Irving H. Picard v. Saul B. Katz et al
Filing
89
DECLARATION of David J. Sheehan in Support re: 81 MOTION for Partial Summary Judgment.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8)(Sheehan, David)
Exhibit 5
Transcript - Friehling Plea Hearing held 11-3-2009.TXT
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9C3AAFRIP
Plea
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x
UNITED STATES OF AMERICA,
v.
09 CR 700 (AKH)
DAVID FRIEHLING,
Defendant.
------------------------------x
New York, N.Y.
November 3, 2009
10:30 a.m.
Before:
HON. ALVIN K. HELLERSTEIN,
District Judge
APPEARANCES
PREET BHARARA
United States Attorney for the
Southern District of New York
LISA BARONI
MARC LITT
Assistant United States Attorneys
ANDREW M. LANKLER
Attorney for Defendant Friehling
SOUTHERN DISTRICT REPORTERS, P.C.
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(Case called)
MS. BARONI: Good morning, your Honor.
Lisa Baroni, for the government.
With me at counsel table is a Marc Litt from the U.S.
Attorney's Office, Special Agent Denice Lamond from the
Internal Revenue Service, Special Agent Patrick Duffy from the
FBI and a Pretrial Services officer just arrived, Margaret
Smusz.
THE COURT: Good morning, all.
MR. LANKLER: Good morning, your Honor.
I am Andrew Lankler. I represent David Friehling.
THE COURT: Good to see, Mr. Lankler.
Good morning, Mr. Friehling.
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
I understand, Mr. Friehling, that you want to change
your plea of not guilty to the indictment to a plea of guilty
to a several count information; is that correct?
THE DEFENDANT: Yes.
THE COURT: We have to go through several steps.
First, Ms. Jones will arraign you and you will plead to the
information. Then we'll put you under oath and then I have to
ask you a number of questions under oath so you have to tell me
the truth, the whole truth and nothing but the truth. If you
fail to do that you expose yourself to additional penalties.
I have to make sure that what you are doing is
voluntary. If you know what you are doing and no one's
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promised you anything, no one's threatened you in any way, what
you are doing is because you want to do it and this is after
you received your advice from Mr. Lankler and you are satisfied
that you tell me you ar satisfied with your services. Then
give through the constitutional rights that you have in every
matter a defendant has for a speedy and public trial. I need
to make sure even though I'm sure that Mr. Lankler's covered
that thoroughly that you understand your rights that you are
giving up. And lastly you will tell me what you did to make
you guilty because I have to find that there is an independent
basis in fact to sustain a plea and I have no interests in
having a man who is innocent plead guilty to a crime.
So we go through all of that and you have to tell me
the truth, the whole truth and nothing but the truth. Do you
understand?
THE DEFENDANT: Yes, I do.
THE COURT: Do you wish me to proceed in this fashion?
THE DEFENDANT: Yes, your Honor.
THE COURT: First we'll arraign you to the
information.
COURTROOM DEPUTY: Please rise. You are David
Friehling.
THE DEFENDANT: Yes, I am.
COURTROOM DEPUTY: Have you signed this waiver ever
indictment?
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THE DEFENDANT: Yes, I have.
COURTROOM DEPUTY: Before you signed it did you
discuss it with your attorney?
THE DEFENDANT: Yes, I did.
COURTROOM DEPUTY: Did he explain it to you?
THE DEFENDANT: Yes, he did.
COURTROOM DEPUTY: Do you understand you are under no
obligation to waive indictment?
THE DEFENDANT: Yes, I do.
COURTROOM DEPUTY: Do you understand that if you do
not waive indictment if the government wants to prosecute you
they will have to present this case to a grand jury which may
or may not indict you?
THE DEFENDANT: Yes, I do.
COURTROOM DEPUTY: Do you realize that by signing this
waiver of indictment you have given up your right to have this
case presented to a grand jury?
THE DEFENDANT: Yes.
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
COURTROOM DEPUTY: Do you understand what a grand jury
is?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: Have you seen a copy of the
information?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: Would you like me to read it to
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you?
THE DEFENDANT: No.
COURTROOM DEPUTY: How do you plead?
THE DEFENDANT: Guilty.
THE COURT: All right. Before I can accept that plea
we have to go through a number of different factors. We'll put
that at rest for a few minutes and we'll examine you.
Now Ms.Jones is going to put you under oath.
(Defendant David Friehling sworn)
COURTROOM DEPUTY: Please, state you full name for the
record.
THE DEFENDANT: David Gary Friehling.
THE COURT: How old are you, Mr. Friehling?
THE DEFENDANT: 49.
THE COURT: Where were you born?
THE DEFENDANT: Miami Beach Florida.
THE COURT: Where did you receive your education? How
far did you go, through college?
THE DEFENDANT: Through graduate school.
THE COURT: What college did you go to?
THE DEFENDANT: Cornell University.
THE COURT: And which part of Cornell?
THE DEFENDANT: School of Industrial and Labor
Relations.
THE COURT: When did you receive your degree?
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THE DEFENDANT: May of 1981.
THE COURT: Was it a degree of Bachelor of Arts or a
Bachelor of Science?
THE DEFENDANT: Bachelor of Science in Industrial and
Labor Relations.
THE COURT: Then you say you went on to graduate
school?
THE DEFENDANT: Yes.
THE COURT: Where did, do you work?
THE DEFENDANT: Baruch College of New York City.
THE COURT: Received a Masters in Business
Administration?
THE DEFENDANT: I never received my degree. I went
for my MBA in accounting.
THE COURT: How many years did you go?
THE DEFENDANT: Approximately two and a half.
THE COURT: Then did you take the test for a CPA?
THE DEFENDANT: Yes, I took -THE COURT: Pass the test?
THE DEFENDANT: Yes, I did.
THE COURT: When did you receive the certificate?
THE DEFENDANT: July of 1987.
THE COURT: That was a certificate to practice as a
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
CPA?
THE DEFENDANT: Yes.
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THE COURT: In New York state?
THE DEFENDANT: Yes.
THE COURT: Tell me about a little bit about your
personal life. Are you married?
THE DEFENDANT: Yes, I am.
THE COURT: How long?
