JJ.U: RENTAL $428.:.11 $10,270.94 $10,2'10.94
C.lI.LHODN GUHP SPILU'.J\1'l & STACY 59,0:21.47 S8 ,an. 47
CATAPULT S175.00 S175.00 $175.00
CELLtTL.AR ONE $400.83 $4.00.83
COCORlCO PATISSERIE $158.39 $158.39
COMP IJ TOWN $651.65 5651.65
CONTRACT OFfICE GROgp $134. Ei4 $134.84
DUPL~X PRODUCTS, INC. $3,270.14 S3,270.14 53,270.14
E..P.TON' FINANCIAL S22,669.50 $22,669.50
ENTRE COMPUrER CENTER $11,822.75 $11,822.75
EQUITABLE LIFE ASSURANCE $4,233.52 $5,650.40 55,660.40

• EQUITABLE LIFE ASSURANCE SOC


ERNA PRE.55
EVANS RENTS, INC.
$2,665.21
51,264.42
S1,943.22 $1,943.22
52,665.21
$1,264.42
EXECUTIVE COURIER NETWORJ( 54.90 54.90
EXPERTLY DONE $150.00 $150.00
FEDERAL EXPRESS CORP. $3,309.85 53,222.35 53,222.35
FIRS7 INTERSTATE BANCORP S306,126.58 5306,126.58

• FOX HARDWARE
GENERAL ELECTRIC CAPITAL CORP
GILTSPOR/SAN FRANCISCO
$62.36 562 • .36
5962.64
$6,620.96
$62.36
$962.64
$6,620.96
GOLDEN GATEWAY CENTER 5B15.91 $815.91
GOODWIN, THOMPSON W. $700.00 $700.DO
KAKILTON MANAGEMENT pO,ODO.DO $30,000.00
RE.ADQtl1l.RTERS COMPANIES S83.81 $83.81

• HI-TIMES DISCOU~T OFFICE


HYATT REGENCY S.T. HOTEL
HOoV;C
$211.05
S1,J.6B.07
S130.81
S2,131.08
$211.05
$2,131.08
5130.81
INNOVATIVE OFfICE SYSTEMS 5223.00 $223.00
INTELLIGENT ELECTRONICS, INC. $11,B11.75 511, 81L 75
lNTERNAL REVENUE SERVICE S6.44 56 .... 4
INTRANATIONAL COMPUTER 513,640.00 S11, 640. 00 511,640.00

• JOHN WILLIAMS & ASSOC.


J(ESTREL RECORDS MA.llAGEMENT
KIRK PAPER CO.
524,204.22
$43.56
$365.41
$34,977.47 . $34,97"1.47
$43.56
5365.41

D2/19/92
C-9
• EXHIBITS to Section 2255 Reply - Page 31

CONSOLIDATED E~A~

BAMlLroH n.P'T 7:MJ)E c:::::t.JI.IHIll

MAXIMUM

• CREDITOi<
SCHEDULED
.!\MOUNT
PROOF OF CLAIM
AMOUN'f
POTENTIAL
CLAIM

LE REGENCY 5530.00 5530.00


LE~IS ~SSOCI~TES $2,060.52 1;2,140.77 $2,140.77
LIBERTY MUTUAL INSURANCE co. $220.00 $220.00
LLO~D'S COMPUTER SERVICE 5112.50 $112.50 Sl.U.SO

• LONG & LEVIT


LOOKS YURHITURE LEASING
LVG PROPERTIES
SI,6'70.30
:;220.00
$14,716.50 $14,716.50
$1.670 • .10
$220.00
MEADOWS OW'l!:NS COLLIER $1,033.91 S1,033.91
MINDENS STATIONERS $899.34 .72 $973.72
MOORE BUSINESS PRODUCTS $45.00 545.00
MORTGAGE SECURIT~ ADVISORS $340,000.00 5340,000.00
• MUNICIPAL MOTOR OPFlCER
NEW MEXICO TAX &. REVENUE:
OFFICE CLUB
S2,000.00
517.42
S54.06
$2,000.00
517.42
$54.06
ONE HARl{ET PL.UA 568,822.38 $88,822.38
ONE MARKET PLAZA S1,433.95 51,433.95
PA BOARD OF FINANCE" REVENUE 5575.11 $57.5 .11
PACIFIC BELL $27.91 527.91
• PACIFIC BELL
PACKAGED BDSINESS
~lLLSBURY, MADISON' SUTRO
$10,451.25
56,497.00
$10,143.49
$6,497.00
$12,862.69
$10,143.49
$6,497.00
$72,862.69
PlTNE! BOWES $104.37 $104.37
PLANT DESIGN S17£>.SS 5176.55
PROFESSIONAL TRAINING ASSOC H.OD 54.00
RAYZ8ERG, DDS, ALEXANDER C. $3,600.00
REMEDY TEMP. INC. 5662.39 $662.39
ROBERTS OF SAN FkANC!SCO 5117. 00 52,978. i3 $2,978.73
S.Y. NEWSPAPER AGENCY 5128.40 5728.40 S72B.40
SAN FRANCISCO TOM SNACKS 5340.08 $340.0B
SECURITY PACIFIC NATIONAL BANX SO.OO SO.OO
liNET $24.71 $24.71
SOOTHERN BELL 589.60 $74.62
• STANSBURY BO~GINE " ASSC
STATE BOARD or EQUALIZATION
STATE OF CALIFORNIA
51,302.40
$500.00
51,919.17
$1,302.40
574.62
$1,320.40
$500.00
51,919.17
TAB PRODOCTS co. &;58.01 SSB.01
THE MARK ROPkl~S ~OTEL S971.65 $971.65
TKE VERY LAST WORD 5.266.4J $266.43
INS. FINANCE
• TRANSAMERIC~
TRANSPORTf\.BLE SOFTWARE
UARCO I INC.
tiS SPRINT
525,161. 67

$1.B7
$'20,350.90
$3,t!97.58
$166.62
$20,350.90
SJ,t:I97.sa
$166.62
S1. 87
VULCAN BINDER &: COVER $84.40 584.40
WEINBERG, DORON $16,000.00 $16,000.00
wtSTCORP SOFTWARE SYSTEMS, IN. $549.9/ $549.97

• WORD POWER

Tot.al:
$293.92

$1,894,052.76 51,146,1.3$.60
$293.92
~===,::;:==:::::::.=======
Sl,53S,Sl'3.13


02/19/92
10
• EXHIBITS to Section 2255 Reply - Page 32

COHSOLIDAXED BSTArE

o:J:'BER lU.NIUMN TAJ"1' CI..AIHS

• CREDITOR
SCHEDULED
AMOUNT
PROOF OF CLAIM
AMOUNT
AAX.IMUH
POTENTIAL
CUlM

SECURITY PACIFIC NATION~ BANK S2,26B,170.21 $2,.268,170.21


STEV'EN SOLDOOFF S110 I OlD ,000.00 $110,030,000.00

• Total: $0_00 S112,296, '110.21 $112,298,/10.21


02/19/92
C-11

EXHIBITS to Section 2255 Reply - Page 33
1
GILMORE F. DIEKMANN
PATRICIA H. CULLISON
2
BRONSON, BRONSON & McKINNON
505 Montgomery street
3
San Francisco, California 94111-2514
.4
Telephone: (415) 986-4200

Attorneys for Plaintiff


5
FEDERAL EXPRESS CORPORATION
6

8
UNITED STATES DISTRICT COURT
9
NORTHERN DISTRICT OF CALIFORNIA
10

Z 11 FEDERAL EXPRESS CORPORATION,


0
Z
Z ...,. 12 Plaintiff,
:ri
~ ~
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COMPLAINT FOR INJUNCTIVE
l-
f.Il Q\ 13 v. RELIEF AND FOR DAMAGES
~ ~ ~
~ t; ~ 0 FOR BREACH OF CONTRACT,
14. HAMILTON TAFT & COMPANY, FOR BREACH OF FIDUCIARY
7 ~ ~ ~
-b
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=-
DUTY, AND FOR BREACH OF
15 Defendant.
!!! THE AGENCY RELATIONSHIP
.... z. ~ :::
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DEMAND FOR JURy TRIAL
~c:
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0 z 17 Plaintiff, FEDERAL EXPRESS CORPORATION, hereby alleges as
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0 18 follows:
~
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19 I.
20
PARTIES
21 1.. Plaintiff FEDERAL EXPRESS CORPORATION ("Federal
22 Express ll ) is a corporation organized and existing 'under and by
23 virtue of the laws of the state of Delaware, and maintains its
24 principal place of business in Memphis, Tennessee.
25 2. Plaintiff is informed and believes and thereon alleges
26
that Defendant HAMILTON TAFT & COMPANY (IIHamilton Taft tl ) is a
27
corporation organized and existing under and by virtue of the
28 laws of the State of California and maintains its principal place

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to Section 2255 Reply - Page 34
1
of business in Texas.
2

3
II.
A
JURISDICTION AND VENUE
5
3. This is an action for breach of contract, breach of
6
fiduciary duty, and breach of agency relationship arising, inter
7
alia, under the California Civil Code section 2322 et seg. The
8
amount in controversy exceeds the sum or value of Fifty Thousand
9
Dollars ($50,000) exclusive of interest and costs. The
10
jurisdiction of this Court is invoked pursuant to 28 U.S.C.
Z 11
.......
'.....J section 1332 .
Z
Z ..". 12
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~
4. Venue properly laid in this Court pursuant to 28
~
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13
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t.!J <:
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u.s.c. section 1391(a), in that the claims involved arose in this
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district.
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III
GENERAL ALLEGATIONS
Z
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Count One
20
(Breach of Contract)
21
5. Plaintiff realleges and incorporates by reference as
22
though fully set forth herein each and every allegation contained
23
in paragraphs 1 through 4 of this Complaint.
24
6. In December of 1989 Federal Express entered into a
25
payroll tax service contract with Hamilton Taft. Pursuant to
26
this agreement, Federal Express would wire transfer its employee
27
payroll taxes to Hamilton Taft. Under the contract Hamilton Taft
28
was then obligated to make disbursements to the appropriate

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to Section
2 2255 Reply - Page 35
1
taxing authorities on behalf of Federal Express including the
2
IRS, and state and local taxing agencies. As consideration for
3
performing this service, Hamilton Taft had the use of Federal
4
Express' money from the time of its receipt until the time of its
5
disbursement to the appropriate taxing authority.
6
7• Federal Express has performed all of its obligations
7
under the contract by promptly delivering to Hamilton Taft all
8
appropriate payroll tax summary reports and payroll tax funds.
9
Plaintiff has fully performed all contractual obligations except
10
where prevented by breach of defendant.
z 11
8. Plaintiff is informed and belie~es and thereon alleges
o
z
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."
12 that defendant has breached its contractual obligations by,
N

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:2 ~ '<! rather than paying plaintiff's payroll taxes with the money
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14
transferred for that purpose, the money would be held for an
~
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15
additional 30 to 90 days. Plaintiff is informed and believes and
16
thereon alleges that in some cases defendant then used a
17 different client's incoming funds to pay Federal Express taxes
18 and any federal or state taxing agency penalties for late
19 payments.
20
9. Plaintiff is informed and believes that in other cases,
21
Federal Express taxes simply were not paid, and penalties may be
22
accruing.
23
10. Defendant has further breached the contract by not
24
providing original tax receipts evidencing the tax payments as
25
requested by plaintiff.
26
11. As a result of defendant's breach of contract plaintiff
27
has been damaged in excess of $50,000~ In order to discovery the
28
true extent of its damages plaintiff is in need of information

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to 3Section 2255 Reply - Page 36
1
from the defendant regarding payroll taxes paid and money
2
currently owed to the appropriate taxing authorities~ Such
3
information is within the exclusive control of the defendant and
A-
has not been made available to the plaintiff as requested.
5

6
count Two
7
(Breach of Fiduciary Duty)
8
12. Plaintiff realleges and incorporates by reference as
9
though fully set forth herein each and every allegation contained
10
in paragraphs 1 through 11 of this Complaint.
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0 13. Plaintiff is the trustee of the tax funds withheld from
z
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the wages of its employee. Plaintiff, as trustee of these funds,
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Ul < is a fiduciary of the withheld funds for the purpose of paying
~
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14
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C; the required amounts to the united states, and state and local
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15
~
agencies.
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co .....
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.0( 14. As custodian of these funds, defendant owed a fiduciary
0::
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- 0

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"J")
<{
(,f.J
duty to the plaintiff to transmit these funds to the appropriate
Z
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:::::: taxing agency promptly and in the full amount. Defendant also
;::0
19
had a fiduciary duty to invest these funds as a reasonably
20
prudent investor investing his own money would have done so as
21
not to jeopardize the principle. On information and belief
22
plaintiff alleges that by investing in high risk non-liquid
23
loans, defendant has breached this fiduciary duty.
24

25
Count Three
26
(Breach of Agency Relationship)
27
15. Plaintiff hereby realleges and incorporates by
28
reference as though fully set forth herein paragraphs 1 through

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to 4Section 2255 Reply - Page 37
1
11 of this Complaint.
2
16. Pursuant to the written payroll tax service contract
3
entered into between the defendant and plaintiff, defendant
.4
became the agent of plaintiff.
5
17. Defendant consented to the creation of this
6
relationship by agreeing to accept payroll tax money from the
7
plaintiff and deposit such money on behalf of the plaintiff in
8
the appropriate amounts and manner on or before the statutory
9
deadlines as herein alleged.
10
18. In consideration of i~s entering into an agency
Z 11
0 relationship with the plaintiff, defendant had the use of
Z
Z 12
"'"" plaintiff's employee payroll tax funds from the time received by
~
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Ul Q\ 13 defendant until the time of disbursement to the appropriate
:Ea::
w -<_
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Z ~ &:
~~
~ taxing authorities.
,- <0
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C'I
15
U"\ 19. Pursuant to its agency relationship with the plaintiff,
z~3
2 a U 16
~ ::::E z defendant owed a duty of loyalty to the plaintiff. This duty of
• C3 -<
Z U"\ I:-c::
0 z 17
V) -<
V)
loyalty required defendant to pay the payroll tax funds owed by
Z
0 18
r.::: the plaintiff to the appropriate taxing authorities in a timely
:::Q
19
manner, and to refrain from administering the payroll tax funds
20
in a manner harmful to the interest of the plaintiff, includIng
2]
imprudent investments, or investments which might expose the
22
plaintiff to taxing authority liability.
23
20. Also pursuant to its agency relationship with the
24
plaintiff, defendant owed a duty to disclose promptly upon demand
25
by the plaintiff all documents, including tax receipts, relating
26
to the defendant's administration of the plaintiff's payroll
27
account.
28
21. Defendant has breached its agency relationship by

