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12-2207 Karron v USA Certificate of Appealability Brief Appendix

Page 28
12-2297pr
To be argued by:
D. B. KARRON
Uu|Icd 'IaIco <oa|I o| Jppca|o
FOR THE SECOND CIRCUIT
Docket No. 12-2297



DANIEL B. KARRON,
Petitioner - Appellant,
v.
UNITED STATES OF AMERICA,
Respondent - Appellee.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK

APPENDIX Volume 11 FOR THE PETITIONER - APPELLANT










D. B. KARRON
pro se
348 East Fulton Street
Long Beach, New York 11561
(516) 515- 1474
drdbkarron@gmail.com

Table of Contents

NOTE: Page Numbers are not correct and need to be hand entered because
of hand insertion of PDF. Contents for ordering, not for reference. Citations into
page numbers are being checked.
Contents
Table of Contents ............................................................................................. 2
APPENDIX VOLUME COVERS .................................................................. 6
APPENDIX Volume 1 FOR THE PETITIONER APPELLANT ................ 7
APPENDIX Volume 2 FOR THE PETITIONER APPELLANT ................ 9
APPENDIX Volume 3 FOR THE PETITIONER APPELLANT ..............11
APPENDIX Volume 4 FOR THE PETITIONER APPELLANT ..............13
APPENDIX Volume 5 FOR THE PETITIONER APPELLANT ..............15
APPENDIX Volume 6 FOR THE PETITIONER APPELLANT ..............17
APPENDIX Volume 7 FOR THE PETITIONER APPELLANT ..............19
APPENDIX Volume 8 FOR THE PETITIONER APPELLANT ..............21
APPENDIX Volume 9 FOR THE PETITIONER APPELLANT ..............23
APPENDIX Volume 10 FOR THE PETITIONER APPELLANT ............25
APPENDIX Volume 11 FOR THE PETITIONER APPELLANT ............27
APPENDIX TABS ........................................................................................29
Case Docket ..................................................................................................... 1
District Court Amended Opinion and Order ................................................... 2
Docketed Briefs ............................................................................................... 3
Originating 2255 Form Motion ....................................................................... 4
Originating Brief Memorandum of Facts and Law ......................................... 5
Reply Brief Corrected Sur Reply Memo of Facts and Law ............................ 6
Audit and Accounting Forensics (short) .......................................................... 7
GX114 .............................................................................................................. 8
GX114 in Focus ............................................................................................... 9
GX110 Year 1 ................................................................................................10
KARRON PERSONAL ACCOUNTS ..........................................................11
GX112 Year 1 ................................................................................................12
Year 1 SF269A ..............................................................................................13
Year 1 Source of Funds .................................................................................14
Karron Co-Funding Year 1 Schedule .....................................................15
Karron Co-Funding Check 1166 .........................................................16
Karron Co-Funding Check 5339 .........................................................17
Karron Co-Funding Check 5341 .........................................................18
Karron Co-Funding Check 1222 .........................................................19
Karron Co-Funding Check 1228 .........................................................20
Karron Co-Funding Check 1142 .........................................................21
Karron Co-Funding Check 1243 .........................................................22
Karron Co-Funding Check 1152 .........................................................23
Karron Co-Funding Check 1153 .........................................................24
Karron Co-Funding Check 1154 .........................................................25
Karron 75K Payroll Advance and Repayment......................................26
Salary Advance and Repayment Schedule .........................................27
Year 2 Source of Funds .................................................................................28
GX113 Year 2 Source of Funds ....................................................................29
Year 2 Karron Checks Source of Funds ........................................................30
Karron Co-Funding Year 2 Schedule .....................................................31
Karron Check 1142 for $5000 ..............................................................32
Karron Check 1152 for $2,500 .............................................................33
Karron Check 1153 for $2,500 .............................................................34
Karron Check 1154 for $2,500 .............................................................35
Karron Check 1166 for $2,000 .............................................................36
Karron Check 5339 for $2,000 .............................................................37
Karron Check 5341 for $1,000 .............................................................38
Karron check 1222 for $1000. ..............................................................39
Karron check 1228 for $20,000 ............................................................40
Karron Check 1243 for $25,000 ...........................................................41
Program Purchases during Program on Karron Personal ...............42
KARRON PERSONAL MASTERCARD ....................................................43
STATUTES ...................................................................................................44
15 USC 278n(2001) .....................................................................................45
Rules and Regulations ...................................................................................46
15 CFR 24.30 Changes ................................................................................47
15 CFR 14 DoC Uniform Administrative Rules ........................................48
OMB Cost Principles 2001 ............................................................................49
48 CFR Ch. 99 9903.2015 Waiver (2001) ................................................50
Government Exhibits .....................................................................................51
Government Exhibit Contracts ......................................................................52
GX1 Proposal Preparation Kit .......................................................................53
GX2 ATP General Terms and Conditions 2001............................................54
GX3 DoC Financial Assistance Standard Terms and Conditions .................55
GX4 Grants and Agreements Management Division GAMA ......................56
GX12 Co Operative Agreement ....................................................................58
GX13 Special Conditions ..............................................................................59
GX14 Special Conditions ..............................................................................60
POPA Newsletter 1 ........................................................................................61
POPA Newsletter 2 ........................................................................................62
Case Law........................................................................................................63
Institute for Technology Development v. Brown, 63 F.3d 445 (C.A.5
(Miss.), 1995) ...........................................................................................................64
Scholarly Writing ...........................................................................................65
Legal Scholarly Writing ................................................................................66
Say What You Mean J Levine .......................................................................67
Financial Assistance And The Bona Fide Need Rule ...................................68
The Use of Sentencing Findings ............................................................69
THESE PAGES INTENTIONALLY BLANK .............................................70
TRIAL and Sentencing TRASCRIPT (Long) ...............................................77
DUNLEVY FORENSIC RECONSTRUCTION (Long) ..............................77


APPENDIX VOLUME PAGES

Volume V1 KA-1 KA-300
Volume V2 KA-300 KA-599
Volume V3 KA-600 KA-899
Volume V4 KA-900 KA-1199
Volume V5 KA-1200 KA-1499
Volume V6 KA-1500 KA-1799
Volume V7 KA-1800 KA-2200a (oversize)
Volume V8 KA-2200 KA-2499
Volume V9 KA-2500 KA-2799
Volume V10 KA-2800 KA-3099
Volume V11 KA-3100 KA-3332 END
Table 1 Appendix Volume Pages


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1 Ri l ey' s dat a base. So l et ' s go t ake a l ook at gover nment

2 Exhi bi t 110, page 38 of 44, t hey ar e al l r i ght t her e.

3 Ms. Ri l ey i s an audi t or . She mi ght not have been t he most

4 ar t i cul at e wi t ness, but she di dn' t over l ook t hese checks. What

5 gover nment exhi bi t 110, page 38 of 44 shows, i s t hat whi l e Dr .

6 Kar r on di d put money i nt o CASI , he al so made CASI l oan hi m

7 money, a l ot of money. And at t he end of t he day, once you

8 subt r act t he number s, and you t ake i nt o account t ax

9 wi t hhol di ng, Dr . Kar r on ended up t aki ng out mor e money f r om

10 CASI t han what he l oaned CASI and what he i s ent i t l ed t o i n

11 sal ar y. And t he ATP gr ant ended up bei ng t he onl y sour ce of

12 f undi ng t hat went i nt o CASI ' s busi ness account i n year one.

13 And t hat ' s exact l y what gover nment Exhi bi t 112 shows.

14 But you don' t have t o r el y on number s al one. You al so

15 hear d t he t est i mony of Lee Ger f ei n. Mr . Ger f ei n t ol d you t hat

16 he spent 25 per cent of hi s t i me at CASI f und r ai si ng t r yi ng t o

17 get CASI addi t i onal sour ces f undi ng, asi de f r omt he ATP f und.

18 But Mr . Ger f ei n t ol d you he was unsuccessf ul and di dn' t br i ng

19 i n any money at al l whi l e he was at t he company dur i ng year one

20 of t he gr ant . Hi s t est i mony i s f ul l y consi st ent wi t h what

21 gover nment Exhi bi t 112 shows.

22 Now l et ' s go t o year t wo, gover nment Exhi bi t 113.

23 Agai n f or year t wo, t he pur pl e ar ea r epr esent s how CASI ' s

24 account s wer e f unded by t he ATP gr ant on t hat . You can see f or

25 your sel ves t hat f or vi r t ual l y al l t he money, i t came f r omATP


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1 except f or a t i ny sl i ce t her e, whi ch summed up t o appr oxi mat el y

2 $1700, whi ch came f r ommi scel l aneous r ef und checks. Agai n,

3 t hi s i s f ul l y consi st ent wi t h t he t est i mony of t he l ast

4 busi ness manager , Bob Benedi ct , who t ol d you t hat ATP was

5 CASI ' s onl y sour ce of f undi ng.

6 Let ' s t ur n now t o how t he def endant spent al l t hat

7 money. I sai d how t he def endant spent al l t hat money, because

8 as you hear d f r omt he busi ness manager s Lee Gur f ei n and Bob

9 Benedi ct , t he def endant was t he onl y per son who had si gni ng

10 aut hor i t y. And as you can see f or your sel f i n t he checks, D.

11 B. Kar r on was t he onl y one who act ual l y si gned checks.

12 When J udge Pat t er son i nst r uct s you on t he l aw l at er , I

13 expect you wi l l l ear n t hat t o sat i sf y t he r equi r ement of t he

14 st at ut e, t he amount of mi sappl i cat i on t he gover nment woul d need

15 t o pr ove i s $5, 000 and mor e. So l et ' s t ake a l ook at

16 gover nment exhi bi t 114 and see what happened t o t he money i n

17 year one.

18 As Ms. Ri l ey expl ai ned t o you, t he char t t o t he l ef t

19 shows t he br eak down by budget cat egor i es, accor di ng t o t he

20 appr oved budget , how t he money i s supposed t o be spent . The

21 char t t o t he r i ght shows what act ual l y happened, what act ual l y

22 happened t o t he money. Remember , al l t he gover nment needs t o

23 pr ove i s $5, 000 i n mi sappl i ed f unds. For get about ever yt hi ng

24 el se i n t hi s char t f or now, j ust l ook at t he r ent . Rent al one

25 was $60, 000, 12 t i mes, 12 t i mes, l adi es and gent l emen, above


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1 t he $5, 000 t hr eshol d.

2 You hear d a l ot of t est i mony about r ent . Hope Snowden

3 t est i f i ed t hat you coul dn' t use r esear ch money t o pay r ent ,

4 per i od. I t doesn' t mat t er whet her you used t he condo i n par t

5 as an of f i ce. I t doesn' t mat t er t hat ATP i s t he onl y pr oj ect

6 t he company i s wor ki ng on; no means no. And t hat ' s because t he

7 ATP pr oj ect i s t o f und hi gh r i sk sci ent i f i c r esear ch, not

8 over head expenses t hat ever y busi ness has t o pay. And t he

9 def endant t r i ed t o get r ent appr oved, usi ng di f f er ent

10 j ust i f i cat i ons, but he was expl i ci t l y t ol d no, t i me and t i me

11 and t i me agai n. And t he def endant di dn' t j ust hear i t f r omt he

12 NI ST peopl e. The def endant got t he same no answer f r omhi s t wo

13 busi ness manager s, Lee Ger f ei n and Bob Benedi ct , who cont act ed

14 NI ST at t he def endant ' s r equest , got t he same no answer and

15 t ol d t he def endant no. The def endant got t he same no answer

16 f r omhi s bookkeeper Fr ank Spr i ng. Despi t e al l t hese no

17 answer s, we al l know what happened. The def endant sai d he

18 coul d do what ever he want ed. He sai d t he peopl e at NI ST l oved

19 hi m. He went ahead and he di d i t anyway.

20 Ladi es and gent l emen, t he gover nment coul d st op r i ght

21 her e and meet t he $5, 000 t hr eshol d r equi r ed by t he st at ut e, but

22 we di dn' t st op t her e because t he cr i me t he def endant commi t t ed

23 got wor se, much wor se. Once t he def endant deci ded t o cheat , he

24 deci ded t o go al l out . Af t er al l , why l i mi t your sel f t o r ent .

25 Ut i l i t i es ar e sor t of l i ke r ent , r i ght . You can' t wor k or l i ve


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1 i n a pl ace wi t hout el ect r i ci t y or ai r condi t i oni ng, r i ght . So

2 l et ' s use gr ant money t o pay f or t hat t oo. And t hat ' s exact l y

3 what he di d, over $16, 000 i n ut i l i t i es i n year one al one. But

4 wai t . Why l i mi t t o r epr esent and ut i l i t i es? Af t er al l , you

5 can' t l i ve or wor k i n a pl ace t hat ' s t oo messy, r i ght , so l et ' s

6 hi r e a cl eani ng l ady and t o do some dust i ng and wi pi ng and have

7 t axpayer s pay f or t hat t oo. And t hat ' s exact l y what he di d,

8 cl eani ng over $5, 000 i n year one. Why st op t her e? Af t er al l ,

9 you can' t wor k i f you' r e hungr y, r i ght . So l et ' s t hr ow i n

10 meal s f or good measur e, and have Uncl e Sampay f or t hat t oo.

11 Cl ose t o $2, 000 i n year one al one.

12 Now, you r emember Mr . Rubi nst ei n aski ng Ms. Ri l ey

13 quest i ons about meal s. He showed her r ecei pt s of meal s t hat

14 Dr . Kar r on had wi t h handwr i t t en not at i on on t he back showi ng

15 t hat he at e wi t h ot her peopl e. You r emember t hat . Wel l , so

16 what . Does anyone ser i ousl y t hi nk t hat you can go t o I Hop as

17 def endant di d, and have t axpayer s pi ck up t he t ab because you

18 cl ai myou t al ked about t he pr oj ect over pancakes? Ther e' s no

19 l i ne i t emi n appr oved budget f or meal s, so you can' t pay f or

20 meal s wi t h gr ant money, per i od. I t i s t hat si mpl e.

21 But no, def ense counsel sai d i t ' s not so si mpl e

22 because t her e' s t hi s cat egor y cal l ed ot her s t hat maybe you can

23 f i t i t i n. Wel l , guess what ? Thi s i s not a game t o see who

24 coul d come up wi t h t he cl ever est ar gument t o see whet her you

25 coul d make somet hi ng f i t . Ther e ar e r ul es. Ther e ar e wr i t t en


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1 budget s. And so l et ' s go t o gover nment exhi bi t 10B, page

2 seven. Thi s i s t he pr oposed budget t he def endant hi msel f

3 submi t t ed t hat NI ST l at er appr oved. You can see what ot her s i s

4 r ef er r i ng t o. I t ' s r ef er r i ng t o audi t s, not meal s; audi t s,

5 t hat ' s i t . And so no, t he def endant coul dn' t go t o a

6 r est aur ant , cl ai mhe was t al ki ng about t he pr oj ect over di nner

7 and have t he f eder al gover nment pay f or i t . I nst ead, he needed

8 t o pay f or i t hi msel f f r omhi s own sal ar y, j ust l i ke ever ybody

9 el se i n New Yor k Ci t y who doesn' t get a f eder al gr ant .

10 Bef or e I l eave gover nment exhi bi t 114, l et me j ust

11 make one mor e poi nt . Remember when Ms. Ri l ey was up on t he

12 st and. Mr . Rubi nst ei n spent a good par t of t he mor ni ng

13 cr oss- exami ni ng her about her audi t f i ndi ng about Lee Ger f ei n' s

14 sal ar y. Remember t hat ? Mr . Rubi nst ei n kept aski ng Ms. Ri l ey

15 why she di sal l owed 25 per cent of Mr . Ger f ei n' s sal ar y, when t he

16 appr oved budget - - i t was made cl ear t hat Mr . Ger f ei n coul d

17 spl i t hi s t i me 75 on t he pr oj ect , 25 on ever yt hi ng el se? And

18 Mr . Rubi nst ei n kept pushi ng and pushi ng t o t r y Ms. Ri l ey t o

19 admi t t hat she made a mi st ake i n her audi t . And Ms. Ri l ey

20 t r i ed t o expl ai n how she di dn' t make a mi st ake t hat had

21 somet hi ng t o do wi t h t ax wi t hhol di ng and t he di f f er ence bet ween

22 expect ed and act ual sal ar y; you r emember al l t hat ? But you

23 know what , l adi es and gent l emen, at t he end of t he day, none of

24 t hat mat t er s. As you can see on t hi s char t , when Ms. Ri l ey di d

25 her anal ysi s usi ng t he bank r ecor ds as opposed t o her audi t s,


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1 whi ch wer e based on t he company' s books and r ecor ds, she gave

2 t he def endant ever y benef i t of t he doubt . Look at t hi s

3 your sel f . Under t he budget f or ot her empl oyees sal ar y, l et ' s

4 go back t o t he l ast page. For ot her empl oyees sal ar y budget ed

5 f or $450, 000, not a si ngl e cent of ot her empl oyees sal ar y was

6 di sal l owed. I n f act , accor di ng t o gover nment Exhi bi t 114, t he

7 company was act ual l y under budget under t he cat egor y of ot her

8 empl oyees sal ar i es. For equi pment , Mr . Rubi nst ei n al so asked

9 Ms. Ri l ey about whet her she exami ned ever y pi ece of equi pment

10 t hat CASI bought . Remember al l t hat ? Agai n, Ms. Ri l ey gave

11 t he def endant ever y benef i t of t he doubt . Agai n, i n t hi s

12 anal ysi s, Ms. Ri l ey wasn' t even second guessi ng whet her

13 def endant bought t he equi pment r el at ed t o hi s r esear ch f or

14 equi pment . The onl y amount t hat she di sal l owed was t he amount

15 over budget , t hat ' s i t .

16 So what i s t he end r esul t of t he def endant ' s conduct ?

17 Even gi vi ng hi mt he benef i t of t he doubt ? Over $268, 000 i n

18 mi sappl i ed f unds i n year one al one. Make no mi st ake, t hi s i s

19 t axpayer s money, because as you saw i n t he pur pl e char t s j ust

20 now, t he ATP pr ogr amwas t he onl y sour ce of f undi ng i n CASI ' s

21 busi ness account s i n year one.

22 And i n year t wo, def endant di dn' t get t hr ough t he

23 whol e year because he got shut down, but he bl ew away over

24 $196, 000 i n j ust ni ne mont hs, spendi ng money on t he same i t ems

25 t hat he was t ol d t i me and agai n he coul d not spend gr ant money


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1 on; t hi ngs l i ke r ent , ut i l i t i es, cl eani ng l ady, and meal s.

2 Now t hat we' ve wal ked t hr ough t he number s, l et ' s t ur n

3 t o t he def endant ' s i nt ent . I expect J udge Pat t er son wi l l

4 i nst r uct you l at er t hat t o f i nd t he def endant gui l t y you need

5 t o f i nd t hat he i nt ent i onal l y mi sappl i ed t he gr ant money; i n

6 ot her wor ds, t hat t he def endant ' s conduct wasn' t si mpl y t he

7 r esul t of a mi st ake or mi sunder st andi ng. So what i s t he

8 evi dence t o show you t hat t he def endant knew f ul l wel l what he

9 di d was wr ong? Let ' s st ar t f r omt he begi nni ng wher e t he

10 def endant hi r ed Mr . Lee Ger f ei n as hi s busi ness manager .

11 Mr . Ger f ei n t ol d you t hat when he was f i r st hi r ed, t he

12 def endant agr eed t o an ar r angement wher e each check over $250

13 woul d have t o be co- si gned by hi msel f , Mr . Ger f ei n, and Dr .

14 Kar r on. That was t he under st andi ng Mr . Ger f ei n had when he got

15 j ob. Then what happened? Wi t hi n a week t he gr ant money came

16 i n, t he def endant wr ot e t hi s l et t er , Gover nment exhi bi t 21,

17 page t hr ee, t aki ng t he si gni ng aut hor i t y away f r omMr . Ger f ei n.

18 Now, l adi es and gent l emen, why di d t he def endant do t hat ? I t ' s

19 si mpl e. The def endant di d t hat because he want ed excl usi ve

20 cont r ol of t he gr ant money. St r i ppi ng Lee Ger f ei n of hi s

21 si gni ng aut hor i t y was necessar y because def endant was al r eady

22 pl anni ng t o use money f or hi s own benef i t . One week i nt o t he

23 pr ogr am, and t he def endant was al r eady t hi nki ng ahead. I n

24 f act , t he def endant made no secr et of t hi s at t he t i me.

25 Mr . Ger f ei n t ol d you t hat when t he gr ant money came i n, Dr .


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1 Kar r on t r ansf er r ed $75, 000 i nt o hi s own account t o pay of f

2 f ami l y and cr edi t car d debt t hat he had been r acki ng up f r om

3 ever y day l i vi ng expenses. Mr . Ger f ei n t est i f i ed t hat he t ol d

4 t he def endant he coul dn' t do t hat , he coul dn' t spend gr ant

5 money t hi s way. The def endant sai d he had t o do i t , he had t o

6 pay t he bi l l s. And Mr . Ger f ei n, af t er he had been st r i pped of

7 hi s si gni ng aut hor i t y, coul dn' t st op hi mbecause t hi s was

8 al r eady a done deal .

9 What el se shows you t he def endant knew f ul l wel l what

10 he di d was wr ong? Let ' s f ocus on r ent agai n, because i t ' s such

11 a bi g i t em. Ti me and agai n, peopl e t ol d hi mhe coul dn' t use

12 gr ant money t o pay r ent , no mat t er what . The gr ant peopl e,

13 Ms. Li de, Ms. Snowden, t ol d hi mno at t he ki ckof f meet i ng, t hey

14 t ol d hi mno i n t el ephone and i n per son conver sat i ons.

15 Def endant ' s own empl oyees t ol d hi mno. Dr . Kar r on asked Lee

16 Ger f ei n t o cal l t he gr ant on hi s behal f . And when Mr . Ger f ei n

17 got t he no answer , he r el ayed t hat i nf or mat i on back t o t he

18 def endant . And Bob Benedi ct even bef or e he was hi r ed, t ol d t he

19 def endant no, and he kept t el l i ng t he def endant no af t er he

20 came on boar d t o CASI .

21 Af t er al l t hese conver sat i ons, does anyone bel i eve f or

22 a mi nut e t hat t he def endant di dn' t know he coul dn' t use gr ant

23 money t o pay r ent ? Of cour se not .

24 But what cl i nches t he case agai nst t he def endant on

25 hi s i nt ent i s t he def endant ' s own st at ement s. Look now at


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1 gover nment Exhi bi t 213. Thi s i s an e- mai l you saw a f ew days

2 ago f r omDr . Kar r on t o someone named Ti a Lor r ai ne, dat ed

3 December 18t h, 2002. Readi ng f r omt he f our t h l i ne of t he

4 bot t omof t he page, l et ' s zoomt hat i n.

5 " I wi l l make a l ease wi t h Wi ndy and make l i ke I onl y

6 keep a f ol di ng bed on 33r d St r eet . I f ATP buys i nt o t hi s i dea,

7 t hen I can char ge my r ent on t he apar t ment t o t he gr ant and pay

8 my mor t gage. "

9 Ther e' s no mi st aki ng t he def endant ' s i nt ent her e. He

10 t ol d a f r i end he woul d " make l i ke" t hat he keeps a f ol di ng bed

11 on 33r d St r eet and he was hopi ng t hat ATP woul d " buy i nt o t hi s

12 i dea. " Thi s e- mai l i s devast at i ng pr oof of t he def endant ' s

13 i nt ent i n hi s own wor ds. But i f you need mor e pr oof of t he

14 def endant ' s cr i mi nal i nt ent , t ake a l ook at t hese i t ems; a

15 bl ender , a GPS t r acki ng devi ce, di gi t al camer a, a box of

16 dr i l l s, a dust bust er .

17 Now, l adi es and gent l emen, t hese may not be t he most

18 expensi ve i t ems i n t he wor l d, but can anyone ser i ousl y t hi nk

19 t hat t hese i t ems ar e r el at ed t o t he def endant ' s r esear ch on

20 sur ger y and comput er i magi ng? These i t ems he bought j ust show

21 you hi s mi nd set . They t el l you t hat , when t he def endant sai d

22 he coul d do what ever he want ed, t hat he coul d j ust schmooze

23 wi t h peopl e and t ake t hemout t o l unch and ever yt hi ng woul d be

24 okay, he meant ever y wor d he sai d. But t her e' s mor e. When

25 year one was over and t he audi t or was begi nni ng t o l ook at t he


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1 books, what di d t he def endant do? Fr ank Spr i ng t ol d you what

2 t he def endant di d, t he def endant changed t he books. You saw

3 t hose e- mai l s. Mr . Spr i ng asked def endant t o st op mucki ng

4 about i n t he books, and st op r echar act er i zi ng expenses as

5 r el at ed t o t he gr ant when t hey r eal l y wer en' t . And what

6 happened? The def endant kept changi ng t he books. I s t hat t he

7 behavi or of someone who has no cl ue what he di d was wr ong? Of

8 cour se not . Common sense t el l s you t hat ' s t he behavi or of

9 someone who knew what he di d was wr ong and was doi ng hi s mi ght y

10 best t o hi de i t as best he coul d.

11 Ladi es and gent l emen, make no mi st ake, t hi s i sn' t a

12 case about a mi sunder st andi ng. Thi s i sn' t a case about someone

13 get t i ng caught up i n some compact gr ant r ul es and f or got t o dot

14 t he I ' s or cr oss t he T' s. Thi s i s a si mpl e case about t he

15 def endant , a Ph. D. sci ent i st , wi l l f ul l y cheat i ng t he gover nment

16 wi t h hi s eyes wi de open.

17 When you appl y your common sense t o t he evi dence

18 pr esent ed bef or e you, and when you l i st en cl osel y t o J udge

19 Pat t er son' s i nst r uct i ons on t he l aw, t her e' s one and onl y one

20 concl usi on t hat ' s suppor t ed by t he evi dence and t he l aw, and

21 t hat i s a ver di ct of gui l t y on t he count t hat ' s char ged i n t he

22 i ndi ct ment . Thank you.

23 THE COURT: Al l r i ght . Mr . Rubi nst ei n.

24 MR. RUBI NSTEI N: Coul d I st ep out f or a mi nut e J udge?

25 Coul d I have a per sonal moment ? Thank you.


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1 THE COURT: Al l r i ght . Does t he j ur y need a br eak?

2 Anyone of you need a br eak? Al l r i ght .

3 ( Cont i nued on next page. )

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1 MR. RUBI NSTEI N: May I pr oceed, your Honor ?

2 THE COURT: Yes. Go ahead.

3 MR. RUBI NSTEI N: I f t he Cour t pl eases, peopl e of t he

4 pr osecut i on, Dr . Kar r on and my associ at e you never met , Wi l l i am

5 Di Sent o, madamf or el ady, l adi es and gent l emen of t he j ur y, t hi s

6 i s my oppor t uni t y t o shar e wi t h you what I bel i eve t hat t he

7 evi dence showed.

8 Now, l et me say at t he out set t hat i t ' s your

9 r ecol l ect i on t hat cont r ol s. You have been si t t i ng her e

10 wat chi ng t he wi t nesses, obser vi ng t he exhi bi t s t hat ar e i n

11 evi dence. I have been concent r at i ng on my exami nat i on of t he

12 wi t nesses, and i f I mi sspeak as t o what any par t i cul ar wi t ness

13 may have sai d, i t ' s your r ecol l ect i on t hat cont r ol s, not mi ne.

14 I f t her e i s a quest i on amongst you as t o what a

15 par t i cul ar wi t ness sai d, you have t he r i ght t o come back and

16 ask f or t he t r anscr i pt t o be gi ven t o you or r ead t o you by t he

17 cour t r epor t er , what ever t he syst emi s t hat J udge Pat t er son may

18 have. But you get t he exact wor ds t hat wer e sai d. And I wi l l

19 at t empt t o be as accur at e as humanl y possi bl e.

20 What i s t he pur pose of summat i on? The pur pose of

21 summat i on i s f or each par t y t o gi ve t he j ur y t hei r sense of

22 what t he evi dence shows and what i nf er ences can f ai r l y and

23 r easonabl y be dr awn.

24 Now, af t er I f i ni sh speaki ng, t he pr osecut or has an

25 oppor t uni t y t o r ebut . He can si t t her e wi t h a pad, wr i t e down


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1 not es and gi ve you answer s t o what I have r ai sed i n t hi s

2 summat i on. And ever ybody i n l i f e l i kes t o have t he l ast wor d,

3 but t he r eal i t y i s t hat you f ol ks have t he l ast wor d, because

4 you col l ect i vel y and i ndi vi dual l y coul d answer t hei r ar gument s

5 f or Dr . Kar r on t hat I ' mnot abl e t o because I don' t have a

6 chance t o t al k agai n.

7 As a mat t er of f act , no mat t er how har d I may pr epar e,

8 t her e i s no way i n t he wor l d t hat I amgoi ng t o come and gi ve

9 you al l t he ar gument s t her e ar e or even t he best ar gument s.

10 You f ol ks have a f ant ast i c oppor t uni t y as j ur or s. The

11 second hi ghest cal l i ng i n t hi s count r y next t o war t i me ser vi ce

12 i s si t t i ng on a cr i mi nal j ur y, j udgi ng a f el l ow human bei ng.

13 Thi s i s a hi gh cal l i ng. I t ' s what di st i ngui shes our soci et y

14 f r ommany ot her s, because you st and bet ween j ust i ce and

15 i nj ust i ce. Ever y pl ace has a pr osecut or , but not many pl aces

16 have j ur or s who come and si t and del i ber at e.

17 Now, you may not i ce t hat when you come i nt o t hi s

18 cour t r oomand when you l eave t hi s cour t r oomwe al l r i se f or

19 you, and we do t he same when J udge Pat t er son comes i n, because

20 t hat i s t he r ever ance and t he r espect t hat we have f or each and

21 ever y one of you as j ur or s.

22 You ar e t he sol e and excl usi ve j udges of t he f act s.

23 They can' t t el l you what t he f act s ar e. I can' t t el l you what

24 t he f act s ar e. You t el l me what t he f act s ar e.

25 I can t al k about t he evi dence. I can t al k about t he


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1 l ack of evi dence. I can t al k about bur dens, but you ar e t he

2 sol e t r i er s of t he f act s. You deci de what you bel i eve, what

3 you accept , what you don' t bel i eve, what you quest i on. That i s

4 your r ol e.

5 The j udge, he i s t he j udge of t he l aw, t he sol e and

6 excl usi ve j udge of t he l aw. I as a l awyer have a r i ght t o

7 di sagr ee wi t h hi mr espect f ul l y, but I t el l you one t hi ng about

8 J udge Pat t er son t hat you know by now: Nobody r espect s j ur or s

9 mor e t han he does. Get t i ng i n on t i me, keepi ng hi s commi t ment

10 t o you of endi ng a case, t hat ' s t he way he f unct i ons, because

11 he under st ands what a hi gh dut y you have and what a ser vi ce you

12 ar e per f or mi ng.

13 Now, when you come i nt o t hi s cour t house and you ar e

14 goi ng t owar ds t he el evat or s you have seen t he Lady of J ust i ce

15 wi t h her scal es out t her e. And i t ' s i nt er est i ng t hat our

16 f or eper son i s a l ady. And what i s she? She i s bl i ndf ol ded;

17 she i s not bl i nd. She i s bl i ndf ol ded. The r eason t hat she i s

18 bl i ndf ol ded i s t hat she has t he scal es, she want s t o t r eat

19 ever ybody f ai r l y r egar dl ess of your backgr ound, or how you

20 l ook, or how you act , whet her you ar e a bower y bumor a per son

21 of hi gh st andi ng. And t hen she put s on t hose scal es of

22 evi dence and t hen she sees, she f eel s because she i s

23 bl i ndf ol ded. But she can see - - she i s not bl i nd. She i s onl y

24 bl i ndf ol ded - - whet her or not t he bur den has been met by t he

25 gover nment , whet her or not t hey have pr oved t hei r case beyond a


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1 r easonabl e doubt .

2 We' r e her e because t her e was an i ndi ct ment f i l ed

3 agai nst Dr . Kar r on. You hear d how many year s t hey wer e

4 i nvest i gat i ng hi m. The j udge wi l l t el l you t he i ndi ct ment i s

5 no evi dence of gui l t . Dr . Kar r on came i nt o t hi s cour t and he

6 sai d I amnot gui l t y, I di dn' t do anyt hi ng wr ong i n t hi s case,

7 and I chal l enge t he gover nment t o pr ove me gui l t y beyond a

8 r easonabl e doubt . And I submi t t o you t hat t he j udge i s goi ng

9 t o char ge you wi t h what a r easonabl e doubt i s, but each one of

10 you coul d have a di f f er ent r easonabl e doubt , whet her or not you

11 f eel t hat t he pr osecut i on hasn' t br ought enough evi dence bef or e

12 you, whet her or not t hey' r e aski ng you t o be specul at i ve,

13 whet her or not you t hi nk t hat some of t hei r wi t nesses wer en' t

14 cr edi bl e t hat you woul d r el y upon i n t he or di nar y cour se of

15 l i f e. Each one coul d have one r easonabl e doubt .

16 I f any of t he 12 of you have a r easonabl e doubt - - you

17 don' t have t o agr ee on t he same r easonabl e doubt - - you have t o

18 vot e not gui l t y, because our syst emaf t er Dr . Kar r on pl ed not

19 gui l t y, our syst empr esumes hi mi nnocent , and as you si t her e

20 now and as you ent er t he j ur y r oomyou have t o st ar t out sayi ng

21 I pr esume hi mi nnocent , I pr esume t hat he di d not i nt end t o

22 i nt ent i onal l y mi sappr opr i at e any f unds and he di d not i nt end t o

23 commi t a cr i me by spendi ng gr ant money on pur chases.

24 I n f act , when he spent money, he spent money wi t h t he

25 i nt ent t hat t he ATP pr oj ect t hat he was wor ki ng on woul d


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1 succeed and he woul d be successf ul , because I t hi nk i t ' s f ai r

2 t o say t hat a sci ent i st l oves doi ng what t hey do and t hey l ove

3 sci ence.

4 The gover nment want s you t o pr esume Dr . Kar r on t o be

5 gui l t y. They show you a GPS syst em- - t hi s i s hi s pi ggy

6 bank - - he bought a GPS syst emso he coul d use i t i n hi s car

7 f or per sonal use. Di d anybody t est i f y t hat he used t he GPS

8 syst emt o dr i ve ar ound Manhat t an? Di d anybody br i ng any

9 evi dence t o you t hat he needed a GPS syst emf or hi s dai l y l i f e?

10 Wher e di d t hey f i nd t he GPS syst em? Not i n t he car .

11 They f ound i t i n t he apar t ment . What does t hat t el l you? He

12 uses i t when he goes on a t r i p. Wher e does he go on t r i ps? He

13 goes t o Washi ngt on D. C. on a gr ant .

14 Do t hey come and t hey t ake t he GPS syst emand check i t

15 out and see wher e t he l ast dest i nat i on i s? These GPS syst ems,

16 t hey' r e el ect r oni c, and you can f i nd out wher e he went i f he

17 set hi s cour se.

18 Have any of you ever gone t o Washi ngt on D. C. and got

19 l ost on t he bel t way and coul dn' t f i nd your way ar ound? No,

20 t hey want you t o specul at e and assume he used t he GPS syst em

21 f or an i mpr oper pur pose. They don' t want t o show you anyt hi ng.

22 They t al k about a camer a. A camer a. They have t he

23 ar r ogance t o suggest t o you t hat he used t he camer a f or hi s

24 per sonal use. Show us t he pi ct ur es. I t ' s a di gi t al camer a.

25 No, her e i s t he camer a, you don' t use a camer a. Why


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1 don' t you use a camer a i f you ar e a sci ent i st ? Maybe somet hi ng

2 br eaks on t he machi ne, on one of t he comput er s, and you t ake a

3 di gi t al pi ct ur e of i t and you e- mai l i t out t o t he manuf act ur er

4 and he t el l s you how t o f i x i t . Or you t ake pi ct ur es of t he

5 peopl e wor ki ng i n t he l abs so t hat when you make

6 pr esent at i ons - - you know he went al l over maki ng pr esent at i ons

7 about t hi s ATP gr ant . Why can' t he use t he camer a? I f he was

8 a dent i st , he coul d have a camer a. No, he can' t have a camer a,

9 t hat ' s f or hi s per sonal use.

10 Di d t hey show you pi ct ur es of Dr . Kar r on on hi s bi ke

11 wi t h Wi ndy Far nswor t h r i di ng ar ound Manhat t an? No. No. But

12 t hey want you t o specul at e. They want t o suggest t o you t hat

13 ei t her i t ' s not i n t he budget , or i f i t ' s i n t he budget i t ' s

14 unr el at ed t o t he gr ant . Wher e di d t hey show you t hat anyt hi ng

15 was unr el at ed t o t he gr ant except f or specul at i on and smi l es?

16 You know, t hey t al k about t hese ATP r ul es as i f t hey

17 wer e t he Ten Commandment s. These ar e br oad r ul es. You don' t

18 go t o j ai l because you don' t f ol l ow some gr ant r ul es. What

19 ki nd of count r y woul d t hi s be i f t hose wer e t he r ul es? You

20 t hi nk t hey had a bi g si gn l i ke wher e t hey have t he no smoki ng

21 si gn and t hey have t he ci r cl e and t he t hi ng, vi ol at e any of

22 t hese r ul es you go di r ect l y t o j ai l ? Thi s i s a quest i on of

23 peopl e havi ng di sagr eement s on what i s al l owed and what i s not

24 al l owed. That ' s what i t i s.

25 And does Dr . Kar r on have t he r i ght t o di sagr ee wi t h


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1 peopl e t hat wor k f or hi mor di sagr ee wi t h peopl e i n ATP? Does

2 he have a r i ght t o di sagr ee and say t hat I t hi nk t hat t hese

3 expenses ar e al l owabl e? Or i s he compel l ed t o be l i ke t he

4 pr osecut or , say t hese ar e t he r ul es, you br eak one r ul e you go

5 di r ect l y t o j ai l ?

6 Wher e does t he evi dence come f r om? They t al k about

7 Ri l ey' s wor k. Remember , Ri l ey' s wor k was cr eat ed af t er t hey

8 cl osed t he gr ant down. I cr oss exami ned her . When di d you

9 pr epar e t hi s; i t says 2008 on i t ? She says, no, no, no, I di d

10 i t bef or e; t hi s i s j ust a r edone.

11 So, af t er t hey cl osed t he gr ant down, t hey go and

12 l ook, how do we j ust i f y what we di d? And now we' r e goi ng t o

13 t ake ever y pi ece of paper you have, and we' r e goi ng t o show you

14 t hat you spent your money wr ong.

15 Wel l , i t r emi nds me of an ol d st or y i n j ol l y ol d

16 Engl and when t her e wer e l or ds and bar r ons and bi shops, and t hi s

17 bar on was r i di ng t hr ough t he f or est , and he not i ced t hat on a

18 number of t r ees t her e was an ar r ow, and t her e was a ci r cl e

19 dr awn ar ound t he ar r ow, a bul l s- eye, and he was r eal l y

20 i mpr essed. So he cal l ed hi s kni ght s i n, and he sai d I want you

21 t o f i nd t hat ar cher , I want t o make hi mt he kni ght of ar cher y

22 of my f i ef dom. And t hey went and t hey scour ed t he f or est and

23 t hey f ound t hi s f el l ow who was t he ar cher . The bar r on i nvi t ed

24 ever ybody i n t he ar ea t o come and see hi s new kni ght of ar cher y

25 per f or m. Ther e wer e hundr eds of peopl e, and t he ar cher , t hey


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1 put out a t ar get , a hundr ed yar ds, 200 yar ds, t he ar cher f i r es,

2 mi sses t he t ar get by a mi l e. He t r i es agai n, mi sses agai n.

3 They now move t he t ar get i n, he st i l l can' t hi t t he t ar get .

4 Now, t he bar r on i s pr et t y embar r assed by t hi s showi ng,

5 so he says t o t he ar cher , bef or e I behead you t el l me t hat you

6 ar e not t he man who f i r ed t hose ar r ows t hat wer e i n t hose

7 t r ees. He sai d, I am, si r e. He sai d, wel l , how wer e you abl e

8 t o hi t al l of t hose bul l s- eyes? He says, si r , I st ood on t he

9 edge of t he f or est , I f i r ed my ar r ows i nt o t he ai r , and

10 wher ever t hey l anded I dr ew a ci r cl e ar ound i t .

11 And t hat ' s what t hey di d her e. They have no

12 bul l s- eyes. They don' t have one. They put an exhi bi t up

13 dur i ng summat i on; t hey don' t check anyt hi ng out . I t i s

14 absol ut el y amazi ng, t hey check not hi ng out . Dr . Kar r on at e at

15 I HOP. Wow, check your Amer i can Expr ess bi l l , see i f I HOP i s i n

16 Vi r gi ni a, r i ght near Washi ngt on D. C. , wher e he goes on busi ness

17 t o vi si t t he gr ant peopl e i n Mar yl and and Vi r gi ni a and

18 Washi ngt on D. C.

19 Ask your sel f - - and I say t o you t he ar r ows ar e t he

20 i nt ent her e - - whet her or not he i nt ended t o do anyt hi ng wr ong.

21 Ar e t hey ki ddi ng, you can' t go on a meal ? Do you t hi nk t hat

22 Ri l ey pai d f or her own l unch? The gover nment pai d f or her own

23 l unch when she went out wi t h Dr . Kar r on, Hayes and Benedi ct .

24 Who do you t hi nk pai d f or her l unch? She came i n f r omAt l ant a.

25 You don' t t hi nk she get s r ei mbur sed f or her l unch? You don' t


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1 t hi nk peopl e have a r i ght i n busi ness i f t hey have a busi ness

2 l unch t o deduct i t ?

3 Ri l ey even deduct ed t he l unch she went t o. She

4 deduct ed t he cost of t he l unch she went t o wi t h Dr . Kar r on,

5 Benedi ct and Hayes. And she di sal l owed hi s l unch and ever y

6 ot her meal f or t hat mat t er .

7 I guess t he ol d Br ookl yn expr essi on " you t hr ow enough

8 agai nst t he wal l , somet hi ng i s goi ng t o st i ck" i s what t hi s

9 case i s al l about .

10 The pr osecut i on st ar t ed t hi s case i n 2003. When di d

11 t hey speak t o t he wi t nesses? Di d t he pr osecut or s i n t hi s case

12 speak t o one wi t ness bef or e Apr i l or May of 2008? I t ' s a

13 si mpl e case. We got t he GPS, we have di f f er ent t hi ngs, we' ve

14 got r oach ki l l er .

15 So, I submi t t o you r espect f ul l y t hat you can' t use

16 suspi ci on - - as t hey have - - or specul at i on t o convi ct

17 somebody. Dr . Kar r on di d not use t he NI ST ATP money as hi s own

18 pi ggy bank.

19 The quest i on i s even i f i t ' s nonal l owabl e, at t he end

20 of t he day does t hat equal cr i mi nal i t y?

21 Remember , t her e was a whol e audi t pr ocess, an ent i r e

22 audi t pr ocess wher e t hey had t hi s agr eement r esol ut i on t hat was

23 never af f or ded t o Dr . Kar r on. I n ot her wor ds, under t he syst em

24 i f af t er Ri l ey does her audi t , you t hen can appeal t he audi t t o

25 t he ATP NI ST peopl e t o see whet her or not t hey ar e goi ng t o


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1 al l ow t hose expenses. They never had t hat pr ocess. So, you

2 don' t know as you si t t her e now - - and you can' t specul at e I

3 submi t t o you - - whet her or not ATP woul d have appr oved i t .

4 I t hi nk sadl y - - and I ' mgoi ng t o get i nt o t hi s wi t h

5 Benedi ct - - t hat t hey pr obabl y woul d have been f or ced not t o go

6 al ong wi t h i t f or r easons t hat I wi l l t al k about .

7 Al so, you know, i t ' s i nt er est i ng, t he gover nment sai d

8 i n t hei r openi ng on page 39, " Fi nal l y, you wi l l be seei ng a

9 number of document s t hat wi l l show you t he f r aud i n cl ear bl ack

10 and whi t e, and i n par t i cul ar you wi l l see an anal ysi s of t he

11 def endant ' s per sonal bank account and bank account s at CASI . "

12 Do you r emember when I cr oss- exami ned Ri l ey? She

13 never saw t he def endant ' s per sonal bank account , she never

14 l ooked at hi s per sonal bank account . She di dn' t gi ve a dar n

15 about hi s per sonal bank account because she was l ooki ng t o put

16 ci r cl es ar ound ar r ows. So, she has t hi s char t t hat t hey put up

17 on t he boar d, Gover nment Exhi bi t 115, and she has no

18 cont r i but i ons. And when does she f i nd any cont r i but i ons? I n

19 2004, af t er t he gr ant i s st opped and she i s l ooki ng over .

20 By t he way, Ms. Ri l ey f r omt he OI G, what cr edi t car ds

21 of Dr . Kar r on' s di d you happen t o l ook at ? Hi s Amer i can

22 Expr ess car d.

23 And of cour se you di sal l owed ever yt hi ng on hi s

24 Amer i can Expr ess car d t hat he used f or busi ness.

25 Basi cal l y.


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1 What about hi s Mast er car d?

2 Wel l , I never l ooked at hi s Mast er car d. I never saw

3 hi s Mast er car d. I di dn' t ask f or hi s Mast er car d. I di dn' t

4 l ook f or hi s per sonal account s, I di dn' t l ook f or hi s

5 Mast er car d.

6 The def ense put i n t he Mast er car d, and when you l ook

7 at t he Mast er car d you ar e goi ng t o f i nd t hat on t he Mast er car d

8 st at ement i n Oct ober of 2001, Mar ch of 2003, you ar e goi ng t o

9 see Dat avi si on, t he same t hi ng you see on t he Amer i can Expr ess.

10 I n ot her wor ds, he i s spendi ng hi s own money on gr ant - r el at ed

11 i t ems wi t h hi s own cr edi t car d. That ' s what he' s doi ng. Al l

12 r i ght ? And you ar e goi ng t o see t hat i n a number of di f f er ent

13 ar eas. You ar e goi ng t o see t hat - - you wi l l see al l t he

14 r est aur ant s t hat he went t o and char ged t o hi s Mast er car d.

15 Does t hi s show you he i s a man t hat i s at t empt i ng t o keep hi s

16 busi ness expenses separ at e and apar t f r omhi s per sonal

17 expenses? Do t hey have expenses ever y day on hi s Amer i can

18 Expr ess t hat he was eat i ng out and char gi ng i t t o t he

19 gover nment ? No.

20 You know f r omt he evi dence t hat he has backup i n hi s

21 comput er s of ever y si ngl e t hi ng he ever spent . And we showed

22 you t he r ecei pt s j ust as an i l l ust r at i on of t he l unch t hat he

23 had wi t h Ri l ey. And he si gned i t , and he si gned i t , and

24 Benedi ct si gned i t , and i t ' s i n evi dence f or you. Because he

25 was at t empt i ng t o do ever yt hi ng honest . He di d ever yt hi ng he


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1 coul d. But t hey dr aw t he ci r cl e, I HOP, St ar bucks. Wer e t hey

2 t her e when t hi ngs wer e di scussed? Di d t hey car e enough t o get

3 t he backup t o hi s expenses? No.

4 So we br ought you Ms. Far nswor t h. J ust t o show you an

5 i l l ust r at i on, i magi ne t hi s. I t hi nk t hi s i s 125. They see

6 somet hi ng. They f i nal l y di d some i nvest i gat i on. They saw - -

7 when t hey gr abbed ever yt hi ng i n Dr . Kar r on' s apar t ment , I t hi nk

8 i t was i n 2006 t he t est i mony i s, t hey cl eaned out hi s

9 apar t ment , t hey f ound t hi s. Wel l , i t must have been ever yt hi ng

10 he has. Ever yt hi ng he has, ever yt hi ng he owns must have been

11 bought wi t h ATP money, so we wi l l t ake ever yt hi ng i ncl udi ng t he

12 shoe r ack.

13 Then t hey f i nd i n t hei r ar r ow sear ch, wow, we f ound a

14 shoe r ack i n t hi s st at ement , and t hat must be t he shoe r ack. I

15 submi t t o you t hat i t ' s not t he shoe r ack, and you have mor e

16 t han a r easonabl e doubt about t hat . And I submi t t o you t hat

17 t he ot her t hi ng t hat was char ged was somet hi ng about t en,

18 somet hi ng wi t h a r ack. Do you know i f Mason used t hat as

19 mat er i al t o do const r uct i on t her e? Do you know what i t was

20 used f or ? They di dn' t f i nd i t t her e. Why di dn' t t hey f i nd t he

21 shoe r ack t hat t hey had on t he bi l l ? Because i t was used f or

22 somet hi ng gr ant r el at ed.