THE DEFENDANT: 27 years this past August 29.
THE COURT: Any children?
THE DEFENDANT: Yes, three.
THE COURT: How many?
THE DEFENDANT: Three.
THE COURT: How old are they?
THE DEFENDANT: 24, 20 and 17.
THE COURT: What do they do?
THE DEFENDANT: My older son is a actor in California.
THE COURT: He is a what?
THE DEFENDANT: An actor.
THE COURT: Did he go to college?
THE DEFENDANT: Yes, he did. North University.
THE COURT: School of Theater Arts?
THE DEFENDANT: Yes.
THE COURT: And the 20 year old?
THE DEFENDANT: He is a junior at Duke University.
THE COURT: What is he studying?
THE DEFENDANT: Premed.
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THE COURT: And the 17 year old?
THE DEFENDANT: She is a senior in high school.
THE COURT: Where does she go to high school?
THE DEFENDANT: Clarkstown North High School in New
City, New York.
THE COURT: Does your wife work?
THE DEFENDANT: Yes, she does.
THE COURT: What does she do?
THE DEFENDANT: Account manager for the New York Blood
Service.
THE COURT: I missed the company.
THE DEFENDANT: New York Blood Service.
THE COURT: What is that?
THE DEFENDANT: New York Blood Service.
THE COURT: Coming in to today, Mr. Friehling, have
you had any medicine or alcohol or narcotics that could blur
your thinking?
THE DEFENDANT: No.
THE COURT: Are you clear minded?
THE DEFENDANT: Yes.
THE COURT: Have you discussed the case thoroughly
with Mr. Lankler?
THE DEFENDANT: Yes, I have.
THE COURT: And his staff?
THE DEFENDANT: Yes.
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
9C3AAFRIP
Plea
THE COURT: Have you told them everything that you
know about your case?
THE DEFENDANT: Yes.
THE COURT: Have you held any information away from
him?
THE DEFENDANT: No.
THE COURT: Are you satisfied about the advise he is
giving?
THE DEFENDANT: Yes.
THE COURT: Are you offering to plead guilty because
you think that's the best think thing for you in this
circumstances?
THE DEFENDANT: Yes.
THE COURT: Your own decision, your voluntary act?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: Has anyone threatened you in any
way to cause to make this decision?
THE DEFENDANT: No.
COURTROOM DEPUTY: Has anyone promised anything to
make this decision?
THE DEFENDANT: No.
COURTROOM DEPUTY: You are doing it because you think
that's what you want to do?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: Let me discuss your constitutional
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rights. Do you understand that you have a right to a speedy
and public trial?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: That you are entitled to have a
presumption of innocence?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: As the case with every citizen of
the United States?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: That means that you can be found
guilty of any crime unless the crime is charged and proved
beyond a reasonable doubt to the satisfaction of a unanimous
jury?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: That your entitled to an attorney
to guide you and represent you in every step of these criminal
proceedings?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: If you cannot afford a lawyer the
government will provide a lawyer free of charge; you are aware
of that?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: And alone or through the lawyer you
can confront every witness against you and cross examine that
witness and require any witness having favorable information to
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come to the trial and testify whether that witness wishes to do
so or not?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: Do you understand also that you
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
would have the right to testify if you wished to testify but if
you didn't wish to you wouldn't have to and no inference could
be drawn against you?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: But by pleading guilty you waive
these rights and you give me the authority to sentence you the
same way I could if the jury brought in a verdict of guilty
against you?
THE DEFENDANT: Yes.
COURTROOM DEPUTY: You are pleading guilty to the
knowledge of all of those rights that you are waiving?
THE DEFENDANT: Yes, I am.
COURTROOM DEPUTY: Now, Ms. Baroni, I have a letter
agreement that is before me of six pages.
MS. BARONI: Yes, your Honor. I have the executed
for, you Honor.
THE COURT: May I see the executed copy. We'll mark
all these pages with the executed copy as Court Exhibit 1.
(Pause)
THE COURT: I am looking at the 6th page of the
original; is that your signature on this, Mr. Friehling?
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THE DEFENDANT: Yes, it is.
COURTROOM DEPUTY: Mr. Lankler, is that yours?
MR. LANKLER: Yes, it is, your Honor.
COURTROOM DEPUTY: Both signed November 2.
MR. LANKLER: We signed them last night, judge. Last
night was the 2nd.
THE COURT: Today is the 3rd. Ms. Baroni, I am
returning this to you, please, and I'll work with the copy.
Ms. Baroni, will you summarize the several counts of
the information to which Mr. Friehling will be pleading.
MS. BARONI: Yes, your Honor.
Count One of the superseding information charges the
defendant with securities fraud.
Count Two of the superseding information charges him
with investment advisor fraud.
Counts Three through Six charge making false filings
with the Securities and Exchange Commission.
Counts Seven, Eight and Nine charge the defendant with
obstructing or impeding the administration of the Internal
Revenue laws.
THE COURT: Would you tell Mr. Friehling and me what
it is that the government has to prove if the case went to
trial on each of those counts.
MS. BARONI: The elements of the offenses, your Honor?
THE COURT: Yes.
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MS. BARONI: Sure. With respect to Count One,
securities fraud, in order to prove this crime the government
would have to establish the following elements beyond a
reasonable doubt:
First, that in connection with the purchase or sale of
a security the defendant did any one or more of the following:
Employed a device scheme or artifice to defraud or
made an untrue statement of material fact or omitted to state a
material fact which made what was said under the circumstances
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
misleading, or engaged in an act, practice or course of
business that operated or would operate as a fraud or deceit
upon the purchaser or a seller.
Second, that the defendant acted knowingly, willfully
or with the intent to defraud.
And third, that the defendant knowingly used or caused
to be used any means or instruments of transportation or
communication in interstate commerce or the use of the mails in
furtherance of the fraudulent conduct.
And the government can also prove this through aiding
and abetting liability, your Honor.
With respect to Count Two -THE COURT: In other words, the government can prove
Mr. Friehling's guilt either as a principal or as a person who
aided and abetted a principal.
MS. BARONI: That right, judge.