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to Section
5
2255 Reply - Page 38
1
failing and refusing to render to Federal Express, upon its
2 demand, an accounting of its fund.
3
22. Defendant·s breach of its agency relationship has
4
caused plaintiff damages in an amount to be specifically
5 ascertained at trial but which is presently alleged to be in
6 excess of $50,000.
7

8 Count Four
9
(Injunctive Relief)
10 23. Plaintiff hereby realleges and incorporates by
Z 11 reference as though fully set forth herein paragraphs 1 through
0
Z
z 12 22 of this complaint.
~
u ~ 13 24. Unless defendant is restrained by appropriate
~ ~
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>-
Z ,...
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M
"<:T
injunctive relief herein from destroying or otherwise disposing
:is
0'1
~
15 of tax receipts and other information in its control documenting
zv~
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~ ~ ~ 16 the use and transfer of plaintiff's employee tax funds, and
.r'\ <t
Z~ ~ fl:
0 z 17 unless defendant is restrained by appropriate injunctive relief
IJ') <t
III
Z
0 18 from continuing to operate the "ponzi scheme", and unless
c::!
~
19 defendant is ordered to immediately produce tax receipts and/or
20 other information regarding the transfer and use of funds,
21 plaintiff will suffer immediate and irreparable injury for which
22 there is no adequate remedy at law herein.
23 WHEREFORE, plaintiff prays for judgment against defendant as
24 follows:
25 1. For preliminary injunctive relief restraining or
26
otherwise preventing defendant from destroying tax receipts
27
and/or other information regarding the transfer of payment of
28
plaintiff's payroll taxes as alleged, pending trial;

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to Section 2255 Reply - Page 39
6
1
2. For preliminary injunctive relief ordering defendant to
2
cease using plaintiff's payroll tax funds as part of a "ponzi
3
scheme", pending trial;
3. For a temporary restraining order enjoining defendant
5
from destroying tax receipts and/or other information regarding
6
plaintiff's payroll taxes; and
7
4. For an order mandating the production of tax receipts
8 and/or other information in control of the defendant regarding
9 the payment and transfer of plaintiff's payroll tax funds; and
10 4. For damages for the acts herein alleged in accordance
11 with proof ..
12

13
JURy DEMAND
1.4
Plaintiff Federal Express Corporation hereby makes demand
15 for jury.
16

17 Dated: March 13, 1991


18
BRONSON, BRONSON & McKINNON

BY:Qz(~~
19

20
PATRICIA H. CULLISON
21 Attorneys for Plaintiff
22

23

24

25

26

27 \PHC\29296 \ 9999\COMPL T• eMP


44S9~J.Allen

28

COMPLAINT FOR INJUNCTIVE RELIEF


EXHIBITS to Section
7
2255 Reply - Page 40
III U\! past tew daY$ .':erbe:ran
I$.TOng em\llo1!t I Stelle &.l'lodoH.
Ann-
to
'PI'Wltely proV\6t I number ofmaiot t<ln\.
p:anl.fS UCI blstitl.I!~QM withe. Ilmple e~li'
natJar. for ~r. Il.~
Am1.Jtrcng', S\.Iddtnl)'
p.!Il"fllt WId wml/lt\y l.M~b\e
Idftll.ltb.
Tax Belote ~ T~ed ku.t mMU\. MI. So-
ladoU 'WAI ccn\roUer r.)/ iIll ob5el.lrt San
Frantl.aco firm. H.IUIillltJII Talt , Co..
Was the Big Spender t.NtI\~ by tdr > ~ Id.nu IIarth
1988, Tlltl firm Ulnu.tfy ~ n.S btl·
Just Spending Money \lOft In payroll wtlJl.holdl.n£ WK OIVI!od to
In.. !Ill/!'C"I'IJI.I Rl'v~Uf Servi«o lind cthllr !ax
np!l.elr.i (or tllch 1l'Vf:n!o! trnp!oym u
Firms Owed to IRS? f.'e-dmJ
(:cdt. 1)/.
, Castll!' &I
State sal'
of CtlIfOMi.a and I.b.e OaklAnd Atll\!l\ci.
Texan 'Cbip' Armstrong Ran Kind Ponzl Sebeme
Mr, Salodo.t! a1Il1fti to (eden! 1"ttu:111'
&heme Processing Funds, UtS 911d In A memonmdum Iiled With & fed·
Former Employee Alleges ~flll '!lIt wt I~ad 01 promPtlY ~t·

-
FedEx Frets Over $16 Million
log eU of tNsc fUndS W'ttb the ptOflel' fav·
4'mnltl'lt ~f!CY as tUpub1ted by ecmtr!l.~!.
~tr, Af!TIlIt1'I)!\g 6.lyeNd INJfY nullkmJ to
1111 0\Im f>rlllllf IrU"S III a bnd of Pom::\
scheme now 01\ Ult verre o( collll.p5!- Some
By B.4U'H T, K(NC Ja. Ham1ItM Tall CWlICl'1N!tIl cc.nfirm tile dl
SltaIl iltorll"'>rll'" orr" .. w....... a"l"ll~~ '''Ull''' ..... \ets.!tm.!, alId Mr, Solodor! uttmateS !.hat
Wt year s FO!1l1!1 of JuJy p!rty at t.bt tht-y t.lXa.I nearly noo mUllan.
l,l')(,lG-acre COu\:llt C raneb near Hl!.!ntllon T1i!t. It rul'1l!l out. Is (1M (J{ llie
TexlS. "'U II l'CeDt neb!
0111 hllliitlit IA>; r.ftlCl!Ul:Il'I in tnt ClllllltrY. But
The 2&0 rutsts ft\'t [Nate<! to B. rodeo In ~ tblS 1.i'I11 a ~t ~ to be II! rigM
lJ'!!D3, !he R'lWI)t 01 C1lill'llry IUi1 1I0W. I.ASt Yt lif. Ibt [RS ~t tfIe lag 'I1m.e
~twetfl p.ayday and ux payment" from
SI.rn1t, 2M 8.ft hour of firelJrOl'ki a.f-
Ur e slt'dOlllll dinner. Hlnt 4aY1 to one wlth I! JU'ilJJn1Wd de·
tM host ~d rmtll o-.mer. COOrue C. ~I pt«est, sharply eulU.lhng /'!W"ttllS.
"c."IIP~Anm;lrong Jr .. was ulebrQl.\llr 11 ~tg playetJ lite ADP artd Qa.nltAmtr1ca
I
pefS4!lalldfld of il'Id~lulenee day: HJs b· I!enmtt Ill!' better lees by Ollertnc e«n-
mer hId )USt eDmDltle4 an l8'f1\Onth jlU f1\tte payroll se~ !
A«.Dtdlt1f 1£1 Mr. Bi>lodaH. t!'Ie lure for
Il.'nn for J.!I.W)6erlng druC' !'!'lotie)'.
'Tbe eX'Q'tvara.n.u was DOU!wortl:\y. lven Mr. AmlStrllllf \IIU flat proftts 00\ hue. I
lOWly \lQT'tfUlIttO cash (laws. Al:te:S'& to
by !.be S'W!dard$ of Texas' bytone nI)'
boom ~ 1l.Iltfi at! lSS8 Oup ihat money bAs htlped hlm c~&ee It Uti )
.lliNtronr. IIOW yean llld. warked u a rtyle lie cou.!rl ooly lIre.!un of durin: Ul\cw' I
S16.,{lOO-a yw I'trem.an e.ni1 b.ad a l\.I.slOI'Y Oi tlreba.lst shifli. II \lfe style ttw would al· r
1:101 tepam baJlk Joans in 19a!l. lI.e de· low hmi to ,tar In hI.s own ~ lUiyQme i
hr V/tshK and m~ 'OallM WCIlIUI\ he
clared Iltrr.on.tl DWl:tIptty .ftu the fatl·
ure I)r i tDUlU bUSU'less be ran ()41 ~ U!l'd UI rut It Irt lOOl!t;' pam. I
&Ide-l.I!mporary worken; IIJred by Mr •
Al1'Il.Str onr sprayed Ilre-ri!ta.rdanl mateMalI
How It WlIrUd
~re'i how !It.tt &ebeme ~e(I, tw)N'
I
II
00 tile .r.eel tta.mts af amunetdal tKItld· llIi tc Mr, SQlodoffs memClr611i1um filed
Ing&. With ted,raJ !!.Olin doeltmtnts: ~ ».1IJ.c: I
r
~tJEIIIs til ~ • idc.1. w;u It1l1U.Sk the loti",yment 01 tAxes
- tleq:in SUCb nven:a..l1. Mr. .ums:tn:lng tn" s:u.rting quwr.lt'a not too t.oog1I. AU j
ytIl.1 dA I.s repc.rt to W ~ lil!ncy tbJit you
t:h.e.pt'St t&o c:a.m:t UJj VII1tl1 b\lI-
are
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f\lla.rtl!t' a fill last q\l.lll'teT"& 1
bole. 1M villi forward Dtlt'
qlJJ:!'!!r, WIUle Pl)"Rlefits recelft!j mew . I
~'Yt qllUfElr Iftep .lmUI, It n.e bl.r
I1vranj for all !.bill ~l~·filltnr la the. ehunk
01 UI'lpal6 \.IU~ tram tM ttart.lI:Ir QIlAI'!.eT
Irs; tou.1Id R\Oory.
1M tVllnrua.ll.:r. hCll ....5.!tl.nr rea wry
c.mly. Than wIltre tht Panii aspect
emnts l.h. 'I'M u:tS t.sse'f.ll,eS A. lCl"/. fIe!lAlIV
phls U!.tete:JI on even' Ill"' ~I. UJ)-
~ ~ Ut t:e.m1I\.r at least ltl"h q\lluterly
l~ &.n.nually I lie ~our "foond Vlo.ney"
&CId p..u.s It along to me \.aX man, yOI.I wl!!
have til dI.r the holt that !Dnell< deeper u.cn
tIm.t ....n:lUnd to rep.alr tilt ~.
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• II'f.. blnfll, 1M el'Wlee mcna.s:es that 50l'1'l.I.'
tUttll Will rtt a peNlJty nCilkt Slid aJIk '
~l1i questions. llUlcI! HamIltOn tatl' l
EXHIBITS to Section
~ .
• 2255 l.U
Reply - Page 41
~ 1!S'''6Ii!\\S!thit'' ~I.teQtt,
Ali. Col\l:l1l.ltJ
"I._~. "",,_ .... ):1404>
ae-
..
- ·~
-L

'ax Question: WM Big-Spender 'Chip' Armstrong


Just Spending Money That Others Owed to IRS?

c.LlStorn en wUl !ruffer at·


01'.1 Ha.m.t.ltOb talt's i i

at'llhly 1.0 ge.ne'!1kte q,u.\clQy from UI"


tUn In ~.stm.eDU 0fI tb br:lo.ks. All Ilf Dee. , Litton Unit's Soviet Venture
31. It beld tot.al1ng Ifi mWlon frOm BEVERLY Cillf.-A gutw.dlary
C'ompa.roe.S by Of amJla1ed wIth Mr. of IJn.oa stgned IJl ~
Armrtn:lflg, J.C;C(lrQml UI an I.I1WldJted ment with III So~t COI'lttm w fOrm Il.!o!n\
eompany b.aLa.nee ~l VeD.tuf\!! Ui proVide teehnlcal Soervices in t/Ir
"Tbere .IS un<:ert8llll:y 01 the ~Y'li .RI.!.E:Il.an l'epllblic..
abUlty I/) meet Its obbgat.li:m.£:' says An, Of tI'Ie a,reemttlt were!! 't dis
th<my llotan:stl III 1{PMG Peal MaMek.
Hanulton fait's atcOWltant JD a JUDe 1989
review, Put Ma'l"Wlck dUd a S1.9 milllon
11IOrk1nr-clPltaI dew:U and BLI.d "substan-
li.a.Uy mQn furd!I hv-e been eoDected 1'rO!n
clients thall am ellJ"rt"fltly I 'Iil1able to I18Y
those tu:i!s:' By yeaHnd. 1990, In.
internal sheet ,boWl, that filurl'!
Iw3 1.0 sa7 miUIbn..
6ly5 U has talItd tot twO
.."m:I\I",U l full QUdll Of tht earn-

EXHIBITS to Section 2255 Reply - Page 42


- ;-.
• .~
/~~ ftL P

-iitpf1-s f~ 9dr2~
4/3/91

~STRONG'
Mr · Baker:\f7
RE: CONNIE/C. JR.,
AKA 9HIP~STRONG;
DBAvHAMILTON TAFT AND COMPANY;
32ND FLOOR, SPEAR STREET TOWER,
SAN FRANCISCO, CALIFORNIA;
FRAUD BY WIRE; MAIL FRAUD; TAX FRAUD i
00: SAN FRANCISCO

San Francisco has initiated a Fraud By Wire


investigation based on information received from the former
Comptroller of Hamilton Taft and Company (HTC) that the sUbject,
Armstrong, has'embezzled over $100 million from the firm's
clients over the last three years. ,These allegations continue to
be front-page news in San Francisco and on 3/15/91, the Wall
street Journal ran a front7page article detailing the allegations
(copy attached).
HTC contracts ,with companies who owe taxes to numerous
state and local taxing authorities. Client companies make a lump
sum wire transfer of funds to the HTC account, and thereafter,
HTC issues checks to whatever taxing authority is owed money.
The former Comptroller, I I, has alleged that
Armstrong diverted lump sum payments to his own use and
thereafter, incurred penalties associated with late payments and
7(: passed these costs along to the client companies who were not
notified of the late charges. In essence the allegation is that
Armstrong is running a "Ponzi scheme ll of considerable magnitude
Which requires increasing amounts of cash to keep the operat'on
going · J~ -3:1,:;"& -"
left HTC in Februar of 1991 and on 3

You will be kept apprised of pertinent developments.


