UNITED STATES OF AMERICA v. 8 GILCREASE LANE, QUINCY, FLORIDA 32351 et al

Filing 34

TRANSCRIPT OF PROCEEDINGS before Judge Rosemary M. Collyer of proceedings held on 10/1/08; Page Numbers: 112. Date of Issuance:11/5/08. Court Reporter/Transcriber Crystal M. Pilgrim, Telephone number 202.354.3127, Court Reporter Email Address : [e-mail] the first 90 days after this filing date, the transcript may be viewed at the courthouse at a public terminal or purchased from the court reporter referenced above. After 90 days, the transcript may be accessed via PACER. Other transcript formats, (multi-page, condensed, CD or ASCII) may be purchased from the court reporter.NOTICE RE REDACTION OF TRANSCRIPTS: The parties have twenty-one days to file with the court and the court reporter any request to redact personal identifiers from this transcript. If no such requests are filed, the transcript will be made available to the public via PACER without redaction after 90 days. The policy, which includes the five personal identifiers specifically covered, is located on our website at ww.dcd.uscourts.gov. Redaction Request due 11/26/2008. Redacted Transcript Deadline set for 12/8/2008. Release of Transcript Restriction set for 2/3/2009.(Pilgrim, Crystal)

UNITED STATES OF AMERICA v. 8 GILCREASE LANE, QUINCY, FLORIDA 32351 et al

Doc. 34

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA : : Plaintiff, : : vs. : : 8 GILCREASE LANE, : QUINCY, FLORIDA 32351 : ET AL, : : Defendants. : ---------------------------x UNITED STATES OF AMERICA

Docket No. CA 08-1345 Washington, D.C. Wednesday, October 1, 2008 9:35 a.m.

TRANSCRIPT OF MOTION HEARING BEFORE THE HONORABLE ROSEMARY M. COLLYER UNITED STATES DISTRICT JUDGE

APPEARANCES: For the Government: WILLIAM COWDEN, Esquire VASU MUTHYALA, Esquire Assistant United States Attorneys 555 4TH Street, NW

Washington, DC 20530

For Defendants:

MICHAEL L. FAYAD, Esquire Akerman Senterfitt 8100 Boone Boulevard Suite 700 Vienna, Virginia 22182-2683 JONATHAN GOODMAN, Esquire Akerman Senterfitt One Southeast Third Avenue 25th Floor Miami, Florida 33131-1714

Dockets.Justia.com

Appearances continued: Court Reporter: Crystal M. Pilgrim, RPR United States District Court District of Columbia 333 Constitution Avenue, NW Room 4704 Washington, DC 20001

Proceedings recorded by machine shorthand, transcript produced by computer-aided transcription.

THE DEPUTY CLERK:

Civil action 08-1345, United

States of America versus 8 Gilcrease Lane, Quincy, Florida 32351, et al. For the plaintiff William Cowden and Vasu Muthyala. For the defense Michael Fayad and Jonathan Goodman. THE COURT: MR. COWDEN: MR. FAYAD: Good morning everyone. Good morning, Your Honor. Good morning, Your Honor. Good morning, Your Honor.

MR. GOODMAN: THE COURT:

We had our expert witness on the stand,

perhaps you could come back, sir. MR. GOODMAN: administrative matters. THE COURT: Yes. Good morning, Your Honor. Your Honor, I just have one or two

MR. GOODMAN: THE COURT:

Good morning. Your Honor, when we were here

MR. GOODMAN:

yesterday, some of the exhibits that we were going through in the binders were the member e-mails and -THE COURT: Yes. -- you may recall that they weren't

MR. GOODMAN: numbered.

Some of us were able to keep up, others were not.

But for the benefit of all of us we have made a duplicate set which is numbered and with the Court's permission

4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I'll give an extra copy to your court deputy and to the Court. I've already given a copy to the government and I'll put a copy on the witness stand for use by the witness. THE COURT: That would be great.

Thank you very much. MR. GOODMAN: The other administrative matter, Your

Honor, is that when we had filed our emergency motion we mentioned that we were going to be seeking return of some of the money pursuant to a compliance plan. And that we would explain that compliance plan at a hearing if the Court gave us a hearing and you have given us a hearing. We then filed a proposed written compliance plan. And

the architect of that compliance plan is Phillip Schwartz. Mr. Schwartz is here in the courtroom this morning. Mr. Schwartz, would you just stand up? Your Honor, Mr. Schwartz is one of my partners from the Ackerman Senterfitt law firm. litigation lawyer. pro hac vice. I had planned on having Mr. Schwartz explain to the court at the appropriate time the compliance plan and how it would work and I just wanted to introduce him to the Court and explain what he intends to do. Sort of as a member of the He's not a trial lawyer or a

I don't think that he needs to be admitted

legal team although we would acknowledge that he is not a trial

5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you. MR. GOODMAN: And the final administrative matter, lawyer and won't be questioning any witnesses, so if that's acceptable to the Court. THE COURT: All right. Well, I think that what we

should do for purposes of his presentation if I could put it that way, is have him as a witness because then if the government has questions of him, it would be able to ask him, and that would allow us to conduct his opportunity to make his presentation and respond to questions in the most organized fashion. MR. GOODMAN: Understood, Your Honor. Given that he

is in effect a lawyer from our firm. MR. COWDEN: courtroom, Judge. MR. GOODMAN: Mr. Cowden. THE COURT: You can give it to the deputy. Thank Thank you, we appreciate that, No objection to him staying in the

Your Honor, it's a little self-centered and selfish, but I'm trying to find a folder that I believe I left in the court yesterday. It was the affidavit for the search warrant.

I can't say for sure that I left it here on counsel table, but I'm going to issue an informal bow low, be on the look out for the Jonathan Goodman marked up search warrant. anybody finds the affidavit, please pass it on to me. If

6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. COWDEN: Q. A. Q. Good morning, Mr. Nehra? Good morning, counsel. When we left yesterday you had talked about being hired as Thanks so much. THE COURT: All right. I don't have it. I'll just

tell you now, I have more than enough of my share of paper and I don't have it. MR. COWDEN: Judge, we didn't find it either, but it

is submitted to an attachment to one of the motions or memorandums or something. It might be possible for your clerk That might be the

to print it out if they need another copy.

most expeditious way than vying to have us run back to the office and get it. THE COURT: Yes, sir, you can come forward now.

