An Endless Stream of Lies (9 page)

A. He had not done that before.

Q. Did the FBI know that at the time?

A. No, they did not know that at the time.

Don’t lose the significance of what Alex has revealed in the above: He is making a recording of a conversation with Bryan for the FBI. Within this conversation, he is “trying to get him [Bryan] to state a rate of return” that he had never stated before. Within the conduct of one recorded conversation, Alex is endeavoring to manipulate Bryan into putting forth a rate to imply that he had previously set the rate. Additionally, he is striving to underpin his deception to the FBI, with regard to having told them that Bryan knew and had known for some time, that the financial statements were reporting false information. Literally, he was playing both ends
from
the middle. Is this what Shakespeare had in mind, when he wrote, “
In double knavery – How? Let’s see
”?

Concurrently with his having gone to the FBI with his deceptive “story,” as well as his self-serving machinations—all the while appearing to cooperate—Alex diverted and hid assets belonging to the clients of Certified Estate Planners. In his words:

Q. Was there a safe at CEP where cash was kept?

A. Yes, there was.

Q. And can you tell the jury about that.

A. There was a safe where cash was kept.

Q. During what time period?

A. During the 2005-2006 time frame, sometimes investors would bring in cash, not in the form of a check but actual cash, and Bryan stated that that really should not be deposited in the bank account for fear it might raise some kind of suspicion with the IRS. So there was a safe that was placed in CEP’s office that I had a key to and Bryan had a key to, and that is where the incoming cash would be placed.

Q. And who had access to the monies in that safe?

A. I did and Bryan Noel did.

Q. What happened to the money in that safe?

A. The money in that safe was used by both Bryan and me personally.

Q. Well, what did you do with the money you took from the safe?

A. In some cases that money would be taken and it would be used to try to get credit for some type of account gains. In other cases it would be stored at my parents’ house.

Q. What do you mean stored at your parents’ house?

A. There were times where some amounts of cash, maybe 2 to $3,000 at a time, were stored at my parents’ house for safekeeping.

Q. When did you first tell the government that you were storing cash from CEP in your parents’ house?

A. Sometime within the past two weeks.

Q. The past two weeks?

A. Yes.

Q. Had the government asked you repeatedly whether your parents had any involvement in this matter?

A. Yes, the government had.

Q. Had I specifically asked you that?

A. Yes, you did.

Q. What did you tell me?

A. I said no.

Q. Was that true?

A. That was not true.

Q. Did you ultimately tell the government that the money was at your parents’ house?

A. Yes, I did.

Q. Then what happened?

A. Then that money was returned, the balance that was theirs, as well as some silver that was theirs as well.

Q. Anything else hidden at your parents’ house in addition to the cash?

A. No.

Q. Any silverware?

A. Well, yes. As I stated, there was some silver there.

Q. What was used to purchase silverware?

A. Client funds were used to purchase that.

Q. Why were client funds used to purchase silverware?

A. During the time of 2005 and 2006, in an effort to try to diversify some of the funds, there were some purchases that were made of silver coins and silver flatware.

Q. Were there some silver bars as well?

A. There were silver bars as well.

Q. This was all stored at your parents’ house?

A. Yes.

Q. Why?

A. At some future point I hoped that I could sell some of these things and maybe use some of that money to get back on my feet somehow. But that money did not belong to me.

Q. Had the government repeatedly asked you whether there was anything involving your parents concerning this matter?

A. Yes, the government had.

Q. And did you — and did you tell us that there was silver and cash and silverware at your parents’ house?

A. Not until two weeks ago.

We don’t want to lose this revelation within Alex’s testimony:

• He kept client’s money at his parent’s house.
  
• Over the years that he had been
  cooperating
  with the government, he did not reveal the existence of these resources.
  
• When he was asked about any existing resources, he lied.
  
• He had also hidden silverware, silver coins and silver bars.
  
• At some future point he hoped to sell some of these things and maybe use some of that money to get back on his feet somehow.
  
• It was only two weeks prior to his testimony that he had revealed the existence of the hidden assets.
  

Are you wondering what had happened two weeks ago that brought about Alex’s sudden fountain of honesty? Stay in the boat; we’ll find out.

Alex, who had swept the financial legs and feet out from under so many people, had hoped to use what they had earned, to get back on
his
feet. Is this the mindset of someone who stood before the court and all who were present and declared, “
And it was never my intent to lose anyone’s money or divert anyone’s money or scheme anyone out of anything
”?