NOT APPROPRIATE FOR DISSEMINATION TO THE PUBLIC

L.~S
Enclosure
1 - Mr. Jones 1 - Mr. OIHara
1 - Mr. Baker 1 - Mr. Esposito
1 - Mr. Potts 1 - Special Assistants, CIn
1 - Mr. Bryant
GDM:gdm/sw (9)

(JA~
EXHIBITS to Section 2255 Reply - Page 43
COURT

NORTHERN DISTRICT
CT FORNIA

BEFORE THE HONORABLE CHARLES A. LEGGE,


LEGGE JUDGE I

UNITED STATES OF AMERICA, )


)
PLAINTIFF, )
)
VS. ) NO,, CR 94-0276 CAL
)
CONNIE C. ARMSTRONG,
AJU4STRONG, JR./
JR., )
AND RICHARD A. FOWLES,
POWLES, )
)
DEFENDANTS. )

I CALIFORNIA
MONDAY JANUARY It 1997
VOLUME PAGES 286B
868 - 3048

FOR PLAINTIFF:
FF:

450 AVENUE
SAN , CALIFORNIA 94102

BY: GEORGE D.
D, HARDY ESQ.
I

RONALD D
D. SMETANA, ESQ.
ASSISTANT UNITED STATES

SANTA 90404

SOLOMON
lBB MARKET STREET, SUITE 1080
388 10S0
SAN 94111

(APPEARANCES CONTINUED ON NEXT :)

REPORTED BY: YEOMANS CSR JI

COURT REPORTER!
REPORTER I

COMPUTERIZED BY XSCRIBE

EXHIBITS to Section
JAMES YEOMANS,
2255 Reply
REPORTER, USDC, 415
- Page 44
863-5179
415-863-5179 1
2885

GOVERNMENT COUNSEL COME IN, PLEASE, I NEED TO SEE THEM ABOUT A

MATTER HERE.

(PAUSE IN THE PROCEEDINGS)

THE COURT: I RECEIVED FROM THE GOVERNMENT THIS

MORNING A DOCUMENT ENTITLED, "EX


IIEX PARTE SUBMISSIONSII
SUBMISSIONS" REGARDING

WITNESS TERRI ROBINS.

NOW, IS SHE GOING TO BE COMING IN THIS MORNING?

MR. SMETANA: IT WAS OUR INTENT TO DO SO IF MR. HARDY

WAS IN THE PROCESS OF PRE-TRYING YESTERDAY WHEN HE DISCOVERED

THIS.

MR. HARDY: ONE CORRECTION TO THE SUBMISSION. THE

DATES ARE WRONG. APPARENTLY,I IT WAS TWO YEARS AFTER THE FACT.
APPARENTLY

IT WAS 1993 AND 1994.

THE COURT: BUT NOW WHAT BOTHERS ME IS THAT SHE DOES

HAVE AND DOES KNOW OF STATEMENTS BY ARMSTRONG. YOU NOW KNOW OF

STATEMENTS BY ARMSTRONG.

MR. HARDY: WE KNOW SHE APPARENTLY DID RECORD SOME

STATEMENTS.

THE COURT: YOU HAVEN'T SEEN THE STATEMENTS?

MR. SMETANA: AGAIN, WE FOUND OUT YESTERDAY AND SINCE

THIS MORNING TALKED WITH THE FBI SPECIAL AGENT INVOLVED WHO

CONFIRMED FIRST, THAT IT WAS AN INVESTIGATION OF AN ENTIRELY

DIFFERENT COMPANY.

THE COURT: HE STILL MADE STATEMENTS.

MR. SMETANA: AND, SECONDLY, SHE WAS INSTRUCTED NOT TO

EXHIBITS to Section 2255 Reply - Page 45


JAMES YEOMANS, OFFICIAL REPORTER, USDe,
USDC, 415-863-5179
6

ASK OR DISCUSS HAMILTON TAFT.

THE COURT: BUT SAY -- IT'S NOT JUST

THE WITNESS ITSELF I'M CONCERNED ABOUT, IT'S ALSO POSSIBLY

EXCULPATORY THINGS THAT WERE SAID. I THINK THE DEFENSE HAS A

RIGHT TO THOSE STATEMENTS BOTH BECAUSE THEY ARE, AI

STATEMENTS OF THE WITNESS AND, B, BECAUSE THEY'RE POTENTIAL

BRADY MATERIAL. I DON1T KNOW WHETHER THEY ARE OR NOT.

MR. HARDY: WE I VE NEVER SEEN THEM. WE I RE NOT

THAT CONCLUSION AT ALL, THAT'S WHY WE BROUGHT

YOUR ATTENTION.

THE HOW CAN WE GO AHEAD ROB INS?

MR. HARDY: CAN WE DO THIS? WE REVEAL THE FACT

THAT THE PAYMENT OF MONIES BY THE FBI TO TERRI ROBINS DURING

THE PER 1993 TO 1994?

THE COURT: DIRECT?

MR, HARDY: IN OUR DIRECT I OR WOULD BE LEFT TO THE

DEFENSE NOW, THEN ORDER UP ALL OF THAT/ GET IT FAXED

HERE, FEDEXED OUT HERE.

SHE'S RELEASED FROM TESTIFYING AFTER DIRECT AND

CROSS SHE BE RELEASED SUBJECT TO RECALL FOR THE

CROSS-EXAMINATION ON THOSE POINTS. IS THAT IBLE?

SO THAT WE CAN TURNOVER THE TO THE

THEY CAN REVIEW THEM, THEY CAN DECIDE WHETHER OR NOT THEYJRE

ISSUES WANT TO BRING UP.

THE COURT: YOU DON'T THINK IT MIGHT BE BETTER TO

EXHIBITS to Section 2255 Reply - Page 46


JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863-5179
2887

ROBINS?

MR. SMETANA: WE PROPOSE TO REST OR WEDNESDAY.

WE'RE ABOUT DONE.

THE COURT: I THINK WE'RE NOW AT A POINT WE HAVE TO

TELL THE DEFENSE ABOUT THE PROBLEM. NOW, SO YOUR SUGGESTION IS

'.u ...... n~ WITH WHAT WE'VE GOT AND THAT THE ONLY QUESTION THEN
WE GO ..~~~=~

WOULD WHAT TO DO ABOUT THE STATEMENTS THEMSELVES?

MR« HARDY: CORRECT « THEY MAY NOT WANT TO GO INTO

THEM THEY LOOK AT THEM.

THE COURT! THEY MAY BE JUST TOTALLY IRRELEVANT. BUT

IT'S A PIECE OF MEAT FOR TO JUMP ALL OVER AND I

HAVE TO BE CONCERNED THAT IF SHE HAS RECORDED IT AND THEY ARE

PRODUCED AS WITNESS STATEMENTS AND WHETHER THERE'S POSSIBLY ANY

BRADY MATERIAL IN THERE, YET NONE OF US KNOW THAT.

(PROCEEDINGS HELD IN OPEN NOT PRESENT:)

THE COURT: LET THE RECORD I'VE RECEIVED THIS

A STATEMENT FROM THE GOVERNMENT WITNESS TERRI

ROBINS, AND THIS RAISES SOME ABOUT MS. ROBINS AS A

WITNESS AND'S, I GUESS, ANTICIPATED TO BE YOUR NEXT

WITNESS?

MR. HARDY: THAT'S

THE COURT: APPARENTLY, IT CAME TO LIGHT OVER THE

WEEKEND IN THE PRE-TESTIMONY BETWEEN THE

GOVERNMENT COUNSEL HERE AND MS. ROBINS, WHICH SHE WAS ASSISTING

EXHIBITS
YEOMANS, to Section
OFFICIAL REPORTER, 2255 Reply - Page
USDC, 415-863-5179
47
2888

THE FBI AND ANOTHER INVESTIGATION OF HAMILTON TAFT INVOLVING

COMPUTECH AND THAT SHE WAS PAID BY THE FBI FOR WHAT, I DON'T

KNOW, TIME, EXPENSES, I'M NOT SURE WHAT. SHE DID RECORD

CONVERSATIONS WITH MR. ARMSTRONG.

NOW, AS I TOLD GOVERNMENT COUNSEL, I THINK THOSE

STATEMENTS THAT SHE RECORDED HAVE TO BE PRODUCED TO THE DEFENSE

BOTH AS STATEMENTS OF THE DEFENDANT AND FOR POTENTIAL BRADY

MATERIAL. NOBODY HAS YET REVIEWED THESE. IT'S MY

UNDERSTANDING GOVERNMENT COUNSEL DOESN'T KNOW WHAT'S IN THOSE

STATEMENTS, JUST FOUND OUT ABOUT IT THIS WEEKEND.

MR. HARDY! THAT 1 S CORRECT.


THAT'S

THE COURT: SO THE STATEMENTS HAVE TO BE PRODUCED. SO

THE QUESTION IS WHAT WE CAN DO WITH MS. ROBINS WHO'S COMING IN

TO TESTIFY TODAY. THE GOVERNMENT SUGGESTS - - WELL, MAYBE YOU

BETTER STATE THE SUGGESTION.

MR. HARDY: GOVERNMENT SUGGESTS THAT WE PROCEED TODAY

AND WHEN WE'VE FINISHED WITH THE TESTIMONY THAT THE PLAINTIFF

CROSS-EXAMINATION, WHATEVER CROSS-EXAMINATION THAT YOU GO INTO,

THAT SHE BE RELEASED SUBJECT TO RECALL FOLLOWING THE REVIEW OF

THOSE STATEMENTS, SHE BE CALLED ON CROSS ON THOSE POINTS.

WE DON'T KNOW IF YOU'RE GOING TO WANT TO GO INTO THOSE

POINTS OR NOT. WE DON'T KNOW WHAT'S THERE, BUT WE'RE RUNNING

LOW ON WITNESSES.

THE COURT: HOW SOON CAN YOU HAVE THE STATEMENTS?

MR. SMETANA: I DON'T EVEN KNOW AT THIS POINT WHAT

JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-863-5179


EXHIBITS to Section 2255 Reply - Page 48
2889

THEY'RE IN, WHETHER HAVE BEEN TRANSCR WHETHER

THOSE ARE JUST TAPED, WHETHER THERE'S TAPES THEY HAVE BE

THE COURT: DO YOU KNOW THE VOLUME?

MR. SMETANA: I KNOW WHAT WE IS HAVE

ONE OF THE AGENTS WHO IS HERE IN COURT IN TOUCH THE

FBI AGENTS IN DALLAS AND ARRANGE TO HAVE THOSE AND

ALONG THE WAY FIND OUT.

ONE OF THE PROBLEMS WE APPARENTLY ENCOUNTERED IS THERE

IS APPARENTLY ICE AND SLEET IN DALLAS AND THE FBI OFFICE IS

OFFICIALLY CLOSED. AS IT HAPPENS, THE AGENT WENT IN, BUT I

GUESS THEY WERE GIVEN AN ADMINISTRATIVE DAY OFF TO THE

WEATHER, SO WE HAVE A PAGER NUMBER FOR THE FBI WE CAN

HAVE HIM PULL THAT

THE COURT: HOW SOON DO YOU THINK YOU CAN GET THE

STATEMENTS HERE, EITHER -- IN WHATEVER FORM THEY'RE IN, TAPES

OR TYPEWRITTEN FORM?

MR. SMETANA: AT A MINIMUM 1 EVEN I F THEY WERE TO

LOCATE THEM IMMEDIATELY AND SEND THEM I IT WOULD

BE TOMORROW UNTIL WE HAVE SOME - - SOME TIME BY FEDEX. THAT'S

THE FASTEST WE CAN POSSIBLY DO IT, AND I DON'T KNOW WHETHER

THAT'S POSSIBLE.

THE COURT: THEN, OF COURSE, THE DEFENSE WOULD NEED A

REASONABLE TIME TO GO OVER THEM TO DECIDE WHAT THEY WANTED TO

WITH THEM OR DO WITH MS, ROBINS.

EXHIBITS to Section
JAMES YEOMANS I
2255 Reply - Page 49
REPORTER, USOC! 415-863-5179
2890

MR. HARDY:" IT'S MY UNDERSTANDING WE'LL BE BREAKING,

AFTER THE GOVERNMENT FINISHES ITS WITNESSES THIS WEEK, UNTIL

THE DEFENSE BEGINS. THERE WILL BE A GOOD BIT OF TIME FOR

REVIEW AND IF NEED BE WE COULD BRING HER BACK BEFORE YOU START

YOUR CASE.

IN OTHER WORDS, I THINK THERE WILL BE A BLOCK OF TIME

FOR YOU TO REVIEW IT AND FIGURE OUT WHAT YOU WANT TO DO.

MR. SABELLI: WE MAY HAVE RELEVANCE OBJECTION TO ANY

OF THIS AREA. THERE MAY BE 403 CONCERNS AS WELL, 404(B)


404(8)

CONCERNS. IT MAY BE A BASIS FOR A MOTION TO SEVER ON THE PART

OF MR. FOWLES. I'M NOT SURE IT'S FAIR FOR US TO HAVE TO BEGIN

OUR CROSS-EXAMINATION WITHOUT KNOWING THE NATURE OF THIS

MATERIAL. MAYBE SOMETHING THAT WE CAN USE TO

MR. HARDY: YOUR COMMENTS SUGGEST WE HAVE SOME

INTEREST IN PUTTING SOME OF THAT MATERIAL IN AND USE IT IN SOME

WAY, WE DO NOT. WE HAVE NOT SEEN IT. WE DON'T KNOW WHAT'S IN

IT AND HAVE NO INTENT USING ANY OF THAT MATERIAL.

MR. BROWN: AT THE VERY LEAST, THIS WITNESS --


- - WE

THINK THIS WITNESS ALREADY HAS A TREMENDOUS BIAS AND SHE

INDICATED IN HER GRAND JURY TESTIMONY III'M UPSET, I'M ANGRY,

I'M VINDICTIVE. II NOW WE FIND OUT SHE BECAME A GOVERNMENT

INFORMANT. CERTAINLY THAT'S SOMETHING WE WOULD WANT TO BRING

UP ON CROSS-EXAMINATION.

THE COURT: I WOULD IMAGINE THAT COULD BE DONE EVEN

BEFORE YOU SEE THE STATEMENTS. WHAT I'M DEBATING HERE, SHOULD

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255 Reply - Page
USDC, 415-863-5179
50
2891

WE START ROBINS AT ALL, DIVIDE HER UP AS THE GOVERNMENT

SUGGESTS, OR THE BETTER THING TO DO IS POSTPONE HER UNTIL THE

DEFENSE HAS THE MEANS EVEN MAXIMUM SPEED IT

GETS HERE OVERNIGHT, YOU GET IT TOMORROW, IT'S GOING TO BE

WEDNESDAY BEFORE WE CAN WI MS. ROBINS.

MR. BROWN: II DON'T WE'RE ING TO HAVE, FIRST

OF ALL, A
A GREAT OF FFI THE GOVERNMENT'S

WITNESSES THIS WEEK. THINK THROUGH WE'D BE ABLE TO

COMPLETE WHATEVER, WOULDN'T YOU IT SEEMED THAT WAY. I

WOULD LIKE JUST A MOMENT OR TWO TO CONFER WITH COUNSEL.

THE COURT: APPARENTLY, THE 1..I£'"'",.,n..... MEN' T ALL HERE


U"-\.JI\..;;)

YET.

MR. BROWN: I F WE COULD HAVE A FEW MOMENTS.

THE COURT: GO AHEAD AND CONSULT.

