Kilpatrick on Trial: Day 48
Updated On: Jan 04 2013 01:37:43 PM EST
Local 4 is inside the courtroom for the federal corruption trial of former Detroit Mayor Kwame Kilpatrick, Kilpatrick's dad Bernard Kilpatrick and his childhood friend Bobby Ferguson. Each day we bring you information from inside federal court as it happens.
Brutal start to the morning. The line into the courthouse was 45 minutes long in mind-numbing cold. My toes are still thawing out.
9:07AM Seems the defendants didn't have to wait in the outrageous line because everyone is in court and ready to go.
US Attorney Jennifer Blackwell continues her questioning of IRS agent Rowena Schuch.
Total cash deposits into Bernard Kilpatrick's personal accounts between 2002 and 2008: $605,055.
Looking at the tax year 2007. Total reported income as $70,529 on Kilpatrick's tax returns. Schuch's calculations show that the total deposits for 2007 into Kilpatrick's combined accounts is $606,225.52.
With additional currency expenditures, the total is $607,160.03. With basic deductions, the total corrected income for Kilpatrick in 2007 is $395,413.25. The difference between that amount and the reported $70,529 is $324,884.25: understatement of the income.
So taxes owing are $104,424.23 for 2007. Total taxes owed for 2004, 2005 and 2005 is $182,796.58.
9:18AM John Shea, Bernard Kilpatrick's lawyer, cross-examines the IRS agent.
Shea goes back to the tax year 2004. Says that Schuch used bank deposit method to determine amounts in Kilpatrick's accounts.
Shea says that method does not go through compensation history for tax year and identify each income item. It just looks at all deposits without identifying whether any specific item is item. Then backing out individual items that investigator determines are non-taxable. Shea asks the witness if that is correct.
Schuch says that Kilpatrick had 7 accounts: 5 personal and 2 business. I'm counting 9 accounts on the overhead, not sure why they are saying 7.
Looking at total deposits for 2004 and 2007. Shea itemizing what Schuch deducts in her calculations, including loans.
Shea mentioning $5,000 that Schuch found yesterday had been a repaid loan to Kilpatrick in 2004.
Talking about Karl Kado and his payments to Kilpatrick. Shea saying Kado was inconsistent in what he said he paid Bernard and where he said he paid him.
Schuch says Kado was consistent in saying he paid Kilpatrick $100,000 in 2005.
Shea says Kado's testimony at trial was variable in terms of payments. Witness says Kado said he made payments in excess of $200,000 to Kilpatrick.
Shea says that Schuch determined some of this money that Kado said he gave to Kilpatrick was income. Shea calling into question the reliability of Kado's representation of sums of money he gave Kilpatrick.
Shea says to rely on Kado is unreliable. Schuch disagrees and says that Kado was not the only one paying Kilpatrick.
Looking at 2004 IRS total deposits figure of $882,074.70. Shea says that there could be other non-taxable items that Schuch and the IRS did not capture.
The witness stands by her calculations. Witness does admit that Kilpatrick had transactions with others that she did not interview.
Shea seems to be losing patience with Schuch. Just a little.
Shea says that Schuch is just assuming all these cash payments are income when they could very well be loan repayments like the $5,000 she found overnight.
Shea says Schuch does not know know if Kilpatrick had substantial amounts of cash on him in December 2003 that he could have deposited that would have been non-taxable.
9:40AM Shea says witness just doing the best she can but cannot be certain of her calculations.
"You are making assumptions. You don't know," says Shea.
"Correct. I don't know," replies Schuch.
Shea says Bernard comfortable dealing with large sums of cash.
Shea driving home point that with her method, Schuch is doing best she can but it is not a precise method and she has to allow for possibility that she has nogt captured all tax items.
"You don't know do you?" says Shea.
Schuch says based on her investigation this is what she knows. "I'm am not aware of every financial transaction he (Bernard) had," admits Schuch.
Shea discussing a hypothetical loan in 2003 that could have been paid off in 2004 that Schuch might not have known about.
Schuch admits she might not have known that.
"I guess it is a possibility," says Schuch.
9:45AM Schuch says she used same methods for 2006 that she used in 2004.
Schuch says that in 2006 it did not appear that Kilpatrick had any additional income that should have been reported. Apparently he withdrew more than he put in that year.
Shea saying that bank deposit method not a specific and accurate way to calculate and that it can yield inaccurate results.
Schuch says there is a limitation to cash that you can deduct. She says that in 2006 he withdrew far more cash than the $50,000 he deposited.
