NEILSON TRIAL: From Wednesday afternoon proceedings

ABERDEEN – This is a rolling account of Wednesday’s federal court proceedings in the trial of FBI agent Hal Neilson of Oxford, accused of lying about his financial interests in a building the FBI now rents.

The account begins after a lunch break and works backwards through the day, as action develops. (Patsy Brumfield)

* * * *

2:30 P.M. – Court resumes.

Hogan Allen on the stand: Christi McCoy cross-examines him.

He says Neilson provided extensive records for tax return preparation.

Re-direct by Salomon: Asked about reason for amended return for 2004 year.

Return is dated Feb. 24, 2006. Allen said it was “preparer error,” someone else, not him.

Original 2004 return signed Feb. ’06, got extended period because of Hurricane Katrina. Amended 2004 return signed Oct. ’06.

Allen says Neilson seemed to know about expenses, deductions to figure into the computations.

2:54 – BREAK. Judge says she has something she needs to take care of for about 20 min.

3:27 – RESUMES. Judge asks counsel to come forward for a sidebar. She’s made a decision about a document request. Don’t know what, yet.

Govt. calls Steven Gomez, now a counter-intelligence officer in the Pacific Northwest. Formerly with FBI. In August 2005, was promoted to Jackson MS as asst. special agent in charge.

Hal Neilson reportedly directly to Gomez. Confidential financial disclosure reports submitted to Gomez.

Gomez said he signed Neilson’s 2006 report – which said “no” to whether he had any reportable liabilities; to reportable outside positions. Also did not list any business partnerships.

Bourgeois showed Gomez reports showing Neilson was a one-third owner in C&G. Gomez said he would have wanted to know that to consider whether it posed any potential conflicts of interest.

SIDEBAR – Govt. may want to present a recording. McCoy making chief defense arguments.

Bourgeois goes back to documents, asks if Neilson ever told him about ownership in FBI building. Ever mention a loan for $50K from group that owns FBI building? Gomez says no.

Prepares to play a recording for Gomez. (Defense objection overruled but noted.)

RECORDING – Neilson heard saying $50K was a loan, to come back when C&G needed money to finish building bottom floor.

SECOND RECORDING – Neilson says he knew it was a loan from the company, C&G. That he was in the company at that time. An internal loan, but that “probably not” noted on his financial report.

Gomez said never gave Neilson permission to own interest in FBI building. Says would like to have known.

CROSS-EXAM – McCoy

Gomez says Neilson was an excellent supervisor, his most experienced when he came to MS in 2005. Neilson stepped down as Oxford supervisor in 2008 because of overall FBI policy about five years and down. Remained with FBI in Oxford.

Says he trusted Neilson. That his confidential financial report for ’05, which Gomez didn’t see, contained “more than most” listings for business interests. That it’s “very rare” for the FBI to give approval for agents to hold outside positions with other companies or institutions out of concern that they may be called to investigate those entities.

Gomez said if he had seen Neilson’s financial report, he might have talked to him about the listings, as well as talked with the Jackson division counsel, Michael Turner. He agreed that Turner had signed Gomez’ signature to the ’05 report, without asking Gomez’ OK.

Gomez also said he was not aware of Neilson’s intentionally failing to report anything on his annual financial documents, or ever aware of anybody amending their forms, or ever brought to his attention that someone needed to change something on the reports.

He said Neilson’s squad respected him, that he trusted Neilson and noted that Neilson received the top rating for a chief division counsel job in Memphis, when it came open.

Prosecutors objected and stopped McCoy in mid-sentence as she sought to ask Gomez if Neilson ever told him that Turner gave him permission to be part of C&G. But she did get a “no” response to her question about whether he knew if Turner every gave an agent verbal permission to take an outside position.

Gomez also testified that he was aware of “falsifications” made by Turner but not aware if Turner ever was sanctioned for those actions.

SIDEBAR 4:17 p.m.

This is the point where prosecutors lay the foundation for introduction of a “secret/sealed” FBI report with information about Neilson relating to the undercover operation, “Second Hand Smoke.” SHS revealed a multi-state blackmarket tobacco ring, which aimed to avoid state and federal taxes by going through Mississippi, under terms from the national tobacco settlement. Neilson led this investigation until sometime in 2009.

Bourgeois asked Gomez if he needed training to fill out his required confidential financial reports. He said no.

Did you trust Hal Neilson? Yes, Gomez said.

