ABERDEEN – Prosecutors continue to present their case against Oxford FBI agent Hal Neilson, charged with lying about his financial interests in the Oxford FBI’s new quarters.
U.S. District Judge Sharion Aycock is pushing to get this trial completed by Friday, so she’s set the start of court at 8:30 a.m., with expectations to work until 6 p.m.
Attorneys are: Rene Salomon and Richard Bourgeois Jr. from Louisiana for the government; and Christi R. McCoy of Oxford, Ronald Michael and Seth Pounds of Booneville for the defense.
So far, it’s been a stream of witnesses, who identified numerous documents and Neilson’s signatures related to the 2001 search for a new FBI office in Oxford. Witnesses also have said that Neilson did not have permission to hold a one-third interest in C&G Properties LLC, with Dino Grisanti and John Covington. Neilson contends he got verbal permission from his then-FBI chief counsel in Jackson, Mike Turner.
(This is a rolling account of court action and will be updated as possible during breaks or at the end of the day. Watch Wednesday’s Daily Journal for a news recap and come back to NEMS360.com for updates.)
(After the state rested, defense attorney McCoy pulled out all the stops to try to convince Aycock that Neilson should be acquitted because the government failed to prove “intent.” Look for that action mid-way through the afternoon. That’s when some explosive statements occurred about a feud between Neilson and former U.S. Attorney Jim Greenlee. Greenlee, again, declined to comment.)
* * * *
1:45 p.m. – Aycock back, jury returns to courtroom.
Cross-examination by Michael. Michael says C&G money ultimately went into Neilson’s personal account, to pay off credit cards. Gagnet some there’s nothing wrong with paying off debts. Did you analyze differences in ’04 and ’05 income? Yes, Gagnet said.
Gagnet says differences in ’05 are for 10 months, $183,965. In ’04 for entire year, $109,387. Minus $50K in ’05 leaves $133,965. Oct. ’05 deposit of $30K – where money went? Michael asks. Money came from Mrs. Neilson’s parents, primarily used to pay onto new home, Gagnet says. If you take $30K off income, getting down to $103,000.
Gagnet says ’05 didn’t have tax refund, which in ’04 was about $10K. Still, he says, looking at $30K difference. Downpayment on house is usually a one-time, right? Michael asks. Did you figure in that they had their fourth child in ’05? Gagnet says that’s usually a recurring medical cost for a family.
$7,500 cash advance? Where did it go? Gagnet said he doesn’t have it tracked specifically. Michael says, look at tuition payment – Gagnet says that could be it. Nothing wrong to take credit card advance to pay tuition? Michael says. No, Gagnet says. He’s borrowing money against himself, isn’t he? Yes, Gagnet says.
Anything else for “living above his means?” Did you compare his household bills in ’04 with ’05? Normal living expenses stayed pretty much the same? Gagnet says yes.
Were you aware that in tracking money from GSA into C&G, into ACM … who wrote those checks? Gagnet said didn’t know. Did they tell you Covington said he wrote the check through ACM because Neilson was member of ACM, not C&G? No, said Gagnet. About memo line on $50K check that says “sale,” Michael says no one yet in courtroom that said Neilson labeled it a sale? Gagnet, don’t know – memo line says “sale,” I’m assuming that he accepts it as a sale. Who usually write in the memo line, Gagnet says probably person who’s writing the check. If I were the person accepting it, I would be very careful about what’s on that line.
Michael says we could write, “John Covington considers this a sale?” couldn’t we? Yes, says Gagnet. Debunks line of exhibit that says “Neilson describes this as a sale.”
Saying anything wrong with transfer from C&G to ACM? No, Gagnet says, it’s a business transaction. Not characterizing it as wrong, Gagnet says. It’s going to the benefit of the ACM members. If the money wasn’t flowing over there, then the owners would have to be putting money into the accounts to cover expenses there. For their benefit. Owners have that right, Gagnet says.
Michael asks, if one of your clients sent a letter that got $50K income for ’05, how do you treat that on taxes? My job to ask for documentation to determine that it was income, that he needed to pay tax on it, was it capital gains… a series of questions, Gagnet said. Michael asks, if it’s income it’s taxable? Yes, Gagnet said. If it’s a loan, it’s not taxable? No, Gagnet said, and also like a distribution to the members, which is how it was handled on the tax returns. Correctly referred to as “an owner distribution,” he says.
Not a loan, Gagnet said.
Redirect by Salomon. If partners said it was a loan, was it a loan? he asks. Yes, Gagnet said.
2:07 p.m. – excused. GOVERNMENT RESTS.
