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Transcript of a Bench Conference and the testimony of Witness William Offutt

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VOLUME VI II -A
IN THE UNITED STATES
EASTE-RN DISTRICT OF VIRGNIA Alexandria Division I r
-x

UNITED STATES OF AMERICA
-vs-LYND01J LaROUCHE, et al.,
Defendants

CRIMINAL ACTION NO. 88-243-A

X-
Monday, December 5, 1938 Alexandria, Virginia
Transcript of a Bench Conference and the testimony of Witness WILLIAM OFFUTT, on the eighth day of trial in the above-captioned matter.
BEFORE:
The Honorable ALBERT V. BRYAN, JR., Judge, United States District Court
APPEARANCES:
(As heretofore noted:)

  • * *

DON McCOY, RPR OFFICIAL COTOT REPORTER 683-3668

£ N D E X WITNESS FOR THE UNITED STATES DIRECT CROSS REDIRECT RECROSS
WILLIAM OFFUTT

PROCEEDINGS
MR. MOFFITT: Your Honor, may we approach for. a second?
THE COURT: Yes
(Thereupon, a conference was held at the Bench with Court and counsel, out of hearing of the jury, and reported as follows;}
MR. MOFFITT: I wanted the Court to know that we filed a motion with respect to a witness that we are trying to get here. It's similar to a motion that was filed in the Libyan Case.
THE COURT: Same motion, isn't it? Different names.
MR. MOFFITT: Mr. Robinson has said that he -would try to help us. 1 don't want to misrepresent him. He said he would try to help us get something- so we can get thi.s witness a visa. She is a friendly witness. She didn't have to be subpoenaed. She is willing to come. She has appeared three times, and each time there1 s been some trivial reason why slie couldn't get in.
THE COURT: Are you satisfied with the Government's statement that they will do what they can to assist?
MR. MOFFITT: At this particular point. When they come back and tell ine that they can't, then we will have to maybe take it up at that point; but I air* satisfied that

Mr. Robinson will do something to help us. I just wanted you to know about the motion.
THE COURT: Wliile you are here, the Clerk's
office has delivered to me a menao from Juror Melville, who is one of the alternates, who told the Clerk's office that his company has an important meeting that they want him to attend. I haven't obviously ruled' on it. I bring it to your attention because it has been brought to my attention. My inclination is to raake him serve, but I don't want to —
MTU WEBSTER: When is the attendance required?
THE COURT: SoTfletinie today, I gather. I don't know any more about it than that, how long it is, whether it constitutes a request for a permanent excuse or not. My inclination is to make him serve. We asked these jurors if serving would inconvenience them. He is an alternate, however, and he may feel that his presence is not as crucial as it might otherwise be. I am perfectly willing to listen to what your views are on it, yours and the Government's.
MR. MOFpITT: On behalf of Mr. Sttiall, Your Honor, you did excuse everyone who said they had a problem serving in a case that was this long. I think that that was fair. I don't want him excused. That is ray view of it.
MR. ANDERSON: Well, Your Honor, obviously there is one -— I have a question about it. My point of view is that we have had several days of the Government's case, and

we have an affirmative defense case that i.g of unspecific duration at this stage.
I hate to bring Boston up as a model of anything to Your Honor, but in Boston we tended to lose jurors in blocs. I would be afraid of getting down to the situation where we got to in Boston; we had to in fact decide whether we wanted to accept 11 jurors or something like that, because we had lost our alternates.
THE COURT; And this sort of thing is catching. If one does it, th.en the.y all want to.
I ara going to tell him, I am sorry, but he will have to serve.
Anybody want to be heard further on it?
MR. HQFFITT: No, Your Honor.
MR. REILLY: Your HonorT I have a pending -motion dealing with, the summary witnesses. That issue is going to come up today, because X understand those witnesses will be on today.
THE COURT: is the Government going to have him testify as to anything in the way of exhibits that hadn't already been referred to?
MR. ROBINSON: No, Your Honor. I am calling two summary witnesses todayF whose purpose will be to summarize -*• the first one will summarize the documents, that Kathy Magraw identified during her testimony. The second one will

be to summarize Richard Magraw's checking account records and credit card records. It is just that straightforward. All those summary schedules were prefiled with the Clerk.
THE COURT: They are each going to base his summary on exhibits that have already been introduced in evidence or discussed here?
MR. ROBINSON: They have been discussed, yes. I did not have Richard Magraw identify his records, but they are sitting here in the Courtroom.
THE COURT: There is a box that was put on Mrs-. Magraw's, I think --
MR. ROBINSON: That is right.
THE COURT: I am not going to hold an out-of-the-presence-of-the-jury hearing on that. I ara going to require that the Government identify exhibits that the .summary witness relies upon, but I ai£ not going to hold a separate hearing on that.
MR. ANDERSON: If I may make two points for the record, one is. a question to the Government, and that is, please don't let then* just — you say you have no intention of putting on a summary witness with respect to Scanlon.
MR. ROBINSON: That is right. We are not going to include them in Mr. Buell's testimony. We had originally intended to but we are not. We have dropped her from the case.