MISDIRECTION

Alex, in his deception of the representatives of the federal government, utilized a most subtle deceptive ploy—misdirection. While Alex had the government focused on Noel, he utilized that diversion to convert assets to himself. After all, it was just easier to blame everything on Bryan.

It was not enough for Alex that now everything was not going to fall on him. He wanted more. He wanted to do more. He wanted more and he did what he had to do to get it, as represented by his testimony regarding his plea agreement:

Q. Did you have a plea agreement with the government?

A. Yes, I did.

Q. Directing your attention to the summer of 2009, did you sign a plea agreement?

A. Yes, I did.

Q. I’m going to show you Government Exhibit 45O. Do you recognize that document?

A. Yes, I do.

Q. What is it?

A. That is the plea agreement that was entered in June of 2009.

Q. Was that the plea agreement or is that the bill of information?

A. The bill of information.

Q. What does the bill of information charge you with?

A. Conspiracy to commit mail fraud.

Q. Now, this is the bill of information that was filed against you when?

A. This was filed in June of 2009.

Q. And did you agree to plead guilty to that bill of information?

A. Yes, I did.

Q. Let me show you Government Exhibit 45P. What is that?

A. That is the plea agreement for that bill of information.

Q. And did you sign that document?

A. Yes, I did.

Q. When was this plea agreement filed?

A. This plea agreement was filed June 12, 2009.

Q. And the plea agreement required you to plead guilty to that bill of information, correct?

A. Correct.

Q. And what was the maximum amount of jail time that you were looking at under that plea agreement?

A. Five years.

Q. Five years in prison?

A. Yes.

Q. Were you required to do anything under that plea agreement?

A. I was required to cooperate and provide truthful testimony.

Q. Looking at page 7 of the plea agreement, what does paragraph 24(a) require you to do?

A. “The defendant will provide truthful information about the subject charges and about any other criminal activity within the defendant’s knowledge to any United States agent or agency that the United States designates.”

Q. As of the time you signed that plea agreement in the summer of 2009, had you been providing entirely truthful information to the government?

A. I had not been providing truthful information to the government at that point.

An article published in the
Henderson Times-News
on March 3, 2010, titled “CEP Fraud Case Takes a Twist,” reported that during Noel’s trial, Alex’s father testified that Alex told him he was proud of what he did in assisting the FBI and seeing the search warrants executed. Proud? Of what could Alex have possibly been proud? How could Alex be proud, while knowing that his deceptions and diversions of assets were still in play? Can assisting in bringing a fraudster to justice serve as a source of pride, while, at the same time, one continues to be a fraudster? Could it be the pride came from the game of playing both ends
from
the middle?

As Alex testified succinctly, “I had worked out a plan.”

THOUGHTS, COMMENTS AND ANALYSIS

What are your impressions, to this point, with regard to this circumstance?

Exactly what do you know?

What is it that you
know
that you don’t know?

What questions would you ask in order to know?

What steps would you take in order to know?

POINTS TO PONDER

Compare and contrast Alex’s words from his sentencing below, to his testimony we have just read.

And it was never my intent to lose anyone’s money or divert anyone’s money or scheme anyone out of anything.

1. Can Alex’s statement above be reconciled with his continuing to keep assets that did not belong to him?
   
2. Can that same statement be reconciled with his continuing deception of the FBI?
   
3. Could it be that in Alex’s world, the statement and his actions were not mutually exclusive?
   
4. Explain.
   
5. What questions would you pose to Alex at this point?
   

CONTENT – CONTEXT APPLICATION

The owner–operator of a home building company pled guilty in federal mortgage fraud case. Eleven individuals had previously pled guilty for their involvement. Those eleven people included other builders, lawyers, a loan officer, a real estate agent, a paralegal and a notary public. In the case, involving expensive subdivisions, individuals would purchase the house from the builder at one price. The next step involved arranging for buyers for the property at a higher price. Finally, deception was involved in getting the mortgages to a higher level. The inflated prices ranged from $200,000 to $500,000.

1. With regard to the twelve individuals (who pled guilty) referenced in the above: how would a network of collaborating fraudsters develop?
   
2. If we were to frame the concept of fraud as a virus, how would it spread from one individual to another in order to form this network?
   
3. Could it be that others exposed to the metaphorical virus (the opportunity to participate in the scheme for personal gain) had a moral resistance to infection? If so, why are some susceptible and others resistant?
   
4. What questions would you pose to this individual?
   

CHAPTER SIX

HE LOOKED INTO A POOL

HE FELL IN LOVE HE WASTED AWAY

NAVIGATION POINT AND HEADING

At this time, we want to back up just a bit and examine still another tributary and its subsequent flow into the larger stream of lies. The setting is February 2010. The location is federal court in Asheville, North Carolina. The trial for Alex’s partner, Bryan Noel, is set to begin. Alex is slated to testify as to their criminal activities. Alex’s
first deal
with the federal prosecutor has been taken off of the table because of their discovery of Alex’s
continued deception
and
theft.