AYCOCK – Says must confer with attorneys, jury excused for the moment.
McCOY – Asks judge for acquittal.
The main issue, she says, is whether Neilson had a financial interest in this building? No, it’s black letter law that he did not. He may have thought he did, but from Feb-Aug 2005, he could not have been.
Second issue, the punch list – He could not have had a financial interest because Miss. law says he can’t. It is black letter law, he could not be a partner until the documents were filed in Oct. 2005. On the punch list, the remaining items were very minor and did not hinder the FBI from carrying out its business.
Counts 3 says Neilson had a financial interest in Oxford FBI building as of Sept. 20, 2005. They have not shown that. His financial interest began Oct. 7, 2005.
That he had a loan of $50K from C&G. We’ve heard a lot of testimony about that. He considered it a loan because he knew he had to pay it back. But no intent to create a loan agreement. No adequate proof that it was not a loan. FBI’s own witnesses said the CFDRs aren’t material to anything. Chief division counsel said it was a reporting requirement and he just wanted them off his desk.
More important is No. 4, government has to prove an intent to deceive. Not enough to prove that it be false. We contend, Neilson listed items that weren’t even required to be listed. On his Top Security Clearance form, he listed everything. He in no way attempted to conceal. Govt.’s own witnesses said that FBI is a very conscientious employer. Goes to the intent of Mr. Neilson.
(Aycock is reading off computer screen and making notes.)
Huge gap with the intent to deceive. Nothing the expert has said that Neilson was trying to deceive the government. The case law is very clear.
No. 4, no proof that it was a loan to be listed on the document – that if it’s your money, it’s not a loan. On ’06 form, I can’t tell you why information isn’t on there, but I can tell you there’s no intent to deceive.
No. 5 – Neilson made a lot of statements to Ms. Howell. Majority of witnesses said there were no formal meetings, there were discussions. He says he didn’t attend meetings. Statement isn’t material. Ms. Howell said that when she interviewed him, she chose not to provide documents to help him refresh his memory.
And your honor, again, where is the intent to deceive? He said over and over that he was there during site selection process. We submit that where there is no proof of intent, a judgment of acquittal must be entered.
She cites case law that intent to deceive is required, more than false information. And another that deals with good faith. One precludes conviction for honest mistakes on government forms.
2:30 – Bourgeois to respond. Will start with the counts.
Bourgeois says the statutes and forms require financial interest. Under MS law, partnerships can be formed orally, when parties believe they have agreement. Neilson said he was “in this” in 2004, received $50K from the partnership.
Crystal clear in 2004, he claims it on his income tax returns. Feb. ’05, payments start going to ACM. E-mail from Neilson, that he recommends use of the extra space in the FBI building. Others testified that he supported lease of this space. No question of personal involvement, this is Neilson doing this. Whether it was leased or not is irrelevant. Conflict itself is the crime.
That’s personal and substantial participation by Neilson.
The crime is his active participation as an FBI employee, as an executive branch employee. Mize and Jenkins said they would not have given him punch list to deal with, if they had known he had a personal interest. Mize completely relies upon Neilson.
Count 3 – Oct. ‘04-Sept. ’05 – Neilson said of course he was part of C&G or they wouldn’t have loaned him the money. This money was due back. He received the $50K loan, in July ’05 he participated in the vote about the loan. Goes back to financial interest in this property.
What’s left off ’05 CFDR, is it material? FBI’s Kelly says he’s relying on truthfulness on reports. Gomez said had he seen the information on the form, he would have questioned it. Time period ended Sept. 30, 2005, executes it on Oct. 17. Date is important, important C&G documents for financing are filled out two weeks or seven days before he fills out this report. To say that he didn’t have intent to deceive, when he borrowed $2.2 million and left off the $50K loan.
On ’06 report, required to report any of these outside positions. Doesn’t even bring forward what’s reported on the ’04 forms. In ’04, when he writes ACM on the report, he hasn’t gotten the C&G money yet. He’s just gotten the lake house, a vacation home. But a lot’s changed by the next report, and he says “see attached.” By ’06 report, all traces of C&G are gone.
With respect materiality, Mike Turner has retired. Morrow and Gomez were robbed of ability to do any kind of inquiry about whether he had a conflict of interest because information wasn’t on the form.
On recordings, no question Neilson was present for those meetings. They said what he said on the recordings, that’s not true. Why would he lie? Evident, when asked, he did anything he could to distance himself from the sites. Documents show otherwise. He doesn’t say he doesn’t recall, he says “they wouldn’t let me into the meetings.”
His false statements affected the timeliness of Ms. Howell’s investigation.