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With respect to Count Two, investment advisor fraud,
in order to prove this crime the government must show beyond a
reasonable doubt the following four essential elements. First,
that the defendant -- this also could be proven through aiding
and abetting liability -- that there was an investment advisor,
that either the defendant was investment advisor ar aided and
abetted an investment advisor.
Second, that the defendant either employed a device,
scheme or artifice to defraud clients or perspective clients,
that the defendant engaged in a transaction, practice or course
of business which operated as a fraud and deceit upon those
clients and perspective clients or that the defendant engaged
in an act, practice or course of business that was fraudulent,
deceptive and manipulative.
Third, that the defendant devised or participated in
such alleged device, scheme or artifice to defraud or engaged
in such alleged transaction, practice or course of business
knowingly, willfully and with the intent to defraud.
Forth that the defendant employed such alleged device,
scheme or artifice to defraud or engaged in such alleged
transaction, practice or course of business by use of the mails
or other instrumentality of interstate commerce.
With respect to Counts Three through Six, making false
filings with the Securities and Exchange Commission, the
government to prove this offense would have to prove beyond a
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reasonable doubt the following four elements:
That the defendant was required to file an
application, report or document with the SEC under the
Securities Exchange Act of 1934 and the rules and regulations
there under.
Second, that the application report or document filed
with the SEC contained false or misleading statements.
Third, that the false or misleading statements were
material.
Fourth that the defendant acted knowingly and
willfully.
THE COURT: Again, this can be proved either as a
principal or by aiding and abetting?
MS. BARONI: Yes, your Honor.
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
THE COURT: And finally with respect to Count Seven
through Nine which charges the defendant with obstructing or
impeding the administration of the Internal Revenue laws, to
prove this offense the government would have to show beyond a
reasonable doubt first, that the defendant acted or endeavored
corruptly, acted with corrupt intent.
And second, that the defendant acted to obstruct or
impede the administration of the Internal Revenue laws.
THE COURT: Now, with regard to aiding and abetting -don't sit down yet, Ms. Baroni -- with regard to aiding and
abet what is it that the government has to prove in each
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instance? I can help you. I think there has to have been
substantial help given by the defendant with knowledge that he
was giving the help to assist another in committing a
particular crime and investing enough interest in that as to
make it his own.
MS. BARONI: Right, your Honor. Under the statute we
would have to prove beyond a reasonable doubt that he aided,
abetted, counseled, commanded, induced or procured the
commission of a crime.
THE COURT: It's not just helping. It's helping with
the intent that he is helping another commit a particular crime
and in such a way is not being indifferent to it but making his
own in interest in his part to assist.
MS. BARONI: That's right.
THE COURT: That in each of the Counts One, Two, Three
through Six, Seven through Nine charges Mr. Friehling as a
principal; is that right?
MS. BARONI: That's right, judge.
THE COURT: Okay. And if you prove aiding and
abetting -- you are still not finished Ms. Baroni. You'll sit
tonight. And if you prove aiding and abetting it's the same
for purposes of sentencing as if you were to prove the
principal itself.
MS. BARONI: That's right, your Honor. The statutory
maximums are the same.
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THE COURT: Now, let's discuss the statutory maximum
with regard to each of these counts.
MS. BARONI: Yes, judge. With respect to Count One,
the securities fraud count, the maximum penalties are 20 years
imprisonment, three years supervised release, a fine of the
greatest of five million dollars or twice the gross gain or
loss from the offense, a mandatory $100 special assessment and
restitution. With respect to -THE COURT: And with regard to supervised release in
that count and others, there are conditions that come with it.
A violation of the condition leads to a hearing and if
appropriate the judge can sentence among other things the
defendant to jail even though he has finished his jail term.
MS. BARONI: That's right, your Honor.
THE COURT: All right.
MS. BARONI: With respect to Count Two, investment
advisor fraud, the maximum penalties are five years
imprisonment, three years supervised release, a fine of the
greatest of $10,000 or twice the gross gain or loss from the
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
offense, a mandatory $100 special assessment and restitution.
With respect to Counts Three through Six, making a
false filings with the Securities and Exchange Commission, each
count carries a maximum penalty of 20 years imprisonment, three
years supervised release, a fine of the greatest of $5,000,000
or twice the gross gain or loss from the offense, a mandatory
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$100 special assessment on each count and restitution.
Finally, with respect to Counts Seven, Eight ad Nine,
the obstructing or impeding the administration of the Internal
Revenue laws, each count, the maximum penalties for each count
are three years imprisonment, one year supervised release, a
fine of the greatest of $250,000 or twice the gross gain or
loss, a mandatory $100 special assessment on each count and
restitution.
And also with respect to Count One, your Honor, that
the securities fraud count also requires a forfeiture which is
alleged.
THE COURT: Is the forfeiture only relevant to the
securities fraud count?
MS. BARONI: Yes, your Honor.
THE COURT: You haven't mentioned forfeiture before.
Does the government have funds that have been forfeited or the
claims to be forfeited?
MS. BARONI: Yes, your Honor. We would ask that your
Honor allocute the defendant on the forfeiture count just so
that he admits it. And the government anticipates providing to
the Court in short order after today's appearance preliminary
order of forfeiture and a stipulation and order of
interlocutory sale of the defendant's properties.
THE COURT: And what are those properties?
MS. BARONI: Two pieces of real estate, your Honor.
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THE COURT: Do you have the value estimates?
MS. BARONI: No, the government doesn't have the value
at this time, your Honor.
THE COURT: All right. With regard to this punishment
that you've read out the Court has discretion in many instances
and under various guidelines to sentence on a concurrent basis
or consecutive basis, meaning, that the sentences under each
count can be given at the same time to be served or they can be
added.
MS. BARONI: That's right. And the statutory maximum
total of incarceration that could be imposed on the defendant
if they all were consecutive would be 114 years imprisonment
but your Honor has the discretion as you said.
THE COURT: Under various considerations and
guidelines.
Ms. Baroni. Thank you very much. You can be seated.
Mr. Friehling, there's a number of points I wanted to
make you are aware of. I've not studied these and I don't know
to what extent I would find considerations for sentencing in
other ways but I can sentence up to the statutory maximum. If
you become disappointed in what I do when I sentence or in any
other respect, once I accept your plea of guilty you are bound
by it. You will not be able to withdraw it just because you
are disappointed in what I do. Do you understand?