(PAUSE IN THE PROCEEDINGS)

MR. BROWN: YOUR WEtRE STILL IN THE PROCESS OF

DISCUSSING IT AND IF WE DID A LITTLE FOR A FEW

MOMENTS, WHAT -- THE THING I'M GOING TO SAY, II THINK,

THERE ARE SOME CASES TO SUPPORT WHAT I'M ABOUT TO SAY.

THE FIRST MOTION WE WOULD MAKE WOULD BE THAT THE

WITNESS BE EXCLUDED ENTIRELY. THIS COMPUCHECK WE'RE TRYING TO

SET UP THE TIME FRAME. I'M EVEN WONDERING IF IT WAS COMPUCHECK


riM

AND I DON'T EVEN KNOW IF MR. SMETANA OR MR. HARDY KNOWS AT THIS

POINT, BUT I'M WONDERING IF SHE WAS REALLY GATING

COMPUCHECK OR THERE WAS A SPILLOVER HER WERE FOR THIS

Jk~ES
EXHIBITS
YEOr4ANS, to Section
OFFICIAL REPORTER,2255
USDC, Reply - Page
415-863-5179 51
2892

MATTER.

THE COURT: THAT'S THE ISSUE, THAT'S PART OF THE

QUESTION. NOW, MY FEELING, JUST AS I'M THINKING ABOUT IT, IT'S

NOT FAIR TO THE DEFENSE TO HAVE THEM HAVE TO TAKE MS. ROBINS ON

CROSS AND TIPTOE AROUND THE QUESTION WITHOUT KNOWING THE WHOLE

STORY, THAT YOU GOT THE -- KNOW THE WHOLE STORY. AND BY THE

WHOLE STORY, I MEAN, CERTAINLY THE RECORDED STATEMENTS BEFORE

YOU CROSS-EXAMINE.

MR. BROWN: I AGREE WITH YOU.

THE COURT: I THINK

MR. BROWN: BUT I'M GOING ONE STEP BEYOND THAT FOR MY

FIRST INITIAL DISCUSSION WITH THE COURT. IN THE PREPARATION

OUR DEFENSE, IN AND ANALYZING ALL THESE CASES AND RECEIVING ALL

THE WORK THE GOVERNMENT DID SO NICELY IN ALL THESE BINDERS AND

BOOKS AND LOOKING AT ALL THE 302'S, WE HAD TWO 302'S FROM THIS

WITNESS. SHE GAVE A COUPLE OF DEPOSITIONS AT OR ABOUT THIS

TIME AND SHE HAD GRAND JURY TESTIMONY. IT'S NOT MENTIONED

ANYWHERE. THEY DIDN'T KNOW IT EITHER. SHE'S MISLED THE

GOVERNMENT. SHE S MI SLED EVERYBODY.


J AND WE WERE NOT ABLE TO

TAKE THIS INTO ACCOUNT IN PREPARATION OF OUR DEFENSE.

I REALLY THINK SHE NOT BE ALLOWED TO TESTIFY.

THE COURT: I'M NOT GOING TO GO THAT FAR UNTIL I SEE

WHAT IT IS. IT MAY BE HAS ABSOLUTELY NOTHING TO DO WITH THIS

CASE AT ALL, BUT I'M NOT PREPARED TO STRIKE HER, BUT CERTAINLY

NOT GOING TO FORCE YOU FOLKS TO DO YOUR CROSS BEFORE YOU HAVE A

EXHIBITS to Section 2255 Reply - Page 52


JAMES YEOMANS, OFFICIAL REPORTER, USDC, 415-B63-5179
2893

LITTLE , AND THAT RAISES THE ABOUT I

SHOULD LET HER ON BEFORE THAT OCCURS, TOO.

MS. LEARY: WE JOIN IN MR. BROWN'S MOTION.

THE COURT: IS THERE A MOTION? WHAT'S THE MOTION?

MS. LEARY: THE MOTION IS EXCLUDE HER AS WITNESS

ON DUE PROCESS GROUNDS, SPECIFICALLY ON BRADY GROUNDS.

THE COURT: WE DON'T KNOW WE HAVE ANY BRADY.

MS. LEARY: WE KNOW THIS WOMEN PARTICIPATED IN AN

INVESTIGATION OF MR. I POSSIBLY MR. FOWLES I

WE HOPE NOT. THE FACT THAT INVESTIGATION DIDN'T RESULT IN

ANYTHING, MAYBE ON ITS FACE BRADY, CERTAINLY IT'S IMPEACHMENT

AND THAT IS A TYPE OF BRADY MATERIAL, THIS RAISES SOME


MATERIAL AND

GRAVE DUE PROCESS CONCERNS.

THIS PERSON HAS HAD CONSTANT CONTACT WITH THE FBI AND

WITH THE GOVERNMENT. 'S TESTIFIED BEFORE THE JURY, AT

NO INDICATING

THE COURT: GRAND JURY WHERE, IN TEXAS?

MS. LEARY: MR. SMETANA AND MR. YAMAGUCHI DIRECTED

THAT JURY TESTIMONY. SHE AT NO POINT INDICATED --

THE COURT: YOU HAVE THAT

MS. LEARY: WE DO. THIS GRAVE DUE

CONCERNS. THIS IS SOMETHING THAT EXTREMELY SHE

MUST HAVE MET WITH MR. YAMAGUCHI, AND MR. SMETANA AT POINT

DIVULGES THIS TYPE INFORMATION.

IN FACT, I HAVE A LIST OF IN LIMINE MOTIONS I'D LIKE

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255 Reply - Page
USDC, 415-863 5179
53
2894

TO MAKE ABOUT HER TESTIMONY TODAY THAT'S THIS,

WHO IS MORE THAN WILLING TO BEND THE TRUTH IN AN

AGGRESSIVE WAY.

AND I THINK THIS IS AN EXTREMELY UPSETTING EXAMPLE OF

THE EXTENT TO WHICH SHE IS IN MR. ARMSTRONG

AND BY IMPLICATION OF MR. FOWLES. AND I WOULD MOVE TO STRIKE

THE TESTIMONY OF SOMEBODY WHO WITHHELD THIS OF INFORMATION

FOR THIS PERIOD OF TIME.

THE COURT: I'M NOT PREPARED TO FAR. BECAUSE

SHE MAY HAVE, QUOTE, "WITHHELD, II AS YOU IT, MAY BE

SOMETHING THAT IS TOTALLY NOT TANGENTIAL BUT TOTALLY IRRELEVANT

TO AN ENTIRE DIFFERENT MATTER.

I'M NOT PREPARED TO SAY IT IS OR ISN'T, BUT I DO THINK

THAT I SHOULD NOT LET MS. ROBINS TESTIFY HERE TODAY UNTIL

RE READY TO CROSS.

AND I DON/T THINK YOU/RE READY TO L YOU HAVE

THE WHOLE STORY. AND ONCE YOU HAVE THE AND THEN,

I YOU CAN RENEW YOUR MOTION THINK

TO BE A WITNESS AT ALL.

MS. LEARY: THERE'S TWO WE HER

STAND NOW AND VOIR DIRE HER OUTSIDE THE PRESENCE THE

JURy WHAT SHE DID, WHAT THE STATEMENTS WERE, AND TRY F

WHAT THE RELEVANCE ON THAT BASIS.

WE CAN ASK THE GOVERNMENT I ALSO,


ALSO I
I I WHAT

KNOW ABOUT THE COMPUCHECK, INVESTIGATION; WHO INITIATED, WAS IT

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255
USDC, Reply
USDe, - Page
415-863-5179 54
2895

} OUT OF TO WHAT EXTENT THESE GENTLEMEN WERE

WERE INVOLVED, IF THE TWO INVESTIGATIONS WERE

COMBINED IN SOME WAY AND SHE KEPT THAT INFORMATION FROM THEM.

THE COURT: AREN'T YOU GOING TO KNOW BETTER WHEN

SEE THE ?

MS. WE MAY, BUT WE CAN CERTAINLY GET A PIECE

OF IT NOW HAVING HER ON THE STAND, VOIR DIRE HER ON THE

MR. I THINK I JUST TO MAKE RECORD I MY

COMPUCHECK WAS A SEPARATE INVESTIGATION IN

DALLAS. 'S SOMETHING THAT WE HAVE PLAYED A


A ROLE IN OR

HAD ANY WITH. I NEED TO SPEAK ONLY BECAUSE I I M THE ONE

WHO'S BEEN WITH CASE THE LONGEST. MR. HARDY A FAIRLY

RECENT ADDITION.

WE'VE NOT BEEN INVOLVED IN COMPUCHECK INVESTIGATION.

I DON'T KNOW IT'S CURRENT STATUS, IF IT'S STILL AN OPEN

INVESTIGATION, I BELIEVE IT IS. JUST FROM MY THIS

MORNING, TO MY KNOWLEDGE THEY'RE TWO TOTALLY SEPARATE

THIS MORNING I REVIEWED A COPY OF THE 10K OR

FROM SEPTEMBER OF 1993, AND THAT POINT MR.

HAD JUST INTEREST, SO IT IS SOME TWO YEARS

THE TAFT.

MS. LEARY: THE GOVERNMENT KNOW WHETHER NOT

MR. MURPHY WAS INVOLVED IN THAT INVESTIGATION?

usnc, 415-863-5179
EXHIBITS to Section 2255
JAMES YEOMANS, OFFICIAL REPORTER,
Reply - Page 55
1 MICHAEL J. YAMAGUCHI
United states Attorney
2
JOEL R. LEVIN
3 C~ief, Criminal Division

41 RONALD D. SMETANA
Special Assistant U.S. Attorney
5 GEORGE D. HARDY
Assistant U.S. Attorney
6
450 Golden Gate Avenue
7 San Francisco, CA 94102
Telephone: (415) 436-6851
II
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
10
UNITED STATES OF AKBRlCA, ) No. OR 94-0276 CAL
11 )
Plaintiff, ) All!'lI!'IDAVIT Oll!' WILLARD L.
12 ) HATCHER, JR. Illi SUPPORT
v. ) OF GQVBRmU!JIIT'S EX-PARTE
) SUBHXSSION
CONNIE C. ARHSTRONG, JR., Iilnd )
14 RICHARD A.FOlllrLES, )
)
15 Dllfondanta. )
---------------)
16

17 I, Willard L. Hatcher, Jr., state that:

18 I have been a Special Agent with the Federal Bureau of

19 Investigation ("FBI") for 6 years, and am currently the case

20 agent for the prosecution in United States v. Connie C.

21 Armstrong. Jr .. et al, I have been involved with the

22 investigation of Hamilton Taft and Company since March of 1991.

23 Prior to his retirement on January 1, 1997, FBI special Agent

24 Patrick K. Murphy was the case agent.

25 2. I first learned of the government's possession of

26 recorded conversations of Connie C. Armstrong, Jr., on the night

AFFIDAVITOP WILLARD L HATCHIJIl, lR


IN SUPPORT OF GOYllRNMENT'S EX-PARTE
SUBMISSION

EXHIBITS to Section 2255 Reply - Page 56


1 of January 12, 1997, after witness Terri Robins informed
2 Assistant United states Attorney George Hardy of their existence.
3 3. I telephoned Patrick K. Murphy on January 13, 1997, and
4 asked his knowledge of such recordings. Mr. Murphy stated that
5 he understood that Ms. Robins had made some recordings for the
6 government on an unrelated investigation. Mr. Murphy stated he
7 did not know that Ms. Robins had ever recorded conversations with
8 Armstrong.
4. Mr. Murphy and I knew of the existence of the Dallas
10 FBI's investigation of Armstrong's activity at Comp-U-Check. We
11 understood that this investigation related to conduct that
12 occurred well after the bankruptcy of Hamilton Taft. To our
13 knowledge this investigation was unrelated to Hamilton Taft
14 except for the common involvement of Armstrong.
15 5. Since January 12, 1997, I have contacted Special Agent
16 Peter A. Galbraith, the Dallas FBI case agent for the Comp-U-
17 Check investigation, and requested all taped conversations with
18 Armstrong. I have received thirty-six (36) audio tapes and
19 special Agent Galbraith has assured me that these constitute all
20 of the tape recordings of Armstrong in the possession of the
21 Dallas FBI.
22 6. In addition, Special Agent Galbraith provided to me
23 copies of 302 reports prepared relating to the tapes and
24 documents provided to the Dallas FBI by Terri Robins. He assured
25 me that all of the reports and documents have also been forwarded
26 to San Francisco.

AFFIDAVIT OF WILLAIlD L HATCIlEll, JR


IN SUPPORT OF GOVERNMENT'S EX~PAR.TE
SUBMISSION 2

EXHIBITS to Section 2255 Reply - Page 57


1 7. Agent Galbraith expressed concern about the disclosure
2 the tapes, reports and documents to Armstrong because the Comp-U-

3 Check investigation and other related investigations are on-going


4 and he is concerned that disclosure of the materials may
5 jeopardize these investigations. He understood that certain of

6 the tapes, written materials and reports may have to be turned


7 over to Armstrong, but requested that the materials be

a scrutinized carefully and that those ultimately turned over be

9 limited to those necessary to protect Armstrong's rights without


10 harming the investigations.

11 8. Agent Galbraith said that all of the conversations were


12 recorded and documents were received in late 1993 and early 1994,
13 SUbsequent to the Hamilton Taft bankruptcy and before the

14 indictment of Armstrong.
15 9. After review of the tapes and documents by myself,

16 Special Agent Laura Nielson, Assistant United States Attorney

17 George Hardy and special Assistant United states Attorney Ronald

18 Smetana, we determined that Hamilton Taft is mentioned in five

19 (5) tapes; copies of the relevant portions of those tapes have

20 been reproduced for review by the Court for a determination of


21 whether they should be turned Over to Armstrong. In addition,

22 there is one document, a "novella" about Hamilton Taft, that has


23 statements attributed to Armstrong; since I do not know its

24 authorship, that document has been copied for the Court's review.

25 10. All of the reports, tapes and documents received from

26 the Dallas FBI are being made available for the Court's in camera
AFFIDAvrrOF wn.LARD L HATCHER, JR
IN SUPPORT OF GOVEIlNMIlNl"S !lX-FARTE
SUBMISSION 3

EXHIBITS to Section 2255 Reply - Page 58


1 review.

3 I declare under penalty of perjury that the foregoing is

4 true and correct. Executed


5 Francisco, California.

Ii

8
COUNTY OF SAN FRANCISCO )
9 ) SS.
STATE OF CALIFORNIA )
10

11 Sworn to and subscribed in my presence on January 24, 1997,

12 in San Francisco, California.