MR. ANDERSON: I have s-orae serious questions about methodology and the procedure followed in this over the weekend, which is the first time I have had an opportunity to concentrate on this issue, we identified each category. There was an overall --
THE COURT: You mean in summary?
MR. ANDERSON: Yes, in the mode of the summary witness. Humber one, the summary witness includes as totals, calculations — he says I calculate, and I looked at the following records. In the following modes, this is the category I looked at. Here are the documents- they ruled from Then they did the totals. There are, for example, overlaps which are terribly misleading.
THE COURT: I think that is appropriate cross examination.
MR. ANDERSON: Except there are — I think there are sorfte fundamental errors, which if Your Honor heard in advance, it ma,ybe would only take 10 or 15 minutes, because you might well rule that because of the methodology errors, that they are not admissible at all and that to admit them in the form in which they exist or even to allow examination of them would be 40.3, excludable under 403 grounds, if Your Honor would be so obliged. It is not a long •— I know Your Honor's predisposition against anything that is not in front of the jury, but I think, if you gave me 15 minutes --
THE COURT: Mr. Anderson, you can't get up and get down in 15 minutes.
MR. ANDERSON
I will a&k Mi*. Rossi to do it.
He is much briefer than I am, Judge.
THE COURT: I am unwilling to do it. I think it is more appropriate for cross examination.
MR. MOFPITT: Your Honor, I would also ask, I believe there is going to be another witness testifying. Clearly the summaries on the tax case are not to the mail fraud cas-e, so I would ask that there be an out-of-the-jury 's-presence hearing to that effect.
THE COURT: After that evidence is in, if I forget, you remind me.
MR. MOFF1TT: Yes, sir.
In addition, there is a Mr. Bardwell, who is
going to testify, and I don't know whether his testimony is going to be for the purposes of the tax case or the mail fraud case, and one of the problems that we are having at the defense table, as I have stood up and stated, is when we don't know, I don't know on cross, I don't know what they are doing. I would ask the Government just let us know.
THE COURT: The last one you referred to is Bardwell?
MR. MOFFITT: Yes.
THE COURT: He is what kind of witness.? Summary

witness-?
MR. ROBINSON: No. He is a former member of the
organization. He is essentially a fraud witness, I think the only degree to which he touches on the tax case —
THE COURT: That is all Mr. Moffitt needs.
MR. ROSSI: Your Honor, I think, one more point on summary witnesses. I would ask the Court before allowing of these documents to have the witness1 testify as to any totals that are in the documents to hear both direct and cross before allowing it, and instruct the Government not to ask the witness what the total is in any particular category. That is where the problem —
THE COURT; I ajn not sure I follow you.
MR. ROSSI: In the documents, Your Honor, you have a stack like this, and there will be a total at the end, $2Qa,GQQ or $3QQ,,QOQ, whatever. One of the bases for our attack is this whole procedure is fra-ught — they shouldn't group them through the witnesses' testimony. I think it is proper to be heard on cross examination, and you will see the problem and then you can rule. And if there is redirect, the Government can ask them totals, but we ask they not be allowed to give any totals —
THE COURT: Do you have any problem with that?
MR, ROBINSON: I won't raove tor the admission.
THE COURT: You can move admission, but I will

10
reserve ruling on it.
MR. GETTINGS': That is what I thought, Your Honor.
ME. WEBSTER: Your Honor, two quick points. Do we have assurances from the Government there won't be any additional documents introduced through these witnesses?
MR. ROBINSON: Just schedules that were pre-marked and filed.
MR. WEBSTER: Secondly, do we understand there will not be any additional totals to be introduced other than those that are on the documents?
MR. ROBINSON: That is right.
THE COURT: The totals you will withhold bringing out until after -cross examination.
MR. ROBINSON: Yes, sir.
Now, there was one othey witness: — I want to make sure everybody understands, and I think everybody knows this, but that is Harry Chusid, who is the IRS computer expert. He is not doing a summary as such. He is introducing schedules which were extracted Erom the computer records seized during the search. I don't understand that to have been the subject of this conversation, but I wanted -to make that known.
MR. GETTINGS: I think this is subject in the same fashion on either reserving on the admission of the document until after cross or withholding the total.

11
TE1E COURT: I am perfectly willing to do that.
MR. SETTINGS: Either one satisfactory to us.
THE COURT: I will reserve ruling on their admissibility until after cross examination.
MR. ANDERSON: The Government will, withhold totals on that as well until after cross exa-mination; is that
right?
THE COURT: Is that the tax case?
MR. ROBINSON: No. That is strictly fraud — well, it is: both, I ara afraid.
THE COURT: Both?
MR. ROBINSON: Or questionable fraud.
THE COURT: Well, withhold that until I rule on it.
(Thereupon, the conference at the Bench was concluded, and the following proceedings were held:)
THE COURT: Mr. Melville, I got your message.
I ara afraid I will have to ask you to serve. You can tell your employe^ that it was just that so-and-so Judge that wouldn't let you leave.
THE JUROR: Yes, sir.
THE COURT: It is not the lawyers. It's me.
THE JUROR: I understand.
THE COURT: Call your next witness.
MR. MARKHAM: Your Honor, may we call the next witness?
THE COURT: Yes r (Whereupon, the following proceedings were typed and filed under separate cover, with the exception of the testimony of Witness WILLIAM OFFUTT, which follows:)