Then Bourgeois began a series of questions – apparently referring to the secret FBI report about SHS – that allegedly indicates certain irregularities or questionable expenses by Neilson during that investigation.

Bourgeois asked Gomez, would you change your favorable opinion of Neilson if you knew about these questionable activities? Gomez said he would.

McCoy jumped up with objections, and a sidebar followed at 4:33. The jury was excused from the courtroom.

McCoy said, from the question implications, that she wanted documentation and to see the report.

Salomon said it was filed under seal, the Jan. 25, 2010 report by the FBI. After about 10 minutes of looking through the 37 pages, Aycock said the document formed a “good faith basis” to challenge Gomez’ opinions about Neilson, to his truthfulness and trustworthiness.

Salomon said the report begins May 17, 2007, when Neilson was employed by the FBI.

Aycock agreed, with limiting instructions, that it could be used to question Gomez. But she instructed that copies, redacted and under seal, be given to the defense to prepare a response when the court reconvenes Friday.

(No one yet has been asked how this document will be used, if ever, outside the scope of this trial.)

Aycock said, at the close of the day, that she planned to read into the court record her reasons for allowing use of the report.

Court reconvenes at 9 a.m. Friday.

(Watch NEMS360.com for trial updates.)

* * * *

12:15 – Court takes a lunch break in Neilson trial. Here’s a recap from testimony after a late-morning break:

** COURT TAKES 15 MINUTE BREAK – 10:40 A.M.

(DURING BREAK – This is the third day that groups of people from Oxford have come to Aberdeen to support the Neilson family. His wife and her father are regulars each day, and it’s clear this situation has taken a toll. Mrs. Neilson often looks sad and sometimes wipes tears from her eyes. Oxford attorney Duke Goza has been here each day, taking notes. Today, several women arrived just before court began. “We love these people,” one of them said to me. Tuesday, Oxford attorney Andrew Phillips and Jeffrey Yoste were among the visitors. Also here today is Oxford attorney Rhea Tannehill. Tupelo attorney Chip Davis is here to represent John Covington.)

Salomon resumes re-direct questions to Covington. Stack of bank records relates to C&G’s money transfers to ACM, a company the three men own for a $300K-plus Sardis lake house, which they apparently have been trying to sell for several years.

11:06 – redirect ends, Covington excused. He and Davis leave courtroom.

Government calls William Jeffreys, Renasant bank official. Prosecutor Richard Bourgeois to question him. Jeffreys works in Coffeeville, says he’s known Covington for many years.

Jeffreys testifies about Renasant accounts and loans associated with C&G Properties and ACM.

Cross examination by Ronald Michael.

Jeffreys says he dealt mostly with Covington on building project, as manager. No contacts with Neilson about project or C&G incoming bank account.

Jeffreys says Neilson has done nothing associated with ACM loan for lake house. Covington is the one Jeffreys says he contacts about ACM.

Redirect by Bourgeois: About where ACM money came from … From GSA government $$ to C&G.

11:34 – Govt. calls Hogan Allen, a Jackson CPA. Began to handle Neilson’s accounting work in 2002 when at Eubanks & Betts before he established own firm later. Prepared Neilson’s tax returns from 2002-2006.

Allen identifies three tax returns. Third is different as electronically filed.

Allen says returns in 2004 and 2005 were affected by Neilson’s partnership in C&G. Says Neilson indicated he was an active partnership of C&G on a daily basis, which fit a certain tax category, in those years.

Allen says Neilson did not tell him he owned the FBI building or about any assets of C&G.

Next, e-mail from Neilson to Allen dated Aug. 8, 2005. Says he bought a 1/3 interest in a building under a construction loan that was partially occupied by the federal govt. for most of 2004. Says govt. wired “into our account” all back rent on Dec. 31, 2004. Allen says it indicates he’s a participant in the company.

Another communication from Neilson, to prepare 2004 returns, says he’s a 1/3 partner in C&G and ACM.

2004 tax return for Neilsons shows listing of C&G and ACM businesses. In 2005 return, shows Neilson lists ACM and C&G interests. Allen says Neilson’s role described as partner. For 2006 return, Allen says Neilson reports partnership in ACM and C&G, plus a dry-storage in Oxford.

For 2005 tax returns, Allen identifies hand-written note from Neilson (previously examined by Covington) on DOJ/FBI letterhead. Neilson says he’s an active manager, “almost on a daily basis” for the construction project. Neilson apparently seeks a greater tax advantage because of involvement. Also notes expenses he forgot to list. As an “active member,” Allen says it changes the way in which the dollars are treated on his tax return. As active, income or loss is reported at full value, Allen says.