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16 My Commission Expires on ,OJ; : i.\" ""'\ ie,' . cli.' [CYll


\
17

18

20

21

22

23

24

2S

26

AFFIDAVIT OF WILLAIID L HATCHER, JR


IN SUPPORT OF GOVERNMENT'S EX-PART!!
SUBMLSSION 4

EXHIBITS to Section 2255 Reply - Page 59


FBI
TRANSMIT VIA: PRECEDENCE: CLASSIFICATION:
o Teletype o Immediate o TOP SECRET
o Facsimile D Inority o SECRET
!KJ AIRTEL D Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS

Date 8/4/93

TO DALLAS, SAC

FROM SAC, SAN FRANCISCO (196A-SF-93255) (P)

SUBJECT CONNIE CHIP ARMSTRONG, JRj


ET ALi
WIRE FRAUD (A)i
MAIL FRAUDj
00: SAN FRANCISCO

Reference airtel dated February 22,

SA HATCHER has obtained verbal/ailth~l::i:~tion from


united states Attorney, MICHAEL YAMAGUCHT, forL _ I
I Iconfidential source to record conversa lons with b2
subiects of this case. I I

2 - DALLAS
(1) - SAN FRANCISCO
WLH/wlh
1. " '

Approved: ":fS:~ Transmitted


(Nmnber) (Tune)
PCI' _

EXHIBITS to Section 2255 Reply - Page 60


STATES

NORTHERN OF

BEFORE THE HO:N01WlLE A.. LEGGE, JtJDGE

UNITED OF AMERICA, )
)
PLAHITIFF,
PLAINTIFF, )
}
VB.
VS. )J\ CR 94-0276 CAL
)
CONNIE C. ARMSTRONG, ,.• ,
I )}
A. FOWLES, )
)
DEFENDANTS. )

SAJ.V
SAN FORNIA
27, 1997
PAGES 3441 - 3639

ATTORNEY
AVENUE
,CALIFORNIA
I CALIFORNIA 102

BY:
BY; GE()RG~E
GEORGE D,.
D. I ESQ.
RONALD
n.'•./L'''.M..I..IJ.J D. SMETANA,
D.
ASSISTANT UNITED STATES

CHESTER L. BROWN, ESQ.


2450 BROADWAY, SUITE SSD
550
SANTA MONICAl CALIFORNIA 90404

SOLOMON WOLLACK, ESQ.


STREET SUITE 1080
388 MARKET STREET, I

SAN I CALIFORNIA 111

CONTINUED ON NEXT PAGE:)

REPORTED BY: ~1 . YEOMANS t CSR


JAMES J.
OFFICIAL COURT
COuKT REPORTER,
REPORTER UBDC

COMPUTERIZED BY XSCRIBE

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL 2255 Reply - Page 61
-863-5179
3446
3446

1 THE COURT;
COURT: YES. COMPUCHECK
COMPUCHECK INVESTIGATION?
INVESTIGATION? IS
IS THAT
THAT

2 WHAT YOU'RE TALKING ABOUT? YES.


YES. THEY
THEY FILED
FILED SOME
SOME STUFF
STUFF AND,
AND, II

3 GUESS, THEY GAVE IT JUST TO COUNSEL


COUNSEL FOR MR. ARMSTRONG
FOR MR. ARMSTRONG BECAUSE
BECAUSE II

4 DON'T THINK MR. FOWLES IS INVOLVED


INVOLVED IN
IN IT,
IT, AT
AT LEAST,
LEAST, FROM
FROM WHAT
WHAT II

5 SAW.

6 MR. SMETANA: THE QUOTE


QUOTE STATEMENTS
STATEMENTS OF THE DEFENDANT
OF TIrE DEFENDANT

7 THAT WE HAVE AND ANY POTENTIAL


POTENTIAL BRADY
BRADY THAT
THAT WE
WE HAVE
HAVE RELATE
RELATE ONLY
ONLY

8 TO MR. ARMSTRONG AND NOT TO


TO MR.
MR. FOWLES.
FOWLES. THOSE
THOSE HA.VE
HAVE BEEN
BEEN

9 MR. ARMSTRONG.
PROVIDED TO COUNSEL FOR MR. ARMSTRONG.

10 THE COURT: AS I SAID,


SAID, II GOT
GOT A
A GREAT
GREAT BIG
BIG BOX
BOX FRIDAY
FRIDAY

11 AFTERNOON FULL OF MATERIAL ON


ON THAT,
THAT, SO
SO WHAT
WHAT DO
DO YOU
YOU FOLKS
FOLKS WANT
WANT

12 TO DO?

13 MR. BROWN:
BROWN: LET'S TALK
TALK ABOUT
ABOUT THESE
THESE TAPES.
TAPES. II KNOW
KNOW --
,
....".1',
14 FIRST, I KNOW THE COURT IS PROBABLY
PROBABLY VERY
VERY CONCERNED,
CONCERNED, II KNOW
KNOW WE
WE

15 ARE. FROM OUR PERSPECTIVE, YOUR


YOUR HONOR,
HONOR, IT'S
IT'S A
A MAJOR
MAJOR PROBLEM.
PROBLEM.

16 WE'VE JUST RECEIVED --


-- WE
WE HEARD
HEARD ON
ON FRIDAY,
FRIDAY, II BELIEVE,
BELIEVE,

17 AFTERNOON THAT THEY


THEY HAD FINALLY
FINALLY AND
AND II DON'T,
DON'T, I DON'T
DON'T BELIEVE
BELIEVE

18 IT'S MR. SMETANA OR MR.


MR. HATCHER
HATCHER OR
OR MR.
MR. HARDY'S
HARDY'S FAULT,
FAULT, BUT
BUT IT'S
IT'S

19 ONE GOVERNMENT AND WE ALL KNOW


KNOW HOW
HOW THOSE
THOSE THEORIES
THEORIES WORK,
WORK, IT'S
IT'S

20 THE ABOUT FBI IN DALLAS.

21 WHAT APPARENTLY HAS HAPPENED


HAPPENED HERE,
HERE, WHILE
WHILE MR.
MR. ARMSTRONG
ARMSTRONG

22
22 WAS CLEARLY REPRESENTED BY COUNSEL
COUNSEL AND
AND WHILE
WHILE THERE
THERE WAS,
WAS, II

23
23 BELIEVE, GRAND JURY GOING ON IN
IN THIS
THIS CASE,
CASE, MS.
MS. ROBINS
ROBINS WAS
WAS

24
24 ACTING AS AN INFORMANT FOR THE
THE FBI
FBI DOWN
DOWN IN
IN DALLAS.
DALLAS. IT
IT REALLY
REALLY

2S
25 IS HARD TO IMAGINE, WITH THE FACT
FACT THAT
THAT SHE
SHE WAS
WAS A
A GRAND
GRAND JURY
JURY

JAMES EXHIBITS
JAMES YEOMANS,
YEOMANS, to Section
OFFICIAL
OFFICIAL REPORTER, 2255
REPORTER, USDC, Reply
USDC, - Page
415-863-5179
415-863-5179 62
3447
3447

1 HERE, THE
WITNESS OF THE GOVERNMENT HERE, THE FBI
FBI HERE
HERE IN
IN LOS
LOS ANGELES
ANGELES DID
DID

2 A NUMBER OF INTERVIEWS DOWN IN THE DALLAs


IN THE DALLAs AREA.
AREA.

3 MR. MURPHY WENT DOWN


DOWN THERE
THERE ON
ON OCCAS
OCCAS ION WE KNOW
ION WE KNOW FROM
FROM

4 MR. EVERETT WHO WAS FORMALLY WORKING


WORKING WITH
WITH THE
THE GOVERNMENT
GOVERNMENT

5 THAT - - ON ONE OCCASION, AT LEAST,


LEAST, THAT WERE SOME
THAT WERE SOME DALLAS
DALLAS AGENTS
AGENTS

6 THAT WORKED WITH MR.


MR. MURPHY
MURPHY WHEN
WHEN THEY WERE IN
THEY WERE IN DALLAS,
DALLAS, THAT
THAT THIS
THIS

7 INFORMATION WASN'T KNOWN, ALTHOUGH,


ALTHOUGH, IT'S
IT'S NOT
NOT REALLY
REALLY OUR
OUR PROBLEM
PROBLEM

8 WHETHER IT WAS COMMUNICATED TO


TO THE
THE SAN
SAN FRANCISCO
FRANCISCO --
--

9 THE COURT: IT IS YOUR


YOUR PROBLEM.
PROBLEM. WHAT
WHAT DO
DO YOU
YOU WANT
WANT TO
TO

10 DO ABOUT IT? WHAT DO YOU WANT


WANT TO
TO DO?
DO?

11 MR. BROWN: YOUR HONOR,


HONOR, WE'VE JUST RECEIVED
WE'VE JUST RECEIVED -- -- LET
LET ME
ME

12 TELL YOU WHAT'S HAPPENED. THE GOVERNMENT


THE GOVERNMENT -- -- APPARENTLY,
APPARENTLY,

13 THERE'S SOME -- 35 SOME TAPES


TAPES WITH 70 SOME
WITH 70 SOME HOURS
HOURS OF
OF INFORMATION
INFORMATION
-"
-II'
14 ON IT.

15 THE COURT: I'VE GOT


GOT A
A GREAT
GREAT BIG
BIG BOX,
BOX, LITERALLY
LITERALLY A
A BIG
BIG

16 BOX, OF MATERIAL THEY BROUGHT


BROUGHT IN
IN MY
MY OFFICE
OFFICE FRIDAY
FRIDAY AFTERNOON.
AFTERNOON.

17 MR. BROWN: ALL WITH


WITH SOUND
SOUND RECORDINGS
RECORDINGS ON
ON THEM.
THEM.

18 THE COURT: NOT ALL,


ALL, SUBSTANTIAL
SUBSTANTIAL QUANTITY
QUANTITY OF
OF PAPER
PAPER IN
IN

19 THERE. I'M NOT SURE QUITE WHAT


WHAT IT
IT IS.
IS. WHAT
WHAT II ATTEMPTED
ATTEMPTED TO
TO DO
DO

20 IS START WITH WHAT WAS OBVIOUSLY


OBVIOUSLY GREATEST
GREATEST INTEREST
INTEREST TO
TO YOU,
YOU, THAT
THAT

21 IS THE TAPES AND, I GUESS II THE


THE OTHER
OTHER STATEMENTS
STATEMENTS WHICH
WHICH HAD
HAD MR.
MR.

22 ARMSTRONG ON THEM, SO --
--

23
23 MR. BROWN: I'LL TELL
TELL YOU,
YOU, YOUR
YOUR HONOR,
HONOR, WE
WE WERE
WERE TOLD
TOLD

24 THAT THERE WERE THREE HOURS WORTH


WORTH OF
OF SOUND
SOUND RECORDINGS
RECORDINGS THAT
THAT

25
25 SPECIFICALLY MENTIONED HAMILTON
HAMILTON TAFT.
TAFT. THE
THE GOVERNMENT
GOVERNMENT

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255
REPORTER, USDC, Reply
USDC, - Page
415-863-5179
415-863-5179 63
3448
3448

1 ION THAT THE THEIR'


THEIR'

2 THIS , INVOLVED MR.


MR.

3 ARMSTRONG BUT

4 THE COURT: I GUESS THAT'S A FAIR

5 MR • BROWN: THAT S II WE WERE AnVI SED. THESE


THESE

'6 lAM HONOR, AT LEAST SOME BRADY MATERIAL.


MATERIAL.

7 I SAYING I THINK THE GOVERNMENT


GOVERNMENT WOULD
WOULD

8 IN ONE OF THEIR MOTIONS THAT THEY FILED THIS MOTION


MOTION ON
ON

9 OF MIND. ASKING THAT WHATEVER INFORMATION


INFORMATION FROM
FROM

10 THESE TAPES INDICATES MR. ARMSTRONG'S DENIAL OF ANY


ANY WRONGDOING
WRONGDOING

11 AT HAMILTON TAFT NOT BE PERMITTED TO BE ADDUCED DURING


DURING THE
THE

12 COURSE OF THIS TRIAL.

13 THE COURT: PARDON ME A SECOND. I THINK I SEE


SEE MR.
MR.

14 SOLODOFF IN THE HALLWAY THERE.

MR. HATCHER, WOULD YOU TELL HIM THAT


THAT JUST TO
TO BE
BE ON
ON

TELEPHONE STANDBY AND IF WE NEED HIM WE WILL HIM A


A

17 TELEPHONE CALL. HE SHOULD BE AVAILABLE BY TELEPHONE THIS


THIS WEEK.
WEEK.

18 GO AHEAD.

19 MR. BROWN: HONOR, FOR US TO

20 ASSESS THIS, AND I HATE TO SAY THIS, IT'S THREE HOURS, WE


WE WERE
WERE

21 TOLD ABOUT ON FRIDAY. WE WERE IN THE MIDDLE OF --


--

22 WERE ARRIVING.

23 THE
THE COURT: DOUBT YOU HAVE NOT HAD
HAD TIME TO
TO LI
LISTEN
STEN

24 TO THE TAPES. WHAT DO YOU WANT TO DO?

25 MR. BROWN: I REALLY HATE


HATE TO SAY
SAY THIS.
THIS. II THINK
THINK WE
WE

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255
USDC/ Reply - Page
415-863-5179
415-863-5179 64
3449
3449

1 TO TAKE
NEED AN OPPORTUNITY TO REVIEW THESE AND/ IF WE NEED TO TAKE A
A

2 DAY JUST TO REVIEW TAPES, I THINK WE NEED TO DO IT. WE


WE

3 CAN 'T - - THE COURT - - I THINK THE COURT NEEDS TO REVIEW


REVIEW WHAT
WHAT

4 MATERIAL IT HAS. THIS DEFINITELY HAS BRADY MATERIAL


MATERIAL IN
IN IT.
IT.

5 THERB'S
THERE'S ALL KINDS OF MOTIONS, AS THE COURT
COURT KNOWS,
KNOWS,

6 INCLUDING MOTIONS FOR DISMISSAL THAT WE OUGHT TO PERHAPS


PERHAPS BE
BE

7 FILED REGARDING THIS SITUATION.

8 THERE/S MACIA PROBLEMS BECAUSE MR. ARMSTRONG


ARMSTRONG IS
IS

9 REPRESENTED BUT COUNSEL AT A TIME WHEN THE INVESTI


INVEST ON
ON

10 CLEARLY HAD FOCUSED ON HIM AND HE WAS A TARGET.

11 THERE'S A NUMBER OF OTHER REMEDIES, THE LEAST


LEAST OF
OF WHICH
WHICH

12 WOULD BE TERRI ROBINS SHOULD NOT BE PERMITTED TO TESTIFY.


TESTIFY.