2:47 – McCoy – cites U.S. Supreme Court is outright wrong. MS law says can have a verbal agreement, unless there is a written agreement. And that’s what we have – a C&G partnership agreement. Getting $50K from ACM doesn’t make for a financial interest.
Intent is not my issue, that’s the law, your honor. Intent must be shown or a verdict of acquittal.
Neilson listed ACM on ’04 report. On ’06 report, all traces are gone – by filing that document. That’s wrong – Mr. Neilson’s name was all over the place. Certainly the U.S. Attorney of the Northern District found his name, which is how Ms. Howell came into this case. They were deeds, warranty deeds.
That goes to intent. There was no intent to deceive.
Bourgeois said he lied to Howell. Where is the proof of that, your honor?
2:50. Aycock looking through papers.
AYCOCK – The court has heard arguments. Judgment for acquittal. Whether truth is sufficient, it’s whether or not the evidence in favor of governemtn, that any rational juror would find it has occurred.
First 2 counts – for this jury to convict, must find 4 elements – exec branch employee, personally and substantially participated as govt. employee, when he knew he had a financial interest, act wilfully.
Count 1 – a rational juror could find that Neilson participated in a series of e-mails and correspondence as an FBI employee with others who had procurement authority to secure rental space. That he was making a recommendation or otherwise suggesting rental would be desirable.
Counts 1 and 2 – rational juror could find that by Neilson’s statements – recordings and actions that he took – such as treated it on tax return, memo to accountant, tells Howell in the deal since 2004 – all these indicate to rational juror that he participated when he knew he had a financial interest.
Wilfully? – perhaps it’s a contradiction of how he would take one position, such as to his accountant to get credit, but on other occasions about not reporting it. This may also speak to his wilfulness.
Court is persuaded to Counts 1 and 2 – juror could determine that as an FBI agent is taking actions when he arguably as owner and as a resident agent had a financial interest to see punch list items to be handled.
See these counts go to jury.
Counts 3, 4, 5 – in order for jury to find him criminally liable – that he made a false statement to fed agent/agency.
Court is persuade that rational jurors could find that he in fact received income in excess of $1K, had a loan during reporting perior and that he falsely stated on disclosure reports that they were true and complete, when in fact that they weren’t. That he made these statements intentionally, knowing they were false.
Were the statements material? I heard testimony of various FBI agents, some said reports were a hassle. But that’s not the law. They have a reporting obligation. Instructions are on the form. Court is satisfied that he received notice and proof is sufficient for a reasonable juror to find that he knew he had that reporting requirement.
Materiality? Kelly’s testimony sticks in my mind the most, that he relied upon the employees to make a truthful reporting, that he would have taken action if he had known of its falsity – or if it had been correctly reported by Mr. Neilson, it could have resulted in his termination. Ms. McCoy, I reject your theory that it is not material – it’s more than that. It’s material when persons state under oath that they would have taken different action if they had known the truth.
Count 5 – made false statements on purpose? That’s satisfied by the cumulative nature of the evidence – that he falsified the reports to purposefully deceive a federal agent.
Court is satisfied that there were numerous meetings, that he was present and participated.
Court denies judgment of acquittal on those 5 counts.
McCOY – Clear in the record about who Mr. Neilson is and the job he has done.
We have the right that he was retaliated against by Mr. Greenlee. Order to deny he was a victim of selective prosecution. However, I will say, that if we had been afforded access to documents that we have now, part of investigation of this case we would have filed selective prosecution.
More than two years ago … I was personally informed that Greenlee had two people in his office who were literally looking for evidence against Hal Neilson. Had been checking records at Lee Chancery Clerk’s Office. We did not have confirmation of that until this week. Think it should have been provided that information sooner.
What document shows is not so much selective prosecution but retaliation. Mr. Neilson talked to his superiors about a Northern MS investigation of people of Middle Eastern descent. Information brought to him by members of his squad. Appropriate to notify the Department of Justice. DOJ came down, found no violation by Greenlee and his office.
Soon thereafter, Mr. Greenlee took a number of steps as US Atty – one is what I had been informed of. Someone on his behalf searched land records of Mr. Neilson. He also wrote a letter to the FBI Director Mueller, asking that Neilson be removed of his duties because he found him to be ineffective. DOJ came down, found nothing but praises to sing for Mr. Neilson. Only problems were with the senior management of US Atty’s Office. At same time, Greenlee was going about looking for deeds, etc.
During Greenlee’s term, we found evidence of at least half a dozen federal employees who committed criminal acts during their employment – allowed to take retirement and walk away. Violations of the same section Mr. Neilson is charged with. (She cited these examples.) In any event, if allowed to present, we would show the jury that numerous people who have committed far greater acts, were not prosecuted.