23 What i s wr ong wi t h havi ng f l ashl i ght s? You know t hese

24 comput er s, you hear d about t hem, t hey come out , t hey go behi nd.

25 Thi s i s i n 2001 and 2002. Comput er s ar e a l ot smal l er now.


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1 And of cour se comput er s t hat Dr . Kar r on cr eat ed wer e bi g

2 t hi ngs, and so you have f l ashl i ght s. Al l of a sudden t hat ' s a

3 pr obl em.

4 Bi g scr een. Do you r emember t her e was al l t hat t al k

5 about Gover nment ' s 120- A? He has a bi g scr een i n t he r oom

6 t hat ' s used as t he CASI headquar t er s. I n t he pi ct ur e you wi l l

7 see a bi g scr een.

8 And a pr oj ect or . They have a pr oj ect or , you know,

9 l i ke t hi s. And t hey have a scr een l i ke t hat . And he pai d

10 gr ant money so t hat he can make pr esent at i ons t o peopl e of what

11 t hei r pr oj ect i s and what t hey' r e doi ng. And of cour se t he

12 pr osecut i on want s you t o bel i eve t hat t hat ' s not deduct i bl e,

13 t hat ' s not al l owabl e.

14 They al so suggest he had t oo many comput er s. Who ar e

15 t hey t o t el l Dr . Kar r on what he needs t o accompl i sh what t he

16 gover nment gave hi m$2 mi l l i on over t hr ee year s?

17 One t hi ng you know. Ther e wasn' t one ki ck- back t hat

18 Dr . Kar r on got f r ombuyi ng anyt hi ng. He di dn' t sel l anyt hi ng

19 t hat he bought so t hat he coul d st i ck some money i n hi s pocket .

20 He had no i nt ent i on of doi ng anyt hi ng wr ong.

21 And do you know what t he bl ender was used f or ? And

22 l et ' s say i t wasn' t used f or gr ant pur poses, so he made a

23 mi st ake. I n t hei r wor l d you can' t make a mi st ake.

24 How about t he f act t hat Mason t est i f i ed he di d wor k i n

25 t he apar t ment , and t hey want you t o t hi nk t hat t hey i mpr oved


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1 t he val ue of t hat apar t ment . That apar t ment shoul d have been

2 wor t h cl ose t o $700, 000. I t was sol d f or what , $510, 000,

3 because of al l t he changes t hat he made i n t he apar t ment . I f

4 one want ed t o buy i t and move i t , i t had t o be r i pped out

5 because i t wasn' t sui t abl e f or somebody t o l i ve i n.

6 And what di d Mason t el l you? Oh, I di d some wor k i n

7 t he ki t chen.

8 Oh, you di d wor k i n t he ki t chen? What di d you do i n

9 t he ki t chen?

10 I f i xed a cabi net .

11 Di d you get pai d f or t hat ?

12 Yes, I di d.

13 Wel l , I wi l l show you t hi s check, Mr . Mason. I s t hi s

14 t he check you got ? I s t hi s a CASI check?

15 No.

16 Thi s i s a per sonal check f r omDr . Kar r on, because i t ' s

17 a per sonal expense. So t he man wi t h t he pi ggy bank i s goi ng

18 i nt o hi s own pocket t o pay f or t hi ngs t hat he under st ands ar e

19 not al l owabl e under t he gr ant and ar e per sonal i n nat ur e.

20 That ' s what we have her e.

21 And who ar e we t al ki ng about ? We ar e t al ki ng about

22 Dr . Kar r on, a man who goes t o a meet i ng, an ATP meet i ng wher e

23 he i s event ual l y goi ng t o get a gr ant , and he st ands up and

24 says i s t her e anybody her e t hat can hel p me? Because I ambad

25 wi t h f i nances and I don' t know how t o do t hi s st uf f . You know?


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1 Thi s i s t he guy t hat t hey' r e dr awi ng ci r cl es ar ound what he i s

2 doi ng.

3 And di d he dest r oy one r ecor d? One r ecor d? No. What

4 i s t hei r compl ai nt ? Spr i ngs t est i f i ed he went i nt o t he

5 comput er and he changed somet hi ng. What di d he change? He

6 changed whet her or not i t shoul d be al l owabl e or not . He

7 di dn' t change an i nvoi ce. He di dn' t change what was mar ked on

8 t he check.

9 Anybody except f or Ri l ey coul d l ook at t he checks.

10 I magi ne an audi t or never l ooked at t he checks, never di d a bank

11 r econci l i at i on t o deci de what he spent .

12 Ever y check you saw had a memo on i t . You hear d Dr .

13 Kar r on woul dn' t si gn a check unl ess he had backup t o i t , t her e

14 was an i nvoi ce. Al l of t hat was i n t he comput er . I s t hi s a

15 guy l ooki ng t o do somet hi ng wr ong?

16 They make t hi s br oad br ush, he changed somet hi ng

17 t her ef or e he must have changed i t t o do wr ong. No, i t ' s

18 ar guabl e. He doesn' t have t o agr ee wi t h hi s account ant . He

19 doesn' t have t o agr ee wi t h hi s busi ness manager . He doesn' t

20 even have t o agr ee wi t h t he gr ant peopl e. At t he end of t he

21 day, i f t hey t el l hi mi t ' s not al l owabl e, he has t o pay t he

22 money back. That ' s t he syst em. That ' s t he syst em.

23 Thi s man hi d not hi ng. How do you st eal when you don' t

24 hi de anyt hi ng and you make a not e of ever yt hi ng you do, and you

25 never ask anybody el se t o do anyt hi ng wr ong t o hi de anyt hi ng


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1 because i t ' s al l out t her e? Ever y checki ng account he has a

2 di f f er ent col or check. He post ed t he r ecor ds or i gi nal l y. Then

3 he hi r ed peopl e t o do t hat , t o scan t he st uf f i n.

4 And i n t hei r openi ng t hey suggest ed t hat he di d

5 somet hi ng t hat was i mpr oper i n f i l i ng t he r ecor ds. And you

6 f ound out when I cr oss- exami ned Spr i ngs and i n one of hi s

7 e- mai l s about what ' s cal l ed an audi t t r ai l . You can go back

8 i nt o t he comput er i f you want t o pr ove gui l t beyond a

9 r easonabl e doubt and show what per son made what change, and

10 t hen ar gue f r omt hat t hat t hey had gui l t y knowl edge or a gui l t y

11 mi nd.

12 Don' t ar gue - - I have t oo much r espect f or your common

13 sense t o t hi nk you won' t cr edi t i t . The bot t oml i ne i s how can

14 you ar gue and have t est i mony he changed somet hi ng wi t hout

15 knowi ng what he changed? How coul d you say t hat ? Ther e i s no

16 evi dence at al l . The man had backup; he had audi t t r ai l s.

17 I submi t t o you t hat t he e- mai l s ar e t he DNA i n t hi s

18 case, and t hey wi l l pr ove, as I sai d i n my openi ng, t hat Dr .

19 Kar r on i s i nnocent .

20 The gover nment i s goi ng t o ar gue, and t hey have

21 ar gued, t hat wi t hout pr i or appr oval he mi sappl i ed t he f unds.

22 And I submi t t o you t hat t he evi dence i s ot her wi se.

23 The t hi r d el ement i s dur i ng a one- year per i od t he

24 def endant i nt ent i onal l y mi sappl i ed money. I submi t t o you he

25 had t he t aci t aut hor i t y f r omt he gr ant t o r evi se any expense


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1 t hat he had, t hat t hi s gr ant per mi t s and i t ' s under st ood t hat

2 you coul d change t hi ngs as l ong as you ar e doi ng i t f or t he

3 pur pose of succeedi ng on t he pr oj ect .

4 I f you have a r easonabl e doubt whet her or not t hat was

5 i mpl i ed by ever ybody t hat Dr . Kar r on met , l ook at t hi s 10

6 per cent r ul e. He can move $80, 000 anypl ace he want s i n t hat

7 budget as l ong as he doesn' t go over t he $800, 000 f or t he year .

8 El ement f our pr ovi des t hat t he money was i nt ent i onal l y

9 mi sappl i ed. I submi t t o you t hat no money was i nt ent i onal l y

10 mi sappl i ed, because you knew and you hear d a l ot of t est i mony

11 about budget r evi si ons, budget amendment s and what have you.

12 And t he f act - - even i f t he f i ndi ngs on t he audi t wer e

13 accur at e - - whi ch I submi t t hey wer e not - - by Ri l ey, i t st i l l

14 woul d not become cr i mi nal because t her e was no i nt ent t o do

15 anyt hi ng wr ong i n mi sappl yi ng t he f unds.

16 Now, t hi s i s not I BM. They do not have an HR

17 depar t ment . Thi s i s a ma and pa sci ence company, and i t was

18 r un t hat way wi t h a l ot of i nef f i ci enci es i n t he f i nances but

19 not i n t he sci ence. And appar ent l y t he peopl e at ATP NI ST wer e

20 mor e i nt er est ed i n t he sci ence t han i n t he f i nances.

21 And I have been wonder i ng, wonder i ng f or a l ong t i me

22 now why ar e we al l her e, how di d t hi s case get so out of

23 cont r ol . Wel l , what you l ear ned at t hi s t r i al i s t hat ATP

24 doesn' t exi st anymor e. The pr oj ect t hat had $60 mi l l i on - -

25 whi ch t o you and I i s enough money f or me t o buy a coupl e of


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1 l ot t o t i cket s ever y week i n t he hope of acqui r i ng i t - - i n t he

2 wor l d of gover nment t hi s i s not a l ot of money, i t ' s not a l ot

3 of money. But who get s t he $60 mi l l i on? Two t hi r ds of t he

4 gr ant s ar e gi ven t o peopl e l i ke Dr . Kar r on, who need st ar t - up

5 money. They don' t have money l i ke I BM got a gr ant f or $2

6 mi l l i on; t hey al so got a gr ant f or $50 mi l l i on, but put t hat on

7 t he si de.

8 And t her e i s somet hi ng t hat smel l s her e, i t r eal l y

9 smel l s bad. And I coul d be dead wr ong, and i f I am, and i f you

10 don' t f eel t hi s way, you r ej ect i t . I hope you wi l l cr edi t

11 some of t he ot her t hi ngs t hat I pr esent t o you.

12 The gover nment want ed t o get r i d of t hi s pr oj ect - -

13 I ' mnot t al ki ng about t he pr osecut or s her e. They get t he case

14 f r omot her agenci es - - t hey di dn' t l i ke t he i dea of $40 mi l l i on

15 goi ng t o l i t t l e guys. Why not gi ve i t al l t o t he I BMs and t he

16 Hal l i bur t ons of t hi s wor l d? Hey, we f ound Dan Kar r on. Who

17 bet t er t han t hi s guy, who i s a cook but he i s no cr ook? And

18 t hat ' s what happened her e. And now we l ook at hi mand we

19 specul at e what he di d.

20 And I submi t t o you t hat when you eval uat e al l of t he

21 evi dence, and you see hi s payr ol l checks whi ch I put i nt o

22 evi dence as P- 1 t hr ough P- 6, wher e hi s t ot al amount f or t he

23 year i s about $35, 000. Ask your sel f , he get s $175, 000, how

24 does he onl y have $35, 000? Because he t ook an advance of

25 75, 000 t o begi n wi t h t hat ' s not r ef l ect ed i n a check because he


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1 di dn' t get a check f or t hat $75, 000, i t was a wi r e t r ansf er .

2 He wi r ed i t i nt o an account , i nt o hi s CASI account t he evi dence

3 i s, and so, t her ef or e, he got net $110, 000. And t hat ' s wher e

4 hi s money was. And he commi ngl ed, and t her e was no r ul es he

5 coul dn' t comi ngl e. He put t he NI ST money wi t h hi s own money,

6 wi t h hi s CASI money. Oh, CASI had no ot her busi ness, but t hey

7 got $110, 000 cash f or t hi s man. Can' t t hey spend i t any way

8 t hey want ?

9 And t hen, yeah, whenever t he bank bal ance - - i f you go

10 t hr ough al l t he bank bal ances you wi l l see t hat whenever t hey

11 get l ow, who comes up wi t h money? Dr . Kar r on. When t her e i s

12 no money at al l ar ound, whose cr edi t car d i s used? Dr . Kar r on.

13 Oh, he i s a bad guy. You know, we set up t hi s whol e syst em,

14 and we t ol d hi mhe can onl y si gn checks, he can' t spend any

15 money wi t hout appr oval . And we had t hi s PayPal syst emi n

16 ef f ect . And what does Dr . Kar r on do? And t hese ar e i n

17 Gover nment Exhi bi t 110, I bel i eve, t hey have t he PayPal

18 r ecor ds. Obvi ousl y up unt i l Mar ch 1, ' 03 Benedi ct i s not

19 t her e, so he has one, t wo, t hr ee, f our t r ansact i ons i n PayPal ,

20 t he l ar gest of whi ch i s $476. 55. He bought 12 i t ems of

21 somet hi ng t hat ' s i n PayPal , i n ot her wor ds $40 an i t em, he

22 spent $13. 20, $168. 16 and $283 f or ever y i t em, $168 i s f or 11

23 i t ems.

24 Do you t hi nk t hat t hi ngs wer e happeni ng at CASI

25 r el at ed t o t he pr oj ect t hat he needed t o do somet hi ng qui ck t o


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1 get a coupl e of dol l ar s? Oh, he vi ol at ed, he doesn' t l i st en t o

2 anybody, he doesn' t do anyt hi ng, he i s ar r ogant .

3 I gr ew up i n Br onxvi l l e, Br ookl yn, and my dad wor ked

4 f or t he I RS, and he used t o say, son, don' t make a f eder al case

5 out of t hi s. You know, my f at her was a smar t man. I di dn' t

6 know what he was t al ki ng about , but I sur e have l ear ned.

7 Your j ob, your j ob i s t o eval uat e t he evi dence, t o

8 eval uat e t he wi t nesses who come bef or e you. And t he one t hi ng

9 t he def ense has - - t he onl y t hi ng t hey have - - i s t he r i ght of

10 cr oss- exami nat i on. I t ' s l i ke a pr od. Somebody says somet hi ng,

11 and you pr od t hema l i t t l e bi t t o see whet her or not what t hey

12 say makes sense, whet her or not t hey have backup f or i t ,

13 whet her or not i t ' s bel i evabl e beyond a r easonabl e doubt .

14 I don' t st and up her e and t el l you who l i ed about what

15 or sai d what . I l eave t hat t o your eval uat i on. Al l r i ght ?

16 You t ake t he di r ect , you t ake t he cr oss- exami nat i on. And t he

17 beaut i f ul t hi ng i n our syst emof j ust i ce i s t hat we have a

18 r i ght t o def end our cl i ent s vi gor ousl y i n t hi s gr eat count r y,

19 and I hope t o god t hat none of you ever need t hat ki nd of

20 vi gor ous def ense. And next t o Dr . Kar r on, t he per son I f eel

21 sor r i est f or i n t hi s whol e case i s Bob Benedi ct .

22 You have t o ask your sel f , how does t hat happen? How

23 does t hi s happen? Her e i s f r omal l you can see about t he man' s

24 backgr ound a t r ul y decent guy. He vol unt eer ed t o hel p Dr .

25 Kar r on f r omday one i n t hi s pr oj ect f or not hi ng. He came


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1 onboar d f or $60 an hour , whi ch you can f i gur e out i s a hel l of

2 a l ot l ess t han Gur f ei n was get t i ng. Sur e.

3 And t hi s i s a l et t er , t hi s i s an e- mai l t hat ' s i n

4 evi dence as Def endant ' s U, and t hi s i s I submi t t o you par t of

5 t he DNA t hat I amt al ki ng about . And t hi s i s a l et t er , an

6 e- mai l he sends t o Dr . Kar r on on Apr i l 19, 2004, and t he gr ant

7 i s st opped si nce J une. He i s out of t he l oop si nce about

8 August or Sept ember or Oct ober , and you can j ust i magi ne how

9 t hi s t hi ng i s ki l l i ng hi m, what happened at CASI and t hat t he

10 gr ant was st opped. And he says, " RE: Speci f i c i nst ances of

11 Hope Snowden i gnor i ng r equest s, or not pr ovi di ng document at i on

12 f or under st andi ngs, J oan' s bungl i ng upset t i ng Hope; J oan maki ng

13 cer t ai n Hope acknowl edged al l er r or s as due t o Dr . K. " He goes

14 on. That was t he subj ect .

15 " As you know, one of my f i r st act s was t o assi st i n

16 t he submi ssi on of t he CASI r esponse t o t he mul t i page

17 quest i onnai r e t ossed at CASI . Thi s r esponse i ncl uded a budget

18 amendment al ong wi t h a r equest t o have me acknowl edged as your

19 admi ni st r at or .

20 " Hope i gnor ed bot h r equest s. We never r ecei ved any

21 acknowl edgment , ver bal or i n wr i t i ng, t hat our

22 r esponse/ amendment r equest woul d or woul d not be appr oved. As

23 such, I was never appr oved as t he admi ni st r at or and Hope woul d

24 not answer or r et ur n my cal l s. I was a " nonpar t i ci pant " and

25 t her ef or e someone t o be i gnor ed.


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1 " The f act t hat I had ei ght year s exper i ence wi t h ATP

2 pr oj ect s, as an admi ni st r at or , wi t hout any audi t pr obl ems, and

3 a l i t any of ATP r ef er ences, whi ch Hope never bot her ed t o check,

4 di dn' t appear t o be vi ewed as a posi t i ve addi t i on t o t he

5 pr oj ect .

6 " The r ar e communi cat i ons we di d r ecei ve wer e addr essed

7 t o Dr . Kar r on or Pet er Ross, i gnor i ng t he f act t hat ATP was

8 i nf or med Pet er was no l onger i nvol ved.

9 " I t was VERY FRUSTRATI NG and appar ent l y i n di r ect

10 opposi t i on t o what woul d have been i n t he best i nt er est s of

11 bot h CASI and NI ST.

12 " Ms. Snowden appear ed t o be a bur eaucr at , t ot al l y

13 di si nt er est ed i n t he success of t he pr oj ect and onl y i nt er est ed

14 i n whet her CASI dot t ed al l t he I s and cr ossed al l t he Ts,

15 associ at ed wi t h her r i gi d under st andi ng of t he ATP and ot her

16 r el evant f eder al gui del i nes. She consi st ent l y i gnor ed CASI

17 at t empt s t o pr ovi de ser vi ce whi ch woul d hel p t he pr oj ect and

18 her i n t he meant i me. She bel i eved CASI was out of cont r ol f r om

19 t he begi nni ng and t he number of per sonal changes and amendment

20 r equest s pr oved her r i ght , i n her mi nd. Ther e was no wei ght

21 gi ven t o t he possi bi l i t y t hat changes wer e dr i ven by Dr . K' s

22 l ack of ATP exper i ence or assi st ance of f er ed t o hel p Dr . Kar r on

23 gr appl e wi t h t he ATP quagmi r e.

24 " ATP i s as r esponsi bl e f or t he st at e of t he CASI

25 pr oj ect as anyone.


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1 " Sor r y, but t hat ' s t he best r ecol l ect i on I can

2 must er . "

3 How does t hi s man who wr ot e t hi s l et t er come her e and

4 t est i f y bef or e you t he way he di d? Ask your sel f t hat . How

5 does he come her e and i ni t i al l y say he knew not hi ng about Dr .

6 Kar r on advanci ng af t er t he gr ant was suspended i n J une, J une

7 27, ' 03, t hat he knew not hi ng about Dr . Kar r on advanci ng money?

8 How coul d he say t hat ? I showed hi man e- mai l wher e he sai d

9 t hat Dr . Kar r on had put $47, 000 i n, 47K and t hat t her e was 21K

10 i n cof undi ng. He deni ed t hat we ever had any equi pment i ssue

11 under cof undi ng. How does t hat happen t o a guy t hat you l ook

12 at , who i n Oct ober , who i n 2004, sai d j ust t he opposi t e of what

13 was goi ng on t han what he sai d on t he st and?

14 I r eal l y t hi nk at t he end of t he day Dr . Kar r on i s

15 goi ng t o get a cal l one day f r omBob Benedi ct apol ogi zi ng.

16 Her e i s a man who wor ked f or I BM f or over 20 year s. You hear d

17 f r omour char act er wi t ness, t hese peopl e get humongous

18 pensi ons. They got st ock pr obabl y when I BM was wor t h t en cent s

19 and pr obabl y t hei r shar es ar e pr obabl y wor t h a mi l l i on dol l ar s

20 a shar e t hat t hey have. How does a man l i ke t hi s t ur n agai nst

21 Dr . Kar r on t hi s way and get embr aced by t he pr osecut i on?

22 Wel l , you know, t hi s i s t he l ast t hi ng I wi l l say t o

23 you about my dad. I t ol d you he wor ked f or t he I RS. I once

24 got hi m, t hr ough a f r i end of mi ne who managed a For d

25 deal er shi p, a car . I got a cal l f r omt hi s f r i end of mi ne and


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1 he i s al l upset . I sai d, what ' s t he mat t er ? He says, your

2 f at her . I sai d, what do you mean? He says, I got back f r om

3 l unch, a Mr . Rubi nst ei n f r omI RS cal l ed; I al most l ost my

4 l unch. I t was my f at her , he was havi ng pr obl ems wi t h t he br ake

5 l i ght .

6 Wel l , when t he pr osecut i on shows up at your door and

7 you ar e t he guy who submi t t ed document s, al l of a sudden you

8 get your sel f on t he t eam, and i t ' s t r agi c. He t el l s you - -

9 her e i s a r esponsi bl e busi nessman - - oh, I have a CASI e- mai l

10 but I never accessed i t , I never l ook at t he e- mai l s at CASI ,

11 you see, I have a di f f er ent e- mai l .

12 Wel l , when my wi f e and I ar e on vacat i on, she get s her

13 e- mai l s f r omt he house wher e we ar e. I mean who doesn' t l ook

14 at t hei r e- mai l s? Peopl e ar e anal about t hi s st uf f . You mean

15 you ar e t he manager , t he busi ness manager of CASI , and you ar e

16 not accessi ng your e- mai l s, t hat maybe you have e- mai l s i n your

17 ot her account wher ever you ar e? Pl ease, pl ease.

18 Now, t he j udge i s goi ng t o t el l you t hat wi t nesses ar e

19 avai l abl e t o bot h si des. And you can f i nd - - t he di f f er ence i s

20 t hat t he gover nment has t he power t o gi ve i mmuni t y t o peopl e,

21 t hey can make deal s wi t h peopl e, t hey can do a whol e l ot of

22 t hi ngs. And of cour se t hey have t he bur den of pr oof beyond a

23 r easonabl e doubt . So, you coul d say t hat i f t hey woul d have

24 cal l ed t hi s wi t ness, and i f we woul d have cr edi t ed t hi s

25 wi t ness, we woul d not have a r easonabl e doubt , because i n t hi s


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1 case J oan Hayes, who we onl y hear d t he name but never saw, i s

2 not a per son whose t est i mony i s cumul at i ve.

3 The gover nment r el i ed on J oan Hayes t hr oughout t hi s

4 ent i r e case, and you never got an oppor t uni t y t o see her , and

5 we never got an oppor t uni t y t o ask her quest i ons.

6 You know i t ' s i nt er est i ng, Benedi ct and Hayes, makes

7 you t hi nk of Benedi ct Ar nol d, r i ght ? Her e i s t he per son who i s

8 your account ant , who i nappr opr i at el y becomes your audi t or

9 because peopl e t el l you you can' t wear t wo hat s.

10 Do you r emember Benedi ct ? I asked hi m, di d you ever

11 see Hayes' audi t ? Remember , she was supposed t o submi t t he

12 audi t . She got a 90- day ext ensi on i n Oct ober of 2002. You ar e

13 supposed t o submi t t he audi t . She got a 90- day ext ensi on unt i l

14 December 31, 2002 f or t he f i r st year , and i n August of 2003 Bob

15 Benedi ct hasn' t seen t he audi t and Dr . Kar r on hasn' t seen t he

16 audi t . Wow. You know who saw t he audi t ? Ri l ey, Hope Snowden.

17 They saw t he audi t . And t he t est i mony i s i n t he r ecor d, Ri l ey

18 saw t he audi t ed bef or e she went t o make t he per sonal vi si t , t he

19 si t e vi si t . Bef or e she cl osed t he pr oj ect down she used J oan

20 Hayes' number s.

21 Wher e ar e t hose number s? I asked Ri l ey, do you have

22 any number s? Do you have any audi t sheet s? Do you have any

23 gener al l edger s showi ng us how you base t hi s?

24 No. No, I used J oan Hayes' .

25 Wel l , wher e ar e t hey? What di d she gi ve you? What


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1 was her mot i vat i on, Hayes' s mot i vat i on? She cl ear l y poi soned

2 ever ybody at ATP agai nst Dr . Kar r on.

3 Coul d you i magi ne, t hey have a man, Dr . Kar r on, who

4 t hey know i s not a busi ness manager , and he get s a guy l i ke

5 Benedi ct t o be hi s busi ness manager and t hey won' t appr ove hi m.

6 They l eave Dr . Kar r on wi t hout a busi ness manager f r omt he t i me

7 t hat Pet er Ross l eaves unt i l I t hi nk t he dat e on t he e- mai l was

8 i n ear l y Mar ch, t hat Benedi ct comes aboar d, and t hey won' t

9 appr ove hi m. Why won' t t hey appr ove hi m? Why won' t t hey

10 appr ove a r evi sed budget ? Why won' t t hey do anyt hi ng? Why ar e

11 t hey st onewal l i ng t hi s? Ask your sel f : Who came i n t he mi ddl e

12 of t he ni ght t o t al k t o t hem? Same peopl e t hat came and t ook

13 ever yt hi ng i ncl udi ng t he shoe r ack out of Dr . Kar r on' s house.

14 THE COURT: You' r e a l i t t l e over 45 mi nut es.

15 MR. RUBI NSTEI N: Hal f way t her e, J udge, but t hank you.

16 Who wr ot e t he books? Whose books wer e t hey t hat t hey

17 used? She and Fr ank Spr i ng cr eat ed what ever books t her e wer e.

18 What di d t hey submi t ?

19 THE DEFENDANT: Excuse me. I have t o go t o t he

20 bat hr oom. Do I have your per mi ssi on, si r ?

21 MR. RUBI NSTEI N: J udge, I wi l l keep goi ng.

22 THE COURT: Somebody was sayi ng somet hi ng.

23 MR. RUBI NSTEI N: Yes, Dr . Kar r on needs a per sonal

24 moment , but I wi l l keep goi ng.

25 THE COURT: Do you want t o br eak now?


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1 MR. RUBI NSTEI N: Onl y i f t he j ur y does, J udge. I have

2 no pr obl emwi t h excusi ng hi mon t he r ecor d.

3 THE COURT: You sai d anot her 45 mi nut es.

4 I f he needs a br eak, l et ' s t ake a ver y shor t br eak.

5 The j ur y i s excused f or a shor t br eak.

6 ( J ur y not pr esent )

7 MR. RUBI NSTEI N: We mi ght as wel l st ep out our sel ves,

8 i f you don' t mi nd, J udge.

9 THE COURT: Wel l , al l r i ght , but come r i ght back. I

10 have t o have some t i me f or t he char ge. Leave me a l i t t l e t i me,

11 Mr . Rubi nst ei n.

12 ( Recess)

13 THE COURT: Al l r i ght . Let ' s br i ng t he j ur y i n.

14 I hope you won' t be t oo much l onger , Mr . Rubi nst ei n.

15 MR. RUBI NSTEI N: I ' mt r yi ng not t o.

16 THE COURT: Because I have a r ebut t al , t hen I have t o

17 have a l i t t l e r oomf or my char ge, and we' ve got t o have l unch.

18 ( Cont i nued on next page)

19

20

21

22

23

24

25


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1 THE COURT: Al l r i ght , pl ease be seat ed.

2 Mr . Rubi nst ei n.

3 MR. RUBI NSTEI N: Thank you, your Honor .

4 Hayes i s - - a l et t er i n evi dence, gover nment exhi bi t

5 51. Thi s i s af t er she' s cooper at ed wi t h t he gover nment f r om

6 God knows when. I submi t t ed f i gur es t hat she cr eat ed t o get

7 t hi s gr ant suspended. 51, she wr i t es a l et t er , or Dr . Kar r on

8 wr i t es a l et t er t o Hayes, so she' s st i l l i n communi cat i on wi t h

9 Dr . Kar r on, even t hough you know f r ome- mai l s - -

10 MR. KWOK: Obj ect i on, not i n evi dence.

11 MR. RUBI NSTEI N: Oh, I ' msor r y. Okay.

12 THE COURT: Exhi bi t 51 i s not i n evi dence.

13 MR. RUBI NSTEI N: I t ' s i n t hei r book.

14 So I submi t t o you t hat , t hat you have a l ack of

15 evi dence j ust on t he absence of Hayes.

16 And you know f r omt he t est i mony t hat Benedi ct had no

17 i dea t hat Hayes had gi ven t he audi t r epor t t o Ri l ey pr i or t o

18 t he meet i ng. I magi ne, she went t o t he meet i ng i n J une and

19 was - - i n J une t hey had t he meet i ng. Ri l ey came t o t he si t e

20 vi si t and Benedi ct , Hayes and Dr . Kar r on wer e pr esent - - t hat ' s

21 t he l unch t hat i s i n evi dence. And she st ayed aboar d, because

22 she kept f eedi ng, f eedi ng number s t o Benedi ct , not t o Dr .

23 Kar r on. Dr . Kar r on' s a sci ent i st . You know, he di dn' t cr eat e

24 t hese number s. And we know t hat Benedi ct kept gi vi ng

25 number s - - I mean Hayes kept gi vi ng number s because we have


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1 t hose amended f i nanci al st at us r epor t s t hat wer e f i l ed

2 August 13, 2003. And Benedi ct t el l s you wher e he got t hose

3 number s f r om. And you al so know t hat Benedi ct was pai d - - t hat

4 Dr . Kar r on pai d af t er t he gr ant was suspended - - he' s not

5 supposed t o, but he want s - - he want s t he pr oj ect t o wor k. So

6 he' s payi ng expenses. He put s - - you know about $47, 000 i n

7 cash t hat he r ef i nanced - - i t ' s i n t he e- mai l s - - he r ef i nanced

8 hi s apar t ment , put t he money i nt o t he gr ant t o keep t he gr ant

9 goi ng. I s t hat - - does t hat sound l i ke somebody who i s l ooki ng

10 t o i nt ent i onal l y mi sappr opr i at e f unds? Thi s i s a hi gh r i sk,

11 i nnovat i ve t echnol ogy t hat he' s wor ki ng on t hat r equi r es

12 changes as you go al ong. Ever ybody t el l s you. And mi st akes i n

13 sci ence, I submi t t o you, ar e mer el y exper i ment s t hat di dn' t

14 wor k out . Those ar e mi st akes. So you keep changi ng t hi ngs.

15 You need mor e wor ker s. So he get s vol unt eer s. You hear d about

16 al l t he peopl e t hat ar e i n t he apar t ment . He get s st udent s.

17 What ar e al l t hese peopl e doi ng t her e? They' r e al l wor ki ng on

18 a pr oj ect . Does anybody suggest t hat he' s not wor ki ng on a

19 pr oj ect ever y mi nut e t hat he has?

20 And you know t hat t he mant r a of ATP i s, i t ' s your

21 busi ness, your money, do what ever you want and we' l l back you

22 up because we' r e i nt er est ed i n sci ence her e. But t hen t he bean

23 count er s come i n and t hey st ar t dr awi ng ci r cl es ar ound ever y

24 number t o suggest you' r e doi ng somet hi ng wr ong. And t hat ' s

25 what we have her e. I magi ne l eavi ng t hi s company wi t hout a


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1 busi ness manager .

2 Now, you know t hat t he gr ant i s a f ungi bl e t hi ng,

3 because exhi bi t s f our - - do we have t hat exhi bi t ? I t hi nk i t ' s

4 page 11. I t t el l s you you coul d seek a r evi si on at t he end of

5 t he year . Not t he end of t he year of t he gr ant , whi ch i s

6 Oct ober - - i n t hi s case Sept ember 30t h, 2002, but at t he end of

7 t he year . And al l of t hese r evi si ons t hat wer e submi t t ed by

8 Ross and what have you, r el at ed t o 2001. I n ot her wor ds,

9 you' r e al l owed t o go backwar ds. You don' t need appr oval

10 bef or e. You know, f or ever y r ul e t hat t hey have, i f you l ook

11 t hr ough t hese books, you' r e goi ng t o f i nd a r ul e t hat says t he

12 opposi t e. And t hey expect peopl e t o r ead a coupl e of hundr ed

13 pages of i nf or mat i on. Somebody' s gi vi ng you a check f or

14 $800, 000, you si gn on t he bot t oml i ne and you' r e not wor r yi ng

15 about t he det ai l s. You know you' r e not goi ng t o do anyt hi ng

16 wr ong. Do you r ead ever yt hi ng t hat t he cr edi t car d company

17 sends you? They send you t hese t hi ngs about changes i n your

18 cr edi t car d st uf f . Got t o make an admi ssi on, I don' t .

19 Do you have t hat ?

20 MR. Di CENZO: No.

21 MR. RUBI NSTEI N: Al l r i ght , we' l l f i nd i t and put i t

22 up l at er .

23 Now, so t hat ' s what Dr . Kar r on under st ood. He

24 under st ood t hat he coul d have t he gr ant changed and he coul d

25 have t he l i nes changed. And why woul dn' t he? Doesn' t i t make


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1 a heck of a l ot of sense t o you peopl e? But no, t hey di sal l ow

2 Wi nt er ' s sal ar y. Wi nt er wor ked i n t he of f i ce. Not onl y

3 di sal l owed her sal ar y, t hey al so di sal l owed she got chi l d car e.

4 They di dn' t l i ke t hat . So you don' t have sal ar y, you' r e not

5 ent i t l ed t o f r i nge benef i t s, and al so you shoul dn' t have chi l d

6 car e anyhow. Who ar e t hey t o say what f r i nge benef i t s your

7 company shoul d gi ve you? Who ar e t hey? They t el l you, oh, you

8 shoul d have a - - somet hi ng i n pl ace. You need a wr i t t en

9 manual . Why do you need a wr i t t en manual f or ? Nobody' s goi ng

10 t o l ook at i t . Nobody' s goi ng l ook at i t . They don' t r evi ew

11 t he wr i t t en manual . You don' t have t o submi t i t . Nobody asked

12 f or t he manual . You' r e al l owed t o make f r i nge benef i t s.

13 But we do have a wr i t t en manual . And who cr eat ed i t ?

14 Bob Benedi ct . He cr eat ed i t . We put i t i n evi dence. And t he

15 gover nment get s up on r edi r ect and says, wel l , wasn' t t hat J ul y

16 2nd af t er t he gr ant was suspended? What do you t hi nk, he made

17 t hat document on J ul y 2nd; he st ar t wor ki ng on i t on J ul y 1st

18 and he st ayed up al l ni ght ? Come on. You have e- mai l s back i n

19 August of ' 02 r el at i ng t o t hi s l awyer Mi l l er , who i s appar ent l y

20 on t he boar d of CASI , aski ng about document i ng i t . But t he

21 r eal i t y i s i n t hi s gr ant , wher e not hi ng' s wr i t t en i n st one, i f

22 you do what ' s r easonabl e and you di d i t bef or e, you know you' r e

23 not goi ng t o have any t r oubl e.

24 But t hen you get an audi t or - - I mean I l eave t o i t

25 you. You j udge t he wi t nesses. Ri l ey. She di sal l ows par t of


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1 Dr . Kar r on' s sal ar y. She di sal l ows i t . He di dn' t spend

2 100 per cent of t i me on t he gr ant . Wel l , what i f he spent 80

3 hour s a week? I f he spent an hour , t wo hour s on somet hi ng

4 el se, af t er war d, t hose 80 hour s, uh- uh. Let me ask you; ATP

5 appr oved $175, 000 f or Dr . Kar r on. Di d t hey expect hi mt o get a

6 $175, 000 i n sal ar y? Of cour se t hey di d. They di dn' t expect

7 t he bean count er t o come al ong and say you' r e not al l owed t o

8 t ake t he whol e 175. And t hat woul d' ve been r esol ved i n an

9 audi t r esol ut i on.

10 Then we t al ked about Mr . Gur f ei n. Gur f ei n got

11 $100, 000, net - - I ' msor r y, gr oss sal ar y. So, wel l , 25 per cent

12 of hi s t i me wasn' t spent on ATP, so we t ook of f 35 per cent . So

13 I showed her t he exhi bi t H. And di d she ever answer i t ? She

14 gave you doubl e t al k t hat you haven' t hear d si nce you hear d

15 comedi ans t hat coul d doubl e t al k.

16 The amended budget t hat ' s appr oved, whi ch i s par t

17 of - - whi ch i s t he def endant ' s H, i t shows Gur f ei n get s a

18 133, 333, he devot es 75 per cent of hi s t i me, and t hat equal s out

19 mat hemat i cal l y t o $100, 000. Wel l , no, i t ' s 75 per cent of a

20 hundr ed. Wel l , no no. She' s get t i ng 133. What ' s 75 per cent

21 of 133? They say number s don' t l i e.

22 You have wi t nesses l i ke Hope Snowden. She t el l s you

23 about she di scussed t he $75, 000 t hat Dr . Kar r on t ook as an

24 advance, wi t h Agent Gar r i son. And when I cr oss- exami ned her , I

25 showed you t hat t he f i r st t i me, and she conceded i t , t hat she


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1 ever spoke t o anybody about t he $75, 000 advance, was on

2 Sept ember 8t h, 2003. And I conf r ont ed her wi t h Gover nment ' s

3 exhi bi t 3504A and she agr eed wi t h t hat . Al l r i ght . So

4 what ever r eason, she was st onewal l i ng Benedi ct and t he r evi si on

5 pr ovi si ons. Gover nment wor ker , and she' s t aki ng t he gover nment

6 l i ne. Al l r i ght .

7 Now, I asked her about t hese pr eaudi t , pr e- gr ant

8 cost s, and she sai d you do t hat at your own r i sk. So, does Dr .

9 Kar r on - - so can you get ATP t o agr ee t o l et you use your

10 pr eaudi t spendi ng - - pr e- gr ant spendi ng, t he money you spent

11 bef or e Oct ober 1st , 2001, and you can t ake t hat as an al l owabl e

12 expense; i s t hat somet hi ng you coul d consi der ?

13 Now, but she want s you t o t hi nk t hat she' s, she' s on

14 t op of what ' s goi ng on. Nobody car ed what was goi ng on, as

15 l ong as sci ence - - r emember t hey had vi si t s? They had si t e

16 vi si t s, and Li de t ol d you, yeah, t hey wer e pr ogr essi ng on t he

17 sci ence. That ' s what t hey car ed about at ATP. That ' s what

18 t hey shoul d have car ed about . They shoul d have car ed about

19 t hat .

20 Now, t he mant r a was, no good pr oj ect goes unf unded.

21 THE COURT: An hour and 15 mi nut es.

22 MR. RUBI NSTEI N: Par don, J udge? That ' s not so. We

23 st ar t ed at 45. I cannot possi bl y have t al ked a hal f an hour .

24 You' r e put t i ng i n t he r ecess on me, J udge. That ' s not - -

25 THE COURT: I am- -


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1 MR. RUBI NSTEI N: That ' s not f ai r at al l . I di dn' t

2 want a r ecess.

3 THE COURT: No, I know. I haven' t st opped you yet .

4 I ' mj ust gi vi ng you a, j ust gi vi ng your t i me l i ne - -

5 MR. RUBI NSTEI N: Al l r i ght .

6 THE COURT: - - so you know wher e you ar e.

7 MR. RUBI NSTEI N: J udge, you know I l ove you, but I got

8 t o go, I got t o go.

9 I n exhi bi t 10B i n evi dence, t hi s i s what i t says, t hi s

10 i s on t he budget t hat i s par t of what you submi t . They say:

11 We - - t hi s i s gover nment t al ki ng - - we r ecogni ze t hat

12 unexpect ed event s occur r ed f r equent l y i n R&D, r esear ch and

13 def endant pr oj ect s, and t hat budget s may be needed t o be

14 changed as t he pr oj ect pr oceeds. Okay. That ' s al l you have t o

15 know about t he budget . I t ' s not wr i t t en i n st one. I t ' s a

16 l i vi ng br eat hi ng t hi ng. And i f you l ook at Exhi bi t 4, page

17 11 - - i t ' s not i n your book - - i t says, you can r evi se t he

18 budget at t he end of t he year . And t hat ' s what he di d, and you

19 can gi ve 10 per cent anyway you want .

20 Now, t he smoki ng gun, r ent . The smoki ng gun i n t hi s

21 case. When was t he r ent pai d f or ? CASI col l ect ed r ent . Dr .

22 Kar r on col l ect ed r ent f r omCASI si nce 1995. Ther e' s no

23 evi dence t hat CASI was not payi ng r ent , and t hat Dr . Kar r on

24 wasn' t showi ng i t on hi s i ncome t ax r et ur ns f or t he whol e t i me

25 of t he gr ant .


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1 You know t hat t her e was a per i od wher e he di dn' t have

2 wor k and t he r ent went unpai d so t hat he was owed t he r ent . I f

3 he owed a bank l oan and he t ook money and pai d of f a bank l oan

4 t hat he owed bef or e t he gr ant , what woul d t hey be sayi ng? So

5 we have t hi s i ssue of r ent . He f eel s, he f eel s t hat he shoul d

6 be abl e t o col l ect r ent f r omATP. Why? Hi s i s a uni que

7 si t uat i on. He onl y has one pr oj ect . They cal l ed di r ect and

8 i ndi r ect cost s. He says ever yt hi ng i s di r ect , because I have

9 onl y one pr oj ect . These ot her pl aces have mor e t han one

10 pr oj ect so t hey can' t say how much of t he r ent i s t he pr oj ect .

11 So l et ' s f ol l ow i t . And ever ybody i s t el l i ng hi m, ever ybody' s

12 sayi ng you can' t do i t , you can' t do i t . He keeps t r yi ng, he

13 keeps t r yi ng, he keeps t r yi ng.

14 Fi nal l y, near t he end of 2002 i t dawns on hi m, he' s

15 not get t i ng t he r ent . Now, a decent account ant t hen r eappl i es

16 al l what ever he spent f or t he r ent t hat t hey adj ust ed. That ' s

17 what t he account ant does, t hey go i nt o your cr edi t car d, your

18 t hi s, your t hat , t hey deci de what i s at t r i but abl e t o you and

19 what i sn' t , what i s per sonal .

20 He now has t hi s br i l l i ant i dea. He' s a br i ght guy; I

21 amgoi ng t o move out of t he apar t ment , I ' mgoi ng t o move t o

22 Connect i cut t o my f r i end Wi ndy' s house, I ' mgoi ng t o pay her

23 r ent and t hen I ' mnot usi ng t he apar t ment f or my house and I

24 coul d deduct i t . Gr eat i dea. So he goes, he makes a cont r act

25 wi t h Wi ndy. He gi ves her 2, 000 i n advance. He' s al l set t o do


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1 i t , when t hey r eal i ze t hi s i s r i di cul ous. I ' mgoi ng t o be

2 goi ng up and back f r omConnect i cut . Pr obabl y r eal i ze, you

3 know, i f I use my GPS goi ng up and back f r omConnect i cut i t may

4 not be a busi ness expense, you know, i t may not be al l owabl e.

5 So he deci des not t o move i nt o Wi ndy' s. And what does he do?

6 What does he do, l adi es and gent l emen? He doesn' t t ake r ent

7 any mor e. Ther e ar e no checks f or r ent i n 2003, not i n t hi s

8 gr ant . So once i t f i nal l y went t hr ough hi s head t hat you can' t

9 do i t , i t ' s not al l owabl e, t hi s ar r ogant guy, accor di ng t o

10 t hem, l i st ens t o nobody, st opped t aki ng r ent .

11 Now, you' r e goi ng t o l ook at t he cr edi t car ds, you' r e

12 goi ng t o l ook at t he Mast er Car d. You' r e goi ng t o see how

13 of t en he had meal s, wher e t hey wer e, what pl aces. You know

14 t hat he t ook Li de and J ane Or t hwei n t o l unch at Benj ami n' s.

15 You see he goes t o Benj ami n' s ot her t i mes. You' l l see t hese

16 r est aur ant s and what have you. Al l r i ght .

17 You' r e goi ng t o consi der t he audi t , or t he l ack of

18 audi t . I submi t t o you t hat 110, Gover nment ' s 110 and 111,

19 whi ch wer e cr eat ed l ong af t er t he gr ant was suspended, af t er

20 t hey made t he f i nal r epor t , af t er t hey made t he f i nal r epor t i n

21 Mar ch of 2004, t hen she went and audi t ed i t . Then she cr eat ed

22 r ecor ds t o j ust i f y what she had done bef or e. Ther e was

23 pr obabl y about 45 checks i n t hi s whol e r econci l i at i on t hat t hey

24 never di d. So ask your sel f , ar e you goi ng t o r el y upon any of

25 t he number s t hat Ri l ey cr eat ed.


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1 Now, I ' mgoi ng t o ski p a whol e bunch of st uf f . I ' m

2 goi ng t o go t o August 13, 2003. And August 13t h, 2003 - - oh,

3 by t he way, r ent and ut i l i t i es ar e not per mi t t ed. They' r e

4 i ndi r ect cost s. You know f r omt he t est i mony i n t hi s case t hat

5 CASI was appr oved t o t ake of f , t o deduct ut i l i t i es, a por t i on

6 of t he ut i l i t i es. Because you' l l see t he e- mai l s and you' l l

7 see t hat i n t he exhi bi t s t hey wer e al l owed t o t ake of f el ect r i c

8 $7600, r i ght . Why? Because i t ' s an i ndi r ect cost . Wel l , how

9 di d you get i t ? Because i t ' s negot i abl e. They submi t t ed t he

10 bi l l s showi ng t hat t he i ncr ease i n el ect r i ci t y, due t o t he

11 equi pment , showed a r i se t o t he ext ent t hat t hey f el t t he gr ant

12 peopl e f el t t hat Dr . Kar r on was ent i t l ed t o r ei mbur sement f or

13 on hi s. When you l ook at t he book and you' l l see t hat Oct ober

14 19t h, 2002 was t he l ast r ent payment made t o Dr . Kar r on, okay.

15 $2, 000. And onl y one r ent payment was out of NI ST. And I

16 submi t t o you t hat t hey had aut hor i zed f r i nge benef i t s. They

17 wer e aut hor i zed 110, 000. Who i s t he per son t hat i s per mi t t ed

18 t o t el l you, af t er you' ve been aut hor i zed t o spend 110, 000 and

19 you can' t spend 110, 000? Who? And t hey deduct your payr ol l

20 t ax - - t hey deduct ed your - - r educe your sal ar y so now you

21 coul dn' t t ake your payr ol l t axes. You got a sal ar y. So now

22 t hey come up wi t h a f i gur e of $547, 000 whi ch i s - - t hat ' s

23 cr i mi nal .

24 Now, I want t o get , because I - - di d anybody say t hat

25 t hese medi cal expenses wer en' t deduct i bl e? No. Thei r ar gument


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1 i s wel l - - or wer en' t l egi t i mat e? No. Thei r ar gument i s t hat

2 t hey - - t her e was no pl an i n pl ace. And I submi t t o you t hey

3 di dn' t need a pl an. They had a pl an. That ' s t he way t hey di d

4 i t . That ' s t he way t hey al ways di d i t . And t hat even Benedi ct

5 sai d t hat you can use t he mat chi ng cost s, you coul d use your

6 own equi pment . And t her e' s no quest i on t hat Dr . Kar r on had

7 equi pment i n hi s pl ace when he st ar t ed t hi s gr ant .

