Securities and Exchange Commission v. Nadel et al

Filing 773

RESPONSE re #733 Order filed by Securities and Exchange Commission. (Attachments: #1 Exhibit A, #2 Exhibit B, #3 Exhibit C)(Cream, Anita)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x
UNITED STATES OF AMERICA,
v.

09-CR-433 (JGK)

ARTHUR NADEL,
Defendant.

Bail Hearing

------------------------------x
New York, N.Y.
July 9, 2009
4:43 p.m.

Before:
HON. JOHN G. KOELTL,
District Judge

APPEARANCES
LEV L. DASSIN
Acting United States Attorney for the
Southern District of New York
REED M. BRODSKY
Assistant United States Attorney
JAMES BOROD, Intern
FEDERAL DEFENDERS OF NY, INC.
Attorneys for Defendant
BY: MARK B. GOMBINER, ESQ.
MARTIN COHEN, ESQ.
ALSO PRESENT:

BURTON W. WIAND, ESQ., Receiver

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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(In open court)
(Case called)
THE CLERK: Parties, please state your name for the
record.
MR. BRODSKY: Good afternoon, your Honor. Reed
Brodsky on behalf of the government. With me is an intern from
our office for the summer, James Borod.
THE COURT: Good afternoon. Mark Gombiner, Federal
Defenders, for Mr. Nadel, and Martin Cohen from my office is
also present, your Honor.
MR. COHEN: Good afternoon, your Honor.
THE COURT: Good afternoon. I note that the defendant
is present.
We had a prior hearing, and the defendant was going to
take under consideration what I had said last time, and I
thought that the parties were going to attempt to work together
to attempt to arrive at some bail package. I've gotten a
letter from defense counsel dated July 7th setting out a
proposed bail package. I asked for another report from
pretrial services, and I have a report dated July 8th, 2009,
which repeats the pretrial services recommendation. It also
includes the statement, based upon what the defendant has said
before, that the defendant advised that his wife, children and
stepchildren will be able to assist him with bail. And he
notes that his children and stepchildren are all gainfully
SOUTHERN DISTRICT REPORTERS, P.C.
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employed. And -MR. GOMBINER: Your Honor, I would note that although
that report is dated July 8, 2009, I think that's simply
repeating something that Mr. Nadel said in a much earlier stage
in the proceedings. It's not based on any new statement.
THE COURT: Right. No, I understand that. I
understand that.
And I also asked that the receiver or representative
of the receiver be here.
MR. BRODSKY: Yes, your Honor. For the Court's
information, Burton Wiand is present. He is the receiver and
he is present.
THE COURT: Okay. Thank you. The reason that I asked
that the receiver be here is that the one letter from the
receiver was unclear to me in terms of, it was unclear to the
parties at the last proceeding as to whether there was I
believe $28 million of assets that were not able to be located,
identified, and that that was separate from the government's
allegation that there were certain assets that had gone to
Mr. Nadel and that were unable to be identified.
So I have the defendant's letter, and I'm perfectly
prepared to listen to the parties. I haven't gotten a response
from the government.
I made, I believe, the Court's position clear at the
last conference. The law is well established that there's a
SOUTHERN DISTRICT REPORTERS, P.C.
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two-part inquiry. The first part of the inquiry is: Has the
government shown that there is a risk of flight or danger to
the community if the defendant is released? There is ample
evidence of a risk of flight based on numerous factors, which I
could go through on the record and which Judge Cote has gone
through on the record, including the fact that the offense is a
substantial one, the amount of money involved in the offense is
a substantial amount of money, the defendant has previously
fled -- although a criminal complaint was not outstanding, the
defendant fled under circumstances indicating that he did not
wish to be found and created some documents that could be
viewed as deceptive. The charges are serious charges. The
potential penalties are very serious. There is thus a great
incentive to flee. There are issues with respect to what
resources the defendant has in order to flee. The defendant
did take off on a previous time. Whether there are resources
available to the defendant now to flee is a question. But
there's a substantial basis for the first part of the inquiry,
that the defendant is a substantial risk of flight.
On the other hand, the second part of the inquiry,
whether there are conditions or combination of conditions that
could reasonably assure the presence of the defendant, is
another issue. Judge Cote strove to establish a set of
conditions that could reasonably ensure the presence of the
defendant. The defendant said that he couldn't meet those
SOUTHERN DISTRICT REPORTERS, P.C.
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conditions. I indicated that I was inclined to reduce the
conditions to make them sufficient to assure the defendant's
continuing presence and I was searching for a set of conditions
which would in fact be sufficient. And I got the defendant's
proposal.
And again, I'm prepared to listen to the defendant and
the government. I would have at least hoped that the parties
would have attempted to reach some agreement with respect to an
acceptable bail package. I note, in that connection, that
pretrial services had recommended, some time ago, four
financially responsible persons. The defendant has now come up
with three financially responsible persons and a reduced amount
of the bond, secured by the defendant's home in Florida.
The bail package in Dreier was a $10 million bond but
signed by two people, son and mother. The bond in Madoff was
$10 million bond cosigned by his wife and brother. In both of
those cases, there were additional elements of security in
terms of the protective services, which are absent here.
Ultimately, the issue for the Court is, what's a
sufficient bail package to reasonably assure the continuing
presence of the defendant.
MR. BRODSKY: Your Honor, may I address the Court on
these issues?
THE COURT: You know, I should add -- Yes, of course,
I'm going to listen to the government. But I really would hope
SOUTHERN DISTRICT REPORTERS, P.C.
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that the government would be constructive on this issue.
MR. BRODSKY: Well, your Honor, let me see if I can
provide you with the government's perspective.
THE COURT: And let me just add one other thing.
MR. BRODSKY: Yes, certainly.
THE COURT: When I'm asking for constructiveness -MR. BRODSKY: Certainly.