CLAIMANT WITNESS GERALD NEHRA SWORN CROSS EXAMINATION (Cont'd)

an expert witness by ASD to opine on the legality of its operation, correct? A. I was hired by the Ackerman law firm to be an expert

witness on behalf of ASD, yes. Q. A. Prior to that you were hired by ASD, is that right? Prior to that I was hired by ASD to be a counselor in my

area of specialty, yes. Q. Yesterday you or Ackerman Senterfitt gave us a copy of the

7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 letter which is in front of you on the screen? A. Q. Yes, that is correct. I asked you yesterday about securities law. You said you

were not an expert in securities law? A. Q. I did make that statement, yes. In the letter you said here the design of such plan and

the proposed implementation will be legally reviewed by me to eliminate or reduce to an absolute minimum any possibility of a violation of securities laws, right? A. Q. It does say that. When I asked you about securities laws yesterday you said

you were going to farm out the securities law issue to somebody else not to you, right? A. I did say that when a securities issue shows up in my

review of my client materials, I send them to securities laws experts or to that effect. Q. Yes, I did say that.

Yesterday I asked you if there was a securities law issue

and you said you didn't know, right? A. Q. I don't recall saying I do. If Ad Surf Daily is taking money from people and paying a

rebate of up to a hundred and twenty-five percent and that rebate payment is based on how much they paid in, and that's how you understand the rebate to work, right? A. Q. I do understand it that way. So if you're getting a profit based off how much you put

8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. in, is there a securities law issue there? A. No. I got a thousand dollar rebate when I bought a car. You haven't shut down

It was based on what I paid for the car.

General Motors by seizing their bank accounts. Rebate programs are legal in my estimation generally and rebate programs specifically in this program in my opinion and testimony doesn't violate any law. Q. Have you ever seen a company with a rebate program besides

ASD where the rebate actually gives you more money than you pay to the company? A. You are assuming that this rebate gives you more money That is a cap that would be attained by some

than you paid in. of the people.

But the rebate program is specifically defined

as fifty cents on a dollar -Q. Let me ask you -- mine was a yes or no question. Have you ever seen -The answer is no, I have not. No. Now, have you ever seen in the ASD rebate program the representation that it makes that rebates will be paid up to a hundred and twenty-five percent, correct? A. Q. A. Q. We have discussed that in the -Is that correct? Yes, I have seen that. Mr. Nehra, yes or no answer, that's what it says, rebates

9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. will be paid up to a hundred and twenty five percent? A. Q. It does say that, counselor. One hundred twenty-five percent is more money than you put

in, right? A. Q. Yes. Mr. Nehra, in your affidavit that you submitted to the

Court, paragraph ten, you said under oath it is fair to ask if this business model is not an illegal Ponzi scheme what is it? It is a legally structured direct selling business model with multilevel compensation. The product service is internet advertising, the distribution channel choice is independent contractor representatives. And the compensation plan rewards only the

persons who bring the advertising business volume to the company. Those were the last words in your affidavit; is that right? Yes, sir, I did say that and those are my words. Now after we have shown you all of these documents you

don't agree with that statement anymore, do you? A. Q. Of course, I still agree with that statement. Well, how are rebates paid? Are rebates a compensation

plan rewarding only the persons who bring the advertising business volume to the company? A. Yes, they are because the rebate program is only, the only

eligible people for the rebate program are the advertisers who

10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. have brought their advertising business to the company. people who -Q. Wait a minute. Those are the customers, those aren't the The

sellers, those are the customers, isn't that your testimony? A. Q. The advertisers are the customers, that was my testimony. So is it your testimony here in front of the Judge that

the customers are also the sellers? A. The customers, some of them may choose to participate as a

member in the rebate program. Q. Let me ask you a yes or no question. Are the customers the sellers in the ASD model? No. Before you gave that opinion to the Court, you reviewed

the ASD website, right? A. Q. I've so testified, yes. In fact, you reviewed the ASD website before you even

showed up down at ASD to be hired to work for the company, right? A. I went to the ASD website and I used it to download

Garner's opinion letter as I have so testified yesterday. Your question implies that I reviewed the entire website by which I did not. I already told you I looked at a few pages

and I downloaded Garner's opinion. Q. When you looked at a few pages of the ASD website, this

was before you went down to Quincy, Florida, correct?

11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. Yes. When you reviewed a few pages of the ASD website, you saw

some concerns, didn't you, sir? A. Q. A. Concerns? Concerns? No, not at that time. I needed to go and find out what

the program was about and hear an explanation by the owner. Q. ASD? A. I believe I was referred to ASD by a mutual acquaintance Remind Judge Collyer how you believe you got referred to

named Bill Levine who recommended that Andy Bowdoin interview me and retain me. Q. A. I've so testified, yesterday.

Who does Bill Levine work for? Bill Levine owns a company called Pinnacle Communication.

That is the parent company of Greenback Street. Q. Did Bill Levine tell you that he was interested in doing

business with ASD before you met Andy Bowdoin? A. Q. Bill Levine did tell me that, yes. And did Bill Levine ask you to look over ASD's website

before you met Andy Bowdoin? A. He recommended that I look at the Garner opinion letter

and download a copy of it? Yes. Did you tell Bill Levine that you were concerned about ASD

before you met with Andy Bowdoin?

12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 witness? MR. COWDEN: THE COURT: It's on the screen. Wait. A. Q. I did not, no. Is that a letter on Pinnacle letterhead? Have you seen

that before? A. I've seen Pinnacle letterhead before, but I've only seen

the -Q. And is that the Pinnacle letterhead that you have seen

before? A. Yes, I have seen that letterhead. MR. FAYAD: the exhibit? THE COURT: presented. MR. FAYAD: I'm sorry, what's being shown to the Well, we don't have the exhibit Your Honor, excuse me. May we look at

It's not being introduced into evidence at the moment. So when the government intends to introduce it into evidence, then you have to see a copy of it before they do. MR. FAYAD: Your Honor, I can't even understand the

questions if I don't know the document that the government is using. THE COURT: Well, no -It's courtesy.

MR. GOODMAN: THE COURT:

I think that for whatever reasons,

13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 from? MR. COWDEN: The letter is from Mr. Levine to And it references Mr. Nehra and Mr. Cowden is proceeding as he is and it's not improper to. can't stop him. He just wants to know so far does that look I

like Pinnacle letterhead that you have seen in the past. THE WITNESS: MR. FAYAD: THE COURT: I said yes, Your Honor.

Thank you. You're most welcome.