Shea referencing Bernard's love of gambling. Saying he doesn't always lose and even when he does, maybe he still has some cash left over and could deposit that cash.
Schuch says Bernard typically lost at casinos and deposits did not coincide with any possible winnings.
Talking about money spent at Tunnel Liquors buying lottery tickets and "sundries."
Shea says Schuch saw lots of cash deposits and they weren't always in nice, round numbers.
Schuch says typically Kilpatrick's deposits were $5,000 to $9,0000.
Moving on to tax year 2005. Shea says much easier for IRS agent to calculate particularly because of the disbursement amounts from the employee profit sharing plan.
Shea says there is clearly an understatement on the 2005 returns. But Shea says, it has to be a willful deceit to be criminal.
Shea says disbursements were not business income. Schuch agrees they were not business income and should have been reported on forms 1099. Schuch says those are annual statements filed by taxpayers.
Shea says Alan Young and Cassandra Jones are the ones who prepared the tax returns. Schuch says but they were not aware of the disbursements.
Shea says but they knew he was of retirement age and eligible for rollover disbursements.
Schuch says but they were relying on their client to provide them all the information to prepare his tax return.
Shea says but $100,000 of the $280,000 flowed through his business account so the return preparers would have known about it.
Shea says Schuch has no idea what the preparers knew or didn't know about the disbursements.
10:01AM Schuch says that the $100,000 was split into the same business accounts.
But on the same day says Shea and Jones and Young could have inquired about it.
"They could have," admits Shuch.
Now on to the 2007 tax returns. Shea says it was filed very late in 2008, last possible day of October 15th. The numbers were taken verbatim from 2006 tax return. According to testimony yesterday, this was because Kilpatrick had not provide his numbers and records to the CPA firm.
"This was intended to be a place-holder," says Shea about the fact that Bernard intended to amend that return.
Shea says but the amendment never happened.
Schuch used same bank deposit method to identify non-taxable items in 2007.
Shea going through the deductions made by the witness to calculate Kilpatrick's non-taxable income. Says she did not recalculate his business expenses based on 2006 numbers.
Shea and Shuch are butting heads. He tells the judge she is not answering his question.
Shea says economic activity for Kilpatrick increased in 2007. But says that it was the suggestion of Jones and Young that they use 2006 numbers to fill the return.
"I don't know," says Shuch.
Shea says isn't it true that typically when economic activity increases so do business expenses. Shea says he would be having business meals, using his phone more. Reasonable to expect if there is a large change in income than there would be more expenses.
Schuch again replies she doesn't know.
Shea says there were times that the firm of Alan Young & Associates did not file returns in time. Says it happened in 2 tax years.
Shuch says she knows at least one.
Shea says they did not file the corporate return for Maestro.
Shuch says that they told her they filed it but the IRS never received it. Shea skeptical that it happened if IRS didn't get it.
10:15AM Blackwell redirects.
Shuch says reliability of Kado's information does not impact reliability of bank deposit method calculations.
Shuch says she took steps, including interviews with relatives, to ensure that non-taxable items were not included in her calculations.
Blackwell referencing Shea talking about how Bernard could have hoarded cash in 2003.
Shuch says it was Maestro Associates responsibility to file the 1099R for the $180,000 amount from the disbursement in 2005.
Shuch says based on her investigations, the deposits into the accounts in 2004 and 2007 were taxable income. She stands by her numbers.
10:20AM Shea re-crosses again.
Shea says that a mortgage application in 2004 does not prove how much cash he may have had in 2003. Earlier in the morning, Shuch pointed to the fact that in a 2004 mortgage application Bernard indicated he had no funds.
The witness agrees with Shea.
Shea is done. The IRS agent steps down and Judge Nancy Edmunds calls for a 20 minute break.
10:42AM Break is over and Judge Edmunds has just asked counsel to approach the bench. Still missing today is Bobby Ferguson lawyer Susan Van Dusen. Not sure why she is out and when she will be back.
Kwame, Bobby and Bernard are chatting away at the defendants' table. Bernard has got on the classic dark suit, vest and light blue tie. Good conservative suit for sitting under the glaring spotlight of faulty tax returns.
Kwame on the other hand seems to be embracing casual Friday a little too hard. He ditched the tie today and is rocking what I swear looks like a white mock turtleneck. Not a good look on anybody.
10:49AM Jury enters the courtroom.
Looks like we are doing the Michelin man money stuffing re-enactment today. Government calls Steven Lorenz. Oversees screening operations at Detroit Metro Wayne County airport. Since June 2003 with TSA, division of Homeland Security.
4 or 5 levels between him and the people who do airport screenings at the airport.