THE COURT: -- it doesn't help, it really doesn't help
to press the argument again, as the government had in its
initial papers, that the defendant is a danger to the community
in the sense of an economic danger to the community. I fully
accept that there can be cases in which a defendant can be a
danger to the community based upon economic danger to the
community. The realistic possibility that people will be
investing with the defendant while the defendant is on bail is
not a constructive suggestion, or a constructive reason to deny
bail. That's an observation. You can certainly continue to
make the arguments, but it doesn't carry a lot of weight.
Nor, frankly, is an argument that says, we say there's
no condition that can reasonably assure the presence of the
defendant. You know, I've heard that argument, but it's hard
to believe, hard to believe that when other alleged frauds
equal to or greater than the defendant's, where defendants are
released on bail over the government's objection, the
defendants do not flee, that this defendant is so different.
SOUTHERN DISTRICT REPORTERS, P.C.
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I realize all the differences. I realize, you know,
every difference in every case, between, you know, on the one
hand the scope of the fraud in some other cases as compared to
this case, the age of this defendant compared to other
defendants. I realize that there has to be an individualized
assessment in each case, but the question is, you know, whether
the parties are in good faith attempting to come up with the
package that can reasonably assure the presence of the
defendant or whether the parties are just going to say, no,
there's no package.
So yes, I'll listen to the government.
MR. BRODSKY: Thank you, your Honor.
I take a step back, your Honor, and just say that the
conditions -- at the time Judge Cote imposed her conditions,
the defendants informed the judge that Mr. Nadel would not be
able to meet them, but what the judge said was, those are the
reasonable conditions that she found were necessary to ensure
his appearance. At that time Mr. Nadel still said he couldn't
meet them.
Now there has been one material change since that
time. The material change has been that the defendant has been
indicted by a grand jury sitting in the Southern District of
New York for the charged crimes, which raises, in our view, the
level of seriousness from a complaint to a grand jury
indictment.
SOUTHERN DISTRICT REPORTERS, P.C.
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Now let me address, your Honor, the important concerns
your Honor is raising, which is the constructive -THE COURT: No, hold on, hold on, hold on. That's not
completely fair, frankly. When the complaint was issued, in
terms of a defendant's calculations as to whether a defendant
should flee, would any reasonable defendant say, there's only a
complaint, maybe there will be no indictment here so I really
don't have to flee?
MR. BRODSKY: Your Honor, I think -THE COURT: So the second reason that I don't think
that that argument is wholly fair is, the other change, as in
Dreier, is that the receiver has been actively involved in
seizing property, and the amount of property that's been seized
from the time that Judge Cote issued her decision and today is
far greater. I mean, there were other assets that were out
there which have now gone. There were other corporations,
planes, houses, all gone.
MR. BRODSKY: Your Honor, you make two valid points.
With respect to the grand jury point, I'm repeating Second
Circuit caselaw, which stands for the proposition, from the
caselaw that I've read, that there is a change when there's a
grand jury indictment versus a complaint. That's the point I
was addressing there.
With respect to the receiver, your Honor, I think you
raise a great point, which is, where are we with respect to the
SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: Absolutely. So for the record, tell us
who you are, what your position is in connection with
Mr. Nadel, what your background is and how you were appointed.
THE WITNESS: Okay. As I said, my name is Burton
Wiand. I am an attorney with the Fowler White Boggs firm in
Tampa, Florida. And there I have been involved in various
different kinds of private practice relating to financial
services for -- since 1984, and a lot of that involves
regulatory defense, criminal defense, and a lot of it involves
litigation and dispute resolution between members of the
financial industry.
In addition, prior to that, from 1971 to 1984, I was
an attorney with the United States Securities & Exchange
Commission in Washington, the Division of Enforcement, and I
started out as a staff attorney, worked through, conducting
investigations and things of that nature, and when I left in
1984, I was assistant chief trial counsel or something like
that. I was essentially the senior active litigator in
Washington.
THE COURT: In Washington rather than Tampa?
THE WITNESS: I was in Washington, yes, sir.
THE COURT: Okay.
THE WITNESS: The -- over the years of my practice, a
lot of it involves dealing with various governmental agencies.
On occasion I have been asked to come in as an independent
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
third party with various name designations at the request of a
government agency or a court to provide some independence in a
situation. It might be as an arbiter or as a claims counsel or
as a receiver. And I've -- this is the third time I think I
have served as a receiver. The last two, including this one,
have involved hedge fund Ponzi schemes. I am just about to
wrap up or I am just about to make the first major distribution
out of one that is winding up in Tampa that involves a fellow
named Howard -- SEC v. Howard Waxenberg.
And then in January of this year I had contact with
the SEC when this matter broke. They proposed three different
people to Judge Lazzara in Tampa, and he appointed me as the
receiver in this matter. And in that I'm charged with
gathering assets, conducting investigation with respect to
what's transpired, operating and managing whatever assets are
there, including businesses, and then concurrently, and usually
somewhat subsequently, conducting the claims process and
distributing whatever comes out of this. The matter that I was
directed to was the -- this Ponzi scheme situation that
Mr. Nadel and his companies were involved in. When we began
this, we initially went down and took possession of the offices
and the records and the various computerized records and things
of that nature and began to, what I would say was unpeel the
onion as to what was there. What has appeared is that there
was various different investment funds run and that over the
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
period -- over a period of time investors were told that there
were certain levels of performance within these funds which did
not occur, and through distributions and withdrawals, the
amount of the funds went down. They were not -- there were not
profits to support those withdrawals and distributions, and
eventually it came to a screeching halt. And I think in
December of 2008 there were $47 million worth of withdrawal
requests and there was about a million dollars left in the
funds. Given that picture, we began to try to find out what
happened to it.