13 THE THE GOVERNMENT HAS


HAS ALREADY INDI
INDI THAT
THAT

14 STEP POSSIBLY AGAIN, WHAT DO YOU WANT


WANT TO
TO DO?
DO? II

15 MEAN, I JUST WHAT'S COULD COME OUT FOR


FOR

16 YOU? MAYBE FOR A MOTION TO DISMISS. II DON'T


DON'T KNOW
KNOW

17 WHETHER THEY HAVE MERIT OR NOT.

18 MR. BROWN: THAT WOULD OBVIOUSLY BE WHAT WE'RE


WE'RE LOOKING
LOOKING

19 FOR.

20 THE COURT: NOT GOING TO BE WANTING TO PUT MR.

21 ARMSTRONG'S OWN STATEMENTS IN THIS CASE. BECAUSE YOU'D


YOU'D BE
BE

22 DISCLOSING TO THE JURY THE FACT HE'S - OTHER INVESTIGATION


INVESTIGATION IN
IN

23 ANOTHER I WOOLDN'T
WOULDN'T THINK YOU'D WANT TO DO THAT.
THAT. YOUR
YOUR

24 CALL, BUT THAT'S A TACTICAL

25 MR. BROWN: WE WERE TOLD AND COURT WOULD


WOULD HAVE
HAVE TO
TO

EXHIBITS to Section ,2255


USDC, Reply
I
- Page 65
415-863-5179
415-863-5179
3450
3450

1 LOOK AT THE IN CAMERA MATERIAL.

2 THE COURT: DO I? I REALLY AM


AM CHOKING ON THAT.
THAT. IT'S
IT'S

3 HOURS AND HOURS OF SITTING AND LISTENING.

4 MR. BROWN: I KNOW.

5 THE COURT: I'VE NEVER HAD


HAD ANY REASON TO QUESTION
QUESTION THE
THE

6 GOVERNMENT'S GOOD FAITH WHEN THEY SAY HERE'S A TAPE THAT


THAT

7 SOMEBODY'S CONVERSATION IS ON AND


AND THESE TAPES DON'T HAVE
HAVE THAT
THAT

8 PERSON ON THE TAPE AT ALL. YOU KNOW, I GENERALLY TAKE


TAKE THE
THE

9 GOVERNMENT'S WORD ON THOSE THINGS. I'VE NEVER BEEN


BEEN MISLED
MISLED BY
BY

10 THE GOVERNMENT.

11 MR. BROWN: WE, YOUR HONOR, WITH ALL -- IN ALL


ALL CANDOR,
CANDOR,

12 WERE OFFERED THESE TAPES SOMETIME LATE FRIDAY AFTERNOON,


AFTERNOON,

13 MID-AFTERNOON, AND I SIMPLY ADVISED MR. SMETANA TO FAX


FAX OVER
OVER
. pI

14 THESE VARIOUS MOTIONS THAT THE COURT HAS . .

15 IN LOOKING AT THOSE MOTIONS AND COORDINATING


COORDINATING OUR
OUR

16 WITNESSES AND GETTING READY FOR TODAY AND THE COMPLETION


COMPLETION OF
OF

17 THAT, WE DID NOT HAVE TIME TO BE LISTENING AND EVALUATING


EVALUATING THREE
THREE

18 HOURS.

19 I HAVE WITNESSES HERE FROM OUT OF TOWN TODAY.


TODAY. TO
TO DO
DO

20 JUSTICE TO THIS INFORMATION, QUITE


QUITE FRANKLY, WE WOULD
WOULD NEED
NEED TO
TO

21 TAKE TODAY TO REVIEW THESE TAPES AND DETERMINE WHAT


WHAT THE
THE

22 APPROPRIATE RESPONSE THAT WE WOULD HAVE WI-TH REGARD TO


TO THIS
THIS

23 BRADY MATERIAL AND WHATEVER OTHER INFORMATION PERTAINS


PERTAINS TO
TO THIS
THIS

24
24 CASE. THESE TAPES HAVE THREE HOURS OF COMMENTS BY -- -- AND
AND

25 STATEMENTS BY THE DEFENDANT.

EXHIBITS
JAMES YEOMANS, to Section
OFFICIAL REPORTER, 2255
USDC, Reply - Page
415-863-5179
415-863-5179 66
3451
3451

1 THE COURT: SUGGESTING YOU


SO YOU'RE SUGGESTING YOU NEED
NEED A
A DAY
DAY OFF
OFF

2 TODAY TO REVIEW TAPE?

3 MR. BROWN: YES, SIR.

4 THE THE PROBLEM


PROBLEM WITH
WITH THAT,
THAT, OF
OF COURSE,
COURSE, WE
WE

5 BROUGHT THE JURY IN.

6 MR. II THE NOW.


NOW. IS
IS IT
IT

7 POSS WELL, I'D RATHER GIVE


GIVE THEM A DAY
THEM A DAY OFF
OFF TOMORROW
TOMORROW AND
AND II

8 THEY'
THEY' ,, SO
SO BE
BE RUDE
RUDE

9 TO THEM SIMPLY SEND THEM HOME.


HOME.

10 I RATHER, IF YOU NEED A


A DAY
DAY OFF,
OFF, TO
TO TAKE
TAKE IT
IT OFF
OFF

11 TOMORROW OR THE NEXT DAY, BUT INTO


INTO

12 WHAT YOU'RE TO DO

II AND YOU'RE
YOU'RE WITH
WITH

14

15 MR.
MR. BROWN: WE CAN
CAN DO IT
IT TOMORROW.
TOMORROW. II UNDERSTAND
UNDERSTAND WHAT
WHAT

16 THE COURT IS SAYING. I THINK WE


WE LOOK
LOOK THESE
THESE AS
AS SOON
SOON

17 AS BECAUSE NOW WE'RE DEFENSE,


DEFENSE,

18 IT AND IT EVERYTHING.
EVERYTHING.

19 COURT: I DON'T
DONIT SEE
SEE HOW.
HOW. II CAN'T
CAN'T

20 DENY YOU THE RIGHT TO DO IT.

21 MR. SMETANA: I HATE TO


TO SUGGEST
SUGGEST THIS
THIS AS
AS A
A TEMPEST
TEMPEST IN
IN A
A

22 TEAPOT. IF COUNSEL WILL LISTEN


LISTEN TO
TO THE
THE TAPES
TAPES HE'LL
HE'LL FIND
FIND THERE'S
THERE'S

23
23 VERY LITTLE OF SUBSTANCE, IF ANYTHING
ANYTHING AT
AT ALL,, NOTHING
NOTHING THAT
THAT

24
24 HASN'T BEEN SAID OR HEARD

25 MS. LEARY: AS TO MR. FOWLES


FOWLES II WOULD
WOULD MOVE
MOVE FOR
FOR THE
THE

EXHIBITS to Section
REPORTER, 2255
JAMES YEOMANS, OFFICIAL REPORTER, USDC, Reply
USDC, 415-863- 5179
415-863
Page
5179 67
3452

1 TAPES AND THE WRITTEN INFORMATION.


..
2 THE 'S NOTHING ON TO MR.

4 MS. LEARY: IF INVOLVED TAFT MR.

5 FOWLES/ THERE'S ABOUT HIM IT, THEN IT'S BRADY AS TO

6 MR.

7 THE THEN IF THAT'S TRUE THEN YOU'VE GOT THE

8 GOVERNMENT/S REPRESENTATION TO YOU MR. FOWLES NOT MENT IONED J

9 AND YOUR LISTENING TO TAPES CANJT DO ANY BETTER THAN THAT.

10 MS. LEARY: I UNDERSTAND I YOUR HONOR, BUT I ASK

II THE TAPES AND FOR THE - WHATEVER WRITTEN DOCUMENTATION EXISTS

12 SO THAT WE CAN INVESTIGATE.

13 MR. SABELLI: DOES DEPEND ON WHAT'S ON THE TAPES. THE


,.
14 STATEMENTS MADE ON THE TAPES HAVE TO DO WITH THE STRUCTURE AND

15 OVERFLOW WITHIN HAMILTON TAFT, DECISION MAKING, NOTHING

16 ABOUT MR. FOWLES. THEY MAY VERY WELL BE BRADY STATEMENTS. WE

17 DON'T KNOW WHAT STATEMENTS ARE. SIMPLY KNOWING MR. FOWLES

l8 ISN'T ON THERE ISN'T ENOUGH FOR

19 MR. SMETANA: AGAIN! MY EARLIER COMMENT REALLY MADE IN

20 GOOD , THERE REALLY IS NO DETAILED DESTRUCTION OF

21 THERE'S A PASSING MENTION HERE AND THERE OF

22 HAMILTON I SORT OFI I DIDN'T DO ANYTHING WRONG HAMILTON

23 TAFT, BUT THERE'S NO IN DEPTH PLANNING MEETING THEY DID A

24 DISCUSSION OF HAPPENED TWO EARLIER.

25 THE COURT: WHAT IS FORM OF THE MATERIAL THAT YOU

EXHIBITSCIAL
YEOMANS, to Section
REPORTER, 2255 Reply - Page 68
415-863-5179
I
1 MICHAEL J. YAMAGUCHI
United states Attorney
2
JOEL R. LEVIN
3 Chief, Criminal Division

4 RONALD D. SMETANA
Special Assistant U.S. Attorney
5 GEORGE D. HARDY
Assistant U.S. Attorney r ",
6
' . ·~t ., .":t':
. ~''''
''''"''
450 Golden Gate Avenue
7 San Francisco, CA 94102
Telephone: (415) 436-6851
8

9 UNITED STATES DISTRICT COURT


10 NORTHERN DISTRICT OF CALIFORNIA
11

12 UNITED STATES OF AMERICA, ) Criminal No. 94-0276-CAL


)
13 Plaintiff,) GOVERNMENT'S OPPOSITION
) TO ARMSTRONG'S MOTION TO
14 v. ) DISMISS AND/OR REQUEST
) FOR PRETRIAL INSTRUCTION
15 CONNIE C. ARMSTRONG, JR., and )
RICHARD A.FOWLES, ) Date: Nov. 8, 1996
16 ) Time: 1:30 p.m.
Defendants. ) Courtroom: 10
17 ) (Han. Charles A. Legge)
18

19 .L.. Introduction
\

20 Defendant Connie C. Armstrong, Jr., seeks (again) to

21 dismiss counts seven through twenty-one of the Indictment. In the

22 alternative, he seeks an instruction on the "law of the case." For

23 the reasons set forth below, the government opposes this motion.

24 II. Argument

25 ~ Statement of facts.

26 As set forth in the grand jury's Indictment, the charges

000156

EXHIBITS to Section 2255 Reply - Page 69


1 arise from defendant's operation of Hamilton Taft, a San Francisco
2 based company that provided payroll tax services to large
3 companies. Client companies transferred their payroll taxes to
4 Hamilton Taft and Hamilton Taft was obligated to pay the taxes to
5 the Internal Revenue Service and other taxing authorities on time.
6 At the time the defendant acquired Hamilton Taft the
7 company had a working capital deficit of more than $14 million.
8 Over a period of two years, as money was siphoned out and Hamilton
9 Taft accrued interest and penalties on money it did not have, the
10 withholding of tax payments grew from $19.4 million to $68.2
11 million per quarter. When Hamilton Taft ultimately collapsed,
12 approximately $85 million in taxes were unpaid.
13 Despite the fact that the defendant was aware that he
14 could not pay the taxes of his clients when due, he induced a
15 number of companies to contract with Hamilton Taft with
16 representations that Hamilton Taft had the ability to pay taxes
17 when due, was paying taxes when due and would continue to pay ~he

18 taxes when due.


19 As a further part of the scheme, the defendant concealed
20 the non-payment of taxes to induce the victims to continue sending
21 (on a weekly, biweekly or monthly basis) their tax payments and to
22 avoid the wholesale cancellation of contracts. Finally, when the
23 defendant's scheme was exposed, he sent out lulling letters denying
24 the existence of the scheme and encouraging )~tc::t;,i!Jl2- to continue
25 sending payments.

26 II
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S
MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 2

0001.57
J EXHIBITS to Section 2255 Reply - Page 70
1 .a.... Defendant's Reliance on In re Hamilton Taft & Co. is
misplaced.
2

3 The litigation underlying In re Hamilton Taft & Co., 53


4 F.3d 285 (9th Cir. 1995), was between two parties over a fixed sum
5 of money whether the trustee in bankruptcy would be able to
6 reclaim for the larger group of victims funds paid to the IRS on
7 behalf of S & S Credit. The Ninth Circuit initially ruled that a
8 preferential payment had been made on behalf of S & S and that the
9 funds paid to the IRS on its behalf would have to be repaid by S &
10 S to the trustee. S & S petitioned for rehearing, and before the
11 matter could be heard, the case was settled, the appeal was
12 dismissed as moot, and the decision was vacated. In re Hamilton
13 Taft & Co., 68 F.3d 337 (9th Cir. 1995). The Ninth Circuit· s
14 vacation of the opinion nullifies and renders the judgment
15 inoperative. United States v. Munsingwear, 340 U.S. 36, 40-41
16 (1950). Arguably, the parties could now relitigate the issues.
17 340 U.S. at 40. In short, this Court is not bound by In re
18 Hamilton Taft & Co.
19 This conclusion is made more compelling by the fact that
\

20 the government was not a party to the litigation at the time the
21 opinion was rendered by the Ninth Circuit. When the petition for
22 rehearing was filed the Court obviously recognized that its opinion
23 could well interfere with the government·s right and ability to
24 collect employee taxes and thus invited the government to
25 participate in the case as an amicus curiae. The government did
26 file a brief advocating the theory that the funds were held by

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 3
000158
J EXHIBITS to Section 2255 Reply - Page 71
1 Hamilton Taft in trust for the government. The case was settled
2 and the opinion vacated before the government's position could be
3 considered. To resolve the i;§sue nq~~lY: t;,o the~g£2~E]leJlt

4 which hC\s~r had thEL~~~gy: tQ b_t;.. heq.rcLi§,"",fundsIDWt:lllY


5 )£}is) r o •
6 The inescapable conclusion from this discussion is:
7 there is no "l,,!w oLth~.".Cas.e.." Rather, there remains a dispute of
8 fact that can be resolved only by the scheduled jury trial.
9 ~ Contrary To Defendant's Contention, Hamilton Taft Did Not
Comply with Its Contractual Duties.
10
The government will subsequently demonstrate why counts
11
7 through 21 should not be dismissed. However, fundamental to
12
defendant's argument is his premise that he complied with the
13
conditions of his contracts and thus did nothing wrong. Defendant
14
has again pummeled a straw man.
15
The trial evidence will show that, at a minimum, all of
16
Hamilton Taft's contracts required timely payment of taxes on or
17
before the statutory deadlines. 1 Some of the contracts also
18
specifically limited the short-term investments that could be made.
19
Thus, Scott Paper's contract stated that:
20
In order to satisfy Hamilton Taft's investment criteria
21 (Security of Principal, High Degree of Liquidity), Hamilton
Taft's investments are limited to investments collateralized
22 by United States Government securities and United States
Government sponsored obligations.
23

24 lContrary to defendant's assertion that he "occasionally" paid


the taxes late (Defendant's Memorandum 10:16), he intentionally
25 failed to make more than 300 payments aggregating more than $255
million, and the frequency of missed payments as well as .their
26 dollar amounts were increasing almost logarithmically.
GOVERNMENT'S OPPOSITION TO ARMSrRONG'S
MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 4
000159
J EXHIBITS to Section 2255 Reply - Page 72
....