8 But I want t o go, because I t ol d you, t o August 13t h

9 because I ' m- - of ' 03, and t hi s i s t he set t i ng. Bob Benedi ct ,

10 t hese ar e - - t her e ar e exhi bi t s i n evi dence Gover nment ' s 40

11 40A, 41, 41A, 42, 42A, 43, 43A. These ar e t he f i nanci al

12 r epor t s, quar t er l i es. Remember , t hey had t o submi t quar t er l y

13 r epor t s. And l ow and be hol d on August 13t h, 2003 af t er t he

14 gr ant i s suspended, Bob Benedi ct pr epar es t hese amended

15 f i nanci al r epor t s. Whose f i gur es does he use? Obvi ousl y J oan

16 Hayes. He suggest s t hat Dr . Kar r on saw t hese, appr oved t hem

17 and what have you. I ' mgoi ng t o pr ove t o you, beyond any

18 doubt , t hat t hat ' s not t r ue, j ust not t r ue. A, you' r e goi ng t o

19 see f r omt he Mast er Car d expense r ecor ds i n evi dence, as

20 def endant ' s ZZZ- 1 t hat - - wher e you' r e goi ng t o f i nd t hat al l

21 ki nds of medi cal benef i t s wer e pai d on behal f of Dr . Kar r on.

22 And you' r e al so goi ng t o f i nd t hat al l ki nds of equi pment ,

23 i ncl udi ng t o El l i ot t - - I ' msor r y - - El l i ot t Medi cal Gr oup,

24 you' r e goi ng t o see Dr . Br ant s, you' r e goi ng t o see Ki ps Bay

25 Opt i cal , al l of t hi s i s pai d on t he Mast er Car d. Shoul d he get


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1 cr edi t f or t hat ? I submi t he shoul d under hi s medi cal benef i t s

2 pl an.

3 You' r e goi ng t o f i nd, when you l ook at t he Mast er Car d

4 bi l l , t hat on August 13t h, 2003, Dr . Kar r on was i n Canada.

5 You' r e goi ng t o see medi cal bi l l s pai d f or on August 13t h, 2003

6 t hat wer e i ncur r ed on t hat day t hat he was i n Canada, because

7 you gi ve a cr edi t car d, t hey put t he dat e, t hey put t he pl ace,

8 and so he' s i n Canada.

9 How do t hese, t hat he' s supposed t o be t hi s cr i mi nal ,

10 t hi s mast er mi nd cr i mi nal , f udgi ng and maki ng r ecor ds, and what

11 have you - - l et me show you - - gi ve me 48, and gi ve me - - I ' m

12 goi ng t o show you - - coul d you put t hi s up, pl ease? Thi s i s

13 48. Now, I submi t t o you, on t he bot t omof t hat i s a

14 si gnat ur e. That ' s not a handwr i t t en si gnat ur e when you t ake a

15 l ook at t he document . That ' s a pr i nt out si gnat ur e. I t ' s not

16 Dr . Kar r on' s. And you see on t he bot t omof t he exhi bi t - -

17 THE COURT: The bot t oml i ne?

18 MR. RUBI NSTEI N: Yeah, bot t oml i ne. You see i t says

19 " r evi sed" . See i t ' s dat ed. Can you see f r omwher e you ar e,

20 August 13t h, 2003? Whose i ni t i al s ar e next t o r evi sed? I

21 submi t t o you i f you t ake a l ook at exhi bi t 48 i n evi dence, Bob

22 Benedi ct si gnat ur e, t hat Benedi ct submi t t ed t hose f or ms, okay.

23 And i t makes sense. I t makes sense. You t hi nk t hat Dr . Kar r on

24 i s checki ng out t hese number s and doi ng t hose t hi ngs? I submi t

25 t o you t hat t hi s i s a case put t oget her wi t h no subst ance; t hat


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1 Dr . Kar r on had absol ut e r i ght , not beyond a r easonabl e doubt ,

2 beyond any doubt , t o expect t hat t hese expenses t hat he was

3 char gi ng woul d be accept ed, because he was wor ki ng hi s but t of f

4 f or t hi s gr ant . He was t r yi ng t o succeed, because t hat ' s who

5 he i s. He was t r yi ng t o devel op somet hi ng. And I don' t want

6 sympat hy. I don' t want sympat hy t hat i t was a gr eat pr oj ect

7 and maybe we al l woul d' ve benef i t ed f r omi t . I don' t want

8 sympat hy f r omt hat . I want j ust i ce. I want j ust i ce. And I

9 want you t o l ook at t hi s case as a sci ent i st wor ki ng, and you

10 see t he hour s on t he e- mai l s, day or ni ght . I f you l ook at t he

11 cr edi t car d st at ement s and you see wher e he i s and di f f er ent

12 st at es and what have you, and say whet her or not t hi s was hi s

13 t hought . Hi s t hought was t o keep - - I submi t t o you we pr oved

14 t o you hi s t hought was t o keep t he t hi ng goi ng, t o keep i t

15 goi ng even af t er t hey t ol d hi mi t was suspended, t o keep i t

16 goi ng. Why di d he put money i n af t er i t was suspended? Ar e

17 t hey goi ng t o ar gue t o you t hat he di d t hat as a cover up; t hat

18 he t hought t hat i f he put money i n, t hat t hi s i s goi ng t o sol ve

19 hi s pr obl embecause he' s i nvol ved i n t hi s cr i mi nal i t y

20 bef or ehand? I s t hat what t hey' r e goi ng t o st and up her e? I

21 submi t I r el y upon you t o answer t hat ar gument f or me. He

22 bel i eved al l al ong t hat t hi s gr ant woul d be r est or ed, and

23 somehow i f he owed money, he woul d pay t he money back i f he was

24 mi st aken. He di dn' t have a pr obl emwi t h t hat at t he end of t he

25 day. He t hought he was r i ght . Maybe he was wr ong. So he put


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1 money i n. He kept peopl e wor ki ng, and he spent money on t he

2 gr ant . And hi s pr obl emwas t hat he bel i eved t he peopl e ar ound

3 hi m. He bel i eved i n Hayes. He bel i eved t hat she was on hi s

4 si de, and t hat t he number s t hat he was get t i ng wer e cor r ect

5 number s.

6 Now, t he bot t oml i ne i s t he gr ant has never been

7 t er mi nat ed; r i ght ? They have no evi dence of t er mi nat i on.

8 Suspended. And t he J udge i s r i ght , I coul d t al k f or anot her

9 t wo hour s. And I pr obabl y, when I si t down or when I go t o

10 sl eep t oni ght and wake up, I coul d t hi nk of some of t he most

11 si gni f i cant t hi ngs I coul d t hi nk of t o shar e wi t h you peopl e.

12 But t he r eal i t y i s t hat you sat her e, pai d at t ent i on. You know

13 t he evi dence, you know your dut y. I have - - bei ng a cr i mi nal

14 def ense l awyer i s an awesome r esponsi bi l i t y. And you have - -

15 I ' ve done al l I coul d, okay. He came her e, he pl ed not gui l t y.

16 We' l l wai t her e f or you f ol ks t o come back and say he' s not

17 gui l t y. And I t hank you, and I coul d st i l l say good mor ni ng,

18 so have a good mor ni ng.

19 THE COURT: Thank you, Mr . Rubi nst ei n.

20 MR. RUBI NSTEI N: Thank you, J udge.

21 THE COURT: Al l r i ght . Ar e you r eady t o pr oceed, Mr .

22 Ever del l ?

23 MR. EVERDELL: Yes, your Honor .

24 Ladi es and gent l emen, ever y case i n f eder al cour t i s

25 i mpor t ant , but not ever y case i n f eder al cour t i s cl ose. Thi s


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1 i s not a cl ose case. The evi dence t hat you' ve hear d over t he

2 l ast week has been cl ear , t hat t he def endant mi sspent gr ant

3 money, and he spent t he money on t hi ngs t hat he knew, t hi ngs

4 t hat he was speci f i cal l y t ol d he coul dn' t spend t he money on.

5 And what ' s even mor e out r ageous i s t hat t he def endant spent

6 money t hat was supposed t o go f or sci ent i f i c r esear ch t o hel p

7 us al l , money t hat ot her sci ent i st s who di dn' t get t hi s gr ant

8 coul d have used t o make wonder f ul l i f e changi ng di scover i es.

9 So t he def endant di dn' t j ust cheat t he gover nment , he cheat ed

10 al l of us.

11 Now, t he def ense counsel i n hi s cl osi ng r emar ks t r i ed

12 t o t ake your eye of f t he bal l i n t hi s case. He t r i ed t o make

13 you f ocus on a number of t hi ngs t hat ar e not r eal l y at t he

14 hear t of t hi s case. He want s you t o specul at e about wi t nesses

15 you di dn' t even hear f r om. He want s you t o wonder about what ,

16 whet her t he def endant was i n Canada i n 2003, af t er t he gr ant

17 was even suspended. These ar e not t he t hi ngs t hat ar e at t he

18 hear t of t hi s case. So i n t he next f ew mi nut es I want t o t ake

19 a st ep back and I want t o f ocus br i ef l y agai n on how t he

20 evi dence shows t he def endant i nt ent i onal l y mi sspent t he gr ant

21 f unds, and t hen I ' mgoi ng t o f ocus a l i t t l e bi t about some of

22 t he ar gument s t he def ense counsel made i n hi s cl osi ng r emar ks,

23 and see why none of i t i s bor ne out by t he evi dence.

24 Now, f i r st , l et me j ust r ei t er at e one poi nt t o you,

25 l adi es and gent l emen. The gover nment bear s t he bur den of pr oof


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1 at al l t i mes. The def endant doesn' t have t o say anyt hi ng or do

2 anyt hi ng t o pr ove hi s i nnocence. But you ar e ent i t l ed t o

3 exami ne t he case t hey put on and t he ar gument s def ense counsel

4 made, t o see whet her or not t hey make any sense.

5 So wi t h t hat , l et ' s f i r st t ake a st ep back and l ook at

6 j ust a f ew exampl es of t he evi dence bef or e you of t he

7 def endant ' s gui l t .

8 Let ' s t ake a l ook at r egs. Thi s i s a bi g i t emi n t he

9 case. Ther e can be no doubt t hat t he def endant was t ol d,

10 r epeat edl y, by sever al di f f er ent peopl e t hat no mat t er what t he

11 si t uat i on may be, you cannot use ATP f unds t o pay f or r ent .

12 The def endant hear d i t f r omHope Snowden, who t ol d hi mt hi s

13 r i ght af t er t he gr ant was awar ded. He hear d i t f r omB. J .

14 Li de, anot her of t he gr ant admi ni st r at or s. He hear d i t f r om

15 hi s own busi ness manager , Lee Gur f ei n, who hi msel f had hear d i t

16 f r omHope Snowden, i n a phone cal l r epeat edl y. He hear d i t

17 f r omFr ank Spr i ng, t he bookkeeper he hi r ed i n connect i on wi t h

18 t he f i r st year audi t , and he hear d i t f r omRober t Benedi ct , hi s

19 second year book manager , busi ness manager . I ndeed i t seems

20 l i ke t he onl y per son f or whomt hi s was not compl et el y evi dent

21 was t he def endant . And why i s t hat ? I t ' s not because t he r ul e

22 wasn' t cr yst al cl ear . I t was. I t was because t he def endant

23 si mpl y r ef used t o l i st en t o what he di dn' t want t o hear .

24 Remember what Rober t Benedi ct t ol d you about how - - r emember

25 what Rober t Benedi ct t ol d you about how t he def endant oper at ed.


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1 He woul d go f r omper son t o per son aski ng t he same quest i on

2 agai n and agai n unt i l he got t he answer he l i ked. Wel l , i n

3 t hi s case t he def endant never got t he answer he want ed and he

4 went ahead and he di d i t anyway.

5 Remember what Lee Gur f ei n t ol d you, he t hought - - he

6 t ol d you t hat t he def endant t hought t hat ever yone at NI ST l oved

7 hi mand t hat he coul d do anyt hi ng he want ed wi t h t he money.

8 That ' s exact l y what happened her e. Thi s di d not happen because

9 t he def endant di dn' t under st and t he r ul es or make an honest

10 mi st ake. Thi s happened because t he def endant r ef used t o

11 under st and what al l par ent s t el l t her e f i ve- year - ol d ki ds when

12 t hey st omp t hei r f eet and hol d t hei r br eat h when t hey don' t get

13 what t hey want , and t hat means no means no.

14 And i n t he end t he evi dence cl ear l y showed t he

15 def endant i nt ent i onal l y mi sspent $60, 000 on r ent i n t he f i r st

16 year of t he gr ant al one.

17 Now, def ense counsel got up and he t al ked t o you about

18 r ent . What di d he say t o you about r ent ? He sai d t he

19 def endant f el t ent i t l ed t o i t . And t hat ' s exact l y t he pr obl em,

20 he f el t ent i t l ed t o i t . He was t ol d he coul dn' t do i t , and he

21 di d i t anyway. And he says, i t f i nal l y dawned on hi mi n 2002

22 t hat he coul dn' t use ATP f unds t o pay f or r ent ? I t f i nal l y

23 dawned on hi mi n 2002? That ' s not what t he evi dence showed.

24 He was t ol d i n 2001 r epeat edl y by many di f f er ent peopl e. How

25 coul d i t possi bl y f i nal l y dawn on hi mi n 2002 t hat you can' t


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1 use t hese f unds t o pay f or r ent ? How i s t hat possi bl e? I t ' s

2 because he' s del i ber at el y i gnor i ng ever yt hi ng t hat peopl e ar e

3 t el l i ng hi m. Thi s i s del i ber at e i gnor ance on t he par t of t he

4 def endant . He does not deser ve some ki nd of speci al

5 congr at ul at i ons because he st opped payi ng r ent t o hi msel f i n

6 2003, af t er t he gr ant was suspended.

7 MR. RUBI NSTEI N: Obj ect i on. I t wasn' t af t er , i t was

8 bef or e.

9 THE COURT: Obj ect i on sust ai ned t o t hat .

10 MR. EVERDELL: And of cour se t her e wer e t he ut i l i t i es.

11 THE COURT: I t hi nk t he evi dence - - my r ecol l ect i on - -

12 t he j ur y' s r ecol l ect i on wi l l gover n i s t hat i t was i n December

13 of 2002 bef or e t he gr ant was suspended i n J une 2003.

14 MR. EVERDELL: And t her e wer e t he ut i l i t i es as wel l .

15 Agai n, t he def endant was t ol d r epeat edl y by mul t i pl e peopl e,

16 you can' t use ATP f unds t o pay f or ut i l i t i es. Agai n, he chose

17 not t o l i st en and he spent $16, 000 on ut i l i t i es i n year one

18 al one.

19 And, f i nal l y, t her e wer e sever al char ges t he def endant

20 i ncur r ed t hat wer e not onl y i n t he budget , not - - excuse me - -

21 not i n t he budget , but t hat no one coul d possi bl y t hi nk wer e

22 l egi t i mat e r esear ch expenses. Over $5, 000 i n t he f i r st year of

23 t he gr ant al one f or hi s cl eani ng l ady, Mar gar et Fer r and.

24 Def endant counsel di dn' t comment at al l on t hat i n hi s cl osi ng

25 st at ement s f or hi s cl eani ng l ady. The checks t hemsel ves on t he


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1 memo l i ne say cl eani ng. How i s t hat possi bl e t hat anyone coul d

2 under st and t hat t hat ' s a gr ant r el at ed expense? The r ul es wer e

3 cl ear . You got - -

4 MR. RUBI NSTEI N: Obj ect i on, your Honor . Ther e' s

5 evi dence t hat she scanned, she di d ot her t hi ngs - - t hei r own

6 document s.

7 THE COURT: Obj ect i on over r ul ed. I t ' s ar gument .

8 MR. EVERDELL: And t her e ar e a hundr ed dol l ar s on

9 meal s and per sonal i t ems l i ke t he bl ender and t he dust bust er .

10 I mean t ake a l ook at t hese i t ems, l adi es and gent l emen. Ar e

11 t her e anyt hi ng - - does anyone bel i eve t hese ar e f or sci ent i f i c

12 pur poses?

13 We' ve t al ked a l ot about - - def ense counsel t al ked a

14 l ot about t he GPS t r acki ng devi ce, and wher e he went wi t h i t .

15 He may have gone t o D. C. , but t he i ssue i s not wher e he went

16 wi t h i t . The i ssue i s what money he used t o pay f or i t . Thi s

17 i s not an appr oved expense. And by t he way, i f you l ook at t he

18 l uggage t ag t hat i t ' s on i t , t hi s was used i n a f l i ght August

19 13t h, ' 05, wel l af t er t he gr ant was suspended. Thi s i s a

20 per sonal i t em. He' s not usi ng t hi s f or gr ant st uf f . We' r e not

21 sayi ng t hat you can' t have a di gi t al camer a. We' r e not sayi ng

22 you can' t have a GPS devi ce or a bl ender or dust bust er .

23 Si mpl y sayi ng t hat you can' t use gr ant f unds t o pay f or i t .

24 And t hat ' s evi dence, t hat i s evi dence and i t was evi dent t o t he

25 def endant . And t hese i t ems j ust go t o show t hat t he def endant


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1 was r eckl ess wi t h t he t axpayer money and was usi ng i t t o pay

2 f or hi s dai l y per sonal expenses. Remember what Lee Ger f ei n

3 t ol d you. He t est i f i ed t hat dur i ng t he gr ant pr oposal wr i t i ng

4 pr ocess, he saw what he bel i eved t o be t he def endant l i vi ng of f

5 hi s cr edi t car ds because he had no ot her money. Wel l , once t he

6 ATP f unds became avai l abl e, t he def endant di d exact l y t he same

7 t hi ng wi t h t he ATP money, he cut hi msel f $75, 000 and used i t t o

8 pay hi s per sonal debt s.

9 And l et ' s not f or get t he evi dence cl ear l y showed t hat

10 al l t hese f unds wer e bei ng spent wi t h ATP f unds. CASI had no

11 ot her money. That ' s what t he bank st at ement s t hat Bel i nda

12 Ri l ey t al ked about show, and t hat ' s what bot h CASI busi ness

13 manager Lee Gur f ei n and Rober t Benedi ct t ol d you, t her e was no

14 ot her money.

15 So now t hat we have a cl ear pi ct ur e of what ' s at t he

16 hear t of t hi s case, l et me addr ess some of t he ar gument s

17 def ense counsel r ai sed i n hi s cl osi ng r emar ks. Now, f i r st one

18 of t he t hi ngs t hat he ment i oned, t hat he r ai sed was t hat t he

19 gover nment i s t r yi ng t o put t he def endant i n j ai l j ust because

20 he vi ol at ed some gr ant r ul es; how coul d he possi bl y mast er

21 hundr eds of pages of r ul es and t hi ck r egul at i ons; nobody coul d

22 possi bl y do t hat . Wel l , t hat ' s not what we' r e sayi ng. Of

23 cour se i t ' s not necessar y f or t he def endant t o have an

24 encycl opedi c knowl edge of t he Code of Feder al Regul at i ons and

25 t he ATP gr ant r ul es. That was Hope Snowden' s j ob. However , i t


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1 was t he def endant ' s obl i gat i on t o l i st en t o what Hope Snowden

2 t ol d hi mand what ot her s t ol d hi mabout what he coul d and

3 coul dn' t do under t hose r egul at i on. And t hat ' s what he di dn' t

4 do.

5 The def endant chose t o di sr egar d t hat advi ce, and i n

6 f act not onl y di d he not l i st en t o Hope Snowden, but he di d not

7 l i st en t o t he peopl e t hat he speci f i cal l y hi r ed t o hel p hi mi n

8 t hese ar eas; hi s busi ness manager s, hi s bookkeeper s. That i s

9 not t r yi ng hi s best t o compl y. That i s not an i nnocent

10 mi sunder st andi ng. That i s consci ous f l out i ng of t he r ul es.

11 And i t doesn' t t ake a Ph. D. t o be abl e t o l i st en and under st and

12 what ever yone ar ound you i s t el l i ng you.

13 Now, he t hought I suppose, def ense counsel comment ed

14 t hat he t hought he was f r ee t o di sagr ee, he was f r ee t o

15 di sagr ee i f he want ed. Wel l , i f I ent r ust you wi t h my money

16 and I t el l you t hat you can' t spend i t i n cer t ai n ways, you

17 can' t do X and you can' t do Y, t hen you don' t have t he f r eedom

18 t o di sagr ee wi t h me. You have t o spend i t how I t el l you you

19 can spend i t . The di sagr eement i s not an i ssue. He was t ol d

20 what he coul d and coul dn' t do. J ust t ake a l ook at r ent ,

21 ut i l i t i es, and he di d i t anyway.

22 Def ense counsel al so comment ed t hat , wel l , t he

23 def endant was bad wi t h f i nances, r i ght . He' s an i ncompet ent

24 manager ; we can' t hol d hi mr esponsi bl e f or t hat , we cer t ai nl y

25 can' t send hi mt o j ai l f or t hat . Wel l , we agr ee t hat t he


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1 def endant was an i ncompet ent manager , but t hat doesn' t get hi m

2 of f t he hook. You hear d t est i mony t hat he was a hands on

3 manager . He hi r ed peopl e t o r un t he f i nances and keep t he

4 books st r ai ght , but t hen woul dn' t l et t hemdo t hei r j obs. Now

5 i f you' r e a def endant , i f you' r e a def endant and you' r e such an

6 i ncompet ent manager , you' r e bad wi t h f i nances and al l you

7 r eal l y want t o f ocus on i s t he sci ence and not bot her wi t h al l

8 t he bor i ng busi ness st uf f , woul dn' t you hi r e peopl e t o do i t

9 f or you and t hen l et t hemdo what t hey needed t o do so t hat you

10 coul d get on wi t h your r esear ch? Of cour se you woul d. That ' s

11 not what he di d, t hough. He di dn' t . He want ed t o keep cont r ol

12 of t he books.

13 You hear d t est i mony t hat Lee Gur f ei n, f i r st year

14 busi ness manager , was st r i pped of hi s aut hor i t y t o si gn checks

15 by t he def endant . Why? Because t he def endant want ed t o keep

16 cont r ol of t he books and t he check wr i t i ng, because he want ed

17 t o spend t he money t he way he want ed t o spend t he money, and he

18 di dn' t want any i nt er f er ence wi t h t hat . That ' s not someone who

19 j ust want t o f ocus on t he sci ence and l eave al l t he busi ness

20 st uf f t o somebody el se. That ' s someone who want s t o be r i ght

21 i n t he mi ddl e of t hi ngs. And t her e' s a r eason why he di d, he

22 want ed t o keep cont r ol of t he money f or hi msel f . And when he

23 saw t hi ngs he di dn' t l i ke, he woul d muck ar ound i n t he books he

24 changed ent r i es and meddl e i n ar eas t hat peopl e knew bet t er

25 t han he di d. Why di d he do t hi s? Because he t hought he knew


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1 bet t er , and he t hought he coul d do what he want ed and he

2 t hought he' d get away wi t h i t .

3 Def ense counsel al so sai d somet hi ng about how t her e

4 was t aci t aut hor i t y f r omgr ant t o r evi se any of t he cost s he

5 want ed at any t i me. Wel l , wher e i s t he evi dence of t hat ? Di d

6 you hear t hat f r omHope Snowden t hat he coul d j ust negot i at e

7 any t i me you want ? No. No. Ther e i s no evi dence of t hat .

8 You ar e al l owed t o amend your budget dur i ng t he gr ant year and

9 f or year s t hat happen or st i l l t o come. We hear d t hat , yes.

10 But you' r e not al l owed t o amend your budget f or year s t hat ar e

11 al r eady over . Hope Snowden t ol d you t hat , and so di d Rober t

12 Benedi ct . And i f you l ook at page 11 of Exhi bi t 4, t he def ense

13 counsel ment i oned, t hat ' s what t hey wer e t est i f yi ng about .

14 That year i s al r eady over . That money i s al r eady spent . You

15 can' t unr i ng t hat bel l .

16 And t her e ar e r ul es. I t ' s not al l one bi g

17 negot i at i on. You hear d f r omHope Snowden t hat she t ol d t he

18 def endant , t he budget i s t he Bi bl e; you got t o get ever yt hi ng

19 i n wr i t i ng, you got t o get i t appr oved i f you' r e goi ng t o make

20 si gni f i cant changes. That was cr yst al cl ear . I t ' s not al l one

21 wash, bi g negot i at i on. That ' s not how t hi s wor ks.

22 Now, af t er def ense counsel had comment ed about how

23 we' r e supposed t o i nt er pr et t he def endant ' s act i ons, he al so

24 t ook some shot s at t he wi t nesses. And he t ook a shot at NI ST

25 and t r i ed t o make i t seeml i ke i t ' s t hei r f aul t t hat t hi s al l


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1 happened, r i ght . You r ecal l hi mt al ki ng about NI ST, and t hey

2 must have had somet hi ng agai nst t he def endant t hat t hey wer e

3 out t o get hi mand t hey want ed t o end t hi s pr oj ect . Wel l , what

4 evi dence i s t hat of t hat ? You hear d - -

5 MR. RUBI NSTEI N: I di dn' t say t hat . I di dn' t say i t

6 was NI ST.

7 THE COURT: Obj ect i on.

8 MR. RUBI NSTEI N: Mi schar act er i zat i on.

9 THE COURT: Obj ect i on sust ai ned, Mr - -

10 MR. RUBI NSTEI N: Peopl e over t her e.

11 THE COURT: Obj ect i on over r ul ed, Mr . Rubi nst ei n. Thi s

12 i s ar gument , and t hey can r emember what you sai d.

13 MR. EVERDELL: Def ense counsel sai d t hey wer e pi cki ng

14 on hi s cl i ent , Dr . Kar r on. You saw exact l y why t hi s gr ant got

15 suspended. I t ' s because t hey saw so many di f f er ent number s

16 comi ng at t hemi n such qui ck successi on t hat t hey t hought

17 somet hi ng r eal l y bad was goi ng on t her e wi t h t hei r f unds, t hey

18 wer e get t i ng mi sspent , i n a r eal l y bad way. And t hat ' s why i t

19 woul d happen. They got t hese budget r evi si ons al l wi t hi n weeks

20 of each ot her . Al l t he number s wer e di f f er ent f or year one

21 even af t er year one was over . That r ai sed r ed f l ags, and

22 r i ght f ul l y so. That ' s what t he pr obl emwas. And t hen t hey

23 cal l ed i n t he audi t or s and t her e was a pr obl em, l ow and be

24 hol d. And t hat ' s why t he gr ant got suspended, i t ' s because he

25 was mi sspendi ng t he money. We wer en' t out t o get hi m. They


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1 j ust want t o make sur e our t axpayer dol l ar s ar e bei ng spent f or

2 what i t ' s supposed t o be spent f or , f or r esear ch, and i t

3 wasn' t .

4 And t hey t r i ed, def ense counsel t r i ed t o t ake some

5 at t acks on t he wi t nesses, about Hope Snowden. Tr i ed t o make

6 her l ook l i ke she was j ust some bur eaucr at , r i gi d under st andi ng

7 of t he r ul es. And she was not out t o hel p hi m. Wel l , you met

8 Hope Snowden, al l r i ght . You r emember her t est i mony. Hope,

9 eval uat e f or your sel ves what ki nd of per son she i s. She t ol d

10 you t hat she was al ways wi l l i ng t o r ecei ve and answer quest i ons

11 and r ecei ve cal l s. And she di d t hat on numer ous occasi ons f or

12 t he def endant and f or Lee Gur f ei n.

13 Now t he f act she di dn' t al ways say yes t o t hemdoesn' t

14 make her a r i gi d bur eaucr at . I t makes her good at her j ob. I t

15 means t hat she' s t r yi ng t o make sur e t hat t he money i s spent

16 f or what i t ' s supposed t o be spent f or . Okay. And Hope

17 Snowden expl ai ned t o you, by t he way, why she coul dn' t t al k t o

18 Rober t Benedi ct or why Rober t Benedi ct wasn' t appr oved as t he

19 busi ness manage f or t he second year . I t ' s because he was

20 par t - - t hat l et t er aski ng f or hi s aut hor i zat i on t o be t he

21 busi ness manager , was par t of one of t hose many r equest ed

22 budget r evi si ons t hat never got appr oved because t he number s

23 wer e so messed up. So yes, you may have seen an e- mai l f r om

24 Bob Benedi ct wher e he may have expr essed f r ust r at i on by t he

25 f act t hat he wasn' t hear i ng f r omHope Snowden and t hat t hi ngs


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1 wer en' t movi ng al ong, but Hope Snowden expl ai ned t o you why

2 t hat happened. I t ' s because she coul dn' t do anyt hi ng wi t hout

3 t he pr oper aut hor i zat i on. That ' s why he never got appr oved.

4 I t was par t of t he budget t hat never got appr oved. That ' s why

5 t hat al l happened.

6 Now, def endant al so t al ked t o you about J oan Hayes,

7 wher e was J oan Hayes. Wel l , t hat ' s - - he' s t r yi ng t o suggest

8 t he gover nment i s t r yi ng t o hi de somet hi ng f r omyou by not

9 cal l i ng J oan Hayes. Wel l , t hat ' s si mpl y not t he case. Ladi es

10 and gent l emen, you sat her e f or over a week, and pat i ent l y

11 at t ent at i vel y hear d t he t est i mony i n t hi s case. Di d you r eal l y

12 need t o hear f r omanot her audi t or ? You have t he anal ysi s done

13 by Bel i nda Ri l ey, and t hat anal ysi s does not r el y on CASI ' s

14 books and r ecor ds, whi ch wer e al ways i n f l ux. Her anal ysi s i s

15 based - - Bel i nda Ri l ey' s anal ysi s i s based on t he bank r ecor ds

16 and checks and Amer i can Expr ess car ds and i nvoi ces. Those ar e

17 al l f i xed. And her anal ysi s t r aces out t he expendi t ur es t o t he

18 l ast penny. And, by t he way, Bel i nda Ri l ey' s anal ysi s, when

19 t he def endant t r i ed t o poke some hol es i n i t , he t r i ed t o say

20 he di dn' t - - she di dn' t t ake i nt o account hi s per sonal bank

21 account . Wel l , hi s per sonal bank r ecor ds. Wel l , l ook at

22 Gover nment ' s Exhi bi t 111 when you go back t o t he j ur y r oom.

23 That ' s Bel i nda Ri l ey' s anal ysi s of hi s per sonal bank r ecor ds.

24 And t he Mast er Car d payment s t hat he t al ked about so much ar e

25 t her e, page 16 of 27. She t ook t hose i nt o account .


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1 But i t doesn' t mat t er about t he per sonal st at ement s.

2 The per sonal st at ement s ar e not t he gr ant money. The gr ant

3 money, we hear d, was al l housed i n t he CASI account s. I t ' s

4 i r r el evant what happens wi t h t he per sonal bank r ecor ds and t he

5 Mast er Car d r ecor ds of t he def endant . We' r e t al ki ng her e about

6 what happened t o t he ATP money, t he gr ant money, t hat was i n

7 t he CASI account s. That ' s t he anal ysi s i n Gover nment ' s exhi bi t

8 110. That ' s what you need t o f ocus on. Feel f r ee t o check i t

9 your sel f .

10 Def ense counsel al so t r i ed t o ar gue t o you t hat t he

11 def endant shoul d be gi ven some cr edi t because he t r i ed t o pay

12 some money back, he t r i ed t o get t he gr ant r est ar t ed. Ladi es

13 and gent l emen, i f you mi sspend money and t hen deci de t o pay i t

14 back l at er , you st i l l mi sspent t he money. You can' t unr i ng

15 t hat bel l . I t doesn' t change t hat . Thi s was i nt ent i onal . He

16 knew what he was doi ng and he knew i t was wr ong. He di dn' t

17 bel i eve t he peopl e ar ound hi m. He di sr egar ded t hemat ever y

18 t ur n.

19 And def ense counsel ' s al so suggest ed t hat you shoul d

20 consi der t he f act t hat some of t he t hi ngs t hat he di d, l i ke

21 t he, quot e unquot e, i mpr ovement t o hi s apar t ment act ual l y

22 decr eased t he val ue of hi s apar t ment , r i ght , so t hat what he

23 di d f or t he company was not per sonal l y benef i t i ng hi m, r i ght .

24 But you' r e goi ng t o hear , when J udge Pat t er son i nst r uct s you on

25 t he l aw - - i t ' s f or hi mt o i nst r uct you on t he l aw, not me - -


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1 but I ant i ci pat e t hat you' r e goi ng t o l ear n t hat whet her or not

2 t he mi sappl i ed money benef i t ed CASI i n any way i s i r r el evant .

3 The f act t hat cer t ai n expenses may or may not have benef i t ed

4 CASI does not gi ve t he def endant a f r ee pass under t he l aw.

5 Now make no mi st ake, l adi es and gent l emen, t hi s case

6 i s not about someone who t r i ed hi s best t o compl y wi t h t he

7 r ul es and i nnocent l y mi sunder st ood what was expect ed of hi m.

8 Thi s i s a case about someone who i s t ol d by sever al peopl e on

9 mul t i pl e occasi ons what he coul d and coul d not do wi t h t he

10 gr ant f unds, and who del i ber at el y i gnor ed what he di dn' t want

11 t o hear . Thi s i s a case about someone who i s so convi nced t hat

12 he coul d get hi s way because he was so l oved by t he peopl e at

13 NI ST, t hat he di dn' t have t o f ol l ow t he r ul es, and t hat he

14 coul d do what ever he want ed wi t h t he gr ant money. And as a

15 r esul t of hi s at t i t ude, t he def endant wi l l f ul l y di sr egar ded

16 ever yone ar ound hi mand mi sspent t he t axpayer s money cl ear l y on

17 unaut hor i zed expenses l i ke r ent and ut i l i t i es and per sonal

18 i t ems, cl eani ng l adi es, bl ender s, dust bust er s, ot her t hi ngs,

19 t hi ngs t hat coul dn' t possi bl y be r el at ed t o r esear ch, and al l

20 because he t hought t he r ul es di d not appl y t o hi m. Wel l , t he

21 def endant was wr ong. That ' s not how t hi s wor ks. He can' t do

22 what ever he want s, and i t ' s t i me t o hol d had hi maccount abl e.

23 When I gave t he openi ng st at ement a f ew days ago, I t ol d you

24 t hat i f you pay cl ose at t ent i on t o t he evi dence and f ol l ow t he

25 J udge' s i nst r uct i ons and use your common sense, you wi l l ar r i ve


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1 at t he one ver di ct t hat wi l l be consi st ent wi t h t he l aw and t he

2 evi dence at t he end of t hi s case, and now al l t he evi dence i s

3 i n. The case now r est s i n your hands. And I submi t t o you

4 t hat t he gover nment has kept i t s pr omi se t o you and has pr oven

5 t hi s case, beyond a r easonabl e doubt , and t he onl y ver di ct t hat

6 i s now consi st ent wi t h t he l aw and t he evi dence i s a ver di ct of

7 gui l t y f or Dani el Kar r on. Thank you.

8 THE COURT: Wel l , i t ' s - - t hank you, Mr . Ever del l .

9 I t ' s now 12: 20 and l unch i s schedul ed f or 1: 00. I

10 t hi nk I can - - t he char ge i s not shor t , but i t ' l l pr obabl y r un

11 past 1: 00, because I don' t r ead a par t i cul ar l y f ast char ge. I

12 t hi nk t hat you want t o be abl e t o absor b what I say as I say

13 i t , and f or t hat r eason I r ead r el at i vel y sl owl y. But I ' l l t r y

14 and do t he best I can i f you' r e al l r eady t o go now. I f anyone

15 needs a br eak, l et me know. Al l r i ght ? Then, I ' l l pr oceed.

16 Member s of t he j ur y, we' r e now at t hat st age of t he

17 t r i al wher e you wi l l soon under t ake your f i nal f unct i on as

18 j ur or s. I know you wi l l t r y t he i ssues t hat have been

19 pr esent ed t o you accor di ng t o t he oat h whi ch you have t aken as

20 j ur or s, and whi ch you pr omi sed t hat you wi l l wel l and t r ul y t r y

21 t he i ssues i n t hi s case and r ender a t r ue ver di ct . I f you

22 f ol l ow t hat oat h and t r y t he i ssues wi t hout f ear or pr ej udi ce

23 or bi as or sympat hy, you wi l l ar r i ve at a t r ue and j ust

24 ver di ct .

25 The f act t hat t he pr osecut i on i s br ought i n t he name


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1 of t he Uni t ed St at es of Amer i ca ent i t l es t he gover nment t o know

2 gr eat er consi der at i on t han t hat accor ded t o any ot her par t y t o

3 a l i t i gat i on. By t he same t oken, i t i s ent i t l ed t o no l ess

4 consi der at i on. Al l par t i es, whet her gover nment or i ndi vi dual s,

5 st and as equal s at t he bar of j ust i ce.

6 You have now hear d al l t he evi dence i n t he case, as

7 wel l as t he f i nal ar gument s of t he l awyer s f or t he par t i es.

8 My dut y at t hi s poi nt i s t o i nst r uct you as t o t he

9 l aw. I t i s your dut y t o accept t hese i nst r uct i ons of l aw and

10 appl y t hemt o t he f act s as you wi l l det er mi ne t hem, j ust as i t

11 has been my dut y t o pr esi de over t he t r i al and deci de what

12 t est i mony and evi dence i s r el evant under t he l aw f or your

13 consi der at i on.

14 On t hese l egal mat t er s, you must t ake t he l aw as I

15 gi ve i t t o you. I f any at t or ney has st at ed a l egal pr i nci pl e

16 di f f er ent f r omany t hat I st at e t o you i n my i nst r uct i ons, i t

17 i s my i nst r uct i ons t hat you must f ol l ow.

18 You shoul d not si ngl e out any i nst r uct i on as al one

19 st at i ng t he l aw, but you shoul d consi der my i nst r uct i ons as a

20 whol e when you r et i r e t o del i ber at e i n t he j ur y r oom.

21 You shoul d not , any of you, be concer ned about t he

22 wi sdomof any r ul e t hat I st at e. Regar dl ess of any opi ni on

23 t hat you may have t o what t he l aw may be or ought t o be, i t

24 woul d vi ol at e your swor n dut y t o base a ver di ct upon any ot her

25 vi ew of t he l aw t han t hat whi ch I gi ve you.


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1 Now, af t er l i st eni ng t o my i nst r uct i ons about t he l aw,

2 you wi l l t hen det er mi ne how t hi s case shoul d be deci ded.

3 As I ' ve sai d, t he member s of t he j ur y ar e t he sol e and

4 excl usi ve j udges of t he f act s. You deci de based upon t he

5 wei ght of t he evi dence; you det er mi ne t he cr edi bi l i t y of t he

6 wi t nesses; you r esol ve such conf l i ct s as t her e may be i n t he

7 t est i mony, and you dr aw what ever r easonabl e i nf er ences you

8 deci de t o dr aw f r omt he f act s as you wi l l det er mi ne t hem.

9 I n det er mi ni ng t he f act s, you must r el y upon your own

10 r ecol l ect i on of t he evi dence. What t he l awyer s have sai d i n

11 t hei r openi ng st at ement s and i n t hei r cl osi ng ar gument s and

12 t hei r obj ect i ons or i n t hei r quest i ons i s not evi dence. I n

13 t hi s connect i on, you shoul d bear i n mi nd t hat a quest i on put t o

14 a wi t ness i s never evi dence. I t i s onl y t he answer whi ch i s

15 evi dence. Quest i ons ar e r el evant onl y t o t he ext ent t hat t hey

16 enabl e you t o under st and t he answer . Nor i s anyt hi ng I may

17 have sai d dur i ng t he t r i al or summat i ons, or may say dur i ng

18 t hese i nst r uct i ons wi t h r espect t o a f act mat t er t o be t aken i n

19 subst i t ut i on f or your own i ndependent r ecol l ect i on. What I say

20 i s not evi dence.

21 The evi dence bef or e you consi st s of t he answer s gi ven

22 by t he wi t nesses, t he swor n t est i mony t hat t hey gave f r omt he

23 st and, as you r ecal l i t , and t he exhi bi t s t hat wer e r ecei ved i n

24 evi dence.

25 You' ve hear d evi dence i n t he f or mof st i pul at i ons t hat


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1 cont ai n f act s t hat wer e agr eed t o be t r ue. You must accept t he

2 f act s i n t hose st i pul at i ons as t r ue.

3 The evi dence does not i ncl ude quest i ons. Onl y t he

4 answer s ar e evi dence. But you may not consi der any answer t hat

5 I di r ect ed you t o di sr egar d or t hat I di r ect ed st r uck f r omt he

6 r ecor d. Do not consi der such answer s.

7 Si nce you ar e t he sol e and excl usi ve j udges of t he

8 f act s, I have not meant and I do not mean by my wor ds or act s

9 t o i ndi cat e any opi ni on as t o t he f act s or what your ver di ct

10 shoul d be. The r ul i ngs t hat I have made dur i ng t he t r i al ar e

11 not any i ndi cat i on of my vi ews of what your deci si on shoul d be

12 as t o whet her or not t he gui l t of t he def endant has been pr oven

13 beyond a r easonabl e doubt .

14 I al so ask you t o dr aw no i nf er ence f r omt he f act t hat

15 upon occasi on I asked quest i ons of cer t ai n wi t nesses. These

16 quest i ons wer e onl y i nt ended f or cl ar i f i cat i on or t o expedi t e

17 mat t er s, and cer t ai nl y wer e not i nt ended t o suggest any

18 opi ni ons on my par t as t o t he ver di ct you shoul d r ender or

19 whet her any ot her wi t nesses may have been mor e cr edi bl e t han

20 any ot her wi t ness. You ar e expr essl y t o under st and t hat t he

21 Cour t has no opi ni on as t o t he ver di ct you shoul d r ender i n

22 t hi s case.

23 As t o t he f act s, l adi es and gent l emen, you ar e t he

24 excl usi ve j udges. You have t he r esponsi bi l i t y of r evi ewi ng t he

25 evi dence, of wei ghi ng t he cr edi bi l i t y of t he wi t nesses,


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1 separ at i ng t he i mpor t ant f r omt he uni mpor t ant , maki ng t he

2 f act ual det er mi nat i ons whi ch bear on t he gui l t or l ack of gui l t

3 of t he def endant . You ar e t o per f or mt he dut y of f i ndi ng t he

4 f act s wi t hout bi as or pr ej udi ce as t o any par t y.

5 I t i s t he dut y of t he at t or ney f or each si de of a case

6 t o obj ect when t he ot her si de of f er s t est i mony or ot her

7 evi dence whi ch t he at t or ney bel i eves i s not pr oper l y

8 admi ssi bl e. Counsel al so have t he r i ght and dut y t o ask t he

9 Cour t t o make r ul i ngs of l aw and r equest conf er ences i n t he

10 r obi ng r oomor at t he si debar out of t he hear i ng of t he j ur y.

11 Al l t hose quest i ons of l aw must be deci ded by me, t he

12 Cour t . You shoul d not show any pr ej udi ce agai nst any at t or ney

13 or hi s or her cl i ent because t he at t or ney obj ect ed t o t he

14 admi ssi bi l i t y of evi dence, asked f or a conf er ence out of t he

15 hear i ng of t he j ur y or asked t he Cour t f or a r ul i ng on t he l aw.

16 ( Cont i nued on next page)

17

18

19

20

21

22

23

24

25


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1 THE COURT: As I have al r eady i ndi cat ed, my r ul i ngs on

2 t he admi ssi bi l i t y of evi dence do not i ndi cat e any opi ni on about

3 t he wei ght or ef f ect of such evi dence. You ar e t he sol e j udges

4 of t he cr edi bi l i t y of al l wi t nesses and t he wei ght and ef f ect

5 of al l t he evi dence.

6 Now, t her e ar e t wo t ypes of evi dence whi ch you may

7 pr oper l y use i n deci di ng whet her a def endant i s gui l t y or not

8 gui l t y.

9 One t ype of evi dence i s cal l ed di r ect evi dence.

10 Di r ect evi dence i s a wi t ness' s t est i mony as t o what he saw,

11 hear d or obser ved. I n ot her wor ds, when a wi t ness t est i f i es

12 about what i s known t o hi mof hi s own knowl edge by vi r t ue of

13 hi s own senses - - what he sees, f eel s, t ouches or hear s - - t hat

14 i s cal l ed di r ect evi dence.

15 Ci r cumst ant i al evi dence i s evi dence whi ch t ends t o

16 pr ove one f act by pr oof of ot her f act s. Ther e i s a si mpl e

17 exampl e of ci r cumst ant i al evi dence whi ch i s of t en used i n t hi s

18 cour t house.

19 Assume t hat a wi t ness t est i f i ed t hat when he came i nt o

20 t he cour t house t hi s mor ni ng, t he sun was shi ni ng and i t was a

21 ni ce day.

22 Assume he t est i f i ed t hat someone wal ked i nt o t he

23 cour t r oomwi t h an umbr el l a whi ch was dr i ppi ng wet , and t hat

24 somebody el se wal ked i n wi t h a r ai ncoat whi ch was al so dr i ppi ng

25 wet .


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1 Now, he does not t est i f y t hat he l ooked out of t he

2 cour t r oomand saw t hat i t was r ai ni ng. So t her e i s no di r ect

3 evi dence of t hat f act . But on t he combi nat i on of f act s whi ch I

4 have asked you t o assume, i t woul d be r easonabl e and l ogi cal - -

5 i f you f ound t he wi t ness' s t est i mony t o be cr edi bl e - - f or you

6 t o concl ude t hat bet ween t he t i me he t est i f i ed and t he t i me

7 t hose peopl e wal ked i n, i t had st ar t ed t o r ai n.

8 That i s al l t her e i s t o ci r cumst ant i al evi dence. You

9 i nf er on t he basi s of r eason and exper i ence and common sense

10 f r oman est abl i shed f act t he exi st ence or t he nonexi st ence of

11 some ot her f act .

12 Many f act s, such as a per son' s st at e of mi nd, can

13 r ar el y be pr oved by di r ect evi dence.

14 Ci r cumst ant i al evi dence i s of no l ess val ue t han

15 di r ect evi dence; i t i s a gener al r ul e t hat t he l aw makes no

16 di st i nct i on bet ween di r ect and ci r cumst ant i al evi dence, but

17 si mpl y r equi r es t hat bef or e convi ct i ng t he def endant , t he j ur y

18 must be sat i sf i ed t hat t he gover nment has pr oved t he

19 def endant ' s gui l t beyond a r easonabl e doubt af t er r evi ew of al l

20 of t he evi dence i n t he case, di r ect and ci r cumst ant i al .

21 Dur i ng t he t r i al you may have hear d t he at t or neys use

22 t he t er m" i nf er ence" and i n t hei r ar gument s t hey have asked you

23 t o i nf er , on t he basi s of your r eason, exper i ence and common

24 sense, f r omone or mor e est abl i shed f act s t he exi st ence of some

25 ot her f act .


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1 An i nf er ence i s not a suspi ci on or a guess. I t i s a

2 r easoned, l ogi cal deci si on t o concl ude t hat a di sput ed f act

3 exi st s on t he basi s of anot her f act t hat you know exi st s.

4 Ther e ar e t i mes when di f f er ent i nf er ences may be dr awn

5 f r omf act s whet her by di r ect or ci r cumst ant i al evi dence. The

6 gover nment may ask you t o dr aw one set of i nf er ences, whi l e t he

7 def ense may ask you t o dr aw anot her . I t i s f or you and you

8 al one t o deci de what i nf er ences you wi l l dr aw.

9 The pr ocess of dr awi ng i nf er ences f r omf act s i n

10 evi dence i s not a mat t er of guesswor k or specul at i on. An

11 i nf er ence i s a deduct i on or a concl usi on whi ch you, t he j ur y,

12 ar e per mi t t ed t o dr aw - - but not r equi r ed t o dr aw - - f r omt he

13 f act s whi ch you f i nd t o be pr oven by ei t her di r ect or

14 ci r cumst ant i al evi dence. I n dr awi ng an i nf er ence, you shoul d

15 exer ci se your common sense.

16 So whi l e you ar e consi der i ng t he evi dence pr esent ed t o

17 you, you ar e per mi t t ed t o dr aw, f r omt he f act s whi ch you f i nd

18 t o be pr oven, such r easonabl e i nf er ences as woul d be j ust i f i ed

19 i n t he l i ght of your exper i ence.

20 Her e, agai n, l et me r emi nd you t hat whet her based upon

21 di r ect or ci r cumst ant i al evi dence, or upon l ogi cal or

22 r easonabl e i nf er ences dr awn f r omsuch evi dence, you must be

23 sat i sf i ed of t he gui l t of t he def endant beyond a r easonabl e

24 doubt bef or e you may convi ct .

25 Now, how do you eval uat e t he cr edi bi l i t y or


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1 bel i evabi l i t y of t he wi t nesses? You have had an oppor t uni t y t o

2 obser ve al l of t he wi t nesses. I t i s now your j ob t o deci de how

3 bel i evabl e each wi t ness was i n hi s or her t est i mony. You ar e

4 t he sol e j udges of t he cr edi bi l i t y of each wi t ness and of t he

5 i mpor t ance of hi s or her t est i mony.