I think that my first report I know has been filed
with the Court, possibly the second one, but approximately
$400 million was raised. Of that, a great deal of it was
distributed, and there were losses apparently to investors of
around 167 million. And these figures are approximate, Judge.
I don't have them actually memorized. But they're close.
And with respect to the other funds, it appears that
approximately $95 million were -- was taken from the period of
time that we have focused on, and we believe this went on
earlier but we haven't been able to do that yet. That
$95 million was diverted to other purposes.
I think somewhere along the line before your Honor,
there became an idea that we have accounted for everything in
respect to this matter, and that has not occurred. There are
certain levels of accounting that has taken place. We have the
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Wiand testimony
trading activity that took place from 2002 to 2009, through the
accounts at Goldman Sachs, and we have accounted for the
results of that trading and the distribution of those funds,
but that distribution occurred through certain entities and
that ended up in large part in Mr. Nadel's hands or certain
other people. With respect to that, we're still tracing and we
are going forward to try to find that. And if someone was to
say, well, the receiver has accounted for every dollar, that is
just not the case.
As an example of what I'm talking about, through the
management of these funds, there was an apparent ongoing scheme
of cherry picking, where profitable trades were moved into
personal accounts of Mr. Nadel and, it's possible, to others.
We are trying to sort that out to see how those -- see where
those funds went, but it's clear that profitable trades were
credited to these personal accounts. They were quite
profitable, while the other ones were losing money.
Then in addition to that, the accounts were not
profitable, but fictitious results were prepared, and through
an accounting system, it would be represented that there were
profits each year of say 20 percent. And then the compensation
that was withdrawn from that was 2 percent management fee plus
a 20 percent of the profits. Well, there were no profits.
That's still 20 percent of these fictitious profits were taken,
and so that just continued to bleed the corpus of whatever the
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
investors had put into this -- into these various funds and it
caused the -- so that the actual value of the funds decreased
very rapidly while it was being represented to investors that
those funds were increasing in value. We have traced dollars
out of those funds into various activities that were controlled
by Mr. Nadel, and then we began to trace that money from there.
He made investments through any number of companies, many of
which we have pulled into the receivership. There are
corporations there that he ran and controlled. They had bank
accounts. The bank accounts from there, you know, money went
to other places.
He also set up a system of what I would call shadow
accounts where, at Wachovia Bank, he set up accounts like -one of the funds is called Valhalla Fund. He would set up a
Valhalla Fund d/b/a Arthur Nadel. And that way he was able to
take funds from the investment accounts or corporate monies of
the Valhalla Fund and deposit it into an account that he
controlled personally, and these accounts were concealed,
apparently, from the others who worked in the -- in the offices
there. With respect to that, the accountants have looked at
those accounts and have traced -- and are in the process of
tracing down every transfer out of those accounts as $100,000
or more. We don't know yet with those. That hasn't been
completed. The total though is $13 million.
With respect to all of these various corporations and
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
funds that passed through there, we are not sure where all
those funds went. In a number of circumstances, a company or
an asset would be purchased and to some extent developed with
funds that would come directly out of or indirectly but
directly traceable back to investor funds, a business would be
created and then significant loans would be placed on those,
and those funds would then go somewhere else. And once again,
it's another tracing situation.
Recently -- I think Mr. Brodsky mentioned accounts in
the Cayman Islands. There were established hedge funds that
were operated out of the Cayman Islands for a period of time.
There was -- the numbers that I initially gave him were
inaccurate. It was $15 million. $10 million has not been
traced that was in a company called Viking International, and
$5 million was traced back from that operation back into funds
in the United States. And we're not clear what happened to
those monies. You know, I say I'm not clear on that. We are
still working to try to detail where that money went, and we
can't -- we can't to this point document the distribution of
it. I don't mean to say that that money was taken, but it's
money that's out there and we know it existed and it didn't -there is no records available yet to find that.
In addition, one of the numbers that has been bandied
around is $28 million. That number is derived and I think it
was included by the -- my letter to the Court previously -SOUTHERN DISTRICT REPORTERS, P.C.
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THE COURT: Yes, it was.
THE WITNESS: -- as an example of funds that were
missing, and what that is, if we take the hard -- the hard
bookkeeping records of the distributions, the actual accounting
records and Quick -- it's in QuickBooks, and then compare that
to the investment fund accounting records, we can trace most of
that, but there's $28 million that's just missing. And the
accountants are working to try to justify where that money
went, but that is money that is just -- the distribution of it
is just unknown. It could have been losses, it could have been
fictitious accounting, but -- and I checked back with the
accountant this morning, and he believes that there's
$28 million there that's just missing.
THE COURT: That 28 million was listed in both of your
reports as -THE WITNESS: Right.
THE COURT: -- unable to account for from the total
investments in the funds.
THE WITNESS: Right.
THE COURT: I mean, able to account for at least where
everything went in terms of going out, except for 28 million.
THE WITNESS: There's 28 million we don't -- we can't
account for. But that doesn't mean that that's the sole
28 million that we don't know where it is now, because we can
account for 95 million going to Mr. Nadel and the other
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
managers of the fund, and tracing through those monies, you
know, to be able to tell us where all those dollars went, I
can't do that. I mean, that's -- maybe if I revisit it in a
couple years, I'll be able to tell you, but it's going to take
a long time to figure that out.
THE COURT: Okay.
THE WITNESS: So I hope that clears up the impression
with what's going on with respect to the funds.
I know Mr. Gombiner has asked me to specify a
particular account that I know the gentleman has control over.
I don't know of one, and it is true that if I did know of one,
I would go seize it if I could trace the money back to these
investors' funds. However, it's the situation of not knowing
where accounts are and things of that nature that concern me,
and we continue to uncover different accounts and things of
that nature, not certainly on a daily basis, but, you know, as,
you know, the weeks go by, new matters come to our attention on
all the other funds out there.