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
THE DEFENDANT: Yes.
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THE COURT: I don't know what I'm going to do at
sentence and that will be an exercise in itself. So if I don't
know what it is I am going to do, no one can tell you what I am
going to do. And any estimates of what I can do is false
because I have not thought about it at all. Are you aware that
I have this ability and power to sentence you under the law as
I think appropriate at the time of sentencing.
THE DEFENDANT: Yes, I do.
THE COURT: To the extent you are disappointed in what
I do will not be a basis for withdrawing from your guilty plea
once I accept it. Are you aware of that?
THE DEFENDANT: Yes.
THE COURT: All right. Is there another agreement,
Ms. Baroni, that I should be considering today as well?
MS. BARONI: Your Honor, the only agreement is the
agreement that we handed up to your Honor dated November 3rd
the plea agreement.
THE COURT: That's the one that was signed?
MS. BARONI: Yes.
THE COURT: All right. Have you discussed it with
Mr. Lankler, this plea agreement?
THE DEFENDANT: Yes, I have.
THE COURT: Have you gone over it very thoroughly?
THE DEFENDANT: Yes, I have.
THE COURT: Do you understand that you have an
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obligation expressed on page three of this letter truthfully
and completely to disclose all information with respect to your
activities and the activities of others that you know are aware
of concerning all matters about which the U.S. Attorney's
Office and a live investigating officer's inquire of you and
that this information can be used for any purpose; you are
aware of that?
THE DEFENDANT: Yes, sir.
THE COURT: You promise to cooperate fully with the
Office of the US Attorneys, the Federal Bureau of
Investigation, the Internal Revenue Service and any other law
enforcement agency designated by the U.S. Attorney's Office of
the Southern District of New York?
THE DEFENDANT: Yes, I have.
THE COURT: You promise to attend all meetings at
which the U.S. Attorney's Office requests your presence?
THE DEFENDANT: Yes.
THE COURT: To provide to the office upon request any
document, record or other tangible evidence relating to matters
about which the U.S. Attorney's Office or any other designated
law enforcement agency require of you?
THE DEFENDANT: Yes.
THE COURT: You testified truthful before a grand jury
and at any trial and any other court proceeding with respect to
any matters about which the U.S. Attorney's Office may request
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further testimony?
THE DEFENDANT: Yes.
THE COURT: And to bring to the office of the U.S.
Attorney all crimes that you have committed and all
administrative civil or criminal proceedings investigations or
prosecutions, prosecutions in which you have been a subject, a
target, a party or a witness?
THE DEFENDANT: Yes.
THE COURT: You promised that you will commit no
further crimes what ever, right?
THE DEFENDANT: Yes.
THE COURT: And that you will provide notice to the
U.S. Attorney's Office prior to discussing the conduct covered
by the information in each of its nine counts with anyone other
than the U.S. Attorney's Office, law enforcement agencies
designated by the U.S. Attorney's Office and your own attorney?
THE DEFENDANT: Yes.
THE COURT: The next paragraph at the bottom of page
three going onto page four provides that if you fully complied
with all of the obligations on your part to be performed under
this agreement you will not be further prosecuted criminally by
the Office of the U.S. Attorney of the Southern District of New
York and with respect to the particular tax offenses in the
information the Tax Division Department of Justice and
Department of Justice for crimes that are specified in this
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letter?
THE DEFENDANT: Yes.
THE COURT: Do you understand the agreement does not
bind any federal, state or local prosecuting authority other
than the U.S. Attorney's Office for the Southern District of
New York and to the extent mentioned, the tax division and the
Department of Justice?
THE DEFENDANT: Yes.
THE COURT: In the middle of page four you expressed
the understanding which we've just discussed that the sentence
that will eventually be imposed is within the sole discretion
of the judge of the court, either myself or some other judge;
you understand that?
THE DEFENDANT: Yes.
THE COURT: And the U.S. Attorney's Office does not
make any promise and can't any make any promise or
representation as to what sentence the Court will give.
THE DEFENDANT: Yes.
THE COURT: And that it will not recommend a specific
sentence to the Court.
THE DEFENDANT: Yes.
THE COURT: But it will inform the Court of your
cooperation.
THE DEFENDANT: Yes.
THE COURT: And if all goes well and according to
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understanding write a letter to me under Section 5K1.1 of the
sentencing guidelines.
THE DEFENDANT: Yes.
THE COURT: Is it your understanding that under such a
letter you will want some special consideration from me or
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another judge with regard to your sentence?
THE DEFENDANT: Yes.
THE COURT: You are aware, however, that you could be
disappointed. The government may feel that you are not
cooperating sufficiently and refuse to write the letter?
THE DEFENDANT: Yes.
THE COURT: Do you understand that?
THE DEFENDANT: Yes.
THE COURT: The letter will be written only if you
comply in the government's opinion with all the conditions
expressed in this document.
THE DEFENDANT: Yes.
THE COURT: Even if the government doesn't write its
letter you've committed yourself to a plea of guilty. You
cannot withdraw. You understand that?
THE DEFENDANT: Yes.
THE COURT: On page 5 the letter provides a commitment
on your part not to commit any further crimes, not to testify
falsely, incompletely and or any misleading information and not
to give information to the government that is false, incomplete
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or misleading. You are aware of that?
THE DEFENDANT: Yes, I am.
THE COURT: And that if you violate you will not be
able to get a 5K1 letter.
THE DEFENDANT: Yes, sir.
THE COURT: As I said before, when it comes to
sentence I will be looking at the sentencing guidelines. I
will be looking at considerations of a more general nature
having to do with what is just punishment. And to the extent
of your cooperation I will be looking at the extent of your
cooperation and devising a just sentence for you; you
understand that?
THE DEFENDANT: Yes, I do.
THE COURT: And since I've not studied any of this, I
don't know what I am going to do, how I will sentence you. As
I said before, even if you are disappointed in what I do you
will not be able to withdraw from your guilty plea.
THE DEFENDANT: Yes.
THE COURT: Ms. Baroni, tell us how -- you are back on
your feet -- how you are going to prove all of these nine
different offenses and the forfeiture.