AND THE DECEPTION BAND PLAYED ON

In his subsequent testimony, Alex articulated his continued machinations after his initial meeting with the FBI in addition to his providing similar, false information in his testimony in previous civil proceedings:

Q. Mr. Klosek, I think when we left off at lunch we were talking about your original plea agreement and your cooperation under that agreement. Do you remember that?

A. Yes, I do.

Q. And I think you testified that you were not being truthful with the government under your terms of your plea agreement.

A. That is correct.

Q. Let me show you Government Exhibit 35X, which is already in evidence. Do you remember that e-mail?

A. Yes, I do.

Q. I think you testified before lunch that you were sending this e-mail under the direction of the FBI; is that correct?

A. Yes.

Q. And the direction that the FBI was giving you at that time was based on what?

A. Based on the information I had provided.

Q. And had you provided accurate information at that point?

A. No, I had not.

Q. Did the FBI know that at that point?

A. No, they did not.

Q. Now, did there come a point at which your false statements to the government became known?

A. Yes, there was.

Q. And when was that?

A. That was February 4th of 2010.

Q. 2010. Two weeks ago?

A. Yes.

Q. And where was that, that that occurred?

A. That occurred at the U.S. Attorney’s Office in Charlotte.

Q. And the U.S. Attorney’s Office is what, where who works?

A. Where you work and where Ms. Rikard works.

Q. And why were you at the U.S. Attorney’s Office on February 4th?

A. I was having a meeting with you both.

Q. For what purpose?

A. For purposes of trial preparation.

Q. And had you met with agents of the government since your

December meeting?

A. I had not.

Q. So you told us in December that you had provided false information, correct?

A. Yes, I did provide false information.

Q. And you came back on February 4th.

A. Yes.

Q. So you came to Charlotte to meet; is that correct?

A. That is correct.

Q. And who was present at the meeting when you came on

February 4th?

A. You were. And Mr. Jenkins and Ms. Rikard were present.

Q. And did that meeting begin with me asking you again whether Mr. Noel always knew about the trading losses?

A. Yes, you did ask that.

Q. And what did you tell me?

A. I said yes, that he had.

Q. And what happened after you told me that?

A. After that, information was provided going back to 2002 showing the extent of the trading losses.

Q. Let me be clear. You told me at that meeting on February 4th that Mr. Noel knew about the trading losses all along.

A. Correct.

Q. Was that truthful?

A. That was not truthful.

Q. And after you told us that information, what happened?

A. That information was provided about the losses on the trading accounts that had gone back to 2002.

Q. What happened in the meeting after you told us that false information?

A. I continued to lie.

Q. And did I continue to question you about it?

A. You continued to question me.

Q. And what ultimately happened?

A. I had not told Bryan Noel the extent of the trading losses.

Q. What happened in the meeting ultimately?

A. In the meeting? You asked me to leave the room at the point at which —

Q. And what caused me to ask you to leave the room?

A. When you found out I was lying.

Q. And how did I find that out?

A. That the results for 2002 had been generated.

Q. Did you ultimately acknowledge after I continued to question you that you were lying?

A. Ultimately, I did acknowledge that.

Q. And at that point you were asked to leave the room?

A. I was asked to leave the room.

Q. And go where?

A. Out into the lobby.

Q. For what purpose?

A. Until Rick Winiker could be contacted.

Q. Who is Mr. Winiker?

A. Mr. Winiker is my attorney.

Q. And did Mr. Winiker come to the office and meet with you?

A. Yes, he did.

Q. And after meeting with you, did you come back in and continue to meet with the government?

A. Yes, I did.

Q. And at that point, what were you informed?

A. I was informed that there would be a different plea agreement, that no substantial assistance would be offered, and I had the option to leave and cooperate no further.

