11-1924 Appendix 2 For USA

11-1924
United States Court of Appeals

FOR THE SECOND CIRCUIT
Docket No. 11-1924
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
DANIEL B. KARRON,
Defendant-Appellant.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
APPENDIX FOR PLAINTIFF-APPELLEE
VOLUME II OF II
(Pages A-256 to A-507)
PREET BHARARA,
United States Attorney for the
Southern District of New York,
Attorney for Plaintiff-Appellee.
86 Chambers Street, 3rd Floor
New York, New York 10007
(212) 637-2793
Case: 11-1924 Document: 46 Page: 1 02/21/2012 531219 258
31589 SDNY Table of Contents AL 2/21/12 10:40
TABLE OF CONTENTS
PAGE
District Court Docket Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Complaint, dated November 24, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
Order, filed March 17, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
Memorandum and Order, filed May 18, 2009 . . . . . . . . . . . . . . . . . . . . . A-26
Mandate of the United States Court of Appeals for the
Second Circuit, filed October 21, 2009 . . . . . . . . . . . . . . . . . . . . . . . . A-29
Notice of Motion for Summary Judgment, filed June 18, 2010 . . . A-31
Declaration of Melinda S. Chukran in Support of the
United States Motion for Summary Judgment,
filed June 18, 2010, with exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
Exhibit A. Amendment No. 4 to the Financial Assistance
Award for Computer Aided Surgery, Inc.,
dated July 23, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
Exhibit B. Requests for Advance or Reimbursement,
signed by Daniel B. Karron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
Exhibit C. Forms SF-272, signed by Daniel B. Karron . . . . . . . A-58
Exhibit D. Financial Status Reports,
signed by Daniel B. Karron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-65
Declaration of Assistant United States Attorney Michael J.
Byars in Support of the United States Motion for
Summary Judgment, filed June 18, 2010, with selected
exhibits from criminal trial in United States v. Karron,
07 Cr. 0541 (RPP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-69
PAGE
ii
Government Exhibit 2. General Terms and Conditions of
the Advanced Technology Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
Government Exhibit 10. Application, dated July 6, 2001 . . . . . A-90
Government Exhibit 10A.
Application, dated August 6, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . A-118
Government Exhibit 11. Letter from Marc G. Stanley,
Acting Director of the Advanced Technology Program,
to Dr. D.B. Karron, dated October 2001 . . . . . . . . . . . . . . . . . . . . . . A-135
Government Exhibit 12. Financial Assistance Award . . . . . . . A-136
Government Exhibit 13. Special Award Conditions . . . . . . . . . . A-137
Government Exhibit 14. Revised Budget,
dated September 20, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-139
Government Exhibit 21. Amendment to Financial
Assistance Award, dated November 7, 2001 . . . . . . . . . . . . . . . . . A-140
Government Exhibit 26. Amendment to Financial
Assistance Award, dated June 27, 2003 . . . . . . . . . . . . . . . . . . . . . . A-144
Government Exhibit 40. Financial Status Report
for Fourth Quarter 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-149
Government Exhibit 40A. Revised Financial Status
Report for Fourth Quarter 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-150
for First Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-151
Report for First Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-152
for Second Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-153
Report for Second Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-154
PAGE
iii
for Third Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-155
Report for Third Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-156
for Fourth Quarter 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-157
for First Quarter 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-158
for Second Quarter 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-159
Government Exhibit 62. Final Audit Report for
CASI Award, dated August 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-160
Government Exhibit 114. Summary of CASI financial
records prepared by Belinda Riley . . . . . . . . . . . . . . . . . . . . . . . . . . . A-233
Excerpts of transcript of June 2008 trial in
United States v. Karron, 07 Cr. 0541 (RPP) . . . . . . . . . . . . . . . . . . A-234
Transcript of October 20, 2008, sentencing proceeding in
Statement of Material Facts, pursuant to
Local Civil Rule 56.1, dated June 18, 2010 . . . . . . . . . . . . . . . . . . A-354
Amended Declaration of Assistant United States Attorney
Michael J. Byars in Support of the United States
Motion for Summary Judgment, filed June 24, 2010 . . . . . . . . A-360
Statement of Material Facts, pursuant to Local Civil Rule
56.1, filed by D.B. Karron, filed August 23, 2010 . . . . . . . . . . . . A-363
Declaration of D.B. Karron in Opposition to Plaintiffs
Motion for Summary Judgment, filed August 23, 2010,
with selected exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-400
PAGE
iv