MS. BARONI: Yes, your Honor.
If this case had gone to trial the government would
prove through testimony and documentary evidence beyond a
reasonable doubt all of the factors.
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THE COURT: All of the facts set forth in the
superseding information.
MS. BARONI: Specifically, the government would prove
with respect to the first six counts that beginning as early,
at least as early as 1991 from 2008, that Mr. Friehling was a
license certified public accountant, that he was a sole
practitioner at Friehling and Horowitz, CPAs.
THE COURT: For that period of time?
MS. BARONI: Yes, your Honor.
THE COURT: 17 years, practiced alone?
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MS. BARONI: Yes, your Honor.
THE COURT: No staff?
THE DEFENDANT: No.
MS. BARONI: No staff. His father-in-law had started
the firm but he took it over when his father-in-law retired.
THE COURT: When did his father-in-law retired?
THE DEFENDANT: Formally retired in 1998.
THE COURT: So the first seven years you worked with
him?
THE DEFENDANT: Yes.
THE COURT: Then alone?
THE DEFENDANT: Yes.
MS. BARONI: The government would further prove that
Friehling and Horowitz was an accounting firm that was retained
by Bernard L. Madoff Investment Securities to audit its
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financial statements that were filed with the SEC.
THE COURT: When was he engaged? When was the firm
engaged by Mr. Madoff?
MS. BARONI: From at least 1991 to the present,
actually, even earlier when Mr. Horowitz was at the firm.
THE COURT: Throughout that 17 year period?
MS. BARONI: Yes, your Honor.
THE COURT: With yearly engagement letters,
Ms. Baroni?
MS. BARONI: Yes, your Honor. I don't know about
engagement letters but they were retained every year and paid a
monthly retainer every month throughout those years. These
financial statements were filed with the Securities and
Exchange Commission and were also available to clients, your
Honor. And during that time Mr. Friehling, the government
would prove beyond a reasonable doubt, that Mr. Friehling did
not conduct a meaningful audit of Bernard L. Madoff Investment
Securities, that his audits were not performed in accordance
with the required standards which are GAAP and GAAS.
THE COURT: GAAS is a shortening term for the
Generally Accepted Auditing Standard and GAAP is a shortening
for Generally Accepted Accounting Principals.
MS. BARONI: That's right, your Honor.
And that Mr. Friehling merely took the information
given to him by Bernard Madoff and others and did not take
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steps to conduct any independent verification of that
information.
THE COURT: In other words, just put his own imperator
as an accountant on financial information given him by
Mr. Madoff.
MS. BARONI: That's right, your Honor.
THE COURT: And expressed an opinion which recited
that he had conducted an audit according to go Generally
Accepted Auditing Standards and in conformity with Generally
Accepted Accounting Principles.
MS. BARONI: Yes.
THE COURT: And that in the opinion of the accounting
firm of the statement presented fairly the conditions of the
company is that each year end and that the income that was said
to be earned was a true indication of the operating profits of
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that company.
MS. BARONI: That's right, the income and reliability
but it was done on a fiscal year. Also, that the financial
statements certified that he was independent but the government
would prove beyond a reasonable doubt that Mr. Friehling was
not an independent auditor and that he and his family had
investment advisory accounts at Bernard L. Madoff Investment
Securities and those accounts were held in the name of his wife
and others.
THE COURT: Is there a disclosure of that in the
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accounting statement?
MS. BARONI: No, your Honor.
The government would also prove beyond a reasonable
doubt that Mr. Friehling knew at the time that he certified the
financial statements, that they were materially false and that
at the time that they were, that he caused them to be filed
with Securities and Exchange Commission that he knew that they
were materially false
THE COURT: So he actually knew that the statements
were false?
MS. BARONI: Yes, your Honor.
THE COURT: But nevertheless gave an opinion that
stated that they were fair and accurate.
MS. BARONI: Right. He knew that he did not perform
any independent auditing function.
The government would also prove that these criminal
acts were conducted in Manhattan as well as in Rockland County.
THE COURT: Both within the Southern District of New
York.
MS. BARONI: That's right, your Honor.
THE COURT: So venue is satisfied.
MS. BARONI: Yes. With respect to Counts Seven
through Nine -THE COURT: So these proofs would show that he aided
and abetted a device, scheme or artifice to defraud, that
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untrue statements of material facts were being made, that the
business itself was operating as a fraud or a deceit upon
purchasers and sellers, and that all this was done willfully,
knowingly and with the intent to defraud and that the mails and
instruments of transportation and communication and interstate
commerce were used.
MS. BARONI: Yes, your Honor. The financial
statements were filed with the SEC by mail by US mail many of
the years.
THE COURT: Now, we're up to the investment advisor
fraud.
MS. BARONI: Your Honor, that factual proffer covers
the securities fraud, the investment advisor fraud and the
making false filings with the SEC is all the same.
THE COURT: Who was the investment advisor?
MS. BARONI: Mr. Bernard L. Madoff Investment
Securities.
So the government would prove beyond a reasonable
doubt that the defendant knew that Bernard L. Madoff Investment
Securities was a broker/dealer and also was an investment
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advisor.
THE COURT: And were the certified statements used by
Mr. Madoff in a fraudulent way in connection with his
functioning as an investment advisor?
MS. BARONI: In connection with both sides of the
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business, yes, your Honor. They were available to all clients.
THE COURT: That takes you us through Three through
Six because these financial statements were filed with the SEC
and defendant was aware they were being filed with the SEC.
MS. BARONI: That's right.
THE COURT: He was aware as well that they were being
used to induce continuing activities and purchase sales by the
customers of Mr. Madoff's business; is that right?
MS. BARONI: Well, yes, your Honor, he knew they were
going to be filed with the SEC and he knew that they were
available to certain clients upon request.
THE COURT: And that they were actually -MS. BARONI: Right.
THE COURT: Now Seven through Nine, this is
obstructing or impeding the administration of the Internal
Revenues laws.
MS. BARONI: Yes, your Honor. If this case had gone
trial the government would prove beyond a reasonable doubt that
from 1991 through 2008, Mr. Friehling obstructed the
administration of the Internal Revenue laws by assisting in the
preparation of numerous false tax returns including individual
income tax returns which are forms 1040 as well as -THE COURT: His own?