Also, that these sorts of actions, when occur within FBI and other federal agencies, are handled administratively, not criminally. Realize there has been a recusal in Northern Miss., still the District of Northern Miss is still working on this case and offering information.
Ask again that your honor let us use this information.
Bourgeois – (began to talk) wait Judge says.
The classification of this as a defense, which would be an allegation that for another reason outside the actions of the defendant … nothing that’s said would go to that. Nothing has been said about the counts in his indictment. Just another way to say, Don’t find the defendant guilty.
About investigation of US Atty’s Office, no findings of wrongdoing. Neilson had a concern, forwarded that up the chain. Documents reflect the same. Mr. Greenlee had a concern about financial matters of Neilson and forwarded that up the chain.
I don’t know if the things of Ms McCoy says were referred to DOJ-OIG, this case is entirely consistent with the way they handle their investigations and prosecutions.
We don’t think this is a defense.
McCoy – What is a defense has been determined by the U.S. Supreme Court, not the U.S. Atty’s Office, a defendant is entitled to a defense.
What’s very important, Bourgeois said, Mr. Neilson had a concern and ran it up the chain. Then, he said, Greenlee had concerns about Mr. Neilson’s financial dealings, and he ran it up the chain. Mr. Greenlee’s concerns did not come within the scope of his employment with the US Atty’s Office, Mr. Neilson’s concerns did.
It’s unfathomable that a US Atty’s Office would go to chancery clerk’s office and look up all the deeds of everyone in his position. That’s the crutch of selective prosecution. We did not have the proof of what happened.
3:19 – Judge writing, looking at documents. (A couple of weeks ago, Aycock ruled that Neilson’s attorneys could not mention anything before the jury about selective prosecution or their claim that bad blood between Neilson and Greenlee precipitated his criminal investigation and indictment.)
3:25 – Judge – prior to trial government filed motion to preclude selective prosecution. Court agreed. From our review of case law, it seemed very clear that this was not an issue for the jury to decide, it was for the court to decide.
When we look at other district courts, this defense of “I’ve been picked on” was not proper to go to the jury.
Today, and prior to trial, heard McCoy say we didn’t all it selective prosecution, we called it retaliatory action by Greenlee, then US Atty, against this FBI agent.
My review of case law, a defense of retaliatory action is essentially the same as selective prosecution. Not to say it could have been raised by motion prior to commencement of this case within the appropriate time line within a motion to quash the indictment. Well, what I’m hearing now, Ms. McCoy said we could not have filed that motion or it would have been futile because only now, with copies of these documents, now we confirmed out belief of retaliation.
I want to be very careful with this – that the jury should not hear about this at all. But that we don’t gloss over this at all – we are here to seek justice. What do we really know about what got us to this place. Well, I don’t know the truth. My point, it’s easy Ms McCoy to say that you have personal knowledge of six or more persons that could have been, or should have been, prosecuted for criminal acts. But Neilson was, but this was retaliatory. those are just rumors. We would have to have a trial on each one of those persons. I’m so cautious that we don’t leave this courtroom believing that these people should have been prosecuted.
But that concerns me that you make those statements.
Now, we have a document of the type that should have been produced in discovery to the defendant. I advised attorneys of Mr. Neilson, that I was going to allow them to review these documents. I understand Mr. McCoy that you believe and state – in good faith – had you known this, you might have taken another course. But it is this court’s belief that these documents just bear out that Mr. Neilson took certain action in 2006 in filing a complaint of Mr. Greenlee. No violations found. Then, there was an investigation of Mr. Neilson, Greenlee was contacted. But I just don’t find from these documents, the type of retaliatory actions that would cause me to deem that this case should not go forward.
Situation where government employees are filing complaints and doing what they think is correct. But what it leads to is why we’re here – trying Mr. Neilson on five counts.
I kind of think – do two wrongs make a right? Even if Mr. Neilson is aggrieved by the fact that he and Mr. Greenlee don’t get along, it doesn’t mean that this jury cannot find that the elements of these counts cannot be met.
Thing that concerns me the most … I just don’t want to leave this courtroom and fail to acknowledge that it is easy to make an allegation that six people were not prosecuted, then lo and behold, Mr. Neilson catches the heat. We don’t know from any documents that those six persons should have been prosecuted.
MCCOY – Will provide documentation.
JUDGE – I really don’t want to know. All kinds of statute of limitations problems. Makes sense to me that this is why the law is what it is – that these things should not go to a jury. It just clouds things. That’s the way we’re going to proceed.