Exhibit 11. Spending Summary for Fourth Quarter 2001 . . . A-408
Exhibit 12. Spending Summary for First Quarter 2002 . . . . . A-410
Exhibit 13. Spending Summary for Second Quarter 2002 . . . A-412
Exhibit 14. Spending Summary for Third Quarter 2002 . . . . . A-414
Exhibit 17. NIST ATP CASI Technical Report 3 . . . . . . . . . . . . . A-416
Exhibit 53. Cover page of transcript of trial in
Exhibit 54. Excerpt of transcript of trial in
Declaration of Deborah A. Dunleavy in Opposition to
Plaintiffs Motion for Summary Judgment,
filed August 23, 2010, with selected exhibits . . . . . . . . . . . . . . . . A-434
Forensic Reconstruction of CASI Entities
for October 2001 to December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . A-447
Exhibit A1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-449
Exhibit AA 002. Amended SF 269A Report of Spending . . . . . A-453
Exhibit AA 003. D.B. Karron Gross Salary Discrepancy . . . . . A-454
Exhibit AA 004. D.B. Karron Co-Funding Discrepancy . . . . . . A-455
PAGE
v
Exhibit AA 005. Equipment and In-Kind
Contribution Discrepancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-456
Exhibit AA 006. Monies to and from D.B. Karron . . . . . . . . . . . A-457
Exhibit AA 007. Monies to D.B. Karron,
September 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-458
Exhibit AA 008. Monies to D.B. Karron,
December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-459
Exhibit AA 009. Monies from D.B. Karron,
September 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-460
Exhibit AA 010. Monies from D.B. Karron,
December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-461
Exhibit A2. Index of Submitted Items . . . . . . . . . . . . . . . . . . . . . . . . A-462
CASI Entities General Ledger, Balance Sheet Accounts,
for October 1, 2001, to December 31, 2003 . . . . . . . . . . . . . . . . . . . A-467
CASI Entities General Ledger, Income and Expense
Accounts, for October 1, 2001, to December 31, 2003 . . . . . . . . A-470
CAC 291 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-477
Transcript, dated March 7, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-478
Notice of Appeal, filed April 19, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-507
A-256
8AKMKARS Sentence
1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
3 UNITED STATES OF AMERICA,
4 v.
5 DANIEL B, KARRON,
6 Defendant.
7 ------------------------------x
07 Cr. 541 (RPP)
8 New York, N.Y.
October 20, 2008
9 2,30p.m.
10
Before:
11
HON. ROBERT P. PATTERSON, JR.,
12
District Judge
13
14 APPEARANCES
15 MICHAEL J. GARCIA
United States Attorney for the
16 Southern District of New York
STEVE KWOK
17 CHRISTIAN EVERDELL
Assistant United States Attorneys
18
RUBINSTEIN & CORozza
19 Attorneys for Defendant
BY: RONALD RUBINSTEIN
20
21
22
ALSO PRESENT: KIRK YAMATANI
23 RACHEL ONDRIK
24
25
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
1
A-257
2
8AKMKARS Sentence
1 (Case called)
2 MR. KWOK: Good afternoon, your Honor, Steve Kwok for
3 the government. With me at counsel table is Chris Everdell.
4 THE COURT: Good afternoon, Mr. Kwok and Mr. Everdell.
5 MR. RUBINSTEIN: Good afternoon, your Honor, Ron
6 Rubinstein for the defendant. I have to apologize. I thought
7 it was 2:30, the sentence. It must have been a senior moment.
8 THE COURT: I have a presentence report. The latest
9 one is dated October 7, 2008. Has the defendant seen the
10 presentence reports, including the latest one, October 7, 200B?
11 MR. RUBINSTEIN: Yes, your Honor.
12 THE COURT: He has read them?
14 THE COURT: Are there any changes to be made?
15 MR. RUBINSTEIN: No. Except for the objections we
16 have--
17
THE COURT: Except for the objections that you have in
18 your letter of October 13 and also in a letter received Friday,
19 October 17, 200B, those two letters to the Court?
20 MR. RUBINSTEIN: That's correct, your Honor.
21
THE COURT: The government sent us a letter dated
22 October 17 also. I have not received any response by, the
23 government to your letter of October 17.
24
MR. KWOK: The government did not submit a response to
25 the latest letter.
(212) 805-0300
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3
8AKMKARS Sentence
1 THE COURT: You're willing to proceed on that basis?
2 MR. KWOK: The government is ready to proceed.
3 THE COURT: Then I guess the best way -- I don't know
4 how the parties think the best way to proceed, but it would
5 appear to me that the best way to proceed is by considering
6 Mr. Rubinstein's letter of October 17, which disputes the
7 computation of loss contained in the presentence report and in
8 the government's letter.
9 I might say that I've had some concerns about the loss
10 computation. It's not clear to me that a failure to get
11 approval of expenditures from the grant officer amounts to the
12 same as an intentional misapplication of funds. And to the
13 extent that we have here in this case, as I understand it, the
14 final budget as approved in December 2001, and subsequent to
15 the applications to amend the budget were not approved. So the
16 requisite documents that the Court has to examine of the budget
17 contained in -- is it Exhibit 12?
18 MR. KWOK: Your Honor, I think the last approved
19 budget is the budget attached to Government Exhibit 22. It's
20 the third page --
21 THE COURT: It's Exhibit 12. Just a second. Exhibit
22 12 is the original budget that Dr. Karron signed. Then there
23 is Exhibit 20. 21 was just an administrative contact change.
24 Exhibit 22 contains the final budget approved -- amended budget
25 approved by the agency.
(212) 805-0300
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4
8AKMKARS Sentence
1 So I have difficulties. For instance, looking at
2 Exhibit 20 and 22 and the fringe benefits being allowed at 34
3 percent of salary, as I see it in the documents. I have
4 difficulty also with the tabulation contained in Government
5 Exhibit 114 and 115 because they are just rough calculations,
6 as I see it. I don't know who compiled them, but I gather it
7 was Ms. Riley, but we never went into the detail about, for
8 instance, the statement in the tabulation that Dr. Karran's
9 salary budgeted at 175, various cash. He spent 200,486,
10 according to that tabulation. Those amounts, as I saw them,
11 err were salary, They involved loans made which someone, I
12 don't know whom, I presume Ms. Riley, determined the equivalent
13 of salary.
14 As I alluded to earlier, the fringe benefits figure in
15 this tabulation -- I'm looking at 114 says that Dr. Karron
16 didn't spend $40,337 in fringe benefits, and yet in the same
17 tabulation it says that the fringe benefits were not allowed
18 and spent $4,081. That whole scenario of fringe benefits is
19 somewhat illusive to me.
20 The testimony, as I recollect it, was CASI, the
21 corporation, did not have a formal benefit plan and they were
22 endeavoring to compile one during the time of the grant. And
23 instead what Dr. Karron did was to pay benefits just as he was
24 accustomed to paying them, for whatever medical expenses the
25 various employees had for their wives. I have some difficulty
(212) 8 0 5 ~ 0 3 0 0
A-260
5
BAKMKARS Sentence
1 in, 1, finding that there was criminal intent with respect to
2 these expenditures, which are all on Government 114, and with
3 the manner in which those overexpenditures were computed. It
4 seems to me this is just a rough calculation and not something
5 that a Court could rely on in a criminal case. I'll hear from
6 you. That's my assessment of that proof.
7 MR. EVERDELL: Your Honor., I think; in fact, I know
8 114 and 115 are based on Ms. Riley's underlying analysis.
9 THE COURT: The spreadsheets.
10 MR. EVERDELL: Yes, the spreadsheets.
11 THE COURT: But it doesn't meet it because in her
12 spreadsheet she doesn't have any payment like $248,000 worth of
13 salary in year one,
14 MR. KWOK: Your Honor, she does. That number is the
15 net transfers.
16 THE COURT: I've looked at salary, I think.
17 MR. KWOK: Including the tax withholding, I believe is
18 the testimony that she testified to. When you take into
19 account all the money that Dr. Karron took out from CASI, minus
20 the amount that he paid back --
21 THE COURT: That isn't salary. We are talking about
22 salary. I don't see salary. There is nothing like salary in
23 those documents that equals 248 -- $200,488.
24 MR, KWOK: Salary is just a heading. What she meant
25 by this is money that defendant took, pure money, not in terms
(212) 805-0300
A-261
6
8AKMKARS Sentence
1 of expenditure; cash that he took from CAS!, whether in the
2 form of quote unquote loan or whether- in terms --
3 THE COURT: Show me. She has no tabulation putting
4 114 into context with her liD, Exhibit 110.
5 MR. KWOK: If your Honor could look at Government
6 Exhibit 110.
7 THE COURT: I did look at Exhibit 110.
8 MR. KWOK: Page 38.
9 THE COURT: I have it here. I don't know that I have
10 it here.
11 MR. KWOK: Page 38 of 44.
12 THE COURT: I guess we will have to get lID, because I
13 don't think I have it here, but I'm fully familiar with it. I
14 think it's in Mr. Rubinstein's submission, as a matter of fact.
15 MR. KWOK: That page shows money going to the
16 defendant and money coming from the defendant. So taking
17 THE COURT: What page are you referring to? Maybe
18 it's in Mr. Rubinstein
19 MR.
20 THE
21 MR.
22 THE
23 salary.
24 MR.
25 Look at, for
KWOK: 38 of 44.
COURT: He has payroll. Looking at
KWOK, Page 38 of 44.
COURT: That's loan and loan repay.
KWOK: If you look at the memo line,
example, the third check, per check
(212) 805-0300
13 of 44?
That's not
it is salary.
register,
A-262
7
8AKMKARS Sentence
1 salary advance.
2 THE COURT: That one she treated as a loan.
3 MR. KWOK: These are expressed in a spreadsheet 'as
4 loans, but they are all money going to the defendant.
5 THE COURT: I understand. It's just not salary,
6 MR. KWOK: You can give it whatever label you like,
7 but the bottom line is, the defendant took from the company
8 this much money which added to 188.
9 THE COURT: I don't doubt that's what your
10 calculations are.
11 MR. KWOK: If I can just correct a misimpression,
12 Government Exhibit 114 is not a rough calculation. It's not a
13 guess. It's based entirely on Government Exhibit 110 which, in
14 turn, is based entirely on the bank records that she reviewed.
15 THE COURT: They are certainly not in those records, a
16 showing of $200,488 in salary.
17 MR. KWOK: If I can explain how she got that number.
18 THE COURT: It's denominated salary. It's a table
19 saying salary. I don't care how she got the number.
20 MR. KWOK: But that doesn't really affect the loss
21 amount. You can label it and give it whatever label you want.
22 But at the end of the day -- let me back up one step. The
23 grant says Dr. Karron can take from the grant for his own use,
24 whether we call it salary or compensation for efforts that he
25 put into the grant, $175,000. That's the amount -- the portion
(212) 805-0300
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8
8AKM:KARS Sentence
1 of the pie that he can get from the grant, $175,000.
2 THE COURT: He can get a salary of 175,000 is what it
3 says in the budget, plus 34 percent for fringe benefits.
4 MR. KWOK: If he took from the grant money in addition
5 to $175,000, putting aside fringe benefit for a second, any
6 amount above that is a disallowed amount, whether you call it
7 excess salary or call it a loan that never gets paid back. It
8 doesn't really matter. At the end of the day, the budget says
9 $175,000 and no more. If you take more than that, the first
10 dollar above $175,000 is disallowed. Whether you call that
11 excess salary or loan, it doesn't really matter.
12 THE COURT: I'm not dealing with ifs. I'm dealing
13 with what the record shows. This doesn't show what the records
14 show as far as salary goes.
15 MR. KWOK: It shows that, just for simplicity, she
16 doesn't want to Create that' many different categories. Salary,
17 loan.
18 THE COURT: She has got a salary category. She shows
19 it. Go on a couple of pages. Payroll, next page, $35,293.58.
20 MR. EVERDELL: Your Honor, also, to bear in mind with
21 this, these entries on the spreadsheet are based on how
22 Dr. Karron himself characterized things in the documents. So
23 we have checks here for pay periods that are quote unquote
24 payroll checks for salary. However, he called other things
25 loans or other things like that.
SOUTHERN DISTRICT REPORTERS, p.e.
(212) 805-0300
A-264
9
BAKMKARS Sentence
1 Now, Lynn Riley, in doing this analysis, put those
2 together in the same category because as Mr. Kwok was saying,
3 it was money paid from CAS! to Dr. Karron. If he is allowed a
4 payroll, a salary of $175,000, it doesn't necessarily matter
5 how the defendant himself characterizes those payments to
6 himself. Whether he calls them payroll checks or whether he
7 calls them loans, it's still a payment to him personally from
8 CAS! funds. So her object, I think in doing it this way, was
9 to sweep together those things which were direct payments from
10 the company to Dr. Karron.
11 THE COURT: I don't dispute that. But the tabulation
12 is not something that I can go along with. It is not salary,
13 MR. KWOK; We have no problem with that. If you want
14 to call it salary/loans or just simply money to Karron, excess
15 money to Karron, it doesn't really affect the loss amount
16 because at the end of the day the loss amount is simply
17 arithmetic, what he took from CAS! minus what he is supposed to
18 get under the grant, which is $175,000. We have no problem, if
19 it makes things clearer, instead of calling that salary, we
20 could call that, simply, excess money to Dr. Karron.
21 THE COURT: You see what he did was -- I think it is
22 borne out by the defendant's papers to some degree -- is he
23 took a very low salary to pay back the loans. Is that a fair
24 statement?
25 MR. EVERDELL: Your Honor, that fact that you just
(212) 805-0300
A-265
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
~ - ~ - - - ~
25
10
8AKMKARS Sentence
said, the fact that he didn't take his full salary, is taken
into account
THE COURT: I didn't say that. I want to know whether
you're disputing what I just said.
MR. EVERDELL: What I agree with is that, yes, the
defendant did not take his full salary in the sense that when
you look at salary in checks, they are less than the $175,000
of quote unquote salary.
THE COURT: You saw there was less withholding, right?
MR. EVERDELL: But he paid himself in other ways in
things he do did not characterizing as salary.
THE COURT: Was there less withholding or not? You
better confer.
MR. EVERDELL: Your Honor, apparently what happened
was, he wasn't characterizing anything -- there was no
withholding until an accountant carne in towards the end of year
one and said, you have to call these things payroll, you have
to take your salary and then you have to calculate withholding.
And that account went back retroactively and looked at these
payments and did the withholding retroactively with all these
payments to him which had not been characterized.
THE COURT: There are documents appended to the
defendant's papers which indicate that the withholding was
taken timely. That's not borne out by what you say, showing
Mr. Rubinstein's letter of Friday. Where did I put it? He has
(212) 805-0300
A-266
11
8AKMKARS Sentence
1 got documents showing money being withheld to calculate salary.
2 MR. KWOK: Which page are you looking at, your Honor.
3 THE COURT: I'm trying to find the letter now.
4 Attached to it, if you look, it's about ten pages in. It shows
5 the salary, August 2, 2002, salary. It shows outstanding
6 salary of $61,918; federal withholding tax, minus 17,104;
7 social security deduction, 2,091; Medicare and employee 462.81.
8 New York withholding, New York City resident also. It's all in
9 there. He also has ODe for the pay period 7/01/2002. Maybe
10 that's the same.
11 MR. KWQK; Are you looking at this page?
12 THE COURT: Yes, I believe so. It has a check at the
13 top.
14 MR. EVERDELL: Your Honor, I think this may actually
15 reflect what we are talking about. If you look at check No.
16 10401. Is that the page you're looking at?
17 THE COURT: Yes.
18 MR. EVERDELL: That looks like it was paid out on
19 August 2, 2002, which is towards the end of year one of the
20 grant. If you look at the spreadsheet that Ms. Riley created,
21 it shows that the first actual paid check that he got was in
22 May of 2002; again, sort of towards the end of year one of the
23 grant. This is, as we are getting towards the end of year one,
24 where Dr. Karron is being told that needs to pullout
25 withholding. I don't think this contradicts what we were
(212) 805-0300
A-267
12
8AKMKARS Sentence
1 saying before.
2 THE COURT: It does contradict what was said. What
3 you said is not consistent with what you're saying now. That's
4 the trouble with these analyses. They are fine as far as they
5 go, but they do not tell the story.
6 Anyway, there are I similarly I prescriptions J first
7 item in Mr. Rubinstein's letter. I don't think that the item
8 is prescriptions. I think the item is other and it included
9 other matters such as bank processing, consultants, lawyers,
10 and bookkeeping.
11 MR. EVERDELL: Your Honor, if I can just step back for
12 one second and just talk about the general position of the
13 government on loss, which is that unless it's specifically
14 budgeted for -- that it has been preapproved in a budget or has
15 had subsequent approval authority from NIST, or whatever
16 expenditure it may be, that it's overbudget or an item in a
17 category that is not a budgeted category, that constitutes a
18 loss to the government. The reason why is --
19 THE COURT: It has to be -- it seems to me it has to
20 be a loss as to which there was criminal intent.
21 MR. EVERDELL: Your Honor, I think --
22 THE COURT: In order for there to be an intentional
23 misapplication of funds. You have to have criminal intent
24 here. The fact that the government lost money on the grant or
25 the money wasn't expended properly does not necessarily mean
(212) 805-0300
A-268
13
8AKMKARS Sentence
1 that there was criminal intent involved in all those
2 expenditures.
3 MR. EVERDELL: Your Honor, according to the
4 guidelines, the guidelines commentary, when you're looking at
5 government benefits, you are supposed to look at what the
6 intended use for the money was. For loss amount you look at
7 whatever was diverted to in unintended use. It's the
8 government's position that with this money that was given out,
9 it came with a lot of very specific spending rules and those
10 rules were clear and set forth. So that is the intended use of
11 the money.
12 We handled this money such that you would spend it in
13 accordance with these rules and that included the budgetary
14 rules, the prior approval rules, all of the other spending
15 rules that came attached to the grant. So that when money is
16 diverted elsewhere, when it is not part of an approved category
17 or overbudgeted category, that's not an intended use of the
18 money. That is not an intended use of the money because,
19 otherwise, why not just give away the grant money with no rules
20 and say, okay, here is a block of money for you to use as you
21 see fit. We won't ask you how you're spending it. Come back
22 in a year or so and tell us the progress you've made on your
23 gran"t. I'm sure there are grants that probably do operate that
24 way, but that's not this one. This one wanted to keep a very
25 close leash on how this money was spent, they wanted to approve
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1 everything that was spent and see all of the expenditures
2 beforehand so that they were on board.
3 THE COURT: All the expenditures that were budgeted.
4 MR. EVERDELL: They wanted to see a budget first, yes,
5 and anything that was not in that budget or over that budget,
6 with the exception of the 10 percent rule that we are all
7 familiar with, had to be approved. The reason why they do that
B is because, as defense counsel said many times in his own
9 submissions, this is a type of grant where the government is
10 actually very involved. So they want to keep a tight leash on
11 how this money is spent.
12 Given that that is the posture of this grant, how the
13 money is supposed to be spent, that is the intended use of the
14 money, to be spent according to budgeted items or items that
15 have been preapproved by NIST. So it's the government's
16 position that when you go outside of those categories or go
17 over budget on one of the approved categories, that still
18 constitutes a loss to the government because they have not been
19 able to exercise the control that they meant to exercise with
20 instituting these grant rules and these spending rules.
21 THE COURT: Look. Let's go right to an item that
22 bothers me, fringe benefits. They were approved at 34 percent
23 of salary. No one said what constitutes a valid, as far as I
24 could find in the papers in the court, what was a valid fringe
25 benefit and what wasn't. How can I have any confidence that
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1 not approved fringe benefits of $4,000 is something that is a
2 willful disregard of the rules?
3 MR. EVERDELL: Your Honor, there are a couple of
4 things with fringe benefits which is, I believe, how this was
5 calculated. We heard testimony that there was no plan in
6 place.
7 THE COURT: I heard that, but there was no plan in
8 place from the beginning. You only found that out at a certain
9 point. No one went and checked the group out or anything in
10 advance. It says fringe benefits. The testimony is, he had a
11 cafeteria plan or whatever it was.
12 MR. KWOK: Your Honor, if I may, I think the
13 testimony --
14 THE COURT: And anything and everything could be
15 expended in the way of fringe benefits to himself and members
16 of the family and for the employees. The government may come
17 back with, oh, it wasn't in the plan, so, therefore, ,it
18 shouldn't be allowed, but there is no warning to the person
19 there. I can't see the criminal intent there.
20 MR. KWOK: The defendant was certainly told
21 repeatedly --
22
THE COURT: The government may have lost the money,
23 but I can't see any criminal intent.
24 MR. KWOK: The intent is when he asked a question and
25 was told no and went ahead and did it anyway. It was in the
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1 documents--
2 THE COURT: He didn't ask any question about medical
3 benefits, as far as I know, from the record.
4 MR. KWOK: If I could just address your Honor's
5 question about amount. The amount reflected on this chart is
6 simply the amount over budget because he took more salary
7 because fringe benefits is a percentage of salary. So it's
8 calculated as a fixed percentage of salary, So because he took
9 more from CASI than the amount that he was allowed, namely,
10 $175,000, the amount we just allowed him is an amount of $4,000
11 or so. It is simply an amount over budget because he took more
12 in dollars
13 THE COURT; He under spent budget through those fringe
14 benefits by $4,000 it says right above it. Look at that. This
15 is a mess.
16 MR. EVERDELL: Your Honor, I think we can make this
17 much simpler. Let me see if I can do this. Even if you look
18 at just the categories that were nonbudgeted categories, we are
19 not talking about fringe benefits anymore, we are not talking
20 about even equipment overexpenditures, we are not talking
21 anything that was actually a budgeted category that had been at
22 least somewhere approved by NIST before.
23 If we are talking about everything else, that is,
24 rent, utilities, cleaning, meals, capital or
25 these other expenses which were actually not listed in the
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1 category other under the budget, we are already talking about
2 for years one and two of the grant, we are already talking
3 about a loss amount, under my calculation, is over $172,000. I
4 think
5 THE COURT: What figures did you use in the first year
6 of the budget to get 172,OOO?
7 MR. EVERDELL: I just added up in years one and years
8 two, so this would be 114 and 15.
9 THE COURT: Which items are you adding up?
10 MR. EVERDELL: I'm adding up rent, which is $60,000 in
11 year one; I'm adding up utilities, which is 16,341 in year one.
12 I'm adding up capital improvements.
13 THE COURT: Rent. You're adding up after rent what?
14 MR. EVERDELL: Rent was first, 60,000.
15 THE COURT: Utilities.
16 MR. EVERDELL: utilities was second.
17 THE COURT: There was some testimony on utilities. He
18 got an approval.
19 MR. EVERDELL: Your Honor, I don't think there was
20 ever testimony that he got a prior approval for utilities. In
21 fact, he was told repeatedly that utilities were not allowed.
22 THE COURT: The difference between the utilities for
23 the apartment befor_e and after the upgrade for air conditioning
24 and for the machinery --
25 MR. EVERDELL: I think the only testimony we had on
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1 the record is that he tried to get an approval for the
2 u_tilities, but he never received one.
3 THE COURT: Mr. Rubinstein's quotes a utilities figure
4 using Mr. Benedict's testimony at 1057. I can't find it. Here
5 it is, 1057.
6 MR. EVERDELL: I'm looking at the page he cited. Here
7 it just says -- his question is, this is Mr. Rubinstein's
8 question, and he is questioning --
9 THE COURT: And the discussions were that if he could
10 indicate the fact that there was an increase, that they could
11 be classified as direct expenses, not indirect expenses.
12 MR. EVERDELL: It says the discussions were, right,
13 that if he could demonstrate the fact that there was an
14 increase, that they could be classified as direct expenses, not
15 indirect expenses. But there was never any approval of this.
16 So at this point none of the testimony here is talking about
17 any approval of any additional utilities, expenses, or anything
18 like that.
19 THE COURT: Sounds like approval, but not written
20 approval.
21 MR. EVERDELL: He is, talking to Bob Benedict. Bob
22 Benedict, I think, is a witness here who is the finance
23 manager. We are not talking to the people at NIST, who
24 actually made the approval, such as Hope Snowden. If I recall
25 correctly, Hope Snowden's testimony about utilities was simply
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1 that there were lots of conversations that she had with the
2 defendant himself and with others about whether or not grant
3 funds could be used for utilities, and she said no.
4 THE COURT: Where is this?
5 MR. EVERDELL: The cites to the record?
6 THE COURT: Yes.
7 MR. EVERDELL: Your Honor, I'm afraid I don't have
8 them --
9 THE COURT: This does say the witness summarizes his
10 testimony at the end of the page. The incremental amount of
11 additional expense caused by the grant could be classified as
12 direct expense and not indirect expense. Direct expenses are
13 allowed, regardless of what they are. Indirect expenses are
14 not allowed.
15 MR. EVERDELL: I think that that quote just says right
16 there that they are talking about a possibility, but a
17 possibility that was never actually approved. And a
18 possibility that was never actually budgeted. So--
19 THE COURT: It suggests not approved in writing. I
20 have seen that. I agree with that. But it sounds as if it was
21 approved orally.
22 MR. EVERDELL: I don't know if I read that as that.
23 Maybe it's Mr. Benedict's understanding of what he could
24 possibly get approved under the rules.
25 THE COURT: I think that's a little bit -- the point
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1 is that the criminal intent of the defendant is important here.
2 And if he was proceeding on that basis, that seems to me -- I
3 have reason to -- it seems to me that that amount is an amount
4 that should not be considered in the loss calculation.
5 MR. EVERDELL: Your Honor, I think I have to
6 respectfully disagree with that. My colleague, Mr. Kwok, has
7 pointed me to the part in the record. This is Hope Snowden's
8 testimony on page 256 of the record where she is talking about
9 her conversations with I believe itls Dr. ~ a r r o n and
10 Mr. Gurfein about expenses. And the question was:
11 What questions did he ask you, if any, during those
12 conversations?
13 And the answer is: Was he allowed to pay for rent and
14 utilities with the ATP federal-funded grant.
15 "Q. And rent for what, rent utilities for what?
16 "A. For the condo in which at this point, I guess, CASI, the
17 company, was being housed.
18 "Q. And whose condo was that?
19 "A. Dr. Karron's condo.
20 "Q. What was your response to the question? Can rent and
21 utilities be paid for with ATP funds?
22 "A. No. They are unallowable costs."
23
THE COURT: I understood that testimony. That comes
24 well preceding Benedict's testimony, it comes well preceding
25 the work for the apartment for the air conditioning, and that's
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1 what caused the utilities to go up and that's after the time
2 that Snowden is talking about, as far as I can see.
3 MR. EVERDELL: Let's just do this then, your Honor.
4 THE COURT: I've got to be --
5 MR. EVERDELL: Let's do this. Let's set aside for the
6 moment the issue of whether that $4,595 spould or should not be
7 included in the loss amount.
8 THE COURT: According to Mr. Rubinstein, it's not
9 4,000.
10 MR. EVERDELL: I was looking at page 2 of his letter.
11 THE COURT: 16,341, as I understand it. The utilities
12 prior were 4595, prior to the project.
13 MR. EVERDELL: I believe that's 16,341 is what the
14 government is claiming is the utilities amount for year one.
15 THE COURT: Maybe you're right. That's the
16 government's claim, not 16,000. He claims
17 MR. EVERDELL: He claims that the loss is only 4,595,
18 which is the amount of the increase, he says.
19 THE COURT: That's the prior amount of utilities, not
20 the increase. The difference should be not a loss.
21 MR. EVERDELL: I apologize, your Honor. He's claiming
22 the difference between the two should be not included in the
23 loss.
24 But setting that aside for the moment, again, if you
25 add up the categories again that were nonbudgeted expenses,
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1 even leaving that issue aside, I guess let's just say that that
2 is almost $12,000, not quite, of difference.
3 If you go to the next category, which is capital
4 improvement, in year one is 11,248. Again, this has no --
5 there is nowhere in the budget where this stuff is talked
6 about. There is no prior approval from NIST for this sort of
7 thing. Mr. Benedict is using the money, same which he does for
8 cleaning and meals, to do whatever he feels like he wants to do
9 with it, and he's spending it on outside budget categories ..
10 THE COURT: Let's deal with capital improvements.
11 They claim that this should be more profited by the site
12 preparation.
13 MR. EVERDELL: But even site preparation isn't a
14 budgeted category.
15 THE COURT: I don't know that it is.
16 MR. EVERDELL: It's not, according to the exhibits.
17 Basically, what the defense counsel has tried to do in this
18 submission is take every possible expenditure that he can think
19 and try to claim that if it had some tangential or arguable
20 benefit to the research, then it can't be qualified as a loss.
21 That simply can't be workable, your Honor, because almost every
22 single expenditure has some benefit to the research. You just
23 can't work that standard. It's unworkable.
24 So what we decided and what our loss calculation and
25 theory is about is whether or not it's in budget because that
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1 is clearly what the intended use of the money was. We give you
2 this money so that you can spend it according to the rules, and
3 they were very clear about that. There was lots of testimony
4 about how the rules were supposed to be followed, how they
5 explained the rules to them, how they had to adhere to their
6 budget, and for good reason, and how they needed approvals for
7 things that were outside of the budget.
8 So while I understand that certain things that the
9 defendant is claiming may arguably have benefited the research
10 in some way, that's simply not the standard we can work with,
11 because then there would be no loss at all, it would seem like.
12 Even meals. people have to eat in order to conduct research,
13 but you can't spend federal grant money to do it. Yes/ you
14 need to clean things in order to have your house cleaned, but
15 you can't spend federal grant money to do it. It has to be
16 budgeted if you're going to do it that way.
17 Things like site improvement, capital improvement,
18 whatever it is, things that may sound even arguably better than
19 meals and cleaning in terms of how it might affect the
20 research, it doesn't count because it's not budgeted. There is
21 a good reason for that. The government needed to understand
22 and approve all the expenditures related to the research,
23 whether it was because it was in a budget or because someone
24 came to them later and asked for approval for something that
25 was outside of the budget.
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1 THE COURT: Let's not quite put it that way because
2 there is this 10 percent rule that they have got in there.
3 MR. EVERDELL: Yes, your Honor. If you look at 114
4 and 115, down at the bottom right-hand corner you see the pie
5 chart at the bottom right-hand corner which has -- I don't know
6 if you can see it.
7 THE COURT; I can see the pie chart.
8 MR. EVERDELL: The slice is the 10 percent, If you're
9 inclined it's our argument that the 10 percent rule, the
10 money still has to go from somewhere. Even if you are going to
11 exclude the 10 percent from the calculation, it's still going
12 to rise far above the level that I think your Honor is
13 considering.
14 Not only that, 10 percent can't be used for new
15 categories. I'm talking simply now about categories that are
16 not in the budget. The 10 percent rule only applies to
17 categories that are already in the budget, and you may
18 reallocate funds within those preapproved categories.
19 So with respect to the money I'm talking to you about
20 now, the ones that are not budgeted categories at all, the 10
21 percent rule does not even apply to that. So even if you add
22 it up, all these out-of-budget, nonbudgeted categories, you
23 would still get to a loss amount, under my calculation, over
24 $172,000 in loss.
25 If your Honor subtracted the 12,000 or so from the
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1 utilities, we ar,e still over the 120, 000 threshold and
2 guidelines which makes it -- I believe, it's a level -- I want
3 to check -- it bumps it down two levels from the calculation
4 that's in the PSR. But it's still a total offense level of 18
5 as opposed to 20, using that calculation.
6 THE COURT: The PSR originally was more than 200,000.
7 MR. EVERDELL: Your Honor, we still think that the
8 calculation in 114 and 115 is entirely correct. We actually
9 think that is the loss that the government suffered. In fact,
10 we are giving the defendant quite a bit of the benefit of the
11 doubt because we are saying that everything within the budgeted
12 category was a proper expense. It makes that assumption. And
13 everything -- all we are saying is everything outside of that,
14 either if it's a nonbudgeted category or something overspended
15 on a budgeted category, represents a loss to the government.
16 However, if your Honor is not inclined to accept that,
17 because of concerns you have about the calculations here, at
18 the very least, if you look simply at the nonbudgeted
19 categories, things that were not approved by NIST at all, which
20 are those things that I mentioned before -- rent, utilities,
21 capital improvement, cleaning, meals, and other -- then we have
22 a loss amount that is at a minimum just two levels less than
23 what's in the PSR.
24 THE COURT: You would agree that it should not be
25 entitled to subscriptions as other expenses.
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1 MR. EVERDELL: I apologize, your Honor. I
2 miscalculated. It's not two levels less. It's actually four
3 levels less. If you start with a base offense of 6 and the
4 loss amount is more than 120,000, that adds 10 and you get 16.
5 MR. RUBINSTEIN: Your Honor, I think that the initial
6 distinction is a question of what is allowable and what is
7 allowable. And I think --
8 THE COURT: What is what?
9 MR. RUBINSTEIN; Allowable; in other words
10 THE COURT: I know what allowable is.
11 MR. RUBINSTEIN: As bPposed to what the budget says
12 that was allowed. I say to your Honor that this money was not
13 given to buy equipment, just to buy equipment, to get
14 subcontractors, to have employees. This money was given for
15 research. That was the purpose of the money.
16 I think that the government is using the budget in a
17 way that it never was intended for the purposes of what a loss
18 should be, Let's assume that Dr, Karron's spent the whole
19 $800,000 on machinery. He wasn't budgeted for it, but he spent
20 $800,000 for machinery for the project. He didn't take a
21 salary, he didn't spend money on anything else and, 10 and
22 behold, the project ran the three years and he developed the
23 science that the money was given for. Under that theory he
24 could be prosecuted for $690,000 in misspent money,
25 The bottom line is, your Honor, the fact that they
SOUTHERN DISTRICT REPORTERS, P,C.
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1 come up with a category and then they say, we have a category
2 here, capital improvements, the testimony is clear,
3 uncontroverted, that these weren't capital improvements. They
4 were site preparation and they devalued the apartment -- we had
5 an expert -- a one bedroom apartment in Kips Bay selling for
6 just over $500,000. Everyone who knows anything about the real
7 estate market in New York City. That figure was devalued
8 because it devalued, but they have a category. It's called
9 capital improvements and we donlt have a category in the
10 budget. Therefore, not only whatever you spent, no matter what
11 else you want to call it, we called it capital improvements.
12 Did anybody call it capital improvements but the government?
13 Now they say, it's capital improvement, not in the budget,
14 therefore disallowed. I submit to your Honor, this is site
15 preparation. Any reasonable, logical person would conclude
16 THE COURT: The trouble is, in his application for the
17 grant he said -- he gave the impression that they were up and
18 running.
19 MR. RUBINSTEIN: They had equipment there.
20 THE COURT: As I understood it, active Web site, et
21 cetera.
22 MR. RUBINSTEIN: They had a Web site.
23 THE COURT: And they had computer equipment.
24 MR. RUBINSTEIN: But they didn't have this kind of
25 computer equipment, Judge. We are going back --
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1 THE COURT: You don't need site improvement.
2 MR. RUBINSTEIN: They needed it here. The contractor
3 testified what he did. He built things, he put up rackings for
4 them to convert the living room into a computer lab,
5 THE COURT: The material was -- everything was in
6 there. What he did was, as I understood it, was to improve the
7 usability of the space.
8 MR. RUBINSTEIN: Not for an apartment.
9 THE COURT: Not something that was called for in the
10 budget.
11 MR. RUBINSTEIN: It's not called for in the budget, I
12 agree with you. It may come under the categories of others.
13 It may come in here. But the question is --
14 THE COURT: Others is for audits. Other was the only
15 thing -- the budget under other was audits, is my recollection.
16 MR. RUBINSTEIN: There was a budgeted category called
17 audits, your Honor.
18 THE COURT: The only thing that was budgeted under
19 others was audits, $10,000.
20 MR. RUBINSTEIN: If you look at liS, you'll see that
21 in 115, next year, they disallowed the $10,000.
22 The bottom line is that the items that the prosecutors
23 talked about, capital improvements, I submit, were not capital
24 improvements. The meals, they have no breakdown of where the
25 meals were, who the meals were for. If you recall Riley's
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1 testimony, she went to lunch with Dr. Karron to talk about this
2 investigation with other people from CASI, and she disallowed
3 that lunch. Any business is going to charge a lunch like that.
4 Dr. Karran spent on his Master Card -- he had three credit
5 cards. The only card that he charged meals on that were
6 deducted were on the American Express CAS I card. His own card
7 and the Master Card is in evidence. He never deducted.
8 To suggest that there is not a category of meals,
9 there is travel. There is travel does travel include meals
10 when you travel? That's why when we broke down, your Honor,
11 the subscription, we told you what those were. They had
12 nothing to do -- you sort of have the category, you were
13 thinking of some magazines like Sports Illustrated. This is
14 for research for access to research for the projects. So you
15 subscribe to a service to get your scientific data.
16 THE COURT: The big item that Mr. Everdell was saying,
17 ,just, look, take the ones that aren't within the budget, the
18 nonbudgeted items, and add them up and giving you credit for
19 the utilities amount, so you have an $11,000 credit, as I
20 understand it. You still have 11,000 under utilities or maybe
21 12, 12,000.
22 MR. RUBINSTEIN: It would be almost 5,000 under
23 utilities--
24 THE COURT: You save that, so to the extent, instead
25 it would be 5,000. What about the other entry, the rent entry?
SOUTHERN DISTRICT REPORTERS, p,e.
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1 MR. RUBINSTEIN; Clearly, he was not entitled to the
2 rent, your Honor, so that's $60,000.
3 THE COURT: Then you add the other two then --
4 MR. RUBINSTEIN: What do you add two with, Judge?
5 THE COURT: $43,000 spent.
6 MR. RUBINSTEIN: For subscriptions?
7 THE COURT: No. For bookkeeping, auto expense, blank
8 processing, consultants, lawyers, dues, prescriptions.
9 MR. RUBINSTEIN; That he's allowed. Subcontractors.
10 MR. EVERDELL: Your Honor, I think that the defense
11 counsel is saying it's allowed simply because it is listed
12 under the category other, but, as your Honor pointed out, in
13 the budget, the only thing that the company listed for its
14 other expenses was the audit.
15 THE COURT: You got this 80,000 figure that you can
16 move around. But that seems to me is already taken care of
17 when you look at the overdrawn equipment and the overdrawn
18 materials and supplies. That takes care of the 80,000 pretty
19 well.
20 MR. RUBINSTEIN: But those were budgeted items, your
21 Honor, that went back to the intent theory. If they were
22 budgeted items and he had no criminal intent
he intended to
23 misappropriate. We concede that. He spent over the budget.
24 But did he criminally intend to misappropriate that amount?
25 THE COURT: He didn't spend much over the total amount
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8AKMKARS Sentence
1 because he took out the 836,5 plus $1300, apparently, the first
2 year. It's these expenditures in the other category that
3 MR. RUBINSTEIN: If you have 60,000 for the rent, you
4 have 11,000 for the -- you have 5,000 for the utilities.
5 That's 65,000 in the first year for the utilities. I submit
6 that the capital improvements are not -- are a legitimate
7 expense. The cleaning is questionable. Even though I think
8 that it's arguable on defendant's side, I won't contest the
9 cleaning.
10 THE COURT: It's an appropriate expense. He should
11 have gotten approval for it.
12 MR. RUBINSTEIN: That is the point. The point is, if
13 he didn't get approval, we know that the rent -- he was turned
14 down and he still took the rent. We know that that is an
15 amount that he took that he wasn't entitled to.
16 But as to other items that were for the benefit of the
17 research, it doesn't seem that the guidelines, when you look at
IB the loss factors and how to consider loss and you consider
19 government benefits, I think even though they don't have the
20 specific illustration, the government can't cite one grant case
21 where there was a misappropriation.
22 The problem here is that, what was the government's
23 benefit? They gave money for a research project. It's
24 unquestionable that's all they did was research. The only
25 monies he put in his pocket were the rent monies.
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8A1<MKARS Senten<;:e
1 THE COURT: The problem is that CAS!, he did own CAS!,
2 as I understood it, he and his family, I guess. You can
3 misapply money not just for your benefit, but you can misapply
4 money for the corporation's benefit.
5 MR. RUBINSTEIN: Right.
6 THE COURT: The trouble with capital improvements,
7 yes, it probably was not to his personal benefit because the
8 apartment probably was worth more unimproved than it was
9 containing those improvements, but it would be beneficial to
10 CAS! as a computer center, research computer center, to have
11 the improvements made. That's the problem. That would still
12 not be the research contemplated by the grant.
13 MR. RUBINSTEIN: I still don't see where they get
14 their figure that they are claiming --
15 THE COURT: I don't see the capital improvements. I
16 didn't realize the amount was $37,000.
17 MR. RUBINSTEIN: When the apartment was sold they had
18 to rip out all that stuff for the new owner.
19 THE COURT: That's what I was referring to earlier.
20 What kind of a figure do you come up with,
21 Mr. Rubinstein?
22 MR. RUBINSTEIN: In the first year, 60,000 for rent,
23 5,000 for utilities. I'm rounding off. 2,000 for meals and
24 67,000 in the first year. Questionable capital improvements or
25 site preparation, which would probably go under equipment. And
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1 the --
2 MR. KWOK: Can we have the amount on that?
3 MR. RUBINSTEIN: For capital improvements?
4 MR. EVERDELL: The thing you just cited.
5 MR. RUBINSTEIN: I said 2, 000 for meals,S', 000 for
6 utilities, 60,000 for rent. Second year, there is 2,000 for
7 rent, 5,000 for utilities. Meals, the second year, rounded off
8 to $1500. I'm sorry. Meals. $3,000. That would make it
9 $77,000 without capital improvements. If you gave the whole
10 capital improvements, which I don't see how you can do that for
11 the two years, you're talking about 20. We don't concede this.
12 We are talking about 31,000 over there.
13 So in a worst-case scenario it would be 108,000, but I
14 submit to your Honor that I don't see why capital improvements
15 should be considered as a nonbudgeted item when it clearly was
16 used in order to facilitate -- you couldn't put those big
17 computers in that apartment without site preparation. You
18 wouldn't do it without having the shades to keep the heat out,
19 without having extra wiring to get the electricity needed for
20 the place. These are things that are totally unrelated to what
21 anybody would consider a capital improvement.
22 THE COURT: Part of the problem here is that the site
23 was changed from NYU to apartment. With NYU you had free space
24 and a place for the computers. When that fell down, he
25 switched to the apartment. But the budget doesn't change in a
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1 material way, I believe, between the two budgets. I think it
2 should have.
3 MR. RUBINSTEIN: Judge, I just feel that looking at
4 Judge Rakoff's decision in Adelstein -- Adelson, rather, and in
5 other decisions that I've seen, including Judge Block's
6 decision out of the Eastern District --
7 THE COURT: It's not in your memo.
8 MR. RUBINSTEIN: I know. Because I'll give you the
9 citations, your Honor. Judge Rakoff is 441 F.Supp.2d 506.
10 Judge Block's decision citing Judge Rakoff's decision is a
11 Westlaw citation of 354151 and a and they talk about --
12 those cases were primarily stock cases. They talk about that
13 the fraud guidelines -- because the numbers increase so much
14 that they give a distorted view of what a reasonable sentence
15 should be.
16 In both of those cases -- I'm not even up to that
17 point because first we have to have a guideline analysis before
18 we get to the questions of downward departure or 3553
19 considerations. I think what the Court is trying to decide now
20 in its analysis is, first, doing what the guideline calculation
21 is required to do, before you determine whether or not you want
22 to give a guidelines sentence or a nonguidelines sentence, I
23 think that for the purposes of a guideline analysis, I think
24 that a figure of between 70
J
OOO and 120,000 for guideline
25 purposes, analysis purpose, that that would be an appropriate
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1 range, 70,000 to 120,000 without --
2 MR. KWOK= Your Honor, if I may, even taking just the
3 items Mr. Rubinstein talked about, the rent, utilities, meals.
4 Utilities, by the way, just the difference, not the whole
5 thing, we are up to $100,000' already, And then if you look at
6 Government Exhibit 115, year two, the category under other,
7 which includes all manners of things like bookkeeping, auto
8 expense, bank processing, consultants, lawyers, dues,
9 subscriptions, that alone is $31,000. If you add that category
10 alone to all the stuff that Mr. Rubinstein just conceded, we
11 are already over $120,000, which puts us at level 16.
12 MR. RUBINSTEIN: I didn't concede that. There is no
13 breakdown of what they are talking about. They give you
14 bookkeeping auto expenses, which I assume relate to travel,
15 bank processing consultants is budgeted for 250,000 rather,
16 he is budgeted for $110,000 in subcontractors, which I guess
17 are consultants. He spends only 6,000 of that, and they throw
18 in consultants, dues, sUbscriptions into a category. Then they
19 want to say, that's $31,000. I submit to your Honor, that
20 nobody from that chart or from the 110 backup could say how
21 they ever arrived at this number. Then they want to
22 arbitrarily plug it in and say, no, look at that, we have
23 arrived at the next level.
24 THE COURT: I'm looking where those figures must have
25 come from. I think if you look at 110, Ill, we can probably
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1 determine--
2 MR. KWOK: For example, your Honor, you can look at
3 Government Exhibit 110, page 17 of 37. That, for example,
4 lists all the gas payments, all her expenses. That's where it
5 came from. That's just one example.
6 THE COURT: Mr. Spring is bookkeeper. That's what Kim
7 Jackson is for S p ~ i n t .
8 MR. KWOK: That's right.
9 THE COURT: The sale purpose, as I understood the
10 testimony, and I may be wrong, for Mr. Spring to be employed
11 was to get the books in order for the other. They had another
12 bookkeeper, as I understood it, but I may be wrong, who could
13 take entries for bookkeeping, but wasn't skilled enough for
14 interpreting what should be in the company's expenses and what
15 should be personal expenses, and what should be reasonable
16 expenses. Is that correct?
17 MR. EVERDELL: Your Honor, I think Mr. Spring, in
18 addition with helping with the audits, also stayed on to do
19 additional bookkeeping work for the company even after the
20 audit was over.
21 THE COURT: I thought it was all computerized.
22 MR. EVERDELL: I misspoke.
23 In addition to help preparing the books for the
24 upcoming audit, he also conducted some regular bookkeeping
25 activities for the company. Even so, you have $10,000 budgeted
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1 for the audit and you went over that $10,000 by the amounts in
2 other, which includes the overage, includes some of the Frank
3 Springs expenses, but it also includes some things like auto
4 expenses.
5 THE COURT: But you are allowed the $80,000, but then
6 the $80,000 has been used up.
7 MR. EVERDELL: By equipment or any other number of
8 categories, yes, your Honor.
9 It's the government's position that at the very least
10 that this money should be counted as a loss. It's nonbudgeted
11 and it's completely absent from the budgets that were
12 submitted, and was money. spent with ATP grant money.
13 Let's also not lose sight of the fact that it was very
14 clear from the budget rules or from the ATP rules that indirect
15 costs are not covered, and that was made very clear to the
16 defendant at all the premeetings before he started the grant.
17 Yes, certain things -- research can't happen without
18 lots of things being bought, lots of things being improved, all
19 this stuff. But it doesn't mean that you can use ATP grant
20 funds to spend on that stuff. You have to follow the rules.
21 So these expenses I think, just looking at the
22 spreadsheet that Ms. Riley prepared, you can see how they are
23 itemized out here, at least the other category.
24 THE COURT: Is Peter Ross an employee or was he a
25 consultant?
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1 MR. EVERDELL: Peter Ross, your Honor? I don't think
2 I know where you're looking, your Honor. I see.
3 Your Honor, I think that Dr. Karron chose to pay Peter
4 Ross as a consultant. Even S0, what we are talking about here,
5 that's a $15 charge.
6 THE COURT: What charge?
7 MR. EVERDELL; I thought you were talking about the
8 Peter Ross parking charge.
9 THE COURT: Yes.
10 MR. EVERDELL: Reimbursement to Peter Ross is a $43
11 charge.
12 We are talking about very small numbers here. Under
13 the guidelines, as it says in the commentary, the Court need
14 only make a reasonable estimate of the loss. And I think when
15 you consider all these categories that we are talking about and
16 the fact that it is backed up on the paper here, that we are in
17 the range, at least, of 120,000, given what Mr. Rubinstein has
18 just told your Honor and the very small difference that seems
19 to exist at this point.
20 The categories that are nonbudgeted categories should
21 be counted, and that bumps us into the $120,000 range without
22 much trouble at all. Given that your Honor doesn't have to
23 come to an exact dollar amount of loss, the minor
24 discrepancies, to the extent they even exist, shouldn't deter
25 your Honor from coming to that larger loss amount because I
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1 think the clear, logical way to read the evidence is that there
2 are lot of nonbudgeted categories and they are backed up by the
3 spreadsheet analysis, and that these should be considered as
4 loss to the government because they were not approved, as the
5 defendant knew he needed.
6 THE COURT: Brings me back to the question --
7 MR. RUBINSTEIN: The problem is, Judge, when you go to
8 the backup that they throw out there, 110, and you find that
9 the bank charges are under $336 --
10 THE COURT: What page are you on?
11 MR. RUBINSTEIN: We have a gas expense on page 17 of
12 37 of $1,189.68. We then have --
13 THE COURT: I missed the page.
14 MR. RUBINSTEIN; Page 17 of 37. We know that
15 Dr. Karron was traveling to Washington, D.C. and to New Jersey
16 as part of his work on this research, but let's take the whole
17 figure. Next they have let's assume she put in -- the
18 parking, $67, that's on 18 of 37. Then they have bank
19 processing on 18 of 37 of $336. If you add up lawyers they
20 have on 21 of 37 $1,173.75. And I submit that's questionable
21 because I think those lawyers were patent lawyers related to
22 securing intellectual property that they were allowed to do.
23 Then it says dues and subscriptions under that. They have
24 $198.
25 I'm looking for the -- they have that bookkeeping
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1 figure out. I don't think it is appropriate, but they have a
2 bookkeeping I don't know who that included, but let's leave
3 the bookkeeping out of it. We are talking about under $3,000,
4 in my quick math, of expenses. And then they tell you that the
5 category calls for $31,000, but their thing is 31 thousand 8 or
6 625, depending on your eyesight. How that's broken down,
7 whether or not these are appropriate expenses, then they say,
8 let's plug in this additional $31,000. I submit to your Honor
9 that would be inappropriate.
10 MR. EVERDELL: Your Honor, let me address -- for
11 example, there is a specific issue with the lawyers. Pennie &
12 Edmonds, patent attorneys, it was my understanding that this
13 was incurred before the grant even started. And these charges
14 for lawyers are specifically prohibited by the grant rules.
15 Was Mr. Karron told this? No. Because he never
16 actually tried to budget it as an item. Had he tried to budget
17 it, he would have been told specifically that he couldn't use
18 grant money to do this.
19 Again, we are faced with this argument that if it
20 arguably somehow benefits the research, it should not be
21 covered at the loss. The government submits that that is
22 simply unworkable. What we have to work with is what was
23 budgeted and what was approved by NIST, and anything that
24 wasn't is a loss to the government.
25 Not only that, your Honor, we are talking at least --
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1 now we seem to be talking about the difference of maybe $10,000
2 between two thresholds in the guidelines. The defendant's
3 calculation that he gave you a few moments ago doesn't even
4 include the cleaning expenses, and that's several thousand
5 dollars two years in a row. And that I just don't see the
6 argument there. Again, the only argument could be, as he said
7 in his papers, was that you need to clean in order to make the
8 computers work. That simply doesn't hold water.
9 This is an indirect expense, something that is
10 disallowed by the grant and was never budgeted and never
11 approved. That is a loss to the government. It was money that
12 was spent in contravention of clear rules that were set out
13 governing the grant fund.
14 So given the fact that we are literally arguing now
15 about a couple thousand dollars here and there, and I
16 believe -- we could sit here and tally up all of these
17 nonbudgeted expenses. I guarantee you, we would be over the
18 120,000 dollar mark without any trouble whatsoever.
19 THE COURT: What's the applicable note that we apply
20 here to losses?
21 MR. EVERDELL: Your Honor, there are a few. One is
22 the estimation of loss, which just says -- that's 3A -- 3C,
23 which says that the Court need only make a reasonable estimate
24 of the loss, but also the special rules.
25 THE COURT: You're looking in the commentary.
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1 MR. EVERDELL: I'm looking at the commentary, yes,
2 your Honor.
3 Commentary 3, which is loss under subsection Bl and
4 then 3C, estimation of loss, said: The Court need only make a
5 reasonable estimate of the loss. And the Court's loss
6 determination is entitled to appropriate deference. And then
7 if you look at F, which are the special rules --
8 THE COURT: I just want to see one second because I
9 have trouble, r guess, in determining whether or not it should
10 be loss to the government or misappropriation.
11 MR. RUBINSTEIN: There is another basis
12 THE COURT: Intentional misappropriation by the
13 defendant. It seems to me it should be intentional
14 misappropriation by the defendant.
15 MR. EVERDELL: An intentional misappropriation, your
16 Honor, would include the fact that he was told that he needed
17 to submit all of these charges in his budget and get prior
18 approval for them.
19
THE COURT: The fraud and deceit element is somewhat
20 lacking.
21 MR. EVERDELL: Your Honor, as you, I think, pointed
22 out earlier, the case law shows that you can have a
23 misappropriations case even if the expenditures arguably
24 benefited the company. That's the Urlacher case.
25
THE COURT: Isn't this application to the benefit of
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1 the defendant, or third party?
2 MR. EVERDELL: Or to the defendant.
3 THE COURT: That's under one of these guidelines.
4 Which is it?
5 MR. RUBINSTEIN: NO, it's not, Judge. That 18 for the
6 purposes of guilt. We are talking now for guideline purposes
7 determining the loss, which I suggest is a different analysis.
8 I think your Honor should be directed to 2Bl.l, 3E t where it
9 says gain. This is an alternate method for the Court to use.
10 THE COURT: Let me find you, where you are. 3B. Now
11 you're going to the commentary.
12 MR. RUBINSTEIN: I'm in the commentary, Judge. 3B
13 says gain. The Court shall liSe the gain that resulted from the
14 offense as an alternative measure of loss only if there is a
15 loss, but it reasonably cannot be determined. And I submit to
16 your Honor that under these circumstances you cannot reasonably
17 determine what the loss is, so you should look at the gained
18 factor which in this case would result in looking at the rent,
19 the $62,000; the utilities; cleaning, if you want; meals, and
20 you would be just over $70,000. I think that is the
21 appropriate analysis here before you consider any credits or
22 offsets. But first we have to arrive at what is an appropriate
23 figure. Obviously, the guideline considers the fact of what
24 someone actually puts in their pocket for personal benefits.
25 MR. EVERDELL: Your Honor, I have not looked at the
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1 case law on this recently and it was not cited in any
2 submission by Mr. Rubinstein, but I think the loss can be
3 reasonably determined based on the numbers set forth by the
4 government. I don't think we need to rely on any alternative
5 method of loss because we can determine what the government
6 lost as a result of all of this.
7 I think, if I remember correctly, the cases where you
8 talked about alternative loss calculations is where the
9 victims -- there are so many victims and the calculation
10 involved things like stocks and how the value of stocks go up
11 and down and how that's very hard to estimate. Here we are
12 talking about hard numbers. We know what grant money went to
13 the defendant and we know what he spent it on. The question
14 for your Honor to consider is which of these expenditures are
15 you consider as a loss to -the government and which are not.
16 THE COURT: Insofar as the misapplication involved
17 fraud, then I think you used loss. Insofar as the
18 misapplication is intentional -- this application seems to be a
19 different definition of intended. Then it seems to me to use
20 the gain to the defendant or a third party. But I can't see
21 where I am in the guideline notice. I don't see that it really
22 applies under the guideline notes. So what I just said isn't
23 supported by the guideline notes.
24
25 that.
MR. RUBINSTEIN: What's that, your Honor? I missed
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1 THE COURT: What I just said isn't supported by the
2 guideline notes, as I see it.
3 MR. RUBINSTEIN: What's that, your Honor?
4 THE COURT: I gather that you only apply gain to an
5 intended misapplication, you apply loss to a fraud case if it's
6 done by a fraud. Then you apply loss. My problem from the
7 beginning here has been that distinction. I am not sure you
8 apply loss here.
9 MR. EVERDELL: Your Honor, the commentary that the
10 government was following was actually -- in combination with a
11 reasonable estimate was the 3F special rules-,
12 THE COURT: Let me look at the rules.
13 MR. EVERDELL: 3F2, government benefits, which is also
14 the section that was cited by the defendant in his letter,
15 which says: In a case involving government benefits, e.g.
16 grants--
17 THE COURT: It says: Subject to the exclusion and
18 subdivision if the loss is the greater of actual loss and
19 intended loss. In a sense, the whole thing, the whole
20 agreement was a loss to the government.
21 MR. EVERDELL: Yes, your Honor. In fact, the
22 defendant never even did his cost share, as we know, and was
23 essentially not entitled to any of the grant money that he
24 spent.
25 THE COURT: There was his contribution later, wasn't
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1 there some money?
2 MR. EVERDELL: I think after the grant was suspended
3 there was a contribution by the defendant.
4 THE COURT: That went to outstanding bills,
5 MR. RUBINSTEIN: That money was probably extended.
6 That's the whole purpose. It increases your budget.
7 MR. EVERDELL: Your Honor, the government told the
8 defendant that in order to comply with the cost share he had to
9 make payments to the government and thatrs the payment that was
10 made, but I believe this was after --
11 THE COURT: That's more than the cost share --
12 MR. EVERDELL: I'm sorry. He did not make that
13 payment.
14 THE COURT: The $70,000.
15 MR, EVERDELL: You are talking about the $70,000
16 loan --
17 THE COURT: There is some statement in these papers
18 that he gave 70,000 after the closing period.
19 MR. EVERDELL: That $70,000, which I believe
20 Mr. Rubinstein was saying was done between July 27 -- June 27
21 of 2003 and August of 2003 was after the suspension.
22 THE COURT: What was that used for?
23 MR, EVERDELL: One moment, your Honor.
24 Your Honor, I believe my understanding is there were
25 outstanding invoices at the time that the $70,000 was .used to
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1 pay the outstanding invoices. It was not actually used to pay
2 the government any of the cost share amount. So that didn't
3 translate --
4 MR. RUBINSTEIN: You never pay the government the cost
5 share. You put the money in so you take the money out and
6 spend it. That's the concept. The money
7 THE COURT: It doesn't go to the government. It goes
8 to the budgeted items during the period of the grant. Before
9 it was suspended --
10 MR. EVERDELL: I think that is the point, your Honor.
11 It wasn't before the grant was suspended. The grant was
12 suspended on June 27, 2003.
13 THE COURT: To keep CAS I going.
14 MR. EVERDELL: But under the guideline rules, if the
15 fraud, if the misappropriation is discovered by a government
16 agency, that is the point at which you start you cut off
17 people from getting credit from payments they make later. And
18 as I think I outlined in the government's letter to the Court,
19 that date predates the suspension date because we had testimony
20 from Hope Snowden who testified that when she was getting
21 revised budget submissions at the end of 2002 and the beginning
22 of 2003, she noticed there were serious discrepancies in the
23 budget numbers and that raised red flags to her that there may
24 be some problem with the appropriation of these funds and that
25 led to them calling it off.
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1 THE COURT: I think that's covered in my opinion.
2 MR. EVERDELL: That is the date of discovery and the
3 defendant is, in fact, not entitled to a credit for any funds
4 he may have given back at that point because the
5 misappropriation was discovered.
6 MR. RUBINSTEIN: That's not, your Honor -- I'll take a
7 look at your opinion. That's not the date of the discovery
8 from the standpoint that the defendant put monies back because
9 he thought that it was discovered he did something wrong. The
10 bottom line is, he didn't think he did anything wrong. That's
11 the whole concept of the discovery is that we don't want
12 somebody to run back and put money in after they find out that
13 their theft has been discovered.
14 This is a misappropriation case and he did not feel --
15 he was a he then that he had done anything wrong. And it's
16 his mental process, not their mental process, because the whole
17 concept is, hey, if you get caught stealing, at that point,
18 when you give it back, it's not the same as if you did this
19 voluntarily because you realized you did something wrong and
20 you wanted to make amends before it was detected. So I think
21 that they have the wrong person that has to be aware of when
22 there is something wrong here.
23 THE COURT: I see that this section, subsection of the
24 commentary, subsection II says, in a case involving government
25 benefits, entitlement program payments, losses shall be
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1 considered to be something obtained from unintended recipients
2 or diverted to unintended uses. The problem I'm having is that
3 there is more than one statute -- the statute deals in terms of
4 fraud in one case and intentional misapplication in another.
5 And it does seem to me that benefits obtained by unintended
6 recipients deals with intentional mi"sapplication of funds
7 diverted to unintended uses. The second part of this note to
8 the guidelines is more difficult to apply in intentional
9 misapplication of funds in terms of showing that it was an
10 intentional misapplication. All the evidence in the case kind
11 of shows that when confronted with misapplying the funds, he
12 would say things like, my mother has got the money or something
13 else, I'm working on it, they are going to come along, and the
14 ladies down there at the program love me and everything is
15 going to be all right. Never does he make a statement, at
16 least to these parties, the hell with rules, I'm taking the
17 money. They owe it to me for my research.
18 I find it difficult to apply the guidelines in this
19 case. Maybe the guidelines make it a situation that didn't
20 occur to the drafters of the guidelines. It's not the usual
21 case, as I understand it.
22 Are there other cases of this sort that either party
23 is relying on involving the intentional misapplication -- are
24 there other cases involving the intentional misapplication of
25 funds as opposed to fraud, embezzlement?
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1 MR. EVERDELL: I looked for some cases that talked
2 about loss amount in sentencing. I didn't find anything very
3 helpful in that regard. What I was going with was literally
4 what I got from the guidelines.
5 But I still don't know why it's difficult to apply
6 diverted to unintended uses in this case, that prong of the
7 guidelines, special rules for government benefits, because that
8 seems to me to be the definition of misapplication. You're
9 taking funds and applying them for unintended uses, unintended
10 in this case by the people who gave out the grant money, NIST.
11 And unintended in the sense that they gave out the money with
12 lots of rules attached to it, that they made clear to the grant
13 recipients and those were the intended uses of money! that is,
14 expenditures that followed the grant spending rules. And
15 anything that did not follow the grant spending rules was an
16 unintended use of that grant money. I think that was made very
17 clear to the defendant in this case and, from the testimony, to
18 all grant recipients, that things like the kickoff meeting and
19 other things like that. I think that is actually the
20 appropriate part of the guidelines to be applying in this case,
21 that the money that was spent, contrary to grant spending
22 rules, was diverted for an unintended use and that that
23 constitutes a loss.
24 Now, your Honor raised some difficulties you had with
25 the calculations for certain things and whether overbudget
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1 expenses should count or should not. We have, at least, I
2 think, provided a more simplistic and one that benefits the
3 defendant way of thinking about this, which is just looking at
4 the unbudgeted categories. Those are clearly cases, money that
5 was spent contrary to the grant rules because there was
6 absolutely nothing in the budget that spoke to it. These are
7 monies that were expended without any reference to the grant
8 rules whatsoever.
9 Now, defendant can argue that these things arguably
10 benefited the research in some way. Perhaps they did, but
11 that's not the standard that we need to operate with because
12 that would sweep in every single expenditure. There would be
13 no loss in any of these types of cases if that's the way we
14 have to look at it. If you look at the unbudgeted categories
15 and you apply to unintended uses, being diverted contrary to
16 the grant rules, that provides a framework for the loss amount
17 that's appropriate in this case.
18 MR. RUBINSTEIN: Your Honor, I think that this case is
19 outside the heartland because I don't think anybody envisioned
20 a case where somebody got a grant, spent all their time and
21 energy on that grant, bought equipment in furtherance of the
22 grant. There is no suggestion here. As a matter of fact, Lide
23 even testified that Dr. Karron met all the benchmarks, and your
24 Honor said something that I have to take opposition to,
25 suggesting that nothing came of this research.
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1 THE COURT: No. Saying that the project wasn't
2 completed, so I suppose that they didn't get their money's
3 worth in that sense.
4 MR. RUBINSTEIN: No, Because the government gets
5 their money's worth since they didn't have a financial benefit,
6 no matter what, and that the whole concept was that if
7 something was developed, Dr. Karron and CAS! would keep all the
8 profits for themselves. Society would benefit. They were
9 doing research on a cutting edge. We have to go back seven
10 years ago. Now it's commonplace. But they were dealing with
11 the concept of -- I hope I pronounce this right -- topological
12 imaging that they use today in many medical factions.
13 I submit to the Court and the government a paper that
14 was submitted for publication, citing work that was submitted
15 to a medical journal, citing this work because, in fact, that
16 was the whole purpose of this research. That's why the grant
17 was given, to develop this concept, at a time where they use
l ~ computers half the size of this room. Today they probably
19 could use a laptop and get the same information. I know I have
20 it here. Just a second, your Honor.
21 THE COURT: I'm not taking issue with that,
22 Mr. Rubinstein. I am not taking issue with that. It never
23 came to fruition with the commercialization of the process, as
24 far as I know.
25 MR. RUBINSTEIN: They are talking about the amount
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1 that Dr. Karron received and the figure that we started out
2 with from -- as to -salary, i,t seemed to me that that figure, as
3 I cited in my submission of October 17, on page 3 first of
4 all, they have 129,850 in loans. This is at lID, Government
5 Exhibit 110, 38 through 40 of 44, the second portion of 110.
6 They show 129,850 loans to Dr. Karron. We dispute one, and I
7 have backup for it, a $750 check that was really for Scott Alba
8 that was advanced from defendant out of his own money. Then
9 December 3 0, '02 I 15, 000 check that I s for reimbursement.
10 Doesn't say anywhere on that check where it says loan, we
11 reduced those numbers.
12 THE COURT: Why do you say that shouldn't be
13 MR. RUBINSTEIN: Because that was a partial
14 reimbursement. There is nothing on that check --
15 THE COURT: If he writes a check and it says partial
16 reimbursement on it, isn't that reimbursement for loans taken?
17 MR. RUBINSTEIN: It's partial reimbursement because
18 the medical expenses that were on the credit cards --
19 THE COURT: What's partial reimbursement of expenses
20 taken? I don't know what you're talking about.
21 MR. RUBINSTEIN: Out-of-pocket expenses that he paid
22 on the MasterCard that's in evidence. They never give him
23 credit for the monies that we have the documentation that we
24 submitted to the Court, and I have additional documentation
25 showing -- not only showing that these bookkeeping entries gave
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1 back 67 -- $75,000 that was given back by salary paychecks that
2 he never gets credit for. It seems to me when they came up
3 with the figure that they used for his salary, they included
4 the 60,000 of rent. I mean, they have never said --
5 THE COURT: I don't think it did.
6 MR. RUBINSTEIN: If you look at pages 38 through 40 of
7 Exhibit lID, the one that ends in 44 --
8 THE COURT: 1 and --
9 MR. RUBINSTEIN: The second half of 110 has 38 of 44.
10 The beginning part says
11 THE COURT: 38 of 44, yes.
12 MR. RUBINSTEIN: We have 38 of 44, 39 of 44, 40 of 44.
13 It starts out on the top of 38 saying, Dr. Karron's loans. I
14 have the check that I submitted as part of it on the $15, 000
15 loan. It doesn't say anything about loan. Here she puts DPK
16 loan, but there is nothing on the check to indicate loan.
17 There are other checks that do say loan. So why --
18 THE COURT: Which one is that?
19 MR. RUBINSTEIN: Just above the line for loan repay.
20 THE COURT: I see it. I see that.
21 MR. RUBINSTEIN: This is 9/12/02, check 1045l, it's
22 written to Dr. Karron.
23
24
25
THE COURT: Can I see the check?
MR. RUBINSTEIN: Yes, your Honor.
THE COURT: It's a check payable to Dr. Karron. It
SOUTHERN DISTRICT REPORTERS, P,.C.
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1 says something. It's deposited. It isn't salary. Why isn't
2 it a loan?
3 MR. RUBINSTEIN: Why is it a loan? It's a
4 reimbursement. It doesn't say anywhere what it is, but they
5 classified it as a loan.
6 THE COURT: I would, too, if I see it paid to him.
7 MR. RUBINSTEIN: They have other checks, your Honor,
8 where it says loan on it.
9 THE COURT: Where does it show as reimbursement?
10 MR. RUBINSTEIN: It doesn't show on that check. We
11 understand it's on the check stub.
12 THE COURT: Reimbursement for what? It's a round sum.
13 It sounds rather strange to be a reimbursement.
14 MR. RUBINSTEIN: This comes out of the Quick Books,
15 you will recall, your Honor, the computer-generated software
16 that they had, so it's in that software.
17 THE COURT: For 15,000 round dollars?
18 MR. RUBINSTEIN: You have to have an invoice
19 THE COURT: You never have a reimbursement like that.
20 MR. RUBINSTEIN: He had a number of items. He took
21 15,000
22 THE COURT: It just happens to add up to 15,000. It's
23 very strange. Let's see the backup.
24 MR. RUBINSTEIN: Your Honor, if you can give us a
25 short recess. Dr. Karron came with the computer; He forgot to
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1 bring the power supply. We could generate it right here. We
2 have it in the computer. If he can recess
3 THE COURT: Doesn't show rent, does it?
4 MR. RUBINSTEIN: Yes. He has everything in the
5 computer in the Quick Books that are in the computer. We don't
6 need --
7 THE COURT: This doesn't show that the amounts taken
8 for rent were part of the salary computation.
9 MR. RUBINSTEIN: What I'm saying, Judge, I was trying
10 to add up the numbers to get to her number. And the only way I
11 could do that was by throwing in the 60,000 for salary so that
12 if, in fact, his salary is accurate, which he has --
l3 THE COURT: I've got to get this sentence completed.
14 We can take a five-minute recess, if that's what you want.
15 Take a five-minute recess then, but I don't think it's going to
16 make much difference.
17 MR. RUBINSTEIN: All right, Judge.
18 (Recess)
19 THE COURT: Mr. Rubinstein.
20 MR. RUBINSTEIN: Your Honor, Dr. Karron purchased the
21 necessary part -- actually, I gave him my credit card -- and
22 the machine is booting up. We should have it momentarily.
23 MR. KWOK: Your Honor, while we are waiting, if the
24 Court pleases, we could go to talk about the 3553(a) factors,
25 which is another major factor.
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1 THE COURT: I want to deal with the computation. Then
2 we can deal with the 3553{a) factors.
3 When will you be ready, Mr. Rubinstein?
4 MR. RUBINSTEIN: Your Honor, do you have a computer
5 screen that we can plug into to show you that would be more
6 efficient to show you?
7 THE COURT: No, I don't have one here.
8 MR. KWOK: Your Honor, just to save time on this, I
9 think that what they are trying to print out is the Quick Books
10 ledger, which is not in evidence, which is not authenticated,
11 which is a document that witness after witness have
12 testified --
13 THE COURT: I don't know what he's trying to print
14 out.
15 MR. RUBINSTEIN: It doesn't have to be in evidence for
16 the purposes of sentencing, your Honor.
17 THE COURT: What are you trying to print out?
18 MR. RUBINSTEIN: We are trying to print out the backup
19 to that $15,000 check to show your Honor that, in fact, that is
20 not a loani was, in fact, a reimbursement.
21 THE COURT: I am not going to make the findings on
22 that issue. I am going to make the findings on the basis that
23 Mr. Everdell suggested. And taking the amounts in the other
24 categories that are not included in the budget and making the
25 adjustments he talked about, giving the defendant credit for
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1 the utilities and all. It seems to me that the amount of the
2 loss, pursuant to guideline 2B1.1, is more than $120,000.
3 Isn't that your correct conclusion, Mr. Everdell?
4 MR. EVERDELL: Yes, your Honor, that's correct, more
5 than 120,000 adding ten points to a base offense of 6.
6 THE COURT: I think that's borne out by the figures
7 with adjustments that you pointed out, Mr. Rubinstein, as the
8 total loss to the -- which should be computed, intended loss
9 which should be included for guideline calculation purposes,
10 which makes a total loss of 16 levels.
11 MR. RUBINSTEIN: Your Honor, I think your Honor has to
12 consider the credits against whatever loss your Honor has --
13 THE COURT: I don't think there are any credits --
14 MR. RUBINSTEIN: Your Honor, I submit that under
15 the that the amount of salary that they have calculated is
16 not supported by any documentation they submitted.
17 THE COURT: In that tabulation I agree with you, that
18 the entry includes salary and loans as they calculated it, but
19 it doesn't make much difference because the 80,000 odd dollars
20 that the defendant was entitled to redistribute are
21 incorporated in the equipment --
22
23 figures
24
25
MR. RUBINSTEIN; I submit, your Honor, under their
THE COURT: Other entries.
MR. RUBINSTEIN: I submit under their figures, Judge,
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1 that they have added back the $60,000 rent. If you take a
2 look
3 THE COURT: There is no showing of that.
4 MR. RUBINSTEIN: There is, Judge. They have not shown
5 you at all where they get the figure that they have in 114.
6 And I submit the only backup is on page 38, 39, and 40 of
7 Exhibit 110 of 44 pages. And the only thing they have there is
8 a loan which they claim is $129,000, repayment is 37,000.
9 Taking their best figures --
10 THE COURT; You haven't gotten any salary --
11 MR. RUBINSTEIN: Salary of 37,000 -- of, rather,
12 35,000, and you have to add the $60,000.
13 THE COURT: I've got to take into account on the
14 salary the figures that apply to withholding taxes, et cetera.
15 MR. RUBINSTEIN: Yes. I don't disagree with that,
16 Judge, but I submit that they have a $129,000 in a loan and
17 they don't show the repayment of the 67,000.
18 THE COURT: Repayment is right below it.
19 MR. RUBINSTEIN: No. They don't include it there.
20 The two checks that I submitted to the Court that I have copies
21 of with the backup showing
22 THE COURT: Those checks are after the close of the
23 period and were for, as I understand it, expenses incurred
24 thereafter.
25 MR. RUBINSTEIN; No, your Honor. We are talking about
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1 two separate things. We are talking about, one is the salary
2 that is submitted in our letter of the 17th where we provide to
3 the CQurt check of August 2, '02, a year before the grant was
4 suspended, actually ten months before the grant was suspended
5 where you have -- that's in evidence --
6 THE COURT: Where are you reading?
7 MR. RUBINSTEIN: I'm looking at our letter of October
8 ,17, your Honor. And I am showing you what was previously
9 marked as Defendant's P6 in evidence, which shows --
10 THE COURT: You'll have to show me and you'll have to
11 show Mr. Kwok.
12 MR. RUBINSTEIN: Mr. Kwok has the page. He has turned
13 to it.
14 THE COURT: $5,000 check?
16 THE COURT: That shows the defendant had taken $61,918
17 in salary just below it.
18 MR. RUBINSTEIN: Right. And that
19 THE COURT: 61,000 plus 129,000. If that's the
20 government's figure, adds to more than $200,000, right?
21 MR. RUBINSTEIN: No, your Honor.
22 THE COURT, $187,000.
23 MR. RUBINSTEIN: The Court is commingling two
24 different concepts. One is they claim there is a loan
25 outstanding that they never gave him credit for anywhere of
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1 $75,000 that was taken in October of 2001. I think the date
2 was October 25 or 26 of 2001.
3 THE COURT: That's what the loan advances.
4 MR. RUBINSTEIN: It doesn't show the offset of that
5 loan. What I'm showing your Honor is --
6 THE COURT: I know you had offsets for the loan. I
7 have given you credit for that and I have gone over your
8 figures in your letter and I've made calculations on the basis
9 of it. It shows me that there is still a net payment due the
10 government on loans.
11 MR. RUBINSTEIN: But when you add that together with
12 the salary, it shows that Dr. Karron did not get his full
13 salary.
14 THE COURT: I agree he didn't.
15 MR. RUBINSTEIN: So he should have an offset under
16 guideline 2Bl.l (3) (e) for credit against loss for services
17 rendered. He rendered the services, he was entitled to full
18 salary.
19 THE COURT: He got it in the form of loans.
20 MR. RUBINSTEIN: I submit, Judge, that it doesn't
21 compute -- that the loan calculation does not compute to what
22 they are saying and I submitted in my letter --
23
24 simple.
25
THE COURT: He got it in the form of loans. It's very
MR. RUBINSTEIN: Your Honoy, in my letter I showed the
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1 Court--
2 THE COURT: If you take the money from the corporation
3 in loans
4 MR. RUBINSTEIN: He took loans, but he paid it back
5 out of these salary
6 THE COURT: In part
7 MR, RUBINSTEIN: In part. So that left, your Honor, a
8 balance in a worst case -- in a best-case scenario for the
9 government of $24,765.81, and you have to add to that the
10 60,000 from the rent.
11 THE COURT: No, you don't. Add to it?
12 MR. RUBINSTEIN: They did, though. They have never
13 submitted how they arrived at their figure of the 200,488 in
14 the chart, 114.
15 THE COURT; All I have to do is use my best judgment
16 on the figures that are here. I exercised them and I have read
17 your papers and I've taken them under account and I have
10 somewhat struggled with them, I must admit that. I've
19 calculated his credits for salary not taken and offset that
20 against the loans. I still get the balance of loans due the
21 corporation from Dr. Karron of several thousand dollars.
22 Without taking into account in any way the rent he received of
23 $60,000.
24 MR. RUBINSTEIN: In all due respect, Judge, I don't
25 see how that is possible. Nobody has shown me to this point.
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1 The government hasn't proffered how they come to their figure.
2 I frankly don't comprehend it, but I think that even --
3 THE COURT: I think you've got to read salaries,
4 Dr. Karron's salaries, as salaries plus loans.
,
5 MR. RUBINSTEIN: I do, your Honor.
6 THE COURT: The loan entries.
7 MR. RUBINSTEIN: I do. I see an entry for $75,000 as
8 a loan and I don't see any salary -- I don't see the balance of
9 the two entries that I submitted to your Honor --
10 THE COURT: If he had taken the salary, you'd have a
11 worse situation because you then have the payments due the
12 government for withholding that weren't made, social security
13 weren't made, the other payments of taxes not made as a result
14 of taking less salary. The situation would be less if he had
15 taken all his salary. He would have a worse situation
16 confronting him.
17 MR. RUBINSTEIN; Do I understand that the Court is not
18 giving him credit for the $70,000 that he contributed in July
19 and August after the grant -- this is money that he took out of
20 a home equity loan, and I submitted the documentation to show
21 that.
22 THE COURT: I went into that earlier in front of you
23 with counsel and it was stated on the record, without any
24 exception taken, that those monies were for additional
25 expenditures that have been made between June 30 or June 23 and
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1 the date of payment of those amounts.
2 MR. RUBINSTEIN: But he should get credit -for that.
3 These are expenses --
4 THE COURT: Depends on when the expenditures were made
5 and, as stated in open court and not objected to by you, these
6 were expenditures that occurred after the period of the audit.
7 MR. RUBINSTEIN: The audit, your Honor -- the audit
B didn't occur
9 THE COURT: The audit didn't occur until later,
10 obviously, but books and records were reviewed as of the date
11 June 23, as I understand it, the date of suspension.
12 MR. RUBINSTEIN; He was unaware of that. As a matter
13 of fact, Judge, you may recall the testimony that he didn't
14 receive a copy of the audit until September, so he was totally
15 unaware of any discrepancies. He understood that the grant was
16 suspended because --
17 THE COURT: It doesn't matter whether he was aware of
18 it or not. It's irrelevant.
19 MR. RUBINSTEIN: I think, Judge, that the concept is,
20 when he's aware, because it's when he becomes aware whether or
21 not his intention in making compensation was motivated by a
22 guilty mind.
23 THE COURT: All I know -- I am going to take that into
24 account in connection with the 3553(a) I but not taking the
25 guideline computation. I'm making the guideline computation as
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1 I've stated, and on that basis. And I'll hear from you further
2 on 3553 (a) .
3 MR. RUBINSTEIN: Yes, your Honor. I think that this
4 is a case that is very unusual in that Judge Rakoff used this
5 language in the case that I previously cited, and I have a copy
6 for the government and your Honor, Adelson. Unfortunately
7 THE COURT: You'll want your notes, won't you?
8 MR. RUBINSTEIN: Judge, Judge Rakoff said that there
9 are --
10 THE COURT: It's a securities fraud case. What part
11 of the case do you want me to refer? I think I see a little
12 error in the opinion, but it's not -- the six or seven points
13 under the base level doesn't depend on the date of the offense.
14 It depends on the maximum penalty for the offense. Here the
15 maximum penalty was ten years, so only six points are allowed.
16 If it were 20 years, it would be seven points. It has nothing
17 to do with the date of the offense. It has something to do
18 with the maximum penalty on the offense.
19 Give me something else.
20 MR. RUBINSTEIN: I have the language.
21 THE COURT: Tell me what you're relying on, because
22 he's probably right.
23 MR. RUBINSTEIN: I'll try and find it as I'm reading
24 it here, but I have the quote. There may be cases in which the
25 offense level determined under the guidelines substantially
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1 overstates the seriousness of the offense.
2 THE COURT: You can get that in securities cases
3 because of the number the people who lose as a result of the
4 fraud committed by the officials of the company. The stock is
5 publicly traded and, t ~ e r e f o r e , you have a number of
6 transactions involved, so you get tremendous losses, as you do
7 in this case, Adelson case. This is a different case.
8 MR. RUBINSTEIN: He was referring to that, Judge, and
9 you're absolutely right --
10 THE COURT: I'm fully aware -- I understand that.
11 MR. RUBINSTEIN: In this case, your Honor, it is a
12 unique case and the government cannot point to one case like it
13 because there is no case like it. And I think that the
14 guidelines overstate the seriousness of what happened here.
15 There is no question that the United States Government
16 afforded Dr. Karron an opportunity to do research. They had no
17 vested interest financially in the product of his research.
18 Even though he has a business background that dates back over
19 20 years, he was ill-equipped to handle these funds. And if
20 you could see the way he withdrew money, just the dates when he
21 did it, whether you call it a loan or a salary, you see he
22 functioned as if whenever he needed money he would take it.
23 So he didn't take a salary until April or May of 2002,
24 eight months into the grant. He takes his first salary check.
25 Before that he's taking loans. At the end of the year he winds
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1 up that he owes all this money that he had taken as a loan back
2 in October 2001, so they take it as salary at that time.
3 All his efforts and all his energies were devoted to
4 this project, to db the research that the government wanted to
5 be performed for everybody in society's benefit. That's why he
6 got this grant. And when they say credit against loss in
7 2B1.1(e}, they are talking about monies returned, fair market
8 value for the property returned and the services rendered.
9 There is no way to quantify what the value of what Dr. Karron
10 created at that time in this topographical imaging that's used
11 today in all kinds of surgeries and what benefit it was to the
12 nation and to the world.
13 I think that that takes this case out of the heartland
14 because he, as you know from everything said, he didn't get
15 involved here to benefit himself financially. He took the rent
'16 money. He shouldn't have taken it. He owed debts, so he paid
17 the debt with the rent money. That was wrong. That was wrong.
18 I think that this case goes outside the heartland,
19 that your Honor should consider 3553 Title 18, U.S.C., and
20 consider giving him a nonguideline sentence. And I think that
21 because you sat through a trial with Dr. Karron and you know
22 all the evidence and the background and the way he was advised
23 by people not to do this, not to do that, and he, like a bowl
24 in a China shop, insisted on doing it his way, that is why
25 there is really a legitimate likelihood that if he had followed
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1 protocol and followed procedure that he would not have been
2 sitting here as a defendant in a criminal case,
3 It seemed that although the budget, which he
4 submitted. Remember, he submitted a budget. He put down
5 110,000 for equipment. That was what's accepted. He put down
6 for subcontractors, he put down 250,000. He found that he
7 could get students for free. Is he entitled to an offset or
8 consideration for that because he didn't spend the government's
9 money on subcontractors and got free employees to do a job?
10 There is no suggestion here that the equipment he
11 purchased he used for other items other than this project. The
12 government, by law, owned this equipment. Yes, at the end of
13 the day it was possible for a grant recipient to get possession
14 and benefit from that equipment, but, in reality, he was using
15 government money to buy government equipment which the
16 government took back. They not only took back their equipment,
17 they took back everything, piece of equipment that he had,
18 whether they had any right to it or not, and they kept it.
19 So that's where he found himself in this case. So I
20 think when you look at the way he managed his money, he saved
21 the government considerable money on subcontractors. He saved
22 them, according to the government's own figures, in the first
23 year $174,000 just on subcontractors. He got the work done,
24 but he didn't have to spend the money because he did something
25 he wasn't supposed to do. He wasn't supposed to have employees
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8AKMKARS Sentence
1 without approval and we had testimony of that.
2 And in the second year they revised the budget and
3 110,000 for subcontractors and he used 6100. You know from the
4 testimony here that there were numbers of people working in
5 that apartment on these computers, on this project. And the
6 government wasn't billed for it. Why? Because he was using
7 students. Does the government get a benefit of that? They do.
8 That is why, your Honor, the mathematical
9 considerations of a strict guideline calculation doesn't apply
10 in this case because Dr. Karran, with good intentions, and good
11 intentions meaning that he wanted the research to work, because
12 that's all he cared about. Those were the good intentions. He
13 might have used improper means, but the intentions were there.
14 And he created a product which people built upon and I
15 have a manuscript that was submitted to the Elsevier Editorial
16 Systems for computer medical imaging and graphics. This is a
17 draft manuscript that was submitted, hasn't been published yet,
18 but it may well be published in the near future. It cites ATP,
19 it cites Dr. Karron, and it shows that the work that he did may
20 have a significant value. So it's hard to say what the value
21 was, but I don't think anybody in this room could say that he
22 didn't do the research that he was contracted to do.
23 I think your Honor has to consider the 3553 and ask
24 yourself whether or not his background, this offense, his
25 character, is such that should cause your Honor to impose a
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1 nonguideline sentence.
2 I think the fact that you're dealing with a man who
3 frankly has a lot of issues. He's not a man anymore. He's, in
4 fact, legally a woman. I spoke to the BOP. Rather, my office
5 did. And he is and as the probation report says, he will be
6 treated as a woman and, if confined, he will go to a women's
7 prison. We submitted letters from people who know him. He has
8 a generous good side to him. He has no criminality in his
9 past, and I think that he will have no criminality in his
10 future.
11 His mother is incapacitated. She is in a horne. They
12 are hopeful. He is now living in that house in Long Beach.
13 Amongst the things he lost here, he lost his home. He is
14 hopeful -- and I spoke to his brother about this. I have a
15 letter from his brother that wasn't included in the original
16 submissions. I am not going to burden the Court with it. He
17 says when his mother needed assistance in the slightest way,
18 the defendant was the one who was there because he was the
19 closest to where his mother was situated in Staten Island, and
20 he's hoping to be able to take his mother home, and he's
21 learning to work a ventilator because she needs that in order
22 to breathe, and that is the hope, that he can stay in the home
23 there.
24 So I would ask your Honor to consider under, all these
25 circumstances, to fashion a sentence that doesn't have
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1 confinement in a federal institution, that has house arrest,
2 that he could function from the home that he's presently
3 residing in Long Beach; and when his mother gets out, he can
4 assist her there, and provide for restitution out of his future
5 earnings, if he's able to earn anything.
6 He has been severely compromised in his profession.
7 He has been turned down for positions because this case
8 received a lot of notoriety. They talk about general
9 deterrence. This case has sent a shock wave through the
10 scientific corrununity as to how they ought to' comport themselves
11 when dealing with federal grant and federal monies.
12 There is no question that he will never be eligible
13 I don't say never, but, in all probability} will not be
14 eligible to any federal funding so that he could go ahead with
15 his research, which is his life's work, is to do scientific
16 research. And the question is what sentence would be
17 appropriate under all these circumstances, and I don't see that
18 based upon his background and characteristics that confinement
19 is necessary here based on his history and character, and I'
20 think that that sort of sentence will be as much as necessary
21 and not more than is necessary as the cases seem to say what
22 punishment should be.
23 Dr. Karron would like to address you, your Honor, and
24 I know you'll afford him that opportunity.
25 THE COURT: Does the government want to say something
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1 first?
2 MR. KWOK: Yes, we do.
3 Your Honor I we spent a good part of the afternoon
4 arguing about loss amount, and rightly so, because the numbers
5 can be a little bit confusing. But the defendant's conduct,
6 when distilled to its essence, it is very clear what he did.
7 This is not the case about someone forgetting to cross the Ts
8 or dot the l's. This is not the a case about a technical
9 violation. If it were, the government wouldn't have been able
10 to show intent, and the jury wouldn't have been able to return
11 a guilty verdict. And the jury in this case convicted the
12 defendant because the defendant's intent was clearly shown at
13 trial.
14 The defendant was repeatedly told to stop. The
15 government wasn't in this to trip someone up. The trial
16 testimony established that the people who administered the
17 grant wanted to succeed. That's why they kept telling him and
18 kept working with him to explain the rules to him time and time
19 again ad nauseam. Everyone of those times he could have
20 gotten himself out of the hole that he was digging, everyone
21 of those times he could have stopped. And none of what he did,
22 none of that money that he would spent would have even been
23 reported to the Department of Commerce, the inspector general's
24 office, much less prosecuted by our office, and, ultimately,
25 the case brought before your Honor.
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BAKMKARS Sentence
1 Of course, the defendant never stopped. He kept
2 misusing the grant money. And not only that, he tried to muck
3 around, as Frank Spring testified, with the company's books to
4 hide his tracks. And Mr. Rubinstein just now talked about him
5 spending less money than he's allotted in the category of
6 subcontracting, And the reason that's so is because he could
7 use students so there was more money left so he could pay
8 himself.
9 So everything ultimately comes back to how he could
10 use the grant to benefit himself or his company that he owns,
11 CASI, time and time again.
12 In his e-mails to his friends he didn't mince words
13 about what he was doing, He was, in fact, brazen and open
14 about what he was doing.
15 THE COURT: I don't think there is any evidence that
16 he used the students so he could pay more money to himself.
17 MR. KWOK: There is evidence in the record that
18 equipment under $5, 000 he would be able to keep at the end of
19 the day.
20 THE COURT: It may be that it benefited him, but I am
21 not sure from the evidence that he actually intentionally said,
22 I am going to use students rather than subcontract so I could
23 get money for myself. I don't think the record establishes
24 that.
25 MR. KWOK: Let me go to the larger point. The larger
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1 point is, when no one was looking, when he thought no one was
2 listening, in his e-mail to his friends, he was open about what
3 he was doing. In the e-mail to his friend, he said he wanted
4 to make a lease with his friend living in Connecticut, so he
5 could "make like I only keep a folding bed 'on 33rd Street. And
6 if ATP buys into this idea, then I can charge my rent on the
7 apartment to the grant and pay my mortgage." He said in
8 another e-mail that if the ATP people didn't agree with him he
9 would turn the grant into enough of a train wreck so the
10 government wbuld be forced to negotiate with him and, quote,
11 find a liveable solution for all.
12 Now, certainly in that e-mail, after his crime was
13 detected, at no time did he show any remorse. He didn't take
14 any responsibility for his actions. Instead, he tried to
15 engage in, essentially, financial black mail of the government
16 to strongarm the government to accept his fait accompli because
17 he has misspent so much of the government's money. And this
18 kind --
19 THE COURT: I saw that that was what he might think
20 about doing. I don't think there is any evidence in the record
21 that he strongarmed or attempted to strongarm the government is
22 such.
23 MR. KWOK: I would submit to the Court that's what it
24 means when he says, I would make the grant enough of a train
25 wreck so that they can find a livable solution for all.
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1 THE COURT: That was one of two alternatives in that
2 e-mail that he mentioned, rather to pay more, I think more
3 money to cover the expenses or to make it a train wreck.
4 MR. KWOK: It's the government's view that those
5 e-mails, when you take them together, it shows the type of
6 brazenness, the type of arrogance that necessarily warrants
7 consideration under the 3553 factors because they go directly
8 to the seriousness of the offense.
9 Let me turn now to the defendant. Of course, none of
10 this conduct can be considered in a vacuum. It has to be
11 considered in the context of this defendant. And here, too,
12 the 3553 factors argue for a meaningful custodial guidelines
13 sentence.
14 This is not the case about someone who broke the law
15 because he was in dire straits where some sympathy might
16 appropriately be shown. This is not a food stamps case, this
17 is not a housing fraud Section 8 case where we also calculate
18 the loss under 2Bl.1 where sometimes those mitigating
19 circumstances are present.
20 This is a defendant, who under the grant in year one
21 alone, is given an annual salary of $175,000, $175,000 in
22 taxpayer's money. That's a lot of money for a lot of people,
23 but not for this defendant because he kept misspending the
24 government's grant money to buy equipment that he knows he's
25 not supposed to buy.
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1 Of course, the defendant is a Ph.D. scientist from one
2 of the finest universities in the world. He did not have to
3 steal' to put food on the table. He' didn't have to steal to
4 find a place to live. But he did it anyway.
5 I think the defendant's characteristics under 3553
6 also argue for a custodial sentence within the guidelines.
7 Finally I your Honor I a guidelines sentence is
8 necessary in this case to serve the goal of the terms. Anyone
9 paying any attention to any public policy debate in the past
10 10, 20 years knows that one of the prime arguments opponents of
11 these government programs like to use is rampant, it is full of
12 fraud.
13 We know that's not true in this case because we have
14 ATP witnesses who testified that they keep a close eye on the
15 grant. In fact, they have these rules so that they can closely
16 monitor what the recipients are doing with government money.
17 But there is fraud and this is one such case. And it's the
18 government's view that when a clear-cut fraud case presents
19 itself, there has got to be a strong deterrence, as reflected
20 in a meaningful custodial sentence so that people who get this
21 money will know that you can't just walk away and apologize and
22 say, I shouldn't have done it.
23 Rather, as his business manager told him himself at
24 the time, you could go to jail for this, and that message
25 should be sent because it is the taxpayer's money, and for
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1 these programs to survive there must be a general deterrence
2 message that if you misspend the government money and you get
3 caught, you don't just get slapped on the wrist and let go.
4 For all of those reasons, because the defendant's
5 conduct is intentional and repeatedly so, because of the
6 characteristics of this defendant, and because of the need to
7 serve the goals of general deterrence, the government
8 respectfully urges the Court to impose a custodial sentence
9 within the guidelines range.
10 THE COURT: Dr. Karron, would you like to say
11 something at this time?
12 THE DEFENDANT: Yes, I would.
13 MR. RUBINSTEIN: Where should he make the statement
14 from, your Honor?
15 THE COURT: You can make it sitting there or standing,
16 whichever you wish or she wishes.
17 THE DEFENDANT: How much time do I have?
18 Your Honor, I'm deeply sorry for what I have done,
19 more sorry than I can convey with words. I have been doing
20 I wish to apologize to the Court and to ATP, to Mark Stanley,
21 who convinced me that I had a chance to win this grant, and to
22 people of the United States, who I feel like I'm working for
23 with this money.
24 I'm beginning to see that I violated their trust and
25 it disturbs me tremendously for anyone to even think that I
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1 could do that. And if, in fact, I did, then I will take
2 whatever punishment is appropriate. I can only state that I
3 can perhaps explain myself a little bit better and maybe
4 prevent other people from making the same mistakes I've made
5 because I understand, from having lived through it, how the
6 PIs, who receive large grants, think differently than the
7 accountants and the grant managers that are responsible for the
8 money.
9 And I feel terrible that B.J. and Jane, I got them in
10 trouble. I got myself in a lot more trouble. My past five
11 years have been hell. I thought I knew what I was doing and I
12 recognize now that I really didn't know what I was doing.
13 I've spoken to other PIs, principal investigators, and
14 I've seen them making, the same mistakes, and I've tried to help
15 them. And I know when somebody gives you '$2 million, it's
16 like, holy cow, the government of the United States believes in
17 me, they trust me, and they believe in my research. That's an
18 intense thing.
19 I believed, and I'll admit that I was wrong, that I
20 could use my salary to pay for everything that the grant
21 that's indirect on the grant. I didn't know how to keep track
22 of it. I didn't know that I should have taken a paycheck,
23 deposited it into my personal account, and then write a check
24 back to CASI, and CASI should have written a check back to the
25 grant. Then there would be no confusion that I seem to have in
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1 my wake.
2 Seven years ago I didn't know about accounting. I've
3 always done contracts. I've never done grants. DARPA would
4 give me money. They didn't care what I did with it, as long as
5 I could produce the research that I said I could do. I never
6 understood that a grant, you do whatever you can, but it's how
7 you spend the money that's most important. I didn't know how
8 to spend this money. I didn't think that I was throwing it
9 away. I didn't think I was unduly enriching myself until a
10 couple of years later I realized, I took too much money.
11 I didn't want to take money unless I absolutely needed
12 it. It was like running a little business. The owner doesn't
13 take the money unless you need it. I didn't want to take
14 salary. I just wanted to take $2,000 at a pop for rent. I
15 thought I could charge it against salary. And at the end of
16 the day, I overdid it.
17 In the second year I thought I had made amends, but
18 the budget was wedged. I never thought that I would be impaled
19 on my own budget. When I wrote the budget I just needed to
20 fill something in to get the grant out the door by the
21 deadline. I asked a couple of ATP people, what is a reasonable
22 salary? They said, don't worry. In fact, it says, don't
23 worry, so I didn't worry. I was just going to do the research
24 and that was it. I took a big advance so I could eliminate all
25 my personal and financial problems. I didn't want to have to
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1 worry about the money. I wanted to focus on the research. And
2 trying to run this project has destroyed my life. We kept the
3 research going after the project was suspended because the
4 research is mine. The grant d'oesn' t tell me how to live. The
5 grant tells me how to spend the government's money.
6 But, anyway - ~ 1'm getting lost.
7 I'm bullheaded. I'm boneheaded. My exwife said I
8 couldn't tell my friends from my enemies. That's really been
9 true in this adventure. I'm a strange person. I let people
10 come and go. I don't know. Just do whatever you want.
11 I had some brilliant students working on this project
12 who should have been on the payroll. I didn't put them on the
13 payroll. One, because either I was advising them on their
14 Ph.D., or they were already on some other payroll. This whole
15 issue of like, you know, do I take people and pay them more for
16 the same hours? ATP also said, don't do certain things, what I
17 understood I could do. I didn't understand.
18 I'm boneheaded. I'm also too bright for my own good.
19 When people told me that I could -- when I started thinking
20 that I could use Morse Theory in digital data, in discrete
21 picture data, pixelated data, everybody said you can't do that,
22 it doesn't work. Morse Theory only works for continuum
23 mechanics, not where you have imagery.
24 But Jim Cox and I talked about it. I think I see a
25 way to do it. Despite everybody telling me, no, no, no, that's
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1 not how you do it; this is how you do it. We persisted, and
2 for ten years we came up with digital Morse Theory and now it's
3 becoming part of the accepted panoply of topological image
4 processing.
5 If I listened to everybody telling me, no, no, no, you
6 can't do it, you can't do it, fine, I'll do something else.
7 When somebody says, you can't do it, I start blowing steam out
8 my nose. There has got to be a way tO,do it.
9 We did get the power approved. I did have long
10 discussions with B.J. and Jane about how we can fix this, how
11 we can change this, what needs to be done. I made regular
12 visits to Washington. I tried to keep in touch with my program
13 managers. They came and visited regularly. We were making
14 good scientific progress. But my attitude was, the hell with
15 the financing, as long as I kept records. I have all of the
16 source records. And give it to the accountant and she will
17 figure it out.
18 And, you know, I never thought -- we didn't have a
19 year's worth of running actuals to calculate a good budget.
20 And towards the end the accountant was telling me, this is an
21 unliveable budget. You can't do this project with this budget.
22 You need to put a lot more money in. And without co investors
23 and cofunding, you're going to get in trouble.
24 I thought that I could keep overhead minimal, take as
25 little salary as I could, take rent instead of salary, which is
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~ a colossal mistake. It is more of a mistake than even this
2 Court will understand. I have to pay tax twice on the money.
3 This is the stupidest thing imaginable. It's like the absolute
4 worst thing I can do. It inflated my income. The W2s and the
5 10995 from the grant show that I made $250,000. That's too
6 much. Because I took the same money, gave it back to the
7 company, and paid it again. It was spectacularly dumb.
8 The worst thing is, worst thing is that my business
9 managers, I really wish that -- we needed to get a new budget.
10 We needed to get a new budget approved. I think we were almost
11 at that point and then I screwed up.
12 I'm responsible for everything I've done. I took
13 responsibility. I kept records at the time I was doing it. I
14 didn't think I was committing -- I was defrauding the
15 government. I thought as long as I was doing good work, the
16 research is moving ahead, we are presenting at conferences, I'm
17 flying allover the country presenting. We are attracting
18 students, we are attracting attention. That's what was
19 important. In the past five years all -- I have bean counters
20 going over and over and over. I'm still stuck in 2001 and
21 2003.
22 My career is over. My colleagues don't return my
23 phone calls. I've alienated my wife and daughter. I've had a
-24 sex change operation. I am now going to live as a woman.
25 1 didn" t think -- I wanted my staff to be happy and
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1 healthy. I wanted Nicky Winter, the bookkeeper, I wanted her
2 to fix her teeth. I wanted to fix my teeth. I didn't want to
3 have I wanted everybody around me to be happy. And I wanted
4 them to know that the fringes wer'e available. I didn't
5 overspend the fringes.
6 After the grant was suspended I got a job with a
7 colleague and I was much happier working for him than trying to
8 manage my own grant. If I get out from underneath this I would
9 like to advise Mark Stanley in the ATP program, now TIP
10 program, what to look out for in PIs when you give them a lot
11 of money. What are the common misunderstandings that a
12 scientist will have when you give him a lot of money. My
13 colleagues at City College said, we win grants, but we have
14 almost no sale. I wanted to make my little company unique. I
15 wanted to do things different. I wanted to do things nicer,
16 better. I didn't know what to do and I didn't know what I was
17 doing, and I ended up with a train wreck.
18 Lee Gurfein, my business manager, wanted to lock me up
19 in a room and just give me a computer and let me out for air
20 and exercise. He didn't make any coinvestment. My brother
21 didn't have any signing authority until we had a contract with
22 him and he gave me some money. I did everything he wanted. I
23 did everything my accountant wanted me to do.
24 I did everything that Bob Benedict wanted me to do.
25 If he told me not to do something, I wouldn't do it. When he
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J told me to stop paying the rent, it was getting to be a real
2 problem, I stopped. I had to understand why. I didn't get it
3 right. I made a mistake. I never thought it would be this big
4 of a mistake. If I have to go to prison for it, then I'll go
5 to prison for it. I made a mistake. I didn't think -- I
6 hope -- I feel terrible that people feel I violated their
7 trust, and I'll never be able to recover that.
8 I want to finish the Joe Morse Theory. It has nothing
9 to do with money anymore. It's something that needs to be
10 done. It's why ATP gave me the money. The research was more
11 important than the money, but I didn't know how to handle the
12 money. I think if I got a job as a grants manager t because I
13 needed a job, having made every mistake twice, I would know how
14 to prevent it. I have been advising other collea-gues, that
15 kind of attitude is going to get you in real big trouble. I
16 have told them that, and they usually get really mad at me.
17 Other ATP grants, when I talk with them, I said, be
18 really careful, don't have a certain mind-set. You are not
19 your grant. The grant funds certain activities, but don't put
20 your ego, and get more than one grant and have more than one
21 sponsor.
22 I thought I could do everything myself. I do
23 everything so hard and so intensely and so monomaniacally, so
24 bipolar that I usually get myself in trouble. This is the
25 worst trouble I've ever got myself in. I don't know. Maybe
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1 I've learned something from it. I tell people I made every
2 mistake twice. It's like if anybody knows the lessons of
3 managing federal and public money, so that everybody can look
4 at it and say, yeah, there is no problem with that, I think I
5 know how to do it.
6 I could probably pass the CPA exam now. Do I feel
7 comfortable defending what I did, knowing what I did in 2001
8 with what I know now in 200B? Absolutely not. I made a mess.
9 It was a big mess. But it was fixable. And I wasn't able to
10 fix it. It was too much of a mess, and I just wanted to focus
11 on the research, and I decided to do good work and maybe
12 something good would corne out of it.
13 If I need to go to jail, I'll go to jail. I would
14 like to finish what I started. I would like to help the ATP
15 program in the sense that I can probably smell fraud brewing in
16 the mind-sets of the PIs. Because I have a sense now of what
17 this entails, particularly in small startups, very small
18 startups. That's what ATP wanted to fund, and they should
19 continue to do it, but they need special supervision. When I
20 was doing SBIR grants, they have special supervision for SBIR
21 grants because the PIs don't always know what they are doing.
22 I don't have a horne to go to. My mom is going to die
23 soon. I want to bring her home to die.
24
25
Am I wandering off too far?
THE COURT: I couldn't hear you.
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1 THE DEFENDANT: Am I wandering off too far or am I
2 becoming incomprehensible?
3 My mom is going to die soon. She is on a ventilator.
4 She is on a feeding tube. I'm only trying to bring her home,
5 with my family's consent, so that she is at least home, because
6 that's where she always wanted to be. After she passes on, we
7 are going to have to sell the house anyway because of the bills
8 from the nursing horne. If I have to go to prison, I would like
9 to at least see her through.
10 I'm taking classes now on ventilator care, so at
11 least ~ - we have three shifts of nurses at the house running a
12 ventilator. I need to be able to cover them. My Ph.D. is
13 sufficiently medical, and I have enough insight on how to run a
14 ventilator that I need a lot of training so I don't screw up,
15 because I think I know what I'm doing, and Mondays are usually
16 my days to go get training.
17 I pre-separated from paying myself rent because I
18 thought I wanted to take rent as I needed it and not use
19 salary, and just use my salary line to pay utilities and
20 telephone and the legal cost, the bills to Pennie & Edmonds. I
21 tried to keep a green check and a burgundy check. Green checks
22 were nonprogram, burgundy was program.
23 But we didn I t set up the account before we got the
24 first payment from ATP. I took too much money at the
25 beginning, and I tried to put it back. The way I tried to put
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1 it back. Now I just did it all wrong. I thought it didn't
2 matter where I spent the money out of. I just give ATP a stack
3 of receipts.
4 I tried to keep good records. I got consumed with
5 recordkeeping. It's like I was telling it's like I got
6 buried in receipts that I lost and I never added them up. I
7 just took pictures of them and filed them under each day and
8 let the accountant deal with it. She got lost.
9 I think the best thing I can do for my country is
10 prevent me from happening again. I don't know that I will ever
11 personally handle big federal projects, but I think I can be of
12 value to the program, particularly since they are going to be
13 gun shy to giving money to small grant recipients. And I feel
14 terrible because Mark really believed in me, the program
15 director.
16 If there is something that can be done with me to help
17 the program, I would do it any way I can. I'm happy to lecture
18 and explain how to get yourself in trouble with more money than
19 you can deal with. I don't know whether that would help. I
20 didn't believe that I really misspent money until I finally had
21 to really, really study exactly what I did, like a third person
22 did it, and I admit I took too much money.
23 But I didn't not do research. I didn't advance the
24 state of the art. The big problem is that I spent so much time
25 being an amateur accountant that I couldn't be a professional
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1 scientist.
2 If you can find it in your heart to -- I'm sorry. I'd
3 like this to be over and I would like to move on. If I can
4 help, I will. If making me an example by spending a few years
5 will prison to help, that's what I need to do, If making me an
6 example and I can prevent other people from getting the
7 boneheaded mind-set that I have, maybe my experience is more
8 valuable in some other setting.
9 I would like to finish the research. And the program
10 would actually -- they are horrified of what's happened, but I
11 think there is a reason why they never completely shut down the
12 grant. They just want me to clean up my act. If we could
13 finish the program with somebody else running it, that's fine,
14 too. My boss at ATP could administer it for me.
15 Having worked in a big federal defense contractor, I
16 see how they do it. If I had spent a couple of years working
17 in a large corporation, perhaps I would see how these are done.
18 I have never done that. I now know more about grants
19 management than I care to.
20 I don't know what else to say. I'm really sorry. I
21 didn't try to hide it from anybody. And people call up and
22 say, what's going on? I say, I have been convicted of stealing
23 from the grant. If that's what I did, then I did it, but I
24 never kept it a secret. I took pictures of everything I did.
25 I kept records to hang myself, because I never thought I would
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1 be hanging. I have never thought I would be impaled.
2 I'm redundant and I'm repetitive and I forget what I
3 say, and I'm a disaster, I really am. I will be late for my
4 own funeral. If I do something too fast, I always forget
5 . something, screw something up.
6 I apologize to the Court for keeping you this late and
7 for everything else that I've done in the past.
8 Thank you, your Honor.
9 THE COURT: Thank you,
10 As I said, under the guidelines, the Court's findings
11 are that the base offense level for this violation for Title 18
12 Section 666 is found under 2Bl.l. The base offense level under
13 subsection (a) (2) of that guidelines is 6. Because more than
14 $120,000 was lost through inappropriate expenses, 10 points are
15 added. Making that decision the Court looked to guideline note
16 which applies to 2F. The guideline note that applies to grants
17 is federal grant under guideline commentary (f) (2) (ii). At
18 that guideline of 16, the guidelines calls for a sentence of 21
19 to 27 months in prison.
20 Turning to 18 3553(a) of Title l8, the Court, as the
21 Court must, consider any guidelines sentence as a result of the
22 Booker decision, the Court must take into account the history
23 and circumstances of the offense, history and characteristics
24 of the defendant. The defendant here has no prior record.
25 And addressing the Court he said that he's never
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1 before had the responsibility before of handling a federal
2 grant and dealt with contracts in the past. Those are
3 contracts, I gather, to perform specific services for a fee,
4 which is a little different than a federal grant. Both of
5 those circumstances relate to the circumstances of the offense
6 and the history and characteristics of the defendant.
7 But the Court must also impose a sentence which is
8 sufficient but not greater than necessary to comply with the
9 purposes set forth in subparagraph 2 of 3553{a), and that is
10 the need for the sentence imposed to reflect the seriousness of
11 the offense, to promote respect for the law, and to provide a
12 just punishment for the offense; B, to afford adequate
13 deterrence to criminal conduct of other persons, and to protect
14 the public from further crimes of the defendant -- C, to
15 protect the public from further crimes of the defendant; and,
16 0, to provide the defendant with needed educational and
17 vocational training, medical care, or other correctional
18 treatment in the most effective manner.
19 I don't believe that it would be necessary to protect
20 the public from further crimes of the defendant that would
21 serve to ameliorate the penalty imposed under the guidelines.
22 I have some difficulty with this case because
23 delineating the intent of the defendant is difficult for me.
24 It is true that the loss is at least $120,000, but the
25 defendant's intent in causing that loss is something that the
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1 Court has been concerned about.
2 And, on the other hand, the Court has to consider a
3 sentence that affords adequate deterrence to criminal conduct
4 and the government gives these grants, they are placing a lot
5 of trust in the grantee. It's important that the grantee not
6 intentionally misapply the funds.
7 It's clear to me that there was an intentional
B misapplication of the rent money. The defendant was told time
9 and time again not to use the rent funds for rent or for
10 utilities. That's what the record here substantiates. That's
11 a lesser sum than the sum found in the guidelines.
,
12 Under the circumstances, it seems to me as the first
13 offense that the Court should not impose a sentence that is
14 heavy as the guideline and, yet, impose a sentence that
15 provides deterrence to other people. I am going to vary the
16 sentence pursuant to Section 3553(a).
17 I am going to impose a sentence of 15 months under
18 zone C of the guidelines, one half of the term to be served in
19 prison and one half of home confinement, eight months'
20 imprisonment, and the remainder in home confinement.
21 The term of supervised release is three years,
22 restitution in the amount of $120,000. That's required, I
23 guess. And a special assessment of $100. I think I'm right on
24 the split sentence, that if it falls in the 12 category, I can
25 give the split sentence.
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1 MR. KWOK: Section 5CI.I, section D.
2 MR. EVERDELL: Yes, your Honor, I believe it is
3 correct. It has to be a one-for-one ratio.
4 THE COURT: One has to be imprisonment, the other has
5 to be home confinement.
6 MR. EVERDELL: That's correct.
7 THE COURT: That's to enable defendant to take care of
8 his mother as soon as possible.
9 Three years of supervised release. There will also be
10 a $100 assessment as provided by the law. The conditions of
11 supervised release are: The defendant shall not commit another
12 federal, state, or local crimei shall not illegally possess a
13 controlled substance; shall not possess a firearm or
14 destructive device. Mandatory drug testing is suspended du'e to
15 the Court's determination that defendant poses little risk of
16 future substance abuse. The defendant shall cooperate in the
17 collection of DNA as directed by the probation officer.
18 Standard conditions of supervision 1 through 13 will
19 also apply with the following special conditions: Defendant
20 shall provide the probation officer with access to any
21 requested financial information; defendant shall not incur new
22 credit charges or open additional lines of credit without
23 approval of the probation officer unless the defendant is in
24 compliance with the installment schedule, installment payment
25 schedule.
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1 Defendant is to report to the nearest probation office
2 within 72 hours of release from custody and be supervised in
3 the district of his residence. $100 will be due immediately.
4 That's the special assessment. The restitution shall be in the
5 amount of $120,000, payable to the clerk of the United States
6 District Court for disbursement to Julie Weiblinger, u.s.
7 "Department of Commerce, National Institute of Standards and
8 Technology, Advanced Technology Program Receivables Group, 100
9 Bureau Drive, Mail Stop 1624, Gaithersburg, Maryland
10 20899-1624.
11 The restitution shall be paid in monthly installments
12 of 10 percent of gross monthly income over the period of
13 supervision to commence 30 days after the date of release from
14 custody, and the defendant shall notify the U.S. Attorney's
15 Office for this district within 30 days of any change of name
16 or residence address that occurs while any portion of the
17 restitution remains unpaid.
18 If the defendant is engaged in BOP non-UNICOR program,
19 the defendant shall pay $25 per quarter towards the
20 restitution. However, if the defendant participates in the
21 BOP's UNICOR program as a grade 1 through 4, the defendant
22 shall pay 50 percent of her UNICOR earnings to any financial
23 penalties, consistent with Bureau of Prisons regulations of 28
24 CFI Section 45.11. The factors in 18 United States Code
25 Section 3664(f) (2) were considered in formulating the payment
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1 schedule.
2 There will be no fine in this case in view of the
3 restitution requirements.
4 I gather you want to have a voluntary surrender,
5 Mr. Rubinstein?
6 MR. RUBINSTEIN: Yes, your Honor. I was wondering, if
7 it's possible, I don't know how it works. Is it possible to do
8 the home confinement first and then the incarceration
9 afterwards? So this way if they can get his mother home,
10 because her life expectancy isn't that long.
11 THE COURT: It seems to me that it could. I don't see
12 anything under the section that says it couldn't. It certainly
13 surprises me,
14 MR. EVERDELL: I'm sorry 'to interrupt, your Honor. I
15 do have a different case with Judge Kaplan where he did allow
16 that very thing to happen. If that precedent counts for
17 anything, I believe there is a precedent in the Southern
18 District for doing this.
19 THE COURT: I am going to do it that way. So the horne
20 confinement period will start. You better see that the
21 defendant sees the probation officer in the next 24 hours, Mr.
22 Rubinstein.
23
24 tomorrow.
25
MR. RUBINSTEIN: Absolutely. I will go there
THE COURT: We will make arrangements for home
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8AKMKARS Sentence
1 confinement to start. If you have home confinement, there will
2 have to be a telephone without call forwarding in the residence
3 in which the defendant would be located because they have to
4 know that he's not leaving the premises during the period of
5 horne confinement. Home confinement is not to interfere with
6 religious services or employment, but it will require the
7 defendant to be home in the evening and nonworking hours part
8 of the day.
9 MR. RUBINSTEIN: And medical, your Honor?
10 THE COURT: What?
11 MR. RUBINSTEIN: And medical.
12 THE COURT: Of course, he can attend medical
13 appointments for himself and his mother.
14 There will be no call forwarding or call waiting or
15 modem attached to the telephones. It's clear that he is
16 serving his term of home confinement without any further
17 investigation by the probation office.
18 MR. RUBINSTEIN: Your Honor, would your Honor
19 consider -- first, on the restitution, did your Honor say how
20 that's to be paid?
21 THE COURT: Yes, I did. 10 percent of gross pay.
22 MR. RUBINSTEIN: Is that without interest?
23 THE COURT: I leave that to the greater, higher
24 authorities. I believe that interest does run.
25 MR. RUBINSTEIN: Would your Honor
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8AKMKARS Sentence
1 THE COURT: I believe interest runs. But it can start
2 after the period of incarceration.
3 MR. RUBINSTEIN: Your Honor, I believe that the
4 defendant wishes to appeal this matter. That's what I've been
5 informed. In view of that, I wonder if your Honor will
6 consider releasing him pending the appeal. He is going to be
7 on house arrest for seven and a half -- I'll reserve the right
8 to make that application.
9 THE COURT: He can appeal, but I don't see where you
10 can appeal, but is that beneficial to your situation for me to
11 suspend the imposition of sentence pending the appeal?
12 MR. RUBINSTEIN: I would like to serve the house
13 arrest portion while his mother is alive.
14 THE COURT: I can't break it up, I don't believe,
15 under the statute.
16 MR. RUBINSTEIN: I'll have to consider it, Judge. We
17 will go to probation tomorrow. As far as the house arrest, we
18 don't have a problem with starting that immediately.
19 THE COURT: Make an expedited appeal.
20 MR. RUBINSTEIN: File an expedited appeal?
21 THE COURT: All right.
22 MR. RUBINSTEIN: Thank you very much, your Honor.
23 Good night.
24
25
MR. KWOK: A few things, your Honor.
If the government could request the Court to give an
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BAKMKARS Sentence
1 oral pronouncement of his forfeiture order. There is a
2 forfeiture allegation in the indictment.
3 THE COURT: Is forfeiture required here? I didn't see
4 that in the presentence report.
5 MR. KWOK: It is not reflected in the presentence
6 report, but, as your Honor might recall, there was an order by
7 stipulation between the parties where we seized the proceeds
8 from the sale of defendant's apartment. And so if we could
9 forfeit that in partial satisfaction of the restitution
10 obligation.
11 THE COURT: You can submit a forfeiture order, yes.
12 MR. RUBINSTEIN: The marshals are holding those funds,
13 if that's what the government is talking about.
14 THE COURT: I have to make an order with respect to
15 it. The marshals already have it.
16 MR. KWOK: But the order the Court signed says that
17 the money will be held with the U.S. Marshals pending further
18 order of the Court. We will certainly submit an order to
19 release those funds.
20 THE COURT: So ordered.
21 MR. KWOK: Thank you.
22 Also, just one last matter. Because this is a second
23 superseding indictment, the government moves that the
24 underlying indictments be dismissed.
25 THE COURT! That's granted. I am sure there is no
(212) 805-0300
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98
8AKMKARS Sentence
1 opposition to that.
2 MR. RUBINSTEIN: No opposition, your Honor.
3 THE COURT: You have ten days to file a notice of
4 appeal, Dr. Karron. All you have to do is write a letter to
5 the Court, United States District Court, 500 Pearl Street, New
6 York, New York, and say, I wish to appeal and that will
7 preserve your appeal, but you have to do it within the ten-day
8 period because, otherwise, the Second Circuit will say you
9 waived your right to appeal by not filing that letter within
10 the ten-day period.
11 You understand me? You're nodding yes.
12 If you want to appeal, you just write the letter
13 within ten days and that preserves your right. If you don't
14 write it in the ten-day period, you lose your right to appeal.
15 If you don't have funds for an appeal, the Court of Appeals
16 will decide on it for you to handle your appeal free of charge.
17
MR. RUBINSTEIN: What they do, Judge, in reality, is,
18 they assign trial counsel free of charge. I had that
19 experience with Judge Kaplan, who was mentioned once today
20 already.
21 000
22
23
24
25
(212) 805-0300
UNITED STATES DISTRICT COURT
--------------------------------------------------------------------- x
Plaintiff,
- v. -
DANIEL B. KARRON,
Defendant.
:
:
:
:
:
:
:
:
08 Civ. 10223 (NRB) (DFE)
LOCAL CIVIL RULE 56.1
STATEMENT OF MATERIAL
FACTS
--------------------------------------------------------------------- x
Pursuant to Local Civil Rule 56.1(a), plaintiff the United States of America (the
Government), by its attorney, Preet Bharara, United States Attorney for the Southern District of
New York, respectfully submits the following statement, in numbered paragraphs, of the material
facts as to which there is no genuine issue to be tried:
A. Background
1. In June 2008, defendant Daniel B. Karron (Karron) was convicted after a jury
trial on charges of misapplying funds in the care, custody and control of Computer Aided
Surgery, Inc. (CASI), in violation of Title 18 U.S.C. 666. See Trial Tr.
1
at 1379:15-25; see
also Amended Judgment, United States v. Karron, No. 07-CR-541 (RPP) (S.D.N.Y. Oct. 31,
2008) at 1-2 (the Amended Judgment).