6 I t must be cl ear t o you by now t hat you ar e bei ng

7 cal l ed upon t o r esol ve var i ous f act ual i ssues under t he

8 i ndi ct ment , i n t he f ace of ver y di f f er ent pi ct ur es pai nt ed by

9 t he gover nment and t he def ense whi ch cannot be r econci l ed. You

10 wi l l now have t o deci de wher e t he t r ut h l i es, and an i mpor t ant

11 par t of t hat deci si on wi l l i nvol ve maki ng j udgment s about t he

12 t est i mony of t he wi t nesses you have l i st ened t o and obser ved.

13 I n maki ng t hose j udgment s, you shoul d car ef ul l y scr ut i ni ze al l

14 of t he t est i mony of each wi t ness, t he ci r cumst ances under whi ch

15 each wi t ness t est i f i ed, and any ot her mat t er i n evi dence whi ch

16 may hel p you t o deci de t he t r ut h and t he i mpor t ance of each

17 wi t ness' s t est i mony.

18 Your deci si on on whet her or not t o bel i eve a wi t ness

19 may depend on how t he wi t ness i mpr essed you. Was t he wi t ness

20 candi d, f r ank and f or t hr i ght ? Or , di d t he wi t ness seemas i f

21 he or she was hi di ng somet hi ng, or bei ng evasi ve or suspect i n

22 some way? How di d t he way t he wi t ness t est i f i ed on di r ect

23 exami nat i on compar e wi t h how t he wi t ness t est i f i ed on

24 cr oss- exami nat i on? Was t he wi t ness consi st ent i n hi s or her

25 t est i mony or di d he or she cont r adi ct hi msel f or her sel f ? Di d


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1 t he wi t ness appear t o know what he or she was t al ki ng about and

2 di d t he wi t ness st r i ke you as someone who was t r yi ng t o r epor t

3 hi s or her knowl edge accur at el y?

4 How much you choose t o bel i eve a wi t ness may be

5 i nf l uenced by t he wi t ness' s bi as. Does t he wi t ness have a

6 r el at i onshi p wi t h t he gover nment or t he def endant whi ch may

7 af f ect how he or she t est i f i ed? Does t he wi t ness have some

8 i ncent i ve, l oyal t y or mot i ve t hat mi ght cause hi mor her t o

9 shade t he t r ut h? Or does t he wi t ness have some bi as,

10 pr ej udi ce, or host i l i t y t hat may have caused t he wi t ness - -

11 consci ousl y or not - - t o gi ve you somet hi ng ot her t han a

12 compl et el y accur at e account of t he f act s he or she t est i f i ed

13 t o?

14 Even i f t he wi t ness was i mpar t i al , you shoul d consi der

15 whet her t he wi t ness had an oppor t uni t y t o obser ve t he f act s he

16 or she t est i f i ed about , and you shoul d al so consi der t he

17 wi t ness' s abi l i t y t o expr ess hi msel f or her sel f . Ask

18 your sel ves whet her t he wi t ness' s r ecol l ect i on of t he f act s

19 st ands up i n t he l i ght of al l ot her evi dence.

20 I n ot her wor ds, what you must t r y t o do i n deci di ng

21 cr edi bi l i t y i s t o si ze a per son up i n l i ght of hi s or her

22 demeanor , t he expl anat i ons gi ven, and i n l i ght of al l t he ot her

23 evi dence i n t he case, j ust as you woul d do i n any i mpor t ant

24 mat t er wher e you ar e t r yi ng t o deci de i f a per son i s t r ut hf ul ,

25 st r ai ght f or war d, and accur at e i n hi s or her r ecol l ect i on. I n


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1 deci di ng t he quest i on of cr edi bi l i t y, r emember t hat you shoul d

2 use your common sense, your good j udgment , and your exper i ence.

3 Now, i n eval uat i ng t he cr edi bi l i t y of t he wi t nesses,

4 you shoul d t ake i nt o account any evi dence t hat t he wi t ness who

5 t est i f i ed may benef i t i n some way f r omt he out come of t hi s

6 case. Such an i nt er est i n t he out come cr eat es a mot i ve t o

7 t est i f y f al sel y and may sway t he wi t ness t o t est i f y i n a way

8 t hat advances hi s or her own i nt er est s. Ther ef or e, i f you f i nd

9 t hat any wi t ness whose t est i mony you ar e consi der i ng may have

10 an i nt er est i n t he out come of t hi s t r i al , t hen you shoul d bear

11 t hat f act or i n mi nd when eval uat i ng t he cr edi bi l i t y of hi s or

12 her t est i mony and accept i t wi t h gr eat car e.

13 Can I speak t o counsel a mi nut e?

14 ( Cont i nued on next page)

15

16

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1 ( At t he si debar )

2 THE COURT: I not i ced t hat t her e i s no exper t wi t ness

3 i nst r uct i on i n her e. I t occur r ed t o me t hat you bot h mi ght

4 want i t .

5 MR. KWOK: That ' s cor r ect . We do have exper t wi t ness.

6 The gover nment woul d r equest an i nst r uct i on.

7 MR. RUBI NSTEI N: I ' mnot r equest i ng an i nst r uct i on,

8 your Honor .

9 THE COURT: Do you obj ect ?

10 MR. RUBI NSTEI N: No, I t hi nk t hat woul d be

11 obst r uct i oni st .

12 THE COURT: I wi l l ask my cl er k t o j ust br i ng me down

13 one, an i nst r uct i on on exper t wi t nesses.

14 ( Cont i nued on next page)

15

16

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1 ( I n open cour t )

2 THE COURT: I ' mgoi ng t o go r i ght ahead.

3 You have hear d t he t est i mony of gover nment empl oyees.

4 The f act t hat a wi t ness may be a gover nment empl oyee does not

5 mean t hat hi s or her t est i mony i s necessar i l y deser vi ng of mor e

6 consi der at i on or gr eat er wei ght t han t hat of an or di nar y

7 wi t ness. Al so i t does not mean t hat hi s or her t est i mony i s

8 necessar i l y deser vi ng of l ess consi der at i on or l ess wei ght t han

9 t hat of an or di nar y wi t ness.

10 I t i s your deci si on, af t er r evi ewi ng al l t he evi dence,

11 whet her t o accept t he t est i mony of t he gover nment empl oyee and

12 t o gi ve t hat t est i mony what ever wei ght , i f any, you f i nd i t

13 deser ves.

14 The def endant has pl eaded not gui l t y t o t he char ges i n

15 t he i ndi ct ment .

16 As a r esul t of t he def endant ' s pl eas of not gui l t y,

17 t he bur den i s on t he pr osecut i on t o pr ove t he def endant i s

18 gui l t y beyond a r easonabl e doubt . Thi s bur den never shi f t s t o

19 t he def endant f or t he si mpl e r eason t hat t he l aw never i mposes

20 upon t he def endant i n a cr i mi nal case t he bur den or dut y of

21 t est i f yi ng, or cal l i ng any wi t nesses or l ocat i ng or pr oduci ng

22 any evi dence.

23 The l aw pr esumes t he def endant t o be i nnocent of al l

24 of t he char ges agai nst hi m. I t her ef or e i nst r uct you t hat t he

25 def endant i s t o be pr esumed by you t o be i nnocent t hr oughout


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1 your del i ber at i ons unt i l such t i me, i f i t ever comes, t hat you

2 as a j ur y ar e sat i sf i ed t hat t he gover nment has pr oven hi m

3 gui l t y beyond a r easonabl e doubt .

4 The def endant began t he t r i al her e wi t h a cl ean sl at e.

5 Thi s pr esumpt i on of i nnocence al one i s suf f i ci ent t o acqui t t he

6 def endant unl ess you as j ur or s ar e unani mousl y convi nced beyond

7 a r easonabl e doubt of hi s gui l t , af t er a car ef ul and i mpar t i al

8 consi der at i on of al l of t he evi dence i n t hi s case. I f t he

9 gover nment f ai l s t o sust ai n i t s bur den, you must f i nd t he

10 def endant not gui l t y.

11 Thi s pr esumpt i on was wi t h t he def endant when t he t r i al

12 began and r emai ns wi t h hi meven now as I speak t o you and wi l l

13 cont i nue wi t h t he def endant i nt o your del i ber at i ons unl ess and

14 unt i l you ar e convi nced t hat t he gover nment has pr oven hi s

15 gui l t beyond a r easonabl e doubt .

16 The def endant , Dani el Kar r on, di d not t est i f y i n t hi s

17 case. Under our Const i t ut i on, a def endant has no obl i gat i on t o

18 t est i f y or t o pr esent any evi dence, because i t i s t he

19 gover nment ' s bur den t o pr ove t he def endant gui l t y beyond a

20 r easonabl e doubt . That bur den r emai ns wi t h t he gover nment

21 t hr oughout t he ent i r e t r i al and never shi f t s t o t he def endant .

22 The def endant i s never r equi r ed t o pr ove t hat he i s i nnocent .

23 You may not at t ach any si gni f i cance t o t he f act t hat

24 t he def endant di d not t est i f y. No adver se i nf er ence agai nst

25 hi mmay be dr awn by you because he di d not t ake t he wi t ness


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1 st and. You may not consi der t hi s agai nst t he def endant i n any

2 way i n your del i ber at i ons i n t he j ur y r oom.

3 Now, I have sai d t hat t he gover nment must pr ove t hat

4 t he def endant i s gui l t y beyond a r easonabl e doubt . The

5 quest i on nat ur al l y i s, " What i s a r easonabl e doubt ?" The wor ds

6 al most def i ne t hemsel ves. I t i s a doubt based upon r eason and

7 common sense. I t i s a doubt t hat a r easonabl e per son has af t er

8 car ef ul l y wei ghi ng of t he evi dence. I t i s a doubt whi ch woul d

9 cause a r easonabl e per son t o hesi t at e t o act i n a mat t er of

10 i mpor t ance i n hi s or her per sonal l i f e. Pr oof beyond a

11 r easonabl e doubt must , t her ef or e, be pr oof of such a convi nci ng

12 char act er t hat a r easonabl e per son woul d not hesi t at e t o r el y

13 and act upon i t i n t he most i mpor t ant of hi s own af f ai r s.

14 Reasonabl e doubt i s not a capr i ce or whi m; i t i s not

15 specul at i on or suspi ci on. I t i s not an excuse t o avoi d t he

16 per f or mance of an unpl easant dut y. And i t i s not sympat hy.

17 I n a cr i mi nal case, t he bur den i s at al l t i mes upon

18 t he gover nment t o pr ove gui l t beyond a r easonabl e doubt . The

19 l aw does not r equi r e t hat t he gover nment pr ove gui l t beyond al l

20 possi bl e doubt ; pr oof beyond a r easonabl e doubt i s suf f i ci ent

21 t o convi ct . Thi s bur den never shi f t s t o t he def endant , whi ch

22 means t hat i t i s al ways t he gover nment ' s bur den t o pr ove each

23 of t he el ement s of t he cr i mes char ged beyond a r easonabl e

24 doubt .

25 I f , af t er f ai r and i mpar t i al consi der at i on of al l of


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1 t he evi dence, you have a r easonabl e doubt , i t i s your dut y t o

2 acqui t t he def endant . On t he ot her hand, i f af t er f ai r and

3 i mpar t i al consi der at i on of al l t he evi dence, you ar e sat i sf i ed

4 of t he def endant ' s gui l t beyond a r easonabl e doubt , you shoul d

5 vot e t o convi ct .

6 Under your oat h as j ur or s you ar e not t o be swayed by

7 sympat hy. You ar e t o be gui ded sol el y by t he evi dence i n t hi s

8 case, and t he cr uci al , har dcor e quest i on t hat you must ask

9 your sel ves as you si f t t hr ough t he evi dence i s: Has t he

10 gover nment pr oven t he gui l t of t he def endant beyond a

11 r easonabl e doubt ?

12 I t i s f or you al one t o deci de whet her t he gover nment

13 has pr oven t hat t he def endant i s gui l t y of t he cr i me char ged

14 sol el y on t he basi s of t he evi dence and subj ect t o t he l aw as I

15 char ge you. I t must be cl ear t o you t hat once you l et f ear or

16 pr ej udi ce or bi as or sympat hy i nt er f er e wi t h your t hi nki ng,

17 t her e i s a r i sk t hat you wi l l not ar r i ve at a t r ue and j ust

18 ver di ct .

19 I f you have a r easonabl e doubt as t o t he def endant ' s

20 gui l t , you shoul d not hesi t at e f or any r eason t o f i nd a ver di ct

21 of acqui t t al . But on t he ot her hand, i f you shoul d f i nd t hat

22 t he gover nment has met i t s bur den of pr ovi ng t he def endant ' s

23 gui l t beyond a r easonabl e doubt , you shoul d not hesi t at e

24 because of sympat hy or any ot her r eason t o r ender a ver di ct of

25 gui l t y.


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1 The quest i on of possi bl e puni shment of t he def endant

2 i s of no concer n t o t he j ur y and shoul d not , i n any sense,

3 ent er i nt o or i nf l uence your del i ber at i ons. The dut y of

4 i mposi ng a sent ence on any convi ct ed def endant r est s

5 excl usi vel y upon t he cour t - - t hat i s, upon me. Your f unct i on

6 i s t o wei gh t he evi dence i n t he case and t o det er mi ne whet her

7 or not t he def endant i s gui l t y beyond a r easonabl e doubt ,

8 sol el y on t he basi s of such evi dence. Under your oat h as

9 j ur or s, you cannot al l ow a consi der at i on of t he puni shment

10 whi ch may be i mposed upon t he def endant , i f he i s convi ct ed, t o

11 i nf l uence your vot e i n any way, or i n any sense t o ent er i nt o

12 your del i ber at i ons.

13 Now, wi t h t hese pr el i mi nar y i nst r uct i ons i n mi nd, l et

14 us t ur n t o t he char ge agai nst t he def endant , as cont ai ned i n

15 t he i ndi ct ment . I r emi nd you t hat an i ndi ct ment i t sel f i s not

16 evi dence. I t mer el y descr i bes t he char ge made agai nst t he

17 def endant . I t i s an accusat i on. I t may not be consi der ed by

18 you as any evi dence or pr oof of t he gui l t of t he def endant .

19 Onl y t he evi dence or t he l ack of evi dence pr esent ed her e at

20 t r i al bef or e you i s r el evant t o t hat i ssue.

21 The def endant , Dani el Kar r on, i s f or mal l y char ged i n

22 an i ndi ct ment whi ch cont ai ns one count . Bef or e you begi n your

23 del i ber at i ons, you wi l l be pr ovi ded wi t h a copy of t he

24 i ndi ct ment cont ai ni ng t he char ge.

25 Count One of t he i ndi ct ment char ges t hat f r omat l east


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1 i n or about Oct ober 2001, up t hr ough and i ncl udi ng i n or about

2 J une 2003, Dani el B. Kar r on, t he pr esi dent and chi ef t echni cal

3 of f i cer of a company cal l ed Comput er Ai ded Sur ger y, I nc.

4 ( CASI ) , i nt ent i onal l y mi sappl i ed $5, 000 and mor e i n t he car e,

5 cust ody and cont r ol of CASI , whi l e i t was t he benef i ci ar y of a

6 f eder al gr ant of mor e t han $10, 000 a year f r omt he Nat i onal

7 I nst i t ut e of St andar ds and Technol ogy, a f eder al ent i t y.

8 The i ndi ct ment r eads as f ol l ows:

9 Count One. The gr and j ur y char ges:

10 1. Fr omat l east i n or about Oct ober , 2001, up

11 t hr ough and i ncl udi ng i n or about J une 2003, i n t he Sout her n

12 Di st r i ct of New Yor k and el sewher e, Dani el B. Kar r on, t he

13 def endant , bei ng an agent of an or gani zat i on, whi ch

14 or gani zat i on r ecei ved i n any one- year per i od benef i t s i n excess

15 of $10, 000 under a f eder al pr ogr ami nvol vi ng a gr ant , cont r act ,

16 subsi dy, l oan, guar ant ee, i nsur ance and ot her f or mof f eder al

17 assi st ance, unl awf ul l y, wi l l f ul l y and knowi ngl y di d embezzl e,

18 st eal , obt ai n by f r aud, and ot her wi se wi t hout aut hor i t y,

19 knowi ngl y conver t t o t he use of - - l et me j ust go back a l i t t l e

20 bi t - - obt ai ned by f r aud and ot her wi se wi t hout aut hor i t y

21 knowi ngl y conver t t o t he use of per sons ot her t han t he r i ght f ul

22 owner , and i nt ent i onal l y mi sappl i ed pr oper t y val ued at $5, 000

23 and mor e t hat was owned by and was under t he car e, cust ody and

24 cont r ol of such or gani zat i on, t o wi t , Kar r on, who was t he

25 pr esi dent and chi ef t echni cal of f i cer of Comput er Ai ded Sur ger y


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1 I nc. , ( CASI ) , knowi ngl y mi sappl i ed mor e t han $5, 000 of f unds

2 under t he car e, cust ody and cont r ol of CASI , whi ch r ecei ved

3 mor e t han $10, 000 i n f eder al f unds dur i ng a one- year per i od

4 f r omt he Advanced Technol ogy Pr ogr amadmi ni st er ed by t he

5 Nat i onal I nst i t ut e of St andar ds and Technol ogy.

6 And i t ci t es Ti t l e 18 Uni t ed St at es Code, Sect i on 666.

7 Ti t l e 18 Uni t ed St at es Code, Sect i on 666, r eads i n

8 per t i nant par t as f ol l ows: " Thef t or br i ber y concer ni ng

9 pr ogr ams r ecei vi ng f eder al f unds.

10 ( a) Whoever , i f ci r cumst ance descr i bed i n subsect i on

11 ( b) of t hi s sect i on exi st s - -

12 ( A) Embezzl es, st eal s, obt ai ns by f r aud, or ot her wi se

13 wi t hout aut hor i t y knowi ngl y conver t s t o t he use of any per son

14 ot her t han t he r i ght f ul owner or i nt ent i onal l y mi sappl i es,

15 pr oper t y t hat i s val ued at $5, 000 or mor e, and i s owned by, or

16 i s under t he car e, cust ody, or cont r ol of such or gani zat i on,

17 gover nment , or agency, i s gui l t y of a cr i me.

18 ( b) The ci r cumst ance r ef er r ed t o i n subsect i on ( a) of

19 t hi s sect i on i s t hat t he or gani zat i on, gover nment , or agency

20 r ecei ves, i n any one- year per i od, benef i t s i n excess of $10, 000

21 under a f eder al pr ogr ami nvol vi ng a gr ant , cont r act , subsi dy,

22 l oan, guar ant ee, i nsur ance, or ot her f or mof f eder al

23 assi st ance.

24 ( c) Thi s sect i on does not appl y t o bona f i de sal ar y,

25 wages, f ees, ot her ot her compensat i on pai d, or expenses pai d or


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1 r ei mbur sed, i n t he usual cour se of busi ness.

2 I n or der t o sust ai n i t s bur den of pr oof wi t h r espect

3 t o t he al l egat i on i n Count one, t he gover nment must pr ove

4 beyond a r easonabl e doubt t he f ol l owi ng f i ve el ement s:

5 Fi r st , at t he t i me al l eged i n t he i ndi ct ment , t he

6 def endant was an agent of Comput er Ai ded Sur ger y, I nc. , or

7 CASI ;

8 Second, i n a one- year per i od, CASI r ecei ved a f eder al

9 gr ant i n excess of $10, 000;

10 Thi r d, dur i ng t hat one- year per i od, t he def endant

11 wi t hout aut hor i t y i nt ent i onal l y mi sappl i ed t he gr ant money;

12 Four t h, t he mi sappl i ed gr ant money was under t he car e,

13 cust ody, or cont r ol of , CASI ;

14 Fi f t h, t he val ue of t he money i nt ent i onal l y mi sappl i ed

15 by def endant was at l east $5, 000.

16 Now, l et us separ at el y consi der t hese f i ve el ement s.

17 The f i r st el ement t he gover nment must pr ove beyond a

18 r easonabl e doubt i s t hat at t he t i me al l eged i n t he i ndi ct ment ,

19 t he def endant was an agent of CASI .

20 The t er m" agent " means a per son aut hor i zed t o act on

21 behal f of an or gani zat i on. Empl oyees, par t ner s, di r ect or s,

22 of f i cer s, manager s and r epr esent at i ves ar e al l agent s of an

23 or gani zat i on.

24 Second el ement t he gover nment must pr ove beyond a

25 r easonabl e doubt i s t hat i n a one- year per i od, CASI r ecei ved


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1 f eder al benef i t s i n excess of $10, 000.

2 To pr ove t hi s el ement , t he gover nment must est abl i sh

3 t hat CASI r ecei ved, dur i ng a one- year per i od, benef i t s i n

4 excess of $10, 000 under a f eder al pr ogr ami nvol vi ng a gr ant ,

5 cont r act , subsi dy, l oan, guar ant ee, i nsur ance, or some ot her

6 f or mof f eder al assi st ance.

7 The one- year per i od must begi n no mor e t han 12 mont hs

8 bef or e t he def endant commi t t ed t he act s char ged i n t he

9 i ndi ct ment and must end no mor e t han 12 mont hs af t er t hose

10 act s. You can choose any per i od of f eder al f undi ng you want as

11 l ong as you unani mousl y f i nd t hat t he act s of mi sappl i cat i on

12 char ged i n t he i ndi ct ment occur r ed i n t hat one- year per i od.

13 The t hi r d el ement t he gover nment must pr ove beyond a

14 r easonabl e doubt i s t hat t he def endant wi t hout aut hor i t y

15 i nt ent i onal l y mi sappl i ed money. To i nt ent i onal l y mi sappl y

16 money means t o use money under t he cont r ol of CASI knowi ng t hat

17 such use i s unaut hor i zed or unj ust i f i abl e or wr ongf ul .

18 I nt ent i onal mi sappl i cat i on i ncl udes t he wr ongf ul use of t he

19 money f or a pur pose t he def endant knew was unaut hor i zed, even

20 i f such use benef i t ed CASI i n some way.

21 I n t hi s case, t o i nt ent i onal l y mi sappl y money means t o

22 i nt ent i onal l y appl y t he gr ant money r ecei ved by CASI i n a

23 manner whi ch t he def endant knew was unaut hor i zed under t he

24 t er ms and condi t i ons of t he gr ant . Mi sappl i cat i on of money,

25 however , does not appl y t o bona f i de sal ar y, wages, f r i nge


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1 benef i t s, or ot her compensat i on pai d, or expenses pai d or

2 r ei mbur sed, i n t he usual cour se of busi ness.

3 As I sai d, t he gover nment must pr ove beyond a

4 r easonabl e doubt t hat t he def endant act ed i nt ent i onal l y i n

5 mi sappl yi ng gr ant money. To f i nd t hat t he def endant act ed

6 i nt ent i onal l y, you must be sat i sf i ed beyond a r easonabl e doubt

7 t hat t he def endant act ed del i ber at el y and pur posef ul l y. That

8 i s, t he def endant ' s mi sappl i cat i on must have been t he pr oduct

9 of t he def endant ' s consci ous obj ect i ve t o spend t he money f or

10 an unaut hor i zed pur pose, r at her t han t he pr oduct of a mi st ake

11 or acci dent or some ot her i nnocent r eason.

12 The f our t h el ement t hat t he gover nment must pr ove

13 beyond a r easonabl e doubt i s t hat t he gr ant money t hat was

14 i nt ent i onal l y mi sappl i ed was i n t he car e, cust ody, or cont r ol

15 of , CASI . Al t hough t he wor ds " car e, " " cust ody, " and " cont r ol "

16 have sl i ght l y di f f er ent meani ngs, f or t he pur poses of t hi s

17 el ement , t hey expr ess a si mi l ar i dea. Al l t hat i s necessar y i s

18 t hat CASI had cont r ol over and r esponsi bi l i t y f or t he gr ant

19 money.

20 The f i f t h and f i nal el ement t he gover nment must pr ove

21 beyond a r easonabl e doubt i s t hat t he val ue of t he

22 i nt ent i onal l y mi sappl i ed money was at l east $5, 000.

23 The wor d " val ue" means f ace, par or mar ket val ue, or

24 cost pr i ce, ei t her whol esal e or r et ai l , whi chever i s gr eat er .

25 " Mar ket val ue" means t he pr i ce a wi l l i ng buyer woul d pay a


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1 wi l l i ng sel l er at t he t i me t he pr oper t y was i nt ent i onal l y

2 mi sappl i ed.

3 You may aggr egat e or add up t he val ue of t he money

4 i nt ent i onal l y mi sappl i ed f r oma ser i es of act s by t he def endant

5 t o meet t hi s $5, 000 r equi r ement , so l ong as you f i nd t hat each

6 act of i nt ent i onal mi sappl i cat i on was par t of a si ngl e scheme

7 by t he def endant t o mi sappl y gr ant money under t he car e,

8 cust ody, and cont r ol of CASI .

9 The gover nment does not have t o pr ove t hat t he

10 par t i cul ar money mi sappl i ed by t he def endant was t he money

11 r ecei ved by CASI as a f eder al gr ant . I n ot her wor ds, i t i s not

12 necessar y f or t he gover nment t o show t hat t he i nt ent i onal l y

13 mi sappl i ed money was t r aceabl e t o t he act ual f eder al gr ant

14 r ecei ved by t he or gani zat i on. Thus, i f t he gover nment

15 est abl i shes t hat CASI r ecei ved mor e t han $10, 000 i n f eder al ai d

16 dur i ng a one- year per i od, and t hat , dur i ng t hat per i od, t he

17 def endant mi sappl i ed f unds val ued at mor e t han $5, 000 under t he

18 car e, cust ody, and cont r ol of CASI , t he gover nment wi l l have

19 sat i sf i ed i t s bur den wi t h r espect t o t hi s el ement . Money i s

20 f ungi bl e, and t he gover nment need not t r ace t he $5, 000 or mor e

21 al l eged t o be i nt ent i onal l y mi sappl i ed back t o t he f eder al

22 gr ant .

23 I n addi t i on t o t he el ement s of t he of f enses t hat I

24 have expl ai ned, you must consi der whet her any act i n

25 f ur t her ance of t he cr i me char ged i n t he i ndi ct ment occur r ed


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1 wi t hi n t he Sout her n Di st r i ct of New Yor k. As I have i nst r uct ed

2 you, t he Sout her n Di st r i ct of New Yor k i ncl udes Manhat t an and

3 t he Br onx.

4 I shoul d not e t hat on t hi s i ssue - - and t hi s i ssue

5 al one - - t he gover nment need not pr ove venue beyond a

6 r easonabl e doubt , but onl y by a mer e pr eponder ance of t he

7 evi dence. Thus, t he gover nment has sat i sf i ed i t s venue

8 obl i gat i ons i f you concl ude t hat i t i s mor e l i kel y t han not

9 t hat any act i n f ur t her ance of t he cr i me char ged occur r ed i n

10 t he Sout her n Di st r i ct of New Yor k.

11 You have hear d evi dence dur i ng t he t r i al t hat

12 wi t nesses have di scussed t he f act s of t he case and t hei r

13 t est i mony wi t h t he l awyer s bef or e t he wi t nesses appear ed i n

14 cour t .

15 Al t hough you may consi der t hat f act when you ar e

16 eval uat i ng a wi t ness' s cr edi bi l i t y, I shoul d t el l you t hat

17 t her e i s not hi ng ei t her unusual or i mpr oper about a wi t ness

18 meet i ng wi t h l awyer s bef or e t est i f yi ng so t hat t he wi t ness can

19 be awar e of t he subj ect s he or she wi l l be quest i oned about ,

20 f ocus on t hose subj ect s and have t he oppor t uni t y t o r evi ew

21 r el evant exhi bi t s bef or e bei ng quest i oned about t hem. Such

22 consul t at i on hel ps conser ve your t i me and t he cour t ' s t i me. I n

23 f act , i t woul d be unusual f or a l awyer t o cal l a wi t ness

24 wi t hout such consul t at i on.

25 Agai n, t he wei ght you gi ve t o t he f act or t he nat ur e


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1 of t he wi t ness' s pr epar at i on f or hi s or her t est i mony and what

2 i nf er ences you dr aw f r omsuch pr epar at i on ar e mat t er s

3 compl et el y wi t hi n your di scr et i on.

4 Now, you have hear d t est i mony f r omwhat we cal l exper t

5 wi t nesses. An exper t wi t ness i s a per son who by educat i on or

6 exper i ence has acqui r ed l ear ni ng or exper i ence i n a sci ence or

7 a speci al i zed ar ea of knowl edge. Such wi t nesses ar e per mi t t ed

8 t o gi ve t hei r opi ni ons as t o r el evant mat t er s i n whi ch t hey

9 pr of ess t o be exper t , and gi ve t hei r r easons f or t hei r

10 opi ni ons.

11 Exper t t est i mony i s pr esent ed t o you on t he t heor y

12 t hat someone who i s exper i enced i n t he f i el d can assi st you i n

13 under st andi ng t he evi dence or i n r eachi ng an i ndependent

14 deci si on on t he f act s.

15 Now, your r ol e i n j udgi ng t he cr edi bi l i t y appl i es t o

16 exper t s as wel l as t o ot her wi t nesses. You shoul d consi der t he

17 exper t ' s opi ni ons t hat wer e r ecei ved i n evi dence i n t hi s case

18 and gi ve t hemas much or as l i t t l e wei ght as you t hi nk t hey

19 deser ve.

20 I f you shoul d deci de t hat t he opi ni on of an exper t i s

21 not based on suf f i ci ent educat i on or exper i ence, or on

22 suf f i ci ent dat a, or i f you shoul d concl ude t hat t he

23 t r ust wor t hi ness or cr edi bi l i t y of an exper t i s quest i onabl e f or

24 any r eason, or i f t he opi ni on of t he exper t was out wei ghed i n

25 your j udgment by ot her evi dence i n t he case, t hen you mi ght


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1 di sr egar d t he opi ni on of t he exper t ent i r el y or i n par t .

2 On t he ot her hand, i f you f i nd t he opi ni on of t he

3 exper t was based on suf f i ci ent dat a, educat i on and exper i ence,

4 and ot her evi dence, and does not gi ve you r eason t o doubt hi s

5 concl usi ons, you woul d be j ust i f i ed i n pl aci ng gr eat r el i ance

6 on hi s t est i mony.

7 I f you concl ude t hat ot her per sons may have been

8 i nvol ved i n cr i mi nal act s char ged i n t he i ndi ct ment , you may

9 not dr aw any i nf er ence, f avor abl e or unf avor abl e, t owar d ei t her

10 t he gover nment or t he def endant f r omt he f act t hat t hose

11 per sons ar e not named as def endant s i n t hi s i ndi ct ment or ar e

12 not pr esent at t hi s t r i al .

13 I n addi t i on, you shoul d not specul at e as t o t he

14 r easons t hat i ndi vi dual s ot her t han t he def endant ar e not

15 def endant s i n t hi s t r i al . Those mat t er s ar e whol l y out si de

16 your concer n and have no bear i ng on your f unct i on as j ur or s i n

17 t hi s t r i al .

18 Bot h t he gover nment and t he def endant have t he same

19 power t o subpoena wi t nesses t o t est i f y on t hei r behal f . I f a

20 pot ent i al wi t ness coul d have been cal l ed by t he gover nment or

21 by t he def endant and nei t her par t y cal l ed t he wi t ness, t hen you

22 may dr aw t he concl usi on t hat t he t est i mony of t he absent

23 wi t ness mi ght have been unf avor abl e t o t he gover nment or t o t he

24 def endant or t o bot h par t i es.

25 On t he ot her hand, i t i s equal l y wi t hi n your pr ovi nce


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1 t o dr aw no i nf er ence at al l f r omt he f ai l ur e of a par t y t o cal l

2 a wi t ness.

3 You shoul d r emember t hat t her e i s no dut y on ei t her

4 si de t o cal l a wi t ness whose t est i mony woul d be mer el y

5 cumul at i ve of t est i mony al r eady i n evi dence, or who woul d

6 mer el y pr ovi de addi t i onal t est i mony t o f act s al r eady i n

7 evi dence.

8 You have hear d r ef er ence, i n t he t est i mony and i n t he

9 ar gument s of def ense counsel i n t hi s case, about t he f act t hat

10 cer t ai n i nvest i gat i ve t echni ques wer e not used by l aw

11 enf or cement aut hor i t i es. Ther e i s no l egal r equi r ement t hat

12 t he gover nment pr ove i t s case t hr ough any par t i cul ar means.

13 Whi l e you ar e t o car ef ul l y consi der t he evi dence pr esent ed by

14 t he gover nment , you ar e not t o specul at e as t o why t hey used

15 t he t echni ques t hey di d, or why t hey di d not use ot her

16 t echni ques. The gover nment i s not on t r i al , and l aw

17 enf or cement t echni ques ar e not your concer n.

18 Your concer n i s t o det er mi ne whet her or not , based on

19 t he evi dence or l ack of evi dence, t he gui l t of t he def endant

20 has been pr oven beyond a r easonabl e doubt .

21 Ther e i s t est i mony i n t hi s case of t he pr evi ous good

22 char act er of t he def endant . Thi s t est i mony i s not t o be t aken

23 by you as t he wi t nesses' opi ni on as t o whet her t he def endant i s

24 gui l t y or not gui l t y. That quest i on i s f or you al one t o

25 det er mi ne. I ndeed, some of t he char act er wi t nesses t est i f i ed


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1 t hat t hey had no di r ect , per sonal knowl edge of t he f act s and

2 ci r cumst ances whi ch wer e t he f ocus of t hi s case. You shoul d

3 consi der evi dence of good char act er t oget her wi t h al l ot her

4 f act s and al l t he ot her evi dence i n det er mi ni ng whet her t he

5 pr osecut i on has sust ai ned i t s bur den of pr ovi ng t he def endant ' s

6 gui l t beyond a r easonabl e doubt . Evi dence of good char act er

7 may i n i t sel f cr eat e a r easonabl e doubt wher e wi t hout such

8 evi dence no r easonabl e doubt exi st s. But i f , f r omal l t he

9 evi dence, you ar e sat i sf i ed beyond a r easonabl e doubt t hat t he

10 def endant i s gui l t y, a showi ng t hat t he def endant pr evi ousl y

11 enj oyed a r eput at i on of good char act er does not j ust i f y or

12 excuse t he of f ense, and you shoul d not acqui t t he def endant

13 mer el y because you bel i eve t hat he had been a per son of good

14 r eput e.

15 Some of t he exhi bi t s t hat wer e admi t t ed i nt o evi dence

16 wer e char t s. These char t s wer e i nt r oduced basi cal l y as

17 summar i es. They ar e not di r ect evi dence. They ar e summar i es

18 of t he evi dence, and ar e admi t t ed as ai ds t o you. They ar e not

19 i n and of t hemsel ves any evi dence. They ar e i nt ended onl y t o

20 be of assi st ance t o you i n consi der i ng t he evi dence dur i ng your

21 del i ber at i ons.

22 I n pr esent i ng t he evi dence whi ch you have hear d, i t i s

23 cl ear l y easi er and mor e conveni ent t o ut i l i ze summar y char t s

24 t han t o pl ace al l of t he r el evant document s i n f r ont of you.

25 I t i s up t o you t o deci de whet her t hose char t s f ai r l y and


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1 cor r ect l y pr esent t he i nf or mat i on i n t he t est i mony and t he

2 document s admi t t ed i n evi dence. The char t s ar e not t o be

3 consi der ed by you as di r ect pr oof of anyt hi ng. They ar e mer el y

4 gr aphi c demonst r at i ons of what t he under l yi ng t est i mony and

5 document s ar e.

6 To t he ext ent t hat t he char t s conf or mwi t h what you

7 det er mi ne t he under l yi ng evi dence t o be, you shoul d accept

8 t hem. But one way or t he ot her , r eal i ze t hat t he char t i s not

9 i n and of i t sel f di r ect evi dence. They ar e mer el y vi sual ai ds.

10 They ar e not hi ng mor e.

11 You ar e about t o go i nt o t he j ur y r oomand begi n your

12 del i ber at i ons. I f dur i ng t hose del i ber at i ons you want t o see

13 or hear any of t he exhi bi t s, t hey wi l l be sent t o you i n t he

14 j ur y r oomupon quest i on. I f you want any of t he t est i mony

15 r ead, t hat can al so be done. But pl ease r emember t hat i t i s

16 not al ways easy t o l ocat e what you want , so t r y and be as

17 speci f i c as you possi bl y can i n r equest i ng exhi bi t s or por t i ons

18 of t he t est i mony whi ch you may want .

19 Your r equest s f or exhi bi t s or t est i mony - - i n f act any

20 communi cat i on wi t h t he cour t - - shoul d be made t o me i n

21 wr i t i ng, si gned by your f or eper son, and gi ven t o one of t he

22 mar shal s. I wi l l r espond t o any quest i ons or r equest s you have

23 as pr ompt l y as possi bl e ei t her i n wr i t i ng or by havi ng you

24 r et ur n t o t he cour t r oomso I can speak t o you i n per son. I n

25 any event , do not , i n any not e or ot her wi se, t el l me or anyone


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1 el se how you or any gr oup of you have vot ed or pr opose t o vot e

2 on t he i ssue of t he def endant ' s gui l t unt i l af t er a unani mous

3 ver di ct i s r eached. I n ot her wor ds, do not t el l me or anyone

4 el se what your numer i cal di vi si on i s - - how many t hi nk one way

5 and how many t hi nk anot her - - i f you ar e di vi ded at any poi nt

6 on how t o deci de t he case because unt i l you have r eached a

7 ver di ct , you have no ver di ct .

8 I amsendi ng a copy of t he i ndi ct ment i nt o t he j ur y

9 r oomf or you t o have dur i ng your del i ber at i ons. You may use i t

10 t o r ead t he cr i me wi t h whi ch t he def endant i s char ged wi t h

11 commi t t i ng. You ar e r emi nded, however , t hat an i ndi ct ment i s

12 mer el y an accusat i on and i s not t o be used by you of any pr oof

13 of t he conduct char ged.

14 As al r eady expl ai ned i n t hese i nst r uct i ons, t he

15 gover nment , t o pr evai l on t he char ge i n t he i ndi ct ment must

16 pr ove t he essent i al el ement s of t hat count i n t he i ndi ct ment

17 beyond a r easonabl e doubt .

18 I f i t succeeds, your ver di ct shoul d be gui l t y as t o

19 t hat count ; i f i t f ai l s, i t shoul d be not gui l t y as t o t hat

20 count . To r epor t a ver di ct , your vot e must be unani mous.

21 Your f unct i on i s t o wei gh t he evi dence i n t he case and

22 det er mi ne whet her or not t he def endant i s gui l t y of t he count

23 i n t he i ndi ct ment sol el y on t he basi s of such evi dence.

24 Now, t o ai d you i n your del i ber at i ons, and so t hat a

25 pr oper r ecor d can be made of your ver di ct , t he cour t has


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1 pr epar ed a f or mof ver di ct . I amaski ng t hat t he ver di ct f or m

2 be si gned by t he f or eper son and f i l ed wi t h t he cour t . When you

3 have unani mousl y agr ee upon your ver di ct , t hen t he f or eper son

4 wi l l f i l l i t i n and si gn i t , and you t el l t he mar shal you have

5 r eached a ver di ct . Then you wi l l be asked t o come back i nt o

6 open cour t and t he cl er k wi l l ask whet her your ver di ct i s

7 unani mous.

8 I t ' s a si mpl e ver di ct f or m. Pl ease hand i t out . The

9 ver di ct f or mf or mr eads as f ol l ows: " Count 1: Wi t h r espect

10 t o Count One of t he i ndi ct ment , S2 07 Cr i m. 541 ( RPP) , how do

11 you f i nd t he def endant Dani el B. Kar r on?" And i t st at es

12 gui l t y, not gui l t y and a space f or each answer . That ' s i t .

13 J ust because of t he phr aseol ogy, t her e i s onl y one

14 count i n t he i ndi ct ment . Ther e i s no ot her char ge agai nst t he

15 def endant . So don' t dr aw t he concl usi on t her e must be ot her

16 char ges.

17 Now, each j ur or i s ent i t l ed t o hi s or her opi ni on;

18 each shoul d, however , exchange vi ews wi t h hi s or her f el l ow

19 j ur or s. That i s t he ver y pur pose of j ur y del i ber at i on - - t o

20 di scuss and consi der t he evi dence; t o consi der t he ar gument s of

21 f el l ow j ur or s; t o pr esent your i ndi vi dual vi ews; t o consul t

22 wi t h one anot her ; and t o r each an agr eement based sol el y and

23 ent i r el y on t he evi dence or t he l ack of evi dence - - i f you can

24 do sought wi t hout vi ol at i on t o your own i ndi vi dual j udgment .

25 Each of you must deci de t he case f or your sel f , af t er


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1 consi der at i on wi t h your f el l ow j ur or s of t he evi dence i n t he

2 case.

3 But you shoul d not hesi t at e t o change an opi ni on

4 whi ch, af t er di scussi on wi t h your f el l ow j ur or s, appear s

5 i ncor r ect .

6 However , i f , af t er car ef ul l y consi der i ng al l of t he

7 evi dence and t he ar gument s of your f el l ow j ur or s, you hol d a

8 consci ent i ous vi ew t hat di f f er s f r omt he ot her s, you ar e not t o

9 change your posi t i on si mpl y because you ar e out number ed. I f

10 t hey do not convi nce you t hat your posi t i on i s i ncor r ect , you

11 shal l adher e t o your posi t i on r egar dl ess of t he l at eness of t he

12 hour or any per sonal i nconveni ence i t may cause you.

13 Your f i nal vot e must r ef l ect your consci ent i ous bel i ef

14 as t o how t he i ssue shoul d be deci ded.

15 Now, I have vi r t ual l y f i ni shed wi t h my char ge and my

16 i nst r uct i ons t o you and I want t o t hank you f or your pat i ence

17 and at t ent i veness. I wi l l send a copy of t he char ge i n t o you

18 so t hat you can use i t dur i ng your del i ber at i on. Agai n, pl ease

19 r emember t hat no si ngl e par t of t hi s char ge i s t o be consi der ed

20 i n i sol at i on. You ar e not t o consi der any one aspect of t hi s

21 char ge out of cont ext . The ent i r e char ge i s t o be consi der ed

22 as an i nt egr at ed st at ement and t o be t aken t oget her .

23 Now, I say t hi s not because I t hi nk i t ' s necessar y but

24 i t i s t he t r adi t i on of t hi s cour t . I advi se t he j ur or s t o be

25 pol i t e and r espect f ul t o each ot her , as I amsur e you wi l l be


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1 i n t he cour se of your del i ber at i ons, so t hat each j ur or may

2 have hi s or her posi t i on made cl ear t o al l t he ot her s.

3 The f or eper son has no gr eat er aut hor i t y t han any ot her

4 j ur or but wi l l be r esponsi bl e f or si gni ng al l communi cat i ons t o

5 t he cour t and f or handi ng t hemt o t he mar shal dur i ng

6 del i ber at i ons. You shoul d el ect one per son t o act as

7 f or eper son at t he out set of your del i ber at i ons. I somet i mes

8 suggest t hat i t i s easi er t o el ect J ur or 1, t hat i s Ms. Young,

9 but somet i mes J ur or 1 doesn' t want t o act as f or eper son. So

10 you al l can el ect whomever you want . That i s your pr er ogat i ve.

11 The manner i n whi ch t he j ur y conduct s i t s del i ber at i ons, of

12 cour se, i s compl et el y wi t hi n your di scr et i on. You may f ol l ow

13 any pr ocedur e t hat you choose, pr ovi ded t hat each j ur or i s

14 pr esent ed wi t h ampl e oppor t uni t y t o expr ess hi s or her vi ew.

15 That way when you do r each a ver di ct you wi l l know t hat i t i s a

16 j ust one, made wi t h t he f ul l par t i ci pat i on of al l t he j ur or s

17 and t hat you have f ai t hf ul l y di schar ged your oat h. I r emi nd

18 you once agai n t hat your dut y i s t o act wi t hout f ear or f avor

19 and t hat you must deci de t he i ssues on t r i al based sol el y on

20 t he evi dence and my i nst r uct i ons on t he l aw.

21 Thank you ver y much. I j ust want a wor d wi t h counsel

22 t o see i f I mi sr ead any par t of t he char ge.

23 ( Cont i nued on next page)

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1 ( At t he si debar )

2 THE COURT: Any obj ect i ons?

3 MR. RUBI NSTEI N: No, your Honor , not by t he def ense.

4 MR. KWOK: No, your Honor .

5 THE COURT: OK.

6 ( Cont i nued on next page)

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1 ( I n open cour t )

2 THE COURT: I t hi nk t he al t er nat es wi l l be comi ng back

3 i n. I wi l l excuse t hemon t he r ecor d. I don' t t hi nk t her e i s

4 any r ecor d t hat t he t wo al t er nat es have been excused, and I

5 t hi nk I have t o do i t .

6 MR. RUBI NSTEI N: Can we appr oach f or one moment ?

7 THE COURT: Sur e.

8 ( At t he si debar )

9 MR. RUBI NSTEI N: J udge, I know you usual l y di schar ge

10 al t er nat es j ur or s, but amI cor r ect t hat J ur or 8 i s supposed t o

11 l eave on Fr i day?

12 THE COURT: Not avai l abl e Monday.

13 MR. RUBI NSTEI N: Not avai l abl e Monday.

14 THE COURT: So, you have t wo and a hal f days.

15 MR. RUBI NSTEI N: I t hi nk we shoul d be al l r i ght . Al l

16 r i ght .

17 MR. KWOK: I t hi nk we shoul d be f i ne.

18 MR. RUBI NSTEI N: I f t hey pr omi se not t o r et r y t he

19 case.

20 THE COURT: OK. Al l r i ght .

21 ( Cont i nued on next page)

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1 ( I n open cour t )

2 THE COURT: Wel l , at t hi s t i me i t ' s my dut y t o excuse

3 al t er nat e j ur or s, I guess you wer e 3 and 4, Mr . Ri chbur g and

4 Ms. I ppol i t o. You may not r eal i ze t hat one of my dut i es i s t o

5 make - - wel l , I do t hi nk you r eal i ze because of t he comment I

6 made ear l i er i n t he t r i al about maki ng sur e t he j ur or s wer en' t

7 asl eep - - but one of my dut i es i s t o make sur e t hat j ur or s ar e

8 payi ng at t ent i on. And I have not i ced t hat bot h of wer e you

9 payi ng at t ent i on t hr oughout t he t r i al and wer e ver y at t ent i ve,

10 mor e t han j ust payi ng at t ent i on, and I r eal l y want t o t hank you

11 f or your ser vi ce.

12 I n ci vi l cases we al l ow al t er nat es t o si t on t he j ur y,

13 but i n cr i mi nal cases t her e i s a r equi r ement t hat t her e be 12

14 j ur or s and not mor e. So, at t hi s t i me I want t o excuse you and

15 t hank you f or your publ i c ser vi ce. I appr eci at e i t .

16 And what Mr . Rubi nst ei n sai d i n hi s summat i on about

17 publ i c ser vi ce of j ur or s i s I t hi nk ver y accur at e. I t hi nk he

18 may have pi cked t hat up f r omme i n a pr evi ous t r i al we had, but

19 i n any event I r eal l y r egar d i t as ver y hi gh publ i c ser vi ce,

20 and I wi l l gi ve t he j ur y a mor e f ul l expl anat i on of why I t hi nk

21 t hat when t he t r i al i s over .

22 So, Mr . Ri chbur g and Ms. I ppol i t o, ar e excused.

23 ( Al t er nat es excused)

24 Then I have t he dut y of aski ng Mr . Mont eguedo t o swear

25 i n t he mar shal now. I usual l y t el l t he j ur y t hat t hey shoul d


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1 l i st en cl osel y t o t hi s, because you wi l l get a ki ck out of i t .

2 I t hi nk i t was wr i t t en wel l over a hundr ed year s ago, l et ' s

3 say, and some of t he l anguage i s a l i t t l e out of dat e.

4 ( Mar shal swor n)

5 THE COURT: Al l r i ght . The j ur y i s excused t o

6 commence your del i ber at i ons and t o have l unch. That ' s pr obabl y

7 number one, have l unch. I hope i t ' s t her e.

8 DEPUTY COURT CLERK: I t ' s downst ai r s. I have t o go

9 and get i t .