Now, Mr. Cowden, if you're going further then if you want to use this document you must show the defense a copy of it, Pinnacle -MR. FAYAD: objection? We've not had a chance to review the letter thoroughly, it's about four pages. The letter is not to Mr. Nehra or from Your Honor, may I just state an

Mr. Nehra, so with that, we object to using it. THE COURT: MR. COWDEN: THE COURT: Is this Mr. Bowdoin the signatory? No, Your Honor. Who is the signatory, who is the letter

Mr. Bowdoin, to Mr. Bowdoin.

it references conversations with Mr. Nehra and it's pertinent to his testimony here in which he's indicated that he didn't have these conversations. THE COURT: pertinence. Right, right, I understand the

14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Is it hearsay? MR. COWDEN: document, Judge. I'm not seeking to introduce the

I'm seeking to use it in cross examination to

see if it affects Mr. Nehra's testimony, not really any different than if I might be introducing a kitchen sink to see if it helps him recall what he's testifying about. THE COURT: All right. Then I think he can use it as

a matter of questioning for cross examination or if he chooses to show it to the witness to refresh his recollection. MR. FAYAD: As I understand it, it's not being used It's being used to test the witness'

as substantive evidence. recollection. THE COURT: MR. FAYAD: THE COURT: Go ahead, sir. BY MR. COWDEN: Q.

Test the witness' recollection. Thank you, Your Honor. Go ahead.

Mr. Nehra, I'm showing you this document.

This is a

letter on Pinnacle letterhead; is that right? A. I did testify that I recognized the Pinnacle letterhead,

yes, sir. Q. In the letter it indicates that Jerry Nehra, our network

marketing and LL counsel has been on for the past five years. In fact, you have worked for Pinnacle five years? Five or more, yes, counsel.

15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Pinnacle asked you in fact to take a look at ASD prior to

the time that you went down and spoke with Mr. Bowdoin; isn't that right? A. Pinnacle introduced me to Bowdoin and gave me some

information about ASD and gave me a link to the website so that I could download Garner's opinion letter. Q. A. Q. And you did prior? I did those things. So prior to going down to ASD you had a chance to look at

its website, right? A. Q. Yes. The letter says we have identified a number of potential

land mines and working with Gary and our company can provide you an extremely positive proactive approach to diffusing problems before they manifest themselves. The letter says that, right? MR. FAYAD: Your Honor, we object because this is

being offered not to test recollection but it's being offered as a substantive statement. This witness -THE COURT: witness' testimony. So I'm going to allow him to proceed. MR. FAYAD: Yes, Your Honor. I understand, and I can read what the It's being offered to challenge the

THE WITNESS:

16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 paragraph says, counselor. Is there a question for me? BY MR. COWDEN: Q. Before you went down to ASD, had you identified a number

of potential land mines? A. No. The word land mine had never been used, and I have

never seen this letter before. Q. A. Q. Before you went down to speak to Mr. Bowdoin at ASD -Yes. -- did you identify your concerns about the ASD operation

in your mind? A. Q. No. Well, if you didn't identify concerns, why did you go down

to ASD and get the highest retainer that you've ever gotten in your life? A. Because that's what I do for a living, counselor. And when I got there I was going to be able to analyze the programs and find out where I could be of service. I do on a regular basis. Q. A. So let me -And I did it because Mr. Levine asked me to make myself If Mr. Bowdoin chose to hire me -That's what

available to Mr. Bowdoin. Q.

So let me understand that. Is it your testimony today that you went down to ASD and

you got a $24,000 retainer, right?

17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. I did. And yesterday you told me that the $24,000 retainer was

the most you ever received from a client for a retainer, right? A. Q. That is the highest one year retainer, I did say that. Now your testimony is that, do I understand it correctly

that you got that retainer even though ASD had no legal issues? A. Of course I did not say that. They probably had numerous

legal issues. I had to go down there to be retained and then start examining the materials that are normally provided to me to determine what legal issues are present and how can I be of help. Q. And after you did that, you did that, right, you

identified and you looked at a few documents, you looked at some documents, you looked at the website, you spoke to Andy Bowdoin for six hours and other company officials, you -- well, let's go through the list here. A. Q. I -You looked at the new member, the ASD Legality Statement,

the ASD terms of service, the Customer Service Training Manual, over 1,000 e-mails, the complaint and spoke to Andy Bowdoin, Chris Peterson and after you did that, you determined that ASD has no legal issues, right? A. I didn't look at 1,027 e-mails until I was later retained

as a potential expert witness.

18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 What I looked at when I was retained as consultant to this company was the, the terms of service primarily Garner's opinion letter, and they showed me a video at the meeting. I did identify as I have previously testified that I thought a further separation of the terms of service agreement between advertisers and members would be appropriate and I started down that road which as I said yesterday. The other documents you referred to, the 1,000 plus e-mails and your complaint, of course, came later when my role significantly changed. Q. Yesterday when we broke off we were talking about this

e-mail on page 29 of 57 of Claimant's Exhibit document 76 attached to their motion for hearing, for the motion for return of property, right? A. This is where we were yesterday?

I recall this being on the screen yesterday, yes,

counselor. Q. And we discussed before that the first page of this e-mail

indicates that it starts on page 28 of 57, right, of this exhibit? A. Q. Yes. And that at the end of the e-mail it's signed by

Mr. Robert L. Grayson, correct? A. Q. Yes. Yesterday when we parted company, I asked you to look at

the highlighted portion of this e-mail at the top of page 2

19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 which says ASD has chosen to utilize a combination of compensation components to award it's members and allow them to A, recover out-of-pocket advertising costs. B, earn a 25 percent premium above and beyond those costs. C, compound the recovery of those expenses. And D, earn commission on two generations of the referral of new members who also make advertising purchases, period. None of these components are unusual, illegal or uncommon in their practice, period. I asked you yesterday if you agree with that statement and you said no. A. Correct?

You gave me two choices agree or disagree, so I said that

I disagreed. The reason I disagreed is that I have no understanding of C, compound the recovery of those expenses. I do not

understand what he meant and since I was only given two choices agree or disagree, I chose to disagree. Q. This e-mail was presented to you when you reviewed the

thousand e-mails from the claimant's law firm before you gave your opinion that ASD is a legal multilevel marketing company, correct? A. I do believe this is one of a thousand that was in the

package, yes, counselor. Q. When you didn't understand that, did you e-mail

Mr. Grayson to ask him to explain to you what compound the

20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 recovery meant? A. Q. I did not. Did you ask anybody to try to explain to you, identify to

you what this part of the e-mail that you didn't understand means? A. Q. I did not ask anybody; that is correct. Mr. Grayson appears to believe from this e-mail, doesn't Is that right?

he, that his advertising is free? A.

You are representing what you believe Mr. Grayson thinks

and when he wrote this and you're asking me to agree with you. I suppose that's -- I don't have a response for that, I'm sorry. Q. Well, you don't have a response. Let me try to reframe

the question. If you are able to recover your out-of-pocket advertising costs from the company that you paid the advertising expenses to, has the advertising become free? A. We discussed that yesterday. THE COURT: Just answer the question. Just say yes

or no, please, please. THE WITNESS: BY MR. COWDEN: Q. Now you understand that rebates, the company says rebates Yes, yes.

are paid for viewing advertising, right? A. That is my understanding, yes.