There was one of them with -- I can't remember the
name of the company, that we took over just recently that had
an account out there that had a significant chunk, less than
$50,000, but a significant amount of money that was -Mr. Nadel still would have had control over until such time as
we seized it.
So to tell you that I can tell this Court that I've
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Wiand testimony
accounted for everything and I know where all that money is, I
can't do that.
THE COURT: Have you sought Mr. Nadel's help in
identifying and tracing money out of the investment funds and
determining where it went?
THE WITNESS: I began that very shortly after he was
in custody. He had some -- a couple of lawyers in Florida,
Mr. Cohen and Mr. Foster, who are very good criminal attorneys
in Tampa. They talked to us then about him cooperating. I
reached out to them for that cooperation, and nothing was ever
forthcoming.
Upon Mr. Gombiner being appointed or assuming the role
as his counsel, I wrote him a letter and told him that I would
like his cooperation, and there have been various discussions
between Mr. Gombiner and myself about the potential of that. I
think the essence of what that has come down to is is that
Mr. Gombiner has suggested, if I can figure out questions to
ask him that do not involve incriminatory information, if
that's the right word, not -- innocuous information, he'll be
happy to help with that. But if there's information that is
not innocuous, that he's not going -- and he feels that he's
not in a position at this time to tell his client to cooperate
in that regard. That's not something I can really work with
because it would cause me to be able to -- I mean, I'd have to
sit around and try to figure out questions that work and are
SOUTHERN DISTRICT REPORTERS, P.C.
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Wiand testimony
things that he can answer and the -- and of course, the gut
issues that I need are how this trading happened, how these
other people participated in it and things of that nature, and
tracing and recovering the assets also causes me, under the
court's order, to look at other people who participated in
this, other people who may have profited from it, and things of
that nature. So in that regard, his help could be very
helpful.
But, you know, there has been this discussion with
respect to these foreign accounts. These were foreign
investment accounts that I had a concern would be caused -there were significant amounts of money going out of these
funds as distributions and returns to these funds and going
overseas, and it's not easily transparent as to who were the
beneficiaries of those accounts, and I had significant concern
that there might be somebody involved with this scheme that
might be receiving that money, and Mr. Gombiner indicated that
Mr. Nadel was not able to help with that. I didn't recall
that, but at any rate, between the time that I initially
requested it, his help in that regard and the period of time
that he got back to me, within that period of time, that the
people who were working for me had done a great deal of work,
digging up account information and that sort of thing, and we
had gathered a significant amount of information with respect
to that where we could go forward and continue to pursue it,
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and frankly, I didn't think the help was even helpful at that
point in time, and there are other individuals who are involved
with -- were involved with the entities, other money managers
and had some oversight over this who are actively cooperating
with me and providing full information with what they have, as
far as I can tell, and so they're providing information.
So with respect to Mr. Nadel, other than those trading
aspects and things of that nature, I'm not sure exactly where
his help goes, and the essence of what I need to know is how
these -- how these transactions took place, where the flow of
money went, how it got to people and -THE COURT: Well, aren't there two sets of questions?
One set of questions is, how did it happen; and the second set
of questions is, what happened? Money went from the investment
funds to other accounts, which went to other accounts, which
went to other accounts, perhaps. Where are those accounts,
what are those accounts, where are they located, what are the
amounts, if any, in any of those accounts? That's a different
set of questions from who approved the transactions, who knew
about the transactions, isn't that right? I mean, I appreciate
that your charge is a broader charge than simply tracing.
THE WITNESS: I agree, Judge. But I think with
respect to those questions that you ask about, a lot of that is
documented and we can trace through it and we are following it.
The essence of things is like, for instance, the cherry
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picking. It is very, very time intensive for me to have the
expert who is working with me go in and match trades and go
down and take on a daily basis and show that, here are trades
for all of the different funds and that the investor funds got
very bad prices, his personal funds got very good prices. In
doing that, it's incredibly time intensive. If he could sit
down with me and say, I did this, he would save me and the
receivership estate a lot of money and a lot of time and would
advance the ball. And, you know, if I want his help, I want
him to advance the ball for me.
THE COURT: Has he provided any information to you?
THE WITNESS: Zero. And Judge Lazzara -- He applied
to get money out of the receivership funds to pay his attorney
before Judge Lazzara in Tampa, and at that point in time, Judge
Lazzara pointed out that he'd been under a court order to come
forward with information from the day this started and there
had been no response to that. And I understand the reason he's
not responding to it is because of his privilege against
self-incrimination. But be that as it may, there has not only
been a request but a court order that he provide this
information.
THE COURT: Okay. Thank you, Mr. Wiand.
Mr. Brodsky?
MR. BRODSKY: Yes, your Honor. Just if I can follow
up on a couple of the items.
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DIRECT EXAMINATION
BY MR. BRODSKY:
Q. Mr. Wiand, you mentioned $15 million in the Cayman account.
Did you learn any information with respect to whether Mr. Nadel
had control over that account?
A. He did. The documentation of private placement memoranda
indicates that he did, and I think that the tax return for the
5 million -- shows the 5 million that was returned to the
United States also was under his control.
Q. And you mentioned that there were -THE COURT: Could I just stop you. The $5 million
returned to the United States, where did that go?
THE WITNESS: It went back in and became part of
something called the Viking Fund, which was one of the funds.
THE COURT: And have you been able to trace that?
THE WITNESS: It's part of the -- we've traced it into
the fund assets, and then we have a total analysis of all
tracing, we seized the disbursements out of that fund, and that
was 5 of the $15 million that went to the Caymans.
THE COURT: And the 10 million you had said before has
not been traced. So do you know where that is?
THE WITNESS: No.
THE COURT: At one time it was in the Cayman bank
account.
THE WITNESS: Last point that we're aware of was in
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2003, it was in an account in the Caymans, and that it would
appear from the documentation that Mr. Nadel and a fellow named
Ian Moody were the individuals who had control over the
account.