10 THE COURT: He has t o go and get i t .

11 ( J ur y r et i r es t o del i ber at e at 1: 22 p. m. )

12 THE COURT: I want t o t hank counsel f or t hei r

13 cour t eousness and pr of essi onal i smdur i ng t he t r i al . I

14 appr eci at e i t ver y much. Good l uck t o bot h si des, and I wi l l

15 be her e.

16 MR. RUBI NSTEI N: Thank you, your Honor .

17 MR. KWOK: Thank you, your Honor .

18 ( Luncheon r ecess)

19 ( Cont i nued on next page)

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1 AFTERNOON SESSI ON

2 2: 25 p. m.

3 ( J ur y not pr esent )

4 THE COURT: I under st and we have some sor t of di sput e.

5 As has been r el at ed t o me, t he def ense want s t he i ndi ct ment

6 sent i n t ot al wi t hout r edact i on, and t he gover nment want s i t

7 sent i n wi t h t he f or f ei t ur e al l egat i on r edact ed.

8 MR. RUBI NSTEI N: That ' s cor r ect .

9 THE COURT: That ' s t he i ssue?

10 MR. RUBI NSTEI N: Yes, your Honor .

11 THE COURT: Obvi ousl y t hey' r e not supposed t o

12 det er mi ne t he f or f ei t ur e al l egat i ons, so I woul d say what about

13 my j ust sendi ng i t i n and t hen wi t h a not e sayi ng her e i s t he

14 i ndi ct ment , you wi l l not e t hat t her e ar e f or f ei t ur e al l egat i ons

15 but t hose al l egat i ons ar e not bef or e you and not mat t er s t hat

16 you have t o concer n your sel ves wi t h, somet hi ng l i ke t hat ? How

17 does t hat deal wi t h i t ?

18 MR. KWOK: I t hi nk an i nst r uct i on al ong t hose l i nes

19 woul d suf f i ce. Our onl y concer n i s t hat t her e i s a ment i on i n

20 par agr aph 2A of at l east $390, 000. They may get conf used as t o

21 wher e t hat number came f r om. And obvi ousl y t hey haven' t been

22 i nst r uct ed about any f or f ei t ur e al l egat i ons i n t he i ndi ct ment ,

23 so our onl y concer n i s t hat i t wi l l cause mor e conf usi on t han

24 necessar y, and so an i nst r uct i on al ong t hose l i nes - -

25 THE COURT: I can under st and why you f eel i t shoul d be


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1 r edact ed, but t he def ense does not want t o r edact i t .

2 You don' t want i t r edact ed?

3 MR. RUBI NSTEI N: No, your Honor . I don' t have a

4 pr obl emwi t h your Honor ' s - -

5 THE COURT: Wel l , i t ' s i n t he i ndi ct ment , so l et me

6 f ashi on a not e.

7 " Her e i s a copy of t he i ndi ct ment . You wi l l not e i t

8 cont ai ns a f or f ei t ur e al l egat i on. Those al l egat i ons ar e

9 i r r el evant t o your deci si on" - -

10 MR. KWOK: - - " and you shoul d not consi der i t i n any

11 way i n your del i ber at i ons. "

12 THE COURT: I s t hat al l r i ght ?

13 MR. RUBI NSTEI N: Yes.

14 MR. EVERDELL: Your Honor , al so I t hi nk i t may be even

15 cl ear er i f we say, " You wi l l not e t her e i s a f or f ei t ur e

16 al l egat i on on page 2 of t he i ndi ct ment . "

17 THE COURT: Wel l , I ' ve gone t oo f ar now.

18 Her e i s t he not e. I have i t i t mar ked as Cour t

19 Exhi bi t 1.

20 DEPUTY COURT CLERK: No, t hat ' s goi ng t o be Cour t

21 Exhi bi t 3.

22 THE COURT: Cour t Exhi bi t 3.

23 DEPUTY COURT CLERK: Cour t Exhi bi t one was t he

24 exhi bi t . Cour t Exhi bi t 2 was t he char ge. Thi s wi l l be 3. And

25 t he i ndi ct ment i s Cour t Exhi bi t 4.


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1 THE COURT: Hand i t t o counsel bef or e we send i t i n.

2 MR. KWOK: That ' s sat i sf act or y t o t he gover nment

3 gover nment . Thank you, your Honor .

4 THE COURT: Al l r i ght , Mr . Rubi nst ei n?

5 MR. RUBI NSTEI N: That ' s f i ne.

6 THE COURT: OK.

7 Al l r i ght .

8 ( Ti me not ed 3: 25; j ur y not pr esent )

9 THE COURT: They want al l of Benedi ct ' s t est i mony?

10 And Exhi bi t 110, 111, 114 and 115.

11 MR. RUBI NSTEI N: Al l I woul d say i s t hose ar e al l

12 summar i es.

13 THE COURT: Wel l , t hey' r e t he audi t , ar en' t t hey? The

14 gover nment i sn' t her e. Oh, t hey ar e.

15 THE COURT: Have you seen t he not e?

16 MR. KWOK: We have, your Honor .

17 MR. EVERDELL: We' r e pul l i ng t he exhi bi t s now.

18 THE COURT: Maybe I bet t er r ead i t i nt o t he r ecor d.

19 Thi s i s Cour t Exhi bi t 5, r ecei ved f r omt he j ur y at

20 3: 12, and si gned by Ms. Young. I t says.

21 " 1. Bob Benedi ct ' s t est i mony.

22 " 2. Number 110.

23 " 3. Number 111.

24 " 4. 114

25 " 5. 115.


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1 " 6. Or i gi nal budget .

2 " 7. Revi sed appr oved budget .

3 " 8. Nonappr oved subsequent budget r evi si ons. "

4 My r ecol l ect i on i s we onl y have some of t he budget

5 r evi si ons, not al l of t he budget r evi si ons. AmI wr ong?

6 MR. EVERDELL: No, I t hi nk we have t he r evi sed budget

7 submi ssi ons t hat wer e not appr oved. I t hi nk what your Honor

8 may be r ef er r i ng t o i s t he quar t er l y f i nanci al r epor t s.

9 THE COURT: Oh, t hat ' s r i ght .

10 MR. EVERDELL: But t he exhi bi t s, I t hi nk we have t he

11 exhi bi t s t hat t hey want .

12 THE COURT: Wel l , we have t o go t hr ough t he t est i mony

13 of Benedi ct .

14 MR. KWOK: How does your Honor l i ke t o pr oceed wi t h

15 t he t est i mony? Do we do a r ead- back?

16 THE COURT: Whenever you' ve got anyt hi ng r eady, l et ' s

17 send i t i n. I t ' s 3: 25. They' ve got t o be kept busy. We can' t

18 hol d back.

19 MR. RUBI NSTEI N: We have t o r edact i f t her e i s any

20 obj ect i ons.

21 THE COURT: I don' t r emember i f t her e i s much i n

22 Benedi ct ' s di r ect or cr oss t hat r equi r es r edact i on, but maybe

23 t her e i s.

24 MR. RUBI NSTEI N: I don' t ei t her , but maybe t her e i s.

25 THE COURT: You have t o cut out t he pages wher e t he


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1 j ur y wasn' t pr esent . But as f ar as r edact i on goes, t her e wer e

2 ver y f ew obj ect i ons i n ei t her di r ect or cr oss, I bel i eve.

3 So, l et ' s di vi de i t up so we al l don' t l ook at t he

4 same copy. Do you want my copy?

5 DEPUTY COURT CLERK: Def ense counsel doesn' t have a

6 copy of t he copy of t he t r anscr i pt .

7 THE COURT: What I ' mt al ki ng about i s di vi di ng up t he

8 dut i es, so one of you goes t hr ough page so and so and t he ot her

9 goes t hr ough such and such.

10 MR. RUBI NSTEI N: I f t he cour t wi l l gi ve us t hei r

11 t r anscr i pt , I wi l l t el l t he gover nment what pages I have.

12 THE COURT: What about bef or e we get st ar t ed on t hat ,

13 what about t he ot her exhi bi t s, do we have t hose?

14 MR. KWOK: We do, your Honor .

15 MR. EVERDELL: Your Honor , how do we pr opose t o mar k

16 what t hey ar e f or t he j ur y? I ' mnot sur e t he j ur y i s goi ng t o

17 know t hat - -

18 THE COURT: I wi l l gi ve t hema not e.

19 MR. EVERDELL: We j ust want t o be abl e t o i dent i f y

20 whi ch number s.

21 THE COURT: I n r esponse t o your not e, I ' msendi ng you

22 i n gover nment ' s exhi bi t s, Bob Benedi ct ' s t est i mony, t he r evi sed

23 appr oved budget , and t hen I wi l l i dent i f y t hemby exhi bi t

24 number . So i t ' s cl ear , so you make a cl ear r ecor d of what i s

25 and i sn' t sent i n.


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1 MR. EVERDELL: I j ust want t o be sur e t hey know whi ch

2 i s whi ch.

3 THE COURT: Have you got 110, 111, 114 and 115?

4 MR. EVERDELL: We have t hose, your Honor .

5 DEPUTY COURT CLERK: Do you want t o send t hose t hr ee

6 exhi bi t s i n, J udge?

7 THE COURT: I do. I want t he ot her ones t oo.

8 DEPUTY COURT CLERK: Ri ght . I j ust don' t know i f you

9 want t o send t hemal l t oget her or - -

10 THE COURT: As many as t hey have r eady.

11 DEPUTY COURT CLERK: 110, 111, 114 and 115, J udge, we

12 wi l l send t hose?

13 THE COURT: What about t he budget , do we have t hose?

14 MR. EVERDELL: Yeah, I ' mj ust mar ki ng t hem" or i gi nal

15 appr oved budget " f or Gover nment ' s 14 and " r evi sed appr oved

16 budget " f or 22, and " unappr oved budget " f or Gover nment ' s

17 Exhi bi t s 31, 32, 33, 34, 35 and 36. Or " unappr oved budget

18 r equest s" . And I wi l l put t he number s down, 31, 32 . . .

19 The unappr oved budget r equest s ar e 31 t hr ough 36. And

20 I amput t i ng st i cky not es on t hem.

21 Act ual l y i f you have a r ubber band we can r ubber band

22 t hemt oget her .

23 THE COURT: I s t her e one nonappr oved budget or t wo

24 nonappr oved budget ?

25 MR. EVERDELL: I t ' s si x.


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1 THE COURT: Oh, I ' ve got i t .

2 MR. EVERDELL: So, I wi l l hand t hese up t o Rober t .

3 THE COURT: To t he j ur or s, I wi l l r ead t he not e I

4 pr opose t o send i n.

5 " I n r esponse t o your not e, her e ar e Exhi bi t s 110, 111,

6 114 and 115; or i gi nal budget , GX14; r evi sed budget appr oved,

7 GX22; Nonappr oved subsequent budget , GX31, 32, 33, 34, 35, 36.

8 " We ar e wor ki ng on Mr . Benedi ct ' s t est i mony. "

9 MR. KWOK: That ' s f i ne wi t h t he gover nment . I

10 act ual l y have t he l i nes r eady t o be r edact ed f or Mr . Benedi ct ' s

11 t est i mony, i f your Honor woul d l i ke t o - -

12 THE COURT: I t ' s al l r edact ed?

13 MR. KWOK: I t hi nk t her e ar e onl y t wo pl aces t hat need

14 r edact i on.

15 THE COURT: Wel l , why don' t we send t hi s i n. I don' t

16 know how l ong i t wi l l t ake t o get agr eement on t he r edact i ons.

17 And I wi l l send t hi s not e i n wi t h i t , i f t her e i s no obj ect i on

18 by counsel . I t ' s Cour t Exhi bi t 6.

19 MR. KWOK: That ' s f i ne. Thank you, your Honor .

20 THE COURT: Whi l e Mr . Mont eguedo i s doi ng t hat , l et ' s

21 see what we can do on Mr . Benedi ct ' s t est i mony.

22 MR. KWOK: Your Honor , I bel i eve Mr . Benedi ct ' s

23 t est i mony st ar t s at page 960 on t he t r anscr i pt .

24 THE COURT: Mr . Rubi nst ei n has my copy, so I ' mnot

25 sur e. Have we gi ven hi mt he pages of pr oposed del et i ons?


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1 Mr . Rubi nst ei n?

2 MR. RUBI NSTEI N: Yes, your Honor . I ' mwor ki ng on t he

3 cr oss.

4 THE COURT: Wer e you onl y doi ng di r ect ?

5 MR. KWOK: I was doi ng di r ect , but I act ual l y went

6 t hr ough t he whol e t hi ng.

7 THE COURT: Mr . Rubi nst ei n, I don' t know i f i t wi l l

8 hel p you, but Mr . Kwok has i ndi cat ed wher e he t hi nks t he

9 r edact i ons ar e. How ar e we comi ng?

10 MR. KWOK: Get t i ng t her e.

11 THE COURT: How many pages do we have t o r ead, or i s

12 i t bet t er t o r edact i t ?

13 MR. RUBI NSTEI N: No, I t hi nk i t ' s bet t er - - t her e ar e

14 not t hat many, but t her e ar e a l ot mor e t han t he gover nment

15 suggest s.

16 I ' mal most t her e. I j ust want t o show t he gover nment

17 some t hat ar e not maj or but t hat I . . .

18 THE COURT: Sor r y?

19 MR. RUBI NSTEI N: They' r e not maj or , but l et me show

20 t he gover nment t he por t i ons t hat I t hi nk coul d be r edact ed.

21 We ar e i n agr eement .

22 THE COURT: Wel l , how ar e we goi ng t o make t he

23 r edact i on? Read i t ? How l ong i s i t ?

24 MR. KWOK: I t ' s qui t e l ong act ual l y. I t hi nk our

25 pr ef er ence i s t o t o send i n a copy and j ust r edact usi ng a


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1 bl ack hi ghl i ght er of some sor t .

2 MR. RUBI NSTEI N: Most of t he r edact i ons, J udge, ar e

3 j ust a f ew l i nes, so I woul dn' t have a pr obl emwi t h t hat .

4 THE COURT: Then l et ' s do i t t hat way. Let ' s get i t

5 st ar t ed.

6 MR. RUBI NSTEI N: The onl y t hi ng I woul d suggest i s - -

7 THE COURT: Br i ng back a f i nal so Mr . Rubi nst ei n can

8 see t hem.

9 MR. KWOK: Cer t ai nl y.

10 THE COURT: So he can see t hat you made t hem

11 cor r ect l y.

12 Let ' s move, ot her wi se t hey may make a deci si on.

13 MR. EVERDELL: We' r e goi ng t o make a phot ocopy of your

14 Honor ' s bi gger ver si on so i t ' s easy t o r ead. We wi l l r edact i t

15 and br i ng i t back.

16 THE COURT: You ar e usi ng my copy?

17 MR. EVERDELL: Of t he t r anscr i pt .

18 THE COURT: Do you have t o make copi es?

19 MR. EVERDELL: We can make copi es or j ust i nst r uct t he

20 j ur y not t o peel of f t he whi t e t ape.

21 MR. RUBI NSTEI N: That ' s f i ne. I nst r uct t hemnot t o

22 peel of f t he whi t e t ape.

23 THE COURT: Can I have my not e back?

24 I have t he not e. Ar e you r eady? Counsel , ar e you

25 r eady?


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1 MR. KWOK: OK. Your Honor , I t hi nk we have an

2 agr eement . The t r anscr i pt i s r edact ed wi t h t he appr oval of

3 Mr . Rubi nst ei n and t he gover nment , and I t hi nk we al so shoul d

4 send i n t he bl ow- ups, because t hey ar e t he act ual exhi bi t s,

5 t hese bi g boar ds, Exhi bi t s 114 and 115.

6 THE COURT: I sent i n 114 and 115.

7 MR. KWOK: I under st and, but as I under st and i t t hese

8 ar e t he ones t hat ar e act ual l y mar ked.

9 THE COURT: Wel l , I gave what you gave me whi ch had

10 t hi ngs mar ked 114 and 115. I don' t know whet her Mr . Rubi nst ei n

11 consent s t o t hi s.

12 MR. RUBI NSTEI N: I f t hey have 114 and 115, I don' t

13 t hi nk t hey need t he bl ow- up ver si on.

14 THE COURT: I f we st ar t ed of f t hat way, I t hi nk t hey

15 woul d be ent i t l ed t o i t , but I don' t t hi nk we ought t o send

16 dupl i cat e exhi bi t s i n.

17 MR. KWOK: OK, t hat ' s f i ne. Can I hand up t he

18 r edact ed t r anscr i pt ?

19 THE COURT: Al l r i ght . Then I have dr af t ed a not e t o

20 t he j ur or s sayi ng, " Her e i s t he t est i mony of Mr . Benedi ct t hat

21 you r equest ed. " And I si gned t hat not e, and bel ow t hat I have

22 wr i t t en i n, " You ar e or der ed not t o r emove t he whi t e t ape. "

23 I s t hat what you want ?

24 MR. KWOK: I t hi nk t hat ' s f i ne. We al so, af t er we r an

25 out of t he whi t e t ape, we used a bl ack mar ker . I suppose i f


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1 you hol d i t up, you can r eal l y see i t under t he l i ght , but I

2 don' t know whet her an addi t i onal i nst r uct i on i s necessar y t o

3 t hat ef f ect .

4 THE COURT: What does he want me t o say? " Or t he

5 bl ack l i ne" ? I can' t t el l t hemt o r emove t he bl ack l i nes.

6 MR. KWOK: " Or at t empt t o see t hr ough t he bl ack l i ne" .

7 MR. RUBI NSTEI N: I t hi nk t hey wi l l under st and i t ,

8 J udge. Ther e ar e no smoki ng guns t hat have been r edact ed; i t ' s

9 j ust obj ect i on sust ai ned.

10 THE COURT: I t ' s adequat e, " You ar e not t o r emove t he

11 whi t e t apes" ? I s t hat adequat e?

12 MR. KWOK: Fi ne.

13 THE COURT: Then t he not e i s Exhi bi t 7. The

14 t r anscr i pt wi l l be Cour t Exhi bi t 8.

15

16

17

18

19

20

21

22

23

24

25


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(5:25; jury not present)
THE COURT: Mr. Monteguedo informs me that the
~ a r s h a l s have indicated that the jury has a verdict.
Bring the jury in.
(Jury present)
THE COURT: Please be seated. Ladies and gentlemen,
Mr. Monteguedo reports that the marshals have reported that you
have reached a verdict, and I will ask Mr. Monteguedo to take
the verdict.
DEPUTY COURT CLERK: Ladies and gentlemen of the jury,
please answer to your presence as your name is called.
(Jury roll called; jury present)
DEPUTY COURT CLERK: Foreperson please stand.
As to Count One, with respect to Count One of
indictment, S2 07 Crim. 541 (RPP) , how do you find the
defendant Daniel B. Karron. Did you answer guilty or not
guilty?
THE FOREPERSON: Guilty.
DEPUTY COURT CLERK: Thank you. Please be seated.
Ladies and gentlemen of the jury, please listen to
your verdict as it stands recorded. With respect to Count One
of indictment, S2 07 Crim. 541 (RPF) , how could you find the
defendant Daniel B Karron? You answeyed guilty.
(Jury polled; each juror answered in the affirmative)
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86B7KAR4 Verdict
THE COURT: Well, ladies and gentlemen, I never
cOHuuent on a verdict, and I do like to comment, however, on
jury service. And as I told thp alternates, one of my duties
is Lc watch the jury, keep an eye on them, make sure that no
one is falling asleep. I had a few questions about Juror 3 at
one point, but I noticed that althougll she sat back in her
chair she kept her eyes open and was fully aware of what was
going on. But that's what my job is in part.
So one of the problems is, and one of the reasons I
don't comment upon verdicts is because I other duties that I
have to think about, whether under the law of evidence the
question is appropriate, and there are a number of rules in the
law of evidence that apply, how the questions is framed and
whether it's an appropriate question, whether it's relevant,
what have you. So I have other things to do besides listening
to the actual testimony and watching the jurors and what have
you.
But what I really want to mention is how important
jury service is in this country. In most countries in Europe
there are no juries. The only country that has juries is Great
Britain, Australia and some in Canada, and even there in most
cases they have done away with juries. It is an expenditure,
and it requires a lot more time to have a jury trial than it
does to have a nonjury trial.
In this country almost all the trials are jury trials.
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Now, why is that important? Well, some years ago, before
IIungary carne out from behind the iron curtain, I went with a
number of other judges and lawyers to Hungary, and we were
invited to discuss their new constitution, and I don't
know that we added much. I found in fact that the people in
Hungary that we were talking to were very people
and not only knew all about how our Constitution worked but
they also knew how all the other Constitutions in the world
worked. And there are a lot of Constitutions in the world
actually, and a lot of them have traditions that are very
similar to ours, and in fact Russia has a Constitution and it
provided for a lot of the things that are provided for in our
Constitution. The only problem was who decided whether those
rights applied. The state had the sole determination. There
was no right by the people to bring suits in the courts
challenging the state.
In any event, what I found was that there was great
dissatisfaction of the system of justice in Hungary, and the
reason was this: Judges decided everything. Judges were
trained at the university to become judges, and when they got
out of university they became junior judges, and then they
moved up and became more senior judges. It was a profession
just as if you were a doctor you became a judge. And you
became a judge if you were a member of the party.
And if you didn't, and if you weren't a member of the Communist
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1382
86B7KAR4 Verdict
party, these people felt you didn't get a fair shake in court,
whether it be a civil or criminal case. And here in this
country it's true judges are appointed hy the President in the
case of judges, and they are elected to some posts in
the state courts, but they are also appointed judges in the
courts, and it's true that that means is a certain
amount of political input. And I happen to think that's
overstated. In other words, I don't think people do decide
certainly district court judges I am convinced don't decide
cases because they came from some political party. I mean we
are appointed by some president, one or another, but there are
stories in the paper and on television, on your talk shows,
wondering who appointed that judge, well, he is going to decide
such and such. Well, if we didn't have jurors, they would be
saying that about the cases that come up for trial, and what
confidence would the public have in the fairness of the
procedure? If they believe that politics decided the lawsuits
in the courts, they would, or that would be the talk.
So, what does the jury system do? Well, you saw
Mr. Monteguedo here pull the names out of the hat, call them.
No one knows anything about your political background. No one
can challenge that you are independent determiners of the
facts. And that's the great thing about jury seLvice, it's the
validation of our criminal justice system in ccuntry. It
doesn't mean you have to agree with every decision a jury
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1 reaches throughout the country. But remember when you are
2 criticizing theIll, if you do criticize them, that they heard the
3 evidence, you didn't. Nor did the reporters report all the
4 evidence. They b ~ ~ v the witnesses that testified, reporters
5 corne in and out of the courtroom and corne and go. They don't
6 hear everything. So, you don't always get -- it mcty be that
7 you don't always get a fair shake in the press.
8 I haven't tried a case with television, but I recently
9 had a case before me, still before me -- I haven't decided it
10 yet, but it had a lot of notoriety and you should read what the
11 papers in England said that I did and said and what have you.
12 You couldn't believe it. At least I couldn't believe it.
13 All I'm saying is you the jury are the great
14 validaters of our system of justice. That's what is so
15 important about jury service, because each one of you when you
16 serve are an independent person reviewing the facts and the
17 evidence. It's much better than having a judge be in that
18 position, because it makes it clear that things aren't decided
19 on politics.
20 So I want to thank you for your service, and I am
21 sorry to hold you to listen to me talk. And I guess I will
22 tell you the third great lie, and that is that your checks are
23 in the mail. So you are discharged with my thanks and the
24 thanks of the court.
25 (Jury excused)
SOUTHERN DISTRICT REPORTERS, P.C.
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86B7KAR4 Verdict
1 THE COURT: I guess I better look at a sentencing
2 date. I better wait for Mr. Monteguedo to tell
3 me. It takes more than 90 days, doesn't it?
4 MR. KWOK: I . ;;, not sure.
5 THE COURT: October 14th or 15th? I don't know what
6 the holidays are. Mr. Rubinstein?
7 MR. RUBINSTEIN: Neither do I, Judge. Any day is OK.
8 MR. KWOK: Same for the government.
9 THE COURT: Do any of you know about the religious
10 holidays on that period?
11 Apparently Yom Kippur is the 14th or the 15th of
12 October, so that may be a bad time.
13 Why don't I put it down for September 11th, and if
14 it's an inconvenient date, we will adjourn it to an appropriate
15 date.
16 MR. RUBINSTEIN: Thank you, your Honor.
17
MR. KWOK: Thank you, your Honor.
18 THE COURT: All right.
19
MR. KWOK: Your Honor, the government does have an
20 application to make. We would move to modify the bail
21 conditions of the defendant.
22
THE COURT: Well, you will ha\.Te to remind me what they
23 are.
24 MR. KWOK:
I believe at the time the defendant was
25 first arraigned he was released on $50,000 personal
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3219 KA-3219 KA-3219
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86B7KAR4 Verdict
recognizance bond, cosigned by two people that the government
approved, and he did surLender his passport, and he was ordered
to make no and his travel restrictions were
limited to the District o[ Columbia, Philadelphia, the District
of Connect.lcut and the Southern District of New York.
It's the government's position that the defendant
poses a flight risk. We understand the defendant was a
professor. He was unemployed for a number of years before he
got the grant. Now that he is convicted I don't believe that
any federal agency will award him a grant. He has recently
sold his condominium in New York. We are not aware of any
strong family ties the defendant has in New York, and as
defense counsel pointed out in his summation the defendant also
has ties in Canada. And so for all of those reasons I think
that --
THE COURT: Well, that was just a vacation, right?
Canada? He didn't have any ties in Canada, did he?
MR. RUBINSTEIN: It's where he had the operation, in
Canada.
THE COURT: Oh, I see. I didn't even know that the
operation --
MR. RUBINSTEIN: Well, I didn't think it was
appropriate to state that in summation.
THE COURT: I'm not suggesting. I just didn't -- I
thought Canada was a vacation.
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3220 KA-3220 KA-3220
1386
II
86B7KAR4 Verdict
1 MR. RUBINSTEIN: He doesn't have any ties to Canada,
2 your Honor; it's just a lot cheaper in Canada than it is in the
3 United States.
4 THE COURT: What abouL postoperative care?
5 MR. RlJBINSTEIN: That was in 2003, your Honor.
6 THE COURT: That doesn't require him to go back for
7 medical reasons?
8 MR. RUBINSTEIN: No, your Honor. 2003.
9 THE COURT: OK. I just don't know anything about the
10 whole area ..
11 MR. KWOK: In any event, your Honor, for all of those
12 reasons, and because of our calculation --
13 THE COURT: You want to limit Canada? I don't think
14 Mr. Rubinstein -- Mr. Rubinstein says it doesn't matter,
15 Canada, right?
16 MR. RUBINSTEIN: Right.
17
THE COURT: So, what else am I supposed to restrict
18 it? What restrictions are you asking for?
19
MR. KWOK: I'm asking for a more stringent set of bail
20 conditions than were originally set forth.
21
THE COURT: Well, I'm asking you what ones you're
22 asking for.
23
MR. KWOK: I propose at the very least an electronic
24 monitor, strict regular pretrial supervision.
25
THE COURT: What kind of monitoring?
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3221 KA-3221 KA-3221
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1387
86B7KAR4 Verdict
MR. KWOK: Electronic monitoring.
THE COURT: Mr. Rubinstein?
MR. RUBINST=IN: Your Honor, we are talking about a
defenciant who has an aging, sick n l v ~ h e r who was in the hospital
as recently as a month ago on a respirator.
THE COURT: Where does she live?
MR. RUBINSTEIN: She lives in Long Beach, your Honor.
THE COURT: Long Beach, California?
MR. RUBINSTEIN: Long Beach, New York, your Honor.
And his brother was in court the other day. He has a brother.
He has a daughter who goes to school in upstate New York. And
he stayed for this trial. I don't see any reason that the
government should want to restrict him. He is not going
anywhere. He doesn't have a passport, and there is no place
for him to go. So, I would ask your Honor to continue him on
the bail conditions that have been previously set.
THE COURT: Well, he has a mother in Long Beach and a
brother in where?
MR. RUBINSTEIN: New Jersey.
THE COURT: New Jersey?
MR. RUBINSTEIN: Actually she has a home at the
moment. She is in a nursing home in Staten Island, his mother.
THE COURT: Is that the entire family?
MR. RUBINSTEIN: He has a sister in New Jersey.
THE COURT: Another sister in New Jersey?
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KA-3222 KA-3222 KA-3222
1388
86B7KAR4 verdict
1 MR. RUBINSTE1N: He has another brother in New Palls.
2 THE COURT: Well, t h e ~ e are some family ties,
3 Mr. Kwok. I can see why you would limit other areas, but
4 geographical limits, what reason would ~ } l e r e be, other than
5 the -- I don't even know what the sentence would be here.
6 MR. KWOK: I think based on the very rough
7 calculation, I think the defendant would be at offense level
8 20, a Criminal History Category I. Think he is facing a
9 guidelines range of somewhere in the 30s.
10 THE COURT: And what monetary -- what monetary -- is
11 it based on 2Bl.l?
12 MR. KWOK: It's based on 2Bl.l.
13 THE COURT: All right. What figure are you using for
14 loss?
15 MR. KWOK: I'm using the figure as presented to the
16 jury, about half a million dollars of loss.
17 THE COURT: Well, I don't think you will be able to
18 show that.
19 So. it's a base level of --
20 MR. KWOK: -- of six, your Honor.
21 THE COURT: -- of six. And do you have any reason to
22 believe -- what reason have you got to believe that he would
23 flee?
24 MR. KWOK: Well, because of the likely sentence that
25 he is facing, because of the lack of any real assets that the
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3223 KA-3223 KA-3223
1389
86B7KAR4 verdict
1 defendant has at this time. He doesn't have a job as far as we
2 know, and he is not likely to be able to get an award of
3 another federal grant in l i g ~ ~ of his conviction.
4 THE COURT: But most people don't look for federal
5 grants. That's a small percentage of the opportunities that
6 would be available to him.
7 MR. RUBINSTEIN: He has been offered a position at
8 Rensselaer College, so I don't know if it's possible for him to
9 take it. So he is more than employable. He is a very
10 respected person.
11 THE COURT: Rensselaer Polytechnic Institute?
12 MR. RUBINSTEIN: Yes, your Honor.
13 THE COURT: Near Albany.
14 MR. KWOK: I was going to say, your Honor, I can't
15 speak for my colleagues in the civil division, but I think they
16 are contemplating filing a civil complaint to get treble
17 damages based on the amount we showed the government was at
18 loss for.
19 THE COURT: Treble damages under what statute?
20 MR. KWOK: I don't know.
21 THE COURT: It's not an antitrust case.
22 MR. KWOK: I don't know the name of the statute, but
23 if your Honor recalls, there was a civil assistant who appeared
24 before your Honor a while back while we had a status
25 conference.
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3224 KA-3224 KA-3224
1390
86B7KAR4 Verdict
1 THE COURT: I don't n ~ c a l l that.
2 MR. KWOK: He might be able to --
3 THE COUR'r: That doesn't illean anything.
4 MR. KWOK: He might be able to --
5 THE COURT: I have had a lot of conferences.
6 MR. RUBINSTEIN: That makes two of us. I don't recall
7 it either. Maybe it's a senior thing.
8 MR. KWOK: In any event, my only point is that the
9 defendant, in addition to whatever custodial sentence your
10 Honor may impose, is also likely going to face a huge monetary
11 judgment.
12 THE COURT: Then what you have is a bankruptcy and he
13 starts over. They can do what they want.
14 I don't see the grounds for putting a monitor on him.
15 He has shown up here to court every time, a little late
16 sometimes, but he's been here at the trial.
17 I can understand why you don't want him to go to -- he
18 has surrendered his passport documents -- and you don't want
19 him to go to Canada. You can restrict that. But why shouldn't
20 he be able to go to New York, New Jersey and Connecticut?
21 MR. KWOK: I don't think he would be precluded
22 necessarily from going to those places if he is placed on
23 regular supervision. He just needs to be in touch with his
24 pretrial services officer as to his whereabouts.
25 THE COURT: I do think he ought to be under pretrial
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3225 KA-3225 KA-3225
1391
86B7KAR4 Verdict
1 services supervision. I agree with that.
2 He hasn't been under pretrial services suvervision, I
3 gather.
4 MR. KWOK: I do not believe he was.
5 MR. RUBINSTEIN: No, your Remor.
6 THE COURT: Well, I think that he should be under
7 pretrial services supervision. And what are the regular terms
8 of pretrial services supervision?
9 MR. KWOK: I can't remember an exact time frame. As I
10 understand it, often times it's up to the discretion of the
11 pretrial services officer as to what he or she deems necessary.
12 But there is a regular reporting requirement.
13 THE COURT: Once a week? All right. So let them know
14 and advise the pretrial services officer of any travel he
15 intends to make so that the pretrial services office can be
16 MR. RUBINSTEIN: Excuse me?
17 THE COURT: If the pretrial officer has any concern
18 about travel, he can ask the clerk for my permission.
19
20
21
22
23 services?
24
25
MR. RUBINSTEIN: Thank you, your Honor.
MR. KWOK: Thank you, your Honor.
THE COURT: All right.
MR. RUBINSTEIN: So, should he go tomorrow to pretrial
THE COURT: Yes, sir. All right.
MR. RUBINSTEIN: Thank you, your Honor.
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3226 KA-3226 KA-3226
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86B7KAR4 verdict
MR. KWOK: Thank you, your Honor.
MR. EVERDELL: Thank you.
MR. RUBINSTEIN: Have a good day, sir.
THE COURT: Anything else?
MR. RUBINSTEIN: Good night, yOllr Honor.
THE COURT: All right. Good night.
* * *
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
13
KA-3227 KA-3227 KA-3227

12-2207 Karron v USA Certificate of Appealability Brief Appendix
80
Sentencing 2 TRASCRIPT (Short)