1
Citations herein to Trial Tr. reference the transcript of defendants June 2008 criminal
trial in United States v. Karron, No. 07-CR-541 (RPP), which is attached as an exhibit to the
Declaration of Michael J. Byars (the Byars Declaration or Byars Decl.). The Byars
Declaration also attaches certain exhibits from the criminal trial, which are referenced herein in
the form GX ___. The remaining exhibit to the Byars Declaration is the transcript of
defendants sentencing proceeding before Judge Patterson, referenced herein as Sentencing Tr.
A-354
2. Karron was sentenced, inter alia, to a fifteen-month custodial sentence and
$120,000 in restitution. See Amended Judgment, United States v. Karron, No. 07-CR-541 (RPP)
(S.D.N.Y. Oct. 31, 2008) at 1-2.
3. Karron was CASIs President and Chief Technical Officer. See Trial Tr. 107:9-
10.
4. From October 1, 2001 through September 30, 2002, Elisha Gurfein served as
CASIs Business Manager. See Trial Tr. 628:6-11.
B. The ATP Proposal
5. On or about July 6, 2001 and August 6, 2001, Karron submitted a two-part
Advanced Technology Program (ATP) proposal to the United States Department of
Commerces National Institute of Standards and Technology (NIST) on behalf of CASI
entitled Anatomic Computer Modeling for Precise and Accurate Therapies (together, the
Proposal). See GX 10; GX 10A.
6. Karron signed the Proposal as CASIs Authorized Company Representative.
See GX 10; GX 10A.
7. According to the Proposal, CASI would
develop a new computer application server that will take
calibrated, encrypted raw images from a client[s] medical imaging
instrumentation (MRI, CT, Ultrasound, etc.), over the Internet.
Our system will rapidly generate encrypted, precise, accurate, and
variable resolution three dimensional tiled models applicable for
diverse applications as radiation therapy, surgical planning,
intraoperative guidance, rapid manufacturing of prosthesis,
verification of surgical results, robotic surgery trajectory planning,
patient communication, education and other customer specific
applications[.] The novel idea[] that enables this technological
leap forward is Digital Morse Theory (DMT).
GX 10A at 1 (Box 13).
- 2 -
A-355
8. The Proposal included an estimated three-year budget prepared by Karron (the
Budget). See GX 14.
9. The Budget, as later revised, projected CASIs costs for three years as
$2,110,500. See id.
10. The Budget, as revised, provided that $2,000,000 of the costs would come from
the ATP, specifically, $800,000 in year one and $600,000 in each of years two and three. See id.
11. The Budget specified that CASI would enter into a three-year, $420,000 Sole
Source Contract (the Subcontract) with the City University of New Yorks Institute for
Software Design and Development (CUNY). See GX 10 at 3-4.
12. Karron included the Subcontract in the Budget because CUNYs faculty, visiting
scientists, and PhD graduate students were expected [to make a] unique contribution to the
project. Id. at 4.
13. The Proposal listed fourteen team members. Id. at 23.
14. The Proposal named Professors Wolberg and Cox as Core Members along with
Karron. Id.
15. The Proposal noted the potential for the project to yield widespread economic and
social benefits, including through the creation of new markets, improvement of medical
treatments, and reduction of medical costs, employee sick leave, medical malpractice litigation
and insurance costs. See id. at 5-6, 23-26.
C. The Cooperative Agreement
16. In October 2001, the ATP notified Karron that his Proposal had been approved.
See GX 11.
- 3 -
A-356
17. On or about Oct. 5, 2001, Karron signed the Financial Assistance Award,
designated as a cooperative agreement, indicating CASI would comply with various
regulations, including 15 C.F.R. Part 14 and 48 C.F.R. Part 31, as well as other standard
provisions and special conditions. See GX 12.
18. The standard provisions upon which the Cooperative Agreement was contingent
included a requirement that CASI would provide quarterly Financial Status Reports. See GX 2 at
7(c)(3)(a); Declaration of Melinda S. Chukran dated June 18, 2010 (the Chukran Declaration
or Chukran Decl.), at 11 & Ex. D.
19. CASI (and thus Karron) stood to gain exclusive rights to any intellectual property
developed under the Cooperative Agreement, subject to, inter alia, the grant of certain licensing
rights to the United States. See GX 2 at 25(a), (b).
20. Under the Cooperative Agreement, CASI and Karron would to keep all profits
derived from the results of the research conducted with the assistance provided under the
Cooperative Agreement. See Sentencing Tr. 52:4-8.
21. The Cooperative Agreement required Karron to agree to a cost-share of $30,000
in year one. See GX 13 at 7.
D. Financial Reporting
22. During the period October 2001 through July 2003, Karron signed and submitted
to ATP certain financial reporting forms to satisfy the requirements of the Cooperative
Agreement necessary to release ATP funds to CASI. See Chukran Decl. Exs. B, C, D. Each of
these forms required the signatory, designated as the recipients Authorized Certifying
Official, to certify compliance with the terms of the Cooperative Agreement. See id. 2, 4, 8,
12, 13 & Exs. B, C, D.
- 4 -
A-357
23. Karron informed the National Institute of Standards and Technology (NIST)
that only Karron had authority to sign documents on CASIs behalf. See Trial Tr. 639:7-640:1;
see also GX 21.
24. During the period October 2001 through July 2003, Karron signed as CASIs
Authorized Certifying Official on at least twenty financial reporting forms and caused them to
be submitted to the ATP to obtain release of government funds. See Chukran Exs. B, C, D.
25. Karron directed Gurfein to create financial reports that were false because they
did not reflect actual expenditures, and Karron signed these reports for submission to the ATP.
See Trial Tr. 663:17-664:14; 683:21-684:10; 696:9-19.
E. Karrons Noncompliance and Misapplication of Funds
26. On June 27, 2003, the ATP suspended the Cooperative Agreement after a limited
scope audit confirmed that Karron had failed to comply with the cost share and had drawn down
more than $200,000 above the amount authorized. See GX 26; GX 62 at 10 (page i, Executive
Summary).
27. From October 5, 2001 through June 27, 2003, Karron had drawn down the entire
$800,000 available from the ATP during the first year, and $545,000 of the $600,000 amount
available during the second year, for total disbursements of $1,345,500. See GX 62 at 12
(Introduction).
28. Karron diverted $75,000 of the initial $150,000 drawn down from the ATP for
payment of personal debts. See Trial Tr. 636:20-638:16.
29. From October 2001 to June 2003, Karron made $547,426 in expenditures that
would later be challenged by Commerce auditors as either unallowable, unallocable or [in
- 5 -
A-358
- 6 -
excess of] budget limitations established in the ATP award. GX 62 at 10 (page i, Executive
Summary).
30. In the first year of the Cooperative Agreement, Karron incurred over $120,000 in
unauthorized expenses for non-budgeted categories, including $60,000 in back rent paid by
Karron (to himself), $9,832 in fringe benefits, $11,248 in capital improvements to Karrons
apartment, $5,019 in cleaning expenses, and $43,592 in other unauthorized categories. See GX
114.
31. Karron decided, without authorization from the ATP, not to enter into the
Subcontract with CUNY and instead to set up CASIs business location in his own apartment
and direct CASI to pay him rent. See Trial Tr. 633:8-635:25.
By submitting this statement, the Government does not waive the right to contend that
any of the above-referenced facts are not material to the present action.
Dated: New York, New York
June 18, 2010
Respectfully submitted,
PREET BHARARA
United States Attorney
By: s/ Michael J. Byars `
MICHAEL J. BYARS
Assistant United States Attorney
Telephone: (212) 637-2793
Facsimile: (212) 637-2717
Email: michael.byars@usdoj.gov
A-359
--------------------------------------------------------------------- x
Plaintiff,
- v. -
DANIEL B. KARRON,
Defendant.
:
:
:
:
:
:
:
:
08 Civ. 10223 (NRB) (DFE)
AMENDED DECLARATION OF
MICHAEL J. BYARS IN
SUPPORT OF PLAINTIFFS
MOTION FOR SUMMARY
JUDGMENT
--------------------------------------------------------------------- x
I, MICHAEL J. BYARS, pursuant to 28 U.S.C. 1746, declare under the penalty of
perjury as follows:
1. I am an Assistant United States Attorney in the Southern District of New York. I
make this declaration in support of plaintiffs Motion for Summary Judgment dated June 18,
2010 (the Motion) to place before the Court certain documents relating to the Motion.
2. A true and complete copy of the following exhibits admitted into evidence at the
June 2008 criminal trial in United States v. Karron, No. 07-CR-541 (RPP), is attached hereto
under tabs bearing the respective exhibit number in the form GX __:
Exhibit No. Exhibit
GX 2 General Terms and Conditions, Advanced Technology Program
GX 10 Application dated July 6, 2001
GX 10A Application dated August 6, 2001
GX 11 Letter from Marc G. Stanley dated October 2001
1
GX 12 Financial Assistance Award
GX 13 Special Award Conditions
GX 14 Revised Budget dated September 20, 2001
GX 21 Amendment to Financial Assistance Award dated November 7, 2001