21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Q. But you also understand that rebates were being paid even

when the website was down, correct? A. Mr. Bowdoin told me that he was paying some rebates during

the down time. Is that correct? Yes.

Did you ask Mr. Bowdoin how people are being paid to view

ads if they're actually being paid when they're not viewing ads? A. Q. I did not ask Mr. Bowdoin that question, no. Knowing that now rebates were being paid even though

people weren't looking at ads, does that cause you to re-evaluate your position that the company was selling advertising? A. My position that the company was selling advertising has

not changed and does not change based on this statement you just made in your question. Q. Does it cause you some concern as an attorney that the

company is representing that rebates are being paid for viewing ads, but it's paying rebates when nobody is looking at ads? A. It doesn't, it does not cause me to a concern because of

the underlying reason that he was fixing the infrastructure failure and it was a very short term situation. Q. You saw this e-mail in your review of the e-mails didn't

you, sir? THE COURT: What page are you on, sir?

22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. COWDEN: THE COURT: I'm sorry, page 34, Your Honor. Thank you. If that was in the package of e-mails

THE WITNESS:

sent to me, I either read it or skimmed it, yes, counselor. BY MR. COWDEN: Q. Did you see that this person saw an ad for Marriott and

Masons? A. Q. That's what it says, yes. Did you ask Mr. Bowdoin if in fact he had any national

advertisers who were participating in ASD advertising programs but not asking for rebates of their advertising purchases? A. Q. I did not ask Mr. Bowdoin that question. Isn't that question fundamental to whether they're

actually selling a product? A. Q. No. If the company has no customers, no customers who are not

asking for their money back, are they selling a product? A. Of course, they're selling a product. They have many

customers who are asking for money back.

There are thousands

of members, of advertisers who chose not to participate in the rebate program. Those people were advertising for the inherent

value of the advertising. Q. A. Q. Who told you that? Mr. Bowdoin told me that in that six hour meeting. That representation is crucial to your opinion that ASD is

23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not a Ponzi operation, isn't it, sir? A. Q. That would be a critical point in my evaluation, yes. How many in your evaluation to determine that ASD is not a

Ponzi, how many advertisers does it need to have who are not asking for their money back? A. Q. How many? I don't know.

Well, let's go back over your testimony yesterday.

They're giving out 65 percent of their revenue, right? A. They earmark 65 percent of their revenue for the rebate

program and referral program, yes. Q. So is it fair to say that if they have no expenses at all,

they need to have 35, they must have at least 35 percent of their members not asking for rebates? A. I don't believe that's a necessity because of the

protection they have that they are only committing fifty cents on every revenue dollar for the rebate program. Q. Doesn't that just mean that they're paying back the

65 percent slower than? A. Q. It does mean slower, that would be accurate. But it doesn't change the fact, sir, does it that they're

still paying back, committing to pay back 65 percent of their revenue, correct? A. They are committing to pay back 65 percent of the revenue,

that is correct. Q. So if they are committing to pay back 65 percent of the

24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 revenue, they need to have at least 35 percent of their revenue, they need to have the rest of the, they need to have at least a percentage of people who are not asking for their revenue back, right? A. I'm not an economist or accountant, and I'm not sure if I I'm sorry.

can agree or disagree with that.

I have analyzed the program and I see that they only pay out 65 percent on a dollar coming in, and I believe that that is critical to my analysis. That is not by design insolvent as the government has alleged. Q. Did you also agree to provide advice on Mr. Bowdoin's

operation of not just Ad Surf Daily or ASD Cash Generator, but also La Fuente de Dinero? A. Q. A. No. Have you ever heard of La Fuente de Dinero? I heard that it is some Spanish language version of ASD,

but I am not fluent in Spanish and have no connection to that and offered no services to that entity or part of the business. Q. I'm now showing you page 49 of the e-mails that were

submitted by claimant's counsel to the Court. This appears to be an e-mail written on Friday, August 8, 2008 from a Joan Hughes, correct? A. Q. Yes. And in this e-mail Ms. Hughes indicates that first, while

25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there was an initial cost to purchasing ad packages, I knew that over time I would recover these costs, correct? A. Q. I do see that, counselor, yes. And that in your testimony that appears to be sort of

where we're talking about where you say well, they purchase advertising. So the fact that they get their cost back over

time, doesn't mean that they didn't purchase advertising up front, is that your testimony? A. My testimony is that the existence of the rebate program

doesn't negate the critical issue that this company is selling advertising. Q. Okay. So is it fair to say, let's just make that -- can't

miss this opportunity to make, get some crystallization here. Your testimony is that the rebate program is irrelevant to whether they're selling advertising? A. I didn't use the word irrelevant in any of my testimony so It is the --

I'm not saying that it's irrelevant. Q.

Wait a minute, you are now because you're going to say yes

or no. Is the use of a rebate program irrelevant to whether they're selling advertising? A. Q. It's not irrelevant. In your websites you have a number of articles you've Yes or no?

written, correct? A. Yes, sir.

26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. In those articles one of the things that you tell people

in your articles is that it's important to make sure that you're actually, when you're operating a multilevel marketing company that you're selling a product and not selling an income opportunity; isn't that what you say? A. Q. I say that, yes, I do say that. Why are you concerned about your clients or potential

clients selling an income opportunity and not a product? A. I'm concerned because there's a large body of law in the

United States primarily at the state level that prohibits individuals from selling multilevel income opportunities and therefore, what you are selling has to be a legitimate product of service. THE COURT: When you say a multilevel income Is that a Ponzi

opportunity, to what would you be referring? scheme? THE WITNESS: No.

It would be those are Amway

Distributor or Mary Kay Distributor or Shakley Distributor are participating in a multilevel opportunity. It's a home based distributorship, Your Honor, that's what I'm referring to. A multilevel income opportunity is a home based distributorship, big Avon lady. THE COURT: I must have missed the end of the

sentence because you said state laws prohibit multilevel income

27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 opportunities. THE WITNESS: Your Honor. They're given away all over the United States with one nationally recognized exception; that is, that the companies may charge a modest administration fee or they may require the purchase of a sales and starter kit. charge for the income opportunities. So a Mary Kay beauty consultant opportunity buys their starter kit and some companies charge an administrative fee. ASD charged a modest administration fee to be a member. BY MR. COWDEN: Q. When you went down to Quincy, Florida, this was in July of But there can be no huge From being sold, they're given away,

2008, correct? A. Q. Yes, counselor, I believe it was July 30th. Did you have an opportunity and you indicated you spoke to

Andy Bowdoin, you spoke by telephone to a Mr. Garner and you spoke to an individual named Juan Fernandez; is that right? A. Q. A. Yes, sir. Did you speak to anybody else while you were down there? When I was done Mr. Bill Levine and his son Aaron were

out, in and out of the meeting and Andy Bowdoin introduced me to a few other people whose names I am not recalling at this time as a courtesy saying Jerry Nehra is here and being our NA attorney.