THE COURT: And do you have the bank account
statements for the account?
THE WITNESS: We do not have any statements for it at
all. We have just -- this is just something that has been
recently identified. There is a -- an administrator called
Admiral in the Caymans that may be able to provide this
information, and the Moodys I think will assist us if they can
demonstrate the authority in getting that information so we can
delve into it.
THE COURT: So you just don't know what happened to
the 10 million; you saw it there in 2003 and you know it's not
there now?
THE WITNESS: I don't know that, Judge.
THE COURT: You don't have any of the current records
of the account?
THE WITNESS: No, Judge.
THE COURT: Okay. Could Mr. Nadel give you the
authority? Have you asked Mr. Nadel if he has control of the
account? Have you asked Mr. Nadel to authorize you to get the
records to that account?
THE WITNESS: I have not, Judge. The timing of this
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has been such that that would not have occurred, and also, I
think with what I anticipate would be the assistance of the
Moodys, I may not need it.
THE COURT: The assistance of?
THE WITNESS: There were two other individuals, a
father and son -THE COURT: Oh.
THE WITNESS: -- named Neil and Chris Moody, who, with
respect to three or four of the funds, were managers of the -of those funds, and then Mr. Nadel's operation was a submanager
and actually did the trading for those things, but the other
people had, you know, the authority as managers and managers of
the LLCs that were the funds, so they had the authority to act
on behalf of those entities, and it would appear from the
documentation that I see that they would probably have the
authority to direct Admiral to provide us with the information.
And as I said, Judge, that money may well have been repatriated
and gone back into funds. I just do not know.
THE COURT: Is that account in the Caymans, the
$15 million account, the only foreign account that you've been
able to identify over which you think that Mr. Nadel had
control?
THE WITNESS: I'm not certain. I believe that's
correct. There are no other significant ones that come to
mind, but there are not others in the Caymans.
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Wiand - direct
Okay. Go ahead, Mr. Brodsky.

THE COURT:
BY MR. BRODSKY:
Q. To follow up on the Court's question, with respect to the
foreign account, have you been able to identify who controls
each and every one of the foreign accounts?
A. Not totally. Some of them, yes, but not all of them, and
these are the foreign investor accounts you're referring to.
Q. Correct.
A. Yeah, not totally. Some of them we have, and -- and
things -- I mean, there continues to be a process of trying to
identify these as we speak. I mean, we are working with the
SEC and a major Swiss bank right now trying to identify one.
Q. You mentioned earlier the approximately $95 million in fees
that Mr. Nadel and his partners received as a result -- from
the fictitious accounts, the falsely inflated accounts. Do you
remember talking about that?
A. These were management fees and profit fees out of the fund
accounts that purportedly they were receiving according to
their agreements, but because their -- because the amount of
money that the management fee was charged on was fictitious and
the amount of profits that were represented and that it was
computed on was totally fictitious, it was just scooping money
out of it.
THE COURT: Just so that I understand, the total
investments in the funds were approximately 397 million.
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THE WITNESS: Right, right about 400 million.
THE COURT: And approximately 95 million went from the
funds, by various means, to Mr. Nadel and other managers, the
Moodys, is that fair?
THE WITNESS: Right.
THE COURT: And how much of the 95 million
approximately went to Mr. Nadel, how much to the Moodys? Do
you have any approximation?
THE WITNESS: I'm sorry, Judge, I don't want to guess
on that figure. I think it's 67, but I'm not sure.
THE COURT: Okay.
BY MR. BRODSKY:
Q. Would it be fair to say, Mr. Wiand, that without giving a
specific number, that at least half of the $95 million in
performance and incentive and in management fees that we're
talking about went to Mr. Nadel?
A. I believe it was more than that.
Q. And have you, after -- with respect to that amount of
money, the more than half of the $95 million that went to
Mr. Nadel that we're talking about, have you been able to
account for each and every dollar of that amount as to where it
eventually ended up?
A. No, sir.
Q. Of the approximately more than half of the $95 million that
you are able to identify as Mr. Nadel receiving in terms of
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fees from these accounts, have you been able to identify where
any portion of that amount of money ended up?
A. Certainly. There are specific amounts of money that we
have traced. For instance, the Venice Jet Center, which is the
bane of my existence, he purchased that with some of those
funds. With respect to -- there's a company called Homefront
Homes that he put a great deal of money in. There's real
estate developments that he put money into. And of course we
have traced those.
Q. Would you be able to estimate, of the more than half of the
$95 million, how much of that that you've attributed to
Mr. Nadel receiving, you've been able to identify accounts for?
A. I can't give you that number. It is a -- it is a
percentage of less than half, I would think.
Q. With respect to the $13 million that you mentioned in what
you called the shadow accounts, have you been able to trace
where the $13 million went?
A. Just before Mr. Nadel departed, he closed a real estate
transaction and sold a bank building that was owned by one of
the funds in St. Petersburg, Florida, and he sold it for about
a million and a half dollars. That money was diverted into
those accounts, and that was the money that he -- he took that
money and he sent checks to his family members, had money
assigned to pay for credit for a credit card that could be
used, transferred money to his wife and things of that nature,
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Wiand - direct
immediately before his departure. And we had been able to
trace that 1 million through the bank, through the Wachovia
account, and we know where every dollar of that transaction
went. But with respect to the other ones, the determination of
what happened with those other accounts is still ongoing
because there were no records of those accounts at the Scoop
offices and there were no records in his personal belongings
that we found, and we have had to retrieve the bank records for
the six accounts or something -- it's a significant number of
accounts -- from Wachovia over a number of years dating back to
2002, in some cases, and are now tracing -- the process now
goes on of taking every item that's in excess of $100,000 and
trying to pull those in and see where it went. That is where
we are now is following those $100,000 items. So the answer
is, with respect to all of it, I don't know. A million and a
half, I'm confident I know where every dime went.