12

13
THE COURT: Call your next witness.
MR. ROBINSON: William Offutt.
THE COURT: Mr. Markham, this last witness, is he going to get more documents for these gentlemen?
MR. MARKHAM: We have all the documents here. They can send me a request what they want. We will get for them an original and/or copy.
THE COURT: And you will make sure he knows he is subject to recall?
MR. MARKHAM: Yes, Your Honor. Whereupon,
. WILLIAM OFFUTT
was called as a witness in behalf of the United States, and having been first duly sworn, was examined and testified as follows;
DIRECT EXAMINATION
BY MR. ROB-INSON:
Q Good afternoon. Would you state your name, please r and spell your last name for the Court Reporter.
A Yes. William E. Offutt, O-f-f-u-t-t, III.
Q How are you employed?
A I am a partner in the certified public accounting firm of Grant Thornton.
Q That accounting firm previously was known as Alexander Grant, is that correct?

14
A Alexander Grant Company, that is correct,
Q How long have you been working with that firm?
A I joined in August of 1983,
Q Okay. During the course of your duties with that firm, did there come a time when you were involved in work on behalf of certain corporations associated with Lyndon LaRouche?
A Yes, sir.
Q Approximately when did that begin?
A I believe that was approximately February or March Of 1SS4 or '85. I forget which.
Q First of all, who was the client? Who was it that hired Alexander Grant at that time?
MR. MOFFITT: Your Honor, may I have a clarification? This is Count Kill?
MR- ROBINSON: That is right. This is strictly a tax witness. Your Honor.
THE COURT: His testimony should be considered by you only in connection with Count XIII.
MR.. ROBINSON: Thank you. Your Honor. BY MR. ROBINSON:
Q Who was the client that hired Alexander Grant?
A Mayer Morganroth, an attorney in Detroit.
Q Now what was your role in this engagement? Engagement is the word that you use when you are hired to do a project?

15
A That is correct.
Q Okay. What was your role in tliis engagement?
A I was the tax partner assigned to the engagement.
Q And how long were you involved in this particular engagement?
A I was involved until I believe it was July of 1985.
Q And why did your —
A And Tfflinor involvement thereafter.
Q And why did your involvement decrease at that point in time?
A At that time I became reassigned from the Washington, D.C. practice office to the national office.
Q Okay. Could you just sort of give us a general idea of what it is that Alexander Grant was hired to do?
A Essentially our engagement was to assist in preparation of income tax returns and information returns for various entities that were identified.
Q When you say various entities, you are talking a.bout corporations? Is that right?
A Primarily corporations, but some of them were identified as tax-exempt entities.
Q About how many different corporations are we talking about, just a rough estimate?
A At the outset, I guess there were approximately eight to 10 entities that were identified. After we got into

16
the engagement there wexe other entities1 that were included.
Q And what period of time were you preparing tax returns for?
A It varied, but there were a number of years involved for several of the entities, so in some cases it was three or four years prior to the year in question, the year in which we were doing the work.
Q Who were the persons that you primarily dealt with
on behalf of the client?
A The people locally, of course Mr. Morganroth was the person who engaged us, but the people locally in Leesburg, and we dealt with primarily, were Ed Spannaus and Richard Welsh.
Q When you start an engagement like this — well, I don't mean to ask in a gene-ral sense — what did you first do at the start of this engagement?
A We initially met with. Mr. Spannaus and Mr, Welch and got a sense of what the nature of the assignment was and what the entities did, what years were involved, what the nature of the records were that we would be working with, try to get a general sense of the scope of the assignment and what the resources were to proceed with the work.
Q All right. Now as part of that general overview or introduction, did you become aware of the financial relationship between these various corporations you were

17
dealing with and Mr, LaRouche personally?
MR. ANDERSON: Your Honor, there is a motion that has been filed concerning -- which I feel obliged simply to reference at this point. I am not sure Your Honor has ruled on it. Apparently you have, Your Honor.
MR. MOFFITT: Yes.
MR. ANDERSON: Mr. Morganroth not being here, I presume, since this is a tax count, I simply reference it —
MR. ROBINSON: I think they are reserving objections previously ruled on, Your Honor.
THE COURT: I am not sure I recall.
MR. ANDERSON: That is all right.
MR. MOFFITT: Your Honor/ I believe it is an attorney-client —
THE COURT: All right, I remember that. BY MR. ROBINSON:
Q My question, Mr. Offutt, was, did you become aware of the financial relationship between, these various entities that you were going to prepare tax returns for and Mr. LaRouche personally?
A We were told that there were relationships between
the organizations and Mr. LaRouche.
Q Well, financially, what was the relationship, if you know?
A We were told that the organizations provided for