28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So yes, I did talk to more than just the people named, but I'm not remembering their names specifically. Q. Do you remember speaking to a Mr. Haze Amos, former CFO of

Ad Surf Daily? A. I do not recall speaking to him, no. I may have, but I'm

not recalling it at this time. Q. Your opinion that Ad Surf Daily is a legitimate multilevel

marketing company is based in part on your conclusion that Ad Surf Daily is in the business of selling advertising, isn't that correct? A. Q. That is correct, counselor. Would it change your opinion to know that Ad Surf Daily

was compensating its employees with ad packages? A. I don't think that I would change my opinion. I'm not

sure how employees are compensated would modify my opinion. Q. Well, if you were to learn that Ad Surf Daily for example,

paid its CFO in part by giving away 25,000 ad packages to his wife and 5,000 ad packages to each of his children, would that effect your assessment that Ad Surf Daily is not in the business of providing income opportunities, but is instead just in the business of providing advertising? A. I think you want to rephrase that question because you

just reversed two phrases, but -Q. A. Is your answer I don't understand the question? My answer is I don't understand the question.

29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. I believe you missed something. Okay. If you were to learn that Ad Surf Daily was

compensating its employees with ad packages, so now ad packages are now a form of compensation, would that effect your opinion as to whether Ad Surf Daily is an advertising company? A. It would not except that I want to call all of the ad

packages that are being sold or given away to employees to be for the use that they're now intended; that is to advertise a product of service or an opportunity for an underlined product service or opportunity. And with that condition and the fact that they are being used as a form of compensation or reward for employees would not change my opinion. Q. Did you ask Mr. Bowdoin what he was advertising himself in

his company Ad Surf Daily, what website he was using to participate in the rebate program? A. Q. I did not ask Mr. Bowdoin that question, no. Did he tell you what he was advertising to participate in

the rebate program? A. Mr. Bowdoin's personal participation in the rebate program

did not come up in our conversation. Q. Would it effect your opinion as to whether Ad Surf Daily

was a legitimate multilevel marketing advertising company if you were to learn that the president of the company was participating in the rebate program but advertising a defunct

30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 website? A. Q. A. What was the last, advertising what? A defunct website? A defunct website. Would I not be happy that the I would

advertising was being used for its intended purpose? not be pleased with that. Q.

Would you be disappointed to learn that advertising, that

people participated in the ASD rebate program or advertising websites that sold no product whatsoever? A. I would not be pleased to hear about that, and if I had

continued and if the company had continued, I would have advised that they put in controls to not allow that to happen. Q. When you looked at, before you gave your opinion to the

Court here that Ad Surf Daily is a legitimate multilevel marketing company in compliance with all laws, did you have a chance to look at the Ad Surf Daily News site? A. Q. I don't recall seeing that site, no. Did you become aware that Ad Surf Daily was suggesting to

its members, potential members that if they did not have a website to advertise, they could pick one of these two? A. If they were legitimate websites that were selling a

product or service and opportunity, that would not be too troubling to me. Q. It wouldn't change my opinion. This is a, this document purports

Let me show you this.

to be from the ASD News, right?

31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. It purports to be that, yes. And at the bottom of the document it says the website is

W-W-W dot A-D-S-U-R-F-D-A-I-L-Y-B-R-E-A-K-I-N-G-N-E-W-S dot com? THE COURT: That doesn't actually show on the screen. That doesn't show on my screen. That's why I read it. Is there a question?

THE WITNESS: MR. COWDEN: THE WITNESS: THE COURT: Sorry.

Hold it to the left.

No wonder we didn't see it. Is there a question pending?

THE WITNESS: BY MR. COWDEN: Q.

I'm just putting it into the record and ask you to agree

that's what the document says? A. Q. Yes, counselor. Does this indicate, this document, if needed companies you For those joining ASD who do not have a

can advertise.

personal business to advertise, you may advertise either www.paydot.com, then there's a website to that, or www.mobill with two ls cash.com, two ls and no e. These are only

suggestions as there may be other company's products that you find to advertise. Is that what that document says? Yes, it does. Now if you were to learn that or let's say does it trouble

32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you that Ad Surf Daily was suggesting websites to people who could play in the rebate program if they didn't have a company to pay for advertising for? Let me try that again. That one I

don't even know if I understand that question. Does it trouble you that ASD was recommending if people wanted to play in the rebate program, it was recommending websites to them that they could throw into the rotator? A. Well, I'm disagreeing with your use of the word play in

your question. It would trouble me only if what they, what the company was recommending were not legitimate websites that sold the product of service or an opportunity. Q. Well, let me ask you this. What this seems to indicate is

it fair to say that what it seems to indicate that if people want to participate in ASD's rebate program, and they don't have a business themselves to advertise, they can pay to advertise these two businesses. say, right? A. Q. Yes. All right. Why would somebody pay to advertise somebody That is what that purports to

else's business if they were not going to get a hundred and twenty five percent of their money back to do it? A. This says that there are -- this says that -- uses the So it would mean that the person who is being

words products.

referred to some other business to advertise would be an

33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 affiliate or participant in some other business and then it seems to me that Ad Surf Daily is saying if you are not in business and therefore want to advertise with me, why don't you consider going into one of these businesses and then become an advertiser with me. That's what it appears to say to me.

If the underlying businesses that are being recommended are valid and do sell a product or service or opportunity that doesn't change my, that doesn't change my opinion. Q. You made a statement yesterday that ASD that your opinion

that said it was not selling income opportunities but instead selling advertising was based in part on your review of a thousand plus e-mails that you were provided by Ackerman Senterfitt law firm, correct? A. Q. Yes. Would it change your opinion and we discussed yesterday

that that was about one percent of the ASD membership, correct? A. Q. You did so represent. You had heard that ASD's membership was in excess of a

hundred thousand members, right? A. Q. Yes. So a thousand e-mails is about one percent of the

membership, right? A. Q. Yes. And your opinion that ASD was selling ads and not selling

income opportunities was based in part on those e-mails and

34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. people saying that advertising at ASD was good stuff, right? A. Q. Yes. Would it change your opinion to know that before those

e-mails were sent to the law firm, ASD posted on its News a request that -THE COURT: MR. COWDEN: MR. FAYAD: MR. COWDEN: Are you going to enter this in evidence? Just through testimony, Your Honor. Sorry, I can't hear. Judge, I'm just going to ask him to ask

if, if it would effect his opinion to know. MR. FAYAD: THE COURT: No objection, Your Honor. All right. Are you waiting for me, sir?