Q. Do you have a ballpark estimate of the amount that you do
not know when we're talking about these particular shadow
accounts?
A. I haven't reviewed this stuff myself. I talked with
Mr. Price, the accountant who is working on it. He told me the
total dollar amount that was going out was 13 million, and so
if you take a million and a half out of it, it would be 11
million.
Q. You mentioned a recent account that you just found and
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seized that was -- had less than approximately $50,000 in it.
How long ago did you recently find that account, approximately?
A. I'm having a mental block right at the moment. We -- it
was one of -- something that we just seized that had a company
account along with the property that we seized. And the
account was something that I think when we did it, we found out
about it as we were -- as we were taking control of it. And
that's been within the last month.
Q. Within the last month?
A. Yeah.
Q. And with respect to that account, was Mr. Nadel the one who
had control over that account?
A. Yes.
MR. BRODSKY: No further questions, your Honor.
THE COURT: All right. Mr. Gombiner?
CROSS-EXAMINATION
BY MR. GOMBINER:
Q. Mr. Wiand, we've talked on a number of occasions, haven't
we?
A. Several, yes, three or four.
Q. And you've also spoken to Colleen Cassidy, another attorney
from my office?
A. I don't recall Mr. Cassidy. I recall -Q. Ms. Cassidy.
A. Ms. Cassidy, yes, I have.
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Wiand - cross
THE COURT: By the way, Mr. Gombiner, if it would be
more convenient to turn the podium around, it's just there
because -MR. GOMBINER: Probably would. Thank you, your Honor.
Q. And Mr. Wiand, fair to say then each occasion we've spoken
to you, we've specifically asked you, is there any particular
account or transaction that Mr. Nadel could provide you with
some assistance on? That's true, isn't it?
A. I think that you have asked me if there is any specific
information that he could provide, and I think I sent you a
letter at one point and indicated a number of different things
that I would like to have him help on. Our discussion devolved
at some point in time to talking about foreign accounts, and I
think I've already described what transpired with respect to
that.
Q. And it's fair to say you've never asked us about any -you've never made any request about any specific transaction or
account, you've never asked us to help you with that, is that
fair to say?
A. I think, yeah, I have not -- I have not specified
particular specific transactions that I wanted help with, but I
have given you categories of information that he could be
assisted -- that would be of assistance to me.
Q. For example, you've told us you'd like -- you believe that
Mr. Nadel was involved in a cherry picking scheme, is that
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right?
A. I believe that.
Q. And you're aware that that isn't part of the indictment in
this case.
A. Frankly, I don't know that I've read the indictment.
Q. Okay. Well, you know cherry picking could be considered a
crime, right?
A. I do know that.
Q. And I told you that -- Isn't it fair to say I told you that
Mr. Nadel was not going to waive his Fifth Amendment privilege
with respect to your allegations of suggested criminal
activity? In substance I told you that, right?
A. I think we had a -- we had a pretty open and friendly
conversation about the -- his predicament of wanting to be able
to provide certain information but not wanting to provide
information that would be incriminatory and talking about that
problem, and absolutely, you told me that with respect to the
cherry picking, that was something that would probably not be
in his interests to talk to me about.
Q. For example, we just spoke last Monday about -- last
Monday, didn't we?
A. We spoke -Q. Very recently.
A. Yeah, in the last few days, yes.
THE COURT: Actually, Mr. Wiand, could you bring the
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mic a little closer.
A. I'm sorry. Yes, in the last few days, yes, we have spoken.
Q. And during that conversation you did not say, can you help
us shed some light on a Cayman Islands account, you didn't make
that request of me, you didn't mention that, did you?
A. I did not.
Q. Now with respect to those Cayman Islands accounts, some of
the money went to Viking International, is that right?
A. Yes, sir.
Q. And that was -- that was a fund controlled by Neil Moody,
correct?
A. It would appear that Neil Moody was -- I haven't come up
very -- with terms very effectively on this, but Neil Moody,
there was an LLC that -- that was the fund, there was an LLC
that was the manager of the fund, and there was another company
that was the submanager of the fund that operated it.
Mr. Moody was the control person of the entity that was the
fund, he was the control person of the entity that was the
manager, Mr. Nadel was the individual who managed the fund and
conducted its operations. And I think those are called like
Viking Fund, LLC or Viking Fund -- it could be a partnership,
Viking Fund, and then Viking Management, and then Scoop
Management I think was the one that actually managed the fund.
Q. But the way you've understood things, for example, with
respect to Viking, Mr. Moody was the one who received the
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profits and incentive fees for Viking, right, the money in
Viking, isn't that right?
A. No. They were divided between the two.
Q. There were six funds -- Well -A. Right.
Q. -- this may be going too far. Let's just focus on the
Cayman Islands account for a moment. You believe that there
was $15 million that went into that account?
A. That's what I have been advised.
Q. When you say -- Who advised you?
A. William Price, the CPA who works for me in connection with
this project.
Q. Okay. And you say that $5 million went out of that back to
Viking?
A. Mr. Price advised me that $5 million was traced back to
Viking Fund and that $15 million, there is no evidence of it
ever departing -- that he has at this point, of it departing
the Cayman Islands, control of the entities there.
Q. And you haven't asked our assistance to help find out where
that money is, is that right?
A. I have not yet, no.
THE COURT: Yet?
Q. Do you intend to?
A. Well, first I'm going ask Mr. Moody if he can tell me, and
if Mr. Moody can't tell me, then I'll come back to Mr. Nadel
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and ask him again, but I have -- I have done -Q. You haven't asked us yet, have you?
A. That's what I said, I haven't done it yet.
Q. But you said "again," so -A. What?
Q. You said, "I'll ask him again," but you haven't asked us at
all, right?