1 Others limited Hamilton Taft to benefits accruing from temporary


2 use of client funds or benefits accruing from proper use of client
3 funds. Given the intentional failures to pay taxes on time, the
4 long-term use of client funds and the other than proper use,
5 defendant's assertion that he complied with the contracts is
6 nothing less than revisionist history.
7 Similarly erroneous is defendant's assertion that once
8 the money was paid over to Hamilton Taft that he could use it for
9 any purpose he wanted. He induced his clients to do business with
10 Hamilton Taft on the representation that he could and would pay the
11 taxes on a timely basis. His knowing and intentional use of the
12 funds otherwise clearly constitutes fraud, as the trial evidence
13 will amply demonstrate.
14 Defendant did not just commit fraud at the time the
15 contracts were executed, but on an ongoing basis in order to assure
16 continued payment. The only way to pay past due taxes with current
17 payments is to assure an adequate supply of current payments.
18 Defendant and his employees concealed the tax withholds as much as
19 possible. When discovered, they lied about the basis for missed
20 payments. Thus, each payment from each of the victims was directly
." 21 attributable to the fraud and a direct and intended consequence of
22 the ongoing fraud.
23 Defendant's argument that this was not a Ponzi scheme
24 (Defendant's Memorandum, 10:8-10) is similarly without merit. The
25 defendant is not before this court because he paid "Client A's

26 taxes with Client B's and Client C's money;" the government would

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 5

000160
EXHIBITS to Section 2255 Reply - Page 73
1 expect that all of A, Band C's payments would be made from the
2 collective contributions from A, Band C. Rather, defendant is
3 before the court, in part, because he bought a ranch with A's money
4 paid to Hamilton Taft for a January tax payment (while
5 intentionally failing to make A's tax payment), and then used Band
6 C's funds paid to Hamilton Taft in April for their April tax
7 payment to make A's January payment while failing to make Band C's
8 April tax payment.
9 Indeed, the description of a Ponzi scheme in In re United
10 Energy Corp., 944 F.2d 589, 590 at fn.l (9th Cir. 1991)2 describes
11 precisely what defendant was doing. Defendant made tax payments
12 for clients with monies obtained from later tax payments from other
13 clients. By funnelling later payments to earlier taxes defendant
14 created the illusion that taxes were being timely paid and that
15 (bankrupt) Hamilton Taft had the financial wherewithal to pay the
16 taxes, inducing continued use of Hamilton Taft's services, all the
17 while siphoning out funds for defendant's personal benefit. The
18 only sorcery involved was the defendant's sleight of hand;
19 unfortunately for him, the audience caught on to the trick!
,
20 IL.. There is no basis for the dismissal of Counts Seven through
Twenty-One.
21
Regardless of how the relationship between Hamilton Taft
22
23 2"A Ponzi scheme is a fraudulent arrangement in which an
entity makes payments to investors from monies obtained from later
24 investors The fraud consists of funnelling proceeds
received from new investors in guise of profits from the alleged
25 business venture, thereby cultivating an illusion that a legitimate
profit-making business opportunity exists and inducing further
26 investment.
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S
MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 6

000161
J EXHIBITS to Section 2255 Reply - Page 74
1 and its clients is categorized, Counts Seven through Twenty-One
2 withstand attack.
3 Defendant appears to argue that the government can
4 proceed on counts One through Six, the fraud in the inducement, but
5 that proceeding on the other counts is "illogical, excessive and
6 totally prejudicial • • • " (Defendant's Memorandum 14:15-16) As he
7 has done throughout these proceedings, defendant has made a lengthy
8 and colorful argument all the while ignoring the one document
9 relevant to the inquiry -- the Indictment. It does not depend on
10 the existence of any particular relationship between defendant and
11 the victim companies. Rather it alleges a fraudulent course of
12 conduct in addition to and beyond the inducement to keep the money
13 flowing into Hamilton Taft. The Indictment alleges fraud on an
14 ongoing basis to keep money flowing into Hamilton Taft by a cover-
15 up3, false tax returns 4 , a change in cover-up methodology5, the

16 selection of specific clients for withholding and Armstrong's


17 attempt to disseminate a false account of what was happening to

18 client funds. All of these allegations are incorporated by


19 reference in each of the counts. (Indictment, paragraph 24.)
20
3"This concealment enabled Hamilton Taft to continue to
21
receive funds from its clients, to avoid massive cancellation of
its contracts, and to preserve the opportunity for new business."
22
4"The clients who received these returns were thereby falsely
23 led to believe that all their taxes had been paid."
24 5"By choosing to pay past due taxes instead of currently due
taxes, Armstrong was able to delay, for a much longer time,
25 discovery by the clients that their taxes had been paid late. At
the same time, he was able to create the false impression that
26 Hamilton Taft's business was running smoothly."
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S
MOTION TO DISMISS AND/OR REQUESr FOR
PRETRIAL INSTRUCTION 7

000162
EXHIBITS to Section 2255 Reply - Page 75
1 Defendant argues, however, that all allegations of the
2 Indictment, other than the fraud in the inducement allegations, are
3 legally insufficient to charge criminal activity because of the
4 Ninth Circuit opinion of In re Hamilton Taft & Co. which
5 establishes (or so defendant claims) the "law of the case" contrary
6 to the government's charging theory. The "law of the case" that
7 defendant sees in that opinion and on which defendant focuses his
8 argument is the conclusion that the relationship between Hamilton
9 Taft and its clients was one of "debtor-creditor", and not a trust
10 relationship. From that "law of the case", the defendant seeks to
11 extrapolate to the further conclusion that the defendant was free
12 to do with the clients' tax money whatever he wanted, because it
13 was Hamilton Taft's "property". Hence, he argues that any criminal
14 fraud allegations in the Indictment which describe what the
15 defendant did with client's tax money after the contracts were
16 signed must be legally insufficient, and therefore dismissed. His
17 argument is further based on the factual predicate that Hamilton
18 Taft complied w-ith the terms of the contracts with its clients.

19 Defendant's argument is factually and legally flawed •



20 As noted earlier, the Ninth Circuit opinion has no

21 precedential .or controlling effect on this Court (and therefore can

22 not be considered "the law of the case") because it was vaca'ted.


23 It should also have little, if any, persuasive effect on this Court
24 because it was vacated in the context of a motion for
25 reconsideration, before the Ninth Circuit had heard from the
26 government. Furthermore, even if this Court were to conclude that

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 8
000163
J EXHIBITS to Section 2255 Reply - Page 76
....

1 the legal relationship between Hamilton Taft and its clients was
2 one of "debtor-credi tor", the further coneIus ion that the defendant
3 could do whatever he wished with the tax money (send it to a secret
4 Swiss bank account?) does not logically, or legally, follow. Can
5 a debtor never defraud a creditor? The answer is obvious. In
6 fact, the defendant acknowledged as much when he said:
7 "For instance, had Mr. Armstrong s imply taken clients'
monies and opened a Swiss bank account, while totally
8 ignoring his contractual duty to pay their taxes, he
almost certainly could be charged with engaging in a
9 scheme to defraud." (Motion, p. 9)
10 The defendant asserts as a matter of fact that he complied
11 with his contractual duty to pay the taxes of the Hamilton Taft
12 clients. The government intends to prove that he did not comply
13 with his contractual dutiesl Jury trials are the vehicle by which
14 such factual disputes are resolved, not motions to dismiss. There
15 is no basis for this Court to dismiss counts Seven through Twenty-
16 One.

17 .L. The Court should not make a finding of "the law of the case."
18 The government is persuaded by defendant's eloquence in

19 arguing that this court should not follow In re Hamilton Taft & Co.
20 (Defendant's Memorandum, 15:16-18), but cannot agree that the

21 vacated opinion is "a scholarly, lucid, and unassailable


22 explication of the common law of trusts" (Id. at 21-22) since the
23 court sought to implicate the government's rights without giving
24 the government an opportunity to be heard. Regardless of how
25 "scholarly" or "lucid" the opinion may be on the common law of

26 trusts, as noted above it is not "the law of the case", and clearly

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 9

000164
EXHIBITS to Section 2255 Reply - Page 77
~
I
1 should not be used to justify making a ruling on an issue that is
2 nothing but a red herring.
3 It is clear what the defendant is attempting to do. He
4 wants the jury not to hear relevant evidence. He doesn't want the
5 jury to hear about the Ranch acquisition, or the limousine rides,
6 or the luxury jet purchase. He also doesn't want the jury to hear
7 what his lawyers and senior management were telling him--that he
8 couldn't use client tax money for long-term personal investments.
9 He also doesn't want the jury to hear about the lies he told his
10 employees regarding the source of funds for his ranch and other
11 purchases. He doesn't want the jury to hear about the lies he told
12 the victim companies in order to lull them into a false sense of
13 security. But all of this evidence is relevant to prove the
14 charges in the Indictment.
15 To his credit, the defendant spells out the remarkable
16 ramifications of a decision to declare that In re Hamilton Taft &
17 Co. represents the "law of the case". He wants:
18 1. Defense counsel to be able to refer to monies at
issue, in both opening and closing statements as the
19 property of Hamilton Taft or Hamilton Taft cash
flow;
20
2. The government not to refer to those monies as
21 "client monies" or "client funds" and not to state
or imply that Hamilton Taft held those monies in
22 trust;
23 3. The government not to present evidence of any advice
which Mr. Armstrong received from lawyers or other
24 experts, to the extent that such advice was
inconsistent with the "law of the case";
25
4. The court to instruct the jury that monies, once
26 delivered to Hamilton Taft, became the property of

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 10
000165.
J EXHIBITS to Section 2255 Reply - Page 78
..
1 Hamilton Taft;
2 5. The court to instruct that Hamilton Taft was free to
use its cash flow to cover its operating expense or
3 to invest those monies for its own benefit and in
anyway it wished;
4
6. The court to instruct the jury that Hamilton Taft's
5 sole duties to its clients were those duties stated
contractually but that clients were free to sue for
6 breach, if Hamilton Taft ever failed to live up to
those duties.
7

8 Nothing in the language, logic, or holding of the vacated


9 opinion in In re Hamilton Taft & Co. comes close to justifying such
10 a gutting of the government's case.
11 The defendant's motion to characterize, as a matter of law,
12 the nature of the relationship between Hamilton Taft and the victim
13 clients, in the form of a pretrial ruling should not be granted.
14 The characterization has not been settled as a matter of law. The
15 characterization, even if accepted as "debtor-creditor", does not
16 negate the presence of a fraudulent scheme or support in any way
17 the six conclusions cited above. The characterization would only
18 confuse the jury, leaving them to wonder about the illogical
19 technicalities of the law.
20 II
21 II
22 II
23 II
24 II
25 II
26 II
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S
MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 11
000166
J EXHIBITS to Section 2255 Reply - Page 79

1 III. Conclusion
2 For the foregoing reasons, the government respectfully
3 submits that the motion to dismiss be denied and that the Court
4 deny the request to make In re Hamilton Taft & Co. the law of the
5 case.
6 DATED: November 5, 1996 Respectfully submitted,
7 MICH~~J. YAMAGUCHI

unite~ ta~~s i~~/rn:;, . __


By~I{)~
8
9
10 RONALD D. SMETANA
Special Assistant U.S. Attorney
11

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

GOVERNMENT'S OPPOSITION TO ARMSTRONG'S


MOTION TO DISMISS AND/OR REQUEST FOR
PRETRIAL INSTRUCTION 12

HOnlG1
J EXHIBITS to Section 2255 Reply - Page 80
fD-302a (R~v 11-15-83)

196A-SF-93255

b7C
~onlmuahon of FD-302 of ~- - - - ......1...- • On _-----=.-----.;____
2/ B / 9 3 J Page _ 2 _

She said that it was apparent to her within the first


twenty-four hours while reviewing Hamilton Taft financial records
that Hamilton Taft was in a cash flow crisis. She said it was
then her job to look at investments and/or loans to determine the
likelihood of these assets generating any income~ She was to
insure that any future capital outflow was ureal investments".

She found out that almost immediately after Maxpharma


purchased Hamilton Taft from cigna corporation that Hamilton Taft
client funds were wire transferred out of Hamilton Taft. These
funds were in the form of notes and were booked at Hamilton Taft
as investments. But she saw no evidence of an attempt to collect
on these notes by Hamilton Taft. She said that some of the
transactions were incredibly complicated.