Sentencing
2
Transcript

KA-3228 KA-3228 KA-3228
8AKMKARS Sentence
1
1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
3 UNITED STATES OF AMERICA,
4 v. 07 Cr. 541 (RPP)
5 DANIEL B. KARRON,
6 Defendant.
7 ------------------------------x
8 New York, N.Y.
October -20, 2008
9 2:30 p.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 & COROZZO
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
KA-3229 KA-3229 KA-3229
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
5
THE COURT: Good afternoon, Mr. Kwok and Mr. Everdell.
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
9
10
11
12
13
14
15
'THE COURT: I have a presentence report. The latest
one is dated October 7, 2008. Has the defendant seen the
presentence reports, including the latest one, October 7, 2008?
MR. RUBINSTEIN: Yes, your Honor.
THE COURT: He has read them?
MR. RUBINSTEIN: Yes, your Honor.
THE COURT: Are there any changes to be made?
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, 2008, those two letters to the Court?
20
21
MR. RUBINSTEIN: That's correct, your Honor.
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.
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3230 KA-3230 KA-3230
1
2
3
8AKMKARS
3
Sentence
THE COURT: You're willing to proceed on that basis?
MR. KWOK: The government is ready to proceed.
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.
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3231 KA-3231 KA-3231
1
8AKMKARS Sentence
So I have difficulties. For instance, looking at
4
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. Karron'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 AsI 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
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3232 KA-3232 KA-3232
8AKMKARS Sentence
5
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
10
11
THE COURT: The spreadsheets.
MR. EVERDELL: Yes, the spreadsheets.
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
17
THE COURT: I've looked at salary, I think.
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 d o c ~ ~ e n t s 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
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3233 KA-3233 KA-3233
8AKMKARS Sentence
6
1 of expenditure; cash that he took from CASI, 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 110, Exhibit 110.
5 MR. KWOK: If your Honor could look at Government
6 Exhibit 110.
7
8
9
10 it here.
11
12
THE COURT: I did look at Exhibit 110.
MR. ~ K W O K : Page 38.
THE COURT: I have it here. I don't know that I have
MR. KWOK: Page 38 of 44.
THE COURT: I guess we will have to get 110, 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
20
21
22
23
24
25
MR. KWOK: 38 of 44.
THE COURT: He has payroll. Looking at 13 of 44?
MR. KWOK: Page 38 of 44.
THE COURT: That's loan and loan repay. That's not
salary.
MR. KWOK: If you look at the memo line, it is salary.
Look at, for example, the third check, per check register,
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3234 KA-3234 KA-3234
8AKMKARS
1 salary advance.
Sentence
7
2
3
THE COURT: That one she treated as a loan.
MR. KWOK: These are expressed in a spreadsheet as
4 loans, but they are all money going to the defendant.
5
6
THE COURT: I understand. It's just not salary.
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 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
18
MR. KWOK: If I can explain how she got that number.
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
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3235 KA-3235 KA-3235
8AKMKARS Sentence
8
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
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.C.
(212) 805-0300
KA-3236 KA-3236 KA-3236
9
8AKMKARS 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 CASI 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 CASI 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 CASI 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
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3237 KA-3237 KA-3237
8AKMKARS Sentence
10
1 said, the fact that he didn't take his full salary, is taken
2 into account
3 THE COURT: I didn't say that. I want to know whether
4 you're disputing what I just said.
5 MR. EVERDELL: \Nhat I agree with is that, yes, the
6 defendant did not take his full salary in the sense that when
7 you look at salary in checks, they are less than the $175,000
8 of quote unquote salary.
9
10
THE COURT: You saw there was less withholding, right?
MR. EVERDELL: But he paid himself in other ways in
11 things he do did not characterizing as salary.
12 THE COURT: Was there less withholding or not? You
13 better confer.
14 MR. EVERDELL: Your Honor, apparently what happened
15 was, he wasn't characterizing anything -- there was no
16 withholding until an accountant came in towards the end of year
17 one and said, you have to call these things payroll, you have
18 to take your salary and then you have to calculate withholding.
19 And that account went back retroactively and looked at these
20 payments and did the withholding retroactively with all these
21 payments to him which had not been characterized.
22 THE COURT: There are documents appended to the
23 defendant's papers which indicate that the withholding was
24 taken timely. That's not borne out by what you say, showing
25 Mr. Rubinstein's letter of Friday. Where did I put it? He has
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1 got documents showing money being withheld to calculate salary.
2
3
MP_. KWOK: Which page are you looking at, your Honor.
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 I S all in
9 there. He also has one for the pay period 7/01/2002.' Maybe
10 that's the same.
11
12
13 top.
14
MR. KWOK: Are you looking at this page?
THE COURT: Yes, I believe so. It has a check at the
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
18
THE COURT: Yes.
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
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1 saying before.
Sentence
12
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, similarly, prescriptions, 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
22
MR. EVERDELL: Your Honor, I think --
THE COURT: In order for there to bean 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
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13
1 that there was criminal intent involved in all those
2 expenditures.
3 MR. E \ ~ R D E L L : 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 grant. 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
4
THE COURT; All the expenditures that were budgeted.
MR. EVERDELL: They wanted to see a b ~ d g e t 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
8 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 Lules?
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--
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2 THE COURT: He didn'L 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 underspent 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 w a s a c ~ u a l l y 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 improvements, or
25 these other expenses which were actually not listed in the
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17
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 172,000?
7 MR. EVERDELL: I just added up in years one and years
8 two, so this would be 114 and 15.
9
10
THE COURT: Which items are you adding up?
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
14
15
16
17
THE COURT: Rent. You're adding up after rent what?
MR. EVERDELL: Rent was first, 60,000.
THE COURT: Utilities.
MR. EVERDELL: Utilities was second.
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 before 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 utilities, but he never received one.
3 THE COURT: Mr. Rubinstein's quotes a utilities f i ~ ~ r e
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
5
6
7
8 them --
9
T ~ E COURT: Where is this?
MR. EVERDELL: The cites to the record?
THE COURT: Yes.
MR. EVERDELL: Your Honor, I'm afraid I don't have
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 wi.th 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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2
3
4
5
20
I 8AKMKARS Sentence
is that the criminal intent of the defendant is important here.
And if he was proceeding on that basis, that seems to me -- I
have reason to -- it seems to me that that amount is an amount
that should n o ~ be considered in the loss calculation.
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 it's Dr. Karron 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 lS: 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'scondo.
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
4
5
MF, EVERDELL: Let's just do this then, your Honor.
THE COURT: I've got to be --
MR. EVERDELL: Let's do this. Let's set aside for the
6 moment the issue of whether that $4,595 should or should not be
7 included in the loss amount.
8
9 4,000.
10
11
THE COURT: According to Mr. Rubinstein, it's not
MR. EVERDELL: I was looking at page 2 of his letter.
THE COURT: 16,341, as I understand it. The utilities
12 prior were 4595, prior to the project.
13 MR. EVERDELL: I b e l i ~ v e 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 Sh01lld 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 on2 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
16
THE COURT: I don't know that it is.
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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23
1 is clearly what the intended use of the money was. We give you
2 this money so thatyou 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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8AKMKARS Sentence
THE COURT: Let's not quite put it that way because
24
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
8
9 inclined
THE COURT: I can see the pie chart.
MR. EVERDELL: The slice is the 10 percent. If you're
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 are 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
7
THE COURT: The PSR originally was more than 200,000.
MR. EVERDELL: Your Honor, we still think that the
8 calculation in 114 and 115 is entirely correct. Weactually
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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MR. EVERDELL: I apologize, your Honor. I
26
2 miscalculated. It's not two levels less. It's actually four
3 levels less. If you start with ~ base offense of 6 and the
4 loss amount is more than 120,000, that acds 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
9
10
11
THE COURT: What is what?
MR. RUBINSTEIN: Allowable; in other words
THE COURT: I know what allowable is.
MR. RUBINSTEIN: As opposed 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
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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 don't 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
20
21 cetera.
22
23
MR. RUBINSTEIN: They had equipment there.
THE COURT: As I understood it, active Web site, et
MR. RUBINSTEIN: They had a Web site.
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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Sentence
THE COURT: You don't need site improvement.
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
9
10 budget.
11
MR. RUBINSTEIN: Not for an apartment.
THE COURT: Not something that was called for in the
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 115, 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. Karron 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 CASI 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 utilitiesam?unt, 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.C.
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8AKMKARS Sentence
MR. RUBINSTEIN: Clearly, he was not entitled to the
30
2 rent, your Honor, so that's $60,000.
3
4
5
6
7
THE COURT: Then you add the other two then --
MR. RUBINSTEIN: What do you add two with, Judge?
THE COURT: $43,000 spent.
MR. RUBINSTEIN: For subscriptions?
THE COURT: No. For bookkeeping, auto expense, blank
8 processing, consultants, lawyers, dues, prescriptions.
9
10
MR. RUBINSTEIN: That he's allowed. Subcontractors.
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
SOUTHERN DISTRICT REPORTERS, P.C.
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31
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
18 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.
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS
32
Sentence
THE COURT: The problem is that CASI, he did own CASI,
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
6
MR. RUBINSTEIN: Right.
THE COURT: The trouble with capital improvements,
7 yes, it probably was not to his personal benefit because the
8 probably was worth more unimproved than it was
9 containing those improvements, but it would be beneficial to
10 CASI 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 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. Rubinsteini
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
SOUTHERN DISTRICT REPORTERS, P.C.
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1 the --
2
3
4
5
Sentence
MR. KWOK: Can we have the amount on that?
MR. RUBINSTEIN: For capital improvements?
MR. EVERDELL: The thing you just cited.
MR. RUBINSTEIN: I said 2,000 for meals, 5,000 for
33
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
SOUTHERN DISTRICT REPORTERS, P.C.
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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
8
THE COURT: It's not in your memo.
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 70,000 and 120,000 for guideline
25 purposes, analysis purpose, that that would be an appropriate
SOUTHERN DISTRICT REPORTERS, P.C.
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35
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, 111, we can probably
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3263 KA-3263 KA-3263
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1 determine --
Sentence
36
2 MR. KWOK: For example, your Honor, you can look at
3 G o v e r r ~ e n t 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 Sprint.
8
9
MR. KWOK: That's right.
THE COURT: The sole 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
22
THE COURT: I thought it was all computerized.
MR. EVERDELL: I misspoke.
23 In addition to help preparing the books for the
24 upcoming audit, he also conducted some regular bookkeeping
25 Even so, you have $10,000 budgeted
KA-3264 KA-3264 KA-3264
8AKMKARS Sentence
37
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?
SOUTHERN DISTRICT REPORTERS, P.C.
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1
8AKMKARS
38
Sentence
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 so, what we are talking about here,
5 that's a $15 charge.
6
7
THE COURT: what charge?
MR. EVERDELL:I thought you were talking about the
8 Peter Ross parking charge.
9
10
11 charge.
12
THE COURT: Yes.
MR. EVERDELL: Reimbursement to Peter Ross is a $43
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
SOUTHERN DISTRICT REPORTERS, P.C.
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39
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
7
THE COURT: Brings me back to the question --
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
11
THE COURT: What page are you on?
MR. RUBINSTEIN: We have a gas expense on page 17 of
12 37 of $1,189.68. We then have --
13
14
THE COURT: I missed the page.
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 pank
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 'Ehen it says dues and subscriptions under that. They have
24 $198.
25 I'm looking for the -- they have that bookkeeping
SOUTHERN DISTRICT REPORTERS, P.C.
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40
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 --
SOUTHERN DISTRICT REPORTERS, P.C.
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41
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 -- thac'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.
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
MR. EVERDELL: I'm looking at the commentaryI yes
l
42
2 your Honor.
3 Commentary 3
1
which is loss under subsection Bl and
4 then 3C
I
estimation of lossl 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
I
which are the special rules --
8 THE COURT: I just want to see one second because I
9 have trouble
l
I guess I in determining whether or not it should
10 be loss to the government or misappropriation.
11
12
MR. RUBINSTEIN: There is another basis
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
l
your
16 Honor I 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
20 lacking.
21
THE COURT: The fraud and deceit element is somewhat
MR. EVERDELL: Your Honor
l
as you
l
I thinkI pointed
22 out earlier
l
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
SOUTHERN DISTRICT REPORTERS I P.C.
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43
1 the defendant, or third party?
2
3
MR. E V ~ R D E L L : Or to the defendant.
THE COURT: That's under one of these guidelines.
4 Which lS it?
5 MR. RUBINSTEIN: No, it's not, Judge. That is 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 2B1.1, 3B, 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 use 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
SOUTHERN DISTRICT REPORTERS, P.C.
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44
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 asa 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
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
THE COURT: What I just said isn't supported by the
45
2 guideline notes, as I see it.
3
4
MR. RUBINSTEIN: What's that, your Honor?
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
13
THE COURT: Let me look at the rules.
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
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS
there some money?
Sentence
46
MR. EVERDELL: I think after the grant was suspended
there was a contribution by the defendant.
THE COURT: That went to outstanding bills.
MR. RUBINSTEIN: That money was probably extended.
That's the whole purpose. It increases your budget.
MR. EVERDELL: Your Honor, the government told the
defendant that in order to comply with the cost share he had to
make payments to the government and that's the payment that was
made, but I believe this was after --
THE COURT: That's more than the cost share --
MR. EVERDELL: I'm sorry. He did not make that
payment.
THE COURT: The $70,000.
MR. EVERDELL: You are talking about the $70,000
loan --
THE COURT: There is some statement in these papers
that he gave 70,000 after the closing period.
MR. EVERDELL: That $70,000, which I believe
Mr. Rubinstein was saying was done between July 27 -- June 27
of 2003 and August of 2003 was after the suspension.
THE COURT: What was that used for?
MR. EVERDELL: One moment, your Honor.
Your Honor, I believe my understanding is there were
outstanding invoices at the time that the $70,000 was used to
SOUTHERN DISTRICT REPORTERS, P.C.
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47
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. 'I'hat' 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
14
THE COURT: To keep CASI going.
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.
SOUTHERN DISTRICT REPORTERS, P.C.
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1
2
II 8AKMKARS
Sentence
THE COURT: I think that's covered in my opinion.
MR. EVERDELL: That is the date of discovery and the
48
3 defendant is, in fact, not entitled to a credit for any funds
4 he m ~ y 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. Sol 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
SOUTHERN DISTRICT REPORTERS, P.C.
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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 misapplication 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 el$e, 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 casesinvolving the intentional misapplication of
25 funds as opposed to fraud, embezzlement?
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
MR. EVERDELL: I looked for some cases that talked
50
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 fr8ffi 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.
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
THE COURT: No. Saying that the project wasn't
52
2 completed, so I suppose that they didn't get their money's
3 worth in that sense.
4 MR. 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 CASI 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
18 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, it 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 110, 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 30, '02, 15,000 check that's for reimbursement.
10 Doesn't say anywhere on that check where it says loan, we
11 reduced those numbers.
12
13
THE COURT: Why do you say that shouldn't. be
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
6
THE COURT: I don't think it did.
MR. RUBINSTEIN: If you look at pages 38 through 40 of
7 Exhibit 110, the one that ends in 44 --
8
9
THE COURT: 1 and --
MR. RUBINSTEIN: The second half of 110 has 38 of 44.
10 The beginning part says
11
12
THE COURT: 38 of 44, yes.
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
19
20
21
THE COURT: Which one is that?
MR. RUBINSTEIN: Just above the line for loan repay.
THE COURT: I see it. I see that.
MR. RUBINSTEIN: This is 9/12/02, check 10451, it's
22 II 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 a n ~ ~ h e r e what it is, but they
5 classified it as a loan.
6
7
THE COURT: I would, too, if I see it paid to him.
MR. RUBINSTEIN: They have other checks, your Honor,
8 where it says loan on it.
9
10
THE COURT: Where does it show as reimbursement?
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, s6 it's in that software.
17
18
19
20
21 15,000
22
THE COURT: For 15,000 round dollars?
MR. RUBINSTEIN: You have to have an invoice
THE COURT: You never have a reimbursement like that.
MR. RUBINSTEIN: He had a number of items. He took
THE COURT: It just happens to add up to 15,000. It's
23 very strange. Let's see the backup.
24 l ~ . RUBINSTEIN: Your Honor, if you can give us a
25 short recess. Dr. Karron came with the computer. He forgot to
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3283 KA-3283 KA-3283
8AKMKARS Sentence
56
1 bring the power supply. We could generate it right here. We
2 have it in the computer. If he can recess
3
4
THE COURT: Doesn't show rent, does it?
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 --
13 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
18
19
20
MR. RUBINSTEIN: All right, Judge.
(Recess)
THE COURT: Mr. Rubinstein.
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.
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS
57
Sentence
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 y o ~ have a computer
5 screen that we can plug into to show you that would be more
6 efficient to show you?
7
8
THE COURT: No, I don't have one here.
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
14 out.
15
THE COURT: I don't know what he's trying to print
MR. RUBINSTEIN: It doesn't have to be in evidence for
16 the purposes of sentencing, your Honor.
17
18
THE COURT: What are you trying to print out?
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 loan; 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
SOUTHERN DISTRICT REPORTERS, P.C.
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1 the utilities and all. It seems to me that the amount of the
2 loss, pursuant to guideline 2Bl.1, is more than $120,000.
3 Isn't that your correct conclusion, Mr. Everdell?
4 MR. EVERDELL: Yes, your Honor, that's sorrect, 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 oUL, 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 lossof 16 levels.
11 MR. RUBINSTEIN: Your Honor, I think your Honor has to
12 consider the credits against whatever loss your Honor has--
13
14
15 the
THE COURT: I don't think there are any credits --
MR. RUBINSTEIN: Your Honor, I submit that under
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
4
THE COURT: There is no showing of that.
MR. RUBINSTEIN: There is, Judge. They hav2 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
11
THE COURT: You haven-' t gotten any salary --
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
19
THE COURT: RepaYment is right below it.
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 Court check of August 2, '02, a year before the grant was
4 suspended, actually ten months before the grant was s u s p e ~ d e d
5 where you have -- that's in evidence --
6
7
THE COURT: Where are you reading?
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
13 to it.
14
15
16
MR. RUBINSTEIN: Mr. Kwok has the page. He has turned
THE COURT: $5,000 check?
MR. RUBINSTEIN: Yes, your Honor.
THE COURT: That shows the defendant had taken $61,918
17 in salary just below it.
18
19
MR. RUBINSTEIN: Right. And that
THE COURT: 61,000 plus 129,000. If that's the
20 government's figure, adds to more than $200,000, right?
21
22
23
MR. RUBINSTEIN: No, your Honor.
THE COURT: $187,000.
MR. RUBINSTEIN: The Court 1S commingling two
24 different concepts. One is they claim there is a loan
25 outstanding that they never gave him credit for anywhere of
SOUTHERN DISTRICT REPORTERS, P.C.
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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
4
THE COURT: That's what the loan advances.
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
15
THE COURT: I agree he didn't.
MR. RUBINSTEIN: So he should have an offset under
16 guideline 2B1.1(3) (e) for credit against loss for services
17 rendered. He rendered the services, he was entitled to full
18 salary.
19
20
THE COURT: He got it in the form of loans.
MR. RUBINSTEIN: I submit, Judge, that it doesnit
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 Honor, in my letter I showed the
SOUTHERN DISTRICT REPORTERS, P.C.
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II 8AKMKARS
Court --
62
Sentence
2
3 in loans
THE COURT: If you take the money from the corporation
4 MR. RUBINSTEIN: He took loans, but he paid it back
5 out of these salary
6
7
THE COURT: In part
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
12
THE COURT: No, you don't. Add to it?
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 arid I have read
17 your papers., and I've taken them under account and I have
18 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
24
25
$60,000.
MR. RUBINSTEIN:
see how that is possible.
(
In all due respect, Judge, I don't
Nobody has shown me to this point.
SOUTHERN DISTRICT REPORTERS, P.C.
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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
6
7
MR. RUBINSTEIN: I do, your Honor.
THE COURT: The loan entries.
MR. 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 1S 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
8 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
1 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), 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
8
9 are --
10
THE COURT: You'll want your notes, won't you?
MR. RUBINSTEIN: Judge, Judge Rakoff said that there
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
1'7 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
21
MR. RUBINSTEIN: I have the language.
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
SOUTHERN DISTRICT REPORTERS, P.C.
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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, therefore, 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
11
THE COURT: I'm fully aware -- I understand that.
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 do 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 tqpographical 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 ail 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 f i ~ J r e s , in the first
23 year $174,000 just on subcontractors. He got the work done,
24 but he didn't have to spend the money because he did something
25 he wasn't supposed to do. He wasn't supposed to have employees
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1 without approval and we had testimony of that.
2 And in the second year they revised the budget and
3 110,000 for subcontractors and he used 6100. You know from the
4 testimony here that there were numbers of people working in
5 that apartment on these computers, on this project. And the
6 wasn't billed for it. Why? Because he was using
7 students. Does the government get a benefit of that? They do.
8 That is why, your Honor, the mathematical
9 considerations of a strict guideline calculation doesn't apply
10 in this case because Dr. Karron, with good intentions, and good
11 intentions meaning that he wanted the research to work, because
12 that's all he cared about. Those were the good intentions. He
13 might have used improper means, but the intentions were there.
14 And he created a product which people built upon and T
15 have a manuscript that was submitted to the Elsevier Editorial
16 Systems for computer medical imaging and graphics. This is a
17 draft manuscript that wa$ 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.
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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 fu.ture.
11 His mother is incapacitated. She is in a home. 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 community 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
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KWOK: Yes, we do.
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3 Your Honor, 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 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 I'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 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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Of course, the defendant never stopped. He kept
73
2 misusing the yrant 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 would 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: 1 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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THE COURT: That was one of two alternatives in that
75
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 turli 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 1S 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 2B1.1 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
1 " find a place to l i ~ e . 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, your Honor, 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
13
THE DEFENDANT: Yes, I would.
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
18
THE DEFENDANT: How much time do I have?
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 p r e ~ e n t 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 ln
10 trouble. I got myself in a lot more trouble. My past five
11 years have been hell. I thought T knew what I was doing and T
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 ln
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
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Sentence
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 ~ i n e . The grant doesn't tell me how to live. The
5 grant tells me how to spend the government's money.
6 But, anyway -- I'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 coinvestors
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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1 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 1099s 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 I 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 waut to
3 have I wanted around me to be happy. And I wanted
4 them to know that the were 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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1 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 mistRke. I never thought it would be this big
4 of a mistake. If I have to g8 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, because I
13 needed a job, having made every mistake twice, I would know how
14 to prevent it. I have been advising other colleagues, 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, donIt 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 2008? 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
lIon the research, and I decided to do good work and maybe
12 something good would come 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 home 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.
SOUTHERN DISTRICT REPORTERS, P.C.
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THE DEFENDANT: Am I wandering off too far or am I
86
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 home. 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'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
SOUTHERN DISTRICT REPORTERS, P.C.
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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
SOUTHERN DISTRICT REPORTERS, P.C.
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1 scientist.
Sentence
88
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 A ~ P 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
SOUTHERN DISTRICT REPORTERS, P.C.
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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 18, 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
SOUTHERN DISTRICT REPORTERS, P.C.
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1 before had the responsibility before of handling a federal
2 grallt 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 D, 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
8 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.
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3319 KA-3319 KA-3319
1
2
8AKMKARS Sentence
MR. KWOK: Section 5C1.1, section D.
MR. EVERDELL: Yes, your Honor, I believe it is
92
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
7
MR. EVERDELL: That's correct.
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 crime; shall not illegally possess a
13 controlled substance; shall not possess a firearm or
14 destructive device. Mandatory drug testing is suspended due 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.
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS Sentence
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 ln 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 ln formulating the payment
II
SOUTHERN DISTRICT REPORTERS, P.C.
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1 schedule.
Sentence
94
2 There will be no fine ln this case ln 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 home
20 confinement period wil.l start. You better see that the
21 defendant sees the probation officer in the next 24 hours, Mr.
22 Rubinstein.
23 MR. RUBINSTEIN: Absolutely. I will go there
24 tomorrow.
25 THE COURT; We will make arrangements for home
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3322 KA-3322 KA-3322
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1 confinement to start. If you have home confinement, there will
2 have to be a telephone wi t..hQl.lt 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 home 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
10
11
12
MR. RUBINSTEIN: And medical, your Honor?
THE COURT: What?
MR. RUBINSTEIN: And medical.
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
22
23
THE COURT: Yes, I did. 10 percent of gross pay.
MR. RUBINSTEIN: Is that without interest?
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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Sentence
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, butI 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 s t a r t i n ~ that immediately.
19
20
21
22
THE COURT: Make an expedited appeal.
MR. RUBINSTEIN: File an expedited appeal?
THE COURT: All right.
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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1 oral pronouncement of his forfeiture order. There is a
2 forfeiture allegation in the indicLment.
3 THE COURT: Is forfeiture required here? I didn't see
4 t h ~ t 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
12
THE COURT: You can submit a forfeiture order, yes.
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
21
22
THE COURT: So ordered.
MR. KWOK: Thank you.
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
SOUTHERN DISTRICT REPORTERS, P.C.
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8AKMKARS
1 opposition to that.
Sentence
98
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
12
You understand me? You're nodding yes.
If you want to appeal, you just write the letter
13 within ten days and that preserves your right. If you don't
14 w r i t ~ 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
SOUTHERN DISTRICT REPORTERS, P.C.
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8ARUKARS
1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 ------------------------------x
3 UNITED STATES OF AMERICA
1
4 v. 07 CR 541 (RPP)
5 DANIEL B. KARRON,
6 Defendant.
7 - - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - x
8 New York, N.Y.
October 27, 2008
9
10
11 Before:
12 HON. ROBERT P. PATTERSON
13 District Judge
14 APPEARANCES
15 MICHAEL J. GARCIA
United States Attorney for the
16 Southern District of New York
BY; CHRIS EVERDELL
17 CHI T. STEVE KWOK
Assistant United States Attorneys
18
RUBINSTEIN & COROZZO,LLP
19 Attorneys for Defendant
BY; RONALD RUBINSTEIN
20
21
22
23
.24
25
SOUTHERN DISTRICT REPORTERS, P.C.
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KA-3327 KA-3327 KA-3327
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8ARUKARS
1
2
(Case called)
THE COURT: Under Rule 35 I sent out a memo to counsel
3 on Friday because I got word from the Department of Probation
4 that the Department of Probation would not honor the sentence
5 that I imposed in this case and would imprison Dr. Karron for
6 15 months and that you could not have a sentence that imposed
7 home confinement first. I had imposed home confinement first
8 so that Dr. Karron could take care of his mother during that
9 period, but the Bureau of Prisons won't observe it.
10 I am in a difficult position.
11 I would be glad to give you the memo from the Bureau
12 of Prisons from the probation department if you want to look at
13 it.
14 MR. RUBINSTEIN: Your Honor, that was going to be my
15 request, what is contained on page 2. In order to address the
16 Court's intention that Dr. Karron be allowed to care for his
17 elderly mother, to recommend that you set a voluntary surrender
18 date in the future and entertain requests according" to the
19 situation.
20 THE COURT: We did extend the voluntary surrender
21 date, did we not?
22 MR. RUBINSTEIN: No, we did not have any provision for
23 voluntary. What I would respectfully request for your Honor is
24 that we put it down for the first week in January and then see
25 what the situation is with his mother and then your Honor could
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8ARUKARS
1 make the determination about the voluntary surrender at that
2 time. I think that would be in accordance with the intent of
3 the Court that he be
4 THE COURT: You can file a notice of appeal for one
5 thing. Let's not overlook that. But I don't see how, having
6 imposed a sentence, I can change it. I don't know that I have
7 any power to do what you are suggesting, for one thing.
8 MR. RUBINSTEIN: You always have the power, your
9 Honor, as far as when the defendant can surrender.
10 THE COURT: That part, if I re-impose sentence, but
11 putting off sentence as you suggest -- or maybe I misunderstood
12 you -- judgment has been entered in this case. And when they
13 got the judgment, they replied to this memorandum saying that
14 the Bureau of Prisons wouldn't 'honor the judgment because of
15 their regulations.
16 MR. RUBINSTEIN: Maybe I misspoke. I am. in agreement
17 with the recommendation of the probation department. The Court
18 can set a voluntary surrender date in the future. And then at
19 that time you can entertain a request for an adjournment of
20 that surrender date.
21 THE COURT: I am perfectly willing to set a voluntary
22 surrender date in the future, but at this time it would be now
23 because I have to act within one week.
24 MR. RUBINSTEIN: I would ask your Honor, if your Honor
25 would entertain a voluntary surrender date at this time for the
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8ARUKARS
1 first week in January.
2
3
4
THE COURT: I have no problem with that.
Does the government have any problem with that?
MR. KWOK: If I understand Mr. Rubinstein correctly,
5 he is suggesting the setting of a voluntary surrender date
6 today with extensions from time to time.
7 THE COURT: As I understand it, he is saying I agree
8 that the sentence has to be modified as recommended by the
9 probation department, but I want to have his surrender date
10 stayed until the first week in January.
11 MR. KWOK: The government's position is that a
12 surrender date should be set a few weeks from now. As
13 Mr. Rubinstein is aware, essentially putting it off until later
14 and with indefinite extensions, depending on the
15 circumstances--
16 THE COURT: I am not going to do indefinite
17 extensions. If you file a notice of appeal, that is another
18 matter. Then you can ask for bond pending appeal. I cannot go
19 putting it off and off and off.
20 MR. KWOK: That is the government's concern because of
21 the uncertainty of the mother's health situation. We are
22 concerned that this would amount to, essentially, bail pending
23 appeal without making an application for bail pending appeal,
24 and we all know that the standard is extremely high.
25 The government would ask that a surrender date be set
SOUTHERN DISTRICT REPORTERS, P.C.
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8ARUKARS
1 no later than a few weeks from now. And then if Mr. Rubinstein
2 wants to file a notice of appeal, he can ask the Circuit Court
3 for relief if he wants appeal or to have bail pending appeal.
4 MR. RUBINSTEIN: Your Honor, I don't think that meets
5 with what your Honor's initial intention was, and I think what
6 the probation department says spells it out exactly to
7 accomplish --
8
9
10
THE COURT: Give me back my memorandum.
MR. RUBINSTEIN: Page 2.
THE COURT: I have some other people waiting here and
11 I cannot deliberate on this forever here.
12 I see what you are pointing to, but I cannot keep
13 putting it off forever on that type of application, bail
14 pending appeal. I don't think that Dr. Karron is likely to
15 flee, but I am not going to do that, Mr. Rubinstein, the way
16 that you are suggesting. I will put it off for over the
17 holidays so that he can surrender after January 10th or if you
18 get bail pending appeal until January 10th.
19
20
MR. RUBINSTEIN: Would you entertain it now?
THE COURT: I would rather have it sometime later
21 because I have these people waiting.
22 MR. RUBINSTEIN: We will put it down for January 10th,
23 did your Honor say?
24 THE COURT: That will get us past the Christmas
25 holidays, and I will impose a split sentence of seven and a
SOUTHERN DISTRICT REPORTERS, P.C.
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8ARUKARS
1 half months of imprisonment at the Bureau of Prisons. to be
2 followed by seven and a half months of home confinement and
3 supervised release so that he can take care of his mother. And
4 that term of supervised release would be three years, the first
5 seven and a half months being home confinement.
6 It will be the same conditions of supervised release
7 that I imposed on October
8 MR. RUBINSTEIN: 20th, your Honor.
9 THE COURT: 20th, and the same standard conditions
10 that I imposed on that date will also remain as part of this
11 judgment.
12 The special assessment of $100 will also apply, as
13 well as the restitution order of October 20 and the amount of
14 paYments to be made pursuant to the restitution order. In
15 other words, the monthly paYment, 10 percent of gross monthly
16 income, and the period of supervision to commence 30 days after
17 release from home confinement.
18 And the defendant shall notify the United States
19 Attorney of any change of address during the period of
20 supervision.
21 Special instructions with regard to the paYment of the
22 monetary penalties will apply.
23 Is there anything further?
24 MR. RUBINSTEIN: I take it that the sentence
25 technically and legally is imposed as of today, so the 10 days
SOUTHERN DISTRICT REPORTERS, P.C.
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8ARUKARS
1 for filing a notice would start today and not
2 THE COURT: I guess it would be from the date of this
3 judgment or this sentence and that you have 10 days to
4 challenge the terms of the sentence.
5 MR. KWOK: Do I understand the January 10 date to be
6 the surrender and should defense counsel wish to make bail
7 pending appeal --
8 THE COURT: He would have to make it before January
9 10th so that he can get a decision from the court on the bail
10 pending appeal.
11
12
13
MR. RUBINSTEIN: Thank you very much, your Honor.
MR. KWOK: Thank you, your Honor.
14
15
16
17
18
19
20
21
22
23
24
25
o o 0
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
KA-3333 KA-3333 KA-3333

12-2207 Karron v USA Certificate of Appealability Brief Appendix
81
END OF APPENDIX

END OF APPENDIX

END
OF
DOCUMENT
KA-3334 KA-3334 KA-3334
36860
[3110-01]
OFFICE OF MANAGEMENT AND
BUDGET
IMPLEMENTATION OF FEDERAL GRANT AND
COOPERATIVE AGREEMENT ACT OF 1977
(PUB. L 95-224)
Final OMB Guidance
AGENCY: Office of Management and
Budget.
ACTION: Notice of final OMB guid-
ance for Federal agency use in imple-
menting the Federal Grant and Coop-
erative Agreement Act of 1977.
SUMMARY: The Federal Grant and
Cooperative Agreement Act distin-
guishes between'procurement and as-
sistance relationships and mandates
that Federal agencies use contracts for
procurement transactions:
SEC. 4. Each executive agency shall use a
type of procurement contract as the legal
instrument reflecting a relationship be-
tween the Federal Government and a State
or local government or other recipient (1)
whenever the principal purpose of the In-
strument is the acquisition, by purchase,
lease, or barter, of property or services for
the direct benefit or use of the Federal Gov-
ernment; or (2) whenever an executive
agency determines in a specific instance
that the use of a type of procurement con-
tract is appropriate.
and grants or cooperative agreements
for assistance transactions:
SEc. 5. Each executive agency shall use a
type of grant agreement as the legal instru-
ment reflecting a relationship between the
Federal Government and a State or local
government or other recipient whenever (1)
the principal purpose of the relationship is
the transfer of money, property, services, or
anything of value to the State or local gov-
ernment or other recipient in order to ac-
complish a public- purpose of support or
stimulation authorized by Federal statute,
rather than acquisition, by purchase, lease,
or barter, of property or services for the
direct benefit or use of the Federal Govern-
ment; and (2) no substantial involvement is
anticipated between the executive agency,
acting for the Federal Government, and the
State or local government or other recipient
during the performance of the contemplat-
ed activity.
SEc. 6. Each executive agency shall use a
type of cooperative agreement as the legal
instrument reflecting a relationship be-
tween the Federal Government-arid a State
or local government or other recipient
whenever (1) the principal purpose of the
relationship is the-transfer of money, prop-
erty, services, or anything of value to the
State and local government or other recipi-
ent to accomplish a public purpose of sup-
port or stimulation authorized by Federal
statute, rather than acquisition, by pur-
chase, lease, or barter, of property or ser-
vices for the direct benefit or use of the
Federal Government; and (2) substantial in-
volvement is anticipated between the execu-
tive agency, acting for the Federal Govern-
ment, and the State or local government or
other recipient during performance of the
contemplated activity.
NOTICES
Federal agencies must implement
sections 4, 5, and 6 by February 3,
1979. OMB's intent, in issuing guidance
is to promote consistent implementa-
tion of the Act.
Section 8 of the Act requires OMB
to conduct a study of Federal assist-'
ance relationships and provide a
report to Congress no later than Feb-
ruary 1980. This will focus on develop-
ing a better understanding or alterna-
tive means for implementing Federal
assistance -programs and on determin-
ing the feasibility of developing a com-
prehensive system of guidance for
Federal assistance programs. In under-
taking the study, OMB is required by
the act to consult and, to the extent
practicable, involve representatives of
the executive agencies, Congress, Gen-
eral Accounting Office, State and local
governments, other recipients, and in-
terested members of the public. A
draft plan outlining the proposed
scope of the study was published in
the FEDERAL REGISTER on June 23,
1978, for comment. Comments on the
draft plan are due to OMB by August
23, 1978.
FOR FURTHER INFORMATION
CONTACT:
Thomas L. Hadd, Intergovernmental
Affairs Division, Office of Manage-
ment and Budget, Room 9026,
NEOB, WashingtopA, D.C. 20503, tele-
phone 202-395-5156.
DAVID R. LEuTHoLD,
Budget and Management
Officer.
SUMMARY OF MAJOR COMME TS ON THE
DRAFT GUiDANcE ANm THE OMB RE-
SPONSE
The Act authorizes the Director of
OMB to issue supplementary interpre-
tative guidelines to promote consistent
and efficient use of contracts, grants,
and cooperative agreements. On May
19, 1978, OMB published a proposed
draft of the guidance in the FEDERAL
REGISTER for comment.
Numerous comments were received
from Federal agencies and Qthers. The
majority of the comments suggested
ways for improving the clarity of the
draft and many of these improvements
are reflected in the final guidance.
Some comments dealt with aspects or
potential effects of the Act itself that
are beyond the scope of this guidance.
There were also comments or sugges-
tions that could not be used in revising
the guidance, but which will be consid-
ered during the study.
A summary of the more important
substantive comments about specific
parts of the draft proposal along with
the OMB response to them follow:
A. OMB interpretation of the Act.
1. General purposes of the Act.
Comment. One agency pointed out
that there are a number of types of
transactions that are not covered by
the Act, such as the sale, lease, license,
and other authorizations to use Feder-
al property, when not for the purpose
of support or stimulation.
Response. The guidance was amend-
ed to reflect this fact.
A. 3. Interpretation of specific provi-
sions of the Act.
Comment. There were several com-
ments about the clarity of the guld.
ance in interpreting subsection 4(2) of
the Act, which allows the use of con.'
tracts "whenever an executive agency
determines in a specific instance that
the use of a type of procurement con-
tract is appropriate." Most of the com-
ments related to the possible use of
"assistance contracts."
Response. The guidance was revised
by including a direct quote from the
legislative history, and by stating that
in all transactions based on this sub-
section of the Act, procurement con-
tracts must be used.
Comment. One comment was re-
ceived expressing the opinion that
subsection 7(a) of the Act, which au-
thorizes agencies to use procurement
contracts, grants, and cooperative
agreements as provided for in the Act
unless otherwise prohibited, should be
interpreted as replacing the Grants
Act. The Grants Act provided general
authority to use grants for funding re-
search.
Response. OMB cannot agree with
this interpretation, since Pub. L. 95-
224 specifically repeals the Grants Act
and requires that the selection of the
appropriate legal instrument be based
on the character of the specific trans.
action (i.e., procurement or assistance)
rather than on a functional activity or
class of recipient.
B. Distinguishing between procure-
ment and assistance.
1. Basic determinations.
Comment. Although a major pur-
pose of the Act Is to distinguish be-
tween procurement and assistance,
several observers indicated they did
not feel the OMB draft guidance was
in sufficient detail. One comment was
made that the guidance should stress
the principal purpose of a transaction
as being the most Important determi-
nant. Two comments requested that
agencies be guided to use grants for re-
search funding.
- Response. In most cases, agencies
will have no trouble distinguishing be-
tween procurement and assistance.
Where the distinction is hard to make,
OMB believes that the agency mission
and intent must be the guide, and that
more detailed criteria would not be
useful. The suggestion that emphasis
be placed on the principal purpose was
followed. The request to guide the
agencies to use grants to fund research
is not consistent with the Act. 0MB
will continue to work with the agen.
FEDERAL REGISTER, VOL 43, NO. 161-FRIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36860 1978
KA-3335 KA-3335 KA-3335
ces to promote consistency in agency
determinations on procurement and
assistance distinctions.
B. 2. Assistance awards to for-profit
organizations. -
Comment Some of the comments in-
dicated confusion over whether the
Act authorizes assistance awards to
for-profit organizations.
Response. A subsection was added
that indicates assistance awards may
be made to for-profit organizations if
the awards are consistent with sec-
tions 4, 5, and 6 of the Act.
C. Characterization of grants and
cooperative agreements.
Comment Many comments were re-
ceived on this section. Most of them
indicated a need for clarifying the
guidance or suggested ways of doing it.
Response. The entire section has
been rewritten for clarification. One
additional provision was added to indi-
cate that transactions that include
very precise Federal requirements and
provisions for intense monitoring of
these requirements may properly be
classified as cooperative agreements.
C. 2. OMB policy on substantial in-
vovement.
Comment There were several ex-
pressions of concern that cooperative
agreements, as a new class of assist-
ance instruments; might lead to great-
er Federal involvement, particularly in
research projects.
Response. The guidance has been re-
vised to state that nothing in this Act
can be interpreted as a basis for In-
creasing Federal involvement beyond
that authorized by program statutes.
D. Agency decisin structure for se-.
lection of instruments.
Comments. It Was pointed out that
the guidance, as drafted, would not
apply to the organization and process-
es of some agencies.
Responses. The guidance was rewrit-
ten to convey the original intent but
to be less restrictive on how agencies
should follow it.
E. Administrative requirements for
grants and cooperative agreements.'
. Comment There were a number of
comments about whether or not these
requirements should apply to coopera-
tive agreements. It was also pointed
out that some of these requirements,
do not now apply to some classes of re-
cipients, such a for-profit organiza-
tions.
Response The legislative history
specifically indicates that OMB Circu-
lar A-102 is part of the existing system
of guidance, and the creation of the
cooperative agreement instrument
should not lead to a bypass of this ini-
tial step. The point about the limited
applicability of some of the adminis-
trative requirements has been includ-
ed in the final guidance. OMB will
consider the question of administra-
tive requirements as they relate to
NOTICES
grants and cooperative agreements
during the study required by section 8
of the Act.
F. Specific guidelines for grants.
1. Distinction between grants and
subsidies.
Comments. Several comments were
received that the draft guidance on
this point was inadequate.
Response- The distinction between
grants, which are covered under sec-
tion 5 of the Act, and subsidies, which
are not, will have to be included in the
section 8 study. Accurate coverage Is
not possible at this time, so this para-
graph has been removed from the
guidance.
IL Agency
records
and AL OMB re-
porting requirements.
Comment. There were numerous
comments that both of these sections
impose a considerable burden on the
agencies.
Response. One purpose of the Act is
to provide Congress with more Infor-
mation on the operations of Federal
assistance programs. OMB is trying to
keep the burden to a rinimum, 'con-
sistent with this purpose. These sec-
tions are to give the agencies an early
indication of the type of information
that will be needed.
GUIDAcE TO TH FEDERrAL AO uEus
The transmittal memorandum from
the Director of OMB3 to the heads of
Federal agencies and the attached
guidance follow.
EXECUTIVE OFFICE OF THE PES Zr4T.
OFFICE OF MANAGEM T AND BUD=,
Washington D.C. August 15, 1978.
MMtoRAmDUm FOR THm HrAs or ExEcu-nvE
DzPrummwArNs
AcEncrs
From: James T. McIntyre, Jr.
Subject: OMB Guidance for Implementing
the Federal Grant and Cooperative Agree-
ment Act.
The Federal Grant and Cooperative
Agreement Act of 1977 (Pub. L. 95-224) re-
quires that by February 3. 1979, Federal
agencies use procurement contracts to ac-
qulrq property or services for the direct
benefit or use of the Federal Government
and grants or cooperative agreements to
transfer money, property, services, or any-
thing of value to recipients to accomplish a
Federal purpose of stimulation or support
authorized by statute.
The act authorizes the Office of Manage-
ment and Budget to Issue supplementary In-
terpretative guidelines to promote consist-
ent and efficient use of contracts, grants,
and cooperative agreements as defined in
the act. It is hoped that the attached' OMB
guidance will not. only promote consistent
and orderly Implementation of the act, but
also aid in minimiAng potential disruptions
resulting from possible revisions to proce-
dures and application materials.
A draft of this guidance was published in
the May 19, 1978, Imiu.L R rsrmxE for
agency and public comment. While we re-
ceived a number of suggestions for Improv-
ing and clarifying specific sections, relative-
ly few basic policy issues that could be treat-
ed in the guidance were brought to our at-
36861
tentlon. The attached guidance reflects, to
the extent practicable, comments provided
in response to the public notice. Agency rep-
resentatives assisted in revising the draft
and bringing It to Its final form. This guid-
ance will appear as a Notice In the FEmSauL
Runsrzn In the near future.
OMB is authorized to except individual
transactions or programs from provisions of
the act until February 3, 198L Exception
policy and procedures are included In the
guidance. In the meantime, OMB is re-
quired to conduct a study to develop a
better understanding of alternative means
for Implementing Federal assistance pro-
grams and to determine the feasibility of de-
veloping a comprehensive system of guid-
ance for Federal Assistance programs. Many
of the Issues addressed In the OMB guid-
ance will also be the subject of further
review In the study. A draft plan for the
study was published in the June 23, 1978,
FrAuL Rrsarr for a 60-day public com-
ment period. A report on the study is to be
submitted to Congress no later than Febru-
ary 1980.
OMB GU3oDmNE To AGcCIs FoR Ix-
PLnIESImni TnE FEDEAL GRNTrr AND
Coorxaunvs AciNT ACT
(Pub. T. 95-224)
Introduction. The Federal Grant
and Cooperative Agreement Act of
1977 (Pub. L. 95-224), signed February
3, 1978, requires executive agencies to
distinguish procurement relationships
from assistance relationships. A major
objective of the act is to achieve con-
sistency in the use of legal instru-
ments by agencies for procurement
and assistance transactions. This is a
preliminary step toward a broad
review of the administration of Feder-
al assistance programs and the rela-
tionships created by the terms and
conditions of legal assistance instru-
ments. Section 4 of the act requires
the use of procurement contracts for
all agency acquisition activity. Sec-
- tlons 5 and 6 require the use of grants
or cooperative agreements for speci-
fled types of assistance relationships.
Section 9 authorizes the Director of
the Office of Management and Budget
to issue supplementary interpretative
guidelines to promote consistent and
efficient Implementation of sections 4,
5, and 6. Subsection 10(d) authorizes
the Director to except individual
transactions or programs from the
act's provisions.
In addition, section 8 of the act re-
quires OMB to conduct a study of Fed-
eral assistance relationships and
submit a report to Congress in 2 years.
The guidelines that follow are based
on OMB authorizations under sections
8, 9, and 10(d).
CorTENs
A. OMB interpretation of the Act.
B. Distinguishing between procurement and
assistance.
C. Characterization of grants and coopera-
tive agreements.
FEDERAL REGISTER, VOL 43, NO. 161-FRIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36861 1978
KA-3336 KA-3336 KA-3336
36862'
D. Agency decision structure for selection of
Instruments.
E. Administrative requirements for grants
and cooperative agreements.
F. Specific guidelines for grants.
G. Specific guidelines for cooperative agree-
ments.
H. Assistance transactions Involving only
non-monetary transfers.
I. OMB exception policy.
J. OMB exception procedures.
K. Joint funding under grants and coopera--
tive agreements.
L. Agency records.
M. OMB reporting requirements.
GUIDANCE
A. OMB INTERPRETATION OF THE ACT
1. General purposes of the Act OMB
views the Federal Grant and Coopera-
tive Agreement Act as an important
opportunity to review, improve, and
simplify the broad array of Federal as-
sistance relationships. It sees the Act's
objective of Federal consistency for
various types of relationships coincid-
ing with the President's goal of
making Federal program actions more
understandable and predictable. Agen-
cies should give serious consideration
to the policy implications of the Act's
provisions, particularly Sections 4, 5,
and 6, pertaining to the use of con-
tracts, grants, and cooperative agree-
ments as these involve the essence of
the way agencies perform fundamen-
tal functions.
This Act does not cover all possible
relationships that may exist between
Federal agencies and others. For ex-
ample, the sale, lease, license, and
other authorizations to use Federal
property, when not for the purpose of
support or stimulation, are not within
the scope and Intent of Pub. L. 95-224
or this guidance.
2. Orderly implementation of sec-
tions 4, 5, and 6. These sections of the
Act require agencies to use contracts
for all procurement actions, and
grants or cooperative agreements to
transfer money, property, services, or
anything of value to recipients to ac-
complish a Federal purpose of stimula-
tion or support authorized by statute.
Subsection 10(b) says:
Nothing in this Act shall be construed to
render void or voidablb any existing con-
tract, grant, cooperative agreement, or
other contract, grant, or cooperative agree-
ment entered into up to one year after the
date of enactment of this Act.
The legislative historic clearly indi-
cates that Congress intended this
provison to provide one year for order-
ly implementation of sections 4, 5, and
6. The Act was signed February 3,
1978. Agencies have until February 3,
1979, to implement these sections in
accordance with the OMB guidelines.
3. Interpretation of specific provi-
sions of the Act To promote consisten-
cy, agencies should interpret subsec-
NOTICES
tions 4(2), 7(a), and 7(b) of the Act as
follows:
a. Subsection 4(2) allows the use of
contracts "whenever an executive
agency determines in a specific in-
stance that the use of a type of pro-
curement contract is appr6priate."
The Senate Report on the Act says:
"This subsection accommodates situations
In which an agency determines the specific
public needs can be satisfied best by using
the procurement process. For example, sub-
section 4(2) would cover the two-step situa-
tion in which a Federal agency may procure
medicines which it then "grants" to non-
Federal hospitals. This subsection does not
allow agencies to Ignore sections 5 and 6.
Compliance with the requirements of sec-
tions 4, 5, and 6 will necessitate deliberate
and conscious agency determinations of the
choice of instruments to be employed. (Ital-
ics added.)
Until the Federal Acquisition Regu-
lation is published, the Federal Pro-
curement Regulation, the Armed Ser-
vices Procurement Regulation, and
other procurement regulations author-
ized by law govern policy and proce-
dures regarding procurement con-
tracts awarded under the authority of
this subsection. Section M of this guid-
ance includes a reporting requirement
for procurement transactions based on
subsection 4(2)."
b. Subsection 7(a) says:
Notwithstanding any other provision of
the law, each executive agency authorized
by law to enter into contracts, grant or co-
operative agreements, or similar arrange-
ments is authorized and directed to enter
into and use types of contracts, grant agree-
ments, or cooperative agreements as re-
quired by this Act.
If, prior to the passage of the Act, an
agency was authorized to use one or
more of the three instruments-pro-
curement contracts, grants, or cooper-
ative agreements-and is not prohibit-
ed from using any of them, this provi-
son enables it to enter into any of the
three types of arrangements, subject
to the criteria set forth in sections 4, 5,
and 6.
c. Subsection 7(b) says:
The authority to make contracts, grants,
and cooperative agreements for the conduct
of basic or applied research at nonprofit in-
stitutions of higher education, or at non-
profit organizations who primary purpose is
the conduct of scientific research shall in-
clude discretionary authority, when It is
deemed by the head of the executive agency
to be in furtherance of the objectives of the
agency, to vest in such institutions or orga-
nizations, without further obligation to the
government, or on such other terms and
conditions as deemed appropriate, title to
equipment or other tangible personal prop-
erty purchased with such funds.
The Act repeals the Grants Act,
Pub. L. 85-934, which authorized the
use of grants for scientific research.
This provision continues the authority
of the Grants Act to vest title to
equipment purchased with Federal
funds in a nonprofit organization, It
expands this authority to other classes
of property and applies to procure-
ment contracts and cooperative agree-
ments as well as grants.
B. DISTINGUISHING BETWEEN
PROCUREMENT AND ASSISTANCE
1. Basic determinations. While one
of the major objectives of the Act Is to
distinguish between procurement and
assistance relationships, neither term
is specifically defined. Section 4 re-
quires use of a procurement contract
when the principal purpose is acquisi-
tion, by purchase, lease, or barter, of
property or services for the direct
benefit or use of the Federal Govern-
ment. Sections 5 and 6 require the use
of grants or cooperative agreements
when the priclpal purpose is the trans-
fer of money, property, services, or
anything of -value to accomplish a
public purpose of support or stimula-
tion authorized by Federal statute,
rather than acquisition, by purchase,
lease, or barter, of property or services
for the direct benefit or use by the
Federal Government.
Agencies should Interpret the lan-
guage of sections 5 and 6 which call
for the use of grants or cooperative
agreements to "accomplish a public
purpose of support or stimuation au-
thorized by Federal statute" as includ-
ing but not restricted to traditioinal
assistance transactions. Thus, for ex-
ample, where an agency authorized to
support or stimulate research decides
to enter into a transaction where the
principal purpose of the transaction Is
to stimulate or support research, it is
authorized to use either a grant or a
cooperative agreement. Conversely, if
an agency is not authorized to stimu-
late or support research, or the princi-
pal purpose of a transaction funding
research is to produce something for
the government's.own use, a procure-
ment transaction must be used. Until
the Federal Acquisition Regulation is
published, the Federal Procurement
Regulation, the Armed Services Pro-
curement Regulation, and other pro-
curemnt regulations authorized by law
govern policy and procedures regard-
ing procurement contracts.
2. Assistance awards to for-profit or-
ganizations. Subject to the require-
ments of sections 4, 5, and 6 of the
Act, assistqnce awards may be made to
for-profit organizations when deemed
by the agency to be consistent with
legislative intent and program pur-
poses.
3. When to decide on the use of pro
curement or assistance instruments.
Any public notice, solicitation, or re-
quest for applications or proposals
should indicate whether the Intended
relationship will be one of procuremnt
or assistance.
FEDERAL REGISTER, VOL 43, NO. 161-FRIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36862 1978
KA-3337 KA-3337 KA-3337
4. What to do if the distinctions be-
tween procurement and assistance do
not apply to a specific class of transac-
"tions. Agencies should make every
effort to ensure their relationships
conform with those specified in the
Act. If, however, there are major indi-
vidual transactions or programs vhich
contain elements of both procurement
and assistance, but which cannot be
char cterized as having a principal
purpose of one or the other, an OMB
exception should be requested. Sec-
tions I and J deal with OMB excep-
tions.
C. CHARAcTERIZATIONOF GRANTS AND
COOPERATIVE AGREEMENTS'
1. Anticipated substantial involve-
ment during performance The basic
statutory -criterion for distinguishing
between grants and cooperative agree-
ments is that for the latter, "substan-
tial involvement is anticipated be-
tween the executive agency and the
recipient during Performance of the
contemplated activity" (emphasis
added). To insure consistent determi-
nations, all agencies should use only
this criterion when deciding to use
either a grant or a cooperative agree-
ment.
a. Anticipated substantial Federal in-
volvement is a relative rather than an
absolute concept. The examples that
follow in "b" and "c" are not meant to
be a checklist or to be considered as In-
dividual determinants. Rather, they
are to illustrate the general policy
that:
(1) When the terms of an assistance
Instrument indicate the recipient can
expect to run the project without
agency collaboration, participation, or
intervention as long as it is run in ac-
cordance with the terms of the assist-
ance instrument, substantial involve-
ment is not anticipated.
(2) When the instrument indicates
the recipient can expect agency col-
laboration or participation In the man-
agement of the project, substantial
'Federal involvement is anticipated.
b. As a guide to making these detei-
minations, anticipated substantial in-
volvement during-performance does
not include:
(1) Agency approval of recipient
plans prior to award.
(2) Normal exercise of Federal stew-
ardship responsibilities during the
project period such as site visits, per-
formance reporting, -financial report-
ing, and audit to insure that the objec-
tives, terms, and'conditions of the
award are accomplished.
(3) Unanticipated agency involve-
ment to correct deficiencies in project
or financial performance from the
terms of the assistance instrument.
(4) General statutory -requirements
understood in advance of the award
such as civil rights, environmental pro-
NOTICES
tection, and provision for the handi-
capped.
(5) Agency review of performance
after completion.
(6) General administrative require-
ments, such as those included in OMB
Circulars A-21, A-95, A-102, A-110,
and FMC 74-4.
c. Conversely, anticipated involve-
ment during performance would exist
and, depending on the circumstances,
could be substantial, where the rela-
tionship includes, for example:
(1) Agency power to Immediately
halt an activity if detailed perform-
ance specifications (e.g., construction
specifications) are not met. These
would be provisions that go beyond
the suspension remedies of the Feder-
al Government for nonperformance as
in OMB Circulars A-102 and A-110.
(2) Agency review and approval of
one stage before work can begin on a
subsequent stage during the period
covered by the assistance instrument.
(3) Agency review and approval of
substantive provisions of proposed
subgrants or contracts. These would
be provisions that go beyond existing
policies on Federal review of grantee
procurement standards and sole
source procurement.
(4) Agency involvement In the selec-
tion of key recipient personnel. (This
does not include assistance Instrument
provisions for the participation of a
named principal investigator for re-
search projects.)
(5) Agency and recipient collabora-
tion or Joint participation.
(6) Agency monitoring to permit
specified kinds of direction or redirec-
tion of the work because of interrela-
tionships with other projects.
(7) Substantial, direct agency oper-
ational involvement or participation
during the assisted activity Is antici-
pated prior to award to Insure compli-
ance with such statutory requirements
as civil rights, environmental protec-
tion, and provision for the handi-
capped. Such participation would
exceed that normally anticipated
under (b)(4), above.
(8) Highly prescriptive agency re-
quirements prior to award limiting re-
cipient discretion with respect to scope
of services offered, organizational
structure, staffing, mode-of operation,
and other management processes,
coupled with close agency monitoring
or operational involvement during per-
formance over and above the normal
exercise of Federal stewardship re-
sponsibilities to ensure compliance
with these requirements.
2. OMB policy on substantial in-
volvement Agencies should limit Fed-
eral involvement in assisted activities
to the minimum consistent with pro-
gram requirements. Nothing in this
Act should be construed as authoriz-
ing agencies to increase their involve-
36863
ment beyond that authorized by other
statutes.
3. How technical assistance and
guidance relate to substantial involve-
ment The practice of some agencies of
providing technical assistance, advice,
or guidance to recipients of financial
assistance does not constitute substan-
ial involvement if."
a. It is provided at the request of the
recipient, or,
b. The recipient is not required to
follow It, or,
c. The recipient is required to follow
it, but it is provided prior to the start
of the assisted activity and the recipi-
ent understood this prior to the finan-
clal assistance award.
4. What to do if grants or coopera-
tive agreements do not fit program re-
quirements. There may be a few cases
of assistance programs covered by sec-
tion 5 or 6 of the Act where neither a
grant nor a cooperative agreement Is
suitable. In such cases, an OMB excep-
tion should be requested in accordance
with sections I and J below.
5. Competition for assistance
awards. Consistent with the purposes
of Pub. L. 95-224, agencies are encour-
aged to maximize competition 'among
all types of recipients in the award of
grants or -cooperative agreements, in
consonance with program purposes.
D. AGENCY DECISION STMUCTURE FOR
SELECTION OF INSTRUMENTS
The determInations of whether a
program Is principally one of procure-
ment or assistance, and whether sub-
stantial Federal Involvement in per-
formance will normally occur are basic
agency policy decisions. Agency heads
should insure that these general deci-
sions for each program are either
made or reviewed at a policy level. A
determination that a program is prin-
cipally one of procurement or assist-
ance does not preclude the use of any
of the types of instruments when ap-
propriate for a particular transaction.
Congress intended the Act to allow
agencies flexibility to select the instru-
ment that best suits each transaction.
Agencies should insure that all trans-
actions covered by the Act are consisb-
ent with their basic policy decisions
for each program.
. ADMINISTRATIVE REQUIRE31ET FOR
GRANTS AND COOPERATIVE AGREEMENTS.
Present administrative requirements
such as OMB Circulars A-95, A-102,
and A-110 apply to both grants and
cooperative agreements involving the
transfer of Federal funds. Some of
these administrative requirements
apply to specific classes of recipients
such as State and local governments.
This guidance does not extend the cov-
erage of these requirements to Instru-
ments with other recipient classes
such as for-profit organizations. These
FEDERAL REGISTER, VOL 43, NO. 161-FRIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36863 1978
KA-3338 KA-3338 KA-3338
36864
administrative requirements will not
apply to General Revenue Sharing or
Anti-Recession Fiscal Assistance
Grants administered by the Treasury
Department.
Each assistance instrument must
provide that the head of the assisting
agency and the Comptroller General
of the United States, or any of their
duly authorized representatives, shall
have access to any books, documents,
papers, and records of the recipient
and their subgrantees which are perti-
nent to the transaction for the pur-
pose of making audits, examination,
excerpts, and transcripts.
F. SPECIFIC GUIDELINES FOR GRANTS
1. Increasing Federal involvement
during a grant period. At times an
agency may find it necessary to in-
crease the involvement in a grant-
funded project during the period of
time covered by the grant. This could
happen, for example, when standard
grant reports or monitoring indicates
some sort of problem.
If this occurs,
agencies should not view the Act as re-
stricting their authority to intervene
as necessary to bring the project into
conformance with original intentions.
Agencies should not, however, seek to
become substantially involved in a
long term or ongoing grant-funded ac-
tivity without converting the grant in-
strument to a cooperative agreement
following negotiation with the recipi-
ent.
G. SPECIFIC GUIDELINES FOR COOPERATIVE
AGREMENTS
1. Alternative uses of cooperative
agreements. In all cases, the determi-
nation of when to use cooperative
agreements will be based on the need
for substantial Federal involvement in
the assisted activity.
a. Some programs now using grants
will require the use of cooperative
agreements exclusively. This determi-
nation should be based on statutory
requirements or policy level determi-
nations of substantial Federal involve-
ment in the performance of the assist-
ed project.
b. Other programs may use grants or
cooperative agreements, depending on
the nature.Pf the project or the abili-
ties of the recipients. For example:
(1) Some projects may start out as
cooperative agreements in the first
year and be converted to grants after
recipient capacity has been estab-
lished.
(2) Other projects, initially funded
as grants, may have to be renewed or
continued for subsequent budget peri-
ods as cooperative agreements if there
is a need to revise the project, upgrade
recipient capacity, or protect the Fed-
eral Interest.
2. Statement of Federal involvement.
Each cooperative agreement should in-
NOTICES
clude an explicit statement of the
nature, character, and extent of antici-
pated Federal involvement. These
statements must be developed with
care to avoid unnecessarily increasing
Federal liability under the assistance
instrument.
H. ASSISTANCE TRANSACTIONS INVOLVING
ONLY NONMONETARY TRANSFERS
1. Types of assistance included. Sec-
tions 5 and 6 apply to transactions
that transfer "property, services, or
anything of value," which could in-
clude consultation, technical services,
information, and data. This section of
the guidance applies to agencies and
programs that. provide such types of
nonmonetary assistance apart from
fund transfers.
2. Applicability of administrative
standards. Section E above stated that
existing administrative standards (e.g.,
OMB Circulars A-95, A-102, A-110)
apply to grants and cooperative agree-
ments involving the transfer of funds.
Agencies are encouraged, however,
to use these standards where appropri-
ate, and in some cases, their use is re-
quired for nonmonetary transfers. For
example, a donation of a substantial
parcel of land to a local government is
the type of Federal action covered by
Part II of A-95, but other administra-
tive standards may not apply.
3. OMB exception for nonmonetary
assistance. OMB exempts programs
and transactions providing nonmone-
tary assistance from the provisions of
section 5 of the Act. Existing agency
practices for providing nonmonetary
assistance Where no Federal involve-
ment in the assisted activity is antici-
pated should continue. Thus a formal
grant instrument is not required to
provide surplus property, consultation,
or data. Where substantial Federal in-
'volvement in the assisted activity is
anticipated, however, a cooperative
agreement is required as indicated in
section 6 of the Act. AgenSies engaged
in the provision of nonmonetary as-
sistance will be asked to report on
these activities under section M below.
I. OMB EXCEPTION POLICY
1. General. Section 10(d) authorizes
the Director of 0MB to:
Except Individual transactions or pro-
grams of any executive agency from the ap-
picatlon of the provisions of this Act. This
authority shall expire one year after receipt
by the Congress of the study provided for In
section 8 of this Act.
Agencies are advised that, unless
otherwise indicated, OMB exceptions
will run through January 1981.
2. Exceptions provided in this guid-
ance. Section H 3 of this guidance ex-
cepts nonmonetary grants.
3. Other exceptions under the Act.
Agencies are required to conform with
sections 4, 5, and 6 of the Act. Where
severe disruption to a program or seri-
ous consequences to recipients would
result, a request for exceptions should
be made to OMB. OMB intends to
grant additional exceptions only on
the basis of agency requests that In-
clude strong justifications and an Indi-
cation of the harm that will result if
an exception is not granted. Section J
below indicates the procedures agen-
cies should follow in requesting excep-
tions.
4. Waiver of administrative stand-
ards. OMB is responsible for most of
the administrative standards that
apply to assistance programs. Agencies
should follow these standards. The cir-
culars that establish these standards
presently provide procedures for
granting of waivers, If the standards
appear unsuitable to a particular situ-
ation, requests for waivers should be
sent to the OMB office responsible for
the circular or the responsible agency
if not OMB (e.g., for GSA uniform re-
location provisions). Requests for
waivers to financial management cir-
culars administered by OMB should be
addressed to John Lordan, Chief, Fi-
nancial Management Branch, OMB,
Room 6002, NEOB, Washington, D.C.
20503.
J. OMB EXCEPTION PROCEDURES
A request for aii OMB exception
under this Act should be addressed to
Deputy Associate Director for Inter-
governmental Affairs, Room 9025,
NEOB, Washington, D.C. 20503. It
should include:
1, A statement on whether the ex-
ception is requested for a complete
program or an individual transaction,
2. An explanation of why an excep
tion is requested, including statutory,
agency policy, or other reasons.
3. A statement of what the agency
will do if an exception is not granted
and what the implications would be if
this action were taken.
4. An indication of how the agency
will handle the situation if the OMB
exception expires before there are any
changes to either this Act or agency
statutes.
K. JOINT FUNDING UNDER GRANTS AND
COOPERATIVE AGREEMENTS
Subsection 10(c) of the Act specifl-
cally provides for projects funded
under the Joint Funding Simplifica-
tion Act that include more than one
type of assistance relationship. Thus a
project with some components funded
by grants and others by cooperative
agreements Is entirely permissible.
Agencies should view this Act as pro-
viding the opportunity and authority
to participate in joint funded projects
in any number of funding relation-
ships to serve the best Interests of the
participating agencies programs.
FEDERAL REGISTER, VOL 43, NO. 161-FRIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36864 1978
KA-3339 KA-3339 KA-3339
L. AGENCY RECORDS
Both Congress and OMB view this
Act as a preliminary step toward long-
range overhaul of Federal assistance
activities. The requirement for agen-
cies to implement sections 4, 5, and 6
in one year is, in large part, to begin
the systematic gathering of data about
Federal assistance relationships. Agen-
cies should anticipate that congres-
sional committees, the General Ac-
counting Office,- and OMB will be
asking extensive questions about the
effects of implementing these sections.
While the questions may vary from
agency to agency, they can reasonably
be expected to deal with operating ex-
perience for a year or more after full
implementation. Agencies should de-
velop systems of records that would
allow them to answer questions such
as:
1. How many financial grants have
been awarded in accordance with sec-
tion 5 of the Act? What was the dollar
volume and what classes of recipients
were involved (e.g., State governments,
universities, hospitals, individuals)?
2. For which programs did the
agency decide to use grants exclusive-
ly? Why?
3. How many financial assistance co-
operative agreements have been
awarded in accordance with section 6
of the Act? -What was the dollar
volume and what classes of recipients
were involved?
4. For which programs did the-
agency decide to use cooperative
agreements exclusively? What are the
nature and reason for the agency in-
volvement?
5. For which programs were both
grants and cooperative agreements
used? What were the criteria for deter-
mining the instrument used?
6. What types of nonmonetary as-
sistance transfers were made as
grants? What types as cooperative
agreements?
7. What was the agency's experience
in implementing sections 4, 5, and 6?
How did it contribute to improved pro-
jects, management, or intergovern-
mental relations? What problems has
the Act presented that can be expect-
ed-to continue?
L OMB REPORTING REQUIREMENTS
The experience of the agencies -in
making decisions necessary to mple-
NOTICES
ment sections 4, 5, and 6 of the Act
will be important to the study re-
quired by section 8. In addition, to the
more general questions about the fea-
sibility of a comprehensive system of
guidance for assistance activities, the
report to Congress must include a
summary of the effects of sections 4, 5,
and 6. For these reasons, agencies are
to provide by March 1. 1979, a report
to OMB that includes the following:.
1. Distinguishing between procure-
ment and assistance:
a. For what types of activities did
the agency have trouble making the
distinction between procurement and
assistance? Why?
b. On what basis were the issues re-
solved?
2. Use of procurement contracts:
a. What activities formerly funded
through grants or other assistance In-
struments will now be handled with
procurement contracts?
b. What is the anticipated dollar
volume of these procurement con-
tracts?
c. What is expected to be the Impact
of this shift on the agency?
d. Who will be the principal recipi-
ents of these contracts?
e. What Is expected to be the impact
on the recipients?
f. What use was made of the subsec-
tion 4(2) procurement provisions? Ex-
plain any uses other than those fol-
lowing the two-step example in the
legislative history.
3. Agency decisions on when to use
grants or cooperative agreements:
a. Describe the process by which the
agency decided which programs would
use:
(1) Only grants.
(2) Only cooperative agreements.
(3) Both grants and cooperative
agreements.
b. Which programs, as listed in the
Catalog of Federal Domestic Assist-
ance, will fall into each of the above
three categories? For those in category
3 what is the expected mix in terms of
total dollars and numbers of transac-
tions?
c. What programs not listed In the
Catalog of Federal Domestic Assist-
ance will fall into each of the three
categories? For those in category 3
what is the expected mix in terms of
total dollars and numbers of transac-
tions?
d. What is the anticipated first-year
36865
dollar volume of the programs in each
of the three categories?
e. What types of Federal involve-
ment in the assisted activity led to the
Identification of programs that would
use only cooperative agreements?
f. What are the anticipated reactions
of the reclpleitts of programs using
only cooperative agreements?
g. What are the anticipated liability,
accountability, and other Implications
for the programs using only coopera-
tive agreements?
h. What are the agency guidelines
on the selection of instruments for
programs that may use either grants
or cooperative agreements.
I. What Is the anticipated dollar
volume of grants and cooperative
agreements to be awarded under these
programs?
J. How will the opportunity to use
either grants or cooperative agree-
ments Improve administration of these
programs?
k. What negative effects are antici-
pated from the requirement to make a
choice of instruments?
L What programs will use assistance
instruments that formerly used con-
tracts and what is the dollar volume of
these new uses of assistance instru-
ments?
4. Nonmonetary assistance transfers:
a. What were the types and dollar
value of nonmonetary transfers made
by the agency using grant instru-
ments?
b. How do these grant instruments
compare with monetary grant instru-
ments?
c. What were the types and dollar
value of nonmonetary transfer made
under the OMB exception that did not
use grant Instruments?
d. How would the agency have treat-
ed these transfers had not OMBk grant-.
ed the exception?
e. What were the types and dollar
value of nonmonetary transfers made
through cooperative agreements?.
f. What was the agency's experience
with this use of cooperative agree-
ments?
5. Overall evaluation of the Act:
a. What elements of the Act are con-
tributing to improved program per-
formance and administration?
b. What elements of the Act are par-
ticularly troublesome? Why?
c. What proposals would the agency
make for revising the Act?
MR Doc. 78-23260 Filed 8-17-78; 8:45 amJ
FEDERAL REGISTER, VOL 43, NO. 161-RIDAY, AUGUST 18, 1978
HeinOnline -- 43 Fed. Reg. 36865 1978
KA-3340 KA-3340 KA-3340