A. I've asked for his overall cooperation with respect to
assisting in this, and I've indicated to you that I'm not going
to try to find out particular transactions that are -- that are
not problematical. If I -- if I call up and ask for assistance
on something, it would be helpful at times, but so far it
hasn't worked.
THE COURT: Let me ask you, I realize that you're
getting cooperation from others. Have you ever asked Mr. Nadel
whether, putting aside this Caymans account, whether there are
any other foreign accounts over which he had or the Moodys had
any control over during the period of time that is at issue
and, if so, what are they, what are the details of them, so
that you could, you know, trace, see what's happened to them?
I appreciate that, you know, there could be records that you
need to know the accounts before you can get the records, and
I'm just wondering whether that inquiry has ever been made to
Mr. Nadel, just the existence of the foreign accounts.
THE WITNESS: Judge Lazzara ordered him to provide a
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list of every account, specifying all kinds of specific
information with respect to all of those things on two
different occasions. Have I gone back and said, are you going
to comply with the judge's order? No, I haven't.
THE COURT: But the order has not been complied with
and -- is that right?
THE WITNESS: Not to my knowledge, and I know that
when we had the hearing before Judge Lazzara on the fees, it
had not been at that time, and his counsel acknowledged that.
THE COURT: And would this account in the Caymans have
been an account that would have been responsive to the order to
produce information about such accounts?
THE WITNESS: Absolutely.
THE COURT: Okay.
Thank you.
BY MR. GOMBINER:
Q. Now with respect to these, there's some d/b/a accounts at
Wachovia Bank?
A. Yes, sir.
Q. And you said there's about $13 million transferred out of
those accounts?
A. I checked with Mr. Price today to ask him about the amount
of funds that had been transferred out of those accounts, and
that was the number he gave me this morning.
Q. And those transfers, do they all -- do they all occur in
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2008?
A. No, sir. No, sir. These accounts have been open since
2002.
Q. No, I'm not asking how long the accounts have been open.
The transfers out of the accounts, when did those occur, do you
know?
A. From 2002 forward.
Q. 2002 to 2004?
A. 2002 forward. You know, I don't know when the last one
was. I mean, the last ones I saw were in January of 2009.
Q. Okay.
A. But as far as the other accounts, I haven't seen anything
specific with that, and I can't tell you that except in my
conversation with Mr. Price, he gave me the number $13 million
and said there were a number of accounts, the earliest was -the earliest ones were open in 2002, and that they had been
operating through that period of time.
Q. Okay. So you don't know what amount was transferred and
what year or whether the -A. I do not know that.
Q. And Mr. Wiand, just to be clear, it's fair to say, you have
not -- during the course of your -- the six months you've been
working on this case, you haven't identified any secret
accounts that Mr. Nadel had, you don't know of any such account
now, is that right? First, let's break it down. First -SOUTHERN DISTRICT REPORTERS, P.C.
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A. Do I know of secret accounts? All those Wachovia accounts
would come within that arena. But I know about those. Are you
asking me are there any other accounts that I know of that I
haven't taken any action on to this point in time? And the
answer to that is no.
MR. GOMBINER: I'm just trying to think of how to nail
this down a bit. Can I just confer with my co-counsel?
THE COURT: Absolutely. Absolutely.
(Defense counsel conferring)
Q. I'm not sure this is going to do it, but just getting back
to the Wachovia accounts, those Wachovia d/b/a accounts -A. Right.
Q. -- isn't it true that at least the vast majority of the
transfers were back to the Goldman Sachs trading account?
A. I can't tell you that. The only ones I have specific
knowledge of are the ones I indicated that took place in 2009
and then there was one other transaction that came up in 2004
or 2005 that has been described to me where money was put back
into one of those accounts in order to make a distribution
because there wasn't sufficient cash there to do it. And that
has been described to me generally, but I have not seen the
checks, nor identified the particular transfer. That's been
told to me by a witness.
Q. In fact, haven't you learned that that was the primary
purpose of those Wachovia d/b/a accounts?
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A. No.
Q. And that's another thing you've never asked us about,
right?
A. In general, yes; specifically, no.
Q. All right. Mr. Wiand, as you sit here today, do you have
any knowledge of any account in any form, foreign, domestic or
otherwise, that Mr. Nadel currently has access to?
A. No.
Q. As you sit here today, to the best you've been able to, you
have at this point seized every material asset belonging to
Mr. Nadel; to the extent you've been able to identify, you've
seized it, right?
A. That's not correct.
Q. Well, what haven't you seized?
A. I haven't taken his house yet.
Q. Okay. Other than his home, other than his home, you have
seized every material asset that you've been able to identify
that belongs to Mr. Nadel, right?
A. I don't -- I can't categorically say that's correct. I
think there are other things that we just haven't acted on yet,
but I can't specify what it is. I just -- I know there's been
considerations about doing a blanket -- a blanket asset seizure
and we have determined that that is legally not something
that's in our interests to do, so we're going asset by asset,
and we haven't gotten all of them. And also involved in this
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is tracing these funds, but what we're having to do now in
order to be able to have to take -- trace the funds back to the
source of investor funds, in order to be able to grab these
things, and sometimes -- and I probably shouldn't say grab
these things, in order to be able to ask Judge Lazzara to pull
them into the receivership, and that process is ongoing, and
some of the -- some of the earlier activities we don't have
records on, so that's difficult.
Q. Okay. Well, as you sit here today, you can't identify any
asset that, other than his home, that Mr. Nadel has that you're
aware of?
A. No, I can't specify that for you, no.
Q. And you've also, as the receiver, you seized assets
belonging to Mr. Nadel's wife as well, right?
A. It's a matter of semantics, but there were -- there were
maybe some jointly owned properties that we had, we acquired,
and there was a -- there was a trust that she had, a revocable
trust that he funded with investor assets that we seized also.