1
GX 11 was inadvertently omitted from Paragraph 2 of the original Byars Declaration, but
was attached thereto. As all exhibits remain the same, they are incorporated herein by reference.
Case 1:08-cv-10223-NRB Document 24 Filed 06/24/10 Page 1 of 3
A-360
Exhibit No. Exhibit

GX 26 Amendment to Financial Assistance Award dated June 27, 2003
GX 40 Financial Status Report for October through December 2001, dated
January 10, 2002
GX 40A Revised Financial Status Report for October through December
2001, dated August 13, 2003
GX 41 Financial Status Report for January through March 2002, dated
April 12, 2002
GX 41A Revised Financial Status Report for January through March 2002,
dated August 13, 2003
GX 42 Financial Status Report for April through June 2002 (undated)
GX 42A Revised Financial Status Report for April through June 2002, dated
August 13, 2003
GX 43 Financial Status Report for July through September 2002, dated
October 28, 2002
GX 43A Revised Financial Status Report for July through September 2002,
dated August 13, 2003
GX 44 Financial Status Report for October through December 2002, dated
August 13, 2003
GX 45 Financial Status Report for January through March 2002, dated
August 13, 2003
GX 46 Financial Status Report for April through June 2002, dated August
13, 2003
GX 62 Final Audit Report for CASI Award dated August 2004
GX 114 Summary of CASI financial records prepared by witness Belinda
Riley
2
3. A true and complete copy of the excerpts of the transcript of the June 2008 trial in
United States v. Karron, No. 07-CR-541 (RPP), cited in plaintiffs moving brief is attached
hereto under the tab marked Trial Transcript.
2
Ms. Riley testified that she prepared GX 114 using canceled checks and American
Express statements [as] the main source documents, and GX 114 was admitted into evidence
without objection. Trial Tr. 549:22-550:10.
2
A-361
3
4. A true and complete copy of the transcript of the October 20, 2008, sentencing
proceeding in United States v. Karron, No. 07-CR-541 (RPP), is attached hereto under the tab
marked Sentencing Transcript.
I declare under the penalty of perjury that the foregoing is true and correct.
Signed this 24th day of June 2010, in New York, New York.
By: s/ Michael J. Byars `
MICHAEL J. BYARS
Assistant United States Attorney
Telephone: (212) 637-2793
Facsimile: (212) 637-2717
Email: michael.byars@usdoj.gov
A-362
A-363
Plaintiff,
-v. -
DANIEL B. KARRON,
Defendant.
1. INTRODUCTION
08 Civ. 10223 (NRB) (DFE)
LOCAL CIVIL RULE 56.1
OPPOSING 56.1 STATEMENT
OF MATERIAL FACTS
Pursuant to Local Civil Rule 56.1 (b), defendant D. B. Karron, responding pro se at this
time, respectfully submits the following statement in opposition to the Plaintiffs' Statement of
Material Facts. Defendant herein recites and responds to all the 31 numbered paragraphs in the
Plaintiffs' Statement of Material Facts, leaving no material facts uncontested. Additionally, the
defendant makes an additional statement containing separate, short and concise statement of
additional material facts as to which she contended there exists a genuine issue to be tried.
By refuting these statements and raising additional issues of fact, the defendant raises
material issues of fact to be decided at a trial.
The Plaintiffs' request for a Motion of Summary Judgment should therefore be denied in
whole.
-0
:D
o
en
m
o
-n
-n
o
~
A-364
a) forensic reconstruction
The main issue of material fact is the "ground truth,,1 .. See Decl.
Dunlevy The purpose of this is to answer the most basic fiscal questions for this project.
Questions such as
./ How much were spent in total? Karron Decl. Ex 10 at 38
./ Of that what was spent on direct project costs? Karron Decl. Ex 10
./ How much was spent on overhead? Karron Decl. Ex 10
./ How much did Karron earn? Karron Decl. Ex Group 22 Ex 109 et seq, Compare
Karron Decl. Ex 36, GX 50, Trial Transcript Page 803 Line 19
./ How much did Karron co-fund? Dunlevy Decl. Ex BAC 301
./ What happened to the withholding taxes from the grant payroll? Karron Decl. Ex
124,125,126,127
These questions were never unambiguously and authoritatively answered previously.
Karron Decl. Ex 60. The criminal trial court had great difficulty even determining how much
was lost, and even that is severely flawed
2
Sentencing Transcript Page 3 Line 9 et seq ..
I Ground truth is a term used in cartography, the military, meteorology, and
analysis of aerial photographs, satellite imagery, and a range of other remote sensing
techniques in which data are gathered at a distance. Ground truth refers to information
that is collected "on location". More specifically, ground truth may refer to a process in
which a pixel on a satellite image is compared to what is there in reality in order to
verify the contents of the pixel on the image. This imaging terminology is finding
wider use in the military and even in accounting for data that is accepted as true and
used to calibrate other, derived, inferred, or composite measures of reality.
2THE COURT: It seems to me this [GXI14] is just a rough calculation and not
something that a Court could rely on in a criminal case. I'll hear from you. That's my
assessment of that proof. Sentencing Transcript Page 5 Lines 4-6.
Karron 56.1 Counterstatement Page 2 of 36 Pages total
A-365
These questions are material and important because it shows how the Defendant funded
the non-federal portion of this project, and shows that federal funds were not used to pay for
nominally disallowed, unallowable, or unallocable costs despite allegations by the Plaintiff of
fraudulent funding of indirect and overhead costs.
Because these key facts were not established in the previous trial, they cannot be
precluded by res judicata in this follow on civil attack.
A-366
Contents
1. INTRODUCTION ................................................................................................. 1
a) forensic reconstruction ...................................................................................... 2
2. SPECIFIC REF UTA nONS by PARAGRAPH NUMBERS ............................... 7
A. Background ................................................................................................................ 7
1) In June 2008, defendant Daniel B. Karron ("Karron") was convicted after a
jury trial on charges of misapplying funds in the care, custody and control of Computer
Aided Surgery, Inc. ("CAS I"), in violation of Title 18 U.S.C. 666. See Trial Tr.l at
1379:15-25; see also Amended Judgment, United States v. Karron, No. 07-CR-541 (RPP)
(S.D.N.Y. Oct. 31, 2008) at 1-2 (the "Amended Judgment") ................................................. 7
2) Karron was sentenced, inter alia, to a fifteen-month custodial sentence and
$120,000 in restitution. See Amended Judgment, United States v. Karron, No. 07-CR-541
(RPP) (S.D.N.Y. Oct. 31,2008) at 1-2 ................................................................................... 8
3) Karron was CASI's President and Chief Technical Officer. See Trial Tr.
107:9-10. 8
4) From October 1,2001 through September 30, 2002, Elisha Gurfein served as
CASI's Business Manager. See Trial Tr. 628:6-11 ................................................................ 9
B. The A TP Proposal ...................................................................................................... 9
5) On or about July 6, 2001 and August 6, 2001, Karron submitted a two-part
Advanced Technology Program ("A TP") proposal to the United States Department of
Commerce's National Institute of Standards and Technology ("NIST") on behalf of CASI
entitled "Anatomic Computer Modeling for Precise and Accurate Therapies" (together, the
"Proposal"). See GX 10; GX 1 OA .......................................................................................... 9
6) Karron signed the Proposal as CASI's "Authorized Company Representative."
See GX 10; GX lOA ............................................................................................................. 11
7) According to the Proposal, CASI would ......................................................... 11
8) The Proposal included an estimated three-year budget prepared by Karron (the
"Budget"). See GX 14 ........................................................................................................... 12
9) The Budget, as later revised, projected CASI's costs for three years as
$2,110,500. See id ................................................................................................................. 12
10) The Budget, as revised, provided that $2,000,000 of the costs would come
from the A TP, specifically, $800,000 in year one and $600,000 in each of years two and
three. See id. 13
11) The Budget specified that CASI would enter into a three-year, $420,000 Sole
Source Contract (the "Subcontract") with the City University of New York's Institute for
Software Design and Development ("CUNY"). See GX 10 at 3-4 ...................................... 13
12) Karron included the Subcontract in the Budget because CUNY's faculty,
visiting scientists, and PhD graduate students" were "expected [to make a] unique
contribution" to the project. Id. at 4 ...................................................................................... 14
A-367
13) The Proposal listed fourteen "team members." Id. at 23 ................................. 14
14) The Proposal named Professors Wo1berg and Cox as "Core Members" along
with Karron. Id ...................................................................................................................... 15
15) The Proposal noted the potential for the project to yield widespread economic
and social benefits, including through the creation of new markets, improvement of medical
treatments, and reduction of medical costs, employee sick leave, medical malpractice
litigation and insurance costs. See id. at 5-6, 23-26 .............................................................. 15
C. The Cooperative Agreement .................................................................................... 15
16) In October 2001, the A TP notified Karron that his Proposal had been
approved. See GX 11 ............................................................................................................ 15
17) On or about Oct. 5,2001, Karron signed the Financial Assistance Award,
designated as a "cooperative agreement," indicating CASI would comply with various
regulations, including 15 C.F .R. Part 14 and 48 C.F .R. Part 31, as well as other standard
provisions and special conditions. See GX 12 ...................................................................... 16
18) The standard provisions upon which the Cooperative Agreement was
contingent included a requirement that CASI would provide quarterly Financial Status
Reports. See GX 2 at 7(c)(3)(a); Decl.aration of Melinda S. Chukran dated June 18,2010
(the "Chukran Decl.aration" or "Chukran Decl."), at,-r 11 & Ex. D ..................................... 17
19) CASI (and thus Karron) stood to gain exclusive rights to any intellectual
property developed under the Cooperative Agreement, subject to, inter alia, the grant of
certain licensing rights to the United States. See GX 2 at 25(a), (b) ................................. 17
20) Under the Cooperative Agreement, CASI and Karron would to keep all profits
derived from the results of the research conducted with the assistance provided under the
Cooperative Agreement. See Sentencing Tr. 52:4-8 ............................................................ 17
21) The Cooperative Agreement required Karron to agree to a cost-share of
$30,000 in year one. See GX 13 at 7 ................................................................................. 18
D. Financial Reporting ............................................................................................... 19
22) During the period October 2001 through July 2003, Karron signed and
submitted to A TP certain financial reporting forms to satisfy the requirements of the
Cooperative Agreement necessary to release A TP funds to CAS!. See Chukran Decl. Exs.
B, C, D. Each of these forms required the signatory, designated as the recipient's
"Authorized Certifying Official," to certify compliance with the terms of the Cooperative
Agreement. See id. ,-r,-r 2, 4,8, 12, 13 & Exs. B, C, D ........................................................... 19
23) Karron informed the National Institute of Standards and Technology ("NIST")
that only Karron had authority to sign documents on CASI's behalf. See Trial Tr. 639:7-
640:1; see also GX 21 ........................................................................................................... 21
24) During the period October 2001 through July 2003, Karron signed as CASI's
"Authorized Certifying Official" on at least twenty financial reporting forms and caused
them to be submitted to the A TP to obtain release of government funds. See Chukran Exs.
B, C, D. 21
A-368
25) Karron directed Gurfein to create financial reports that were false because they
did not reflect actual expenditures, and Karron signed these reports for submission to the
ATP. See Trial Tr. 663:17-664:14; 683:21-684:10; 696:9-19 .............................................. 24
E. Karron's Noncompliance and Misapplication of Funds ........................................... 25
26) On June 27, 2003, the ATP suspended the Cooperative Agreement after a
limited scope audit confirmed that Karron had failed to comply with the cost share and had
drawn down more than $200,000 above the amount authorized. See GX 26; GX 62 at 10
(page i, "Executive Summary") ............................................................................................ 25
27) From October 5, 2001 through June 27, 2003, Karron had drawn down the
entire $800,000 available from the A TP during the first year and $545,000 ofthe $600,000
amount available during the second year, for total disbursements of$I,345,500. See GX 62
at 12 ("Introduction") ............................................................................................................ 26
28) Karron diverted $75,000 of the initial $150,000 drawn down from the ATP for
payment of personal debts. See Trial Tr. 636:20-638: 16 ...................................................... 27
29) From October 2001 to June 2003, Karron made $547,426 in expenditures that
would later be challenged by Commerce auditors as "either unallowable, unallocable or [in
excess of] budget limitations established in the A TP award." GX 62 at 10 (page i,
"Executive Summary") ......................................................................................................... 29
30) In the first year of the Cooperative Agreement, Karron incurred over $120,000
in unauthorized expenses for non-budgeted categories, including $60,000 in back rent paid
by Karron (to himself), $9,832 in fringe benefits, $11,248 in capital improvements to
Karron's apartment, $5,019 in cleaning expenses, and $43,592 in other unauthorized
categories. See GX 114 ......................................................................................................... 31
31) Karron decided, without authorization from the ATP, not to enter into
the Subcontract with CUNY and instead to set up CASl's business location in his own
apartment and direct CASI to pay him rent. See Trial Tr. 633:8-635:25 .................... 32
4. ADDITIONAL REFUTATIONS ........................................................................ 34
GROUND TRUTH QUARTERLY SPENDING BY REVISED SF269A .................. 34
A-369
Cases
ALLISON ENGINE CO. v. UNITED STATES ex rel.SANDERS (No. 07-214) 471 F. 3d 61022
Amended Judgment, United States v. Karron, No. 07-CR-541 (RPP) (S.D.N.Y. Oct. 31, 2008) .. 8
Chateau Chambrey Homeowners Association v. Associated International Ins. Co. (200 I) 90
Cal.AppAth 335, 108 Cal.Rptr.2d 776, .................................................................................... 30
Opsal v. United Services Auto Association (1991) 2 Cal.AppAth 1197, 10 Cal.Rptr.2d 352 ..... 30
United States v Karron, Judgment in a Criminal Case 07CR541-01, 2009 .................................... 9
United States v. Karron 2010 U.S. LEXIS 1056,*;130 S. Ct. 1555;176 L. Ed. 2d 153;78
U.S.L.W. 3482, Daniel B. Karron, Petitioner v. United States. No. 09-8476.SUPREME
COURT OF THE UNITED STATES 130 S. Ct. 1555; 176 L. Ed. 2d 153; 2010 U.S. LEXIS
1056; 78 U.S.L.W. 3482 ............................................................................................................. 8
United States v. Karron, 348 Fed. Appx. 632, 2009 U.S. App. LEXIS 22026 (2d Cir. N.Y., Oct.
7, 2009) ....................................................................................................................................... 8
United States v. Karron, No. 07-CR-541 (RPP) (S.D.N.Y. Oct. 31, 2008) .................................... 8
US v MILLS No. 97-5085 (US Court of Appeals,Sixth Circuit March 31,1998) ...................... 28
Statutes
15 C.F.R 14.25 ........................................................................................................................... 34
15 CFR Subtitle A (1-1-02 Edition) 14.25(f) ........................................................................... 32
18 U.S.C. 666 ............................................................................................................................... 8
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2. SPECIFIC REFUTATIONS by PARAGRAPH NUMBERS
A. Background
1) In June 2008, defendant Daniel B. Karron ("Karron") was convicted after a jury
trial on charges of misapplying funds in the care, custody and control of Computer
Aided Surgery, Inc. ("CASI"), in violation of Title 18 U.S.C. 666. See Trial Tr.l
at 1379:15-25; see also Amended Judgment, United States v. Karron, No. 07-CR-
541 (RPP) (S.D.N.Y. Oct. 31, 2008) at 1-2 (the "Amended Judgment").
This statement is incorrect by imprecision. The conviction was 18 U.S.C. 666(a)(l)(A),
not 18 U.S.C. 666
3
. The paragraph #1 above does not mean that Karron was found guilty of
Bribery, and/or Embezzlement, stealing money, or conversion of money to personal gain.
Karron was not found to have obtained federal funds by fraudulent means. United States v.
Karron, 348 Fed. Appx. 632, 2009 U.S. App. LEXIS 22026 (2d Cir. N.Y., Oct. 7,2009), United
States v. Karron 2010 U.S. LEXIS 1056,*;130 S. Ct. 1555;176 L. Ed. 2d 153;78 U.S.L.W. 3482,
Daniel B. Karron, Petitioner v. United States. No. 09-8476.SUPREME COURT OF THE
UNITED STATES 130 S. Ct. 1555; 176 L. Ed. 2d 153; 2010 U.S. LEXIS 1056; 78 U.S.L.W.
3482
4
2) Karron was sentenced, inter alia, to a fifteen-month custodial sentence and
$120,000 in restitution. See Amended Judgment, United States v. Karron, No. 07-
CR-541 (RPP) (S.D.N.Y. Oct. 31, 2008) at 1-2.
Karron has completed her sentence of7.5 months incarceration in a minimum security
facility without incident and has successfully completed her sentence of 7.5 months home
3 The page of transcript cited does not contain a recitation of the statute of
conviction; it contains a reference to" Count One ofIndictment S2 07 Crim 541 (RPP)".
4 On June 11, 2008 the trial jury was charged with finding only 'knowing'
misapplication of grant funds without regard to any other elements that constitute a
crime (United States v Karron Jury Charge, 2009). The appeals court upheld the judges'
decision eliminating Fraudulent Intent. United States v Karron, BRIEF FOR THE
UNITED STATES OF AMERICA, (2009) and affirmed the conviction for only
knowingly misapplied (United States Attorneys Manual, Online 1997).
A-371
confinement without any problems. Karron was paying her restitution of 120,000 at 10% of her
gross salary, and a fine of$100.00. Inter alia, all other matters are dismissed United States v
Karron, Judgment in a Criminal Case 07CR541-01, 2009, as amended (07CR541-01, 2008).
Karron is due to be finished with probation in August 2012. This paragraph is moot
5