SALOMON – Based on witnesses coming for defense, we ask they be informed not to bring up these issues. Second matter, based on who’s in the bull-pen, they will speak to Mr. Neilson’s character, we should like to offer additional information. Defense had copies. Relates to New Albany Cash and Carry.
JUDGE – Ms. McCoy, do you know about this?
MCCOY – Yes indeed.
JUDGE – Go to witness room and instruct them so specifically not to mention anything about selective prosecution, nothing about rift with Greenlee.
MCCOY – New Albany Cash and Carry, we thought it was to be used for 404(b).
BOURGEOIS – Says will not be used as 404(b).
MCCOY – My concern, is this may include broad and sweeping information to be put out there.
JUDGE – How broadly the question is asked will determine how broadly the response can be. Government is right of inquiring of the witness if they knew about something else, would they hold the same opinions.
MCCOY – Does that allow us to come back, …. they used an internal report on re-direct as specific instant conduct. We also have reports about specific instant conduct, why would our report not be used that way too?
BOURGEOIS – Character references that don’t go to truthfulness, we would object to being irrelevant. If Ms. McCoy wants to put on evidence about his trustworthiness, we will come back to ask them about other instances.
JUDGE – I hear your concern, Ms. McCoy.
MCCOY – What has been provided to us is still on a disk, would like to get a copy.
3:46 – Recess / DEFENSE WILL PUT ON ITS CASE
4:14 – Judge returns. Jury comes back. Defense ready to call is first witness.
EDWIN WORTHINGTON – 31 years in FBI, ran Jackson office and oversaw resident agents such as Neilson. Then was Governor’s Homeland Security adviser, now a private consultant.
Questions by McCoy. Worthington said he chose Neilson to serve as acting assistant in Jackson because he was my most experienced agent. When he would apply for a position, I would be required to rate him. Rated him continuously very high.
Aware of what Neilson has been charged with. Based on his character as you know him: Worthington said it’s not consistent with his character.
Did Neilson tell him about owning an interest on a building? EW said showed poor judgment on his part. But wouldn’t change his opinion of Neilson.
Did he know Neilson got approval from Turner? EW said he did not. Knew Mike Turner gave training, probably ethics training. Believe Hal Neilson is a person of good character – personally and professionally.
Cross-examination by Salomon – asks for sidebar with judge. 4:22 p.m.
4:34 – APPROACH AGAIN / Done quickly.
JUDGE – During this cross-examination, you’re going to hear some testimony that may challenge what this witness has said about Mr. Neilson’s good character. Do not treat this as substantive.
Salomon questions – Social relationship with Neilson? EW says went to dinner in Oxford when we went up there, FBI Christmas parties etc. Last contact with him Sunday night or last night.
EW said he didn’t give him permission to have ownership in the building. Talked to him about Christmas time 2007. Reaction – I don’t recall .. probably would have been “What were you thinking?” Gave grand jury testimony in this case. Salomon asks him to look at his grand jury testimony to refresh his memory.
Neilson’s response? As I stated then, he said it was a bone-head mistake, said showed poor judgment and I agreed with him. Don’t recall if I talked to somebody else. Said he wasn’t employed with the FBI at this time. Also, didn’t give him advice on how to fill out his confidential financial disclosure report.
EW said he worked undercover, managed people who worked undercover. Are you aware that Neilson asked informants in undercover ops with whom he was trying to do business to keep it from FBI’s controlling agents? OBJECTION – SUSTAINED
EW – no knowledge about that. Aware that Neilson said he didn’t want his name on any business ventures with an informant? EW – I’m not aware of that.
MCCOY – EW – I am aware Neilson denies ever doing anything improper with undercover agents.
First time aware of such a situation? EW – never been aware of it before. But has known of other conflict of interest situations. As supervisor, says had experience with something similar to this. SALOMON – objects to relevance. SIDEBAR.
Asks what Neilson was talking about making a bone-head mistake. EW – said he regretted getting involved with project.
BRAD WALSH – Oxford tax lawyer. Was CPA before became lawyer. Has master’s degree in taxation. Knows Neilson – met him in about 2003 socially, came to know him over course of discussion about becoming a member of C&G LLC.
McCoy questions – Asks him to tell about C&G.
Walsh said Covington and Grisanti approached him about setting up an entity to solicit a bid for a government project. In 2001. It’s a lot of accounting. Asked help in putting together a packet to be a successful bidder.
Identifies document for general partnership agreement, which he drafted, with partners John Covington and Dino Grisanti. Dec. 26, 2001 dated document. Something has to be in writing that they agree to be partners. Can be changed by amendment.