18
security expenses for Mr. LaRouche.
Q Okay. Now, as a result of this overview, did you have occasion to go talk with Mr. Morganroth about precisely what tasks he wanted you and your firm to accomplish?
A Wellr during the course of the work we reached a point where we felt like we had a fair idea of what the nature of the records happened to be, and some of the issues that had surfaced that we believed needed to be addressed, and so we did meet with Mr. Morganroth at that time.
Q You personally iaet with him?
A Yes, I did.
Q All right. Now, did any of the issues that you raised with him at that point have to do with Mr. LaRouche's personal tax liability?
A No,
Q Hell, did you discuss at all the relationship, the financial relationship of Mr. LaRouche with these corporations that you have just mentioned?
A We did discuss that one of the issues was security expenses that had been paid for by the organizations1.
Q All right. What did you say, and what did they say?
A We said that that was among the issues that we had identified, and Mr. Morganroth. had indicated that Mr. LaRouche had looked at the issue of his security expenses and what have you, and that that was not really the subject of our

19
engagement.
Q All right. Now, after th.at discussion, did you or anyone that was working for you look further into the question of the taxability to Mr. LaRouche of these payments that were going to him?
A No.
Q Why not?
A We were advised by our client that that was not the subject of ooar engagement.
Q All right. Wasn't it necessary to look into that for purposes of preparing the corporate tax returns?
A No, it wasn't.
Q Could you explain to the jury why that would be?
A Well, the concern, as far as the corporations and entities were concerned, was whether or not these expenses fell in the category of ordinary and necessary Business expenses. To the extent they did, the characterization of those expenditures to anyone who might have benefited from them was irrelevant.
Q Well, what are the potential characterizations that you are talking about with the security expenses, or the so-called security expenses, for Mr. LaRouche?
A Well, the question of whether they —
MR. ANDERSON: Your Honor, I am going to object, because this witness is now being cast in the mold, if you
will, of an expert witness testifying to matters extraneous to their engagement. He specifically told the jury what the scope of the engagement was. He told them what they did. That is all fine. But now to get beyond into this area is inappropriate to this witness, whom the Government has not identified as anything but a fact witness.

21
MR. ROBINSON: I am not asking him that, Your Honor. I am asking him what his own personal concerns were. And I am following up on the question of why he didn't need to pursue the taxability to Mr. LaRouche in the course of preparing the tax returns. This is a matter that was raised by Mr. Anderson in his cross examination of another witness last week. And that is the only reason Mr. Offutt is here and that I need to inquire of him into this issue.
THE COURT: Objection overruled. BY MR. ROBINSON;
Q Mr. Offutt, I think nsy question was:, what are the potential allocations of corporate expense into which the so-called security expenses on behalf of. Mr. LaRouche could have fallen?
A Well, one of the categories would have been that this- would have been compensation to the individual who benefited. Another category could have been that, based on the representation that Mr. LaRouche was a key editorial consultant to the organization, that the security for this individual would be an extraordinary expense for the organization and not a benefit for the individual. There have been instances where someone who is employed in a Third World country, who is a United States executive, whose safety is in question, and conceivably an expenditure that would be undertaken on behalf of the corporation to protect

22
its resource.
Q All right. But these various categories you are talking about would have all been deductible expenses? Is that right?
A Yes.
Q You didn't consider it important in preparing the
corporate returns to determine which of those categories these so-called security expenses fell into, is that right?
A Right. It wasn't relevant to the organizations,
Q After that conversation with Mr. 1-lorganroth, you didn't look any further into the question of whether these payments should be treated as salary or as sorae sort of other expense, is that right?
A Correct.
MR. ROBINSON: I have no further questions. Your
Honor.
CROSS EXAMINATION
BY MR. ANDERSON
Q • Mr. Offutt, in fact, you knew as of February 19, 1985 precisely what the nature and definitions of the engagement were, did you not, sir?
A I don't recall the date.
Q Are you aware of the fact that an engagement letter on Alexander Grant letterhead was sent to attorney Morganroth. on February 19, 1985, signed by Alexander Grant

23
and Company, apparently Sy someone named J. J. Miller, or some such, on that date.
A Mr. Miller is a partner in our New York office.
Q But you knew, did you not, that there was an engagement letter entered into with Mr. Morganroth and in fact that that is the practice in each and every case that Alexander Grant agrees to- consult on or become involved with,
A We generally have an engagement letter with our clients, yes.
Q You define in the context of that letter precisely what your engagement is and what it is not, isn't that true?
A We try as. best we can from the information provided, yes .
Q And the reason is ycm want it understood between yourselves and the client what you are going to do and what you are not going to do; is that right?
A That is correct.
Q You want to TaaJce sure there is no possibility of anyone's going- to conie back later and say, we thought you, you were supposed to do this, and you didn't do it?
A It is for the protection of both sides.
Q Now, have you seen that engagement letter? Do you recall ever having seen it?
A Yes, I have seen it.
Q Do you have a memory as to what it contained?