3) Karron was CAS!'s President and Chief Technical Officer. See Trial Tr. 107:9-10.
Karron started as CASI founder and CTO, and signed documents as President with
brother Abe Karron as secretary. During the period of the grant on August 30, 2002, CASI was
noviated from a corporation to a LLC at the behest of the CASI Board Member Mr. Joel
Bernstein, ESQ with Hayes as CASI CPA in attendance and concurring. Karron signed as Senior
Managing Partner, also with her brother as Co-Signor
4) From October 1, 2001 through September 30,2002, Elisha Gurfein served as
CAS!' s Business Manager. See Trial Tr. 628:6-11.
Gurfein, a former angel investor of CAS I who had provided CASI funding in the past,
joined as A TP project manager, responsible for day to day administration, grant budget tracking,
compliance assurance and to secure budget modifications. He worked 60% on the grant and
donated 30% of his time to general CASI activities, which included fund raising and new project
generation. Gurfein was originally expected to help co-fund the project. Once the funding was
secured and project was launched, Gurfein Decl.ined to provide any equity funding. Without any
equity stake in CASI, Dr. Karron and, Abe Karron and the CASI board decided NOT to give
Gurfein officer status and did not extend signing authority to Gurfein in his employment
contract. This paragraph is moot.
5 a matter is moot iflegal proceedings with regard to it can have no effect, or events have placed
it beyond the reach of the law. Thereby the matter has been deprived of practical significance or rendered
purely academic.
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B. The ATP Proposal
5) On or about July 6, 2001 and August 6,2001, Karron submitted a two-part
Advanced Technology Program ("A TP") proposal to the United States Department
of Commerce's National Institute of Standards and Technology ("NIST") on
behalf of CASI entitled "Anatomic Computer Modeling for Precise and Accurate
Therapies" (together, the "Proposal"). See GX 10; GX lOA.
The A TP proposal process consists of a four part process, consisting of four "gates" that
must be "passed" or "hurdled" to win a cooperative agreement. Karron Dec!. Exhibit 141, 143.
This is done to reduce amount of information required at anyone time by the proposer or the
Source Evaluation Board SEB6. Required information may be submitted at different stages as
competitive determinations are made by the A TP SEB that a proposal has high merit based on
well-defined established selection criteria. Proposals must pass sequentially through each gate in
order to receive funding appropriation at the conclusion of Gate 4. Proposals are submitted only
in response to formal competition announcements and requests for proposals. As of the 2001
time frame A TP did not set the specific intent and nature of the projects proposed; this is
determined by the industry proposer, and was unique for industry grants.
The four "Gates" are as follows:
Gate 1: "Technical Merit" The proposer submits detailed information to address the
scientific and technological merit selection criterion. Additionally, the proposer submits
preliminary information to address the selection criterion on the potential for broad-based
economic benefits. A Budget cover sheet is included in the Proposal Cover Sheet, but a full
budget consists of a filled in Exhibit 14 Detailed Budget Worksheet for each year not submitted
until Gate II. If the information submitted is determined to have high merit, A TP notifies the
6 The SEB is the technical and business evaluative entity that selects meritorious proposals for
A TP and now TIP award. Typically A source evaluation board is a group of appointed or elected officers
who, on behalf of a company, non-profit organization or government agency, come together to identify,
research and procure vendors to provide the organization with goods and/or services (Etzkowitz &
Spivack, 2001).
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proposer and requests that the required additional information be submitted for consideration in
Gate 2. The Defendant Submitted Gate 1 on July 13,2001, and passed July 25, 2001 (ATP Gate
I Passage, 2001)
Gate 2: "Economic Merit" The proposer submits more detailed information to address the
potential for broad-based economic benefits selection criterion and detailed budget data. A copy
of Exhibit 14 Detailed Budget is included at this gate. If the information submitted is determined
to have high merit, ATP notifies the proposer of its selection as a semi-finalist and the proposal
proceeds to Gate 3. The Defendant submitted a Gate 2 proposal and was notified of passage on
Aug 15, 2001 with an invitation to the Gate III Oral Review.
Gate 3: "Oral Review" The proposer is requested to submit required forms and additional
documentation, as necessary, and may be invited to NIST for an intensive oral review. If ATP
determines, based on all the information received, that the proposal has high merit to be funded,
the proposal is considered a finalist and proceeds to Gate 4.
Gate 4: "Cooperative Agreement Negotiation" consists of final award processing,
proposer vetting, budget negotiation and cooperative agreement issuance, if so selected.
6) Karron signed the Proposal as CASI's "Authorized Company Representative." See
GX 10; GX lOA.
The CASI Certificate of Incorporate expressly authorizes Karron as signatory to sign
contracts and legally bind corporation (CASI Signing Authority, 1995) as well as limit liability
of officers. This paragraph is moot.
7) According to the Proposal, CAS I would
"develop a new computer application server that will take
calibrated, encrypted raw images from a client['s] medical
imaging instrumentation (MRI, CT, Ultrasound, etc.),
A-374
over the Internet. Our system will rapidly generate
encrypted, precise, accurate, and variable resolution three
dimensional tiled models applicable for diverse
applications as radiation therapy, surgical planning,
intraoperative guidance, rapid manufacturing of
prosthesis, verification of surgical results, robotic surgery
trajectory planning, patient communication, education and
other customer specific applications[.] The novel idea[]
that enables this technological leap forward is Digital
Morse Theory (DMT).
CASI has made significant progress up until the projects abrupt suspension. Karron Decl.
Exhibit Group 3, Scientific and Technical Publications, Exhibit 15-20,Exhibit Group 21,
Scientific Merit Post Post Project, Exhibits 100-107. Progress continued after suspension, with
Karron paying limited payroll out of pocket (Karron Dec!. Exhibit 120, 121) and colleagues
working pro bono. There was never any documented issue with CASI technical competence and
it was making satisfactory technical progress
7
. This paragraph is moot.
8) The Proposal included an estimated three-year budget prepared by Karron (the
"Budget"). See GX 14.
The particular proposal or associated budget is not specified in GX14. Karron and the
CASI staff prepared many 3 year estimated budgets in the proposal kit the for each of the four
Gate proposals submitted. From the above statement is impossible to determine which proposed
budget is being referenced; anyone of the proposed budget submitted for Gate I, II, III, or IV.
There is a hand annotation "Revision Budget dated 9/20101" on GXI4. The annotation is not in
Karron's hand and one can only assume this budget corresponds to a budget submitted Gate 3 or
7 Q. And is it a fact that while the CASI perform was
suspended, it seemed to be making technical progress? A.
Technica1.1.y it seemed to be making progress, yes. (Trial
Transcript Lide Cross, 2008). Page 180, Line 18-20
A-375
4. In any event; it is obsoleted by subsequent versions (ATP COOPERATIVE AGREEMENT
AMENDMENT #3) attached to subsequent amendments. This paragraph is therefore moot.
9) The Budget, as later revised, projected CAS!' s costs for three years as $2,110,500.
See id.
The statement is incorrect by its imprecision. The project total cost was estimated by
Karron to be $2,110,400 in the Gate 4 paperwork (GXIO). The Total Project Cost was estimated
at one point in the proposal process (GXIO above) as costing a total $2,110,500 with $2,000,000
coming from ATP, and the balance coming from CASI, and indirectly Karron. Dunlevy Decl.
Exhibit BAC-301. The projected CAS I cost was some $110,400, not $2,100,500. Karron Decl.
Exhibit 1... The actual real total cost for the partial completed project were $1,517,239 total,
with NIST ATP supplying $1,345,500(88.68%) and CASIIKarron supplying $171,739 (11.32%)
Karron Decl. Exhibit 14.
There were various revisions of the budget approved and in the pipeline for approval. As
the statement does not specify which of the various budgets are referred to by the statement
"later revised" or the last explicitly (as opposed to implicitly) approved revision. Karron Decl.
Exhibit 3-4.
10) The Budget. as revised, provided that $2,000,000 of the costs would come from the
ATP, specifically, $800,000 in year one and $600,000 in each of years two and
three. See id.
Again, this paragraph is incorrect by lack of precision: which "The Budget, as revised",
being referenced is not explicitly specified in GXI4. Karron Decl. Exhibit 1. Which revision?
Also, the costs do not come from A TP, they are not the vendor, the source of cost. A TP is the
funder, the source of funds, who, in partnership with Karron, are the payer of costs.
A-376
11) The Budget specified that CASI would enter into a three-year, $420,000 Sole
Source Contract (the "Subcontract") with the City University of New York's
Institute for Software Design and Development ("CUNY"). See GX 10 at 3-4.
The above statement is incorrect. It is also wrong by imprecision and lack of
specification. If "The Budget" referred to is the "Estimated MULTIYEAR budget" summary
cover sheet, the line items do not specify any particular subcontractor(s). There is no reference
to the duration "three year" required subcontract with CUNY on the proposal cover sheet. "The
Budget" consists of an "Estimated MULTI YEAR Budget" summary cover sheet, and three
detailed Exhibit 14 Budget Worksheets, which are used to prepare the Estimated MULTIYEAR
Budget, annual budgets, one for each year of the three year budget, as called out in the proposal
kit.
The subcontract cover page alluded to in paragraph 11 is not part of the budget per se, but
is part of the proposal proposed subcontracts for the project. It is also not part of the last
approved budget, and "The Budget" specified above does not cite as to which budget revision
contained the specification, or if it was the last approved negotiated budget. There was no
contractual obligation to subcontract, only option clearance or permission to do so
8
. It was not
mandated. Therefor this paragraph is moot.
8 Everything which is not forbidden is allowed is a constitutional principle of English
law - an essential freedom of the ordinary citizen. The converse principle - everything which
is not allowed is forbidden - applies to public authorities, whose actions are limited to the
powers explicitly granted to them by law. (Baron Gordon Slynn Slynn of Hadley, 2000)
The jocular saying is that, in England, "everything which is not forbidden is allowed",
while, in Germany, the opposite applies so "everything which is not allowed is forbidden". This
may be extended to France - "everything is allowed even if it is forbidden" - and Russia
where "everything is forbidden, even that which is expressly allowed".
Karron 56.1 Counterstatement Page 14 of36 Pages total
A-377
12) Karron included the Subcontract in the Budget because CUNY's faculty, visiting
scientists, and PhD graduate students" were "expected [to make al unique
contribution" to the project. Id. at 4.
And so they did. See Decl.aration of Karron Exhibit, and the list of papers that referred to
the PhD students who worked on and eventually published under Cox and Karron. Karron Dec!.
Background Statements. However, above paragraph 12 statement is also incorrect by
imprecision. The Subcontract proposal cover page is not part of the proposal cover page
'Estimated Three Year Budget'. This reference to 'the Budget' is vague and misleading. The
above paragraph is also moot.
13) The Proposal listed fourteen "team members." Id. at 23.
The number is immaterial, and therefor moot: despite the instability caused by the CASI
accountant and auditor, the core science team, named below in response to paragraph # 14,
remained relatively stable, even after the project was suspended.
14) The Proposal named Professors Wolberg and Cox as "Core Members" along with
Karron.ld.
They were "Core Members", and they were engaged directly as consultants instead of as
chattel of CUNY, with CUNY permission. "The Proposal names", the budget sheet, does not
name anyone. See above Items 12, 13, 14, and this paragraph is similarly moot.
15) The Proposal noted the potential for the project to yield widespread economic and
social benefits, including through the creation of new markets, improvement of
medical treatments, and reduction of medical costs, employee sick leave, medical
malpractice litigation and insurance costs. See id. at 5-6,23-26.
The accepted project proposal cites a possible economic benefit of in the gate II proposal
dollars in 5 years .. Since the project was suspended (and not terminated) and continued after
suspension, these benefits are still being accrued because of Karron' s dogged pursuit of the
A-378
project over the years, despite OIG meddling. This paragraph is still true, and the need for sound
segmentation theory remains a national unmet need, but A TP funded progress reduced the gap,
including this project funding despite the funding. A TP issued a report on this (Stanley M. ,
2006).
C. The Cooperative Agreement
16) In October 2001, the A TP notified Karron that his Proposal had been approved.
See GX 11.
More precisely, Karron was notified the project was retroactively approved on October 5,
2001 bye-mail from Marilyn Goldstein, the NIST ATP Grants Officer. Karron has been prior
notified during the vetting process
9
despite Snowden's testimony on A TP policy not to, that it
looked like the project was in the final stages of approval pending completion of the key
personnel vetting process. Based partly on this expectation, Karron made pre-award purchases on
(then) his personal credit card, not paid for with cash until after the first cash advance 'hit the
bank' IOfor payment after the project got underway, as was authorized by law, at his own risk, as
was his right
ll
In any event the paragraph is moot.
9 Thursday, October 04,2001 9:22 AM Dear Dr. Karron, This is in reply to your e-mail
to Hope Snowden last Friday. I signed the cooperative agreement to your company on Saturday
and the award is being sent today via FEDEX. Congratulations. We look forward to working
with you. Marilyn Goldstein NIST Grants Officer. Karron Dec!. Exhibit 4.
10 Consider the equivalent situation where a vendor extends CASI credit terms and ships
merchandise for the grant prior to the grant start day, but invoices after the grant date, and the
invoice is paid after the grant date. It is unreasonable, from a management perspective to sit on
ones hands one day then scramble to launch a project of this scale on the next day all at once. If
pre-award program activities prior to the award funded period can be shifted if the time period is
small enough that the payment for these pre-award costs are not due until the funded period. The
payment of these costs is at the risk of the awardee. OMB Circular and Guidance 215.25
Revision of budget and program plans.
11 (e) ... Federal awarding agencies are authorized, at their option, to waive cost-related
and administrative prior written approvals required by this Circular and OMB Circulars A-2I
A-379
17) On or about Oct. 5, 2001, Karron signed the Financial Assistance Award,
designated as a "cooperative agreement," indicating CASI would comply with
various regulations, including 15 C.F .R. Part 14 and 48 C.F .R. Part 31, as well as
other standard provisions and special conditions. See GX 12.
Karron observed, in good faith, to the best of the Defendant's abilities, all of the
applicable rules and regulations. Where there were contractual issues, they were reported in the
quarterly Technical and Business reports, and on the table and being actively negotiated ..
18) The standard provisions upon which the Cooperative Agreement was contingent
included a requirement that CASI would provide quarterly Financial Status
Reports. See GX 2 at 7(c)(3)(a); Decl.aration of Melinda S. Chukran dated June
18, 2010 (the "Chukran Decl.aration" or "Chukran Decl."), at,-r 11 & Ex. D.
The Cooperative Agreement standard provisions included by citation on the contract
were not a contingency condition on the award. There were other contingency conditions listed
in the special conditions to the ward. GX 2 at 7(c)(3)(a)12 does not specify a signed SF 269 is
a requirement for payment, cash advance, funding, or other claim, or a sine qua non for
continuing with the project. Therefore the above reference to a contingency is factually
incorrect. There was no statement that if the above condition was not met that would abrogate
the cooperative agreement.
and A-122. Such waivers may include authorizing recipients to do anyone or more of the
following. OMBCircularandA-21 andA-122.
(1) Incur pre-award costs 90 calendar days prior to award or more than 90 calendar days
with the prior approval of the Federal awarding agency. All pre-award costs are incurred at the
recipient's risk (i.e., the Federal awarding agency is under no obligation to reimburse such costs
if for any reason the recipient does not receive an award or if the award is less than anticipated
and inadequate to cover such costs) 215.25.
12
7. TECHNICALIBUSINESS/FINANCIAL REPORTS AND PLANS (c).
Financial Reporting: (3) Submission of Financial Reports For ATP Recipients, Article
A.Ol of the DoC Financial Assistance Standard Terms and Conditions dated October
1998 is revised as follows: (a) The Recipient shall submit a "Financial Status Report"
(SF -269) on a calendar quarter basis for the periods ending March 31, June 30,
September 30, and December 31, or any portion thereof, unless otherwise specified in a
special award condition. Reports are due no later than 30 days following the end of each
reporting period ...
A-380
19) CASI (and thus Karron) stood to gain exclusive rights to any intellectual property
developed under the Cooperative Agreement. subject to, inter alia, the grant of
certain licensing rights to the United States. See GX 2 at 25(a), (b).
See next item for unified response.
20) Under the Cooperative Agreement, CASI and Karron would to keep all profits
derived from the results of the research conducted with the assistance provided
under the Cooperative Agreement. See Sentencing Tr. 52:4-8.
Karron was undertaking the unfunded mandate to obtain patents for the work being
developed. As shown in the Decl.aration of Dunlevy, Non Program Vendor Balances, CASI
paid for (using overhead funding, not ATP funding) the services of Patent Attorneys Pennie &
Edmonds, showing CASI was actively engaging in patent protection, as specified by the A TP
statute.
21) The Cooperative Agreement required Karron to agree to a cost-share of $30,000 in
year one. See GX 13 at 7.
No one can do arithmetic here. The amount of $30,000 cited above is not precisely
correct. The Cooperative Agreement cover sheet, GX12 cited a cost share figure of $36,500.00.
The Cooperative Agreement in GX 13 further confuses matters:
7. COST SHARE
For the first year period, the cost sharing ratio
applicable to this award is the Recipient's contribution of 3.61
% ($30,000.00 and NIST's contribution of 96.39% $800,000.00).
Checking the arithmetic, and to guard against OCR reading errors 13we are forced to
assume, with no guidance from the entirety of GX 12 and GX 13, the base for the percentage
contribution must be the sum of the total cash direct cost specified,
$30,000 + $800,000 = $830,000.00.
13 is the numeral in the cost share a '6' or an '8', is it 3.61% or 3.81%?
A-381
This gives a cost share percentage rounded to two significant decimal places of
$30,000/$830,000=%3.61,
as shown above. This is in contradiction to the recipient cost share shown in GX 12 of
$36,500. That also changes the base on which the percentages are calculated, changes the
percentages of contribution implicitly.
This amount, whatever it actually was thought to be, was volunteered by Karron as a
demonstration of Karron's belief in the project: a voluntary partnering with the ATP program.
Karron Dec!. Exhibit 140 ffThe source funding was Karron's' after tax salary CASI earnings
and savings, and credit. Dunlevy Dec!. Exhibit BAC-301. It is not a sine qua non for funding.
The cost share was proposed by Karron, accepted by ATP, albeit imprecisely.
Ultimately, further Dunlevy (ibid) forensic analysis reveals that this cost share requirement was
met despite the best efforts of the Plaintiff to ignore it. The actual real total cost for the partial
completed project were $1,517,239 total, with NIST ATP supplying $1,345,500(88.68%) and
CASIIKarron supplying $171,739 (1l.32%). Karron Dec!. Exhibit 14, Dunlevy Dec!.
D. Financial Reporting
22) During the period October 2001 through July 2003, Karron signed and submitted
to ATP certain financial reporting forms to satisfy the requirements of the
Cooperative Agreement necessary to release ATP funds to CAS!. See Chukran
Decl. Exs. B. C, D. Each of these forms required the signatory, designated as the
recipient's "Authorized Certifying Official," to certify compliance with the terms
of the Cooperative Agreement. See id.,r,-r 2,4,8, 12, 13 & Exs. B, C, D.
The DECL.ARA nON OF MELINDA S. CHUKRAN cites three types of Standard
Forms and alleges to provide copies of executed forms as signed by the Defendant. These forms
are
A. The "Request for Advance or Reimbursement" Form (Form SF -270)
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viz:
B. The "Federal Cash Transactions Report" Form (Form SF -272)
C. The "Financial Status Report" Form (Form SF-269)
Cooperative Agreement #4, Dated July 23, 2002 obviates the requirement for B. SF-272:
REASON(S) FOR AMENDMENT
This cooperative agreement is being amended to (1) incorporate a special
award condition on the "Automated Standard Application for Payments,"
System; and (2) indicate on the attached, those terms and conditions
affected by any administrative or statutory requirements.
Page 2, section "f' of Amendment #4 calls out:
f. Term # 7.c(3) (b) TO THE ATP General Terms and
Conditions, dated August 2001, is deleted in its
entirety to remove the requirement for a "Federal Cash
Transactions Report" (SF272).
Therefore, the form SF272 and anything the Defendant placed on the SF272 document is
moot, immaterial, deleted in its entirety, and retroactively removed as a requirement. They don't
count. Therefore, Exhibit C is effectively moot, removed as a requirement and without any
standing as a possible False Claim, discarded as an interleaved carbon paper between two copies
of a withdrawal slip.
The form SF 269 "Financial Status Report" Form are not the forms attached in Exhibit D.
MELINDA S. CHUKRAN avers:
13. Attached as Exhibit D are true and correct copies of four Financial Status Reports
dated between the inception of the award in October 2001 and the date the award was
suspended in June 2003 and signed by defendant Daniel B. Karron as the Authorized
Certifying Official for Computer Aided Surgery, Inc. ("CASI") for purposes of receiving
the funds under the Cooperative Agreement at issue in this case. Karron Dec!. Exhibit 71.
Karron 56. I Counterstatement Page 20 of 36 Pages total
A-383
Exhibit D does not contain all, or a subset of four, or any of the SF-269 forms submitted
by the Defendant for the entire six quarter year time period of the award, "dated between the
inception of the award in October 2001 and the date the award was suspended in June 2003". It
contains none of them.
What the Defendant infers, as the only reasonable interpretation of what CHUNKRAN
meant to Decl.are (but not said) was that Exhibit D contains SF269A forms, also known as
"Financial Status Reports (Short Form)" for the first year of the cooperative agreement in the
four quarterly reports. But this is not what she said, and not was included in Exhibit D.
MELINDA S. CHUKRAN avers that her DECL.ARA nON is true and correct under
penalty of perjury pursuant to 28 U.S.C. 1746, when in fact it is not true and correct in Section
C. Section B is moot and void by Amendment 4. This leaves only Section A of MELINDA S.
CHUKRAN Declaration to eviscerate below.
23) Karron informed the National Institute of Standards and Technology ("NIST") that
only Karron had authority to sign documents on CASI's behalf. See Trial Tr.
639:7-640:1; see also GX 21
Karron reserved and is ultimately paid for being a sole point of authority. Fraudulent
intent would have been indicated by Karron conniving and convincing others sign for Karron's
crimes.
24) During the period October 2001 through July 2003, Karron signed as CASI's
"Authorized Certifying Official" on at least twenty financial reporting forms and
caused them to be submitted to the A TP to obtain release of government funds. See
Chukran Exs. B, C, D.
The Plaintiff can't count to 'at least twenty'. The Chukran Exhibits are mislabeled as to
their true contents. The proposal cover sheet, which is repeated for each one of the four gates,
and the cooperative agreement, was also not a material 'claim' in the ALLISON ENGINE CO. v.
A-384
UNITED STATES ex rel.SANDERS (No. 07-214) 471 F. 3d 610, (vacated and remanded).
sense of the word. But the Defendant can't count as well. The Plaintiff did not know what she
was doing when she filled in these forms. This is evident by all of the hologram (handwritten)
redaction on the forms. These are not Karron's hand (the handwriting is too legible) It took until
Amendment 2 for A TP to correct cofounding arithmetic errors in the budget in response to CASI
concerns about the inconsistency in totals and cost shares
14
Some of the documents are copies
under two different names (long form and short form); others are multiple revisions of the same
form.
In any event, the funds being reported were not used fraudulently and were used to pay
payroll and direct invoices to have more than justified the release of funds for the uses in the
project. A financial 'ground truth' section, with revised known true and good Financial
Quarterly Forms are appended, along with a comparison with the forms as submitted. The
differences are 'close enough for government work
l5
, and less than the statutory bounds required
to trigger a possibly valid fraudulent False Claim.
Here is the inventory of unique original signed documents the Plaintiff alleges contain the
Defendant's signature.
NIST 1262 Proposal Cover Sheets
I. OX 10 Dated July 6 2001 (on Page 2). Cites recipient (CASI) co-funding of $30,000
II. OX lOA Dated Aug 6 (on Page 2).). Cites recipient (CASI) co-funding of $30,000
14 REASON(S) FOR AMENDMENT [#2]: This cooperative agreement is being amended to (1)
revise administrative contact's name; (2) correct total estimated cost for budgeted year; (3) approve and
incorporated revised budget dated 12/27/01; (4) remove Special Award Condition #9; and (5) and
indicate on the attached those terms and conditions that affected by these actions. Karron Affidavit
Exhibit DBK 02not in evidence previously.
15 From the (wiktionary, 201O).The phrase originated in World War II. When something was
"good enough for Government work" it meant it could pass the most rigorous of standards. Over the years
it took on an ironic meaning that is now the primary sense, referring to poorly executed work. (idiomatic,
humorous, disparaging, slang) It is not worth investing additional time on perfecting this thing.
A-385
CD 451 Cooperative Agreement.
III. GX 12, Signed October 5, 2001. Cites recipient (CASI) co-funding of $36,500
SF269A Financial Status Form, Short Form
(copy I)GX 41A, (copy 2) Chukran Dec 1, Signed Jan 31, 2002 for Q4 2001
(copy I)GX 42A,(copy 2) Chukran Dec 2, Signed April 21, 2002 for Ql 2002
(copy I)GX 43 A,(copy 2) Chukran Dec 3, Signed July 12,2002 for Q2 2002
(copy I)GX 44A, (copy 2) Chukran Dec 4, Signed October 28,2002 Q3 2002
The SF269 and SF269A both incorporate a signature block that
l6
contains this text:
I certify to the best of my knowledge and beliefthat this report is correct and complete
and that all outlays and unliquidated obligations are for the purposes set forth in the
award documents.
SF269 Financial Status Form, Long Form
1. GX 40, GX40A Signed Jan 10,2002 and Aug 13,2003 (post suspension revision,
initialed on behalf of Dr. Karron by unspecified CASI staff)
4. GX 43, GX43A Signed Jan 10, 2002 and Aug 13, 2003 (post suspension revision,
SF270 Request for Reimbursement or Advance, by Signature date, Month Funded,
Advance Amount (Chukran Section A, from above)
5. October 19,2001, November, $175,000
6. November 20, 2001
7. December 19, 2001
8. January 11, 2002
9. February 11,2002
10. March 11,2002
11. April 4, 2002
12. May 13,2002
13. June 14,2002
The SF 270 form has a signature block that
l7
contains this text:
16 exactly, not "or a substantially similar"
17 exactly, not "or a substantially similar"
A-386
I certify that to the 'best of my knowledge and belief the
data on the reverse are correct and that all outlays were
made in accordance with the grant conditions or other
agreements and that payment is due and has not been
previously requested
The assertions as signed are not false. The use of the money was as promised.
Finally, an examination of the very first SF270 request for a cash advance signed October
19,2001, for the month of November (and by assumption, also covers the first project month of
October) for $150,000, does not make a retrospective statement of any spending, correct,
incorrect, truthful or fraudulent. It is a pure prospective estimate of first month's spending, with
no recapitulation of any prior spending. It is not a claim for payment, it is a request for cash
advance, and as we show, was used for salary used for startup costs, computer hardware,
bootstrap costs in and out ofthe budget (by paying the PI).
None of these financial reports were knowingly false or fraudulent, or even that
wrong. See Table 1, Quarterly Spending Analysis.
25) Karron directed Gurfein to create financial reports that were false because they did
not reflect actual expenditures, and Karron signed these reports for submission to
the ATP. See Trial Tr. 663:17-664:14: 683:21-684:10: 696:9-19.
Nowhere does the government give what it believe are the true values for the financial
reports. This statement is contradictory; how could Gurfein or Karron know they are false if
until correct figures are known. Further, if Karron had fraudulent intent, Karron would he have
connived and manipulated Gurfein into signing them, instead of taking culpable responsibility
for allegedly false documentation ?
Karron signed statement prepared by Gurfein but he generated these statements out of
Quick Books. Karron never had any reason to believe that they were to be made false, or could
be too far from the ground truth. Gurfein used the data on hand at the time, or estimated as a
A-387
percentage from the government's share of the total funding. The error underestimated Karron' s
cofounding to Karron's detriment and the Governments advantage relative to what we know now
from Dunlevy Dec!. Exhibits.
A-388
E. Karron's Noncompliance and Misapplication of Funds
26) On June 27, 2003, the ATP suspended the Cooperative Agreement after a limited
scope audit confirmed that Karron had failed to comply with the cost share and had
drawn down more than $200,000 above the amount authorized. See GX 26; GX 62
at 10 (page i, "Executive Summary").
This statement is incorrect. The July 3 Flash report only indicated problem with the
payment of the cost share of some $56,000
18
But this was not the only problem, as the OIG
Special Agents were already on the scene, unbeknownst to the Defendant and made any
resolution impossiblel
9
A later draft report dated July 25, 2003 issued cited a figure of
$205,126 in report A TL-16095-3-00 1, appendix II of GX62 page 3 of 6. See Dunlevy
Declaration on cost share and cash tracing.
18 MR. RUBINSTEIN: Q Were these reports, the revised financial statement
reports, submitted after you received the first report from Riley, I think they called it a flash audit
report? Had you received that?
A.[BENEDICT] I don't recall the exact date of that report, no, sir, but I know that these reports
were prepared in the middle of July. I don't recall the date of the flash review.
Q. Well, did you receive it -- do you know if you received a flash review as soon as it was
submitted?
A. I don't know.
Q. Would July 3, 2003 refresh your recollection of the date of the flash report?
A. No, sir, it doesn't.
Trial Transcript Page 1045-1046 Line 22 et seq.
19 MR. RUBINSTEIN: Q. You told us that they're the ones[NIST ATP] that should have the final
say-so of what's allowable and what's not allowable in a grant, right?
RILEY: A. Correct.
Q. And what happened here is that the special agents jumped in on this back in 2003, right?
MR. KWOK: Objection.
THE COURT: Objection sustained.
Q. And they made this from a civil matter into a criminal matter, correct?
MR. KWOK: Objection. Objection.
THE COURT: Objection sustained.
Q. Well, is the audit resolution a civil procedure?
A. It's just a procedure.
Q. Yeah, where you sit down with the grant officers and discuss whether or not certain expenses
are allowed or allowable or not?
A. Correct.
A-389
27) From October 5, 2001 through June 27, 2003, Karron had drawn down the entire
$800,000 available from the ATP during the first year and $545,000 of the
$600,000 amount available during the second year, for total disbursements of
$1,345,500. See GX 62 at 12 ("Introduction").
This statement is incorrect. The plaintiff s addition is incorrect.
$800,000 + $545,000 i= $1,345,500.
The correct sum is
$800,000 + $545,000 = $1,345,000 .
UNITED STATES DEPARTMENT OF COMMERCE
National Institute of Standards and Technology
Gaithersburg, Maryland 20899-
November 05, 2007
Mr. Peter Ross
Computer Aided Surgery. Inc.
300 East 33rd Street, Suite 4N
New York. New York 10016
RE: NIS"T' Cooperative Agreement No.: 70NANBH-B050
Dear Mr. Ross:
T'he above referenced cooperative agreement ended on September 30, 2004 with a
balance in the grant account totaling $54,500. We want to be sure our records agree
with yours before we proceed to deobligate these funds.
If there were additional claims made against the account please so indicate and we wi II
proceed to deobligate the remaining balance and finalize the closeout of this project.
Sincerely Yours. James Browning, Grants Specialist
Figure 1 NIST AT!' Browning Letter
Q. That never happened here, right?
A. Sorry. What?
Q. It never happened here?
THE COURT: He says that never happened.
THE WITNESS: Correct.
THE COURT: You never sat down with him? [The Defendant]
THE WITNESS: Oh --
MR. RUBINSTEIN: Is my ten minutes up, Judge?
THE COURT: What?
MR. RUBINSTEIN: I retire. I'm finished.
Trial Transcript Page 810 - 811 Line 16 et seq.
A-390
The correct total NIST ATP disbursement as reviewed by Mr. James Browning Figure I
NIST ATP Browning Letter, who observed the unliquidated balance in the CASI A TP
70NANBIH3050 project balance of $54,500
Working backward from $54,500 against a year 2 appropriation of $600,000 we can
solve for a second year A TP NIST grant disbursement of
$600,000 - $54,500 = $545,500, or a two year disbursement of$I,345,500
But this error was not made here by the Plaintiff; the error is propagated from the U.S.
Department of Commerce Office of Inspector General August 2004 Report A TL-16095-4-0002,
GX 62 at both on page 10 and 12.
20
The drawdowns were to pay A TP direct cost invoices. Table I summarizes quarterly
spending, Leaving a balance of $54,500. still payable for reimbursement by A TP after all these
years.
28) Karron diverted $75,000 of the initial $150,000 drawn down from the ATP for
payment of personal debts. See Trial Tr. 636:20-638: 16.
The sum was not diverted; it was bonafide
2l
Salary, advanced with tacit permission from
A TP in the pipeline for approval. As such, the above referenced $75,000 sum is not a candidate
transaction for the successor FCA 'same transaction' if it passed the BEA bonafide test.
20 The OIG auditors can't add, but love to subtract.
21 A second restriction on the reach of 18 U.S.c. 666 is also built into the
statute. Pursuant to the provisions of 18 U.S.C. 666(c), [Bribery, Embezzlement Act,
BEA] "[t]his section does not apply to bonafide salary, wages, fees, or other
compensation paid, or expenses paid or reimbursed, in the usual course of business. It is
the application of the subsection (c) exception ... [on which this appeal is predicated]
Because the bona fide salary exception of subsection (c) must be read to apply to
all of 666, however, the value of the yearly salary of a deputy sheriffs job, if bona
fide, should not be considered in establishing the $5,000 transactional valuation. In
such a case, the values of the allegedly illegal transactions are not the salaries to be paid
to deputy sheriffs for actual performance of necessary governmental duties US v
MILLS No. 97-5085 (US Court of Appeals,Sixth Circuit March 31, 1998).
Karron 56.1 Counterstatement Page 28 of36 Pages total
A-391
Further, if it passes the BEA bona fide test it cannot be cited as a 'knowingly false transaction'.
As we will show below (Item Paragraph #30), there is hard surviving evidence of this
permission. While Lide
22
and Snowden
23
objected to this early personal advance in their trial
testimony they would not state affirmatively that no budget changes or approvals were required
at that point; as it is all chargeable to the Salary line A on the budget form
24
As Lide testifies 25
the A TP management team was extremely available, and Dr. Karron made use of their expertise.
As accepted at the criminal trial by the District Court, that payment was a tax paid salary
advance to bootstrap the project, out of a total gross bona fide salary of in excess of $200,488.
22 MR. RUBINSTEIN: Q. Well, but in the first month ifhe took down $800,000,
at the end of the month he would account that he took $800,000, correct?
LIDE: A. He would have to account how he spent that $800 in that month.
6 THE COURT: 800,000.
7 THE WITNESS: I'm sorry. Yes, 800,000. My checkbook is a little different.
Trial Transcript Page 164 Lines 1-8
23 MR. RUBINSTEIN: Q. I mean he could do anything he wants with his
$175,000 that he gets paid in the initial year, correct?
A. Ifhe gets a paycheck, just like me and you when we get our paycheck, you
can do whatever you want with it ... Trial Transcript Page 381 Lines 15-18
24 MR. RUBINSTEIN :Q.It's fair to say that as soon as the money became
available, within a month or two months, Dr. Karron could have withdrawn $800,000.
MS. LIDE : A. As long as it was -- well, one must account for the budget month
by month.
Q. Well, but in the first month ifhe took down $800,000, a the end of the month
he would account that he took $800,000, correct?
A. He would have to account how he spent that $800 in that month.
THE COURT: 800,000.
THE WITNESS: I'm sorry. Yes, 800,000 ....
Trial Transcript Page 163 ffLine 21 et seq.
25 MR. RUBINSTEIN: Q. Now, Ms. Lide, after the kickoff meeting, did you
have any further interactions with the defendant?
MS. LIDE: A. Yes. We had phone calls, visits, e-mails.
THE COURT: You, yourself?
THE WITNESS: Yes, sir.
MR. RUBINSTEIN: Q. Could you describe your interaction with the defendant?
MS. LIDE A. Certainly. As a member of the project management team, we are
always available for consultation, and that can be face-to-face, that can be via e-mail,
and that can be phone calls. And in the case of this grant, all three occurred.
A-392
Paid by Salary Advance Loan was that was repaid in full by a combination of payroll deductions,
engineered by Hayes. This partially obscured the loans repayment As the District Court said
below "It's denominated salary. It's a table saying salary. I don't care how she got
the number"26 .
29) From October 2001 to June 2003, Karron made $547,426 in expenditures that
would later be challenged by Commerce auditors as "either unallowable,
unallocable or [in excess of! budget limitations established in the A TP award." OX
62 at 10 (page i, "Executive Summary").
The Defendant is entitled to a civil response to the audit challenge by DAO order Karron
Decl. Exhibit 162. "Un-" allowable/allocable are unsupported audit assertions not findings of
fact made a the criminal trial. Even so, the specific language "un-" does not necessary mean
false ifthere is a genuine difference of opinion. Opsal v. United Services Auto Association
(1991) 2 Cal.App,4th 1197, 10 Cal.Rptr.2d 352, Chateau Chambrey Homeowners Association v.
Associated International Ins. Co. (2001) 90 Cal.App.4th 335, 108 Cal.Rptr.2d 776, Auditees
with adverse audit findings are entitled to administrative
27
and legislated due process
28
subject to
26 Sentencing Transcript Page 7 Line 18 - 19.
27MR. RUBNSTEIN: Q. Is it fair to say that you are not the last word on what's
allowable and what's not allowable in the OIG's office?
MS. RILEY: 010 AUDITOR: A. During resolution of the audit?
Q. In the whole process that a company can dispute your interpretations,
correct?
A. Correct, it goes through a resolution process.
Q. And are you part of that resolution process?
A. Yes.
Q. Do you make the final decision at that resolution process?
A. The grants office makes the final decision.
Q. The grants office?
A. Urn-hum.
Q. The grants office of what?
A. NIST ATP.
Q. SO they have a right in the final resolution to approve any of these expenses,
correct?
A-393
various audit resolution directives as amended
29
CASI discovered it was the target of a criminal
investigation before it was afforded the opportunity for audit resolution process
30
The purported
spending analysis in GX62 is at odds with the erroneous analysis of spending attempted in
GX 114, upon which ultimately the District Court relied upon, for whatever it was worth. Table 1
A. Yes, they do.
Trial Transcript Page 732 Lines 1-17
28 RESPONSIBILITIES IN GRANTS ADMINISTRATION (Department of
Commerce Grants Management Division, 2010)
29 AUDIT RESOLUTION AND FOLLOW-UP AUDIT RESOLUTION AND
FOLLOW-UP Order DAO 213-5, Karron Dec!. Exhibit 162. the Audit Resolution
process is now taken over by the INSPECTOR GENERAL INSPECTIONS AND
EVALUATIONS and published in the OIG Semiannual Report to Congress.
30MR RUBINSTEIN: Q. I am showing you what's been marked as Defendant's
Exhibit I believe 2, 3501-FF?
DEPUTY COURT CLERK: That's B.
THE COURT: B as in boy. Ms. Lide, Mr. Rubinstein asked you a moment ago
to read a 24 portion of that e-mail. Can you read the e-mail in its 25 entirety?
THE COURT: Actually what he read -- he read a portion
A. Certainly. The date is October 1,2004. "The Department of Justice has
formally initiated a grand jury investigation regarding the NIST A TP award made to
Computer Aided Surgery In order to ensure that DOJ and the Inspector General's office
are able to complete a thorough and timely investigation, we are requesting that all
NIST" -- "all" is all in caps -- "NIST personnel cease contact with Computer Aided
Surgery (CASI), Dr. Karron and all CASI representatives. Inquiries from those parties
should be directed to myself or SA Kirk Yamatani. Additionally" -- Shall I continue? Q.
Yes.
A. "Additionally please do not proceed with the audit resolution for CAS!. It is
extremely important that a bill not be generated for the funds that CASI
misappropriated from the award. Please contact me if there are any further concerns or
questions. I look forward to working with all of you over the next few months. Thank
you."
Q. And who wrote that e-mail?
A. Rachel A Garrison, special agent.
THE COURT: For the Department of Commerce?
THE WITNESS: Sorry. Yes, United States Department of Commerce.
Q. And do you see Rachel Garrison in this courtroom?
A. I do.
Q. Can you point her out?
A. She is at the front table with a dark suit and a blue blouse under it.
Trial Transcript Page 242-243 Lines 5 et seq.
A-394
shows the ground truth analysis of expenditures. Further, because the spending shift is within
%10 on a base of the combined Federal and Non Federal Share
3
], no prior written budget
approval is required.
30) In the first year of the Cooperative Agreement, Karron incurred over $120,000 in
unauthorized expenses for non-budgeted categories, including $60,000 in back rent
paid by Karron (to himself), $9,832 in fringe benefits, $11.248 in capital
improvements to Karron's apartment, $5,019 in cleaning expenses, and $43,592 in
other unauthorized categories. See GX 114.
GX 114 is a perhaps the most remarkable exhibit in this entire matter. It appears to the
ultimate basis of Karron's conviction. There was no other attempted analysis of total year 1 grant
spending brought into evidence by the prosecution at the criminal trial. The District Court Judge
describes it better than the Defendant could ever say:
THE COURT: He underspent budget through those fringe benefits by $4,000 it says right
above it. ... Look at that. This [GX114] is a mess. [emphasis added]
Sentencing Transcript Page 15, Lines 13-16
No analysis of this material was ever presented by either side during the Defendant's
criminal trial except for GX 114 for the first project year. It was called back for review by the
Jury in their de1iberations
32
The main problem with GXl14 is that does not add up from any
conceivable support or backup. Because it does not add up, is it 'made up'? In two prima
3] 15 CFR Subtitle A (1-1-02 Edition) 14.25(f)
32 THE COURT: I sent in [GX] I 14 and [GX]115.
MR. KWOK: I understand, but as I understand it these are the ones that are
actually marked.
THE COURT: Well, I gave what you gave me which had things marked 114 and
115. I don't know whether Mr. Rubinstein consents to this.
MR. RUBINSTEIN: If they have 114 and 115, I don't think they need the blow-
up version.
THE COURT: Ifwe started off that way, I think they would be entitled to it, but
I don't think we ought to send duplicate exhibits in.
Trial Transcript Page 1377 Lines 6 et seq.
A-395
facie instances, it adds the same item class items at least twice, implicitly and explicitly. The
District Court said of GX 114:
". It seems to me this is just a rough calculation and not something that a Court could rely
on in a criminal case".
Yet it was: By the Jury. By the Judge in sentencing. And it should not have been. But
the Defense Counsel did not offer anything in its place
33
. It is not even approximately supported
by schedules prepared by OIG Auditor Riley in GXll 0
34
or her prior audit work papers35. "It's
denominated salary. It's a table saying salary. I don't care how she got the number"., in the
District Court Judge's words, "Its ... Salary". GX114_ includes the rent reclassified as Salary.
31) Karron decided, without authorization from the ATP, not to enter into the Subcontract with
CUNY and instead to set up CASl's business location in his own apartment and direct CAS I
to pay him rent. See Trial Tr. 633:8-635:25.
No written authorization was required. While ATP wanted, and got notification, it was
not their province or under their authority. Karron decided, as was her right as PI, and in
concert with the CUNY faculty and management and with full knowledge ofNIST ATP project
management to not contract with CUNY CISDD and instead contract directly with CUNY
faculty Cox and Wolberg. Copies of relevant permission and memos are in Karron Dec!.
Exhibits Group 4, Exhibits 21, 25-32. Because it was not a change involving moving funds from
one line item category to another, no approval, authorization, or grant amendment was required.
33 Now we do that here by the Dunlevy Declaration Exhibits Section.
34 MR. RUBINSTEIN: I submit to your Honor, that nobody from that
chart[GXI14] or from the [GX]11O backup could say how they ever arrived at this
number.
Sentencing Transcript Page 35 Line 20
35 THE COURT: ... She has no tabulation putting [Exhibit] 114 into context
with her [ ... J Exhibit 110. Sentencing Transcript Page 6 Line 3
A-396
There was no need to amend the cover sheet of the contract and close out future subcontracting
options with CUNY.
Karron Dec/. Exhibit 5 shows that on October 22, 2001, prior to the NIST Kickoff
Meeting of November 8th, Jayne Orthwein, the ATP program manager listed these issues that
were under discussion in her agenda memo to Gurfein and Karron:
There is no possibility of fraud here; with all relevant issues were on the table as shown
above. The substitution of Cox and Wolberg as consultants instead of CUNY CISDD was on the
table. Permission was obtained and approved. There is no time specification for the proposed
subcontract. It is not even a part of the budget form on the next page. Further, as the award
contract Exhibit GX 13, section 8,(below) spells out, CASI had 60 days to "nail down" personnel
and consultants/contractors.
8. PERSONNEL AND CONSULTANT REQUIREMENT
The Recipient must provide to the A TP Project Manager in writing within 60 days of
project start date, identification of the personnel on the project and the percentage of time
including consultants.
Moving personnel from CUNY CISDD contractor to CASI contractor would not
necessarily change the line item on the estimated 3 year budget. The change was within the same
line item. Snowden, in cross examination, Trial Transcript Page 350 Line 13, states:
[SNOWDEN]A. He can move it among budget categories without the approval, within
10 percent, but he must notify; we ask for notification to the federal government.
Prior notification is clearly present; it was an agenda topic from the kickoff meeting
(Orthwein, 2001). Snowden is correct about the lack of approval for intra-line budget changes,
but misstates the 'within 10 percent' according to the relevant statute, 15 C.F.R 14.25 (Karron
A-397
Dec!. Exhibit 160) below. Snowden in the Trial Transcript page 351 line 5 - 9 further
confounds the court:
[SNOWDEN] THE WITNESS: It's not usually done, but the 10 percent rule said he can
move it.
THE COURT: Does he need prior approval for that?
THE WITNESS: No. We ask that we be notified, but he does not need prior approval.
Moreover, notified they clearly were. Karron Dec!. Exhibit 25,26,27,28,30,31,21.
However, the notification does not require a formal written application and response.
4. ADDITIONAL REFUTATIONS
GROUND TRUTH QUARTERLY SPENDING BY REVISED SF269A
Table 1 Ground Truth Grant Spending for First Year by
Quarter cast in SF269A terminology.
SF269A Review
Corrected Figures Q1 Q2 ,Q3 Q4 x sum
a Total Outlays $258,320.00 $190,036.00 I $214,071.00 $223,545.00 $885,972.00
b SharegfOutlays.. " t41,68?:()Q .. . $]8,204.00
c Federal Share of()utlays, $24C1!()Qq.00 $140!()Qq.OO $?.!9,()QO.00.$8oo,OOO.00
d ... $ $ Z,768 . .DO
b+c+d $258,320.00 $190,036.00 . $214,071.00 . $223,545.00 $885,972.00
Zero Check(b+c+d-a) $ $ . $ $ $
Original Date Signed
a ,Total Outlays
b Recipient Shareo!.Outlays
c Federal Share <?f Outlays.
Over Cofunding
.Y31/2002. 19/28/2002' $149,660.00
$ 219,5?3.oo 727.QQmL$212,977.00 $ 829,480.00
$ .,9,573.()Q $ 8,214.00 I $ 8,727.00: $ 2,979.00 $ 29,493.00
$ 210,()Qq.00 . iio,ooQ;oo $ 800,000.00
$ $ (49,964.ooL $ 74,071.00 \ $ 13,545.00' $ 85,972.00
This chart is the culmination of extensive forensic analysis ofCASI-ATP spending by
quarter for the first year. Karron Dec!. Exhibit 14,15,16,17,19 contains these figures in restated
SF269A Short Forms. The co-funding exceeded the spending except for Q2. The overall co-
funding exceeded the ATP funding by the end of Year 1 by 85,972, well in excess of the required
A-398
year 1 co funding requirement called out in the budget of%4.57, or $30,500. The original
SF269A were not accurate, but the error was not to the harm of ATP, but understated CASI
cofounding by $48,711.00.
A-399
Plaintiff,
- v.-
08 Civ. 10223 (NRB) (DFE)
AFFIRMATION OF SERVICE
DANIEL B. KARRON,
Defendant.
I, Deborah Anne Dunlevy, declare under penalty of perjury that I have served a
copy of the attached
1. MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF'S
MOTION FOR SUMMARY JUDGEMENT
2. OPPOSING 56.1 STATEMENT OF MATERIAL FACTS
3. Declaration of Deborah Anne Dunlevy
4. Declaration ofD B Karron
upon
Michael J. Byars, Assistant United States Attorney,
whose address is
86 Chambers Street, 3
rd
Floor
Long Island City, NY 11106
Signed
Deborah Anne Dunlevy 1,/1" __ I I 0
31-18 Broadway, 2R q
New York, New York 10007
By Hand on )
)0
Dated: New York, Y
1
A-400
Plaintiff,
- V.-
DANIEL B. KARRON,
Defendant.
08 Civ. 10223 (NRB) (DFE)
DECLARATION OF D. B.
KARRON IN OPPOSITION OF
PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT
BACKGROUND
I, D. B. KARRON, pursuant to 28 U.S.C. 1746, declare under the penalty of pel jury as
follows:
1. I am the Defendant in the above named case.
2. I am currently without legal counsel and defending myself Pro Se
3. I am the founder and senior managing partner of what is left of CAS I LLC and/or
Computer Aided Surgery, Inc.
4. I am the co-inventor with Jim Cox of Digital Morse Theory.
5. I have been publishing papers on Digital Morse Theory with James Cox since
1991.
6. I have published at least 8 papers on the topic that I can easily recall.
7. The CASI office was (formerly) on 33rd Street between First and Second Avenue.
A-401
8. This office was inside of my apartment since I purchased the apartment in 1997.
9. In collaboration with Jim Cox we wrote demonstrations of our algorithms with
PhD student Nazma Ferdous.
10. In collaboration with Prof Cox we wrote demonstrations of our algorithms with
another PhD Student, Praveen R. Thiagarajan
11. We succeeded in doing multi-level segmentation of the liver and skeleton
elements.
12. Mr. Thiagrajian went on to obtain professional employment at Dow Chemical
Research and Development in Delaware.
13. I was Dr. Ferdous secondary PhD Adviser on her PhD Dissertation on
Topological Zone Organization.
14. Dr. Ferdous went on to gainful professional employment in Baltimore at the
NASA Space Telescope Program
15. We published a paper together, "Topological Zone Organization of Scalar
Volume Data" published in the Journal of Mathematical Imaging and Vision
archive Volume 18, Issue 2 (March 2003) Pages: 95 - 117 The Publisher was
Kluwer Academic Publishers Norwell, MA, USA. The authors were:
a. Jim Cox Brooldyn College, The City University of New York Graduate
Center and Computer Aided Surgery Inc. cox@sci.brooklyn.cuny.edu,
b. D. B. Karron Computer Aided Surgery, Inc. and City College of the City
University of New York. karron@casi.net,
c. Nazma Ferdous The Space Telescope Science Institute.
nfrahman@stscLedu.
16. This paper has been subsequently cited 6 times in the scientific literature tracked
by the Association of Computing Machinery (ACM). A list of those citations
follows:
P age - 2 - of :2 3 6
BACKGROUND 0
A-402
Karron Declaration and Exhibits Part 1
a. Yi-Jen Chiang, Tobias Lenz , Xiang Lu , G G n t ~ r Rote, Simple and
optimal output-sensitive construction of contour trees using monotone
paths, Computational Geometry: Theory and Applications, v.30 n.2,
p.165-195, February 2005
b. S. Biasotti , D. Giorgi, M. Spagnuolo, B. Fa1cidieno, Reeb graphs for
shape analysis and applications, Theoretical Computer Science, v.392 n.l-
3, p.5-22, February, 2008
c. Gunther H. Weber, Scott E. Dillard, Hamish Carr , Valerio Pascucci ,
Bernd Hamann, Topology-Controlled Volume Rendering, IEEE
Transactions on Visualization and Computer Graphics, v.13 n.2, p.330-
341, March 2007
d. S. Biasotti , L. De Floriani , B. Falcidieno , P. Frosini , D. Giorgi, C.
Landi, L. Papaleo, M. Spagnuolo, Describing shapes by geometrical-
topological properties of real functions, ACM Computing Surveys
(CSUR), v.40 n.4, p.1-87, October 2008
e. Enric Meinhardt, Ernesto Zacur ,Alejandro F. Frangi , Vicent Caselles,
3D Edge Detection by Selection of Level Surface Patches, Journal of
Mathematical Imaging and Vision, v.34 n.l, p.1-16, May 2009
f. Yi-Jen Chiang, Tobias Lenz , Xiang Lu , GGnter Rote, Simple and
optimal output-sensitive construction of contour trees using monotone
paths, Computational Geometry: Theory and Applications, v.30 n.2,
p.165-195, February 2005
17. I believe that was we were attempting to do was scientifically sound.
18. I lost all of the research programming on the SGI computer hardware seized by
the OIG.
19. These programs will only run on the SGI IRIX operating system.
20. I programmed exclusively on these machines
EXHIBITS FROM CRIMINAL TRIAL
21. A true and complete copy of the exhibits detailed below were admitted into
evidence June 2008 criminal trial in United States v. Karron, No. 07-CR-541
(RPP), is attached hereto under section headings bearing the respective exhibit
number in the form "GX NNN"
TRANSCRIPTS
P age - 3 - of :2 3 6
BACKGROUND 0
()
A-403
22. A true and complete copy of trial excerpts referenced in the Defendant's opposing
documents is attached hereto under the appropriately named section headings.
23. A true and complete copy of sentencing transcript excerpts referenced in the
Defendant's opposing documents under the appropriately named section headings
APPEAL DOCUMENTS
24. A true and complete copy of the appeals documents excerpts referenced in the
Defendant's opposing documents is attached hereto under the appropriately
named section headings.
TAX RETURNS
25. A true and complete copy of the defendant's personal tax returns is appended
under the appropriately named section headings.
TECHNICAL AND BUSINESS REPORT
P age - 4 - of :2 3 6
BACKGROUND 0
A-404
Signed this 23th day of August 2010, in Long Beach, New York.
By: ______________________ _
DB Karron
348 East Fulton Street
Long Beach, NY 11561
P age - 5 - of 2 3 6
BACKGROUND 0
()
A-405
Exhibit Group 1. Contents
BACKGROUND ................................................................................................................................................... 1
I, D. B. KARRON, PURSUANTTO 28 U.S.C. 1746, DECLARE UNDER THE PENALTY OF PERJURY AS FOLLOWS: ............................... 1
EXHIBITS ............................................................................................................................................................ 9
EXHIBIT GROUP 1. THE CAS I NIST ATP PROJECT DOCUMENTS ........................................................................ 11
1. GX 10 PROPOSAL COVER SHEET ...................................................................................................................... 13
2. WOlBERG 2000 CD 346 .................................................................................................................................. 19
3. GATE III DISASTROUS MEMOTO CURRENTS .......................................................................................................... 21
4. KARRON AWARD MEMOTO CASI STAFF ......................................................................................................... 23
5. ORTHWEIN KICKOFF MEETING AGENDA MEMO ............................................................................................. 25
6. ACCOUNTING CERTIFICATION FROM FELDMAN .......................................................................................................... 29
7. ACCOUNTING CERTIFICATION HAD TO BE SENT TWiCE .................................................................................................. 31
.................................................................................................................................... 33
9. KARRON WAS CUNY FACULTY ............................................................................................................................... 35
EXHIBIT GROUP 2. YEAR 1 QUARTERLY SPENDING SUMMARY ....................................................................... 37
10. YEAR 1 QUARTERLY SPENDING AND SF269A REVIEW ............................................................................................ 37
11. 2001 Ql SPENDING SUMMARY SF269A ...................................................................................................... 39
12. 2002 Q2 SPENDING SUMMARY SF269A ...................................................................................................... 41
EXHIBIT GROUP 3. SCIENTIFIC AND TECHNICAL PUBLICATION ........................................................................ 47
15. NIST ATP CASI TECHNICAL REPORT 1 ............................................................................................................... 49
EXHIBIT GROUP 4. CUNY AND PERSONNEL DOCUMENATS ............................................................................. 63
21. GX 10 PAGE 4 PROPOSAL COVER PAGE SUBCONTRACTORS .................................................................................... 65
22. PAGE 3 PROPOSAL COVER SHEET SHOWING NO CISDD .......................................................................................... 67
23. ABOUT CUNY CISDD ..................................................................................................................................... 69
24. KARRON'S BIOMEDICAL INFORMATICS CLASS AT CCNY CUNy ................................................................................ 71
25. COX CONSULTING PERMiSSiON ................................................................................................................... 73
26. COX MULTIPLE POSITION REPORTING FORM ....................................................................................................... 75
27. COX CONSULTING SUPPORT CONTRACT .................................................................................................... 77
28. COX CONSULTING SUPPORT FACULTY CONTRACT ..................................................................................... 79
29. COX CHECK SCUEDUlE ................................................................................................................................ 81
30. WOlBERG PERMISSION TO CONSUlT ......................................................................................................... 83
P age - 6 - of :2 1 7
BACKGROUND 0
GX 10 PROPOSAL COVER SHEET 1
A-406
31. WOLBERG CONSULATING PERMISSION MILLER LETTER ............................................................................. 85
32. WOLBERG CONSULTING SUPPORT CONTRACT ...................................................................................... 87
EXHIBIT GROUP 5. FINANCIAL AUDITS, REPORTS AND LETTERS ...................................................................... 89
33. DBI< INVOICES TO CASI-ATP ........................................................................................................................ 91
34. DBI< INVOICES TO CASI ANALYSIS ............................................................................................................... 93
35. NIST ATP BROWNING BALANCE LETTER ............................................................................................... 95
36. GXl14 DETAILS AND GRAPHS ..................................................................................................................... 97
37. RILEY GX 3502-J ................................... ...................................................................................................... 101
38. GXll0 ................................................. ...................................................................................................... 103
39. RILEY WORK PAPERS ............................................................................................................................ 105
40. NOTICE OF FEDERAL TAX LIEN 1 ............................................................................................................ 107
41. IRS PAYROLL TAX LIEN ............................................................................................................................... 109
42. HAYES RESUME ......................................................................................................................................... 113
43. GAS AMENDMENT NO.3 INDEPENDENCE JAN 2002 ........................................................................................... 115
44. GAS ANSWERS TO INDEPENDENCE STANDARDS .................................................................................................. 117
45. RILEY RESUME ........................................................................................................................................ 119
46. DOC HONORS AND AWARDS 2005 ........................................................................................................... 121
47. DOCHONORSANDAWARDS2006 ........................................................................................................... 123
EXHIBIT GROUP 6. CRIMINAL TRIAL ............................................................................................................. 125
48. CRIMINAL INDICTMENT, JUNE 13, 2007 ........................................................................................................... 127
49. SUPERSEDING CRIMINAL INDICTMENT, MAY 21, 2008 .................................................................................. 129
50. SEIZURE INVENTORY ...................................................................................................................................... 133
51. STIPULATION ON BANI< EVIDENCE 1 ......................................................................................................... 135
52. STIPULATION ON BANK EVIDENCE 2 ..................................................................................................... 137
53. TRIAL TRANSCRiPT .................................................................................................................................... 139
54. TRIAL TRANSCRIPT PAGE 729 LINES 4-6 ............................................................................................................ 141
55. TRIAL TRANSCRIPT PAGE 379 FF LINE 25 ET SEQ ................................................................................................. 142
56. TRIAL TRANSCRIPT PAGE 814 LINE 9-11 .................................................................................................. 143
57. TRIAL TRANSCRIPT PAGE 824 FF LINE 14 ET SEQ ................................................................................................. 145
58. TRIAL TRANSCRIPT PAGE 1066 LINE 19 ET SEQ.: ................................................................................................. 146
59. SENTENCING TRANSCRIPT ................................................................................................................... 153
60. SENTENCING TRANSCRIPT PAGE 16 LINE 14-15 ................................................................................................. 155
61. SENTENCING TRANSCRIPT PAGE 18, LINES 12-20 ............................................................................................... 156
62. SENTENCING TRANSCRIPT PAGE 19, LINES 15-21 ............................................................................................... 157
63. SENTENCING TRANSCRIPT PAGE 22 LINES17-23 ................................................................................................ 158
64. SENTENCING TRANSCRIPT PAGE 23, LINE 8 ........................................................................................................ 159
65. JUDGEMENT IN A CRIMINAL CASE ................................................................................................................... 161
66. AMENDED JUDGMENT IN CRIMINAL CASE .......................................................................................................... 163
67. APPEAL DEFENDANT ............................................................................................................................ 165
68. APPEAL GOVERNMENT ........................................................................................................................... 167
69. APPEAL SECOND CIRCUIT JUDGMENT .............................................................................................................. 173
EXHIBIT GROUP 7. CIVIL ACTION DOCUMENTS ............................................................................................. 175
P age - 7 - of 2 1 7
BACKGROUND 0
A-407
70. CIVIL COMPLAINT ..................................................................................................................................... 177
71. MOTION FOR SJ MEMORANDUM OF LAw .......................................................................................................... 188
72. PLAINTIFF 56.1 STATEMENT ............................................................................................................................ 208
73. DECLARATION OF MELINDA CHUKRAN ............................................................................................................... 213
EXHIBIT GROUP 8. CONTINUED IN PART 2, EXHIBITS 100 TO END, EXHIBIT GROUP 21 EXHIBITS 100-216 ...... 217
P age - 8 - of ~ 1 7
BACKGROUND 0
A-408
11.2001 Ql SPENDING SUMMARY SF269A
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As ted' States Attorneys
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DistriCt Jutige
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1
CRIMINAL TRIAL
TRIAL TRANSCRIPT
d Exhibits Part 1
P age..., 140 - of 2 1 7