MS. BARONI: No, your Honor.
THE COURT: Madoff's? Whose tax return?
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MS. BARONI: Numerous individuals, your Honor.
THE COURT: Connected with anything in particular?
MS. BARONI: No, your Honor. As I said, individual
tax returns as well as tax returns for estates and trusts and
that -THE COURT: In general or in connection with any kind
of kind of specific activity? This also focused on the Madoff
activity or things that you are going to prove that
Mr. Friehling did in his own in a general way conducting his
business.
MS. BARONI: They were Mr. Madoff's individual tax
returns as well as others' individual tax return and trust
returns.
THE COURT: Connected with Mr. Madoff in some fashion?
MS. BARONI: Just others, your Honor. At this time
the government will proffer that much.
THE COURT: Okay.
MS. BARONI: The government would also prove that
these tax returns were filed with the IRS and that
Mr. Friehling acted with corrupt intent when he assisted in the
preparation and the filing of them.
THE COURT: In other words, knowing that they were
being filed to fool and deceive the IRS.
MS. BARONI: Right.
THE COURT: And to pay a lower tax than that which we
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fairly do.
MS. BARONI: Right, your Honor.
THE COURT: And thereby placing the burden on
everybody else.
MS. BARONI: And that, that's right that he acted with
corrupt intent and that he knew the returns were false at the
time that they were filed.
Also, the government would prove venue with respect to
this that the criminal acts relating to these counts occurred
in Manhattan and Rockland County in the Southern District of
New York.
THE COURT: Thank you, Ms. Baroni. And do you approve
this set of fact the acts how? How would you prove it?
MS. BARONI: The tax counts we would prove through
testimony and documentary evidence.
THE COURT: Mr. Lankler, have you reviewed the proofs
that Ms. Baroni recites?
MR. LANKLER: I have indeed, your Honor.
THE COURT: Are you satisfied that Ms. Baroni could
prove a prima facie case with respect to each of those nine
counts?
MR. LANKLER: I am, your Honor.
THE COURT: Do you know of any defenses that could
trump these proofs?
MR. LANKLER: Not beyond a reasonable doubt, your
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Honor.
THE COURT: Mr. Friehling, are you offering to plead
guilty because you believe that you are, in fact, guilty of
each of these nine counts?
THE DEFENDANT: Yes, your Honor.
THE COURT: I am going to ask you to tell me what you
did to make you guilty. And I suspect that Mr. Lankler's
helped you prepare a statement.
THE DEFENDANT: I have written a statement with the
assistance of my attorney.
THE COURT: You may read the statement but I will be
asking you questions throughout. Proceed loudly.
THE DEFENDANT: My name is David Friehling. I appear
before your Honor today to take responsibility for my conduct
in connection with my role as the auditor of BLMIS and a tax
preparer for Bernard Madoff and others.
THE COURT: BLMIS is short for?
THE DEFENDANT: Bernard L. Madoff Investment
Securities.
It is my understanding that I must now detail the
specifics of the conduct and I will do so in connection with
this statement. However, before I begin my formal allocution I
wish to make your Honor aware of several important facts.
First and foremost, it is critical for your Honor to
be aware that at no time was I ever aware that Bernard Madoff
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was engaged in a Ponzi scheme. In fact, I placed all of my
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savings and the savings of my wife and children with BLMIS. I
also established a bona fide pension fund with BLMIS into which
I placed all of my retirement contributions.
I was a member of the accounting firm of Friehling and
Horowitz from 1989 to 2008. Friehling and Horowitz was the
auditor of Bernard L. Madoff Investment Securities. Prior to
my joining the firm my father-in-law Jerome Horowitz acted as
the auditor for Bernard L. Madoff Investment Securities. I
assumed the responsibility as auditor of BLMIS in or around
1991 when my father-in-law retired.
THE COURT: So it's 1991 that he retired?
THE DEFENDANT: He didn't fully retire until 1998. He
flew up and helped me and assisted me in the conduct of the
audit.
THE COURT: Did he do the field work for the audit?
THE DEFENDANT: Yes. Well, the two of us together
would.
THE COURT: Go ahead.
THE DEFENDANT: With the exception of my family
members and some of the Madoff investors that I performed tax
work for, I never had contact with Madoff investors and never
acted as a feeder for BLMIS, solicited any investors for BLMIS
or received any compensation from BLMIS other than the audit an
tax preparation services I performed.
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In what is surely the biggest mistake of my life I
placed my trust in Bernard Madoff. While I am amongst
thousands people who now make the same claim, I wish for your
Honor to understand how I came to make not only this mistake
but also how I came to suspend my judgment in committing crimes
with which I am charged.
I was introduced to Bernard Madoff by my
father-in-law. My father-in-law was asked to perform work for
BLMIS in 1963 by his then boss Saul Alpern who is Ruth Madoff's
father. I have known my father-in-law since the summer of 1972
when his daughter, my future wife and I, first met. We began
to date when we were 14, attended the same college and married
when we were 22. When I was a senior in college I decide to I
pursue a career in accounting and received my CPA license in
1987.
I am prepared to accept responsibility for my conduct
and do whatever I must to mitigate the impact it has had. From
the first day that the federal prosecutors and investigators
were ready to ask me questions I have made may myself available
and have endeavored to answer every question put to me
truthfully and fully to the best of my ability. I am here
today first to take responsibility for my mistakes and second
to apologize to the Madoff victims for the role that I now know
that I played in Bernard Madoff' massive and devastating fraud.
I am truly sorry for the suffering of all the victims.
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I would also like to apologize once more to my father who lost
his retirement sayings which is in our family investment
account, to my children who lost their entire savings which we
had worked so long and so hard to amass for their education and
futures, and most especially to my wife who has lost everything
that we have worked for over 27 years of marriage, not the
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least of which is our good name.
Thank you, your Honor for the opportunity to address
the Court and to make a public apology to the Madoff victims.
I would now like to specifically address the details of my
conduct.