24
A In general terras.
MR. ANDERSON: Could I ask that Government's
Exhibit 29-A be shown — I need this one for my examination — let me get another one.
(Law clerk handing document to witness.)
THE COURT: The witness has testified that his engagement did not include a determination of whether these moneys were attributable to Mr. —
MR. ANDERSON: Well, Your Honor —
THE COURT: If you think there is a difference in that, that is fine, but if that is- all you are trying to show I think it has been shown.
MR. ANDERSON: Excuse me, Your Honor.
My problem was that that was understood from the beginning. As 1 understood the witness testifying, he had left, at least the way Mr. Robinson presented it, left in. my mind sorae questions as to whether or not there was a question initially and that that was only cleared up subsequently when this conversation was had with Mr. Morganroth.
THE CQUKT: YOU can pursue it.
MR. ANDERSON: Thank you;. Your Honor. BY MR. ANDERSON:
Q Have you had a chance to review that?
& I am looking at it now, yes.
Q Just let me know when you are finished.

25
A {Witness reading document.1 Okay.
Q You identified, or identified at the end of the first paragraph are seven entities, are there not, for whom you have agreed to provide the accounting, tax, and management consulting services which you have agreed to?
A There are seven-listed, but then there is also a comment that says "other entities."
Q And any additional entity which may come to our attention during the course of this engagement?
A That's correct.
Q Now, we all understand, do we not, that an entity is not an individual, that an entity is a business?
A That is the normal meaning, yes.
Q Okay. In the context of the understanding between the parties;, and the further understanding of what you are going to and not going to dor this letter suggested that on the first paragraph of the second page that, among other things:, this engagement — •<- "This engagement does not include any services not specifically identified in this letter. Additional Services which you may request will be the subject of arrangements made at the time requested. Also our work should not be relied upon to disclose errors, irregularities, or illegal acts, including fraud or defalcations. However, should such -matters cone to our

26
Attention, we will discuss them with you to determine what course of action should be taken." Is that the language?
A That is the language contained in that paragraph.
Q "Should such matters come to our attention", it is referring to these irregularities in the previous sentence, is that right?
A All the items that you read earlier, yes, sir.
Q Isn't it a fact that during the entire course of the engagement no such irregularities, fraud, or otherwise were brought to the attention of Mr. Morganroth by Alexander Grant?
& Well, that is a matter for you to judge, but we certainly called to Mr. Morganroth's attention various issues that we believed were worthy of note and tried to advise him on those is-sues .
Q You never suggested that there was any fraud? You never suggested to Mr. Morganroth there was any fraud, did you?
A We didn't — we didn't indicate any fraud, no.
Q And you never suggested — and if you had found such., it would have been not only your obligation under this letter but also your obligation under the. ethics which control your profession to report it to him, wouldn't it?
A As we do with, anything that is worthy of note,
we call that to the attention of our client, yes.

27
Q Now, one, I take it that — you and individuals associated with you — you didn't work on this project alone, isn't that true?
A No, I did not.
Q How raany -accountants or other assistant clerical personnel were said to work out of Alexander Grant on this project over this period of time?
A There could have been 20 or more.
0 And how many of those are CPA's or other accountants;?
A I would guess that probably half were CPA's. There were probably four other tax accountants. I would estimate, perhaps more.
Q And you spent, you or — you were the sort of the head of the project? Is that right? Until such time as you were removed?
A 1 was the person with tax responsibility. ; The person who was the head of the project was a person with accounting responsibility.
Q Okay. But I take it the two of you worked together, the one with accounting responsibility, and you with tax responsibility, you were sort of co-committee chairmen, or whatever?
A We shared responsibility of service, yes, sir.
Q Your obligation among- other things was to review

28
the work done, by your associates to give them guidance and to keep on top of their work product?
A That is correct.
Q And in that did you read all of the notes and memoranda and review the computations of your colleagues?
A I read as much as came to ray attention, yes.
Q In fact, you spent, in the context of the engagement you learned that there were extensive discussions between your staff and persons associated with, these entities in terms of the details of, among other things, the relationship between Mr. La~Row?he and these entities?
A There were a number of discussions- about various aspects of the engagement, including Mr. LaRouche's relations-hip.
Q And also you learned in that context what he did for the various, entities. In other words, what services he performed that were of benefit to these various entities?
.A We were told -•*•
Q You were told.
A — certain things that he did for these entities, yes .
Q Among those things you were told that he wrote extensively and that his writings were, that he might be corisadered, or was considered, the chief editorial writer and consultant for these various entities, is that right?