12-2207 Karron v USA Certificate of Appealability Brief Appendix
82
DoC FINANCIAL ASSISTANCE STANDARD
TERMS AND CONDITIONS October 2001

DoC
FINANCIAL ASSISTANCE
STANDARD TERMS AND
CONDITIONS
October 2001
KA-3341 KA-3341 KA-3341
DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE
STANDARD TERMS AND CONDITIONS
October 2001
KA-3342 KA-3342 KA-3342
i
DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE STANDARD TERMS AND CONDITIONS
Page
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. FINANCIAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
.01 Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
.02 Award Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
.03 Federal and Non-Federal Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
.04 Budget Changes and Transfer of Funds Among Categories . . . . . . . . . . . . . . . . . 2
.05 Indirect Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
.06 Incurring Costs or Obligating Federal Funds Beyond
the Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
.07 Tax Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. PROGRAMMATIC REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
.01 Performance (Technical) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
.02 Unsatisfactory Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
.03 Programmatic Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
.04 Other Federal Awards with Similar Programmatic Activities . . . . . . . . . . . . . . . . 5
.05 Non-Compliance with Award Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
.06 Prohibition Against Assignment by Recipient . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
.07 Disclaimer Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. NON-DISCRIMINATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
.01 Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
.02 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
D. AUDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
.01 Organization-Wide, Program-Specific, and Project Audits . . . . . . . . . . . . . . . . . . 8
.02 Audit Resolution Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
E. DEBTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
.01 Payment of Debts Owed the Federal Government . . . . . . . . . . . . . . . . . . . . . . . . 9
.02 Late Payment Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
F. NAME CHECK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
KA-3343 KA-3343 KA-3343
ii

.01 Results of Name Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
.02 Action(s) Taken as a Result of Name Check Review . . . . . . . . . . . . . . . . . . . . . 11
G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION
(NONPROCUREMENT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H. DRUG-FREE WORKPLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
I. LOBBYING RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
.01 Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
.02 Disclosure of Lobbying Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
J. CODES OF CONDUCT AND SUBAWARD, CONTRACT,
AND SUBCONTRACT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
.01 Code of Conduct for Recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
.02 Applicability of Award Provisions to Subrecipients . . . . . . . . . . . . . . . . . . . . . . 12
.03 Competition and Codes of Conduct for Subawards . . . . . . . . . . . . . . . . . . . . . . . 12
.04 Applicability of Provisions to Subawards, Contracts,
and Subcontracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
.05 Minority and Women-Owned Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . 14
.06 Subaward and/or Contract to a Federal Agency . . . . . . . . . . . . . . . . . . . . . . . . . 14
K. PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
.01 Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
.02 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
L. MISCELLANEOUS REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
.01 Criminal and Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
.02 Foreign Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
.03 American-Made Equipment and Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
.04 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
.05 Increasing Seat Belt Use in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
.06 Research Involving Human Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
.07 Federal Employee Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
.08 Preservation of Open Competition and Government Neutrality Towards
Government Contractors Labor Relations on Federal and Federally Funded
Construction Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
.09 Minority Serving Institutions Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
KA-3344 KA-3344 KA-3344
1 10/01
PREFACE
The recipient and any subrecipients must, in addition to the assurances made as part of the
application, comply and require each of its contractors and subcontractors employed in the
completion of the project to comply with all applicable statutes, regulations, executive orders
(EOs), Office of Management and Budget (OMB) circulars, terms and conditions, and approved
applications.
This award is subject to the laws and regulations of the United States. Any inconsistency or
conflict in terms and conditions specified in the award will be resolved according to the
following order of precedence: public laws, regulations, applicable notices published in the
Federal Register, EOs, OMB circulars, Department of Commerce (DoC) Financial Assistance
Standard Terms and Conditions, agency standard award conditions (if any), and special award
conditions. Special award conditions may take precedence over DoC standard terms and
conditions, on a case-by-case basis, when allowed by the DoC standard term and condition.
Some of the DoC terms and conditions herein contain, by reference or substance, a summary of
the pertinent statutes, or regulations published in the Federal Register or Code of Federal
Regulations (CFR), EOs, OMB circulars or the assurances (Forms SF-424B,424D). To the extent
that it is a summary, such provision is not in derogation of, or an amendment to, any such statute,
regulation, EO, or OMB circular.
A. FINANCIAL REQUIREMENTS
.01 Financial Reports
a. The recipient shall submit a "Financial Status Report" (SF-269) on a semi-annual
basis for the periods ending March 31 and September 30, 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 final SF-269 shall be
submitted within 90 days after the expiration date of the award.
b. Unless otherwise authorized by a special award condition, all financial reports
shall be submitted in triplicate (one original and two copies) to the Grants
Officer.
.02 Award Payments
a. The advance method of payment shall be authorized unless otherwise specified in
a special award condition. The Grants Officer determines the appropriate method
of payment. Payments will be made through electronic funds transfers directly to
the recipients bank account and in accordance with the requirements of the Debt
Collection Improvement Act of 1996. The DoC Award Number must be
included on all payment-related correspondence, information, and forms.
b. When the "Request for Advance or Reimbursement" (SF-270) is used to request
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payment, the recipient shall submit the request no more frequently than monthly,
and advances shall be approved for periods to cover only expenses anticipated
over the next 30 days. When the SF-270 is used, the recipient must complete the
SF-3881, ACH Vendor Miscellaneous Payment Enrollment Form, and return it
to the Grants Officer.
c. Advances shall be limited to the minimum amounts necessary to meet immediate
disbursement needs. Advanced funds not disbursed in a timely manner must be
promptly returned to DoC. If a recipient demonstrates an unwillingness or
inability to establish procedures which will minimize the time elapsing between
the transfer of funds and disbursement or if the recipient otherwise fails to
continue to qualify for the advance method of payment, the Grants Officer may
change the method of payment to reimbursement only.
.03 Federal and Non-Federal Sharing
a. Awards which include Federal and non-Federal sharing incorporate an estimated
budget consisting of shared allowable costs. If actual allowable costs are less
than the total approved estimated budget, the Federal and non-Federal cost share
ratio shall be calculated as a percentage of Federal and non-Federal approved
amounts. If actual allowable costs are greater than the total approved estimated
budget, the Federal share shall not exceed the total Federal dollar amount as
reflected in the Financial Assistance Award (CD-450) and Amendment(s) to
Financial Assistance Award (CD-451).

b. The non-Federal share, whether in cash or in-kind, is expected to be paid out at
the same general rate as the Federal share. Exceptions to this requirement may
be granted by the Grants Officer based on sufficient documentation
demonstrating previously determined plans for or later commitment of cash or in-
kind contributions. In any case, the recipient must meet its cost share
commitment over the life of the award.
.04 Budget Changes and Transfer of Funds Among Categories
a. Requests for budget changes to the approved estimated budget in accordance
with the provision noted below must be submitted to the Grants Officer who shall
make the final determination on such requests and notify the recipient in writing.
b. Transfers of funds by the recipient among direct cost categories are permitted for
awards in which the Federal share of the project is $100,000 or less. For awards in
which the Federal share of the project exceeds $100,000, transfers of funds must be
approved in writing by the Grants Officer when the cumulative amount of such
transfers exceed 10 percent of the current total Federal and non-Federal funds
authorized by the Grants Officer. The 10 percent threshold applies to the total
Federal and non-Federal funds authorized by the Grants Officer at the time of the
KA-3346 KA-3346 KA-3346
transfer request. This is the accumulated amount of Federal funding obligated to
date by the Grants Officer along with any non-Federal share. The same criteria
applies to the cumulative amount of transfer of funds among projects, functions,
joint ventures, consortia, activities, and annual costs when budgeted separately
within an award. Transfers will not be permitted if such transfers would cause any
Federal appropriation, or part thereof, to be used for purposes other than those
intended. This transfer authority does not authorize the recipient to create new
budget categories within an approved budget unless the Grants Officer has
provided prior approval.
c. The recipient is not authorized at any time to transfer amounts budgeted for direct
costs to the indirect costs line item or vice versa, without written prior approval of
the Grants Officer.
.05 Indirect Costs
a. Indirect costs will not be allowable charges against the award unless specifically
included as a line item in the approved budget incorporated into the award. (The
term indirect cost has been replaced with the term facilities and administrative
costs under OMB Circular A-21, Cost Principles for Educational Institutions.)
b. Excess indirect costs may not be used to offset unallowable direct costs.
c. If the recipient has not previously established an indirect cost rate with a Federal
agency, the negotiation and approval of a rate is subject to the procedures in the
applicable cost principles and the following subparagraphs:
1. For those organizations for which DoC is cognizant or has oversight, DoC or
its designee either will negotiate a fixed rate for the recipient or, in some
instances, will limit its review to evaluating the procedures described in the
recipient's cost allocation methodology plan. Indirect cost rates and cost
allocation methodology reviews are subject to future audits to determine actual
indirect costs. Within 90 days of the award start date, the recipient shall
submit to the address listed below documentation (indirect cost proposal, cost
allocation plan, etc.) necessary to perform the review. The recipient shall
provide the Grants Officer with a copy of the transmittal letter.
Office of Executive Assistance Management
Department of Commerce
14
th
Street and Constitution Avenue, N.W., Room H-6022
Washington, DC 20230
2. When an oversight or cognizant Federal agency other than DoC has
responsibility for establishing an indirect cost rate, the recipient shall submit to
that oversight or cognizant Federal agency within 90 days of the award start date
the documentation (indirect cost proposal, cost allocation plan, etc.) necessary
to establish such rates. The recipient shall provide the Grants Officer with a
copy of the transmittal letter to the cognizant Federal agency.
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3. If the recipient fails to submit the required documentation to DoC or other
oversight or cognizant Federal agency within 90 days of the award start date,
the Grants Officer may amend the award to preclude the recovery of any
indirect costs under the award. If the DoC, oversight, or cognizant Federal
agency determines there is a finding of good and sufficient cause to excuse
the recipient's delay in submitting the documentation, an extension of the 90-
day due date may be approved by the Grants Officer.
4. Regardless of any approved indirect cost rate applicable to the award, the
maximum dollar amount of allocable indirect costs for which DoC will
reimburse the recipient shall be the lesser of:
(a) The line item amount for the Federal share of indirect costs contained in
the approved budget of the award; or
(b) The Federal share of the total allocable indirect costs of the award based
on the indirect cost rate approved by a cognizant or oversight Federal
agency and current at the time the cost was incurred, provided the rate is
approved on or before the award end date.
.06 Incurring Costs or Obligating Federal Funds Beyond the Expiration Date
a. The recipient shall not incur costs or obligate funds for any purpose pertaining to
the operation of the project, program, or activities beyond the expiration date
stipulated in the award. The only costs which are authorized for a period of up to
90 days following the award expiration date are those strictly associated with
closeout activities. Closeout activities are normally limited to the preparation of
final progress, financial, and required project audit reports unless otherwise
approved in writing by the Grants Officer.
b. Unless otherwise authorized in 15 CFR 14.25(e)(4) or a special award
condition, any extension of the award period can only be authorized by the
Grants Officer in writing. Verbal or written assurances of funding from other
than the Grants Officer shall not constitute authority to obligate funds for
programmatic activities beyond the expiration date.
c. The DoC has no obligation to provide any additional prospective funding. Any
amendment of the award to increase funding and to extend the period of
performance is at the sole discretion of DoC.
.07 Tax Refunds
Refunds of FICA/FUTA taxes received by the recipient during or after the award
period must be refunded or credited to DoC where the benefits were financed with
Federal funds under the award. The recipient agrees to contact the Grants Officer
immediately upon receipt of these refunds. The recipient further agrees to refund
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portions of FICA/FUTA taxes determined to belong to the Federal Government,
including refunds received after the award end date.
B. PROGRAMMATIC REQUIREMENTS
.01 Performance (Technical) Reports
a. The recipient shall submit performance (technical) reports in triplicate (one
original and two copies) to the Federal Program Officer in the same frequency as
the Financial Status Report (SF-269) unless otherwise authorized by the Grants
Officer.
b. Unless otherwise specified in the award provisions, performance (technical)
reports shall contain brief information as prescribed in the applicable uniform
administrative requirements incorporated into the award.
.02 Unsatisfactory Performance
Failure to perform the work in accordance with the terms of the award and maintain
at least a satisfactory performance rating or equivalent evaluation may result in
designation of the recipient as high risk and assignment of special award conditions
or other further action as specified in the standard term and condition entitled "Non-
Compliance With Award Provisions."
.03 Programmatic Changes
a. The recipient shall not make any programmatic changes to the award without
prior written approval by the Grants Officer.
b. Any requests by the recipient for programmatic changes must be submitted to the
Grants Officer who shall make the final determination and notify the recipient in
writing.
.04 Other Federal Awards with Similar Programmatic Activities
The recipient shall immediately provide written notification to the Federal Program
Officer and the Grants Officer in the event that, subsequent to receipt of the DoC
award, other financial assistance is received to support or fund any portion of the
scope of work incorporated into the DoC award. DoC will not pay for costs that are
funded by other sources.
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.05 Non-Compliance With Award Provisions
Failure to comply with any or all of the provisions of the award may have a negative
impact on future funding by DoC and may be considered grounds for any or all of the
following actions: establishment of an account receivable, withholding payments
under any DoC awards to the recipient, changing the method of payment from
advance to reimbursement only, or the imposition of other special award conditions,
suspension of any DoC active awards, and termination of any DoC active awards.
.06 Prohibition Against Assignment by the Recipient
Notwithstanding any other provision of the award, the recipient shall not transfer,
pledge, mortgage, or otherwise assign the award, or any interest therein, or any claim
arising thereunder, to any party or parties, banks, trust companies, or other financing
or financial institutions.
.07 Disclaimer Provisions
a. The United States expressly disclaims any and all responsibility or liability to the
recipient or third persons for the actions of the recipient or third persons resulting
in death, bodily injury, property damages, or any other losses resulting in any
way from the performance of this award or any other losses resulting in any way
from the performance of this award or any subaward or subcontract under this
award.
b. The acceptance of this award by the recipient does not in any way constitute an
agency relationship between the United States and the recipient.
C. NON-DISCRIMINATION REQUIREMENTS
No person in the United States shall, on the ground of race, color, national origin, handicap,
age, religion, or sex, be excluded from participation in, be denied the benefits of, or be
subject to discrimination under any program or activity receiving Federal financial
assistance. The recipient agrees to comply with the non-discrimination requirements
below:
.01 Statutory Provisions
a. Title VI of the Civil Rights Act of 1964 (42 USC 2000d et seq.) and DoC
implementing regulations published at 15 CFR Part 8 which prohibit
discrimination on the grounds of race, color, or national origin under programs or
activities receiving Federal financial assistance;
b. Title IX of the Education Amendments of 1972 (20 USC 1681 et seq.)
prohibiting discrimination on the basis of sex under Federally assisted education
programs or activities;
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c. Section 504 of the Rehabilitation Act of 1973, as amended (29 USC 794) and
DoC implementing regulations published at 15 CFR Part 8b prohibiting
discrimination on the basis of handicap under any program or activity receiving
or benefitting from Federal assistance;
d. The Age Discrimination Act of 1975, as amended (42 USC 6101 et seq.) and
DoC implementing regulations published at 15 CFR Part 20 prohibiting
discrimination on the basis of age in programs or activities receiving Federal
financial assistance;
e. The Americans with Disabilities Act of 1990 (42 USC 12101 et seq.)
prohibiting discrimination on the basis of disability under programs, activities,
and services provided or made available by state and local governments or
instrumentalities or agencies thereto, as well as public or private entities that
provide public transportation;
f. Any other applicable non-discrimination law(s).
.02 Other Provisions
Parts II and III of EO11246 (30 FR 12319, 1965) as amended by EO 11375 (32 FR
14303, 1967) and 12086 (43 FR 46501, 1978) require Federally assisted construction
contracts to include the nondiscrimination provisions of 202 and 203 of that EO
and Department of Labor regulations implementing EO 11246 (41 CFR 60-1.4(b),
1991).
D. AUDITS
Under the Inspector General Act of 1978, as amended, 5 USC App. 3, 1 et seq., an audit of
the award may be conducted at any time. The Inspector General of the DoC, or any of his
or her duly authorized representatives, shall have access to any pertinent books, documents,
papers and records of the recipient, whether written, printed, recorded, produced or
reproduced by any electronic, mechanical, magnetic or other process or medium, in order to
make audits, inspections, excerpts, transcripts or other examinations as authorized by law.
When the OIG requires a program audit on a DoC award, the OIG will usually make the
arrangements to audit the award, whether the audit is performed by OIG personnel, an
independent accountant under contract with DoC, or any other Federal, state or local audit
entity.
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.01 Organization-Wide, Program-Specific, and Project Audits
a. Organization-wide or program-specific audits shall be performed in accordance
with the Single Audit Act Amendments of 1996, as implemented by OMB
Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations. Recipients that are subject to the provisions of OMB Circular
A-133 and that expend $300,000 or more in a year in Federal awards shall have
an audit conducted for that year in accordance with the requirements contained in
OMB Circular A-133.
b. Pursuant to 15 CFR 14.26 (c) and (d), DoC requires for-profit recipients of
awards that exceed $100,000 in Federal funding to have a program-specific audit
performed. If DoC does not have a program-specific audit guide available for the
program, the auditor should follow Generally Accepted Government Auditing
Standards and the requirements for a program-specific audit as described in OMB
Circular A-133 .235. A copy of the program-specific audit shall be submitted
to the OIG at the following address with a copy of the transmittal letter to the
Grants Officer:
Office of Inspector General
U.S. Department of Commerce
Atlanta Regional Office of Audits
401 West Peachtree Street, N.W., Suite 2742
Atlanta, GA 30308
c. Recipients expending Federal awards over $300,000 a year and having audits
conducted in accordance with OMB Circular A-133 shall submit a copy of
organization-wide or program-specific audits to the Bureau of the Census, which
has been designated by OMB as a central clearinghouse. The address is:
Federal Audit Clearinghouse
Bureau of the Census
1201 E. 10th Street
Jeffersonville, IN 47132
.02 Audit Resolution Process
a. An audit of the award may result in the disallowance of costs incurred by the
recipient and the establishment of a debt (account receivable) due DoC. For this
reason, the recipient should take seriously its responsibility to respond to all audit
findings and recommendations with adequate explanations and supporting
evidence whenever audit results are disputed.
b. In accordance with the Federal Register notice dated January 27, 1989 (54 FR
4053), a recipient whose award is audited has the following opportunities to
dispute the proposed disallowance of costs and the establishment of a debt:
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1. Unless the Inspector General determines otherwise, the recipient has 30 days
from the date of the transmittal of the draft audit report to submit written
comments and documentary evidence.
2. The recipient has 30 days from the date of the transmittal of the final audit
report to submit written comments and documentary evidence. There will be
no extension of this deadline.
3. The DoC shall review the documentary evidence submitted by the recipient
and shall notify the recipient of the results in an Audit Resolution
Determination Letter. The recipient has 30 days from the date of receipt of
the Audit Resolution Determination Letter to submit a written appeal. There
will be no extension of this deadline. The appeal is the last opportunity for
the recipient to submit written comments and documentary evidence that
dispute the validity of the audit resolution determination. In addition, an
appeal does not preclude the recipient's obligation to pay a debt that may be
established, nor does the appeal preclude the accrual of interest on a debt.
4. The DoC shall review the recipient's appeal and notify the recipient of the
results in an Appeal Determination Letter. After the opportunity to appeal
has expired or after the appeal determination has been rendered, DoC will not
accept any further documentary evidence from the recipient. No other
administrative appeals are available in DoC.
5. An appeal of the Audit Resolution Determination does not prevent the
establishment of the audit-related debt nor does it prevent the accrual of
interest on the debt. If the Audit Resolution Determination is overruled or
modified on appeal, appropriate corrective action will be taken retroactively.
An appeal will stay the offset of funds owed by the auditee against funds due
to the auditee.
E. DEBTS
.01 Payment of Debts Owed the Federal Government
Any debts determined to be owed the Federal Government shall be paid promptly by
the recipient. In accordance with 15 CFR 21.4, a debt will be considered
delinquent if it is not paid within 15 days of the due date, or if there is no due date,
within 30 days of the billing date. Failure to pay a debt by the due date, or if there is
no due date, within 30 days of the billing date, shall result in the imposition of late
payment charges as noted below. In addition, failure to pay the debt or establish a
repayment agreement by the due date, or if there is no due date, within 30 days of the
billing date, will also result in the referral of the debt for collection action and may
result in DoC taking further action as specified in the standard term and condition
entitled "Non-Compliance With Award Provisions." Funds for payment of a debt
must not come from other Federally sponsored programs. Verification that other
Federal funds have not been used will be made, e.g., during on-site visits and audits.
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.02 Late Payment Charges
a. An interest charge shall be assessed on the delinquent debt as established by the
Debt Collection Act (31 U.S.C. 3701 et seq.), as amended. The minimum annual
interest rate to be assessed is the Department of the Treasury's Current Value of
Funds Rate. This rate is published in the Federal Register by the Department of
the Treasury. The assessed rate shall remain fixed for the duration of the
indebtedness.
b. A penalty charge shall be assessed on any portion of a debt that is delinquent for
more than 90 days, although the charge will accrue and be assessed from the date
the debt became delinquent.
c. An administrative charge shall be assessed to cover processing and handling the
amount due.
d. State and local governments are not subject to penalty and administrative
charges.
F. NAME CHECK
A name check review shall be performed by the OIG on key individuals associated with
non-profit and for-profit organizations, unless an exemption has been authorized by the
Inspector General, such as the exemption authorized for Economic Development Districts
designated by the Economic Development Administration.
.01 Results of Name Check
DoC reserves the right to take any of the actions described in section F.02 if any of
the following occurs as a result of the name check review:
a. A key individual fails to submit the required Form CD-346, Applicant for
Funding Assistance;
b. A key individual made an incorrect statement or omitted a material fact on the
Form CD-346; or
c. The name check reveals significant adverse findings that reflect on the business
integrity or responsibility of the recipient and/or key individual.
.02 Action(s) Taken as a Result of Name Check Review
If any situation noted in F.01 occurs, DoC, at its discretion, may take one or more of
the following actions:
a. Consider suspension/termination of the award;
b. Require the removal of any key individual from association with the management
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of and/or implementation of the award; and/or
c. Make appropriate provisions or revisions with respect to the method of payment
and/or financial reporting requirements.
G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT)
The recipient shall comply with the provisions of EO 12549, "Debarment and Suspension"
and DoC's implementing regulations published at 15 CFR Part 26, Subparts A through E,
"Governmentwide Debarment and Suspension (Nonprocurement)," which generally
prohibit entities that have been debarred, suspended, or voluntarily excluded from
participating in Federal nonprocurement transactions either through primary or lower tier
covered transactions.
H. DRUG-FREE WORKPLACE
The recipient shall comply with the provisions of Public Law 100-690, Title V, Subtitle D,
"Drug-Free Workplace Act of 1988," and DoC implementing regulations published at 15
CFR Part 26, Subpart F, "Governmentwide Requirements for Drug-Free Workplace
(Grants)," which require that the recipient take steps to provide a drug-free workplace.
I. LOBBYING RESTRICTIONS
.01 Statutory Provisions
The recipient shall comply with the provisions of Section 319 of Public Law 101-
121, which added Section 1352 to Chapter 13 of Title 31 of the United States Code,
and DoC implementing regulations published at 15 CFR Part 28, "New Restrictions
on Lobbying." These provisions generally prohibit the use of Federal funds for
lobbying the Executive or Legislative Branches of the Federal government in
connection with the award, and require the disclosure of the use of non-Federal funds
for lobbying.
.02 Disclosure of Lobbying Activities
The recipient receiving in excess of $100,000 in Federal funding shall submit a
completed Form SF-LLL, "Disclosure of Lobbying Activities," regarding the use of
non-Federal funds for lobbying. The Form SF-LLL shall be submitted within 30
days following the end of the calendar quarter in which there occurs any event that
requires disclosure or that materially affects the accuracy of the information
contained in any disclosure form previously filed. The recipient must submit the
Forms SF-LLL, including those received from subrecipients, contractors, and
subcontractors, to the Grants Officer.
J. CODES OF CONDUCT AND SUBAWARD, CONTRACT, AND SUBCONTRACT
PROVISIONS
.01 Code of Conduct for Recipients
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Pursuant to the certification in SF-424B, paragraph 3, the recipient must maintain
written standards of conduct to establish safeguards to prohibit employees from using
their positions for a purpose that constitutes or presents the appearance of personal or
organizational conflict of interest, or personal gain in the administration of this
award.
.02 Applicability of Award Provisions to Subrecipients
The recipient shall require all subrecipients, including lower tier subrecipients, under
the award to comply with the provisions of the award including applicable cost
principles, administrative, and audit requirements.
.03 Competition and Codes of Conduct for Subawards
a. All subawards will be made in a manner to provide, to the maximum extent
practicable, open and free competition. The recipient must be alert to
organizational conflicts of interest as well as other practices among subrecipients
that may restrict or eliminate competition. In order to ensure objective
subrecipient performance and eliminate unfair competitive advantage,
subrecipients that develop or draft work requirements, statements of work, or
requests for proposals shall be excluded from competing for such subawards.
b. The recipient shall maintain written standards of conduct governing the
performance of its employees engaged in the award and administration of
subawards. No employee, officer, or agent shall participate in the selection,
award, or administration of a subaward supported by Federal funds if a real or
apparent conflict of interest would be involved. Such a conflict would arise
when the employee, officer, or agent, any member of his or her immediate
family, his or her partner, or an organization in which he/she serves as an officer
or which employs or is about to employ any of the parties mentioned in this
section, has a financial interest or other interest in the organization selected or to
be selected for a subaward. The officers, employees, and agents of the recipient
shall neither solicit nor accept anything of monetary value from subrecipients.
However, the recipient may set standards for situations in which the financial
interest is not substantial or the gift is an unsolicited item of nominal value. The
standards of conduct shall provide for disciplinary actions to be applied for
violations of such standards by officers, employees, or agents of the recipient.
c. A financial interest may include employment, stock ownership, a creditor or
debtor relationship, or prospective employment with the organization selected or
to be selected for a subaward. An appearance of impairment of objectivity could
result from an organizational conflict where, because of other activities or
relationships with other persons or entities, a person is unable or potentially
unable to render impartial assistance or advice. It could also result from non-
financial gain to the individual, such as benefit to reputation or prestige in a
professional field.
.04 Applicability of Provisions to Subawards, Contracts, and Subcontracts
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a. The recipient shall include the following notice in each request for applications
or bids:
Applicants/bidders for a lower tier covered transaction (except for goods and
services under the $100,000 simplified acquisition threshold and where the
lower tier recipient will have no critical influence on or substantive control
over the award) are subject to 15 CFR Part 26, Subparts A through E,
"Governmentwide Debarment and Suspension (Nonprocurement). In
addition, applicants/bidders for a lower tier covered transaction for a
subaward, contract, or subcontract greater than $100,000 of Federal funds at
any tier are subject to 15 CFR Part 28, "New Restrictions on Lobbying."
Applicants/bidders should familiarize themselves with these provisions,
including the certification requirements. Therefore, applications for a lower
tier covered transaction must include a Form CD-512, "Certifications
Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion--
Lower Tier Covered Transactions and Lobbying," completed without
modification.
b. The recipient shall include a statement in all lower tier covered transactions
(subawards, contracts, and subcontracts), that the award is subject to EO 12549,
"Debarment and Suspension" and DoC implementing regulations published at
15 CFR Part 26, Subparts A through E, "Governmentwide Debarment and
Suspension (Nonprocurement)."
c. The recipient shall include a statement in all lower tier covered transactions
(subawards, contracts, and subcontracts) exceeding $100,000 in Federal funds,
that the subaward, contract, or subcontract is subject to Section 319 of Public
Law 101-121, which added Section 1352, regarding lobbying restrictions, to
Chapter 13 of Title 31 of the United States Code as implemented at 15 CFR Part
28, "New Restrictions on Lobbying." The recipient shall further require the
subrecipient, contractor, or subcontractor to submit a completed "Disclosure of
Lobbying Activities" (Form SF-LLL) regarding the use of non-Federal funds for
lobbying. The Form SF-LLL shall be submitted within 15 days following the end
of the calendar quarter in which there occurs any event that requires disclosure or
that materially affects the accuracy of the information contained in any disclosure
form previously filed. The Form SF-LLL shall be submitted from tier to tier until
received by the recipient. The recipient must submit all disclosure forms
received, including those that report lobbying activity on its own behalf, to the
Grants Officer within 30 days following the end of the calendar quarter.
.05 Minority Owned Business Enterprise
DoC encourages recipients to utilize minority and women-owned firms and
enterprises in contracts under financial assistance awards. The Minority Business
Development Agency will assist recipients in matching qualified minority owned
enterprises with contract opportunities. For further information contact:
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U.S. Department of Commerce
Minority Business Development Agency
Herbert C. Hoover Building
14th Street and Constitution Avenue, N.W.
Washington, D.C. 20230
.06 Subaward and/or Contract to a Federal Agency
a. The recipient, subrecipient, contractor, and/or subcontractor shall not sub-grant
or sub-contract any part of the approved project to any agency or employee of
DoC and/or other Federal department, agency or instrumentality, without the
prior written approval of the Grants Officer.
b. Requests for approval of such action must be submitted to the Federal Program
Officer who shall review and make a recommendation to the Grants Officer. The
Grants Officer shall make the final determination and will notify the recipient in
writing of the final determination.
K. PROPERTY
.01 Standards
The recipient shall comply with the property management standards as stipulated in
the applicable uniform administrative requirements.
.02 Real Property
The recipient shall record liens or other appropriate notices of record to indicate that
real property has been acquired or improved with Federal funds and that disposition
conditions apply to the property.
L. MISCELLANEOUS REQUIREMENTS
.01 Criminal and Prohibited Activities.
a. The Program Fraud Civil Remedies Act (31 U.S.C. 3801-3812), provides for
the imposition of civil penalties against persons who make false, fictitious, or
fraudulent claims to the Federal government for money (including money
representing grants, loans or other benefits).
b. False statements (18 U.S.C. 287 and 1001), provides that whoever makes or
presents any false, fictitious, or fraudulent statements, representations, or claims
against the United States shall be subject to imprisonment of not more than five
years and shall be subject to a fine in the amount provided by 18 U.S.C. 287.
c. False Claims Act (31 U.S.C. 3729 et seq.), provides that suits under this act can
be brought by the government, or a person on behalf of the government, for false
claims under Federal assistance programs.
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d. Copeland Anti-Kickback Act (18 U.S.C. 874 and 40 U.S.C. 276c),
prohibits a person or organization engaged in a Federally supported project from
enticing an employee working on the project from giving up a part of his
compensation under an employment contract.
.02 Foreign Travel
a. The recipient shall comply with the provisions of the Fly America Act (49 USC
40118). The implementing regulations of the Fly America Act are found at 41
CFR 301-10.131 through 301-10.143.
b. The Fly America Act requires that Federal travelers and others performing U.S.
Government-financed foreign air travel must use U.S. flag air carriers, to the
extent that service by such carriers is available. Foreign air carriers may be used
only in specific instances, such as when a U.S. flag air carrier is unavailable, or
use of U.S. flag air carrier service will not accomplish the agency's mission.
c. Use of foreign air carriers may also be used only if bilateral agreements permit
such travel pursuant to 49 USC 40118(b). DoC is not aware of any bilateral
agreements which meet these requirements. Therefore, it is the responsibility of
the recipient to provide the Grants Officer with a copy of the applicable bilateral
agreement if use of a foreign carrier under a bilateral agreement is anticipated.
d. If a foreign air carrier is anticipated to be used for any part of foreign travel, the
recipient must receive prior approval from the Grants Officer. When requesting
such approval, the recipient must provide a justification in accordance with
guidance provided by 41 CFR 301-10.142, which requires the recipient to
provide the Grants Officer with the following: name; dates of travel; origin and
destination of travel; detailed itinerary of travel, name of the air carrier and flight
number for each leg of the trip; and a statement explaining why the recipient
meets one of the exceptions to the regulations. If the use of a foreign air carrier
is pursuant to a bilateral agreement, the recipient must provide the Grants Officer
with a copy of the agreement. The Grants Officer shall make the final
determination and notify the recipient in writing. Failure to adhere to the
provisions of the Fly America Act will result in the recipient not being
reimbursed for any transportation costs for which the recipient improperly used a
foreign air carrier.
.03 American-Made Equipment and Products.
Recipients are hereby notified that they are encouraged, to the greatest extent
practicable, to purchase American-made equipment and products with funding
provided under this award.
.04 Intellectual Property Rights
a. Inventions.
KA-3359 KA-3359 KA-3359
16 10/01
The rights to any invention made by a recipient under a DoC financial assistance
award are determined by the Bayh-Dole Act, Pub. L. 96-517, as amended, and
codified in 35 U.S.C. 200 et seq, except as otherwise required by law. The
specific rights and responsibilities are described in more detail in 37 CFR Part
401 and in particular, in the standard patent rights clause in 37 CFR 401.14.
1. Ownership.

(a) Recipient. The recipient has the right to own any invention it makes
(conceived or first reduced to practice) or made by its employees. The
recipient may not assign its rights to a third party without the permission
of DoC unless it is to a patent management organization (i.e., a
universitys Research Foundation.) The recipients ownership rights are
subject to the Governments nonexclusive paid-up license.
(b) Department. If the recipient elects not to own or does not elect rights or
file a patent application within the time limits set forth in the standard
patent rights clause, DoC may request an assignment of all rights, which
is normally subject to a limited royalty free nonexclusive license for the
recipient. DoC owns any invention made solely by its employees but
may license the recipient in accordance with the procedures in 37 CFR
Part 404.
(c) Inventor/Employee. If neither the recipient nor the Department is
interested in owning an invention by a recipient employee, the recipient,
with the written concurrence of DoC Patent Counsel, may allow the
inventor/employee to own the invention subject to certain restrictions as
described in 37 CFR 401.9.
(d) Joint inventions. Inventions made jointly by a recipient and a DoC
employee will be owned jointly by the recipient and DoC. However,
DoC may transfer its rights to the recipient as authorized by 35 U.S.C.
202(e) and 37 CFR 401.10 if the recipient is willing to patent and
license the invention in exchange for a share of net royalties based on
the number of inventors (e.g., 50-50 if there is one recipient and DoC
employee). The agreement will be prepared by DoC Patent Counsel and
may include other provisions, such as a royalty free license to the
Government and certain other entities.
2. Responsibilities.
The recipient has responsibilities and duties set forth in the standard patent
rights clause, which are not described below. The recipient is expected to
comply with all the requirements of the standard patent rights clause and 37
CFR Part 401.
(a) Reporting. Within two months of when the recipient reports the
invention, the recipient will send the invention disclosure to DoC Patent
KA-3360 KA-3360 KA-3360
17 10/01
Counsel (HCHB Room 4613, Washington, DC 20230, telephone: 202-
482-8097) and the appropriate DoC program office.
(b) Electing. Within two years of reporting the invention to DoC, the
recipient will notify DoC Patent Counsel of its decision whether or not it
wishes to own the invention.
(c) Filing. Within one year of notifying DoC that it wishes to own the
invention, the recipient will file a patent application (either a provisional
or non-provisional) and promptly send a copy of the application to DoC
Patent Counsel. Any foreign or international application must usually
be filed within 10 months of the first filed application in the United
States. The recipient will ensure that any U.S. application contains the
required statement of Government support. The recipient will also
promptly send the required confirmatory Government license to DoC
Patent Counsel who shall record that license in the Patent and
Trademark Office. If the recipient decides to discontinue the
prosecution of any patent application or not pay a maintenance fee or
defend a reexamination, it shall notify DoC Patent Counsel of that fact in
sufficient time (but not less than 30 days) for the Government to respond
to any outstanding requirement or letter from a patent office. However,
if the recipient is filing a continuing application, it needs only to notify
DoC Patent Counsel of this and provide a copy of the continuing
application with the appropriate confirmatory license. Upon issuance of
any application, the recipient will promptly provide a copy of the patent
to DoC Patent Counsel.