THE WITNESS:

Is there a pending question? BY MR. COWDEN: Q. There's going to be one. When you got the e-mails back from Ackerman Senterfitt did you ask them how they came to have those e-mails? A. I did not have to so ask them because I was familiar with I've seen this before.

how they requested them. Q. A. Q. Okay.

So how did they request those e-mails?

It's on the screen, counselor. It's not in the record. Let's get it in the record.

How did they request the e-mails? They sent a communication to members that says you may

35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have heard that Ad Surf Daily has been named in two lawsuits, et cetera. The Ad Surf Daily lawyers are receiving accurate

letters or memos of support from members who have had positive experiences with Ad Surf Daily. If you are willing to provide such, et cetera, send it to this address. Q. So you understood before you relied on the thousand

e-mails that you looked at that ASD's lawyers had asked for memos of support from members who have had positive experiences, right? A. Q. Yes. And you looked at a thousand memos, at one percent of the

memos from these customers after they had been asked to send in supportive, positive experience memos, right? A. I looked at all of the memos that were provided to me

which, which we've agreed is about one percent of the membership, yes. Q. Are you concerned that your opinion though was, might have

been, that the e-mails that you reviewed given that ASD had only asked for supportive, positive experience memos that your, the world that you were looking at was a little bit tilted? A. I was not concerned because I was looking for evidence of

legitimate sale of advertising for its intended purpose and this is what I found. Q. But you're not going to testify here today that one

36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 question. BY MR. COWDEN: Q. Would you testify, would you agree -- well, do you believe percent if you have, if one percent of the membership of ASD says that using ASD to advertise that suffices to determine whether ASD is really selling advertising, right? MR. FAYAD: Object to the form of the question.

Government is not in a position to tell the witness what he can and can't testify to. THE COURT: All right. Why don't you reframe your

that you can look at one percent of the customers of a company to determine whether they are selling a legitimate product? A. I didn't choose the one percent. I looked at what was

sent to me and reached the conclusion that this is a legitimate advertising business being purchased by people for its intended purpose and getting the results that they expected. Q. And that opinion was based in part on your review of

e-mails from one percent of the customers, right? A. Q. It was based on that, yes, counselor. And before you reviewed those e-mails, you were aware that

those e-mails were solicited by an e-mail over the internet that asked for positive experiences with ASD, right? A. Q. I was aware of that yes, counselor. Now you went down to Ad Surf Daily on, was it July 30th,

2008?

37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Yes, I did. Prior to that time you had never met Mr. Bowdoin; is that

right? A. Q. A. Q. That is correct. You had some conversations with him over the phone? I did have one or two conversations before the visit, yes. During those conversations that you had with Mr. Bowdoin

over the phone did you express to him concerns about the ASD business model? A. Q. No. Before you went down to discuss with Mr. Bowdoin how ASD

worked, did you have any concerns about the ASD business model? A. Q. No. After you went down and spoke with Mr. Bowdoin for six

hours you and he agreed to design a retainer agreement in which he's agreed to pay you $24,000, correct? A. Q. Yes. Did you have any concerns after speaking with Mr. Bowdoin

for that period of time in person on July 30th that you were concerned about the ASD business model? A. Q. A. Yes. What were your concerns after speaking with Mr. Bowdoin? In looking at the terms of service I felt that there

should be more separation between advertiser and member, and I discussed that with him and Mr. Garner who both agreed with me

38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. and we were starting down the road of those modifications and adjustments. Q. A. Well, what do you mean by more separation? A separate terms of agreement document for advertisers

only and a separate terms of agreement for members who are people who have an opportunity to earn money. The advertisers spend money and the members have a potential to earn money and it is my practice with all of my clients including this one to recommend that you keep as much separation as possible between customers and income opportunity participants because it is best to meet the legal requirements of the anti-pyramid and multilevel marketing laws nationwide that I deal with. Q. What concerned you in particular about ASD in the way it

was being operated when you were down there on July 30th, 2008? A. I thought I just answered that question. Did you want me to repeat what I just said? Well, let's try this. Is your concern that the customers

of ASD and the members participating in the rebates were the same people? A. They at times in the terms of service were referred to as

the same person, and I was recommending that we always refer to them separately. Q. Why were you concerned that they were being referred to as

the same people?

39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Because the body of law that I advise clients on is best

complied with when there's a clear distinction between who is customer of the enterprise and who are the representatives or the income opportunity seekers of the enterprise. That is just what I do for all of my clients and what I intended to do for this client. that reason. Q. In the body of law that you've been dealing with and in Create more separation for

your experience in representing multilevel marketing companies, the income level opportunity for the multilevel marketing company, the people who are participating in multilevel their opportunity is a commission opportunity; isn't that correct? A. Q. Yes. You're not familiar with any multilevel marketing company

that you have ever represented that has both a commission opportunity and this rebate opportunity that ASD had, right? A. This particular rebate opportunity was new to me. I have

not had, not seen that before in my work, that's correct. Q. The commission opportunity that ASD, standing alone, the

commission opportunity would have been pay me a dollar for advertising and the advertising is spent, right? ad and the ad is spent, right? A. No, that's the customer side. The income opportunity is You show the

the -Q. The customer side for ASD would have been in a traditional

40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 multilevel marketing company, give me a dollar and I'll show your ad one time on the website, that's the customer? A. Q. Right. If you wanted an income opportunity, if you bring other

customers to me and they give me a dollar, I'll give you ten percent of their dollar and for the second level five percent of their sales, right? A. Q. That is correct. And that's your traditional multilevel marketing

opportunity, right? A. Q. Traditional is a fair word, yes, counselor. And as long as the company is not spending more than 85

percent of what it's taking in, it can pay those commissions, right? If the expense of the company are less than eighty-five

cent per dollar that they take in? A. Q. Yes, that's true. They're going to have fifteen cents to pay those

commissions, right? A. Q. A. Q. I agree. Now in the ASD model they have that opportunity, correct? Yes. But in addition in the rebate opportunity, they have a

chance to get the people who are participating in the rebate program and I used playing but you didn't like that word, so I'll use participating in the rebate program, they have an

41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 opportunity not just to earn commissions, but to earn back every cent they pay into ASD, right? A. Q. They are given that opportunity, yes, counselor. In the rebate program they're also given the opportunity

to earn an additional twenty-five percent of the dollar that they paid in, right? A. Q. Yes, yes. Right. So can you explain to me how that, how you believe

that is financially feasible? A. It is financially feasible because the terms of service

unequivocally state that the rebate program is funded only with fifty cents of the dollar of future revenues. unequivocally and emphatically. Q. So if I understand your testimony correctly, you're And they say it

telling me it's financially feasible because ASD says it is; is that your testimony? A. And that's the way that they were doing it according to They were

Mr. Bowdoin and others that I talked to on my visit.

only putting aside fifty cents on the dollar for the rebate program. way. Q. Let me step outside of ASD for a second and go over here. So it was on paper and it was actually happening that

Let me ask you this question. If a company says if you give me a dollar I will give you back a dollar twenty-five, you don't believe they can do that

42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. if they don't have outside income to produce that twenty-five percent extra, do you? A. That's true. Counselor, I've been incredibly patient and incredibly responsive and incredibly courteous, but someone other than me will be determining whether ASD's use of a number one to five and maybe the word free supports the Government's actions in this case. It's my testimony and it's my opinion that it does not. Well, we are actually here to talk about your opinion

because your opinion is that ASD is not a Ponzi, right? A. Q. That is my opinion. And you've just testified that you've said that part of

your opinion as to why ASD is not a Ponzi is because you just said because Andy Bowdoin told me it's not, right? MR. FAYAD: MR. COWDEN: THE COURT: I object. That's not what he testified.