29

A The characterization of chief editorial consultant
was probably the single most used term, yes,
Q And you learned that he received no wages?
A That is what we were told, yes.
Q And you learned that he, that they undertook to
underwrite security expenses required to keep the chief
editorial consultant alive?
A Yes.
Q And in fact, among other things, one of the questions that you dealt with or your staff dealt with was how to legitimately spread the cost of this, security among those various companies which were benefiting from those services provided, is that right?
A Certainly one of the issues that we had to address was the proper sharing of costs among the entities,
Q And you learned, among other things, that there was a residence which was a multipurpose residence, where Mr. LaRouche stayed, and other things happened, did you not?
A That is what we understood, yes.
Q And you understood that in fact many, utany activities bearing on the function of these various entities took place within that facility, did you not?
A I — nobody went into any details, but we understood that is- where Mr. LaRouche was based at*
Q And you learned that expenses for Mr. LaTtouche's

30
travel for example were undertaken on, were paid by these companies; is that right?
A Yes, sir.
Q And you learned that essentially all expenses required to sustain his existence and function with reference to these entities were in effect underwritten by them. Is that right?
A That is what we understood, yes.
Q Arid your conclusion was at least from the tax aspect of the corporation, that it was appropriate for the corporation in question, whose returns you prepared, to deal with all those expenses as ordinary and necessary business expenses of those respective corporations?
A Yes, sir.
Q You mentioned —
MR. ANDERSON: I just have a question — could I have a moment, if Your- Honor please. THE COURT: Yes, sir.
[Counsel conferring with other counsel.] BY MR. ANDERSON:
Q Going back to the portion of the engagement letter, Mr. Offutt, wherein Alexander Grant undertook the responsibility to report back to Mr. Morganroth if any of the sequence of things were found in the context of the engagement? Do you recall? Fraud, illegality, et cetera*

31
et cetra, right?
A Right.
Q And I take it any illegality that you would have found in the context of the examination of the books would have fallen within that obligation to report back to Mr. Morganroth, is that right?
A We didn't examine the books, We were engaged to complete the tax returns.
Q Well, you had, did you not, provided to you all of the books and records of the corporations, and that in fact was the basis of your analysis?
A Well, we had a number of records made available to us.
Q Voluminous records? All the computer printouts, all the charts of account, whatever — I am not sure -- I assume you had everything you needed in order to successfully complete your engagement.
A We — we had everything that we were told was available for use, and we proceeded within the context of what was available.
Q I just wanted to clear up one final thing: you went through a series of — i-lr. Robinson took you through a series of hypotheticals or possibilities, if you would, in terms of whether or not something could be considered compensation, whether or not it was certain key editorial

32
consultant, that would be of benefit, and there was a third category, I ara not sure, but your conclusion overall was that — Mr. Robinson asked you — none of those would have been compensation, and you* agreed with that? Is that
right?
A I don't recall that. I recall that my answer was
that regardless of how they would be characterized to the individual, that they would be nevertheless deductible feo the entities as ordinary and necessary business expenses.
Q I take it that you did not review those provisions of the Internal Revenue Code which would specifically deal with thpse aspects which were not part of your engagement. In other words, whether or not, given the circumstances any of those things might have had any taxable implication with regard to any of the persons who might have benefited?
A Beyond the preliminary review, sir. We did prior to discussions- with Mr. Morganroth.. We did not proceed beyond that, as instructed.
MR. ANDERSON: Just a moment. C.Co-unsel conferring off the record.) BY MR- ANDERSON:
Q Do you know the accounting firm Bond Beebe Barton & Muckelbauer?
A I know the firm, yes.
Q That is; an accounting firm in Washington, D.C.?

33
A It is ray understanding, yes, sir.
Q It is not as big as Grant Thornton?
A No.
Seay?
Q Do you know a CPA in that firm by the name of Tom
A I don't believe so.
Q That firm has a- good reputation, does it, within the community?
A A good reputation as far as I know, yes, sir.
Q You did in your engagement make certain recommendations with regard to the handling of what are called w-2 ' s or 10:99 ' s? Is that right?
A Yes*
Q And if you had determined that the methodology being followed by the corporal; ions was inappropriate with regard to the treatment you would have in a specific case, you would have reconamended, I take it, that they either create a 1Q92 or a W-2. In other words, if what the basis you saw was that they were dealing inappropriately in not giving someone a W-2 or 1099 on the basis of your information, you would have told there to correct that?
A We were told that they had not issued W-2's and 1099''s, and we made recommendations- so they would be in a position to proceed in the future.
Q The point I am making is- if you had identified

34
a specific individual who should have on the basis of the information you had received a 1099 or W-2 and that they had not been issued such 1099 or W-2 by the corporation, I take it you would have told them they should have been issued those?
A Well, we told them that they should issue with respect to all indi-viduals who receive compensation. MK. ANDERSON: I have no further questions.
REDIRECT EXAMINATION BY MR. ROBINSON:
Q Mr. Offutt, the engagement letter that
Mr. Anderson was asking you about, that is really the first step, is it not, in your relationship with Mr. Morganroth? Is that right?
A Yes, sir, it would have been.
Q So that was before you went out to Leesbiarg and had a chance to look at the records and were able to sort of get a grip on the situation, right?
A Correct,
Q And it is normal in every engagement, isn't it, to follow up on these engagement letters by sitting down with the client arid talking about what they want you to do and what they don't want you to do, right?
A Well, certainly, you have discussions after you have more information and try to assure that everything ,

35
id .covered.
Q Now, at various points in your testimony,
Mr. Anderson was asking you if you had learned certain things, and I take it that whenever you learn things about how these corporations handle their finances, you were dependent for that on the various people -from these corporations that you were dealing with. Is that right?
A Yes, largely.
Q It is not an audit where you would on your own try to investigate the way the corporation handled its finances, right?
A Ho. This was definitely not an audit,
Q Now, the ordinary and necessary business expenses, as that terra is used for tax purposes, includes compensation; is that right?
A That would be a business expense-f that is correct.
Q Compensation doesn't necessarily have to be a salary check; isn't that right?
A Correct. It could be wages, or it could be consulting fees, or other types of compensation that would be paid to an independent contractor.
Q It can also be fringe benefits provided to an employee, is that right?
A Fringe benefits to the extent they weren't excluded by sorae other section of the Code r yes.