53
A-422
54. Trial Transcript Page 729 Lines 4-6
A. The NIST budget allows that a salary can be up to. It's not in stone the allocations of
time worked. These are estimates of percentage of projected time on project.
Trial Transcript Page 729 Lines 4-6 DoC Auditor Belinda Riley, C.P.A. in Cross
exanimation:
Page-141-of217
CRIMIN AL
Trial Transcript Page 729 Lines 4-6 54
A-423
55. Trial Transcript Page 379 ffLine 25 et seq.
M SNOWDEN Q. Now, you told us that you had these
discussions with Gurfein about the rent, correct? A. Yes.
MR RUBINSTEIN: Q. And that was early on in the grant?
A. The discussion was before the kick-off presentation and
after the kick-off presentation, so in October and in November.
Q. 2001.
A. 2001.
Q. And then
THE COURT: You had those with Gurfein.
THE WITNESS: With both Gurfein and Dr. Karron.
Page-142-of 217
CRIMINAL
Trial Transcript Page 379 ff Line 25 et seq. 55
A-424
56. Trial Transcript Page 814 Line 9-11
REDIRECT EXAMINA TIONBY MR. KWOK:
Q. Ms. Riley, are meals a line item in the CASI budget submitted to NIST for the grant?
A.No.
Trial Transcript Page 814 Line 9-11
P age - 143 - of 2 1 7
CRIMINAL TRIAL
A-425
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ibits Part 1
Page-144-of 217
CRIMINAL TRIAL .............
A-426
57. Trial Transcript Page 824 ff Line 14 et seq.
THE COURT: The inquiry, I believe, was was there a meals category or a meals -- a
figure for meals in those two exhibits. She said no.
MR. RUBINSTEIN: They were asked specifically, Judge, whether there's a budget line
for meals. That's what they asked. It's misleading because it doesn't have to be. It could be under
others and I feel I have a right to straighten it out.
P age - 145 - of :2 1 7
CRIMINAL
A-427
58. Trial Transcript Page 1066 Line 19 et seq.:
Benedict is willfully ignorant of Karron's turning back most of Karron's salary to the project.
[RUBINSTEIN]
19 Q. Let me show you what's marked as Government Exhibit 3506-B,
20 as in boy.
21 A. If Dr. Karron was paid with NIST funds, those can't be used
22 as matching contribution. You can't double dip.
23 Q. Do you see this document 3506-B?
24 A. Yes.
25 Q. Do you see your signature on the second page?
1 A. Yes, I do.
2 Q. You swore to the truth of that?
3 A. Yes, I did.
4 Q. You read it over before you signed it?
5 A. Yes.
6 Q. Take a look where I have the S and see if that refreshes
7 your recollection as to what you told the agents.
8 A. Yes, it does.
9 Q. And in fact --
10 A. What I meant by that statement, sir, was that I assumed he
11 was using some of his CASI money, he was using money that was
12 paid to him personally for his work, and then he was
13 reinvesting that into the program. That was not the case.
14 Q. In fact you said he was using some of his salary to meet
15 the match requirements of the grant, correct?
16 A. Yes, as I just explained.
17 Q. Is that what you said?
18 A. Yes, sir, that's what I said.
19 Q. And to your knowledge, while Dr. Karron was working on the
20 ATP grant did he have any other salary?
21 A. No.
22 Q. SO the only salary you could be talking about is the salary
23 he is getting from the ATP grant, correct?
24 A. Yes. But if I pay you and you turn around and use your own
25 money to reinvest it in the program, that would match. He did
1 not do that.
2 Q. You don't know if he did or not.
3 A. There was no record of it in the ATP funds. There was no
4 record of any income corning from any source other than ATP.
5 Q. Where did he deposit his paycheck, sir?
6 A. In his own bank account, I guess.
7 Q. You guess.
8 A. I didn't pay any attention to his own accounts.
9 Q. And you didn't pay any attention to the CASI accounts and
10 the deposits he made, correct?
11 A. They were not relevant to the grant.
12 Q. But you said before all these funds were commingled,
13 correct?
14 A. Yes.
15 Q. And you see P-l through P-6, the checks in front of you?
16 A. Yeah.
Page-146-of 217
CRIMINAL TRIAL
.......
A-428
17 Q.
18 A.
You had never seen those before, had you?
No.
19
20
Q.
of
But those were checks that went into CASI during the time
the grant's first year, correct?
21 A. They're made out to CASI, yes.
22 Q. And you never saw them before.
23 A. No.
24 Q. So you missed them, right?
25 A. Checks made out to CASI don't mean anything. They're not
1 relevant to the grant.
2 Q. What is CASI's -- what was CASI's only business during the
3 time of the grant?
4 A. The grant. But they were not deposited to the ATP project,
5 and the money he got for these checks came from the ATP
6 project, so you can't use ATP money to cover an ATP match. It
7 doesn't work that way.
8 Q. How about using --
9 A. The only money he had coming in was coming from ATP. Where
10 the money went is what's at question here.
11 Q. Yes. And you don't know where it went, right?
12 A. This money went to CASI.
13 Q. And if CASI paid ATP expenses, then it would be spent on
14 ATP.
15 A. Yes.
16 Q. But you don't know that because you never traced this
17 money, right?
18 A. No, I did not trace this money.
19 Q. You never traced where he put his salary or what he spent
20 his salary on, right?
21 A. If he spent it on ATP, he did not make that known to me
22 that he had done that, so I would not have gone looking into
23 his private accounts to see what he was doing.
24 Q. Well, didn't you rely upon Frank Spring?
25 A. I relied on the accounting transactions.
1 Q. And wasn't Frank Spring also working on his personal taxes,
2 Dr. Karron's personal taxes?
3 A. Yes.
4 MR. EVERDELL: Objection.
5 A. But that again has nothing to do with the grant.
6 Q. That's up to the jury.
7 A. Yes.
9 THE COURT: Objection is sustained.
10 Q. Now, you learned that the grant was suspended, right?
11 A. Yes, sir.
12 Q. Did you learn the grant was suspended because of a
13 violation of the copay?
14 A. We never really got an explanation why it was suspended.
15 It was suspended.
16 Q. After the grant was suspended -- well, withdrawn. At the
17 time the grant was suspended on June 27, 2003, were there any
18 monies owed to vendors for the grant?
19 A. I would assume so, yes.
P age - 147 - of 2 1 7
CRIMINAL TRIAL ............
Trial Transcript Page 824 ffLine 14 et seq. 57
A-429
20 Q. Do you have any idea what the number was?
21 A. No, sir, I don't.
22 Q. After the grant was shut down on June 27, 2003, isn't it a
23 fact that Dr. Karron advanced money to CASI for the purposes of
24 the grant?
25 A. I don't have any recollection of that, sir.
1 Q. Were you involved at any time after the grant was shut down
2 with the telephone conference with Marilyn Goldstein?
3 A. No, sir.
4 Q. Do you know who Marilyn Goldstein is or was at that time?
5 A. Yes.
6 Q. And who was Marilyn Goldstein?
7 A. Marilyn Goldstein I believe was the manager of grant
8 compliance with ATP. I don't remember her specific title.
9 Q. And did you notify Hope Snowden in July, July 24, 2003 in
10 regards to Dr. Karron? I'm sorry.
11 THE COURT: What's the question?
12 MR. RUBINSTEIN: I will withdraw the question, Judge.
13 Q. Were you aware that Dr. Karron advised Hope Snowden that he
14 had arranged an emergency credit line to apply to the grant?
15 Are you aware of that, sir?
16 A. No, sir, I'm not.
17 Q. Did you receive an e-mail on July 24? This is marked as
18 Defendant's E for identification. Did you receive that e-mail
19 indicating that Dr. Karron was taking a line of credit to
20 advance to the grant?
21 A. No, sir, I don't remember seeing this e-mail. And as I
22 testified earlier, that casi.net e-mail address was one I
23 didn't use.
24 Q. Is it your testimony, sir, that you as the business manager
25 of CASI had an e-mail address and you did not check your
1 e-mai1s?
2 A. Yes. I had a horne e-mail address, and that's where we were
3 communicating. Periodically they would send things to
4 casi.net. They set up the account, they put a password on it.
5 And, as you know, flopping from one mail service to another is
6 a bit of a hassle, so I didn't use the casi.net service.
7 Q. But you were aware, were you not, sir, that there was an
8 e-mail address to you? You are aware there was one?
9 A. I was aware they set one up with a password that I didn't
10 know, so ...
11 Q. And were you aware that e-mai1s were corning to you?
12 A. Not there.
13 Q. 2008 is the first time that you became aware of the fact
14 that e-mai1s were sent to you at casi.net?
15 A. I have not seen this e-mail before.
16 Q. Did you see any e-mai1s that were sent to you?
17 A. Not to my recollection, casi.net, no.
18 Q. Well, when the grant was suspended June 27, 2003, how much
19 money was in the accounts of NIST or CASI?
20 A. I don't recall.
21 Q. Well, are you aware that there were people still working at
22 CASI after the grant was suspended?
P age - 148 - of :2 1 7
CRIMINAL TRIAL

A-430
23 A. Yes.
24 Q. And did you receive monies after the grant was suspended?
25 A. I believe so, I did, yes.
1 Q. And did other people get paid from CASI after the ATP grant
2 was suspended?
3 A. I believe so.
4 Q. And are you aware of suppliers who had already delivered
5 product to CASI that were paid after the grant was suspended?
6 A. I don't specifically remember any, but I can't say that
7 that didn't happen.
8 Q. And did you have contact with Belinda Riley after the grant
9 was suspended?
10 A. Yes, sir, I did.
11 Q. And did you indicate to Belinda Riley that $46,000 was
12 deposited by Dr. Karron and that 21,000 inkind he's claimed for
13 his FMV of his preowned equipment meets this obligation? Did
14 you tell that to Belinda Riley in an e-mail?
15 A. I don't recall that, sir, no.
16 Q. Well, let me show you this document.
17 I'm going to show you what's been marked for
18 identification Defendant's T.
19 THE COURT: Defendant's what?
20 MR. RUBINSTEIN: T as in Thomas, your Honor.
21 Q. I show you what's been marked as Defendant's T, sir, and
22 ask you if you recognize this e-mail.
23 A. Yes, sir, I do.
24 Q. Is that an e-mail that you sent to Frank Spring?
25 A. Yes, it is.
1 Q. Did you send that on July 28, 2003?
2 A. Yes, I did.
3 Q. It's after the suspension of the grant?
4 A. Yes.
5 MR. RUBINSTEIN: We offer this into evidence.
6 MR. EVERDELL: No objection.
7 THE COURT: No objection?
8 MR. EVERDELL: No.
9 THE COURT: Exhibit T is admitted in evidence.
10 (Defendant's Exhibit T received in evidence)
11 MR. RUBINSTEIN: May I read this to the jury, your
12 Honor?
13 THE COURT: Yes.
14 MR. RUBINSTEIN: This is defendant's T in evidence.
15 It's from Bob Benedict at eC.rr.com to Frank Spring.
16 Let me put it up on the Elmo.
17 No, I'll read it. It's to Frank Spring. It says,
18 "Still sparring with NIST on the 67K."
19 67K means 67,000, correct?
20 A. Yes, sir.
21 Q. "I still contend the 46K he deposited and the 21K inkind he
22 claimed for the FMV of his preowned equipment meets this
23 obligation. We're supposed to get Belinda's preliminary audit
P age - 149 - of :2 1 7
CRIMINAL TRIAL ........
A-431
24 report today or tomorrow, and once that's in, we will know what
25 we plan to do and get ourselves operational again."
1 Did you send that e-mail, sir?
2 A. Yes, sir.
3 Q. In fact you were aware when you sent this e-mail that Dr. K
4 had deposited at least $46,000, correct?
5 A. Apparently, yes, sir.
6 Q. And you also were aware that you were claiming at least
7 21,000 in kind for the cofunding, correct?
8 A. Yes, sir.
9 (Continued on next page)
1 Q. Now, you offered to handle the audit negotiations on behalf
2 of CASI, did you not?
3 A. You don't handle audit negotiations. You work with the
4 auditors. I was part of the team that was doing that.
5 Q. Well, did you advise Dr. Karron that you had prior
6 experience with audit negotiations?
7 A. Yes, sir.
8 Q. And that you had been successful in the past in audit
9 negotiations?
10 A. Yes, sir.
11 Q. And in fact, Doctor -- do you know a man named Mel Spitz?
12 A. No, sir.
13 Q. Did Dr. Karron retained you to handle the audit
14 negotiations, sir?
15 A. No, sir.
16 MR. RUBINSTEIN: No further questions.
17 THE COURT: All right. Redirect?
18 MR. EVERDELL: Very briefly, your Honor.
19 THE COURT: Could I ask a question before we get to
20 redirect? On your -- in the 3500A, the affidavit you signed
21 for the agency?
22 MR. RUBINSTEIN: Judge, I can't hear you. Sorry.
23 THE COURT: The affidavit you signed for the agency,
24 I'm trying to get the date, somewhere around the 15th of
25 November, 2004?
1 THE WITNESS: Yes, sir.
2 THE COURT: Reviewing that affidavit, does that
3 refresh your recollection in any way that the meeting you met
4 Dr. Karron at was in October, not the Spring of 2001?
5 THE WITNESS: It could have been.
6 THE COURT: If you want to look at the
7 THE WITNESS: I don't have it, sir.
8 THE COURT: -- exhibit?
9 THE WITNESS: I think the gentleman took it back.
10 MR. RUBINSTEIN: Here you go.
11 THE COURT: I just want to --
12 (Provided to the witness by Mr. Rubinstein)
13 THE WITNESS: Yes, sir.
14 THE COURT: Does that
15 THE WITNESS: That is the correct date.
Page-150-of217
CRIMINAL
A-432
16 THE COURT: All right.
17 THE WITNESS: It must have been the fall conference,
18 not the spring conference.
19 THE COURT: The kickoff meeting.
20 THE WITNESS: Yes.
21 THE COURT: Okay. That's all I wanted.
22 REDIRECT EXAMINATION
23 BY MR. EVERDELL:
24 Q. All right, Mr. Benedict, I believe you testified on direct
25 and cross-examination that you told the defendant that he could
1 not use ATP funds to pay for rent; is that right?
2 A. Yes, sir.
3 Q. Do you remember, approximately, how many times you told him
4 that?
5 A. Half a dozen times.
6 Q. You testified also about getting approval for ATP expenses
7 that were not in the budget?
8 A. Yes, sir.
9 Q. How do those approvals corne; are they orally or in writing?
10 A. In writing.
11 Q. Are they ever oral?
12 A. No.
13 Q. You
14 A. They're not binding if they're oral.
15 Q. Okay.
16 THE COURT: Sorry, I didn't hear your answer.
17 THE WITNESS: I said they're not binding. If you get
18 oral authorization, do something, until you get written
19 authorization it's not binding.
20 Q. I believe you were also shown on cross-examination a draft
21 of a benefits plan?
22 A. Yes, sir.
23 Q. That's exhibits OO?
24 A. Yes, sir.
25 Q. You said you worked on that, is that right?
1 A. Yes.
2 Q. All right I want to show it to you. Is that the draft plan
3 that you said you worked on?
4 A. Yes, sir.
5 Q. What is the date of that draft plan, just right at the top
6 of the exhibit?
7 A. July 2nd, 2003.
8 Q. I'll take that back. That date, July 2nd, 2003, is that
9 before or after the grant was suspended?
10 A. After.
11 Q. You were also asked about utilities, I believe, on
12 cross-examination?
13 A. Yes, sir.
14 Q. To your knowledge, did any of the approved budgets for CASI
15 contain a line item for utilities?
16 A. No, sir.
P age - 151 - of 2 1 7
CRIMINAL TRIAL
A-433
17 Q. And you asked very recently on cross-examination about an
18 e-mail where you discussed an in kind
19 A. Uh-huh.
20 Q. -- share for the defendant?
21 A. Yes.
22 Q. Was that revision, budget revision that you discussed in
23 the e-mail, ever approved?
24 A. No, sir.
25 MR. EVERDELL: No further questions.
1 MR. RUBINSTEIN: May I, your Honor?
2 THE COURT: Yes, you may.
3 MR. RUBINSTEIN: Thank you.
4 RECROSS EXAMINATION
5 BY MR. RUBINSTEIN:
6 Q. 00, is it your testimony, sir, that 00, this employees
7 benefit program, was created on July 2nd, 2003?
8 A. That's the date that's on there, yes, sir. I don't
9 remember the date it was created.
10 Q. Well --
11 A. It wasn't written all on that one day. It was something I
12 had been working for a while.
13 Q. I mean, this wasn't created because the grant was
14 suspended, was it, sir?
15 A. No. This was -- it was part of the -- there were no
16 procedures in place. We needed to get something in, some
17 procedures in writing so you could support the medical charges
18 that were being incurred.
19 Q. Did Dr. Karron say, you better sneak in a --
20 A. No, sir.
21 Q. -- a benefit, or our grant will be suspended, did he?
22 A. No, sir.
24 THE COURT: Objection sustained.
25 MR. RUBINSTEIN: No further questions.
Page-152-of217
CRIMINAL TRIAL
A-434
Plaintiff,
-v.-
DANIEL B. KARRON,
Defendant.
~ ~
oocua.8(T
!t.ecTRONtCAu. Y FiLED
DOC# ,
DATE FILED: ~ - ,23- &6; 0
08 Civ. 10223 (NRB) (DFE)
DECLARATION OF DEBORAH
A. DUNLEVY IN OPPOSITION
TO PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT
I, DEBORAH A. DUNLEVY, pursuant to 28 U.S.C. 1746, declare under the
penalty of perjury as follows:
BACKGROUND
1. I am an forensic bookkeeper.
2. I have over 30 years professional experience doing corporate audits, not for
profit audits, and high net worth individual tax returns.
3. I have over 5 years' experience allocating expenses in a not-for-profit grant
funded educational entity, Charter Schools in the Bronx
4. I am fully cognizant of the various flavors of the OMB Cost Principles cited
in this matter over the years.
A-435
5. I have 5 years knowledge of the both the business and personal transactions
of
a. Dr. Karron,
b. Computer Aided Surgery, Inc.
c. CASI, LLC.
6. I was not involved with Karron or Computer Aided Surgery or CASI in any
way during the NIST ATP project period, or afterward until sometime in
2004.
7. I have personally reconstructed all of the accounts of all of all the entities for
the period June 1,2001 through December 31,2003.
8. I have not been denied access to any records.
9. I have personally inspected multiple times every single document of any
relevance in this case.
10.1 think Dr. Karron is a kook, but not a criminal.
11.1 have not found any evidence of fraud.
12.1 personally detest Dr. Karron because he owes me money.
13.1 believe Dr. Karron is a genius with no common sense.
14.My initial involvement with Dr. Karron was as a tax preparer with Jill
Feldman, CPA who was initially the CASI accountant.
Page 21
A-436
15. The date of my initial involvement with Karron was in Autumn 2004, while
working as a contractor for Feldman.
16.Karron had asked Feldman to finish the corporate taxes Hayes abandoned.
17.Dr. Karron re-engaged Feldman after disengaging Hayes because of Hayes'
poor service as Accountant and Auditor.
18.Almost all of the clients Feldman sold to Hayes were dissatisfied with Hayes
service and many returned to Feldman.
19.1 worked with the successor CASI Accountants Randall Newman, JD CPA
20.1 worked with Karron's criminal lawyer M. Scott Peeler, ESQ
21.1 worked with Karron's criminal lawyer Ronald Rubinstein, ESQ
22.1 worked with the successor Accountant and Auditor Melvin Spitz CPA.
23.1 worked with the following IRS Revenue Agents
a. Bonanno (2005-2006)
b. Irrizardi (2006-2008)
c. Berk(2010)
WHAT 1 HAVE DONE
1. I have prepared a comprehensive forensic reconstruction.
Page 31
A-437
2. It is a standalone set of number that have been prepared from source
documents.
3. I could not reconstruct from the records left by Spring and Jackson.
4. The NIST A TP grant situation is not complicated at all.
5. Of the grant drawdowns for the entire period in questions, FIVE numbers
comprise at least 85 per cent of the total spending.
They are
Payroll
Payroll Taxes
Employee Benefits
Outside Services
Equipment
MY OBSERVATIONS
6. I believe that Karron had a rudimentary accounting system that was
destroyed by Haye' s unsuccessful attempt to implement an overambitious
and expensive quad entry fund accounting system off site.
7. Fund Accounting is used only by government entities anyway.
8. Frank Spring was an incompetent bookkeeper.
Page 41
A-438
9. While he was paying bills, checks were bouncing.
IO.My job as forensic bookkeeper was to attempt to understand how and what
Hayes did to Dr. Karron and the NIST ATP Project.
II.Hayes wore too many hats:
a. Dr. Karrons' personal tax accountant
b. CASI corporate accountant
c. Overly involved in CASI management functions such as changing
payroll over half a dozen payroll periods, and the payroll was still
done incorrectly; and prepared under the wrong tax identification
numbers. There is enough correspondence from IRS as well as tax
liens to keep me busy for another 6 months to straighten out this mess.
d. NIST accountant, auditor and possible whistleblower.
e.
12.1 carefully reviewed the Hayes taxes on the CASI Payroll. There are many
errors in the taxes as calculated and complete disregard for the change in
corporate entity that occurred on 8/30/2002 when she did not catch the
mistake of Joel Bernstein, ESQ, in changing CASI from a C-corporation to
a LLC. This constitutes professional tax negligence. You do not change
entity status when you have a net operating loss in the predecessor entity;
Page 51
A-439
because you lose the tax benefits of the net operating loss. This is an
additional example of the incompetence of Hayes.
I3.Hayes erroneously reported that CASI had no carry forward NOL.
14.Hayes led Bernstein to believe that a novation to LLC would better enable
shareholders to use the CASI LLC tax losses to offset their taxes.
15.Hayes did not respect the change in corporate entity from a C-corporation
to an LLC and continued to file taxes with the wrong EIN and the wrong
Name.
16.1 believe she fraudulently led the IRS to believe that there were two parallel
payrolls and caused the IRS to double CASI's tax liability.
17. She then offered to "fix" this for Karron; the problems that she had caused.
18. She refused to return the primary payroll documents that rightfully belong
to CAS!. She also refused to return records. If a client owes a CPA money,
you do not have a lien on their source documents. Those documents belong
to the client. Them owing you money is a separate contract issue.
19.The successor accountant Jerome Schwartz wrote a memo about Hayes
bizarre reasoning for not returning CASI payroll documentation.
20. There was a second set of payroll timesheets; different then the first set
signed and filed by the employees discovered during the criminal case
discovery.
Page 61
A-440
21.1 believe the behavior of Hayes led the NIST budget people to believe that
Dr Karron was stealing money.
22.CASI had an extensive and generous benefit plan. There other expensive
elective surgeries covered by the CASI benefit plan. So there was
precedent for various elective surgeries.
23.1 looked at the various copies of Quickbooks on Dr. Karron's machine.
Because of the mayhem left by Ken Jackson and Frank Spring, including
bouncing checks (Dr. Karron did not bounce checks, checks only started
bouncing with Frank Spring took the bookkeeping off site and left Dr.
Karron blindsided). Since there were so many copies of Quickbooks; I
decided to redo instead of try to edit because there was no way to tell which
version to edit.
24.At the height of CAS I corporate activities, there were only 75 checks a
month, which was not an overwhelming number of transactions.
25.The payroll should have never been in house; it should have been done by
an outside service such as ADP or Paychex.
26. When Hayes did order Karron to use an outside Payroll Service, Karron did
comply. Hayes in her infinite wisdom set the payroll up under the wrong
ID number and took the money of a different entity cash account. In the
same vein, Hayes ignored the new corporate entity.
Page 71
A-441
27.Hayes continued to meddle in CASI affairs, as indicated by Rothman's
paychecks coming in the name Hayes LLC instead of CASI LLC name well
after the grant was suspended in Autumn 2003, with funding continuing out
of Dr. Karron's pocket. Payroll services are pretty good at doing what you
tell them. They do not make up corporate names of their own volition.
This was another example of Hayes meddling and mucking things up
royally.
28.When this error was discovered, Hayes wrote e-mail to the payroll service
disavowing her involvement with CAS!. This is another example of Hayes
lying after she has mucked something up.
29.1 believe Hayes continued to meddle and attempt to control CASI after the
grant was suspended. She continued to bother IRS agent Bonanno when
she was no longer CAS!' s accountant. I believe the time frame on this
spring 2006.
30. There is no problem using Quickbooks Class function to segregate how the
money was spent.
31.Every penny has been accounted for in my analysis ..
32.1 carefully reconstructed 5 years of transactions using bank statements,
American Express, Mastercard and minimal out of pocket petty cash
transactions.
Page 81
A-442
33.1 found paid bills for all checks I looked at.
34.1 had no trouble finding backup for all checks from Dr. Karron's personal
account.
35.Everything was obsessively and excessively saved on the computer.
Such as checks before signing, checks with the invoices attached, checks
after signing, checks after clearing the bank, checks were filed by date, by
check number. If there was a mistake on how a check was filed, it could be
found by any of several methods, ways and means. There was no such
thing as "lost" paperwork; misfiled, yes, but lost, not a chance. Dr. Karron
had copies of checks and credit card receipts at every step of the paper trail
36.In thirty years of accounting experience, I have yet to see any client with
multiple checkbooks not make a mistake and pull the wrong check or
deposit into the wrong account. These are considered innocent mistakes.
Company A pays back Company B. It happens and it can corrected without
federal criminal prosecution.
37.Hayes student, Nicole Wynter repeatedly wrote checks for Dr. Karron on
the wrong account for signatures.
38.Since there were so many voided checks, I have to assume Dr Karron
would refuse to sign checks with the wrong color or without the appropriate
backup invoices attached.
Page 91
A-443
39. There were a number of checks written out of sequence as well.
RENT
1. Dr Karron has used his home as an business office since he purchased it
1997
2. It is common small business practice for a corporate entity to pay rent on a
segregated home office. It's good tax planning.
3. The rent income received from the corporation was picked up Karrons'
personal tax return, Form 1040. This has been going on for many years.
4. How could Hayes allege that this is fraudulent or hidden when it has been
done this way for several years.
5. Hayes prepared Karron's tax returns for 2000 include schedule E showing
rent income.
6. You could see 8 computer stations in the living room.
7. That clearly qualifies as business use of the house under IRS guidelines.
8. Karron's prior tax returns confirm that the Karron apartment qualified for
business use.
9. The rent expense on the corporation was not charged to the NIST ATP grant.
The checks were written out of the INC account and charged in their own
segregated category of RENT.
10.In my reconstruction, this "RENT" was treated as draw until I figured out
what actually had happened.
ATTACHMENTS TO INCLUDE AS EVIDENCE
Appended to this statement are true and correct copies of documents I have
personally examined, prepared, or have analyzed.
Page 10 I
A-444
My submission is quite voluminous due to the fact that I reconstructed the records;
and my numbers and analysis differ drastically from the Hayes audit report. I have
accounted for every penny in and out of every account. I have done an extremely
detailed forensic accounting. This accounting is much more detailed and focused
than would be normally done in an everyday business environment. This
accounting is overkill. There are detailed American Express accounts; Mastercard
has it own journal entries, petty cash has its own journal entries. The purpose of
this extra diligence is so that any other competent professional could assess and
ascertain the correct numbers. They could also follow the detailed trail of events.
For more information, look at the attachment lead sheets AAC-IOI to AAC-118. It
is the index into the over 900 page submission.
I have found this case fascinating in both its simplicity; the number and kind of
mistakes that have been made. A common mistake would be to misfile a payroll
tax return. It is fixable. You file an amended return. You do not continue to file a
year of payroll tax returns under the wrong tax id number. If you add up numbers
Page 111
A-445
wrong, you will have missed a number, or doubled up on a number, not made up
some other number, such as Dr. Karron's gross salary.
I hope that this will clarify that there was indeed co-funding. That Karron did put
his own money into the project, and that scientific research was completed.
Page 121
A-446
Signed this 23 day of August 2010, in Long Beach, New York.
Page 131

DEBORAH A DUNLEVY
31- 18 Broadway, Apt 2R
Long Island City, NY 11106
Forensic Reconstruction
for the period
10/01/01 through 12/31/03
A-448
Starting Ending Topic
A1 AA 001 AA 010 Overview
A2 AAC 101 AAC 118 Index of Submitted Items
B BAC 101 BAC 159 SF 269 A FYE 9/30/02
C BAC 160 BAC 234 SF 269 A FPE 12/31/03
0 BAC 291 BAC 300 To & From DB Karron
GIL AlC's 1900 & 2900
E1 BAC 301 BAC 400 Co-Funding
E2 BAC 401 BAC 541 Cash
F CAC 101 CAC 178 GIL Balance Sheet AlC's
G CAC 191 CAC 321 GIL Income & Expenses
H CAC 322 CAC 426 Amex, Mastercard
Payroll Analysis
HABAC 500 HABAC 593 Questions about Audit
J HABAC 600 HABAC 636 Audit Discrepancies
A-449
A1
Overview
AA 001 to AAC 010
A-450
AA 001A,B,C
AA 002
AA 003
AA 004
AA 005
AA 006
AA 007
AA 008
AA 009
AA 010
Overview
Index & Introduction to Summary of Discrepancies
Comparison of Budget, Actual and Hayes Audit
DB Karron Gross Salary Discrepancy
DB Karron Co-Funding Discrepancy
Equipment & In-Kind Contribution Discrepancy
Monies to & from DB Karren
Monies to DB Karron FYE 9/30102
Monies to DB Karron FPE 12/31/03
Monies from DB Karron FYE 9/30102
Monies from DB Karron FPE 12/31/03
These twelve pages summarize the major differences from the audited
Hayes numbers and the reconstructed numbers prepared at the
end of 2004 and during 2005 (after the time period in question).
There is almost a wonton disregard for reconciliation(s) and pure
numeric facts.
There was either no audit done by Hayes, or a very poor quality,
extremely shoddy audit as shown by variances in several "key"
accounts. In small company audits, there is a concept of related
parties - officers, partners, major shareholders. DB Karron was
100% owner of Computer Aided Surgery Inc.; special attention
should have been paid to the monies that went to and from Karron
for the benefit of CAS!.
Riley, as a former IRS agent, should have caught the rent income
that was reported on Karron's personal income tax return. Riley,
as DIG auditor, should have been well aware of the In Kind
Contribution allowed for using previously owned equipment for
grant purposes. Riley, took as gospel, bad numbers and did nothing
to correct them.
AA Pages. xis AA 001 A 8/23/20102:34 PM
A-451
The areas of sloppiness cover officer's salary, Co-Funding,
In-Kind Contribution and Accounts Payable as well as the
previously mentioned monies to and from DB Karron.
My declaration is so large because it gives a professional
auditor all the information they would need to discern these
facts.
Aside from this overview and the index that follows, there are
the B & C sections which are the amended quarterly reports,
SF 269 A. The D section is the monies to and from DB Karron.
E 1 section shows Co-Funding of over $78,000.
E 2 section shows all cash transactions. Every penny has
been accounted for - by date as well as by payee.
Section F (Balance Sheet) and Section G (Income and
Expenses) are the individual General Ledger accounts.
The volume of pages is due to a software constraint.
The software only lets you can print an individual account when
printing a period longer than one fiscal year. CASI's fiscal
year ended in May, so that this was the only way to show
ALL the activity that happened.
Section H covers the corporate American Express credit
card, the personal Mastercard (that was used over 500/0 for
business); as well as payroll analysis for the extremely
messed-up payroll tax returns.
Section I goes into questions about the audit; specific areas
such as payroll, accounts payable, employee benefits. There is
a class function of Quickbooks - which allows you to segregate
and allocate the various sources and uses of funds.
This section also covers the entity change form a corporation
to a LLC which was also professional tax negligence
(due to a pre-existing Net Operating Loss on the corporation).
AA Pages.xls AA 001 B 8/23/20102:34 PM
A-452
Section J shows the discrepancies on pages HABAC 617
and HABAC 621. There was Co-Funding of 78,204.28; as
opposed to zero that is reflected in both Hayes and Riley
reports. This variance, by itself, is over 9.77 % of the grant
amount for the first year of $800,000.
The officer loan accounts, to Karron (AIC 1900) and from
Karron (AIC 2900), accurately reflect transfer activity from DB
Karron. As an aside, in the second grant year until wrap-up;
$100,560 was co-funded. I am confused - co-funding of
$178,764 versus -0-. I guess it was a rounding error???
Last, but not least, Karron was never afforded the opportunity
for an audit resolution. You also could change dollars between
categories without prior approval from NIST. The grant went
from payroll heavy to technology heavy. Change in category -
that's all.
My cursory review of Hayes workpapers and general ledger
shows inconsistencies. There is co-funding of 29,500 on the
profit & loss; as well as 111,000 as salary advance. Advances
are usually shown as other assets - they are not profit & loss
items. I also question the allocation of Karron salary. If you
have a full-time business manager,Gurfein, your time should
only be spent on scientific research. There should be no
allocation to administration. Secondly, the government has
time sheets for research work. Any night and weekend work
could be admin time.
Before the grant started CAS I owned equipment of $73,507.
During the grant, hardware and software of $312,936 was
acquired. This is a total of $388,443. ALL of this equipment
was seized by the governemnt in June 2007. Government
seized equipment that was not theirs. More important than the
physical equipment is the intellectual property, work product &
custom software that Karron and company team developed -
this was seized as well.
AA Pages. xis AA 001 C 8/23/20102:35 PM
A-453
A I B I c I D I E

Amended SF 269 A Rep5>r:t of _Spending
f-- - --
I-
.. _- -------- f---- -- - ---- - .- .
....,!.I- ---- ------------- f-------
----
Per Ha}'es

._-- 1---------------
BUDGET ACTUAL
f---- Audit

1---- ---- --- -- ..
r-2-
._-- --1-------
_._--
-- --
r---FlABAC- 592
HABAC 591
-HABAC593
9 INCOME
f-
1-----1--- --- ---
. __ .-
--
10

Co Funding 36,500.00 78,204.28 0.00

---
NIST ATP
. _.-
800,000.00 800,000.QO 800,000.00
13
-
1--
1-----
Total Funding 836,500_00 878,204.28 800,000.00
1---- -- _._------

. _-- _ .
16 EXPENSES
f--
_. __ .
. -.---
--1-------

A
------
325,000.00 331,789.92 322,537.00
-1---
-
B Benefits 110,500.00 87,927.26 84,669.00
--I--.