Q. Now I think you told Mr. Brodsky that not every -- By the
way, when you were speaking to Judge Koeltl, you seemed to be
refuting the notion that someone had said that you had
accounted for all of the funds. Is that right?
A. It had been -- I had the impression that there was an
opinion or it had been put forward that with respect to my
efforts that I had accounted for everything other than an X
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amount of dollars that came out of these activities, and that's
just not the case.
Q. Okay. And who gave you that impression?
A. I think in conversation with you, you had indicated that we
had accounted for other things, for those kind of things. I
think either looking at some of the pleadings or maybe press
reports, I had seen that. And probably in conversations with
some folks from the United States Attorney's Office, I had
gotten that impression. Probably from all of those sources.
Q. Okay. Is it fair to say that you never -- you never
yourself actually read the memorandum we submitted in support
of our motion for bail -A. Not in detail, that's for sure.
Q. Not in detail.
A. Yes.
Q. Okay. And when you say that not everything is accounted
for, a lot of what you're talking about is your inability to
match up the hard bookkeeping records with the investment fund
accounting records; is that part of what you mean when you say
not everything is accounted for?
A. No. More of what I'm talking about is tracing the
disbursable funds that came out of these investor funds, went
into accounts that were invested, and then there were loans
that came back, and there are any number of different bank
accounts where funds were spent for things and seeing where
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they're going. I mean, there's a significant amount of money
that were provided to Mr. Nadel's children in different places.
He funded all kinds of things. And so tracing all of that
money is what I'm talking about.
THE COURT: That's part of the 95 million?
THE WITNESS: Yes, sir.
THE COURT: As I understand it, and you can correct me
if I'm wrong, you've compared the bookkeeping records, and
there's $28 million that you can't account for from the
397 million that was in the fund.
THE WITNESS: Correct.
THE COURT: So put the $28 million aside. You've
determined, from the amounts that went into the funds,
397 million, that approximately 95 million went to Mr. Nadel
and the Moodys.
THE WITNESS: Right.
THE COURT: And of the amount of money that went to
Mr. Nadel, which was over half of the 95 million, you haven't
been able to determine, trace, other than the fact it went to
Mr. Nadel or his children, actually how those funds were used.
You've said, well, gee, we're able to determine certain hard
investments in Venice Jet and real estate. But over and above
that, there's still a significant amount that you just can't
tell whatever happened to that money other than the fact it
went to Mr. Nadel.
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THE WITNESS: At this point in time, that's correct,
Judge. Whether we -- as we go forward, we may be able to do
that, I'm sure we'll get more clarity, but -- and I would
also -- having had some experience with this, it will never all
be, you know, it will never be fully, but we'll get more
clarity out of it.
THE COURT: And about how much are we dealing with in
that amount of money, that you can't say, oh, well, here's
money that went to Mr. Nadel but we know that was invested in
Venice Jet and -THE WITNESS: Well, I would much rather have Mr. Price
prepare something, but I'm sure it's more than 10 million
that's out there somewhere that we don't know where it went.
THE COURT: Okay. Mr. Price is the accountant who's
working with you?
THE WITNESS: That's correct. He's an accountant in
Clearwater, Florida.
BY MR. GOMBINER:
Q. When you -- By saying you haven't accounted for, you're
certainly not saying that that's money that Mr. Nadel now has
control over or access to, right?
A. I hope I've been clear that I don't know whether he does or
doesn't.
Q. Right. In fact, that this is money that could have been
spent, right, it could have gone for taxes, right?
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A. Could have. The taxes I think we may have seen, but...
Q. Okay.
A. I -- Your answer is yes, it could have gone for all kinds
of things.
Q. Okay.
A. Could have gone, you know -- but the panoply of that is not
limited because we don't know where it went.
Q. Right. You don't know where it went. In saying -- Just to
be clear, when you're saying you don't know where it went, it's
not -- you're not saying, I know he must have it now somewhere,
we just can't find it. That's not what you're saying.
A. No. I think I've made it quite clear, if I knew where the
money was under his control, I would go get it.
Q. But all I'm just trying to make clear is, you're not
saying, it's simply a matter of, the money's out there, I just
can't find it; the money may not be there at all, right, at
this point?
A. That's possible too.
MR. GOMBINER: Judge, I think I don't have any more
questions.
THE COURT: Okay. Mr. Brodsky?
MR. BRODSKY: No further questions, your Honor.
THE COURT: Okay. Mr. Wiand, thank you very much.
THE WITNESS: Thank you, Judge.
THE COURT: You can step down.
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(Witness excused)
THE COURT: All right.
MR. BRODSKY: Your Honor, should Mr. Wiand return to
Florida or should he stay for the rest of the -THE COURT: No. Unless anyone else needs Mr. Wiand,
we very much appreciate his having come up from Florida.
THE WITNESS: Thank you, Judge.
THE COURT: All right.
MR. BRODSKY: Your Honor, from our perspective, what
Mr. Wiand's testimony demonstrates is there were
representations made, I think, in Mr. Nadel's briefs which
suggested, and even stated that only fantasy or only in a world
of illusion is there the possibility that there are monies out
there available to Mr. Nadel that hasn't been accounted for.
Examples of that appear, for example, on page 13 of the brief,
in which it is stated that the receiver's May 28th, 2009
letter reported that out of the entire approximately
$400 million in investor funds that were raised, he had
accounted for all but $28 million. I think Mr. Wiand's
testimony has demonstrated that that's just not true, that what
has been demonstrated by Mr. Wiand's testimony is, A, there is
a substantial sum of money that has not been accounted for that
was at one time in the possession and control of Mr. Nadel.
Good example of that is the over $47.5 million in incentive
fees and performance fees that Mr. Nadel received, which
SOUTHERN DISTRICT REPORTERS, P.C.
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