36
Q So you don't have to, to be salary or compensation,
it doesn't have to be a check or some cash handed directly to
somebody, right?
A It could be in kind, yes. Could be in something
other than cash.
Q When you say "in kind" that can be providing
services or property or other things like that to somebody,
correct?
A Correct
Q Now, if in fact you were aware of Mr. LaRouche' s tax filing status, is that correct?
A Yes. V7e were told that that had been represented. There had been previous matters that had raised that in the public arena.
Q All right. This1 was what Mr. Morganroth had told you, is that right?
A Yes.
Q Okay. But if in fact these payments that were going to Mr. LaRouche were compensation, then you -might in fact have been faced with a situation where there was fraud, isn't that right?
MR. ANDERSON: Your Honor, I object on the basis of scope.
MR. ROBINSON; Well, Ilr. Anderson went into great length about the duty of this firm to report on possible fraud

37
as se*: forth in this letter, Your Honor. I think I am entitled to follow up on it.
THE COURT: Objection overruled.
THE WITNESS: Well, how the organization
characterized the payments:to the individual really doesn't constitute a fraud. They have a duty to report how those it etas should be treated as they see them.
MR. ROBINSON: I understand that, but it might have been fraud for Mr. DaRoucfte not to report that compensation, isn't that right?
MR. ANDERSGW: Hypothetical. He is asking him to comment as an expert witness.
MR. ROBINSON: Your Honor, I think —
MR. ANDERSON: In terms of —-
THE COURT: What might have been fraud though is not a proper inquiry. Objection sustained. BY MR. ROBINSON:
Q In any event, the reason you went to talk to Mr. Morganroth, or one of the many reasons, was your concern about the payments that went to Mr. LaRouche, is that right?
A That was one of the many items that we had on a list of follow-up points for Mr. Morganroth.
Q In raising that question with Mr. Morganroth, you believed you were fulfilling the duties as set forth in the engagement letter; isn't that right?

A We believed that was cmr professional
responsibility.

Q

All right. And by the way, Mr. Anderson mentioned

W-2 ' s and lQ99*s. Among the things that you advised these corporations was that non-cash type of compensation was something that needed to be reported on 1099's as well, isn't that right?
A I believe we did, yes.
MR. ROBINSON: Thank you. No further questions,
RECROSS EXAMINATION BY MR. ANDERSON:

Q

Mr. Offutt, isn't it true, sir, that what might be

compensation to one individual, that the same benefit might not be compensation to another, depending on their relationship with, the entity?
MR. ROBINSON: Your Honor, this is precisely the hypothetical question I wasn't allowed to get into.
MR. ANDERSON: It is just what he asked.
THE COURT: I think you are opening a bigger door than you really want, given your previous objection.
MR. ANDERSON: I didn't ha^/e anything further.
THE COURT: You may step down, sir.
(witness excused.)"
THE COURT: Call your next witness.
MR. ROBINSON: The Government's next witness is

39
Wayne Hintz.
^Thereupon, a conference was held at the Bench with Court and counsel, out of hearing of the jury, and reported as follows:}
MR. REILLY: Your Honor, there is a series of
memos which this witness will testify he wrote and they^would be moving those in. They should not be admitted. They were reported —
THE COURT: Who is this witness? A former —
MR- ROBINSON: Former member.
MR. REILLY: He was the person responsible for overseeing this IOU system.
MR. ROBINSON: I would state it a little
differently. He was the loan officer, Your Honor. He was -the recordkeeping person, responsible for distributing payments.
MR. REILLY: He wrote a series of weekly memos where he. would lis.t what he would call payment. The testiiRony would be the basis for those' memos as reports he got from people all over the country. Pure, hearsay reports, and the examples that he gives are many of thera I suggest very prejudicial and far outweigh their balance. He goes into examples of people living in cars and putting it on the application. Based on pure hearsay evidence.
There is no evidence ray client, or evidence my

40
client is- supposed to get any information in there. There is no evidence my client, and as to other fundraisers there is even less. They are very prejudicial. They are based primarily and solely on hearsay from other people.
I understand the Government is trying to offer them I am not certain why the Government is trying to offer them, but I move to exclude them.
MR. GETTINGS: We don't know that the Government is trying to offer them. Your Honor, because they are attached to an exhibit that, I believe, is admissible, and the Government is going to offer. An<3 these are two attachments to it that we don't know —= I don't know if they are going to offer, but if the Government offers them, I suggest that this is exactly like the testimony of the lender witnesses to the effect that they spent their life savings on it and, of course r Your Honor may rule that we didn't object to tliat,mainly because, it was out before we had a chance to object to it.
I believe Your Honor ruled as to that precise testimony it was not relevant. This is in exactly the same category of nonrelevance. This goes to why the people —
THE COURT: Let me find out why the Government is offering them.
MR. ROBINSON: They rather clearly are business records, Your Honor. The memos that are being referred to