She said that she had frequent meetings concerning


these notes with Hamilton Taft officers. She discovered that
I I (PHD), Chief Financial Officer,l I
PHO), Director of Operations, I 1President
~~~--~~~~(PHO), Comptroller, were the only Hamilton Taft
off~cers a knew about the loans by Hamilton Taft which Were
outstanding and uncollected.

She further explained that she recalls ten to fourteen


million dollars in loans had left Hamilton Taft with no payments
returning to Hamilton Taft. She discussed these loans with
I Ibut not with I ,
All of these loans were
"brokered ll through the Maxpharma office in Dallas, Texas.
discovered that Maxpharma officers would telephoner
Hamilton Taft and instruct her to wire money to Ma~pharman
She
at 1
Dallas a9 d then a,~er the fact.Maxpharma would then send the
b7C notes toL Jln San FranC1SCO.

She felt that the officers at Hamilton Taft were


protective of~ I
oftenl IWQul~ accuse
I IOf raiding the funds of Hamilton Taft.1 )was not
very helpful in her audit. She felt that this was because he was
the person who actually wire transferred the funds from Hamilton
alIas. She understood the process being that (FNU)
of Maxpharma in Dallas would
o transfer un s an
r---. . . . . .~o=-~wire the monies. I
c:::
Iwould then instruct
~(PHO), a director, often
got irate at her inquiries regarding Hamilton Taft loans. A day
or two after she started working at Hamilton Taft she discovered

EXHIBITS to Section 2255 Reply - Page 81


FD-302u (Re.v 11-15-83)

196A-SP-93255

ContinuatIOn of FD-302 of _.....=~~~~~~!!!!!!!l!II • On _ _2-:,./_8....:;/_9_ 3 • PAgo _ _3_ _

a "funny" transaction where two to three million dollars of


Hamilton Taft funds was wired to Dallas, Texas. She understood
thatl ~were working on some deal to raise funds.
She was told that these funds were supposedly to be used to
"recapi talize" Hamilton Taft. I linstructed her that the
details of the transaction was none of her business l but she
believes that the funds went to either Amerimac Company in
California or to Gulftex, a real estate business in Texas.
I ~said that from her examination of Hamilton
Taft financ1ai records she discovered that all the funds sent out
J7C for these loans had to be dedicated Hamilton Taft client funds.
She said that' lhad to know that
Hamilton Taft client funds were being used to finance these
investments. She understood thatl lactually assisted in
the creation of the notes to Hamilton Taft. One of these loans
in 1988 in the amount of approximately $200,000.00 was to a
CONNIE CHIP ARMSTRONG, JR. business in Dallas, Texas by the name
of Dresdner Corporation (PHD).
She said thatl 1 (PHO) I Sales Manager, and
1~------------l(PHO), Vice Presldent of dperations, at Hamilton
Taft were both concerned and upset at the news of the loans.
These loans violated Hamilton Taft's written cash management
policy which stated that Hamilton Taft can onJY invest client
funds in safe overnight type of investments. I I said that
she recalls that most of the notes for the 1988 loans were for a
90 or 180 day period. She stated that in or around March 1989
I Iwas fired byl I resigned.
She said that Arthur Anderson C.P.A. firm withdrew from
the Hamilton Taft audit a couple of days after they gave Hamilton
Taft their appointment letter. At that point she said that
management at Hamilton Taft felt that Hamilton Taft did not have
enough interest money to pay Arthur Anderson. Therefore,
Hamilton Taft did not receive any audited financial statements to
give the increasingly concerned Hamilton Taft clients. EDS one
of Hamilton Taft's largest clients was requesting audited
financial statements.
I 'said that she started taking legal action on
the debtors at the
notes to Hamilton Taft. She was taking
aggressive collection acti~she felt that she could have
collected on the Amerimac'L----Jandl rates if not for

EXHIBITS to Section 2255 Reply - Page 82


FD-30la (Rev 11-15-83)

196A-SF-93255

Conunuullon of FD-302 of _~~~!!!!!!!!!!!~ ,---- , On _ _2-.;.1_8.....;1_9


_3 • Pngc: _4_

the ARMSTRONG takeover of Hamilton Taft in March of 1989. She


said that the I ~ and Amerimac notes totaled approximately $6
million dollars. She personally told ARMSTRONG at the Petit and
Martin law offices about the notes outstanding and her collection
efforts at Hamilton Taft. She told him that he should be able to
collect on some of these loans. She said that he did not seem
interested.

She said that in March of 19891 I concluded that


he was not able to recapitalize Hamilton Taft and that Hamilton
Taft would have to file for Chapter Seven bankruptcy protection
b7C so he conceded Hamilton Taft to ARMSTRONG She recalls a $20
4

million dollar figure being used at Hamilton Taft around the time
ARMSTRONG took control of Hamilton Taft. She said that the $20
million dollars represented the negative capital and the negative
cash flow at Hamilton Taft. She said that she felt at that time
that this much capital would be necessary to keep Hamilton Taft a
viable company. The financial condition of Hamilton Taft was
constantly being communicated to ARMSTRONG and his attorneys
during the legal actions. I
'said that she sat through
all of the depositions during ARMSTRONG's legal action to gain
control of Hamilton Taft.

She said that she understood that ARMSTRONG's plan for


Hamilton Taft was to recapitalize Hamilton Taft by investing $20
million dollars, rehirel Ito satisfy Wells Fargo Bank and
expand Hamilton Taft's customer base to infuse more revenue into
Hamilton Taft.

EXHIBITS to Section 2255 Reply - Page 83


FD-302 (REV. 3-10-82)

- 1 -
FEDERAL BUREAU OF INVESTIGATION

Date of transcription 2/18'/92

On the afternoon of January 13, 1992, a conference was


held at thelPffices gf Feldman. Waldman and Kline, bankruptcy
counsel for. trustee in the bankruptcy of1
Hamilton Taft Corporation (HTC). The law firm's offices are
located at 235 Montgomery street, suite 2700, San Francisco,
California, 94104. Present at this meeting werel I
Esw1;re, representing Feldman, Waldman and Kline, at cetera. Mr .
I . CPA, t~~ accQuntant
the trustee himsel~,L
the bankruptcy trustee, andfOr
These individuals thereafter
provided the following information: b7C
I 'stated that he has recently received certain
accounting reports from representatives of CHIP ARMSTRONG in
Dallas, Te~as, which begin reporting on the period from
November 1, 1990 through June 15, -1991. This accounting work was
generated using the Quicken Software and chronicles CHIP
ARMSTRONG's personal finances.
I ~ stated that in July, three reports became
available to him. Wated that only copies
were duplicated by per a restriction put on_ _
CberkS
. and
Of!Som:
apparently agreed y the coun~~ for the frus ee y
Mr. ARMSTRONG's representatives.
Quicken summary was in fact a
0
L
pub11C
advised that the
record and that, in
addition, the law firm had filed a motion for conternpt·against
CHIP ARMSTRONG for his having allegedly violated a temporary
restraining order issued by the bankruptcy court.

I I stated that his preliminary report indicates


that approximately four million dollars of Hamilton Taft funds
have been traced· directly to CHIP ARMSTRONG, that is, four
million dollars of HTC funds have been traced to going directly
to Mr. ARMSTRONG. I Istated that ARMSTRONG had or has five
bank accounts. Any payment that was made to CHIP from either
Hamilton Taft or one of the subsidiaries controlled by ARMSTRONG
are accounted for, that is, they are covered by explanations.
These explanations are usually in the form of a note receivable
or an account receivable notation. These entries to the books
and records of Hamilton Taft or anyone of these subsidiaries

-.]ID
Invesligationon 2/10/~:J at Sa);} :P'];a1=lci~co, Caloi.;fornil ile 11 J96A-SF-93255 Sub C
~I I b7C
by SA f,YNN HATCHER PKM la an Dale dictated 2 11 0 192
~M I ; I - ..
If This document conta.in~ neither recommendations nor conclusions of the FBI. It Is the property of the FBr and is loaned to your agtncy;
1\ and ils contents are not to be c1blrlbuted outside your aaency.

----------------'------'--_._- ... _-- ... _---


EXHIBITS to Section 2255 Reply - Page 84
FD-302a (B:ev. 1l-lS-83)

f:>A-SF-93255 Sub C

Con tlnua tion of FD-302 01 -J I ' On 2/10/92 , P age _~2",,---__

controlled by ARMSTRONG were to pay for clothing for


Mr. ARMSTRONG or for a truck for his personal use. Succinctly
stated, these documents provided a paper trail for a trloan" or
"advance ll to ARMSTRONG to account for the payments to him.
I ~ndicated that an enormous portion of
ARMSTRONG's standard of living was booked by the various
comptrollers as advances to CHIP ARMSTRONG.
b7C
I
Istated that during the period March 20th
through April 4th, 1991, CHIP ARMSTRONG liquidated three assets
which were not in Hamilton Taft's name. The first asset to be
liquidated was a helicopter, apparently owned and/or leased by
Winthrup Corporation for 1.1 million dollars. The second asset
and/or payment was a $700,000 payment to CHIP ARMSTRONG's
criminal. lawyer in Dallas. Finally,1 lindicated that
$300,000 went to Rem~~Companies wh~ch was possibly in turn
repaid to a law firm of Long and Leavitt in San Francisco.

. With h:se~lt to the helicopter transaction and


liquidation indicated l~l million dollars was
transferred to W~nthrup on the same day and on the same day, CHIP
ARMSTRONG wired transferred $700,000 to his Dallas based criminal
lawyer,~ IWith respect to this $700,000 'wire
transfer, Istated that $400,000 of the lawyers' fees were
returned toJthe trUSjee~ Again, with respect to the helicopter
transaction indicated that three million dollars had
originally been wire transferred to another one of~Knights Bridge
companies and then in turn to winthrup Realty. I I stated
that ARMSTRONG has few sources of income other than the sale of.
assets purchased with Hamilton Taft funds. Among the assets that
ARMSTRONG purchased, apparently with Hamilton Taft funds, are two
stadium boxes for the Dallas Cowboys football team and these
apparently were purchased for $140,000 and $125,000,
respectively. A third box is still owned by ARMSTRONG.
Approximately 1.1 million to 1.3 million went to various lawyers.
Seven hundred and thirty-five thousand dollars went to criminal
lawyers and one hundred seventy-five thousand, two hundred
thousand and eighty thousand dollars, respectively, went to civil
attorneys.

---_... _-- - - - -
EXHIBITS to Section 2255 Reply - Page 85
FD-301a (~cv. 11-15-83)

~5A-SF-93255 Sub C

b7C

Continuation of FD-302 of -J I ·On 2/10/92 · Pagc_..lI3"'----

All records for Hamilton Taft and any of trmstrOnq/S


companies are currently domiciled in San Francisco. ~
indicated that some records are missing and those records are for
the company known as Winthrup Realty and CHIP ARMSTRONG's
personal financial records.
Additionally,l ~ndicated that her law firm is in b7C
possession of winthrup's ledgers· through May of 1991. b7D

------ .' -------------"'---- ---_.-_.--"-----

EXHIBITS to Section 2255 Reply - Page 86


"1-3028 (Rev. 11-15-83)

196A-SF-93255

4/15/91 , Pa llC _ _2_ _


-------- ,On

cash account for that day. If an overage, the money would go to


Hamilton Management for investing. If short, he would ask
Hamilton Management to wt~re money into the account to cover
checks written that day. _ lassumed all the trouble was
started when ARMSTRONG instructed one of these guys to send money
to somewhere else or he had the money from Kansas go to one of
his companies in Dallas for investment. "No, I don't consider
his ranch a real investment".

After the interviewing agents gavel la copy of


the sUbpoena for HT records, I 'said "I have been down a
similar shopping list as yours. lI • He thought a chunk of client
money was taken out and used for investments. Probably a verbal
order by ARMSTRONG. This money replaced later. HT replaced
Federal Express money with Federal Express payments. HT did not
use "Joe Blow's" money to pay Federal Express's taxes and
penalties. Every tax that is owed in last quarter has been paid. ""1n

I Istated is about 90 million short this quarter


that HT b. ! ....
because the clients are not putting money into the company. 4
I lexpressed that everything the trustee is
doing will help your investigation. IIHe's doing your work. I am
concerned that you guys will come in here and take all the
records away.. We will not see them for years." He had that
happen before in another case dealing with meat inspectors
getting kickbacks.
I Idiscussed he had worked for his family/s
company which had filed bankruptcy. He had successfully
reorganized the company. He had went on to work for other
companies in trouble. He decided to start consulting on his own.
That is when he answered the HT ad.

When questioned again about his contact with ARMSTRONG


he explained most of his contact was in bUdget meetings.He said
ARMSTRONG was planning to double the volume of business. There
was a summary of the meeting minutes kept by a secretary but he
was not sure which secretary.
When asked what was ARMSTRONG's long term plans
I~--------~replied he did not know much about ARMSTRONG/s goals.
"I've been trying to do what you guys are doing. If I I
stated "I know a lot of peripheral facts, but not any detail".
I Idid say that ARMSTRONG went overseas to establish

EXHIBITS to Section 2255 Reply - Page 87


r::D-301a (Rev. 11-15-83)

196A-SF-93255

Continuation ofFD-302 of ~l... ...J----------' On 4/15/91 . Page _3_

I
Hamilton gaft International
Jsaw the bUdget that_
ae
d make SOme sorf of deal.
. prepared for
ARMSTRONG. The bUdget indicated that some $50 million dollars of
capital was to be introduced back into HT this month and
eventually catch up all the delinquent taxes due by October of
this year.
b7C
I Ibelieves what' Istated in his written
statement about the actions of the client response unit is a lie.
He was managin; tn~! unit. The intent was not to mislead ~
clients. r _ ~hO was the supervisor in that
department weu d verIfy the unit's intent.
~

I Ilast contact with ARMSTRONG was last friday


at the HT office in San Francisco. l Istated,IIWe all met
here. It; The trustee with three others and ARMSTRONG with his
attorneys. He explained that he was trying to salvage the
business. He had another meeting later with employees. A sort
of pep talk asking them not to believe the newspapers.

I Iproduced a list of all current employees to


the interviewing agents upon the agents request. Since the
produced copy was missing the last digit of the employee's
telephone numbers another copy was sent vis facsimile to Federal
Bureau of Investigation office later the same day.

EXHIBITS to Section 2255 Reply - Page 88


Memorandum

To SAC, San Francisco ((Q(,J}-SF-Cf1}S"5)(P) DQt~ 3/8/92

From
s~ I b7C

Subject Connie Chip Armstrong, et al


dba, Hamilton Taft and Company, et al
San Francisco, Ca.
FBW (B); Mail Fraud, Bankruptcy Fraud, (A);
OO:SF

On the afternoon of March 5, 1992 a meeting was held at


the office of AUSA Michael Yamaguchi to discuss prosecru~t~i~o_n __
strategy in the above referenced matter. Present were~I====~~==~=
712 ESQ. representing the bankruptcy trustee. Also present was Mr.
Ronald Smetana, Deputy Attorney General, Major Fraud unit of the
california state Attorney General's office. SA's will Hatcher and
re resented the FBI.

i u.J

-, .
iJ{'! i.e.· J

~-f3S ;oA-
(I) {q~ It-SF-cr)aS,

~
~~~~~/vr'
Oa I
( I
-J

~
EXHIBITS to Section
b7C2255
I Reply - Page 89
/C) lL1l (.! t:-::: ~",rr' ?h
2

On February 27, 1992 the accountant for the trustee


finished his second interim report for the bankruptcy which
includes among other thing a tracing of over $4,000,000 directly
into the pockets of Armstrong himself. The report cites payments
by Armstrong using Hamilton Taft funds to a stripper' and the use
of over $225,000 to purchase Dallas Cowboy "skyboxes lt •
The next investigative step is to apply for an ex parte
order for Armstrong's personal tax returns for 1988, 1989, and
1990. Also several interviews of former Armstrong associates will
be conducted in Texas.
Finally due to the continuing effort being expended by
SA Will Hatcher and his anticipated involvement in this matter it
is requested that he be designated co-case agent for the
remainder of the investigation of this case.

EXHIBITS to Section 2255 Reply - Page 90