C Travel 20,000.00 15,655.21 18,450.00
--- r--- - ---

D Equipment 110,000.00 312,936.37 223,503.00
!.
E Supplies
- ---_.
11,000.00 7,066.30 15,302.00
t-E
F Service ?50,000.00 78,228.99 99,129.00
- -- -_.
---
1----- -----
---- -_. --- --

G Other
t--___ 1O,QqO.00
----. ------
-- -- - --- .. __ .
-------------- - ---- ._-
----
and Subscriptions
---
..E....
Professional

---
2!!. 1---
Rent_ {Error)
--- .. _.-
----
2,000.00

1----- -
Repairs & Maintenance
- --------------
4,315.52
----
2!!._
----
Utilities
10,829.33
------ --
31
32 Total Expenses
836,500.00 866,618.90
f-
-._---
--------- --- ---
I---
--
Excess Fundi-rlg-
- ------
---
34
11,585.38
f- ------ 1---- ------

--
Funds Carried to Next Year
-_.
--
_._--_.
- ---1----------

---- --.- ------ ----.-... -.----- - - ----

.. _.-
-----
N LLC N 94.10
------- --- ---- ------

---
NISTATP

---------- -
39
NN Co Funding 47,795.00
f--
--_.
---

-_.-.
--
_ Expenses 866,618.9Q._
..,!!. 1---- ---
j------
J----------- -

_ .. - Co Funding
1------
78,204.2..
43
Excess Expenses (66,618.90)

1----- ----
--1----- -
44
Excess Fundina 11585.38
AUDIT QUESTIONS.xls
Budget Actual Hayes
8/22120103:21 PM
736.00
10,195.00
1,425.00
13,895.00
789,841.00
---------
----
10,159.00
-------
-----
--
-- -- --
-- ---
-- - --
AA 001.
A-454
I met DB Karron in the fall of 2004. I was doing per diem work for Jill Feldman, his
current accountant at the time. I proceeded to reconstruct the CASI company
records. In doing this reconstruction of records I used source documents.
These documents were copies of bank statements and credit cards. There
were four company bank acoounts and a revolving credit line at Chase Bank,
the corporate American Express, and a personal Mastercard that was used at least
50% of the time for business expenses. There was also a small amount of
out of pocket cash (petty cash) that was advanced by DB Karron.
One of the major problems in small business accounting is the problem of an owner
using the right pocket of personal monies for the left pocket of business monies.
And, of course, the opposite of using the left pocket of business monies for right
pocket personal expenses. Generally, as long as you, the owner, are owed more
money by the corporate entity than you are owing to the corporate entity you have
what the tax accountants call "basis" in your company.
In reconstructing these records there are 4 major differences in my actual numbers
and the numbers of the Hayes audit. The audit period was 10/01/01 to 9/30/02.
1 The actual Gross Salary received by DB Karron was $184,252.72
This salary was comprised of 6 checks and one journal entry.
For simplicity, I am listing those items here.
Date
5/11/02
6/3102
7/5/02
7/5/02
7/5/02
812102
Check
No. Payee
10192 DB Karron
10212 DB Karron
10290 DB Karron
10291 DB Karron
10292 DB Karron
10401 DB Karron
Sub-Total Checks
9/30/02 AJE DB Karron
Total Gross Salary Received
Salary per Hayes
Difference
Additional References
HABAC 501 to 506
Amount
8,333.33
8,333.33
14,583.33
14,583.33
14,583.33
61,918.07
122,334.72
61,918.00
184,252.72
175,000.00
9,252.72
These 7 numbers were not added up correctly by Hayes, Riley, Kwok
as well as any other supel"\lisors that were involved.
DB Karron Gross Salary Discrepancy
AA Pages. xis
AA 003 DB Karren Salary
003
8/22/20103:21 PM
C
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e

2
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o
f

4
3
A
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4
5
5

1.
2 The second difference is the Co Funding . Haves report shows zero in Co-Funding. I show that S78, 204.28 was to CASI
bank accounts. or a personal check was used to pay for business expenses. or Mastercard paid for expenses. The Mastercard was paid by
DB Karron personally. Here is a summary of expenses that were paid for by DB Karron's funding.
HABAC
CAC 113 BAC311 82910831 HABAC 532
AlC Account Total NCR Exp Out of Maeter InKlnd
No. Nam. Co-Funding Relmb Pocket Card Equipment
1010 NCR Ch.ck 207.51 207.51
1010 DB Karron Ch.ck 5173 3,000.00
6000 Accounting 500.00
6010 Auto 301.16 194.15 107.01
6018 Books 410.67 410.67
6020 Communications 1.00 1.00
6040 Computer Installation 689.23 669.23
6060 Conf .... nce 300.00 300.00
6053 Dues & Subscriptions 91.06 91.06
6060 Employ Banefils 36,112.55 30.00 18.787.55
6120 Miscellaneous 147.01 147.01
8130 Office 357.06 357.06
6175 Postage & Delivery 31.35 31.35
8178 Repairs 248.10 75.00 173.10
6330 Research & Development 32,114.25 2.11425 30.000.00
6349 Stationery 181.02 191.02
8370 Travel 3,502.31 1.134.32 2,387.99
Total 78,204.28 207.51 1,465.82 25,735.95 30,000.00
Total AlC A/C AlC AlC
Co-Fundlng 4010 4013 4014 4015
HABAC 602
DB Karron Co-Funding Discrepancy
Hayes Audit Co-Funding 0.00
GX 114 Co-Funding per Riley 0.00
Ac:tual Co-I'v.nding 78,204.28
Materiality Percentage
(10800,000 0 ..... 1)
9.78%
CAC 115
Personal
Check
10 Bank
3.000.00
3,000.00
AlC
4712
Co-Funding of 5 % was m.et and ignol'ed by 2 audltol'S - Hayes and Riley
5 % of $800,000 Is $40,000. $78,204.28 exc:eeds $40,000.
AAPages.l((s AA 004 Co.Fundlng
HABAC832
Personal
Check
to Vendors
SOC.OO
17.295.00
17,785.00
AlC
4912
8/22120103 22 PM
C
a
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:

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1
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1
9
2
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D
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A-456
3 The third difference is the dollars spent on equipment. Again Hayes has
$223,503.00 and the amount in the CASI General Ledger is $290,143.29
This is a difference of $66,640.29. Thirty thousand of this difference is
due to ignoring the Co-Funding of In-Kind Equipment. Under the Grant
Rules you may consider prior owned equipment to be used for grant
purposes, no need to buy new equipment if you can use what you already
own.
GAAP (Generally Accepted Accounting Principles) uses accrual basis
accounting. In this basis there are accounts recievable (owed to the CASI)
as well as accounts payable (monies CASI owes to their suppliers).
CASI owed Silicon City $16,532.55 from at least 5/31/02. CASI also
owed Silicon Graphics $30,726.15 from 119/02. Since these 2 companies
have been suppliers since 1996 to CASI they were not overly concerned
about being owed money and being paid later than was customary.
To Recap:
Per Hayes HABAC 593 223,503.00 Audit Report
Per HABAC 624-626
Per HABAC 625
212,884.59
16,532.55
30,726.15
Cash Paid to Vendors
AlP Silicon City
Per HABAC 625
HABAC 607 Total per HABAC 626 260,143.29
AlP Silicon Graphics
AlC 6330
HABAC 607 Per HABAC 627 30,000.00 In Kind
Per HABAC 581 22,793.08 See Schedule Below
~ - - ~ ~ ~ ~ - - - - - - - - ~ ~ ~ ~ - - - - - - - - - - - - -
Total costs incurred by CASI HABAC 581 312,936.37
Difference 89,433.37
IN KIND Cont .. ibution of EquipRlent 'Was igno .. ed by 2 audito .. s -
Hayes and Riley. ARlount of Co-runding is $30,000.
HABAC 604
HABAC 604
HABAC 604
HABAC 603
HABAC 603
HABAC 605
HABAC 606
Per HABAC 581 Combination Sheet
Amex Software
AmexTech
AmexTools
Amex Computer Installation
Amex Equipment
NIST ATP Computer Installation
NIST ATP Paypal
3,294.54
349.55
387.25
3,944.91
10,802.85
3,684.23
329.75
22,793.08
Equipment & In-Kind Contribution Discrepancy
AA Pages. xis AA 005 In Kind & Accounts Pay
AA OOS
8/22/20103:23 PM
A-457
4 The fourth difference is the officers loan acccounts. The monies
taken out of CASI, put into CASI, and reclassified to other
expenses such as Rent and DB Karron Gross Salary.
The 1900 AlC'S are the monies taken out by DB Karron.
These monies should have been considered "net salary" and
"grossed-up" to the correct salary amount. Since the initial checks
that were taken in October 2001 were not "fixed" until August &
September 2002, ten and eleven months after they were taken out
this should be considered serious neglegience by accountant Hayes.
The 2900 AlC's are the monies put in by DB Karron, as well as the
4000 AIC's that should have been considered as Co-Funding.
One of the major problems in small business accounting is the problem of an owner
using the right pocket of personal monies for the left pocket of business monies.
And, of course, the opposite of using the left pocket of business monies for right
pocket personal expenses. Generally, as long as you, the owner, are owed more
money by the corporate entity than you are owing to the corporate entity you have
what the tax accountants call "basis" in your company.
The following pages reflect the activity in the respective accounts.
AA 007
AA 008
AA 009
AA 010
AA Pages.xls
Monies to DB Karron FYE 9/30/02
Monies from DB Karron FYE 9/30102
Monies from DB Karron FPE 12/31/03
Monies to & from DB Karron
AA 006 To & From DB Karron
M O o ~
8/22/20103:23 PM
A-458
AA Pages.xls
---- --. ---0-B--Karron FYE 9/30/02
Monies to
AA 007 To DBK FYE 09 30 02
AA 001
8122120103:24 PM
A-459
GIL
AlC Type Date Number Name Memo Class Opening Debit Credit Balance
1901 Opening 10/1102 2,000.00
1901 AJE 12/31/02 LLC Rcls Rent RENT (2,000.00 0.00
--
1902 Opening 10/1102 8,765.81 8,765.81
--
1903 Opening 10/1/02 4,000.00
1903 AJE 12131102 LLC Rcls Rent RENT (4,000.00) 0.00
--
1904 Opening 10/1102 2,000.00
1904 Check 11115/02 DB Karron 4,530.38 6,530.38
1905 Opening 10/1/02 53,000.00 53,000.00
1906 Opening 1011102 4,000.00
1906 AJE 12131102 LLC Rcls Rent RENT (2,000.00)
1906 AJE 12/31102 LLC Rcls Rent RENT (2,000.00) 0.00
1907 Check 1128/03 10770 DB Karran NIST ATP 2,325.41
1907 AJE 217/03 AE020703 PJ's Surfrider NIST ATP 23.68
1907 Check 2112/03 10792 DB Karran INIST ATP 758.59
1907 Check 3/9/03 10845 DB Karran NISTATP 3,027.24
1907 AJE 3131103 LlCMar2003 Rcls Rent RENT (6,000.00)
1907 Check 4/16103 10887 DB Karran NISTATP 4,640.10
1907 AJE 4130103 LLCApr2003 Rcls Rent RENT (2,000.00)
1907 Check 7n103 10 DB Karran N LLC N 4,107.11
1907 Check 9/26/03 3565 DB Karran LLC 2,968.00
1907 Check 10122/03 LND 1001 DB Karron N LLC N 11,349.68
1907 Check 11/11103 3581 DB Karran LLC 4,006.37
1907 AJE 11130/03 LLCNov2003 RENT (14,000.00)
1907 AJE 12131/03 LlCDec2003 RENT (2,000.00) 9,206.18
--
1908 Opening 10/1/02 (8,175.74)
1908 AJE 12/29/02 Hayes error (3,965.06
1908 AJE 12131102 Hayes error 1,397.88
1908 AJE 7/6/02 Hayes error AJE 1,161.26
1908 AJE 8/3/02 Hayes error AJE (3,959.10)
f--:jg08 AJE 9/28/02 Hayes error AJE 260.79
0.01
1908 AJE 9/29/02 Hayes errar AJE (398.60) (13,678.56)
65,590.07 40,556.50 (42,322.76) 63,823.81
Summary
Opening 10/01/02 65,590.07
Checks & Other Debits 37,736.56
Rcls Rent Credits (10,000.00
Rcls Rent Credits (24,000.00)
Hayes Errors Debits 2,819.94
Hayes Errors Credits (8,322.76)
Other Reference 65,590.07 40,556.50 (42,322.76) 63,823.81
BAC 328 9/30/02
BAC 329 Debits Credits Balance
_.
1---
I
--
r---
!--
.-
AA 008 To DBK FPE 123103
AA Pages. xis 8/22120103:24 PM
A-460
GIL
Ne Type Date Number Name Memo Class Personal Debit Credit Balance
---
2900 Openin 5131101 (89,531.00)
,-
-
2901 AJE 1011/01 In Kind 30,000,00
2901 AJE 10/1101 In Kind 30,000.00) 0,Q!l_
----
f--- -
---
2910 Deposit 6/13101 DBK 5148 INC (250.00
2910 Deposit 712101 DBK 5150

1,000.00)
--
2910 Deposit 7/13101
r---
(250.00)
2910 Deposit 7123101 DBK 5159 INC
-._-
(400.00)
2910 Deposit 7126/01 DBK 5160 tNC (200.00)
2910 Deposit 7131/01 DBK 5162 INC (1,000.00)
2910 Deposit 6/17101 DBK 5169 INC 1,000.00)

Deposit 6131/01 OBK 5172 INC 3,000.00)
2910 Deposit 9128/01 DBK 5180 INC (900,00)
2910 Deposit 10/11/01 DBK 1006 INC (2,000.00)
2910 Deposit 12/4/01 DBK 5169 INC 5,000.00)
2910 DePosit 3121/02 OBK 1052 INC 1,000,00)
2910 Deposit 6/13102 OBK 5168 INC (20,000.00
2910 Deposit 6/16/02 OBK 5165 INC (1,000.00) (37,000.00)
2913 AJE 9/30101 OOP093001 INC (156.87)
2913 AJE 5131102 OOP053102 NISTATP 666.18)
2913 AJE 5131102 OOP 053102 NNCO-FUND 666,16
.-

AJE 6131102 OOP 063102 NISTATP (485.54)
2913 AJE 6131/02 OOP 083102 NN CO-FUND 485.54
2913 AJE 9I30I02 OOP093002 N LLCN 94.10
2913 AJE 9130/02 OOP093002 NN CO-FUND 94.10 (156,67)
2914 Transfer 6128101 FromMC (1,262.75)
2914 Transfer 7/30101 FromMC (1,287.16)
2914 Transfer 6129101 FromMC (1,403.27
2914 Transfer 9/26101 FromMC (3,843.61)
2914 AJE 9/30101 MCDBK Personal DBK 2,589,78
--
2914 Transfer 10130101 FromMC 7,566.66
,._-
2914 Transfer 11122101 FromMC (1,975.41
2914 Transfer 12131101 FromMC 3,222.62)
2914 AJE 12/31101 MCDBK Personal DBK 5,592.32
2914 AJE 12131/01 Co-Fundin NNCO-FUND 7,182,37 (5,207.01)
2914 Transfer 1129102 FromMC 3,507.53)
2914 Transfer 2126/02 FromMC (1,785.22)
2914 Transfer 3128102 FromMC 3,303.95)
-"-
Transfer 4126102 FromMC 3,962.10
2914 Transfer 5129102 FromMC (1,311.07)

2914 AJE 5131/02 MCDBK Personal DBK 6,121.40
2914 AJE 5131102 Co-Fundirtll NNCO-FUNO 7,694.40 5,261,08)
2914 Transfer 6126/02 FromMC (5,231.84)
2914 Transfer 7130102 FromMC 3,722.58
2914 Transfer 6/29102 FromMC (6,669,95)
2914 AJE 6131102 MCDBK Personal OBK 4,684,99
2914 AJE 8/31102 Co-Fundin NNCO-FUND 10,859.18
2914 Transfer 9130102 Personal (5,702.08) (11,063.16
I-
--
18,959.49 57,201.77 (124,380.29) (137,751.03)
Summa_I) Reference Personal Debit Credit Balance
5/31/01 Opening (89,531.00)
1---
INC NC1000 (37,000.00) (37,000.00)
. ,,-
In Kind 30,000.00)
-- ---
In Kind 30,000.00
--r--------
--- ---- .-
OOP (156:87) (156,87
OOP 1,485.82 (57,201.77)
--
Co Funding 1,485.82 57,201.77
,-
Mastercard (55,757.60)
Personal 18,959.49
Co Funding 25,735.95 (11,063,16)
-
18,956.49 57,201.77 (124,380.29) (137,751.03
9/30/02
- --

Monies from DB Karron FYE 9/30/02
r---
Itlr 00'\
AA Pages,xls AA 009 From DBK FYE 09 30 02 8122120103:24 PM
A-461
!f!10Io
AAPages.xis PtA 010 From DBK FPE 123103 8122120'03:25 PM
A-462
A2
Index of Submitted Items
AAC 101 to AAC 118
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CASI ENTITIES
General Ledger
10/01/01 through 12/31/03
Balance Sheet Accounts
CAC 101 to CAC. 178
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. P.yable 136,547.84 2000 1 CAC 144 CAC 146
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.
..!.

Inde. or Belonl:8 Shoe! 1 CAe 101 CAe 103
fl.

.-
Total C ...... nl Uobllltl .. 138,103.03
..!2
Long Torm Llobillt.i!0
.!!.
_ z!!!.o P.y ..... to D8K :NW 1 6 _CAC 171 CAC 177
r2
2101 15131101 P.yable 10 D6K 89,531.00.

2808 FROM OBK TO 1331 ... 0.00

J
2810 FROM OBK TO INC 58,500.00

:fROM OBK TO LLC 15,552.00
2112 FROM OBK TO NlST ATP 0.00
"
,..2113' FROM OBK VIA OOP OUT OF 1,559.51
__ _2114' MC 5213-27111-4121.1872 19,117.99
.=
Tolal ZIOO 10 OBK 184,260.50

Total Long Torm LI.bllitMo 184,260.50
,.:.:.
322.363.53

Equ.1ty
-
r2
3100 Rotainod E.ming. -104.432.26

3300 . Pa_ Capital 3300 1 CAe 17!,
r--'
3302 Capital. Joel Bematoln 10,000.00
"
__ 3303 : Jo ..... Cox 10,000.00
..!!
--
3307 . Copltol. Leo GoldMrg 10,000.00
..!!
3301 CaPitol EU_ Gurfain 30,000.00
..!! .
3310 Capital Abo Konon 10.000.00
r.!2
-.
3311 Capitol. M.rlanKarron 10,000.00

3313 CaPital. F_riU MIlle, 10,000.00

331 Caplt.l. Matlh_ Roth ..... n 10,000.00

3330 . Capital. O.B. Karron -86,079.00
Pannon Capital 13,921.00
Not Inc_ -66,545.25
ToIalEqulty -157,056.51
EQUITY 165,307.02
f!!

.-
Blank 1 12 CAe 179 CAe 190
..
"YftceSIIMIE*.:31.,2OCU.!dtI6fI_1 1/lo;./lOlDl:24 PM
A-470
CASI ENTITIES
General Ledger
10/01/01 through 12/31/03
Income & Expense Accounts
CAC 191 to CAC 321
PROFIT AND LOSS INDEX.xls
Sheet4 7/25/20109:18 PM
A-471
7:)SP"
CAS] ENTInES
0712$110
Ac::c' .... a.l .. Profit & Loss
October 2001 through December 2003
A B C 0 E F G H K L M N 0
Oct '01 Dec 03 190
ProIiI& Los .. I". 1 9 _CAC 191 CAC 199
5 Ordinary Incom.lEIpenae
6
.tOGO . IncDme
4010 . R.imburHd .. Inco".. 738.37
.t01l Co-FoncI:n; VIII QuI of Pocket 3,799.82
4014' lCo-'undlnll ... M..tercard 36,022.11
4015 tn-Xlnd Equl .......... ConIrltlulion 30,000.00
4030 . NIST AlP '",ame 1,345.500.00
"1M FROM DBM 10 NlST LLC IJC 1030 1.100.00
.'11 . FROM OBt( TO LLC AlC 1020 76,494.00
'12 FROM D&t(TO NI51 NC 1010 3,000.00 .
""2' OBK For NlSl AlP 27,610.00
.tOGO Inca,...
1.524,264.30 4000 3 CAC 200 CAC 202
TotIIJlncOIM
1,524,264.30
Br CI... AUoc.alMllntorne E.,.n .....
1 16 SAC 203 CAC_ 218
...
Af..Accounling
5001 . AE.,JiII .... dm.n CPA
1.000.00 5000 CAC 219 CAC 219
.!..otaI5DOO AE...t.ccounUna
1.000.00
5002 . A(-Airt .. _
5002 1 _CAC 220 CAC 220
5D03 . AE..Americ-.-" Airli ....
100.00
5D6I . AE-Americ-.-n West
316.00
500S . AE<.sptdia
1.404.98
sooe AE ...........
586.50
..!..ot.l500Z . AE-lUrt.w.
2,407.48
5001' . AE-Auto
5007 1 CAC 221 CAC 221
5001 . A("" .. DOIt Parking
3.00
!ODI . PartlinD
50.00
5010 AE...Ed.loon '.rll.ing
68.00
501'AE..Gat
221.59
5007 . Af..aw.o 0IhIr
4.00
Total 5001 . AE.... uto
346.59
5123, AE-80ok ..
5123 1 1 CAC 222 CAC 222
5124 A-Arnazon
34.89
'U5AE .......... NobtIt
18.40
40 5121 . M .. or.,., .. BDOb
48.66
41 51al . AE-lEEE Book.
533.51
....!..ogI . AE-8oob
635.46
43 Stll . AE40fNI.n Marne
95.00 5137 1 _CAC 223 ,S;AC 223
44 SUI' .and SUDaCtlptionl-
2.015.73 5138 1 CAC 224 CAC 224
45 5111 . AE..FIn.nc. CtYro-
12.40 5139 1 CAC 225 CAC 225
5140 . AE:-HardwM.
5140 3 _CAC 226
228
S14, . AE.30.FJ( Cool
86.30
"43 M-ADOBt.Com 935.52
!!1.5 . AE.kBoI
1.014.43
5148 AE-CFOT.E_IrDni"
1.370.16
AAC
51 5,55 Af.columbLa Home
285. 3
lot;
PROFIT ... NO LOSS INOEltlCls
SMell 712512010920 PM
P.ao-1 dl1
A-472
7:35 Pilit
CASI ENTITIES
07125110
Acc;ruala..i ..
Profit & Loss
OctOber Z001 through Dec.mbe, Z003
A B D E F G H K M N 0
Oct '01 - Dec 03
190
. AE..oat.vtaton
10,587.49
5151 AE..otga.I 'Alvet
180.82
5158 AE.Qymo Corp.
309.55
51" AE..Elec1JlCIIl Supply 1,686.35
51.3 AE-Garfftin 1"It,nno'"
350.17
5185' AE.GL VtdM
335.00
._ 51 . Af...GralrIgW
84.45
"88 . AE-I8M DlrKt 1,525.24
51U . AE...J&R Souncl
243.53
. AE-K," Bay H.r __ e
46.98
51'71 . AE-LumMrland
9.90
.5173 AE-ProjeclGt ,.".
199.00
AE.ltacklt TectlnOIOQ! 1,366.00
.5176' AE-Sub Zero T.molOg,
89.35
.5118 AE-Wac:om TKhnology
171.29
5110 AE..wINIP
29.00
5'010 AE-Harct.-r. - Other
346.77
51..0 . AE...... 'dWaN
21,252.93
70
2,961.41 5189 CAC 229 CAC 229
71 . AE-InatalJ,aaon
5190 CAC 230 CAC 230
72 _ 5101 . AE-Hotl'I4I o.pot
30.72
73 5'12 . AE-Hom .... on. Harelware
3,165.07
74- S,ll . AE..... "..n ..
1,161.01
75 5''', AE ..... ..u..tIo .. - 0thtH
576.21
76 Totli S1to . AE-lnalaU .. tion
4,933.01
n 52CO AE-Irnernet
5200 1 CAG 231 CAC 231
.-
AE.-AmIl'aJr;
57.00
sao> AE..Eapedia
356.24
.o.......-lSlOG AE-In1ernet - Other
0.00
TO"1 I20D . AE-In_net
413.24
5210' Af.-MMla
5,069.72 5210 1
-
CAC 232 CAC 232
5220AE..orrtc;e
5220 2 CAC 233 CAC 234
-
5221 AE.a,utaI &.ner LivinG
129.75
85 . W2 . .. Ola"iturtihl
524.55
86 5223 A-Eckerd
15.19
87 SZZ4 AE"'--bef
35.40
86 5US AE.MllfftOft GIft ShOp
6.00
89 5Zle . AE..()fr1Ce o.,ot
4,426.26
SUI AE.ort'ICe Mas
28.20
5228 AE-h ..rI Paint
47.93
5ne AE..R.adio ShKIl
596.22
5230 AE-R .... iQ
6.26
52311 AE...a...ps..
1.029.35
....,
AE..QIIfICtl-oe.,
1.108.04
..!!t-I52Z0 .
7,953.15
5250 AE-Pay .. 1
20.44 5250 1 1
PC. 235 CAC 235
5210 .
5260 1
(""('
52e1 'AE-IDT
128.20
$263.A .. .." .....
104.74
AAC
lID
PROFIT AND LOSS INDEX.x1s
Shoe" 7125120109.20 PM
PaglZDl'7
A-473
J:3$Pt,1
CASI ENTITIES
07/25110
Ac"ual Baai.
Profit & Loss
October 2001 tllrOUlJn Decellll>e, 2003
A B C D E
G H K M N 0
Oct '01 - Dec 03 190
101 ..... I...so.,toI
50.18
I $2lIIS Af-Sprlnt
1
39.81
,

315.52
5210 . AE-PI"Iorw. DlMr
127.00
T,!UlI 5260 . AE.Phane 765.45
. _ Sl1r!' 5270
-
1 CAC 237 CAy 237

52'75' AE..usPS
1.251.13
-+-
'-27D . 1,251.13
5280 AE-R.pllir.
46.16 5280 1 1 CAC 238
.G.Ae 238
. . Af-Semln.r
5290 1 1 CAC 239 CAC 239
5a82 Af..stAM Mati'! soc;iety
500.00
Total SZIO . AE&miMr
500.00

-,-
5atIAE..&atIwiIr.
5299 3 CAC 240 CAC 242
.5300 . AE.auy Up Time
799.49
. S301 AE.(;odI; Company
1n.45
AE-Digiau Rw.- Soft 207.93
5lO3 .
36.00
L AE-GeUnto.Co,"
55.58
+
5301 . A-Irl. Inc.
427.91
5301 . Softw.lr.
19.00
5JOI . Softw.,.
5.95
5310' AE.McAfee
72.69
5311 . AE..MYNAI.Com
71.38
_5312' AE.QUICkbooll:l
1,563.44
5lU . AE-Regnow
73.86
5314 U-Regaafl
97.89
53' 5 . AE.ftNno
82.91
-,5311. -'-II:OXIO
195.85
5317 AE-Runllrne
159.00,
r--
+-
.
258.00
531' . AE-TeMIChaomy
56.90
53ao AEVIt.IOMeI
514.90
_ _5321. AE..wNT.R ... .Nat
57.90
5322 AE.WWW.Rn.Cotl\
39.74
1532l . ae-ZIPPJ'.USA
426.00
52H . Ott.r
586.79
T alai S2II . AE..soItwar.
5,986.56
AE.Tech
5350 CAe 243 CAC 243
5351 AE.Time MotiGft Tool"
104.55
5352 MICtOioft
245.00
foUl! 5350 AE..Teeh
349.55
I
5lIO. AE.Tool,
5360 1 CAC 244 CAC 244
_ . AE.Mlcro .... ,k
139.95
5382 AE-Tecr .. loaJs
247.30
TOUII SlOD AE-TOCIIs
387.25
I
5369 CAC _CACI 245
... '"

--.--.
5371 . Catta
14.00
$372 . Af ..... voc.ard
120.00
SUI AF.Ta.i and limousine
385.89
PROFIT AND LOSS INDEX. XIS
AAa
III
Sheel1
7125120109:20 PM
P.plof7
A-474
7:::1$ PM
CASI ENTITIES
07125110
AccrUlilltasi.
Profit & Loss
Octo ..... zoo, tnrough Decem ..... ZOOl
A B C D E F G H K M N 0
Oct '01 Dec 03 190
537 . AETf.ain
1.678.55
SlIt . Af- - Other 86.59
To'" S)I8. AE_Tr.a".' 2.285.03
lOGO . Accounting
6000 2 CAC 246 CAC 247
8001 . Jneph Ccwnwall 2.945.10
8003 . Jill Feldman CPA
5.500.00
.... - Joan Mayes CPA 15.215.00
8005 . Ken ,JKkaon
25.290.00
IOD6 - Spitz: & Gr_nalilin 13.000.00
Total eooo . Accounung
61.950.10
1010 Auto
6010 3 CAC 248 CAC 250
eo11 . Auto R."IIII 2,898.76
eou Enofl
1.006.92
0013n..
537.13
8014 Mobil
63.91
.001:l . p ... lltng
2.434.37
eo1" Su",oco
364.17
IOn Tolls
1.459.05
Toc.II010 . Auto
8.764.31
001' . Bank CM'"
576.35 6018 1 2 CAC 251 CAC 252
UfO Books
1.362.23 6019 1 CAC 253 CAC 253
1020 . Comnu.II'1icalio .....
6020 5 CAC 254 CAC 258
11021&"
370.27
1022' C_bIe
2,866.02
1024 -JOT
234.56
1025 Mel
710.60
eoa-RCN
1,599.27
.1027 R.,mbYrMdTel .. phone
344.00
1,565.47
Mao - Cptint
914.37
0030 Thor ...
5,787.48
IOl' . "Mobile
238.60
8032 . Venzon
5,347.29
eo". . Voice.tt ..... Wlrete ..
350.81
1035 - Vz Wlrel s
725.97
eo,. -w.bwofqII
4.600.00
ToIIIIlWI2O . CommurucatJons.
25,654.71
IOrIO . CompuIM In.UII.dlon
6040 CAC 259 CAC 259
0041 . CoIumlbi ..
1.822.76
eo&3 -"FI'IIliil& Sont
1.995.00
toM . Homlth"on' MII,Clwoil.
8.736.30
.0045 . KJps a.,. H.r ___
170.27
CI046 Metro Sol .. ,
2.040.00
1047 - Mi.treftll Elec-lric.
5,400.00
To"ll010 Compultt In."UMlon
20,164.33
1050 - conrer.nc;;e
4.310.60 6050 1 CAC 260 CAC 260
105' . o.pr.eu"on
21.677.00 6051 1 CAC 261 CAC 261
1052
70.00 6052 1 1 CAC 262 _CAC
,
262
1053 O"' .,.,SUMcr
452.46 6053 CAe 263 CAC 263
PROFIT AND LOSS INDEX.lIs
4
A-Ae,
IlL.

7/25120109.20 PM
P.agl40f1
A-475
1:35PM.
CASI ENTITIES
01125110
Ace,u.la.ia Profit & Loss
OctotMr 1001 through DecemtJ.r z003
A 8 C 0 E F G H K M N 0
Oct '01 - Dec 03 190
8010 . Emplo,.. a.,..f1ta
,--
6060 8 CAC 264 CAC 271
_t'Arlalil 3,104.35
eoI2 . ChiklCalr. $erva.. Ro ........ 2,735.00
eoe3' Oruga 5,754.76
lII06I . Grtn Mltmber.lp 3,356.22
801, Hot'iJ.on 888.54
_toM Medteal ReimburMCi 62,018.00
l-
6D81' ' Odord ......... 27,153.26
Tata18OlO' ErrlplopI a.n.rtta 105,010.13
_ eoeo Equlpmen, Rope". 477.84 6090 1 CAC 272 CAC 272
.eoDt ' Flnarw:. 300.79 6091 1 1 CAG 273 CAC 273
6002 ' HoncN'arium 1,136.42 6092 1 1 CAC 274 CAC 274
etJgl' 2,370.17 6093 1 2
275 CAC 276
,O,109l.agIIl 6100 1 CAC 277 CAC 277
.'02 F",..,ICII M,..., ESQ 16,000.00
.,03 LLBL 352.60
.,ae Pennie & Edmonds 10,075.28
I
1107 & SMomon 1,972.00,
110B . Sclalabbll and.Ap,ociatae 3,000.00
01011 . Solomon & Berna"'" 11.950.00
101111,,00' L .... 43,349.88
. Mlacellaneou. 498.65 6120 1 CAC 278 CAC 278
1122 NG ChKlL 0.00 6122 1 1 CAC 279 CAC 279
IUD . Oft,ce 2,092.73 6130 2 CAC 280 CAC 281

6150 3 CAC 282 CAC 284
1151 . Alae 1,000.00
. 'tSl . ""ancl Group 71,000.00
-
. It S3 Axiom Sp""". 400.00
.,504 . tUtor IJInlor 12,759.75
1
&,.5 O. F.rr.-m:l 8,519.00
at 57 . Geo,. Wolber" PhD 40,898.99
"sa Jam Co. 0It. 33,930.00
.,58 . JaN LAylOF 161.00
.t80 P ..... Ro ...
-
1.172.64
1,., Radio logie 100.00
.,62 SeD1tAlbin 2,000.00
.,&3. v .. ..., of .. Mage Conaultlng 1,000.00
Toal ., 50 . ouw.. SeNile. 172.941.38
. 170 . P.an-I Par""'" 1,234.25 6170 1 CAG 285 CAC 285
. I,.,' Po.tage: & Delivefy 1,570.94 8175 1 _CN:, 288 288
I
,1171 A.ilb . e.,.., 96.15 6177 1 CAC 287 CAC 287
. . A.-i,a 6178 CAC 288
-
CAC 288
"ao . GeneF.1 319.04
6111' Repatta - 0D'IaI 275.00
TotIIII111 . R.Pllta 594.04
, M.nl 6189 1
,
CAC 289 CAC 289
1111 Rent for 2OD1 33,000.00
Rwn lOr 2002 2B.000.00
2. .,8:' fh,ntw 2003 24,000.00
PROFIT AND lOSS INDEX.xls
A/tC
JJ3 Sh .... n 712512010920 PM ..... 5 otT
A-476
7:lSPM
CASI ENTITIES
07lU/10
Profit & Loss Accrual a..i.
Octobor 2001 through DKembor 2003
A 8 C 0 E F H K M N 0
Oct '01 - Dec 03 190
To"'II188' Renl 85.000.00
6300 . Payroll EA.-nus 6300 4 CAC 290 CAC 293
1301 . Scott Albin emp 5.550.00
1302 . Robert a.ntdic:t 22.823.07
S.W. HothWlCl 760.00
I
1304' J.amu L Cor. emp 53.625.00
1305 . Eit5ha Gurtein 100.000.95.
.:x. . D.D. ,,-,Of' 334.004.12
_ . Charle. u $;lila 23,685.00
l-
I30Il Regner M. ,..-at .. 5.047.50
llOfiJ Pe1ef R06S
'-
11.354.00
1310 M.l1IMW R01tWI'I';1In 43.417.50
Aobe" G. Wirw 3.520.00
8314 NieholM A. W)'n .... 15.221.25
Tos.I6lOQ Pa1'oll Ex.., ... 619.028.39
131 s PrOCftslng 295.60, 6315 CAC 294 .CAC, 294
. R __ rel! !"G
6330 4 CAC 295 CAC 298
1331 . Americ.an 215.00
8.).32 . Atn.Ilc.n UMia &ya ....... 1.245.09
...l--I
1333 Denver Air Suppa" 295.00
1334' E MAG 2,850.00
ft'ou"cpu.c.DftI 845.83,
8337 . Genera) Computet 114,433.14
,1338 Pacific: Oat. Skw .. ge 1.429.00
el3l Akoh 9.019.57
a3tlO . s.rv.r Tac.hnOlogy 6,895.55
-r
1341 . SOl o..,.luptr. 295.00
.0342 . SIlicon City 134.061.39
SilteDn GrapPllca 78,093.54
430M Vlalon SMoI 6.643.25
---I-
. YC C .. tlle 210.00
'34e . In Kind CornpuM:r I:qulpment 30.000.00
11330 . R ..... rch.net o.w.lopment - Othe, 2.768.47
-l
TOlaIS3lO' AeMarch.and o."elopment 389.299.83
1:W8 . S .... lone" 2.877.94 1 1 1 CAC 299 CAC 299
6350 . Tun 6350 1 5 CAC 300 CAC 304

. FICA 32,798.26
... ; MMlicate 8.966.92 .
135:1 FurA 1,065.77
6)50& . 3,199.21
_1351 . NJ DiublUtp 404.70'

NJUI 1,024.80
..