Ever another partner in C&G Partnership? Walsh says never.
C&G Partnership transferred its assets to an LLC called C&G Properties LLC. Drafted that document. Partner? No, members – big difference, Walsh said. General partner can be responsible for all debts, but LLC limits debts to company. Members were Covington, Grisanti and Neilson. Met with them to prepare them for agreement. Covington was seeking permanent financing from Protective Life. Neilson’s involvement was contingent upon his getting approval from FBI. Told me he had approval, called with news. Any restrictions? I don’t remember any. Told me he was in Jackson.
Next steps? Covington can be kind of contrary sometimes, especially with Dino. Covington didn’t like somethings. Finally signed for permanent financing.
Did Neilson have any problems with LLC? Not that I remember, Walsh said. Didn’t questions the document. Signed Oct. ’05.
Three of them also were members of ACM LLC. Any discussion about placing University Avenue property under ACM? I don’t think so, Walsh. Wanted government to be comfortable with entity. Did discuss merging ACM into C&G.
Neilson never said his ownership should be secret.
Walsh said he does transactional work. Aware of legal means to make person’s identity secret? If I had done that, Walsh said, they’d still be looking for it.
Identifies deed of trust between C&G and Protective Life – it’s a mortgage on the building. Filed it in chancery clerk’s office in Lafayette County. Neilson’s name is in it. Signed as member/manager and also on notary provision.
Ever prepared taxes for any of these entities? Yes. Filing shows each partner’s share. Not doing Neilson’s individual taxes. Would give him a Schedule K-1 that shows business involvement. He was not a partner in 2004 – that was my error. When I first started working on the returns, I was trying to do a combined return and had it in my mind that he was a member. Got all government back-rent on Dec. 31, 2004, which kind of surprised us. I just missed that Neilson technically did not join until 2005. Says Neilson said, wait, I wasn’t involve in 2004. Walsh also said other mistakes were made. This was pretty complicated. Not unusual to find errors on returns like this.
When you find an error, is there a remedy? Walsh said can find an amended return. Yes, did so in 2004. Started talking about this probably in 2007, though change made only recently. Says Neilson did not ask him to conceal anything.
In May 2005, money distributed to Covington and Grisanti from C&G, and to Neilson from ACM. Yes, saw it. Did you list it as a loan? No, as a draw – don’t usually loan yourself money. Walsh says that every partner or member can have a capital account, that’s the money they put into the deal… cash contributions, services performed or individual liability. You can take draws on that equity, if you want to.
Walsh looked at GSA funds routing diagram of $150,000 disbursement. Is there anything wrong? Walsh said, no, nothing wrong. People make loans to their affiliates, it’s one way to account for it. In this instance, C&G was giving money to ACM. Walsh said he doesn’t know if they intended to put the money back into C&G. Covington kept the check book. Check to Neilson, looks like Covington’s handwriting. I had questions about it, John said that’s just what he put down there. Covington is kind of unusual, Walsh said. Getting into his mind is not a place I want to be, Walsh said.
Construction, spring 2005, think government had been in there for several months, Walsh said. Also recalled issue with bricks weeping or insulation. Identifies document where C&G Partnership and C&G Properties settled a dispute with Hooker – drafted because of punch list items the contractor just needed to address. Dated 6/21/05. All parties signed agreement. C&G partners Covington and Grisanti. Neilson wasn’t a member of any of these.
Walsh identifies e-mail from Neilson to Hogan Allen, Neilson’s CPA. Dated 8/8/05. Says he’s familiar with issues in the e-mail. Mr. Neilson’s never going to make a living as a tax attorney, Walsh says. Everybody was kind of freaking out because government wired all this money at the end of 2005, he says. Looks at hand-written note to Allen from Neilson about tax returns. Says he talked to Neilson about “active” or “passive.” Advised Neilson to tell Allen he was active. Classification comes with about 100 hours of participation, it will count.
5:47 – JUDGE – Asks attorneys of approach. Will send jury home. Says asked about finishing Wednesday. Not likely to happen but it could. Come prepared to stay after 6 and let’s do as much as we can tomorrow.
(Trial resumes at 8:30 a.m. Wednesday)
** Read news recap in Wednesday’s Daily Journal or watch updates on NEMS360.com.
* * * (MORNING SESSION) * * *
8:36 – Judge enters. Salomon says Michael has told him they don’t plan to cross-examine William Jenkins, former top FBI official in Jackson. Aycock calls the attorneys to speak with her privately at the bench. They seem to be talking about how to get this trial over soon.
8:43 – Jury enters. Michael says no cross-examination of Jenkins.