In September 2008, the airport had CEIA magnatometer.
On October 15th, 2012, a CEIA metal detector performed a test while passing $90,000 through it.
Witness says they do recalibration with the machine to maintain standards. Witness has oversight responsibilities over that.
Witness says purpose of magnatometer is to detect metal- knives, guns.
Visual alarm- lights up. Audible alarm as well.
Other objects could set off metal detector: coins, pagers, phones.
Has not known paper currency to set off metal detector. Not its purpose to detect it. If they set screenings to do that, it would bring airports to a halt says witness.
Witness says it is not illegal to take large amounts of cash domestically. Internationally, anything over $10,000 must be reported.
Talking about October 2012 test with standards persent in September 2008. 2 stage test: first stage, Special Agent Jensen took metal off his person and walked through detector 100 times without setting off.
Then took the $90k in 9 stacks, put it on his person and went through the magnatometer 100 times. Again, the alarm did not go off. No alert about the presence of currency.
Where's the video? would love to see this test being performed. Bet jury would too.
11:00AM Jim Thomas, Kwame's lawyer, cross-examines. This should be interesting.
Discussing layout of terminals in 2008. Witness says he moved into North Terminal in September 2008.
Thomas says there is more than one body scanner at the McNamara terminal. witness says there are 15 units total at the airport.
In September 2008, there were 2. One screened people coming off international flight. The other was at the McNamara terminal in the north end.
Thomas talking about Mahlon Clift and this if he had gone through scanning device, the money would have been detected. Witness says that would be correct.
Thomas talking about how the scanning technology has become so clear, it is somewhat intrusive.
Talking about nationwide TSA standard settings.
Thomas asks if the defense lawyers where there when October 2012 was conducted. Lorenz says there were not.
Talking about "divestiture advisements". What the TSA does in asking people to remove items to clear the detectors.
Thomas says that happens at all check points, at all times. Witness agrees.
Witness says they do that to make things move efficiently and prevent having to pat down passengers.
Thomas so concern is that people are completely divested, not just of metal but anything that might be dangerous to other passengers.
Thomas saying that at McNamara, you can travel to international flights through any of the checkpoints so there could be concern about people carrying more than $10,000 through the terminal.
Witness says they do not look for money but things that could bring harm to a plane or passengers.
So Thomas says you don't help other agencies in investigating illegal activity. Witness says they do not get involved closely with that.
There is protocol that if they see someone travelling internationally with more than $10,000 to report it to customs and immigrations.
In 2008, there were 35 CEIA magnatometers at Detroit Metro and 2 pilot scanners. Primary configuration was the CEIA magnatometer.
11:15AM Witness says that one TSA agent is assigned to every unit to monitor people coming through magnatometers.
Lorenz talking about secondary screenings which consists of the pat downs.
Thomas says weren't there hand wand scanners in 2008. Yes says Lorenz.
Thomas asks if witness knows if currency has any metallic property. Witness does not.
Thomas asking what TSA agents would do if they saw a passenger with bulges in their pockets. Witness says there are sensitive TSA protocols he can't get into.
"But we are always sensitive to our surroundings, yes," says Lorenz.
In 2008, in the McNamara terminal the witness says there were about 22 CEIA detectors.
On November 6th, 2012, witness had interview with FBI agent about whether a passenger went through magnatometer or scanner. Thomas says that he indicated to the agents that it was a 99% chance that Clift went through CEIA magnatometer.
Witness says primary device in 2008 was a CEIA magnatometer. The scanners were only being piloted. Lorenz says the 1% had to do with being diverted to secondary pat down screening.
Thomas says that there is no way of knowing standards of particular magnatometer as we don't know which one Clift used.
Lorenz says that is not true because TSA requires daily operational tests to make sure detectors are conforming to standards.
Thomas says that without looking at log because you don't know which log it would be, can't know with a 100% certainty.
Lorenz admits there have been times of machine failure.
Apparently we are going to see the video in a minute of the agent with money around his waistband.
Thomas asks if witness knows why the placed money in the waistband instead of pockets. Witness does not know.
Asks if Lorenz knows why certain denominations were used. Lorenz does not.
So Thomas ascertains witness just there to make sure magnatometer functioning properly.
Thomas discussing CEIA sensitivty settings which can be calibrated. Lorenz says there are different settings on the equipment, yes.
Thomas says that he read something about the settings being well below detectable levels for the test. Asking if it could have been too low to set off alarms.
Lorenz says that based on settings, there were no visual or audible alarms on the 200 pass-throughs.
Witness says there were other people recording levels during the test.