Well, let's back up. All right. We don't need -- yes,

withdraw the question. We don't need that particular question. The question is

it's not a Ponzi because Mr. Bowdoin said they put fifty percent of their revenue into the rebate program. THE WITNESS: Yes, I agree to that. That is and the

terms of service back up where Mr. Bowdoin said in a document that has a contractual feel between its members and the company

43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they unequivocally make that statement. BY MR. COWDEN: Q. If you were to learn that members had paid in let's say

$30,000 for advertising and received all of the $30,000 back already and were now continuing to get $2,000 a month from ad packages, where is that money coming from if it's not from outside revenue? A. There's no dispute that the money that goes into the

rebate program comes from tomorrow's revenues at fifty cents on the dollar. I've never disputed that. It comes from

The money comes from advertising revenues.

customer volume, people buying the product of this company which is internet advertising. That's the funding source of

the rebate program as I have stated many times. Q. When you went down and you spoke to Mr. Bowdoin, tell us

what he told you about ASD? A. Q. I beg your pardon? No. I'm sorry, who told me about ASD?

You went down on July 30th, you had a conversation It was about six hours?

with Andy Bowdoin. A. Q. Yes, it was.

Tell us what he told you about ASD?

Did he tell you how

he started it? A. I cannot recall specifically all of the things that Andy He spent some time interrogating me about

Bowdoin said to me. my credentials.

44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 He told me about the growth of the company and his desire to do it right. He told me about other law firms that he had

brought on board for SEC reasons and for reasons of liable and slander allegations that he wanted to move on. And he told me about his relationship with Mr. Garner and he was in effect telling me that he was adding me to the team of legal support that he had so that he could assure himself that he was in compliance with all of the laws of the land. I remember those segments of the conversation rather vividly because I am always delighted to learn that there's other lawyers in other fields of expertise that are advising my clients so that they don't rely on me for areas outside of my limited area of expertise. Q. Let's go through a couple of those because you've given me

a couple of talking points, there are possibilities, but you said that he was concerned about making sure he was in compliance with SEC rules and regulations, right? A. Q. Yes. What did he say about his concerns about compliance with

SEC rules? A. He said he had an opinion from a Miami law firm that he And that he had had it reviewed by a

was okay in that area.

SEC specialist counselor, that's what he told me. Q. Well, if he had an opinion from the Miami firm and it had

been reviewed by SEC counsel, did he say why he was asking you

45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to look at that opinion or look behind that opinion? A. He didn't ask me to look at that opinion. He was just

conveying that information that I was being added to the team for my expertise which is direct selling and multilevel marketing law. And he didn't -- I guess we were communicating on the point that I was not the Lone Ranger, I was not his own lawyer. That's the point that I believe was being made and that's the point that I was hearing. Q. What did Mr. Bowdoin tell you about his relationship with

Mr. Garner? A. He pointed out that Mr. Garner had issued an opinion

document and that Mr. Garner was a co-presenter on a video with him that I ended up seeing. And that I was authorized to speak

to Mr. Garner, work with him, treat him as a co-advertiser to this venture and those kinds of things were said about Mr. Garner. Q. Did you ask Mr. Bowdoin how long he had been operating the

company, ASD, Ad Surf Daily? A. I don't know that I specifically asked the question, but

it came up that he had been somewhat over a year, I believe I think was about a year and a half. Q. Did Mr. and is it fair to say that Mr. Bowdoin brought you

down there and expressed an opinion that he had some concerns about whether he was compliant with the laws?

46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. I believe Mr. Boa -- Levine urged Mr. Bowdoin to bring an

MLM specialist attorney on board so that that particular discipline or area of the law would be opined by a unique expert in the field, and there's only five of us in the country that do what I do and Mr. Levine was recommending me. I think that that happened when Mr. Levine learned that although Mr. Bowdoin had many legal counsels in the areas of specialty, that he did not have an MLM specialist attorney on his retainer. That's my understanding. Did Mr. Bowdoin show you the legal opinion that you said

he referenced from a Miami law firm indicating that he was in compliance with the securities laws? A. I don't mean to imply counselor that it was a written He said that he had an opinion from a Miami firm on I did not conclude that it was written or oral. And no, no opinion was shown to me.

opinion.

SEC issues.

So I don't know. Q.

You mention that Mr. Bowdoin showed you a video while you

were down at ASD; is that right? A. Q. A. Q. Yes. And did you watch the video from start to finish? I did. When he showed you the video did you access it over the

internet or did he just have it in his office on a computer? A. It was in his office on some large screen. He may have

47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 been accessing the computer, the internet, but I don't know that. Q. It was being shown in his office on the screen.

After you saw the video did you have concerns about the

video? A. I would have modified one or two words. I remember

telling him that I thought that it was in substance acceptable and that I would probably adjust a word or two. Q. A. What would you change? I cannot remember at this time. It might have been on the

issue of more separation between who is the customer and who is the member that is usually where I focus on initially. Q. When you say you advise your clients it's possible to

focus on who is a customer and who is a member, there's a reason for that? A. Q. A. Q. A. Would you like me to give you another reason? That would be fine. Okay. What's the reason why you think it's important? The reason is what you sell to a customer in the United

States when you're using a direct selling model can be sold at any price that it is valued at. You can sell an $1100 vacuum

cleaner, you can sell a 2,000 ad package, you can sell it at any price as long as what you're selling on the customer side is separated from and doesn't include an income opportunity. Because you can't sell income opportunities. They have

48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 laws that control what you can charge, if anything, for the income opportunities. So the reason for the separation is so

that the, what you sell to customers can be sold at any price that is appropriate for the product or the service. one significant reason for the separation. Q. The other significant reason -- let me see if I can guess That is

this and you tell me if my guess is correct. But the other reason that it's important to separate it is you have to make sure that you have a legitimate sale, right? You have to have a customer? A. Q. I would agree with that, yes. You want to make sure that it's not just your members who If the member income

are paying in who are your customers.

opportunity it turns out to be net ahead, they're not really customers, right? A. You're trying to take me to the point of agreeing that

because someone participates in the rebate program and becomes a net zero, they're not a valid customer. I do not agree with

that, counselor, and I've told you I don't agree. Q. We'll use vacuum cleaners. If you are selling a vacuum

cleaner to customers and charge a thousand dollars the price of the vacuum cleaner is a thousand dollars? A. Q. A. Right. The revenue of the company is a thousand dollars, right? Yes.