TODD WILLIAMS – Telecommunications mgr with FBI in Jackson. Oversight for resident agencies.
Williams testifies about part of the new Oxford building that wasn’t being used, which the FBI wanted to rent. Identifies an e-mail to him from Neilson, dated 2/8/05, about the radio room/storage of interest. Neilson said the owners mentioned $900/month rent but he also says it could be negotiated. Also said he didn’t know Neilson was an owner.
Williams said the idea of renting the space continued into 8/05. He identifies other e-mails from Neilson about the space. Later, Williams said he measured the space and determined it would not fit a normal-sized sedan. Also said he learned about Neilson’s ownership interest only when interviewed by the Department of Justice.
Cross-examination by McCoy. Williams said he was “advised” by the prosecutors that Neilson had an ownership interest in the building. He also said he would be surprised to know that interest did not occur until October 2005.
Said Neilson did not have authority to lease the storage space. Had not been shown ownership documents dated Octobe 2005.
RE-DIRECT – By Bourgeois. For ownership, couldn’t you just ask the person? Bourgeois says. Plays tape, on which Neilson says he got into the building ownership in 2004.
9:17 – excused.
HAROLD MIZE – Retired. Was administrative officer for Jackson FBI from July ‘03-July ’09. In charge of staffing, space. Reported to Jenkins, then Gomez. Met Covington as the building owner in ’03 as it was under construction. Talked to Neilson about the open space on the ground floor of the property.
Said Neilson wanted to lease the space. Mize said he told Neilson from the beginning that it “wasn’t going to happen.” Considered Neilson a friend before talk about space. In Feb. ’05, Mize said Neilson seemed displeased and told him he washed his hands of the project.
Talked about the 8/1/05 meeting about the punch list. Said the list was an issue for a long time. 8/2/05 message from Neilson says he contacted Dianne West of GSA in Southeast about “unresolved space issues.” Said Neilson gave him an update on punch list items.
9:30 – Cross-examination by McCoy. Mize said he expected FBI leaders on site to handle issues themselves, then contact him, if they couldn’t take care of it. He said Neilson was frustrated that the FBI wouldn’t approve rental of the downstairs space. Said he thought eventually that Neilson got mad at him.
Said he considers Neilson a friend and was surprised to learn allegations about his interest in the building ownership. Noted that background checks were extensive, life-long, before joining the FBI and that five-year checks were thorough but not as much. That the FBI keeps up with what’s going on with its employees.
9:44 – break / 10:02 – return
REDIRECT – By Bourgeois. Mize said FBI background checks rely on employees to provide information, then FBI verifies it.
MICHAEL RUBINO – senior vice prez of Amerifund Commercial Corp., a commercial lender. Since 1993. Did business with C&G Partnership – primarily with John Covington, for financing on FBI building in Oxford.
Questioned by Bourgeois. Talked about process of commercial property financing. Says the higher the rent from a leasee would mean more loan amount. Says Covington anticipated $900 more in rent from FBI, which would mean their check at closing would be less.
6/14/05 e-mail tells Covington the loan interest rate has gone up. It’s getting worse for the project, Rubino says. Identifies loan document signatures for C&G by Covington, Grisanti and Neilson 7/15/05. Loan amount $2.220 million. Identifies loan certification for C&G partners.
Talk about loan structure. Principals of loan guaranteed $1 million of the loan, in case a tenant moved out. 11-year loan. Covington decided to go with balloon payment on end of loan. Building would be paid off in 2017.
Cross-examination by Michael. Rubino said John Covington was his “100 percent” contact for the loan process. Before closing, had no contact with Neilson. Didn’t think it was a high-risk loan. But group needed cash at the closing. Don’t know who Covington was talking to about that.
As lender, Rubino said his company looks for as much rent as possible. Doesn’t know anything about anybody trying to hide or cover up any information about this loan. Explains to jury what a deed of trust or mortgage is – if non-payment occurs, lender can take property. Deed is recorded after it’s signed. Recorded to lender can foreclose or for public to see who has a lien against the property, see what money was borrowed, etc.
This transaction paid off construction loan and gave permanent financing for the project. Says many people have lost money, across the national drop of about 45 percent value in commercial property. Says Oxford building may not be making money at all, with reduction of value.
Re-direct by Bourgeois. Rubino says important to have all partners sign for responsibility on loan. Said ’05 real estate market was good, and no concerns about ’06 market then.
RONALD GAGNET – (Michael tells judge they have questions they’d like resolved before Gagnet testifies. Judge excuses jury.)
