by Rabon, Don
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.”
But, once again, how did this transition happen? Based upon an external force, in this case heat, water can change from a solid to a liquid to a gas. We continue to wonder, how does a young man in such a short period of time go from “studiously tending to the work of the chapter” to methodically stealing and deceiving—diverting the accumulated resources of over a hundred lifetimes? Surely, it can’t be what he decided upon while someone was “informing the students of career opportunities in accounting and finance.”
Was there a fatal crossroad at which point Alex made a fraudulent turn? Perhaps the fraudster resided in Alex all along, patiently waiting for the precise set of circumstances to be released. Like a virus, patiently biding its time until something happens within the body—a trauma, a fever, a sudden stressor—allowing the virus to spring forth and take over.
NARCISSUS
In Greek mythology, Narcissus was a hunter. He was known for his exceptionally attractive appearance. He was just as exceptionally prideful and scornful of those who loved him. One day, he looked into a pool and fell in love with his own image. He did not realize it was simply a reflection. His love was so strong for his mirror image, he could not bear to leave, even just long enough to eat. He subsequently wasted away. This was divine retribution for his pride (Wikipedia). From this mythological illustration, we derive the concept of the “narcissistic personality.” Narcissistic personality is defined as:
“Extremely selfish and self-centered, people with a narcissistic personality have a grandiose view of their uniqueness, achievements, and talents and an insatiable craving for admiration and approval from others. They are arrogant, exploitative to achieve their own goals and expect much more from others than they themselves are willing to give.” (http://www.webref.org/psychology/n/narcissistic_personality.htm)
A primary characteristic of a narcissistic personality is a strong sense of entitlement. This instance is not an entitlement, as in a legal sense of the meaning, but rather a self-imposed sense of entitlement. It is meant as a pejorative term.
At what point did Alex come to believe that he was entitled to that which belonged to others? Alex did not gaze into a pool of water and fall in love with his own reflection. Rather, he gazed into a large pool of money and fell into a sense of entitlement. He became enamored with what he could take and subsequently did take. Just as Narcissus could not tear himself away from the sight of his own reflection, Alex could not tear himself away from the sight of all that money.
As diverse as these two examples may seem at first, in the final analysis, each individual was focusing on what mattered most—himself. To Narcissus, no one was worthy enough to love him, or to receive love from him, but himself. To Alex, no one was worthy enough to have the assets that he took but himself. After all, he hoped to get himself “back on his feet at some point,” with the resources of others that he had kept for himself.
We have learned, to this point, that for a number of years, Alex, while consistently losing money as a result of his stock trading—and well before he made his partner aware of the losses—was continuing to “withdraw large management fees” (34). At the same time, the partners were bringing forth company after company, layer upon layer, falsifying tax returns and selling additional people on the idea of trusting them with their money.
Another dynamic of the narcissistic personality is a lack of remorse—the inability to feel a negative emotion as a result of a wrongful action toward another.
Our analysis of Alex’s voyage into the abyss can accommodate a variety of lenses—societal, the family unit, shifting mores, lost values and the combination thereof. But at the end of the day, the fraudulent voyage took place while other similar voyages are taking place at an increasing rate and, short of a cataclysmic event, will continue to do so.
Rather than quoting the data on the billions of dollars diverted by fraud each year, let’s examine the efforts undertaken to keep us from becoming a victim of fraud. We purchase identity theft protection from companies, such as LifeLock, to enhance our security. Companies conduct background checks on prospective hires. There are mandated internal and external audits for publically held companies. A web search under “fraud protection” produces over 20,800,000 related sites. Cities, counties, state and federal law enforcement agencies employ hundreds of thousands of investigators and auditors in the fight against fraud. The private sector employs still more. The Certified Fraud Examiners Association—the premier fraud-fighting entity—has chapters throughout the world, all comprised of professionals united in the fight against fraud.
As I tell those participating in my fraud-related interviewing classes, “Whatever is wrong in society, is represented by some of those sitting across from you during your interviews.”
Alex sat across from a great deal of different people—clients, a co-conspirator, representatives of the Federal Bureau of Investigation, as well as federal prosecutors. Through it all, time and time again, Alex manipulated things—reports, documents, funds—and he manipulated people . . . a lot of people. He deceived, when it would have seemingly been in his best interest to tell the truth.
Another example of Alex’s manipulation of things came forth in his testimony at the trial. This element involved a home loan application. We read the following:
Q. Directing your attention to November of 2005, are you aware of a home loan application for refinancing that Mr. Noel applied for?
A. Yes, I am.
Q. Did you have any involvement in that?<
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A. Yes, I did have some involvement with that.
Q. Did you ever see the loan application itself?
A. I did not see the loan application itself.
Q. What was your involvement?
A. My involvement was in preparing some documentation that Bryan said he needed to present to the mortgage company.
Q. What kind of documentation was that?
A. That type of documentation would include articles of organization and incorporation for CEP, and some type of letter stating that Bryan was the 100 percent owner, as well as something with a client account statement.
Q. Let me show you Government Exhibit 45J, specifically the second page, and ask you if you recognize that.
A. Yes, I do.
Q. What is that?
A. That is a client account statement for Bryan as of October 4th, 2005.
Q. And did you prepare it?
A. Yes, I did.
Q. At whose request?
A. At Bryan Noel’s.
Q. Was it truthful?
A. As I recall, this is not a correct statement.
Q. And what was the purpose in preparing this?
A. The purpose was to show more assets in Pinnacle than what was really there at that point.
Q. For who to show more assets?
A. For Bryan to show more assets.
Q. Now, in the same time frame, November of 2005, did you have any discussions with Mr. Noel about Titan trading accounts?
A. Yes, we did, during that time.
Q. And when I say “Titan trading accounts,” I mean distinct from the Pinnacle trading accounts.
A. Correct.
Q. Will you tell the jury about that?
A. Bryan was working on obtaining financing from Carolina First Bank which would be somewhere in the neighborhood of a million dollars, and his plan was to trade some of those funds via accounts that would be set up in Titan’s name so that some of the gains that could be made off of those funds could be used to repay part of what Pinnacle’s loan balance to Titan was.
Q. So you said in November of ‘05 that there was an application to what bank for a loan?
A. To Carolina First.
Q. And what — who was applying for that loan?
A. That would have been Titan Composites.
Q. And what was going to be done with those loan funds?