49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. If you sell a vacuum cleaner to a customer but you also

say if you are a member of our program, you can get the vacuum cleaner for free and I'll pay you ten percent of every vacuum cleaner you send to everybody else, you really haven't sold them a vacuum cleaner, right? A. You gave them a vacuum cleaner?

You've made a sale and told him or her that if they do

something to earn a rebate that reach the equivalence of the vacuum cleaner that you are then going to reward them. Rebate programs as I have testified are not illegal. THE COURT: Gentlemen, we've actually been back and It's

forth across this point of view between the two of you. eleven o'clock.

Why don't we take a short break and, Mr. Cowden, you can decide how much you need to go forward with your cross examination. And I would like the parties to confer over the

break to see whether or not they think that we'll complete this hearing today. So that I'll know how we're going. Thank you, Judge. Let's take a short break and be back at Okay.

MR. COWDEN: THE COURT: ten after.

(Witness leaves the stand.) (Recess at 11:00 a.m.) MR. GOODMAN: Your Honor, we have followed your

instructions and your suggestion and we have come up with a way to streamline the rest of this cross examination.

50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 today. The government will basically be giving to the Court the DVD that Mr. Nehra watched during the break. Mr. Nehra

identified that DVD he watched a sufficient portion so that he can say that yes, that was the one that I saw. We will do our very best and fully intend to finish As I indicated to Your Honor from the very beginning I am

it's very important that we complete this hearing today. doing everything that I can to get that done.

I am eliminating

witnesses, slashing witnesses, trimming my witness list and I commit to you that from our side of the case, we'll get it done today, Your Honor. Thank you. THE COURT: BY MR. COWDEN: Q. Mr. Nehra, over the break have you had a chance to look at Thank you.

the beginning of a video that the United States has brought into today's courtroom, correct? A. Q. I did. You confirm for you us that that's the video that

Mr. Bowdoin showed you when you went down to Quincy, Florida in July of 2008; is that right? A. Q. Yes. And it is your opinion that ASD, that Ad Surf Daily is a

legitimate multilevel marketing company and not a Ponzi or pyramid operation is in part based on your review of that

51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 video; is that right? A. Q. Yes. What we're going to do is just show you the front part of

the video and not going to show the rest, but let the Court take it but the video as you recall starts with Mr. Bowdoin, and then it turns to Mr. Garner, and then it goes back to Mr. Bowdoin; is that right? A. Yes. MR. COWDEN: part of the video. Your Honor, I do have a transcript of the video that I can hand out that might facilitate everybody following along. I'm not seeking to introduce the transcript, but it might assist the Court and counsel. THE COURT: MR. COWDEN: THE COURT: MR. COWDEN: THE COURT: MR. COWDEN: All right. If there's any -Do you want to watch the whole video? Just the very beginning part, Judge. All right. Like the beginning page of the Okay. Let's just start the beginning

transcript where Mr. Bowdoin talks. So I'll tender one to the Court and -(Video played.) BY MR. COWDEN: Q. We can stop it there. In the video he introduces

52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mr. Garner and Mr. Garner speaks; is that right? A. Q. Yes. The video you just watched the part where Mr. Bowdoin is

speaking, that's Andy Bowdoin, that's the person you met when you went down to Quincy, Florida, right? A. Q. Yes. And Andy Bowdoin told you he was the president of Ad Surf

Daily, correct? A. Q. Yes. He hired you, the person that hired you, the guy in the

brown suit we just watched him on the video, right? A. Q. Yes. When the video, you saw that video when you were down in

Quincy, Florida on July 30th, 2008? A. Q. Yes. In the part that he was talking about did he mention the

word advertising? A. He may or may not. I would have to look at the script. He talked about the Ad Surf Generator,

He may or may not have. an income opportunity. Q.

He talked about income opportunity as in the very first

sentence of his speech? MR. FAYAD: Objection, Your Honor. I thought we were

just going to look at the, to introduce it and not go into the substance of it.

53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: Well, we're allowed to go into the

substance of it if that's what Mr. Bowdoin thinks he needs -I'm sorry -- Mr. Cowden think he needs to do. That's really a slip of the tongue, forgive me. MR. FAYAD: Thank you. BY MR. COWDEN: Q. Right at the outset he says this is an income earning I withdraw the objection, Your Honor.

opportunity; that's what he said, right? A. Q. Yes. And he mentioned it's a journey for financial freedom,

right? A. Q. A. Q. He said that, yes. He said get started earning money, right? He said that. He said begin earning money with this income opportunity,

right? A. Q. He said that. Those, all those income opportunity words sounds like he's

selling an income opportunity, doesn't it? A. Q. One could interpret it that way. The fact that he doesn't mention advertising makes it

sound like he's not really selling advertising? MR. FAYAD: Objection, Your Honor. Objection, Your

54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. FAYAD: THE COURT: MR. FAYAD: Just a minute. May I state my objection? Yes. If we go further into the detail although

I thought we agreed we were not, then we'll need to show the rest of the video particularly. THE COURT: Don't worry about it. MR. FAYAD: THE COURT: MR. FAYAD: witness' testimony. THE COURT: is said on the video. Mr. Cowden, I'm really going to watch it. MR. COWDEN: I withdraw the question. So we don't The witness is merely agreeing with what I understand. I promise. We appreciate that, but this is about the I'm going to watch the whole video.

have an objection and ask you this question. BY MR. COWDEN: Q. After you saw this video did you tell Mr. Bowdoin we need

to fix this or express some concerns to him about this video? A. Q. Yes, I did. Did you discuss with Mr. Bowdoin whether Ad Surf Daily had

a limit on how many ads somebody could buy at a time? A. I'm not remembering that we specifically talked about a

limit, no.

55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Did you ever learn during the course of your investigation

and review of the documents before you gave your opinion in the declaration that you submitted to the Court, did you ever come to learn that Ad Surf Daily had a limit on the amount of advertising that a purchaser of advertising could buy? A. Yes. I saw that in either the terms of service or in the

Customer Service Manual there is a limit and above the limit required Mr. Bowdoin's personal approval. language. Q. Have you ever seen a company that's in the business of I did see that

selling a p