McCoy says defense objects to titles of documents are opinions, not facts for the jury to decide. Salomon shows one document noting bank transfers from C&G to ACM Properties. McCoy asks for a copy. Document says label claims this money was used “to buy and use the Sardis lake house.” She says she objects to entire exhibit.
Judge instructs government to use scissors and remove document labels, which are opinions. She and attorneys walk through possible exhibits about whether they will be offered into evidence. McCoy says objection to relevance. It is intended somehow, McCoy says, to prejudice the jury to think Mr. Neilson has gotten into debt he couldn’t get out of, which is not the case.
Salomon says the document tracks personal spending after Neilson received $50,000 check from C&G to Neilson from ACM. McCoy says that’s just incorrect. Judge says she will sustain objection because it directs the jury that the money came from GSA. Judge says Salomon can use document as an aid to witness, not as evidence. Judge says document information is limited to 60 days.
Another document will be admitted but with amended title.
11:08 – attorneys take quick break / 11:21 – jury returns – Judge says certain new exhibits have been received, and Ginger Sullivan reads the numbers to the jury.
RONALD GAGNET – works for a CPA firm in Baton Rouge, La. Firm partner, been there 25-plus years. He examined partnership and business records for the government. He’s also certified as a valuation analyst and in financial forensics.
Questioning by Salomon. Gagnet says he “followed the money” in this case. Salomon offers him as a financial forensics and accounting expert. Michael objects.
Gagnet says he examined various financial and business records of C&G and Neilson, including tax records. From 2003-2008.
Conclusions or findings? Yes, he says. Deposits and withdrawals from Dec. ’04 through June ’05. Exhibit – a spreadsheet of C&G acct. 8501 from 12/04 to 6/05. This is C&G’s “incoming account.” All deposits from GSA. Total deposits $487,628; withdrawals $216,175; ending balance $271,435.
He identifies $100,000 withdrawal from C&G to its “outgoing account” and $50,000 to ACM Properties. For $100K withdrawal, 5/19 split into two $50,000 checks to Covington and Grisanti. Nothing written in check memo lines. The $50,000 to ACM went to a check for Neilson. This check memo line says “sale.”
Exhibit, a chart, lists bills paid from the “outgoing account.” Dec. ‘04-June ’05. Salomon says he’ll take it one month at a time. In May, pattern of pay changed to checks to Grisanti and Covington, then check to ACM then to Neilson. Normal bill-paying pattern resumes in June.
Check to Neilson went to his personal bank account. Gagnet said he determined what Neilson did with that money. Beginning balance $3,384 6/10/05. On 5/25, $50,000 deposited into this account from ACM.
11:56 – SIDEBAR / McCoy asks for conference. 11:57 over.
Salomon continues questions about bank account. Gagnet says this is where 5/23 $50K check went. Where did money go? Gagnet said it was used to pay various credit card companies. He notes about $42,678 payments to 7 cards.
Salomon asks if Neilson received cash-flow benefits from C&G? Gagnet says he was, comparing rentals minus expenses. He also says “a lot of money” transferred from C&G to ACM for the lake house.
About the Sardis lake house, Gagnet identifies checks by C&G to ACM for the lake house. GSA to C&G, then to ACM, totaled $153,623 from 2/05 through 2008. Gagnet says Neilson had an ownership in this property, so because C&G was sending money, it wasn’t necessary for Neilson to pay his own money for the lake house. Gagnet speculates that ACM was shaving trouble keeping up with the lake house mortgage, so C&G helped there.
Did ACM have $50K before getting money from C&G? Salomon said. No, Gagnet answered. Looks at Renasant Bank statement for ACM.
(It’s 12:19, this testiimony is painfully slow.)
Gagnet looks at May ’05 ACM Properties LLC bank statement. Starts with $5,326 balance. $50,000 comes in from C&G. This is the check, Gagnet says, that went to Neilson. He describes the payment as a benefit from GSA.
Did you look at his personal cash flow in 2004 and 2005? Yes, Gagnet said. Opinions about whether Neilson lived above his means during this time? Yes, Gagnet said. Roughly, spending was just slightly above receipts in 2004. For 2005, first 10 months of the years, a number of one-time receipts into the account – total receipts were slightly above spending. One-time receipts included money from Mrs. Neilson’s parents, life insurance policies cashed, 2 credit card advances.
As for credit card payments in 2005, nearly $60,000 Gagnet said. His income for the 10 months was about $75,000. He needed these one-time deposits, Gagnet said. If I took out the one-time items, he was about $3,500 negative on average. He was not living within his means in 2005, Gagnet said.
12:27 p.m. lunch break. Back at 1:45 p.m.
* * * *
Patsy R. Brumfield / Daily Journal