NCSUI 107.72
139 . P.naltilC. and Late F_. 192.35
. Part0ll TiI.e. 47,759.73

1380 Te_ 6360
1+-
CAC 305 ,CAC. 305
1311 . NY CorporatlOf'l Til_ 600.00
Tolall38O r..res 800.00
&370. Travel 5370 3 CAC 306 CAC 308
PROFIT AND LOSS INDEX.lCIs
A4e..
114
Sheet1 71251201011:20 PM P ... of7
C
a
s
e

1
:
0
8
-
c
v
-
1
0
2
2
3
-
N
R
B

D
o
c
u
m
e
n
t

3
2
-
1
4

F
i
l
e
d

0
8
/
2
3
/
1
0

P
a
g
e

9

o
f

3
9
A
-
4
7
7
,
f\\& (roOD
,
,
2:49AM
1 - ~ ~
CASI ENTITIES
07111110
Transaction Detail By Account
Accrual Basis October 2001 through December 2003
Type Date Num Name Memo Class Debit Credit Balance
General Journal 2/1/2002 pr020102 08 NISTATP 8,333.33
41,667.64
General Journal 513112002 secr
NISTATP 24,999.99
66,667.63
General Journal 713112002 PR 073102 Elisha Gurfein 17 NISTATP 8,333.33
75,000.96
General Journal 81212002 PR 080202 18 NISTATP 8,333.33
83,334.29
General Journal 9/1312002 pr091302 21 NISTATP 8,333.33
91,667.62
General Journal 913012002 pr093OO2 23 NISTATP 8,333.33
100,000.95
Total 6305 . Elisha Gurfein
100,000.95 0.00 100,000.95
6306 . D.B. Karron
General Journal 5/1112002 pr051102 12 NISTATP 8,333.33
8,333.33
General Journal 513112002 secr
NIST ATP 8,333.33
16,666.66
General Journal 7/512002 PR070502 DB Karron 16 NISTATP 43,749.99
60,416.65
General Journal 81212002 PR080202 18 NISTATP 61,918.07
122,334.72
General Journal 913012002 dbk pr
NISTATP 61,918.00
184,252.72
General Journal 1011812002 pr101802 24 NISTATP 16,826.00
201,078.72
General Journal 11/112002 PR 110102 25 NISTATP 16,826.00
217,904.72
General Journal 11/15/2002 pr 111502 26 NISTATP 16,826.00
234,730.72
General Journal 11/2912002 pr 112902 28 NISTATP 16,826.00
251,556.72
General Joumal 1211312002 pr121302 29 NISTATP 4,206.50
255,763.22
259,969.72
General Joumal 111012003 PR 011003 33 NISTATP 4,206.50
264,176.22
General Joumal 1/1812003 PR 011803 34 NISTATP 4,206.50
268,382.72
273,430.52
278,478.32
283,526.12
286,573.92
General Journal 4/1812003 PR 041803 40 NISTATP 11,778.20
300,352.12
General Journal 51212003 interpay 41 NISTATP 6,730.40
307,082.52
313,812.92
320,543.32
General Journal 6/1312003 interpay 45 NISTATP 6,730.40
327,273.72
334,004.12
Total 6306 . D.B. Karron
334,004.12
0.00 334,004.12
6307 . Charles La Salla
General Journal 10/3112001 PR 103101 01 NISTATP 892.50
892.50
General Journal 11/30/2001 PR 11/30/01 02 NISTATP 1,785.00
2,677.50
General Journal 1213112001 pr 123101 03 NISTATP 1,192.50
3,870.00
5,940.00
7,612.50
9,247.50
10,597.50
General Journal 6/312002 PR 060302 Charles Da SalJa 14 NISTATP 1,485.00
12,082.50
14,122.50
16.267.50
18,090.00
19,800.00
General Journal 10/1812002 pr101802 24 NISTATP 435.00
20,235.00
General Journal 11/112002 PR 110102 25 NISTATP 330.00
20,565.00
Page 2
CAe,
2 ~ '
C
a
s
e
:

1
1
-
1
9
2
4

D
o
c
u
m
e
n
t
:

4
6

P
a
g
e
:

2
2
8

0
2
/
2
1
/
2
0
1
2

5
3
1
2
1
9

2
5
8
A-478
137ekarc
1 UNITED STATES DISTRICT COURT
SOUTHERN D1STRICT OF NEW YORK
2 , - - - - - - - - - - - - - - - - - - ~ - - - - - - - - - - - x
3 UNITED STATES OF AMERICA,
4 v.
5 Kl:\.RRON,
6 Defendant.
7 - - - - - - - - - - ~ - - - - - - - - - - - - - - - - - - - x
8
9
10
Before:
11
New York, N.Y.
08 CV 10223
March 7, 2011
4:10 p.m.
HON. NAOMI REICE BUCHWALD,
12 .
District Judge
13
14 APPEARANCES
15 PREET BHARARA
United States Attorney for th,e
16 Southern District of New York
BY: MICHAEL J.BYARS
17 Assistant United States Attorney
18 D.H. KARRON, Pro Se
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(In open court)
THE DEPUTY CLERK: 08 Civ. 10223, United States vs.
Karron. Is the government present and ready to proceed?
MR. BYARS: Yes. Michael Byars, assistant US
attorney, for the plaintiff.
DR. KARRON: Dr. Karron.
THE COURT: It would be helpful to me if we began by
my asking a few questions of the government.
MR. BYARS: Certainly, your Honor.
THE COURT: Assume for argument's sake that you were
granted summary judgment on the False Claims Act claims. Would
there be any need to address the various common law claims that
you asserted?
MR. BYARS: No, your Honor. That would tie up the
case for us.
THE COURT: Okay. Again, there are some issues that
have been raised concerning the amendments to the False Claims
Act, retroacti vi ty issues. For the gove'rnrnent' s purposes, does
it matter? In other words, is your case -- could it be
decided, assuming no amendment to the statute --in other
words, does the amendment have a substantive impact on --
MR. BYARS: No, your Honor. I'm sorry.
THE COURT: this case?
MR. BYARS: It does not have an impact because in this
case Dr. Karron's claims were submitted directly to the
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1 government. So the amendments do not come into play.
2 THE COURT: Again, assuming arguendo that you were
3 awarded treble damages, wOUld there be any necessity for tne
4 government to pursue the civil penalty aspect of your claim?
5 MR. BYARS: Well, I think, the treble damages amount
6 certainly drives in this case the size of the ultimate judgment
7 much more than penalties would. We've sought penalties on only
8 20 of the claims that were submitted, aJ,.though there were
9 additional claims that were submitted that the government
10 believes were false. So the claims themselves do not
11 substantially drive the amount of the judgment that we're
12 seeking. Of course, your Honor would need to find at least one
13 false claim in order for us to get the treble damages in the
14 first place, but the government is not pressing the matter of a
15 specific amount of penalties in this case as opposed to the
16 treble damages count.
17 THE COURT: Let me just make sure those are my
18 questions.
19 (Pause)
20 THE COURT: Mr. Byars, could I ask you in connection
21 with our last exchange to give me an example of a claim that
22 you say is false and just point me to the line, chapter and
23 verse.
24 MR. BYARS: Certainly, your Honor. If we could turn
25 to Exhibit B to t.he Chacon declaration. In my brief, in the
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1 government's brief we noted the fact that there was no cost
2 share contribution made. That's evidenced by the multiple
3 figures that have .been offered by defendant for the cost share.
4 On line 11F of the first form, it says nonfederal
5 share of amount, and it's $6,838.14. That amount is false, as
6 well as the $150,000 amount recorded on line D. We presented
7 evidence from the trial, from the criminal trial, that
8 Dr. Karron had told Mr. Gurfein he was usiqg $75,000 of that
9 for his own uses outside of the purpose of the grant, and yet
10 he's reported here that Dr. Karron -- I'm sorry, has reported
11 here $150,000 that were cash outlays in connection with the
12 certification on the next page, in accordance with the grant
13 conditions or other agreement. That is also false. For the
14 same reason, subsequent forms -- just for those two reasons
15 alone, that report on the prior outlays to date and"the cost
16 share amounts are also falsi::.
17 That takes us, I believe, through Exhibit B. If your
18 Honor would like me to continue.
19 THE COURT: Sure.
20 MR. BYARS: Sure. Again, on the first form under C,
21 you have, again, the net disbursements of $150,000 that were
22 certified by Dr. Karron as having been made for the purpose and
23 conditions of the grant or agreement.
24 Turning the page to the next form, the $150,000 is not
25 incorporated into the 60,000 that's represented here for the
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second quarter -- I'm sorry, second month.
THE COURT: Right.
MR. BYARS: However, it does say cash on hand and a
period of zero. That implies that all of the money that was
received had been properly used. And we know that that's not
For the same reason, the rest of those forms under
C are also false.
Exhibit D, the falsities also flow from my earlier
statements. You have the total amount being spent
incorporating that first $150,000 throughout these forms, as
well as the cost share. And, your Honor, the troubling thing
about all this is that, as I illustrated in the brief, the
reason that this ,was done as a cooperative agreement was to
allow the in essence to manage the risk. This was a
project that was not able to attract venture capital funding.
That's why this program existed in the first place at NIST. In
return for funding these types of risky and potentially high
benefit programs, the government wanted to be able to keep an
eye on .what was happening. And these forms basically
represented that a certain amount of money was being spent over
a certain period of time towards this project. And it clearly
wasn't.
so' in a nut shell" that's a summa:rx of how each of
these forms could be found to be false.
THE COuRT: Dr. Karrbn, why don't I give you the
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1 floor, since I think you were the person mOst anxious to have
2 this argument.
3 DR.KARRON: Thank you. I've prepared some opening
4 _ comments.
5 THE COURT: Sure. Go right ahead.
6 DR. KARRON: I don't want to run out of time, and
7 they're not long. But, your Honor, thank you for permitting me
8 extended oral arguments. My purpose here is to make my case
9 why we need a jury trial.
10 I seek a jury trial for the evaluation of civil
11 damages. It's my right. Anything else is an injustice. The
12 people of the United have a right for a fair evaluation
13 of the damages that resulted from my management of our NIST
14 project. If I am successful, I will show the damages range
15 from reasonable, small, inconsequential and quite possibly
16' negative. lowe it to the people of the United States. lowe
17 it to the people that believed in me.
18 My goal here today is to show that I believe that we
19 have overcome, in our written briefings, the plaintiff's motion
20 for summary judgment for as much as $5 million. It is simply
21 to consider that the plaintiff seeks to win such a
22 judgment without any examination of the foundation for such
23 monstrous attempted claim. The summary judgment for such an
24 amount isa 42-time step-up. That's cruel and unusual
25 punishment. And I go into all the details of law as to why
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1 such large civil s t e p ~ u p is considered a criminal punishment.
2 I am staggered, and I've only come to learn since my
3 recent encounter with criminal law, that it takes a certain
4 . kind of mind that only looks for darkness and refuses to
5 acknowledge the light. Your Honor, the plaintiff is asking you
6 to rely and rely blindly on an unconscionable expansion of a
7 prior criminal jury finding. The abundant case law is clear:
8 A criminal jury finding on one bad check does not entitle civil
9 recovery for 18 more checks. That's us vs. Lamana. The
10 government did not prove fraud in my criminal conviction.
11 Let me stick to the script. Indeed, ~ h e plaintiff
12 argued, and argued successfully in the Second Circuit appeal
13 and the Second Circuit appeal court upheld the district court
14 ruling that fraud was not a needed element when it upheld the
15 conviction on appeal. It is. disingenuous for the plaintiff to
16 argue fraud and claim -- I read these words, I don't know how
17 to pronounce it -- res judicata on issues of fraud, and that
18 now the plaintiff argued against fraud per se on appeal. And I
19 bring these points up in the written brief.
20 The criminal jury trial -- the criminal trial jury
21 found knowing misapplication, not fraud. I thought I knew what
22 I was doing, and I was wrong .. But it was not fraud. Fraud in
23 all its particulars needs to be de novo shown here and not
24 summarily assumed. I make an analogy. The criminal judgment
25 is like an emperor. The plaintiff suggests not to look too
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1 closely at emperor's clothes. Your Honor, you're being
2 asked to rely solely upon the emperor's servant's say-sG.
3 You're being asked to ignore the plain facts that the emperor
4 has no clothes. The emperor's numbers don't add up.
5 With just a little examination, anyone with an adding
6 machine or a spreadsheet can easily find that the numbers are
7 significantly faulty. We attempted to show how in the little
8 space that we had in the briefings that this is so. Even the
9 district court, Judge Patterson, noticed something was wrong
10 and he called the government's numbers a mess. He did not
11 realize" how wrong it was. The plaintiff is asking you not to
12 look. Your Honor, this case and justice dare you to do so.
13 In our early letters we said that we were working
14 towards a high standard to overcome summary judgment, and that
15 high standard is the likelihood of success at trial; not a
16 metaphysical, you know, discussion of doubts; that if we take
17 this to trial, we have hard evidence and hard numbers with
18 what's already in evidence and evidence that we can bring in
19 that we could succeed in a trial. And a trial is over damages;
20 not .guilt, not innocence. The trial is damages. Thejury
21 finding of fact was that there was 5K or more of knowing
22 misappropriation but not And this issue of fraud is a
23 real fine, tight issue.
24 Now, you also mentioned what the issues were in the
25 amendment to the False Claims Act, the FERA amendment, which
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was retroactive, whether or not that retroactivity has any
bearing on this case. It has a tremendous bearing on this
case, because the Supreme Court ruled in Allison -- the Allison
case that even though the law didn't say fraud, a successful
False Claims Act under the Allison standard requires a proof of
fraud. And the ,prosecutor has completely missed that point in
the written briefings and again in this oral argument.
Now, I couldn't bring a laptop to this oral argument.
I can substantiate every statement I ~ a k e . I can show you the
case law. There's been a number of scholarly articles, some of
which just came out in the past couple days, ori precisely and
exactly this issue, on pre- and post-FERA standards for False
Claims Act convictions. Actually, for the collateral estoppel.
And I think on that particular technical issue we should take
the briefing off line. I can fax you the articles which
sUbstantlate
THE COURT: Why don'.t you tell me now. There's a
court reporter. What are the references that you're making?
DR. KARRON: I prefer not to waste time on it, but I.
just found just this morning a scholarly article on FERA
retroactivity. And I'll have -- let me -- I'm still working
off of my script, and I digress. And I'm going to entangle
myself.. I will get you the --
THE COURT: Dr. Karron, it's basic lesson of oral
. argument that it's best to answer the question that. the judge
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1 asks.
2 DR. KARRON: Okay.
3 THE COURT: Tells you what is concerning the judge.
4 DR. KARRON: I have it. All right. I have itin the
5 memorandum of law.
6 THE COURT: I thought you said it was something you
7 found today.
8 DR. KARRON: Yes, I did. And I have to find it.
9 THE C.OURT: All right.
10 DR. KARRON: I have mUltiple articles. It's a hot
11 topic.
12 The question is, and I. stated thi.s in here, is there
13 is pre-FERA and post-FERA standards for application for False
14 Claims Act. ! have a number of articles, they're in my
15 exhibits, okay.
16 THE COURT: All right. If you've already cited them,
17 that's fine.
18 DR. KARRON: The article I found,this I'll
19 have to fax in tomorrow But it basically says that
20 the government's that Congress intended the law to be
21 retroactive, but in its retroactivity it can't violate the
22 Constitution. And that's ex post facto 'and cruel and unusual
23 punishment .. And those are -- that's the take-away today's
24 article. And it's published in the Appellate Court Review"
25 I'll get the cite, exact citation.
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1 Okay. Let me move on, and then we can come back to
2 this, if we want.
3 My point is that there's a knife edge that the Supreme
4 Court wanted parsed as to whether or not there was an element
5 of fraud in False Claims Act. And it would have to be proven,
6 even though the False Claims Act does not use the word fraud.
7 It's nonstatutory language, was the term used. I call it in my
8 brief Allison Wonderland, and I had some typos in there.
9 In our brief we state that under the Allison standard,
10 which I maintain applies to us by claim, not by case, the
11 Supreme Court said fraud need to be proved because otherwise
1-2 ordinary conduct could be made criminal, could be made liable.
13 You could -- things that you. would not expect to have a
14 reasonable expectation to be False Claims Act could be. You
15 could innocently walk into a False Claims Act situatiori without
16 any intention of criminality. And that's, I believe, what
17 happened to me.
18 Let me just finish this up, then I'd like to -- I can
19 come back to that issue. I just need to take a break, okay,
20 where we got derailed.
21 Our goal is to show we have a likelihood of success at
22 trial. I believe we've raised substantial issues of fact and
23 law in the corpus of material that we presented to the Court.
24 The criminal jury finding of fact was there was only 5K
25 misappropriation. The judge found at sentencing, based.on what
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1 I'm calling the emperor exhibits, Exhibit 110 and
2 Exhibit 114 -- those are. the only exhibits that the judge used
3 and that the jury took into the jury room during its
4 deliberation. There was a readback and two exhibits sent in.
5 .Those exhibits were the basis for my conviction. The emperor
6 exhibits, Exhibit 114 and 110, give a misappropriation of
7 $120,000.
8 Now, the plaintiff argues in their brief, and they're
9 not arguing here, the entire grant was misappropriated.
10 The plaintiff wants to convince you that all of these funds
11 were stolen fraudulently, illegally. Pl,aintiff points to
12 different evidence not considered at trial and claims these are
13 f.raudulent, false claims.
.
The plaintiff seeks to prove
14 statutory 31, U.S.C., 3731(d) -- that's statutory collateral
15 estoppel false claims without a schedule of specific
16 and without judicial rsview. This is against the
17 law. This requires a trial.
18 Your Honor, you're being asked to look at inculpatory
19 exhibits that the jury did not pass on. You're being asked to
20 close your eyes to exculpatory exhibits and potential
21 material that we want to put in evidence, principally of which
22 is Deborah Dunlevy's forensic reconstruction, which should have
23 been in the criminal trial and wasn't. The prosecutor is going
24 to say, oh, but, you know, well, you didn't get it in. We're
25 going to try again, all right?
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1 But 'now we're talking about damages, and damages are
2 numbers. You're being recited jury did not pass upon, and
3 you're asked to close your eyes to exculpatory exhibits and
4 potential exhibits, material that we presented. Your. Honor,
5 you're being asked -- you're being recited fragments of
6 testimony the jury did not pass on as being true.
7 Gurfein said a lot of incorrect things. He said he
8 thought I had facial surgery when I had dental surgery. He
9 thought that, you know -- I mean,. he lied. He said a lot of
10 it will get me too upset to talk about it, but you're being
11 read pernicious gossip.
12 My argument here is I overspent my grant, and the
13 margin of error in my overspending is against myself. Deborah
14 Dunlevy's analysis showed that we put much more money in than
15 the government -- more money went to this project than the
16 government put in. We go through this during the briefing. We
17 give total spending on the grant,the total amount the
18 put in and the amount that I put in. And I funded
19 this out 'of my salary. I gave up, I paid taxes on my budget,
20 allocated, funded salary, and I it back in the project to
21 pay for indirect costs, which are allowed. They're just not
22 allowed with government money.
23 There's a line item on the budget, line J, for
24 indirect costs. It's not illegal. What's improper is to use
25 government money on indirects .. Now, I spent .my own cash that I
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1 earned, my salary, tax paid .. I have the time sheets. I have
2 the paychecks. I have the withholding taxes, the quarterly
3 transmissions. You have the whole line on the payroll. My
4 salary was almost $200,000 on this project .. That gives me a
5 lot of slop were overspent. I burnt virtually every penny I
6 had on this thing.
7 All right. Let me -- okay. You're being askedto
8 assume that the misappropriated funds are solely of government
9 origin. You're not looking at all of the money I put in. I
10 put my tax paid money to support this proj.ect.
11 You're being asked to make that assumption of
12 misappropriation funds solely of government origin. You can't.
13 It was not established by the jury. Such an assumption has too
14 many leaps of conjecture and lands into fallacy, not fact.
15 In our briefing we present numerous -- and I love this
16 word: Irrefragable. I never heard of it until recently
17 irrefragable proofs that are visible from the
18 present'ed with justa little summation or adding it up. And
19 that's what Deborah Dunlevy did. She added up the numbers.
20 And it shows I put in my money, the government put in its
21 money, and I didn't hide a thing from anyhody, except for one
22 thing: And that I'm a post-op transsexual.
23 All right:. I don't have a laptop. I don't have
24 access to the corpus of evidence. And my corpus of evidence is
25 much, much 'larger than the prosecution's evidence. I p:r:opose
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1 that where I make a reference to a specific piece of evidence,
2 like the Allison Engine Supreme Court case and the corpus of
3 commentary on that, that I'll supply that to support my case,
4 support my argument.
5 THE COURT: Dr. Karrort, your briefing is over,. If you
6 want to send me a reference to an article, you may do that, but
7 briefing is done in this motion.
8 DR. KARRON: Okay. Very good.
9 THE COURT: You have nothing more to say?
10 DR. KARRON: You said it was over.
11 THE COURT: I said briefing, paper submissions, not
12 your oral -- I gave you -- said this argument would last an
13 hour., We're only a half an hour in.
14 DR. KARRON: Okay. All right.
15 What I would like to I was hoping to respond to
16 questions. The question that I heard so far is issues of-post
17 and -- pre- and post-FERA False 'Claims 'Act. I go into a
18 'memorandum discussion of that. Why is FERA important? And my
19 argument in the written brief is I'm taking refuge in the
20 Allison ruling of the Supreme Court. What does that mean?
21 Page 21.3. Incongruent mens rea elements which in criminal and
22 civil statutes preclude collateral estoppel and summary
23 judgment. And that's the goal, of why I'm here, because I
24 believe we have enough points of fact and law that require a
, 25 jury trial.'
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1 Why is Allison important? Allison Engine v. US ex
2 rel. Sanders, 2008 Supreme Court of the United States,
3 challenge previously accepted broad reach of elements of the
4 False Claims Act is unconstitutional. They False
5 Claims Act. Supreme Court held that plaintiffs under the
6 Allison rulirig must prove the claims were intending to defraud
7 the government. Now, I maintain that the government at trial
8 has to prove that I lntended to defraud, that I defrauded the
9 government by something that I wrote that misrepresented what I
10 was doing.
11 What I qid, what I state in this brief, is I overspent
12 my grant. The numbers are not correct, but they're to my
13 detriment, not the government's. But the Supreme Court held
14 under Allison that the False Claims Act must prove that the
15 claim made was specifically intended to defraud the government.
16 Additionally, the plaintiff must prove the defendant intended
17 the false statement to be material to the government's decision
18 to payor approve the false claim. What that means i's that if
19 I make a mistake or if I say a lie to coerce -- to connive the
20 government to give me money that I was not due, that's what
21 needs to be proven in order to establish a false claim.
22 A defendant is not answerable for anything beyond the
23 natural, ordinary and reasonable consequences of his conduct.,
24 ibid from Allison Engine v. US ex rel. Sanders, 2008. That's
25 the heart and soul of a False Claims Act element of my defense.
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1 A misappropriation is not a false claim. It's misappropriating
2 . funds. It's not making a false claim. This is what needs to
3 be decided at trial. I'm not saying that I have the answer
4 here. I'm just saying that this is enough of an issue that it
5 should be taken to a trial.
6 Now, why do we talk about all the other stuff like
7 numbers? We have a chance that we overspent the grant. The
8 government's not counting that the government's arguments are
9 wrong. I'm not rearguing my conviction. I'm stating that
10 we're going to -- if we're going to analyze claims,then we
11 have to decide whether or not we're using my money or the
12 government's money. I attempted to segment funds in the grant,
13 had two checking accounts. The government's whole position is
14 based on the unfounded assumption that I didn't put any money.
15 in it. It's just not true. And this wasn't argued in the
16 criminal trial at all. And I trusted my attorney. Ithought
17 he knew what he was doing, and he completely trashed the
18 forensic accounting.
19 All right. Retroactivity. Subsequent to the
20 government's complaint of November 24, 2008, when the
21 government complained -- issued its complair:lt against me, after
22 I was convicted, Congress enacted Pubiic Law 111-21, Fraud
23 Enforcement and Recovery Act, FERA, on March 23, 2009. In an
24 unusual effort to rebroaden the reach of the False Claims Act,
25 Congress attempted to make FERA retroactive to take effect as
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1 if it was enacted on June 7, 2008, and apply to all claims of
2 the False Claims Act, 31 U.S.C. 3729 at C that are pending on
3 or after that date. The stated legislative intent was to
4 overturn the Allison ruling of the' Supreme Court. And this has
5 turned into a whole production, because as soon as the case was
6 remanded back to the district court, they said it was
7 unconstitutional, the retroactivity. FERA retroactivity was
8 declared unconstitutional in the district court of Judge Rose,
9 US ex reI. Rogers v. Allison Engine, Southern Distric.t of
10 Western Ohio. Judge Rose held that the retroactive application
11 of amendments of the False Claims Act set forth in FERA with
12 punitive damages violated ex post facto clause 3 of Article I,
13 Section 9 of the,US Constitution .. In that case the p ~ n a l t y
14 sought was 42 times X restitution. In this case the penalty
15 sought was 42 times the restitution, and that's punitive.
16 The next issue on FERA retroactivity is it applies to
17 claims, not cases. The prosecutor claims that that's not the
18 case, that it applies to cases. I think some of these points
19 are moot, because even if FERA is held to apply, if it's 42
20 times the criminal finding, it's still unconstitutional. If
21 it's -- we'll come ,back to that. So we have --
22 THE COURT: I don't think the government I think,
23 based on what I asked the g.overnment, the government is not
24 relying on the amendments., They say, even without the
25 amendments, our position is sound.
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1 DR. KARRON: I maintain --
2 THE COURT: Am I wrong about that?
3 MR. BYARS,: That's correct. We don't need to show
4in this case Dr. Karron made his statements directly to the
5 government, so the issue as to whether there was an
6 intermediary that was receiving the government funds just
7 doesn't arise.
8 DR. KARRON: That's incorrect.
9 THE COURT: What's incorrect?,
10 DR. KARRON: The issue is not whether there's an
11 intermediary or not. That was one of the issues that Allison
12 dealt with. The issue is --
13 THE COURT: The government let 'me just explain.
14 Wha,t I understand the government to be saying is we don't need
15 to rely on any additional benefit that the amended statute
16 gi ves to the government. The government here is content., as a
17 matter of argument" to rely on the old statute as it, was
18 written. So they don't need to engag,e with you on
19 retroactivity --
20 DR. KARRON: So we've agreed
21 THE COURT: Okay? They said they're fine under the
22 old law.
23 DR. KARRON: Then we should stipulate that we're
24 operating under the Allison pre-FERA standard.
25 THE COURT: I'm not asking them to stipulate. I just
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1 wanted the answer to my question. I need to know as a judge
2 what issues do I have to address, because part of proper
3 judging is not addressing issues that you don't need to reach.
4 DR. KARRON: Okay.
5 THE COURT: Okay?
6 DR. KARRON: The pre-FERA standard required finding of
7 fraud. That was the take-away of import from my case in the
8 Supreme Court ruling. Under Allison the false claim must be
9 made specifically intended to defraud t0e government.
10 designed for when you make out a bill for the goods you haven't,
11 delivered. It's designed for services you haven't provided.
12 It's designed for fake paperwork. The term fraud is not in the
13 ' statutory language. The Supreme Court insisted that an element
14 of frau,d had to be shown., This enraged Congress and they
15 amend -- retroactively amended it, among other reasons that
16 Congress decided to retroactively amend,the False Claims Act.
\
17 Now, so that is the Allison Wonderland that I find
18, myself in. I want to take -- my goal is to take refuge in that
19 Supreme Court decision. The issue is not whether or no't a
20 subcontractor presented for government funds or'contractor
21 presented for government funds. The other issue that Allison
22 made -- ,the Supreme Court made in the Allison decision, which
23 has been written up allover the Internet in all the legal
24 blogs -- there's lots and lots and lots. of commentary on
25 this '-- is that you had to show fraud, intent to defraud. Now,'
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1 I'm not saying that we have to prove fraud, now. I'm saying
2, that that's an element t;,hat was not proven on these documents,
3 these transactions.
4 Let me give a little analogy. In the criminal trial
5 everybody was pointing at the checks. Everybody was, looking at
6 the spending. Said, this spending is no good, this spending is
7 good, this spending is no good, The documents that the
8 prosecutor brings to bear now were not the topic of any of the
9 criminal proceedin.gs. The criminal trial focused on the checks
10 and the spending, and now the government is asking for summary
11 judgment on a different set of documents as false claims and is
12 trying to use collateral estoppel to prevent me from having my
13 day in court. They're different documen'ts. They're different
14 'transactions.
15 In order to invoke collateral estoppel, there's a
16 statutory procedure. The statutory procedure says that if the
17 same transactions found criminally can be recovered civilly,'
18 then you have no defense. You're estopped from arguing
19 anything about them because you were founq guilty of those
20 transactions. Therefore,the False Claims Act statutory
21 collateral estoppel procedure is spelled out. And they're more
22 stringent. The statutory collateral estoppel are more
23 stringent than the application of civil collateral estoppel.
24 Part of being a scientist is becoming expert in all
25 sorts of bizarre topics, and this is a topic I never thought
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1 I'd have to become expert in. False Claims Act, statutory
2 collateral estoppel is extremely stringent. It applies to same
3 transactions. The transactions that the prosecutor is looking
4 to bring to against me are not any of the transactions
5 brought to bear in a criminal trial. These are new,different
6 transactions, if they are indeed transactions.
7 The typical use of statutory collateral estoppel is
8 spelled out in this case, which I don't even know how to
9 pronounce, US vs. Samzai -- please correct me -- with these
10 steps. First, the Court discusses the factual.background on
11 the criminal conviction or plea. Second, the Court moves to
12 outline the criteria for granting summary judgment under
13 Rule 56, which is the absence of any genuine issue of material
14 fact. Step three, the Court juxtaposes factual predicate,
15 factual -- you have to take each element of the criminal
16 conviction and determine whether or not the same transaction is
involved. And that's US v. Kanelois, 1994. And again, I don't
18 know that I'm P!onouncing these correctly. It's US v.
19 K-A-N-E-L-O-I-S, 1994. And I won't read the WestLaw numbers.
20 But it' sa five-step process for invoking c'ollateral estoppel
21 called out by the statute.
22 The Court discusses factual background; moves to
23 outline the criteria for granting summary judgment under
24 Rule 56, the criminal and the civil issues, that
25 they are the same transaction involved. Your Honor, we don't
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1 have the same transactions.
2 Number four, the Court then concludes the collateral
3 estoppel bar has been triggered. It can only be triggered with
4 the same transactions. Therefore, summary judgment must be
5. granted and the defendant, me" is estopped from denying all of
6 the allegations in the False Claims Act claimed, which he's
7 bringing up: Your Honor, we don't have the same transactions.
8 Theylre attempting to bring in new transactions. That requires
9 a trial.
10 Now, the standard of us vs. Samzai, ibid, does.not
11 apply here. And that case, is a man pted gUllty to Medicaid
12 fraud, which is what the False Claims Act was designed for, bad
,13 claims for payment for goods and services. The application of
14 a False Claims Act to collaterally attack :...- which is what this
15 is -- to a bribery embezzlement act finding of misapplication
16 of funds, not claims, does not apply. We're comparing apples
17 to apple juice.
18 Okay. Remember, I'm not arguing the truth or falsity
19 of any of these issues. I'msaying that these issues are
20 material enough to warrant a trial. If I had written a check
21 for prostitution service on government funds, that check might
22 'be construed as a false claim, if it had been brought up in the
23 criminal trial and I'd been found guilty on that check.
24 Now, as I mention in my opening remarks, being found'
25 guilty of one check doesn't make you civilly liable.
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1 Criminally liable for one check doesn't make you civilly liable
2 for 15 other checks. That's the Lamana case. The milkman and
3 Lamana limitation, false claims is a pretty tough law. But it
4 has limitations. It's not without boundaries. I'm not guilty
5 of everything .. Everything that everybody said about me in a
6 criminal trial is not found true by virtue of the jury trial
7 conviction for something over $5,000 misappropriated.
8 All right. Let me just go through this. This is all
9 in the brief. Page 26 of 41, the False Claims Act collateral
10 estoppel is not without boundaries .. The government argued that
11 a nonjury finding of facts made by a district judge for
12 sentencing purposes '. which is what we have here - - Judge said
13 $120,000 is misspent, $120,000 restitution. That doesn't mean
14 that you have to use that figure as a False Claims Act. You
15 can make a completely new determination, higher or as
16 you see fit, as a jury trial would find. You're not bound by
17 the criminal trial on the damages.
18 Now, essential elements of the underlying offense
19 to which I was found guilty does not make me civilly liable for
20 the that we filled out that we can show through
21 exhaustive financial reconstruction, forensic financial
22 reconstruction that Deborah Dunlevy did, which should have been
23 in the criminal trial but wasnit, to counter exhibits that are
24 clearly incorrect that should -- that the judge said should not
25 be' relied upon and yet were. And I'm quoting from my own
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1 verbiage. Paragraph
2 THE COURT: Dr. Karron, you have about five more
3 minutes.
4 DR. KARRON: Okay. I need some questions, because I'm
5 going to start spinning --
6 THE COURT: I don't have any questions.
7 DR. KARRON: Okay. My point is in what I'm trying to
8 make is that if we're going to focus on the False Claims Act,
9 the False Claims Act collateral estoppel spells out same
10 transactions. We don't have the same transactions here.
11 THE COURT: I think you said that a number of times.
12 DR. KARRON: I'm spinning my heels.
13 THE COURT: Let me ask Mr. Byars if there's -- if he'd
14 like to respond to. anything that Dr. Karr.on said, or you have
15 the next few minutes to say anything else you want to s a y ~
16 MR. BYARS: I think Dr. Karr:on's largely addressed
17 issues that have come up in the briefing that we've responded
18 to on reply. I wrote down a couple of notes. I know that he
19 was concerned that the numbers he believes were not correct,
20 and he asserts that it was his money that was overspent, but
21 that's really not relevant here, your Honor. As the Longee
22 court noted in that case,' there was an irony of finding of a
23 False Claims Act violation, notwithstanding the fact that the
24 batteries that had been sought by the government, in fact, had
25 been developed by the defendant.
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1 So the fact.that I mean, even if it were to be true
2 that Dr. Karrori spent all of his salary on this, it still isn't
3 material to the issue here. As I showed before, the
4 certifications on the forms that he submitted were untrue. I
5 don't know what other conclusion could be drawn from the
6 evidence that we've put forward, and also from the jury
7 verdict.
8 Dr. Karron would like to prove that quite possibly
9 there were negative damages. I don't see how that could be
10 squared with a jury verdict of a misapplication of at least
11 $5,000 and an amount of $120,000 found by the sentencing judge
12 at sentencing. So I think that the government is entitled to
13 judgment both as to liability and as to the damages, based on
14 the 1 .. 355 million amount that appears in both sides' . papers.
15 As for your earlier question to me about the
16 government pressing the penalties amount, it seems from what
17 Dr. Karron has articulated that the government may need to
18 press forward on all 20 forms being improper for their own
19 reasons, as I articulated before. And I don'.t have a copy of
20 the statute in front of me. I was looking for that during
21 argument just now. But I believe that the government is
22 entitled to some damages amount for each claim that.your Honor
23 finds td be false. And I'm happy to respond to that by letter,
24 just to clarify if I'm correct on that.
25 That being said, I as I said before, I
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1 understand from your question that the Court may have some
2 concerns about the amount of the judgment. Andas noted
3 before
4 THE COURT: Well, it's just a I think it's sort of
5 a question driven in part -- the i s s u ~ of whether pursuing
6 penalties on'top of treble damages is -- could not be
7 considered sort of piling on the reality, you know, I think is
8 that the government,assuming it wins, is never going to be
9 made whole as a practical matter. So, you know, the issue is
10 whether it is necessary to address each separate claim and, you
11 know, spell out what ,is the falsity in each. And that was what
12 was sort of driving the question.
13 MR. BYARS: I understand, your Honor. The judgment
14 that the government is seeking here is over $4 million.
15 Dr. Karron has articulated that this represents 42 times the
16 restitution amount.
17 THE COURT: That argument doesn't affect me. That IS
18 not how you calculate whether a civil judgment is an
19 unconscionable amount. It's the multiple of the grant, not the
20 mUltiple of what was found by Judge Patterson to be the
21 restitution amount. Just as a matter of law it's not.
22 MR. BYARS: The government would just note that there
23 is an Eleventh Circuit case in the opening brief where there is,
24 a 3.2 mUltiple. I think we come in just below that. But,
25 again, the government leaves it to your discretion as to'the
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1 proper amount of penalties.
2 THE COURT: Dr. Karron argued that under the
3 collateral estoppel provision of the False Claims Act, that
4 criminal case and this case do not involve the same
5 is your response to that?
6 MR. BYARS: Well, the criminal case found that there
7 was at least some misappropriation of funds here. Now the
8 government has put in in its 56.1 statement. additional
9 testimony that we believe goes, to show the falsity of these
10 forms. It is not the cleanest one-to-one correspondence
11 between the criminal case and the civil case, but the
12 government believes that it would be impossible to show that
13 all of these statements were correct and still be --- have that
14 be consistent with the jury verdict.
15 THE COURT: Are you sure that a transaction means the
16 claim for reimbursement, or can transaction be the grant?
17 MR. BYARS: Well, it certainly concerns --
18 THE COURT: In other words, in a more commercial
19 context, you could have a contract with the government and
20 then, pursuant to the contract, there are a series of requests
21 for reimbursement or claims. So I'm not sure whether it's, you
22 know, correct, as Dr. Karron suggests, that -- unless there's
23 case law, and I maybe haven't read it all, that transaction
24 necessarily means the claim for itself.
25 MR. BYARS: Well, all of the claim forms in this case
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1 certainly do tie in to the representations that Dr. Karron made
2 when the grant was initially awarded, when the -- sorry, the
3 cooperative agreement was initially awarded. And those
4 are in the record in the 56.1 -- I'm sorry, attached
5 to my declaration, your Honor. So, yes, in that sense they do
6 all relate to the same transaction.
7 DR. 'KARRON: A transaction is one movement of money,
8 an exchange. I fill out a form, I ask for some money, the
9 government sends it to me. 'That's a transaction.
10 THE COURT: I think that's a claim.
11 DR. KARRON: Okay. But the issue here is same
12 transaction. Collateral estoppel is invoked in the same
13 transaction raised in the criminal trial. It's collaterally
14 estopped from me, prevented me defending myself on that matter.
15 These issues are issues for trial.
16 THE COURT: All right. I think we're done, okay?
17 Ve-r:y good. Thank you.
18
19
20
21
22
23
24
25
(Adj ourned)
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A-507
Federal Rules of Appellate Procedure Form 1. Notice of Appeal to a Court of Appeals
From a Judgment or Order of a District Court.
United States District Court for the District of
Southern District of New York
File Number 08 - civ -10223
-------------------------
United States of America
Plaintiff,
v.
DANIEL B. KARRON
Defendant.
)
)
)
)
)
)
USDCSDNY
DOCUMENT
E LECTRONICALLY "FIlEt);
DOC# ..
DATE FIlED: if I %- 26 If
Notice of Appeal
Notice is hereby given that DANIEL B. _,(plaintiffs)
(defendants) in the above-named case* , hereby appeal to the United States Court of Appeals for
the Second Circuit (from the final judgment) (from an order (describing it)) entered in this
action on the 13 day of April , 19_
11
_.
/s/
DANIEL B. KARRfII'IJ I U !
Attomy for
Pro Se
Address:
348 East Fulton Street, Long Beach, NY 11561
* See Rule 3 (c) for permissible ways of identifying appellants

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Case: 11-1924 Document: 46 Page: 215 02/21/2012 531219 258

Case: 11-1924 Document: 46 Page: 216 02/21/2012 531219 258

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