Allen said Neilson found a new tax preparer after 2006.

LUNCH BREAK – 12:06 / Court to resume at 1:45 p.m. Judge Aycock says she has a matter to resolve during the lunch break, which is why it is longer than usual.

9:30 a.m. – NOTES FROM COURT THIS MORNING:

ABERDEEN – It’s Day 3 of Hal Neilson’s trial on federal charges that he lied about his financial interests in the Oxford building now housing the FBI, which he worked for.

Here is some running action so far this morning:

The government claims it has a tape recording of Hal Neilson, reportedly talking about a “loan” from C&G Properties LLC.

How did they get it? When was it made and who made it?

Before it’s heard, both sides’ attorneys are arguing about it to Judge Aycock.

A few minutes later, Salomon begins re-direct with Covington but no recording is played.

Salomon goes back to bank documents with questions about “loans” from C&G.

Next sidebar, Salomon has document. Judge is reading it then argues with him about it. but ultimately looks like government can introduce it.

Document exhibit is a stack of bank records for ACM and C&G.

Covington has hard time remembering details of when he asked Neilson about whether he could be an investor in the project. Says it wasn’t specifically about the University Avenue building, just “can you do something like that?”

Salomon walks Covington through a series of documents “to refresh” his memory. Then he asks about dates when Neilson was asked to join C&G, when he said he had permission to join and when he officially became a partner.

Sidebar – about “statement as an admission by the defendant.”

Covington asked to read hand-written note signed by Neilson as “active” manager of ACM and C&G property. He says Neilson was on the ACM note but just two months with C&G, and that he would not describe him as an active manager.

He also said Neilson did not tell him about this note, apparently to Neilson’s accountant.

Another sidebar – deals with e-mail, apparently using Neilson’s personal hotmail.com account.

(Covington’s wearing a tie today, with navy-blue blazer. His physical appearance suggests he may be related to Gov. Haley Barbour, although he isn’t as corpulent. In truth, they are all Ole MIss Sigma Alpha Epsilon members – Covington, Neilson and Barbour.)

** COURT TAKES 15 MINUTE BREAK – 10:40 A.M.
TUESDAY:

ABERDEEN – Oxford businessman John Covington testified Tuesday through an immunity deal about his business dealings with FBI agent Hal Neilson.
The men were partners in Camp&G Properties LLC with Dino Grisanti until they bought him out in mid-2008.
From that partnership, a building at 2109 University Ave. was constructed for $2.2 million and then leased by the federal government. It houses the FBI, the ATF and the U.S. Marshal’s Service Special Task Force.
Neilson, 49 of Oxford is on trial in U.S. District Court on a five-count indictment that he lied about his financial interests in the building.
If convicted, he faces up to 25 years in prison and $1.25 million in fines.
On the second day of the trial, prosecutor Rene Salomon walked Covington through a lengthy series of business and bank records associated with transactions by Camp&G.
Covington, a college fraternity brother of Neilson, seemed sometimes annoyed by government questions during his several hours on the stand.
Under cross-examination by Neilson’s attorney, Christi R. McCoy, Covington said he never asked for Neilson’s help in gaining the government contract.
In mid-2005, Covington and Grisanti brought Neilson into Camp&G with one-third stake by each partner. According to Covington, Neilson told them his Jackson FBI counsel said he could participate in the project, but not in a managerial role.
A few months before, Covington said three checks of $50,000 each were written to himself, Neilson and Grisanti. His and Grisanti’s checks came from Camp&G, while Neilson’s came from another company the three men owned together.
He said the payments were “informally” termed loans with the promise to repay them, “when we get a tenant on the finished building.”
But in the past five years, he said, any excess funds to Camp&G beyond operational costs and loan payments have gone to subsidize another company and that Neilson has received little or no profits.
Covington will return to the stand today.
Tuesday’s first witness was Patrick Kelly, the FBI’s top ethics official, who admitted that despite Neilson’s apparent lack of training about filing financial disclosure forms, instructions were specific enough for filers to understand the importance of accuracy and truthfulness.
Prosecutors claim Neilson lied on some of the forms about his real estate holdings, especially the University Avenue property, where he was the FBI’s top local official.
Contact Patsy R. Brumfield at (662) 678-1596 or patsy.brumfield@djournal.com.

PATSY BRUMFIELD / NEMS Daily Journal