41
here are the precise documents by which requests for payments to lenders were made. They document the entire process of requesting those payments and making them or not making them. They set forth the categories of priorities of repayments of loans and so on.
Whether or not particular defendants saw them, I submit, is an appropriate matter for cross examination. But they undeniably are business records of this organisation that relate to loan repayments.
MR. GETTIKGS: They are business records. I
wouldn't quarrel with that. It is relevance. Your Honor, and also 4Q3.
MR. MOFFITT: Your Honor, I would argue also that the characterization that Mr. Hintz chose to put on these documents is not necessarily the characterization that he put He authored the documents, authored the characterization of the documents. The characterization that he put as to certain individuals and what have you is really part of the problem with this.
THE COURT: The real issue in the case is the defendants' awareness at the time they were making loans, the financial condition and method of payment of existing indebtedness. At least that is a primary issue. I am not sure to what extent that goes to that issue.
MR. ROBINSON: Well, to the extent that some of

42
these defendants, Your Honor, provided information to Mr. Hintz I would submit that it rather clearly shows that those defendants were aware that not everyone was getting repaid, that only persons in certain categories "were getting repaid and so on. Moreover, the purpose of these memos was to submit them to his superiors in the organization in an attempt to get money allocated for repayment. I think we can establish that at least several of them were reviewed by someone from, the organization, by Mr* Wertz, by the NEC, by Mr. La Roue tie.
THE COURT: Then I think they would be relevant to show an awareness on the part of those persons of what the condition of the fund, paying whoever it was, the entity, was. But I am a little worried about what other relevance they have. If you can show that these memos, aside from being just business records, were passed on to sorae of the superiors, who would include some of these defendants, so that they would have an awareness of, or the solicitors have an awareness of the condition of the paying entities, I think it is relevant for that, but mere hardship characterizations which it seems to me is more prejudicial than probative of anything.
MR. ROBINSON: I think they establish both the actual financial condition of the organization, the way it went about repaying loans, and in some instances it goes

43
directly to intent, but I don't think I can be tied just to the intent, Your Honor. This witness in effect gives us the whole picture of what this organization did with repayment of
loans.
THE COURT: I am not sure there can be a whole lot
left about these organizations that we don't know by this time.
MR. ROBINSON: That may be true. Your Honor, except I don't think we have had this precise testimony of the person responsible for coining up with requests for repayment and then dividing up the money available.
MR. GETTINGS': Your Honor, everything that
Mr. Robinson says he wants to prove he can prove through the basic document, and I am not objecting to the basic Hintz to the people upstairs document.
THE COURT: What is the basic document to which these are attached?
MB. GETTINGS: It is- a memorandum from Mr. Hint2 to superiors in the chain of command, not to -my client, not to anybody else but to his- superiors in the chain of command, in which, he sets forth everything that Mr. Robinson says he intends to prove. It is- the attachments which are memorandas that show the hardship cases that I am objecting to because I say once you get into the attachments, you get into the clear prejudicial and 403 stuff, if it is at all relevant.

44
THE COURT: What do the attachments show that the other doesn't?
MR. ROBINSON: I am not sure I understand
Mr. Setting's characterization of the Government's evidence. Your Honor. There are dozens of raemos here, many of which frankly I intended to have the witness introduce as a group to show this pattern of business dealings.
Now, the specific memos that I think Mr. Gettings may be referring to are memos, three in particular, that Mr. Hintz will testify he prepared and submitted for review on the NEC level and with, later witnesses we can connect up and show they make —
THE COURT: But do they show any more than these persons show this hardship? That is the things I am
MR. ROBINSON: It is almost a list of who needed repayment and why they needed repayment, Your Honor. I don't think we can just carve out the whole hards-hip issue. It was one of the. principal reasons that some people were repaid. I think th.e communications within the organization particularly in instances, where they go to these defendants, regarding that, cannot just be cut out of the case.
MR. REILLY: That issue is in,
THE COURT; That issue, has been covered. I am a little reluctant to get — I think it is prejudicial value from what — I haven't seen the document — but from how

45
counsel describe it, looks like these memos may be more prejudicial than probative.
I am not saying that they can't become relevant, depending on the way the defendants1 case goes, but mere showing of a specific hardship, it seems to rae is irrelevant
MR. ROBINSON: With the Court's permission I will attempt to lay further foundation because I am not sure — before — I ara not going to go into any of the taemos obviously without getting the Court's permission, but I think that —
THE COUKT: You have my ruling.
(Thereupon, the conference at the Bench was concluded, and the following proceedings were held:}
C. The testimony Of witness WAYNE HINTZ was previously typed and filed under separate cover.I

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