With respect to the first six counts the information
charging me with securities fraud, aiding and abetting,
investment adviser fraud and making false filings with the
Securities and Exchange Commission, I committed these crimes in
my capacity as an independent auditor of BLMIS and did so
within the Southern District of New York, specifically, in
Manhattan and Rockland County.
Through my accounting firm Friehling and Horowitz I
served as the auditor of BLMIS, a broker/dealer and investment
adviser, as the individual who certified that BLMIS financial
statements, I was obligated to maintain independence from BLMIS
and to audit the books and records of BLMIS consistent with
generally accepted auditing standards and generally accepted
accounting principals. I was not independent of BLMIS inasmuch
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as my entire savings and retirement account and the savings of
my wife and children were invested in BLMIS. My investments at
BLMIS exceeded $500,000.
With respect to conduct to conducting GAAS and GAAP
compliant audits, instead of following these standards and the
standards set out by the AICPA of which I was a member, I did
not conduct independent verification of BLMIS assets, review
material sources of BLMIS revenue, rigorously examine the BLMIS
bank accounts for which the BLMIS client funds flowed or
verified the purchase and custody of securities by BLMIS.
Instead I relied on the financial information provided by
Bernard Madoff and other employees of BLMIS which I took at
face value and used the information to prepare the BLMIS
financial statements.
I certified that those statements were accurate and
that GAAS and GAAP standards and did so knowing that they would
be filed with the SEC and disseminated with investors.
THE COURT: Stop for a moment. Go ahead. Finish
that.
THE DEFENDANT: Indeed I was aware that the financial
statements I certified were then sent to the SEC by the United
States Postal Service and filed with the SEC on December 14,
2004, December 30, 2005, December 22, 2006 and December 20,
2007.
THE COURT: The question I wanted to put to you is
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whether you knew at the time you prepared the financial
statements that you were providing no independent verification
of that which GAAS required you to independently verify?
THE DEFENDANT: Yes.
THE COURT: You were aware of that?
THE DEFENDANT: Yes.
THE COURT: You were aware that as a CPA you could not
just put on an opinion, you had to do an independent
verification of assets and liability?
THE DEFENDANT: Yes.
THE COURT: Right?
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THE DEFENDANT: Yes.
THE COURT: And that meant looking at all the accounts
that were given to you and making sure that the assets were
there?
THE DEFENDANT: Yes.
THE COURT: Did these statements report customers'
accounts? They may not. I am just asking a question.
MR. LANKLER: Your Honor, it's a little difficult to
answer that question.
THE COURT: There was a line due from customers, was
there not?
MR. LANKLER: From broker/dealers, your Honor.
THE COURT: From broker/dealers on accounts of
customers? I want to know what you knew at the time regarding
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what were owed to customers and what were to be received from
customers.
(Pause)
MR. LANKLER: Your Honor, I think it would be helpful
if rather than answer that question exactly the way you've put
it because it deals sort of with the securities side of BLMIS
that Mr. Friehling was not directly involved in in the same way
that he was with respect to the general financial statements.
THE COURT: I don't know what to ask specifically. I
don't have these reports in front of me and I can't remember on
my own and from the basis of my own experience exactly what
these reports reported.
So let me just give you the general question,
Mr. Friehling. You knew that under the generally accepted
auditing standards that had to inform your work there was an
obligation on the part of your firm and on your part to make
sure that all that was reported on these statements were fair
and accurate, right?
THE DEFENDANT: Yes.
THE COURT: You had a number of tests that were
ordinarily to be performed regarding that proposition?
THE DEFENDANT: Yes.
THE COURT: You could not express an opinion as to the
fairness and accuracy of the financial condition of the company
and of its operating profits without going through all of these
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independent verifications?
THE DEFENDANT: Yes.
THE COURT: Didn't you put your signature on there
just as if you had done all of these verifications?
THE DEFENDANT: Yes.
THE COURT: By saying that you were signing statements
that conformed with GAAS you were representing to anyone who
would read these that you had done all of the independent
verifications that a CPA is required to do?
THE DEFENDANT: Yes.
THE COURT: So you knew that when you put on your
opinion it was a false opinion?
THE DEFENDANT: Yes.
THE COURT: And you knew that people would rely on
that opinion?
THE DEFENDANT: Yes.
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THE COURT: And you knew that these statements would
be filed with the SEC with your false opinion on it?
THE DEFENDANT: Yes.
THE COURT: Ms. Baroni, you want me to pursue anything
else?
MR. LANKLER: Your Honor, we haven't concluded the
allocution.
MS. BARONI: I think that's sufficient, your Honor.
THE COURT: Go on, Mr. Friehling.
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THE DEFENDANT: With respect to Count Seven to Nine
charging me with obstructing or impeding the administration of
the Internal Revenue laws, in addition to acting as the auditor
for BLMIS I also prepared tax filings for Bernard Madoff and
others. In that capacity I prepared personal tax returns that
contained information I knew that was not accurate and assisted
in the filing of those returns with the Internal Revenue
Service. Thank you, your Honor.
THE COURT: Ms. Baroni, anything more you want me to
pursue? I do need to ask questions on forfeiture.
MS. BARONI: I think that's sufficient. Just venue on
the Count Seven through Nine.
THE COURT: Where were you working? Your office was
in Rockland County, was it not?
THE DEFENDANT: Yes, it was.
THE COURT: And Rockland County is where you issued
some of these false statements, right?
THE DEFENDANT: Yes.
THE COURT: And also the obstruction of the IRS was
from Rockland County?
THE DEFENDANT: Yes.
MR. LANKLER: Your Honor, it was also in Manhattan as
well if your Honor wishes to inquire.
THE COURT: And also in Manhattan as well?
THE DEFENDANT: Yes.
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THE COURT: Ms. Baroni, what shall I ask about
forfeiture?
MS. BARONI: Just simply whether the defendant admits
to the forfeiture allegation in the superseding information.
THE COURT: Set out on page 13.
MS. BARONI: That's right, 13 and 14, your Honor.
THE COURT: Paragraph 27 alleges that as a result of
committing the offenses constituting specified, unlawful
activity -- I'll skip the statutory reference -- alleged in
Count One of the information. You shall forfeit to the United
States all property real and personal that constitutes or is
derived from proceeds traceable to the commission of the
offenses; do you so agree?