Q. And what decision did you make at that time?

A. I made a decision to stay and cooperate.

Q. Why was your plea agreement no good at that point?

A. Because I had not adhered to the terms of that plea agreement.

Q. And specifically what term had you not adhered to?

A. The part about cooperating and providing truthful information.

Q. Did you, in fact, enter a new plea agreement with the government?

A. Yes, I did.

Q. Now, the first plea agreement exposed you to a maximum term of imprisonment of what?

A. Five years.

Q. Did you get a five-year limitation in your second plea agreement?

A. No, I did not.

Q. What was the limitation in your second plea agreement?

A. The second plea agreement is 20 years.

Q. I’m going to show you Government Exhibit 45Q and ask you if you recognize that.

A. Yes, I do.

Q. And what is that?

A. That is the bill of information for the new plea agreement.

Q. And what is the charge in that bill of information?

A. The charge is conspiracy to commit mail fraud.

Q. What’s the date of that document?

A. The date is February 10th, 2010.

Q. Six days after your meeting? Your first meeting.

A. Yes.

Q. Let me show you Government Exhibit 45R. Do you recognize that document?

A. Yes, I do.

Q. What is it?

A. That is the new plea agreement.

Q. And did you sign it?

A. Yes, I did.

Q. And what day was it entered?

A. It was entered on February the 10th, 2010.

Q. According to this plea agreement, what charge are you agreeing to plead guilty to?

A. I am agreeing to plead guilty to conspiracy to commit mail fraud.

Q. And that’s the Count One of the new bill of information?

A. Yes.

Q. And under this plea agreement, what is the maximum term of imprisonment to which you are exposed?

A. Twenty years.

Q. Four times the prior plea agreement?

A. Yes.

Q. Do you have any promises from the government that you’re going to get any benefit from testifying today?

A. No promises whatsoever.

Q. Turning to page 6 of the plea agreement, does it require you to provide assistance to the government?

A. Yes, it does.

Q. And, specifically, what does paragraph 25(a) require you to do?

A. Provide truthful information.

Q. During the course of the last three and a half years, was the United States the only person or the only entity to which you provided untruthful information about your conduct?

A. Yes, it was.

Q. Were you ever deposed in any civil proceedings?

A. Yes. Yes. I was untruthful at those as well.

Q. And specifically, were you deposed by Frank Jackson?

A. Yes, I was.

Q. Who is Frank Jackson?

A. Frank Jackson is an attorney in Hendersonville.

Q. And who was Mr. Jackson representing?

A. He was representing some of the investors.

Q. And they had brought a lawsuit?

A. They had brought a lawsuit.

Q. And what’s a deposition?

A. A deposition is giving sworn statements under oath.

Q. And did you give truthful statements in your deposition?

A. No, I did not.

Q. Did you repeat the same false information that you told the government?

A. Yes, I had

OUTFLANKED

In the testimony above, we find the reason for Alex’s sudden
honesty course change
, occurring two weeks prior to this testimony that we addressed in the previous chapter. Alex did not state that he had experienced a realization that he should have been truthful all along. On the contrary, he was outflanked and maneuvered into a disclosure by representatives of the government.

Alex must disclose his and his partner’s collective fraudulent activities. Additionally, Alex must face the accusations and credibility attacks of Noel’s defense team with regard to his individual deception and asset diversions after having gone to the federal authorities with his fraudulent “mea culpa.” How difficult it must be to appear convincing while having to admit, “I stole and I lied. Next, I lied and I stole, up to two weeks ago. But now I am telling the truth.”

LABELING THE CASE

In his opening statement of the federal trial of Alex’s partner, Bryan Noel, Assistant U.S. Attorney Matt Martin depicted the case as “. . . an endless stream of lies.” His assessment was accurate on several levels: literally, deception was most assuredly rampant and on a figurative level his use of the term “stream” was most appropriate for the case. The investors’ money certainly flowed away from them like water down a drain.

Alex Klosek did not look like a fraudster. At the time, he was a young man in his early thirties, pale skin, slight build, with a tendency to turn his head slightly to the side as he spoke. His occasional smile was pleasant enough. His voice seldom deviated from quiet and monotone. Alex was someone who taught evangelism classes and encouraged others to attend. With shoulders a bit rounded, he was not someone that would stand out in a crowd or quickly draw attention if he was in a room filled with people.

But to the over one hundred people from whom he helped to defraud from seven to ten million dollars, as well as to the federal government, who computed the financial harm at nearly fifty-five million dollars, he looked every bit the fraudster.

In reality, fraudsters come in all shapes, sizes, genders, ages and nationalities. In this case, the package deal for Alex was a highly intelligent, articulate graduate of Loyola College. An online college picture of Alex sitting at his desk looking up at the camera relates, “President Alex Klosek studiously tending to the work of the chapter . . .” In another picture, we find Alex relaxing with three young people. He has on a red, short-sleeved shirt with a white Styrofoam cup in his hand. He is laughing—a smile stretched across his face. Lastly, in an auditorium setting, we observe Alex seated and listening with others to someone who is “informing the students of career opportunities in accounting and finance.”