Witness says he is looking at other folks in the courtroom when Thomas asks what he is doing. Thomas asks if he is looking at the next witness who will be testifying after him. No says Lorenz.
11:35AM Thomas shows a clip of a CEIA magnatometer test video. Just saw a guy in just a white t shirt and jeans walk through the detector. apparently this is agent Joe Jensen who walked through the device 200 times.
In another part of the clip, a TSA agent is hanging over the side of a wall while the special agent takes bundles of money and places them in the waistband of his jeans. Bundles appear to be an inch or so thick.
Thomas is asking the courtroom for rubber gloves.
The agent, who is not a bad looking guy if I might add, is stuffing wads of cash into the back of his pants. Getting a good view of his backside. I think I'm actually blushing.
The special agent still stuffing wads of cash in his waistband and counting them. He's finished and readjusts his white tshirt to hang over his jeans. I can't tell at all that he has wads of cash stuffed in his pants.
Looking at a side view of the agent. I don't see anything.
Witness says he doesn't see anything.
"Do you need glasses?" asks Thomas saying that he clearly sees a crease around the waistline. Says there is a line from his waist to the front of his shirt.
Thomas asks that if the witness saw that or someone screening saw that and didn't make a phone call.
Witness says he sees creases like that thousands of times a day without making a call.
Thomas is incredulous, "Creases like that?!?"
Witness says "If I were the officer, I would not do anything."
"And you ensure our safety," asks Thomas. Judge Edmunds admonishes him, "Mr. Thomas."
Thomas points to a backshot of agent and says wouldn't you say anything. I cannot see a single thing except that the agent has one fine behind.
11:48AM Lorenz says there are different layers to security.
Thomas asks wouldn't one of those layers be to ask someone to step aside and be patted down?
The special agent walks back towards the magnatometer to go back through.
Thomas points out that the agent is fiddling with his shirt and asks Lorenz if he doesn't find that suspicious. Lorenz says he sees that thousands of times daily.
"He appears very fit and thin," says the witness about the special agent. I agree completely.
Thomas talking about the importance of maintaining security in Detroit. Lorenz says people are well trained and if they feel additional measures are needed, they will raise those concerns.
Thomas is done.
11:50AM Mike Rataj, Bobby Ferguson's lawyer, cross-examines.
Asks witness weird question as to whether he is Agent Jensen or Lorenz. Witness is Lorenz.
Witness says there were approximately 7 to 10 people involved in the October 2012. Witness says he did not read Mahlon Clift's testimony prior to the test and knew nothing about his weight and height.
Witness says special agent Jensen took 9 bundles of money and placed them around his waistband.
Rataj asks if they did the test with Jensen stuffing money into his pockets. witness says they didn't.
"No further questions," says Rataj.
11:55AM Blackwell redirects.
Witness agrees detectors serve purpose of eliminating objects that might be dangerous to passengers or plane.
Witness says that a passenger flying to Chicago in 2008 would not have a limit to amount of currency they could carry.
Witness says TSA does not look for currency on passengers because they are focused on security.
11:57AM Thomas re-crosses.
Asks witness that unless Agent Jensen lifted his shirt would he know if he was hiding cash or a bomb. No says the witness.
11:58AM Blackwell redirects and asks witness if he saw anything once the agent pulled his shirt down after stuffing the wads of cash. Lorenz says he did not.
5 minute break then I'm hoping cutie pie Jensen takes the stand.
12:08PM Back in the courtroom and Judge Edmunds is ready to get things going again.
Government calls FBI agent Joseph Jensen, Unfortunately he is not in his tight Levis. Has been with FBI for 2 and 1/2 years. Prior to FBI, was an army captain in Iraq.
Jensen says he had to fill out a lot of paperwork to withdraw $90,000 to use for test. Brought it to court today. Blackwell pulls out huge stack of cash and hands it to Jensen who sets it in front of him. Jensen says this was the cash he used in test: $73,500 in $100 bills and the balance in $50s.
Jensen says 9 stacks are $10,000 each with some with 50/50 split between $100 and $50 bills.
Blackwell is holding up stacks and showing it to jurors. Judge decides its best not to pass around to the jury.
"Not that I don't trust you guys," to roars of laughter from the courtroom.
12:15PM Thomas cross-examines.
Jensen says he was involved of planning test as well as Homeland Security and other FBI.
Jensen says he was not in the courtroom for Mahlon Clift's testimony.
Jensen says government attorneys were involved in the planning of test. Jensen says he understands that Vlift says he carried mostly $100 bills which is why the made some stacks that were 85% $100s and the rest $50s.