THE DEFENDANT: Yes.
THE COURT: And if any of the above described
forfeitable property is a result of any act or omission from
you, can't be located or has been transferred or sold through a
deposit with someone else or place beyond the jurisdiction of
the court or been substantially diminished in value or
commingled with other property which cannot be subdivided
without difficulty, this property also can be forfeited or a
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
reasonable equivalent of such property.
THE DEFENDANT: Yes.
THE COURT: Anything else, Ms. Baroni?
MS. BARONI: No, your Honor.
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THE COURT: Before I make my findings, anything else I
should inquire about?
MS. BARONI: No, your Honor. I think that's
sufficient.
MR. LANKLER: No, your Honor.
THE COURT: Ms. Friehling, I find you guilty of each
of these nine counts. I find that your plea of guilty is -Let's not rush out, please. Sit down. Sit down. Sit
down till this is finished then you can all leave. No one is
to leave until this is finished.
I find you guilty of each of these nine counts. I
find that your plea is voluntarily made, is made understanding
the consequence of such a plea and that there an independent
basis of fact to sustain your plea of guilty to each of these
nine counts.
Accordingly, I instruct the clerk to enter a plea of
guilty in place of your previously plea of not guilty.
Do we have a control date for sentencing, Ms. Baroni?
COURTROOM DEPUTY: February 26, 2010 at 11 a.m.
MS. BARONI: That's fine with the government, your
Honor.
THE COURT: I instruct that Mr. Lankler or a member of
his staff be given an opportunity to be present for any
interview with Mr. Friehling to be conducted by the probation
department. And I instruct Ms. Baroni to obtain a copy of this
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transcript and furnish it to the probation department for any
such interview to assist in the interview.
With regard to the forfeiture clause, Ms. Baroni, what
is next step?
MS. BARONI: Your Honor, the government will deliver
to your Honor's chambers this afternoon the preliminary order
of forfeiture and the stipulation and order for the
interlocutory sale of the defendant's properties.
THE COURT: Can that be done before 1:30?
MS. BARONI: Sure.
THE COURT: Anything else I need to deal with before I
finished up these proceedings? There one thing more, right?
MS. BARONI: Yes, your Honor. The parties would
jointly request that the bail conditions be continued and
actually the parties have a joint proposed package for your
Honor that increases the current bail conditions.
THE COURT: Please recite them.
MS. BARONI: It would be $2.5 million personal
recognizance bond cosigned by eight financially responsible
people. The bond would be secured by approximately $1 million
to $1.2 million of equity in five different properties, the
properties owned by the cosigners.
THE COURT: This is all stated in your letter of
November 2, is it not?
MS. BARONI: The defendant's letter.
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MR. LANKLER: My letter, judge.
THE COURT: Have you read that letter?
MS. BARONI: Yes, your Honor.
THE COURT: Mr. Lankler, may it be filed?
MR. LANKLER: Yes, your Honor. In addition I have my
client's wife's travel documents which we're prepared to turn
them over to Pretrial Services.
THE COURT: Fine. And, Ms. Smusz, you have reviewed
this as well?
MS. SMUSZ: No, your Honor, but I have spoken to
defense counsel on several occasions and they have recited to
me what they intend to do with modifying the defendant's bail.
THE COURT: So, it's a $2,500,000 personal
recognizance bond to be signed by the defendant and eight
financially responsible persons.
MS. BARONI: That's correct.
THE COURT: Have you very reviewed who these are?
MS. BARONI: Yes, your Honor. The government through
the FBI ' interviewed all of them and we find them to be
financially responsible.
THE COURT: And there are eight properties?
MS. BARONI: There are five properties.
THE COURT: And the aggregate estimated net equity in
those five properties are between a million dollars and a
million two hundred thousand dollars?
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MS. BARONI: That's correct, judge.
THE COURT: Are any of them homes?
MS. BARONI: Yes.
THE COURT: Residents in which people reside?
MS. BARONI: That's right.
THE COURT: So people are pledging their peoples to
assure that there is no danger to the security of the people,
the places or the government and that there is responsibility
to attend all court dates and on the part of Mr. Friehling?
MS. BARONI: Yes.
THE COURT: Travel is restricted to the Southern
District of New York, the Eastern District of New York and
District of New Jersey.
MS. BARONI: That's right. And the defendant has
surrendered his passport and his wife will now surrender her
passport to Pretrial Services.
THE COURT: And will make no new applications.
MS. BARONI: That's right.
THE COURT: There will be regular Pretrial Services
supervision; what does that mean?
MS. SMUSZ: Your Honor, as the defendant is reporting
now he appears in person once monthly and telephones weekly.
THE COURT: Is he required to keep a land line phone.
MS. SMUSZ: No. That is not a requirement of that
supervision.
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THE COURT:
for you to call.
Plea
I'd like to impose it to make it easier
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Transcript - Friehling Plea Hearing held 11-3-2009.TXT
MS. SMUSZ: That will be fine, your Honor.
THE COURT: Do you have a land line phone?
THE DEFENDANT: Yes, I do. You will maintain it
throughout so that when you are called on a land line phone
that's where you will answer as required by the probation
office.
Anything else, Ms. Muse?
MS. SMUSZ: No, your Honor.
THE COURT: Ms. Baroni?
MS. BARONI: No, your Honor.
THE COURT: You consent to the continuation of these
bail conditions?
MS. BARONI: The government does, your Honor.
THE COURT: And urges me to accept them?
MS. BARONI: Yes, your Honor.
MR. LANKLER: I urge you to accept it as well, your
Honor.
THE COURT: Before I make my findings I'd like to ask
if there is anyone in the audience who wishes to address me?
This is your chance, folks. If you want to write letters, the
fact that you are here enables me to consider anything.
All right, there is no one that wants to add anything.
I order the continuation of bail with the enhanced
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terms that have been expressed in court and found by me.
Anything further?
MS. BARONI: That is all from the government, your
Honor. Thank you.
MR. LANKLER: No, your Honor. Thank you very much.
THE COURT: Ms. Muse?
MS. SMUSZ: No, your Honor.
THE COURT: The proceedings are then recessed. Anyone
wishing to leave can now leave.
o 0 o
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