Jensen says that he decided to put the money in his waistline. Says he made the decision on his own.
Thomas says he did not place money in his pockets or his gym short pockets. Jensen says he did not but that he was wearing gym shorts.
Clift testified that he put money in his gym short pockets and then wore pants over that.
Thomas says would you agree if there were more $50s in the stacks, the stacks would be higher. witness agrees but says that the witness stated stacks were made up mostly of $100s.
Jensen says that the understanding was to conceal the money. Can't remember who told him that.
Thomas asks witness if knows what type of gym shorts Clift was wearing. Witness does not.
Thomas is stacking up the bundles to demonstrate how the witness would stuff them in pockets.
Thomas asking if the witness didn't want the test to be accurate. Witness says the test was accurate.
But did you put the money in your pockets? Witness says that was not the point of the test but to see if the currency set off the magnatometer.
Jensen says the test area was segregated from other passengers.
Thomas says defense was questioning credibility of Clift going through detector with $90,000. Thomas asks why witness pulled down his shirt to go through detectors.
Thomas says would it not been easier to see the bulk if it had been packed in his legs instead of his waist. Witness supposes so.
Thomas done. No more cross-examination or redirect. Jensen leaves with the bundles of cash.
12:28PM Government calls FBI agent Bob Beeckman back to the stand. Again.
US Attorney Mark Chutkow questions the witness. Chutkow says they have a timeline as part of Beeckman's testimony. For demonstrative purposes only.
Talking about Bernard Parker III testimony about working with Walbridge.
Text exchange between Kwame and Bobby on September 11th 2002
B: You won't to meet with jonh rakota jr from wlabridge (actually text spelling)
K: is that main guy
B: yes he is. Bernard parker work for walbridge...
K: Cool let's set it up.
B: Thank you.
At this point Kwame has been in office 8 months. Rakolta is CEO of Walbridge which is headquartered in Detroit.
Government is placing timeline exhibit in front of the jury but out of our view.
Looking at timeline for Baby Creek- PC 748:
09/28/02 RFP advertised
10/31/02 Bid opening (original)
02/06/03 Bid opening (Actual)- delayed due to patent infringement lawsuit.
02/10/03 Lowest responsive Equalized Bidder Letter prepared- all the bidder certifications and boxes checked. Walbridge got this letter
02/11/03 Bid protest. Other bidders not selected challenge the awarded contract. One protester is Walsh based in Chicago with office in Detroit.
02/14/03 Walbridge/FEI agreement. Handwritten.
02/17/03 City Decision on Equalization Credits/Bid Protests. Equalization is leveling playing field and giving preference to local companies.
02/18/03 DWSD Memo Walbridge re Lowest Bidder
02/21/03 Mercado Memo and SA Order to Kilpatrick
04/08/03 Kilpatrick signs SA Order to award the project.
Looking at intra-departmental DWSD memo from Daniel Edwards on February 18, 2003. Recommendation to evaluate bidder in 748.
This memo referenced in the timeline. Bid protests were on February 11th 2003- L. D'agostini and Walsh amongst protesters.
Another text between Kwame and Bobby on October 21st 2002 Bobby: Walbridge is not playing ball black man, these white folks need to be made believers that they are not in control.
Kwame: Will call later.
Looking at internal Walbridge evaluation on sub-contractors. Ferguson Enterprises, Lanzo, Ric-Man amongst those listed. Shows bid figures for the work. Also ranked for preference internally by Walbridge. WPM ranked #1 at $8.8 million, Lanzon #2 with $9.9 million, #3 is John Carlo with $7.9 million bid and #4 is FEI with $8.4 million bid amount and $10.9 million unit amount.
Defense calls for sidebar.
The above document obtained from Walbridge. Witness does not know who handwrote any of the numbers on the document.
Judge says that the juror should know that the witness doesn't know for sure what the numbers on the bottom of the page indicate.
Now looking at bid form and bid form attachments from Walbridge on PC 748. Lists the Patton Park portion of the project for $10 million. Rec department and DWSD struck a deal to work on this portion of the project.
Bernard is packing up to leave. Can't blame him.
This bid signed on February 6th 2003.
1:00PM Judge says we are done for the week. Dismisses the jurors for the weekend and reminds them not to discuss case and that there is no trial next Wednesday, January 9th.
About the author
Alexandra Harland is a Princeton undergrad and has a masters degree in International affairs with Columbia. A Montreal native, she worked with the Daily Telegraph newspaper for a few years before transitioning to TV, when she worked at ABC News with Peter Jennings. Alexandra has also worked in newsrooms in both Detroit and Boston.