(d) The recipient should send any request for an extension of time to DoC
Patent Counsel in advance of the expiration of the time period.
b. Patent Notification Procedures.
Pursuant to EO 12889, DoC is required to notify the owner of any valid patent
covering technology whenever the DoC or its financial assistance recipients,
without making a patent search, knows (or has demonstrable reasonable grounds
to know) that technology covered by a valid United States patent has been or will
be used without a license from the owner. To ensure proper notification, if the
recipient uses or has used patented technology under this award without a license
or permission from the owner, the recipient must notify the DoC Patent Counsel
at the following address, with a copy to the Grants Officer:
Department of Commerce
Office of Chief Counsel for Technology, Patent Counsel
14th Street and Constitution Avenue, N.W. Room H-4613
Washington, D.C. 20230
c. Data, Databases, and Software.
KA-3361 KA-3361 KA-3361
18 10/01
The rights to any work produced or purchased under a DoC Federal financial
assistance award are determined by 15 CFR 24.34 and 15 CFR 14.36 . Such
works may include data, databases or software. The recipient owns any work
produced or purchased under a DoC Federal financial assistance award subject to
DoCs right to obtain, reproduce, publish or otherwise use the work or authorize
others to receive, reproduce, publish or otherwise use the data for Government
purposes.
d. Copyright.
The recipient may copyright any work produced under a DoC Federal financial
assistance award subject to DoCs royalty-free nonexclusive and irrevocable
right to reproduce, publish or otherwise use the work or authorize others to do so
for Government purposes. Works jointly authored by DoC and recipient
employees may be copyrighted but only the part authored by the recipient is
protected because, under 17 U.S.C. 105, works produced by Government
employees are not copyrightable in the United States. If the contributions of the
authors cannot be separated, the copyright status of the joint work is
questionable. On occasion, DoC may ask the recipient to transfer to DoC its
copyright in a particular work when DoC is undertaking the primary
dissemination of the work. Ownership of copyright by the Government through
assignment is permitted by 17 U.S.C. 105.
.05 Increasing Seat Belt Use in the United States.
Pursuant to EO 13043, recipients should encourage employees and contractors to
enforce on-the-job seat belt policies and programs when operating company-owned,
rented or personally-owned vehicles.
.06 Research Involving Human Subjects.
a. All proposed research involving human subjects must be conducted in
accordance with 15 CFR Part 27, Protection of Human Subjects. No research
involving human subjects is permitted under any DoC financial assistance award
unless expressly authorized by the Grants Officer.
b. No research involving human subjects is permitted under this award unless
expressly authorized by Special Award Condition, or otherwise in writing by the
Grants Officer.
c. Federal policy defines a human subject as a living individual about whom an
investigator conducting research obtains (1) data through intervention or
interaction with the individual, or (2) identifiable private information. Research
means a systematic investigation, including research development, testing and
evaluation, designed to develop or contribute to generalizable knowledge.
KA-3362 KA-3362 KA-3362
19 10/01
d. DoC regulations, 15 CFR Part 27, require that recipients maintain appropriate
policies and procedures for the protection of human subjects. In the event it
becomes evident that human subjects may be involved in this project, the
recipient shall submit appropriate documentation to the Federal Program Officer
for approval by the appropriate DoC officials. This documentation may include:
1. Documentation establishing approval of the project by an institutional review
board (IRB) approved for Federal-wide use under Department of Health and
Human Services guidelines, see 15 CFR 27.103;
2. Documentation to support an exemption for the project under 15 CFR
27.101(b);
3. Documentation to support deferral for an exemption or IRB review under 15
CFR 27.118;
4. Documentation of IRB approval of any modification to a prior approved
protocol or to an informed consent form.
e. No work involving human subjects may be undertaken, conducted, or costs
incurred and/or charged for human subjects research, until the appropriate
documentation is approved in writing by the Grants Officer. Notwithstanding
this prohibition, work may be initiated or costs incurred and/or charged to the
project for protocol or instrument development related to human subjects
research.
.07 Federal Employee Expenses.
Federal agencies are generally barred from accepting funds from a recipient to pay
transportation, travel, or other expenses for any Federal employee unless specifically
approved in the terms of the award. Use of award funds (Federal or non-Federal) or
the recipients provision of in-kind goods or services, for the purposes of
transportation, travel, or any other expenses for any Federal employee may raise
appropriation augmentation issues. In addition, DoC policy prohibits the acceptance
of gifts, including travel payments for Federal employees, from recipients or
applicants regardless of the source.
.08 Preservation of Open Competition and Government Neutrality Towards
Government Contractors Labor Relations on Federal and Federally Funded
Construction Projects.
Pursuant to EO 13202, Preservation of Open Competition and Government
Neutrality Towards Government Contractors Labor Relations on Federal and
Federally Funded Construction Projects, unless the project is exempted under
section 5(c) of the order, bid specifications, project agreements, or other controlling
documents for construction contracts awarded by recipients of grants or cooperative
agreements, or those of any construction manager acting on their behalf, shall not:
a) include any requirement or prohibition on bidders, offerors, contractors, or
KA-3363 KA-3363 KA-3363
20 10/01
subcontractors about entering into or adhering to agreements with one or more labor
organizations on the same or related construction project(s); or b) otherwise
discriminate against bidders, offerors, contractors, or subcontractors for becoming or
refusing to become or remain signatories or otherwise to adhere to agreements with
one or more labor organizations, on the same or other related construction project(s).
.09 Minority Serving Institutions (MSIs) Initiative.
Pursuant to EOs 12876, 12900, and 13021, DoC is strongly committed to broadening
the participation of MSIs in its financial assistance programs. DoCs goals include
achieving full participation of MSIs in order to advance the development of human
potential, strengthen the Nations capacity to provide high-quality education, and
increase opportunities for MSIs to participate in and benefit from Federal financial
assistance programs. DoC encourages all applicants and recipients to include
meaningful participation of MSIs. Institutions eligible to be considered MSIs are
listed on the Department of Education website.
KA-3364 KA-3364 KA-3364

12-2207 Karron v USA Certificate of Appealability Brief Appendix
83
DoC FINANCIAL ASSISTANCE STANDARD
TERMS AND CONDITIONS January 2005

DoC
FINANCIAL ASSISTANCE
STANDARD TERMS AND
CONDITIONS
January 2005
KA-3365 KA-3365 KA-3365

DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE
STANDARD TERMS AND CONDITIONS






























1/05





01/05
KA-3366 KA-3366 KA-3366


DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE STANDARD TERMS AND CONDITIONS

PREFACE....................................................................................................................... 1
A. FINANCIAL REQUIREMENTS.................................................................................. 1
.01 Financial Reports....................................................................................... 1
.02 Award Payments........................................................................................ 1
.03 Federal and Non-Federal Sharing.............................................................. 2
.04 Budget Changes and Transfer of Funds Among Categories ..................... 3
.05 Indirect Costs............................................................................................. 4
.06 Incurring Costs or Obligating Federal Funds Beyond the Expiration Date. 6
.07 Tax Refunds .............................................................................................. 6
B. PROGRAMMATIC REQUIREMENTS....................................................................... 7
.01 Performance (Technical) Reports.............................................................. 7
.02 Unsatisfactory Performance....................................................................... 7
.03 Programmatic Changes ............................................................................. 7
.04 Other Federal Awards with Similar Programmatic Activities ...................... 7
.05 Non-Compliance With Award Provisions ................................................... 8
.06 Prohibition Against Assignment by the Recipient....................................... 8
.07 Disclaimer Provisions................................................................................. 8
C. NON-DISCRIMINATION REQUIREMENTS.............................................................. 8
.01 Statutory Provisions................................................................................... 9
.02 Other Provisions ........................................................................................ 9
.03 Title VII Exemption for Religious Organizations....................................... 10
D. AUDITS................................................................................................................... 10
.01 Organization-Wide, Program-Specific, and Project Audits....................... 10
.02 Audit Resolution Process......................................................................... 11
E. DEBTS..................................................................................................................... 12
.01 Payment of Debts Owed the Federal Government.................................. 12
.02 Late Payment Charges............................................................................ 13
.03 Barring Delinquent Federal Debtors From Obtaining Federal Loans or
Loan Insurance Guarantees .................................................................... 13
.04 Effect of J udgment Lien On Eligibility For Federal Grants, Loans, or
Programs ................................................................................................. 13
F. NAME CHECK......................................................................................................... 14
.01 Results of Name Check........................................................................... 14
.02 Action(s) Taken as a Result of Name Check Review............................... 14
G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT)
........................................................................................................................... 14
H. DRUG-FREE WORKPLACE................................................................................... 15
I. LOBBYING RESTRICTIONS.................................................................................... 15
.01 Statutory Provisions................................................................................. 15
.02 Disclosure of Lobbying Activities ............................................................. 15
J. CODES OF CONDUCT AND SUBAWARD, CONTRACT, AND SUBCONTRACT
PROVISIONS..................................................................................................... 16
.01 Code of Conduct for Recipients............................................................... 16
KA-3367 KA-3367 KA-3367


.02 Applicability of Award Provisions to Subrecipients................................... 16
.03 Competition and Codes of Conduct for Subawards................................. 16
.04 Applicability of Provisions to Subawards, Contracts, and Subcontracts... 17
.05 Minority Owned Business Enterprise....................................................... 18
.06 Subaward and/or Contract to a Federal Agency...................................... 18
K. PROPERTY............................................................................................................. 19
.01 Standards ................................................................................................ 19
.02 Real Property........................................................................................... 19
L. ENVIRONMENTAL REQUIREMENTS.................................................................... 19
.01 The National Environmental Policy Act of 1969 (42 U.S.C. 4321 et
seq.)......................................................................................................... 19
.02 Floodplain Management, EO 11988 and, Protection of Wetlands, EO
11990, May 24, 1977............................................................................... 20
.03 Clean Air Act, Clean Water Act, and EO 11738....................................... 20
.04 The Flood Disaster Protection Act of 1973 (42 U.S.C. 4002 et seq.).... 20
.05 The Endangered Species Act of 1973, as amended, (16 U.S.C. 1531 et
seq.)......................................................................................................... 20
.06 The Coastal Zone Management Act, as amended, (16 U.S.C. 1451 et
seq.)......................................................................................................... 20
.07 The Coastal Barriers Resources Act, (16 U.S.C. 3501 et seq.) ............ 21
.08 The Wild and Scenic Rivers Act, as amended, (16 U.S.C. 1271 et seq.)21
.09 The Safe Drinking Water Act of 1974, as amended, (42 U.S.C. 300f-j)21
.10 The Resource Conservation and Recovery Act of 1976, as amended, (42
U.S.C. 6901 et seq.) ........................................................................... 21
.11 The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, and the Superfund Amendments and
Reauthorization Act of 1986, and the Community Environmental
Response Facilitation Act of 1992, as amended, (42 U.S.C. 9601 et
seq.)......................................................................................................... 21
.12 Environmental J ustice in Minority Populations and Low Income
Populations, EO 12898, February 11, 1994............................................. 22
M. MISCELLANEOUS REQUIREMENTS ................................................................... 22
.01 Criminal and Prohibited Activities............................................................. 22
.02 Foreign Travel.......................................................................................... 22
.03 American-Made Equipment and Products. .............................................. 23
.04 Intellectual Property Rights...................................................................... 23
.05 Increasing Seat Belt Use in the United States. ........................................ 26
.06 Research Involving Human Subjects. ...................................................... 27
.07 Federal Employee Expenses. .................................................................. 28
.08 Preservation of Open Competition and Government Neutrality Towards
Government Contractors Labor Relations on Federal and Federally
Funded Construction Projects.................................................................. 28
.09 Minority Serving Institutions (MSIs) Initiative. .......................................... 28
.10 Research Misconduct.............................................................................. 29
.11 Publications and Acknowledgment of Sponsorship.................................. 29
.12 Videos Produced Under DOC Financial Assistance Awards ................... 30
KA-3368 KA-3368 KA-3368


.13 Care and Use of Live Vertebrate Animals................................................ 30

KA-3369 KA-3369 KA-3369
PREFACE


The recipient and any subrecipients must, in addition to the assurances made as part of
the application, comply and require each of its contractors and subcontractors employed
in the completion of the project to comply with all applicable statutes, regulations,
executive orders (EOs), Office of Management and Budget (OMB) circulars, terms and
conditions, and approved applications.

This award is subject to the laws and regulations of the United States. Any
inconsistency or conflict in terms and conditions specified in the award will be resolved
according to the following order of precedence: public laws, regulations, applicable
notices published in the Federal Register, EOs, OMB circulars, Department of
Commerce (DoC) Financial Assistance Standard Terms and Conditions, agency
standard award conditions (if any), and special award conditions. Special award
conditions may amend or take precedence over DoC standard terms and conditions, on
a case-by-case basis, when allowed by the DoC standard term and condition.

Some of the DoC terms and conditions herein contain, by reference or substance, a
summary of the pertinent statutes, or regulations published in the Federal Register or
Code of Federal Regulations (CFR), EOs, OMB circulars or the assurances (Forms SF-
424B, 424D). To the extent that it is a summary, such provision is not in derogation of,
or an amendment to, any such statute, regulation, EO, or OMB circular.

A. FINANCIAL REQUIREMENTS

.01 Financial Reports

a. The recipient shall submit a "Financial Status Report" (SF-269) on a semi-
annual basis for the periods ending March 31 and September 30, 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 final SF-269 shall be submitted within 90 days after the
expiration date of the award.

b. Unless otherwise authorized by a special award condition, all financial
reports shall be submitted in triplicate (one original and two copies) to the
Grants Officer.

.02 Award Payments

a. The advance method of payment shall be authorized unless otherwise
specified in a special award condition. The Grants Officer determines the
1 01/05
KA-3370 KA-3370 KA-3370

2 01/05
appropriate method of payment. Payments will be made through
electronic funds transfers directly to the recipients bank account and in
accordance with the requirements of the Debt Collection Improvement Act
of 1996 and the Cash Management Improvement Act. The DoC Award
Number must be included on all payment-related correspondence,
information, and forms.

b. When the "Request for Advance or Reimbursement" (SF-270) is used to
request payment, the recipient shall submit the request no more
frequently than monthly, and advances shall be approved for periods to
cover only expenses anticipated over the next 30 days. When the SF-270
is used, the recipient must complete the SF-3881, ACH Vendor
Miscellaneous Payment Enrollment Form, and return it to the Grants
Officer.

c. DoC will begin using the Department of Treasurys Automated Standard
application for Payment (ASAP) system. Under the ASAP system,
payments will be made through preauthorized electronic funds transfers,
in accordance with the requirements of the Debt Collection Improvement
Act of 1996. In order to receive payments under ASAP, recipients will be
required to enroll with the Department of Treasury, Financial Management
Service, Regional Financial Centers, which allows them to use the on-line
and Voice Response System (VRS) method of withdrawing funds from
their ASAP established accounts. Recipients enrolled in the ASAP system
do not need to submit a Request for Advance or Reimbursement (SF-
270), for payments relating to their award. Awards that will be paid under
the ASAP system will contain a special award condition, clause, or
provision describing enrollment requirements and any controls or
withdrawal limits set in the ASAP system.

d. Advances shall be limited to the minimum amounts necessary to meet
immediate disbursement needs, but in no case should advances exceed
the amount of cash required for a 30-day period. Advanced funds not
disbursed in a timely manner must be promptly returned to DoC. If a
recipient demonstrates an unwillingness or inability to establish
procedures which will minimize the time elapsing between the transfer of
funds and disbursement or if the recipient otherwise fails to continue to
qualify for the advance method of payment, the Grants Officer may
change the method of payment to reimbursement only.

.03 Federal and Non-Federal Sharing

a. Awards which include Federal and non-Federal sharing incorporate
a budget consisting of shared allowable costs. If actual allowable
costs are less than the total approved budget, the Federal and non-
KA-3371 KA-3371 KA-3371

3 01/05
Federal cost shares shall be calculated by applying the approved
Federal and non-Federal cost share ratios to actual allowable
costs. If actual allowable costs are greater than the total approved
budget, the Federal share shall not exceed the total Federal dollar
amount authorized by the award.

b. The non-Federal share, whether in cash or in-kind, is expected to
be paid out at the same general rate as the Federal share.
Exceptions to this requirement may be granted by the Grants
Officer based on sufficient documentation demonstrating previously
determined plans for, or later commitment of, cash or in-kind
contributions. In any case, the recipient must meet its cost share
commitment over the life of the award.

.04 Budget Changes and Transfer of Funds Among Categories

a. Requests for budget changes to the approved estimated budget in
accordance with the provision noted below must be submitted to
the Grants Officer who shall make the final determination on such
requests and notify the recipient in writing.

b. Transfers of funds by the recipient among direct cost categories are
permitted for awards in which the Federal share of the project is
$100,000 or less. For awards in which the Federal share of the
project exceeds $100,000, transfers of funds must be approved in
writing by the Grants Officer when the cumulative amount of such
transfers exceed 10 percent of the current total Federal and non-
Federal funds authorized by the Grants Officer. The 10 percent
threshold applies to the total Federal and non-Federal funds
authorized by the Grants Officer at the time of the transfer request.
This is the accumulated amount of Federal funding obligated to date
by the Grants Officer along with any non-Federal share. The same
criteria applies to the cumulative amount of transfer of funds among
programs, functions, and activities. Transfers will not be permitted if
such transfers would cause any Federal appropriation, or part
thereof, to be used for purposes other than those intended. This
transfer authority does not authorize the recipient to create new
budget categories within an approved budget unless the Grants
Officer has provided prior approval.

c. The recipient is not authorized at any time to transfer amounts
budgeted for direct costs to the indirect costs line item or vice
versa, without written prior approval of the Grants Officer.

KA-3372 KA-3372 KA-3372

12-2207 Karron v USA Certificate of Appealability Brief Appendix
84
DoC FINANCIAL ASSISTANCE STANDARD
TERMS AND CONDITIONS March 2008

DoC
FINANCIAL
ASSISTANCE
STANDARD TERMS
AND CONDITIONS
March 2008
KA-3373 KA-3373 KA-3373
DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE
STANDARD TERMS AND CONDITIONS
















March 2008
KA-3374 KA-3374 KA-3374
DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE
STANDARD TERMS AND CONDITIONS

PREFACE....................................................................................................................................... 1
A. FINANCIAL REQUIREMENTS........................................................................................... 1
.01 Financial Reports............................................................................................................ 1
.02 Award Payments............................................................................................................. 1
.03 Federal and Non-Federal Sharing................................................................................... 2
.04 Budget Changes and Transfer of Funds Among Categories........................................... 3
.05 Indirect Costs.................................................................................................................. 3
.06 Incurring Costs of Obligating Federal Funds Beyond the Expiration Date.................... 5
.07 Tax Refunds.................................................................................................................... 6
B. PROGRAMMATIC REQUIREMENTS................................................................................ 6
.01 Performance (Technical) Reports................................................................................... 6
.02 Unsatisfactory Performance............................................................................................ 6
.03 Programmatic Changes................................................................................................... 7
.04 Other Federal Awards with Similar Programmatic Activities........................................ 7
.05 Non-Compliance With Award Provisions...................................................................... 7
.06 Prohibition Against Assignment by the Recipient.......................................................... 7
.07 Disclaimer Provisions..................................................................................................... 7
C. NON-DISCRIMINATION REQUIRMENTS........................................................................ 8
.01 Statutory Provisions........................................................................................................ 8
.02 Other Provisions.............................................................................................................. 8
.03 Title VII Exemption for Religious Organizations.......................................................... 9
D. AUDITS.................................................................................................................................. 9
.01 Organization-Wide, Program-Specific, and Project Audits............................................ 9
.02 Audit Resolution Process.............................................................................................. 10
E. DEBTS.................................................................................................................................. 11
.01 Payment of Debts Owed the Federal Government....................................................... 11
.02 Late Payment Charges.................................................................................................. 12
.03 Barring Delinquent Federal Debtors From Obtaining Federal Loans or Loan Insurance
Guarantees................................................................................................................................. 12
.04 Effect of J udgment Lien On Eligibility For Federal Grants, Loans, or Programs........ 12
F. INDIVIDUAL BACKGROUND SCREENING.................................................................. 13
.01 Results of Individual Background Screening............................................................... 13
.02 Action(s) Taken as a Result of Individual Background Screening............................... 13
G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) . 14
H. DRUG-FREE WORKPLACE.............................................................................................. 14
I. LOBBYING RESTRICTIONS............................................................................................. 14
.01 Statutory Provisions...................................................................................................... 14
.02 Disclosure of Lobbying Activities................................................................................ 14
J ..........CODES OF CONDUCT AND SUBAWARD, CONTRACT, AND SUBCONTRACT
PROVISIONS......................................................................................................................... 15
.01 Code of Conduct for Recipients.................................................................................... 15
.02 Applicability of Award Provisions to Subrecipients.................................................... 15
KA-3375 KA-3375 KA-3375
.03 Competition and Codes of Conduct for Subawards...................................................... 16
.04 Applicability of Provisions to Subawards, Contracts, and Subcontracts...................... 16
.05 Minority Owned Business Enterprise........................................................................... 17
.06 Subaward and/or Contract to a Federal Agency........................................................... 18
K. PROPERTY .......................................................................................................................... 18
.01 Standards....................................................................................................................... 18
.02 Real Property................................................................................................................ 18
L. ENVIRONMENTAL REQUIREMENTS............................................................................ 19
.01 The National Environmental Policy Act of 1969 (42 U.S.C. 4321-4327)............... 19
.02 Floodplain Management, EO 11988 and, Protection of Wetlands, EO 11990, May 24,
1977 ....................................................................................................................................... 19
.03 Clean Air Act, Clean Water Act, and EO 11738.......................................................... 20
.04 The Flood Disaster Protection Act of 1973 (42 U.S.C. 4002 et seq.)........................ 20
.05 The Endangered Species Act of 1973, as amended, (16 U.S.C. 1531 et seq.) .......... 20
.06 The Coastal Zone Management Act, as amended, (16 U.S.C. 1451 et seq.)............. 20
.07 The Coastal Barriers Resources Act, (16 U.S.C. 3501 et seq.).................................. 20
.08 The Wild and Scenic Rivers Act, as amended (16 U.S.C. 1271 et seq.) ................. 20
.09 The Safe Drinking Water Act of 1974, as amended (42 U.S.C. 300f-j).................. 21
.10 The Resource Conservation and Recovery Act of 1976, as amended, (42 U.S.C.
6901 et seq.).............................................................................................................................. 21
.11 The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and the Superfund Amendments and Reauthorization Act of 1986, and the
Community Environmental Response Facilitation Act of 1992, as amended, (42 U.S.C.
9601 et seq.).............................................................................................................................. 21
.12 Environmental J ustice in Minority Populations and Low Income Populations, EO
12898, February 11, 1994......................................................................................................... 21
M. MISCELLANEOUS REQUIREMENTS......................................................................... 21
.01 Criminal and Prohibited Activities............................................................................... 21
.02 Foreign Travel............................................................................................................... 22
.03 American-Made Equipment and Products.................................................................... 23
.04 Intellectual Property Rights.......................................................................................... 23
a. Inventions...................................................................................................................... 23
1. Ownership................................................................................................................. 23
(a) Recipient........................................................................................................... 23
(b) Department........................................................................................................ 23
(c) Inventor/Employee............................................................................................ 23
(d) J oint inventions................................................................................................. 23
2. Responsibilities - iEdison......................................................................................... 24
b. Patent Notification Procedures..................................................................................... 24
c. Data, Databases, and Software...................................................................................... 24
d. Copyright...................................................................................................................... 24
.05 Increasing Seat Belt Use in the United States............................................................... 25
.06 Research Involving Human Subjects............................................................................ 25
.07 Federal Employee Expenses......................................................................................... 26
.08 Preservation of Open Competition and Government Neutrality Towards Government
Contractors Labor Relations on Federal and Federally Funded Construction Projects. ......... 26
KA-3376 KA-3376 KA-3376
.09 Minority Serving Institutions (MSIs) Initiative............................................................ 26
.10 Research Misconduct.................................................................................................... 27
.11 Publications, Videos and Acknowledgement of Sponsorship...................................... 27
.12 Care and Use of Live Vertebrate Animals.................................................................... 27
.13 Homeland Security Presidential Directive 12............................................................ 28
.14 Compliance with Department of Commerce Bureau of Industry and Security Export
Administration Regulations...................................................................................................... 28
.15 The Trafficking Victims Protection Act of 2000 (22 U.S.C. 7104(g)), as amended,
and the implementing regulations at 2 CFR Part 175............................................................... 29
.16 The Federal Funding Accountability and Transparency Act of 2006 (Pub. L. No.
109-282).................................................................................................................................... 29
KA-3377 KA-3377 KA-3377
PREFACE

The recipient and any subrecipients must, in addition to the assurances made as part of the
application, comply and require each of its contractors and subcontractors employed in the
completion of the project to comply with all applicable statutes, regulations, executive orders
(EOs), Office of Management and Budget (OMB) circulars, terms and conditions, and approved
applications.

This award is subject to the laws and regulations of the United States. Any inconsistency or
conflict in terms and conditions specified in the award will be resolved according to the
following order of precedence: public laws, regulations, applicable notices published in the
Federal Register, EOs, OMB circulars, Department of Commerce (DOC) Financial Assistance
Standard Terms and Conditions, agency standard award conditions (if any), and special award
conditions. Special award conditions may amend or take precedence over DOC standard terms
and conditions, on a case-by-case basis, when allowed by the DOC standard term and condition.

Some of the DOC terms and conditions herein contain, by reference or substance, a summary of
the pertinent statutes, or regulations published in the Federal Register or Code of Federal
Regulations (CFR), EOs, OMB circulars or the assurances (Forms SF-424B, 424D). To the
extent that it is a summary, such provision is not in derogation of, or an amendment to, any such
statute, regulation, EO, or OMB circular.


A. FI NANCI AL REQUI REMENTS

.01 Financial Reports

a. The recipient shall submit a "Financial Status Report" (SF-269) on a semi-annual
basis for the periods ending March 31 and September 30, 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 final SF-269 shall be
submitted within 90 days after the expiration date of the award.

b. The reports must be submitted to the Grants Officer in hard copy (no more than an
original and two copies), or electronically when specified in the special award
conditions.

.02 Award Payments

a. The advance method of payment shall be authorized unless otherwise specified in a
special award condition. The Grants Officer determines the appropriate method of
payment. Payments will be made through electronic funds transfers directly to the
KA-3378 KA-3378 KA-3378
recipients bank account and in accordance with the requirements of the Debt
Collection Improvement Act of 1996 and the Cash Management Improvement Act.
The DOC Award Number must be included on all payment-related correspondence,
information, and forms.

b. When the "Request for Advance or Reimbursement" (SF-270) is used to request
payment, the recipient shall submit the request no more frequently than monthly, and
advances shall be approved for periods to cover only expenses anticipated over the
next 30 days. When the SF-270 is used, the recipient must complete the SF-3881,
ACH Vendor Miscellaneous Payment Enrollment Form, and return it to the Grants
Officer.

c. Unless otherwise provided for in the award terms, payments under this award will be
made using the Department of Treasurys Automated Standard Application for
Payment (ASAP) system. Under the ASAP system, payments are made through
preauthorized electronic funds transfers, in accordance with the requirements of the
Debt Collection Improvement Act of 1996. In order to receive payments under
ASAP, recipients are required to enroll with the Department of Treasury, Financial
Management Service, Regional Financial Centers, which allows them to use the on-
line and Voice Response System (VRS) method of withdrawing funds from their
ASAP established accounts. The following information will be required to make
withdrawals under ASAP: (1) ASAP account number the award number found on
the cover sheet of the award; (2) Agency Location Code (ALC); and Region Code.
Recipients enrolled in the ASAP system do not need to submit a Request for
Advance or Reimbursement (SF-270), for payments relating to their award. Awards
paid under the ASAP system will contain a special award condition, clause, or
provision describing enrollment requirements and any controls or withdrawal limits
set in the ASAP system.

d. Advances shall be limited to the minimum amounts necessary to meet immediate
disbursement needs, but in no case should advances exceed the amount of cash
required for a 30-day period. Advanced funds not disbursed in a timely manner and
any applicable interest must be promptly returned to DOC. If a recipient
demonstrates an unwillingness or inability to establish procedures which will
minimize the time elapsing between the transfer of funds and disbursement or if the
recipient otherwise fails to continue to qualify for the advance method of payment,
the Grants Officer may change the method of payment to reimbursement only.

.03 Federal and Non-Federal Sharing

a. Awards which include Federal and non-Federal sharing incorporate a budget
consisting of shared allowable costs. If actual allowable costs are less than the total
approved budget, the Federal and non-Federal cost shares shall be calculated by
applying the approved Federal and non-Federal cost share ratios to actual allowable
costs. If actual allowable costs are greater than the total approved budget, the Federal
KA-3379 KA-3379 KA-3379
share shall not exceed the total Federal dollar amount authorized by the award.

b. The non-Federal share, whether in cash or in-kind, is expected to be paid out at the
same general rate as the Federal share. Exceptions to this requirement may be
granted by the Grants Officer based on sufficient documentation demonstrating
previously determined plans for, or later commitment of, cash or in-kind
contributions. In any case, the recipient must meet its cost share commitment over
the life of the award.

.04 Budget Changes and Transfer of Funds Among Categories

a. Requests for budget changes to the approved estimated budget in accordance with the
provision noted below must be submitted to the Grants Officer who shall make the
final determination on such requests and notify the recipient in writing.

b. Transfers of funds by the recipient among direct cost categories are permitted for
awards in which the Federal share of the project is $100,000 or less. For awards in
which the Federal share of the project exceeds $100,000, transfers of funds among
direct cost categories must be approved in writing by the Grants Officer when the
cumulative amount of such direct cost transfers exceed 10 percent of the total Federal
and non-Federal funds authorized by the Grants Officer. The 10 percent threshold
applies to the total Federal and non-Federal funds authorized by the Grants Officer at
the time of the transfer request. This is the accumulated amount of Federal funding
obligated to date by the Grants Officer along with any non-Federal share. The same
criteria apply to the cumulative amount of transfer of funds among programs,
functions, and activities. Transfers will not be permitted if such transfers would
cause any Federal appropriation, or part thereof, to be used for purposes other than
those intended. This transfer authority does not authorize the recipient to create new
budget categories within an approved budget unless the Grants Officer has provided
prior approval. In addition, this does not prohibit the recipient from requesting
Grants Officer approval for revisions to the budget.

c. The recipient is not authorized at any time to transfer amounts budgeted for direct
costs to the indirect costs line item or vice versa, without written prior approval of the
Grants Officer.

.05 I ndirect Costs

a. Indirect costs will not be allowable charges against the award unless specifically
included as a cost item in the approved budget incorporated into the award. (The
term indirect cost has been replaced with the term facilities and administrative
costs under OMB Circular A-21, Cost Principles for Educational Institutions.)

b. Excess indirect costs may not be used to offset unallowable direct costs.
KA-3380 KA-3380 KA-3380

30
Data elements will include:

Name of entity receiving award;
Award amount;
Transaction type, funding agency, Catalog of Federal Domestic Assistance
Number, and descriptive award title;
Location of: entity, primary location of performance
(City/State/Congressional District/Country; and
Unique identifier of entity.

The data will be required within 30 days of an award. The DOC will be implementing
this Act, which will require recipients and subrecipients to report the required data.



KA-3381 KA-3381 KA-3381

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GENERAL TERMS AND CONDITIONS
ADVANCED TECHNOLOGY PROGRAM Aug
2001

GENERAL TERMS AND CONDITIONS
ATP
August
2001

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GENERAL TERMS AND CONDITIONS
ADVANCED TECHNOLOGY PROGRAM
September 2007

GENERAL TERMS AND CONDITIONS
ATP
September
2007
KA-3399 KA-3399 KA-3399
General Terms and Conditions
Advanced Technology Program
September 2007
1. Order of Precedence of Award Terms and Conditions
2. Authority to Modify
3. Requirements for Continuing Financial Assistance
4. NIST Project Management Team
5. Substantial Involvement
6. Technical Performance, Business, and Financial Reports
7. Cost Share
8. Kick-off Meetings, Annual Reviews, Closeout Meetings And Special
Studies
9. Notification and Prior Approval Requirements
10. Unallowable Project Costs
11. Program Income
12. Equipment
13. Non-Compliance with Statutory Purpose
14. Interest
15. Audits
16. Award Closeout
17. Use of Name or Endorsements
18. Publications
19. Protection of Human Subjects
20. Care and Use of Vertebrate Animals
21. Bureau of Industry and Security (BIS) Clearance
22. Liability
23. Informal Collaborators
24. Intellectual Property
25. Statutory Reference
Attachment A - Optional Guidelines for Quarterly R&D Performance Reports (4 Pages)
Attachment B - Guidelines for Reporting on Business Progress and Economic Impacts
(2 Pages)
This document applies to all Recipients of the ATP Cooperative Agreements.
ATP Recipient is defined to include all single company Recipients and each
individual company or organization that is identified as a Joint Venture Partner
in the Special Award Conditions.
KA-3400 KA-3400 KA-3400

ATP General Terms and Conditions, September 2007

2
General Terms and Conditions
Advanced Technology Program
September 2007

1. ORDER OF PRECEDENCE OF AWARD
TERMS AND CONDITIONS
Where the terms of the award and proposal
differ, the terms of the award shall prevail.
The Recipient is obligated to bring to the
attention of the Grants Specialist any
perceived conflicts in the terms and
conditions of the award.
2. AUTHORITY TO MODIFY
The NIST Grants Officer is the ONLY
authorized agent at NIST with the authority
to bind the Federal Government and to take
actions to amend, suspend, and terminate
the Award. In the case of a joint venture, the
NIST Grants Officer may take enforcement
action directly with an individual J oint
Venture (J V) Partner, as warranted, as well
as with the J V as a whole.
3. REQUIREMENTS FOR CONTINUING
FINANCIAL ASSISTANCE
A. With respect to any technology arising
from assistance provided by NIST under this
award, the Recipient shall promote the
manufacture of products resulting from that
technology within the United States and
shall procure parts and materials from
competitive United States suppliers to the
extent practical.
B. At any time within the life of this award
should the Recipient cease to have a
majority control or ownership by individuals
who are citizens of the United States, the
Recipient shall notify the NIST Grants
Officer of that fact, in writing, within
THIRTY (30) calendar days of such
change in control or ownership.

4. NIST PROJECT MANAGEMENT TEAM
The NIST Project Management Team (PMT)
includes an ATP Project Manager, a NIST
Grants Specialist, and one or more ATP
technical and business specialists. The ATP
Project Manager is responsible for:
A. General oversight and project
management functions associated with the
Award.
B. Arranging kickoff, annual review, and final
closeout meetings.
C. Monitoring the project to ensure that it is
executed in accordance with the proposal
and this award; this includes analyzing the
quarterly, annual, and final reports, and
consulting with other members of the PMT
to assess progress.
D. Recommending appropriate action to
the NIST Grants Officer if the project is
failing to meet its objectives.
5. SUBSTANTIAL INVOLVEMENT
NIST has selected a cooperative agreement
as the funding instrument for this project.
Consistent with Final Office of Management
and Budget Guidance Implementing the
Federal Grants and Cooperative Agreement
Act, 43 Fed. Reg. 36860 (August 18, 1978),
NIST will be substantially involved in the
following areas:
A. Approval of go/no go decision points at
various project stages before subsequent
stages of a project may continue, if specified
in the Special Award Conditions;

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ATP General Terms and Conditions, September 2007

3
B. Concurrence with sole source
procurements in excess of $100,000;
C. Approval of key personnel specified in
the proposal (including such positions as,
Principal Investigator); and
D. Approval of changes in J oint Venture
membership.
6. TECHNICAL PERFORMANCE,
BUSINESS, AND FINANCIAL REPORTS
The Recipient shall provide access to
information that is required to assess the
projects progress throughout the project life
cycle. In addition to monitoring the technical
work, NIST requires business information
pertaining to the project during the life of the
project and for six years after its end to
assess progress towards commercialization,
the degree of adoption of the technology,
and the impact of the project on the
economy.
A. Technical Reporting:
The Recipient shall submit technical
performance reports in triplicate (one
original and two copies). Two copies shall
be submitted to the ATP Project Manager
and the original report to the NIST Grants
Officer in the same frequency as the SF-269
(Financial Status Report). Technical
performance reports shall contain
information as prescribed in 15 C.F.R
14.51. (See Attachment A for Optional
Guidelines for Quarterly Technical
Performance Reports.)
B. Business Reports:
The Recipient shall submit business reports
in accordance with the Guidelines for
Reporting on Business Progress and
Economic Impacts (see Attachment B).
C. Financial Reports:
For submission of financial reports for ATP
Recipients, Article A.01 of the Department of
Commerce (DoC) Financial Assistance
Standard Terms and Conditions dated May
2007 is revised as follows:
(1) The Recipient shall submit a SF-269
on a calendar quarter basis for the
periods ending March 31, J une 30,
September 30, and December 31,
or any portion thereof, unless
otherwise specified in a Special
Award Condition. Reports are due
no later than Thirty (30) calendar
days following the end of each
reporting period. A final SF-269
shall be submitted within Ninety (90)
calendar days after the expiration
date of the award.

(2) All financial reports shall be
submitted in triplicate (one original
and two copies) to the Grants
Specialist.

(3) By signing this award the Recipient
agrees to ensure that only actual
costs incurred will be charged to the
award and that all costs will be
reasonable, allocable, and allowable
in accordance with the applicable
Federal Cost Principles (see 15
C.F.R. 14.27). The Recipient shall
also ensure that all salaries/wages
(technical and administrative), fringe
benefits, travel, materials and
supplies, equipment, subcontracts,
other costs, and indirect costs
proposed and to be incurred under
this award are consistent with costs
incurred for like or similar items on
all other Federal and non-Federal
projects or cost centers (exclusive of
any profits or fees) of the Recipient,
including each J V Partner. All costs
charged to the project are subject to
audits.

(4) Where a Recipients, including each
J V Partners normal accounting
practice makes use of blended or
average labor rates in lieu of actual
salaries, the Recipient must provide
the NIST Grants Officer with a copy
of its current, Federally audited and
approved pricing or rate agreement.
The Recipient must, throughout the
project period of the award, maintain
contemporaneous records of the
actual labor hours expended on the
project, and ensure that the
appropriate labor schedule and
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ATP General Terms and Conditions, September 2007

4
category are used. Only actual
incurred costs are allowed to be
charged to the project and are
subject to audits.
7. COST SHARE
A. Cost share commitments must be met
and the non-Federal share, whether in
cash or in-kind, is expected to be paid
out at the same general rate as the
Federal share, throughout the Award in
accordance with the approved budget.
Any cost sharing must be in accordance
with the cost sharing or matching
provisions of 15 C.F.R. Part 14. Costs
included as cost share must be
allocable to the project and allowable
under the applicable federal cost
principles. Costs incurred as non-
Federal cost share are subject to the
same allowability requirements as
Federally-funded costs and are subject
to audits.

B. For J Vs, the J V Administrator is
responsible for conducting a review of
the SF-269s for each J V Partner prior to
submission of a consolidated financial
status report for the entire J V. This
review must ensure that the financial
information is consistent with each J V
Partners approved budget including
each J V Partners required cost sharing.
The J V Administrator must resolve any
discrepancies in the financial
information prior to submitting the
consolidated financial status report to
NIST, and prior to making any
withdrawal of funds. At the time of
submission of the financial status report
by the J V Administrator to NIST, the
financial status report must reflect that
the overall cost share is being met at the
same rate that the Federal share is
being spent.

C. Each J V Partner is responsible for
meeting its cost-share commitment
throughout the Award, at the same rate
that the Federal share is being spent, in
accordance with its approved budget.
No J V Partner is responsible for the
cost-share commitment of any other J V
Partner. However, with the agreement
of the J V Partners, along with
notification to the NIST Grants Officer, a
J V Partner that has exceeded its cost
share commitment may allow its excess
cost share to be used to make up for the
cost share deficit of another J V Partner,
so that the overall annual J V cost share
is met.

D. The disallowance of any costs as a
result of an audit could result in a
Recipients failure to provide its required
cost share commitment. Whether it is a
single or a J V Partner, if audit
disallowances result in a Recipients
failure to meet its annual cost share, the
Recipient shall reimburse the Federal
Government for any account receivable
resulting from such disallowance,
regardless of the Federal funding
amount, if any, that the Recipient may
have received under the award.

8. KICK-OFF, ANNUAL REVIEW, AND
CLOSEOUT MEETINGS, AND SPECIAL
STUDIES
The Recipient, including each J V Partner, if
applicable, shall participate in kick-off,
annual review, and closeout meetings. The
ATP Project Manager will provide the
Recipient with meeting instructions in
advance of these meetings.
Consistent with the requirements of the
Government Performance and Results Act
of 1993, Recipients may be asked from time
to time to participate in special economic or
case studies. All requests for participation in
such studies will be in accordance with the
Paperwork Reduction Act (PRA)
requirements as implemented by 5 C.F.R.
1320, and will display a PRA approval
number.
9. NOTIFICATION AND PRIOR
APPROVAL REQUIREMENTS
A. The prior approval requirements in 15
C.F.R. 14.25, paragraph (e) MAY NOT be
waived automatically by the Recipient and
require written approval from the NIST
Grants Officer.
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ATP General Terms and Conditions, September 2007

5
In addition to the requirements specified in
15 C.F.R. 14.25, Recipients must obtain
prior written approval from the NIST Grants
Officer for the following changes:
(1) Any use of human subjects, such as
interactions with live human beings or the
use of data, images, tissue, and/or cells/cell
lines from human subjects.
(2) Any use of vertebrate animals.
B. Joint Ventures
(1) Prior written approval of the NIST Grants
Officer is required for any substitution and/or
addition of J V Partners, change in J V
Administrator, or revision to J V Agreement.
However, any deletion of a J V Partner
requires immediate notification to the NIST
Grants Officer and ATP project manager.
(2) Proposed new JV Partners may not
enter into any obligation, incur any
expenditure, or engage in any activity
that involves a commitment of Federal
funds under this Award until the NIST
Grants Officer has provided formal
acceptance of the new JV Partner and
revised JV Agreement.
(3) Withdrawal of any JV Partner. The
notification must include the following
information:
a. Date of the J V Partners withdrawal.
b. Circumstances of the departure.
c. Plans, if any, for replacing the
departing J V Partner.
d. An explanation of how this change
will affect the project.
(4) When only two for-profit companies
comprise a J V and one of them ceases
participation, the project must be suspended
until the NIST Grants Officer has provided
formal approval of the revised J V
Agreement. During the suspension period,
the Recipient may not continue to enter into
obligations, incur expenditures, and/or
engage in any activity that involves a
commitment of Federal funds under this
Award.
C. Recipients must provide written
notification to the NIST Grants Officer, with a
copy to the ATP Project Manager, within
THIRTY (30) calendar days of the
occurrence of any of the following changes:
Ownership and/or dissolution of a
Recipient company (including a J V
Partner, if a J V). Revisions to ownership
include, but are not limited to, mergers,
acquisitions, change resulting in majority
ownership by non-U.S. citizen(s), etc. In
each instance, the notification must include
the following information:

a. Date of final acquisition, merger, or
change resulting in majority
ownership by non-U.S. citizen(s),
etc.
b. Name and address of any new
foreign parent(s) and for each
foreign parent(s), the percentage of
ownership for each parent.
c. If the change results in majority
ownership or control by non-U.S.
citizen(s), the owner(s) and
percentage of ownership for each.
d. Confirmation that the Recipient
intends to complete its assigned
tasks with the same commitment
and at the same location.
e. Description of how this change in
ownership will affect the projects
projected benefits to the United
States.
D. Recipients must provide written
notification to the NIST Grants Officer and
the ATP Project Manager within Fifteen (15)
calendar days of any budget changes
involving the transfer of funds among direct
cost categories or between J oint Venture
members if the amount of the transfer
exceeds 10% of the approved total annual
budget for any single Recipient or J oint
Venture participant for an approved project
year.
10. UNALLOWABLE PROJECT COSTS
In addition to unallowable costs in the
applicable Federal Cost Principles, costs
designated unallowable in Chapter 1,
Section D.2 of the April 2007 ATP Proposal
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ATP General Terms and Conditions, September 2007

6
Preparation Kit will be unallowable under
this award.
11. PROGRAM INCOME
A. Program income earned during the
project period shall be retained by the
Recipient and shall be used to finance any
non-Federal share of the project.
B. Recipients shall have no obligation to the
Federal Government regarding program
income earned after the end of the project
period.
C. Costs incidental to the generation of
program income may be deducted from
gross income to determine program income,
provided these costs have not been charged
to the award
D. Proceeds from the sale of property shall
be handled in accordance with the
requirements of Property Standards in 15
C.F.R. 14.30 through 14.37.
E. Recipients shall have no obligation to
the Federal Government with respect to
program income earned from license fees
and royalties for copyrighted material,
patents, patent applications, trademarks,
and inventions produced under this award.
12. EQUIPMENT
Upon expiration of the project period, the
Recipient shall submit to the NIST Grants
Officer an inventory of equipment acquired
with Federal funds, as prescribed in 15
C.F.R. 14.34, along with an Equipment
Disposition Certification. The certification
provides the Recipient an opportunity to
request authorization to continue to utilize
the equipment for the purposes of the
commercialization initiative. If approved by
the NIST Grants Officer, the Recipient shall
report to NIST every two years the condition
of the equipment as long as the current
market value is more than $5,000.
For J oint Venture awards, title to any
equipment purchased under the award,
including intangible property that meets the
definition of equipment in 15 C.F.R.
paragraph 14.2(n), that may be in the name
of a departing J V Partner, and that is vital to
the project, shall be transferred to another
J V Partner as instructed by the J V
Administrator for continued use on the
project. The J V shall make compensation to
the departing J V Partner for its contribution
to the purchase of the equipment by
applying its percentage of the cost of the
equipment to the current fair market value of
the equipment. Should the equipment no
longer be needed on the project, the
departing J V Partner shall request
disposition instructions in accordance with
15 C.F.R. 14.34.
13. NON-COMPLIANCE WITH
STATUTORY PURPOSE
If NIST determines that the statutory
purposes of research and development
under 15 U.S.C. 278n can no longer be
served (e.g., the project is no longer high-
risk), the Recipient shall be deemed in
material non-compliance with award
requirements. As a result, NIST may
terminate the award pursuant to 15 C.F.R.
14.61.
14. INSTRUCTIONS FOR INTEREST
PAYMENT
This award is subject to 15 C.F.R. 14.22
requiring recipients of Federal financial
assistance to maintain advances of Federal
funds in interest bearing accounts. Interest
earned on Federal advances deposited in
such accounts (with the exception of $250
per year, which may be retained for
administrative expenses) shall be remitted
promptly.

In keeping with Electronic Funds Transfer
rules (31 C.F.R. 206), interest should be
remitted to the HHS Payment Management
System through an electronic medium such
as the FEDWIR Deposit System. Electronic
remittances should be in the format and
should include any data that are specified by
the HHS as being necessary to facilitate
direct deposit in HHS' account at the
Department of Treasury. The following
website provides further instructions:
http://www.dpm.psc.gov/grant_recipient/f
unding_requests/returning_funds.aspx?
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ATP General Terms and Conditions, September 2007

7
It is the Recipients responsibility to calculate
accrued Interest on the excess Federal
funds on hand from the date of the last
payment made on this award. The minimum
annual interest rate to be assessed is the
Department of Treasurys Current Value of
Funds Rate found at
http://www.fms.treas.gov/cvfr/index.html.

15. AUDITS
Project audits (of Federal and non-Federal
funds) are required for all ATP Recipients
except when those Recipients are required
to comply with the Single Audit Act of 1996
and the audit requirements of Office of
Management and Budget (OMB) Circular A-
133, Audits of States, Local Governments
and Non-Profit Organizations. Recipients
and Subawardees, including universities
who expend $500,000 or more in a year in
Federal awards, are also subject to the audit
requirements. A subawardee is defined as
an organization which receives a portion of
the financial assistance from the Recipient
and assists the ATP Recipient in meeting
the project goals, but does not include the
procurement of goods and services.
A. ALL ATP Recipients, including each
J V Partner (if a J V project), are required to
provide sufficient funds as direct costs
(unless included as indirect) in the projects
multi-year budget to have project audits
performed according to the Schedule shown
in B. Below:
B. All Recipients shall schedule audits
as follows:
(1) For awards less than 24 months, an
audit is required within 90 days from
the project expiration date.
(2) For 2-, 3-, or 4-year awards, an audit
is required within 90 days after the
end of the first year and within 90
days from the project expiration date.
(3) For 5-year awards, an audit is required
within 90 days after the end of the first
year and third year, and within 90
days from the project expiration date.
C. Audits of all Recipients (i.e., Single
companies and J V Partners) shall be
conducted in accordance with Government
Auditing Standards (GAS), issued by the
Comptroller General of the United States
(the Yellow Book).
If an ATP Recipient is required to have an
audit performed in accordance with OMB
Circular A-133, Audits of States, Local
Government, and Non-Profit Organizations,
the annual OMB Circular A-133 audit is
deemed to meet the ATP audit requirement.
If an ATP Recipient does not have an
annual OMB Circular A-133 audit performed,
the Recipient should follow the following
project audit requirements:
(1) Audits for single company Recipients
shall be conducted using the September
1999 NIST Program-Specific Audit
Guidelines for Advanced Technology
Program (ATP) Cooperative
Agreements with Single Companies to
the extent these guidelines do not
conflict with the current award.
Recipients will be provided updated
guidelines when they become available.
The guidelines can be found at
http://www.atp.nist.gov/atp/psag-co.htm.

(2) Audits for joint venture Recipients shall
be conducted using the September
1999 NIST Program-Specific Audit
Guidelines for Advanced Technology
Program (ATP) Cooperative
Agreements with Joint Ventures to the
extent these guidelines do not conflict
with the current award. Recipients will
be provided updated guidelines when
they become available. The guidelines
can be found at
http://www.atp.nist.gov/atp/psag-jv.htm.
The program specific guidelines may be
useful in identifying the allowability of
specific cost elements and other
programmatic compliance requirements for
those recipients required to have an OMB
Circular A-133 audit.
D. The Recipient shall submit two (2)
copies of each audit report, one to the
address shown in Article D.01.b. of the DoC
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Financial Assistance Standard Terms and
Conditions dated May 2007, and one copy
to the NIST Grants Officer.
16. AWARD CLOSEOUT
A. In accordance with the guidelines
established in 15 C.F.R. 14.71 and Term
A.06 of the DoC Financial Assistance
Standard Terms and Conditions dated May
2007, the NIST Grants Officer will allow only
those costs that are strictly associated with
closeout activities during the ninety (90) day
period following the award expiration date.
Closeout activities are normally limited to
preparation of the final reports (technical,
business, financial, patent/invention,
equipment inventory) and closeout audit.
B. The final closeout meeting with NIST
ATP is generally not considered a closeout-
related activity. This closeout meeting
should be conducted prior to the expiration
date of the award. The Recipient must
provide adequate funds in the project budget
to ensure participation by all appropriate
individuals in the closeout meeting. Costs
associated with any closeout meeting held
after the expiration date of the award may
not be charged to the project unless specific,
prior written approval is obtained from the
NIST Grants Officer.
17. USE OF NAME OR ENDORSEMENTS
A. The Recipient and/or its Subrecipients or
subcontractors shall not, without the prior
written approval from NIST, use the name of
NIST or the Department of Commerce on
any product or service which is directly or
indirectly related to either this award or any
patent license or assignment agreement
which relates to this award.
B. By entering into this award, NIST does
not directly or indirectly endorse any product
or service provided or to be provided by the
Recipient, its successors, assignees, or
licensees. The Recipient and its
Subrecipients and subcontractors, shall not
in any way imply that this award is an
endorsement of any such product or service.

18. PUBLICATIONS
In any publications, the Recipient shall
acknowledge support of the technology
development by NIST. Normally this is done
by a footnote reading, "This work was
performed under the support of the U.S.
Department of Commerce, National Institute
of Standards and Technology, Advanced
Technology Program, Cooperative
Agreement Number 70NANBXHXXXX," or
words to that effect.
19. PROTECTION OF HUMAN SUBJECTS
Research involving human subjects is not
permitted under an ATP award unless
expressly authorized by a Special Award
Condition or otherwise in writing by the NIST
Grants Officer.
As referenced in the DoC Financial
Assistance Standard Terms Conditions,
M.06, the Federal Policy for the Protection of
Human Subjects (The Common Rule),
codified by the Department of Commerce at
15 C.F.R. Part 27, requires Recipients to
maintain appropriate policies and
procedures for the protection of human
subjects in research. The Common Rule
defines a human subject as a living
individual about whom an investigator
conducting research obtains 1) data through
intervention or interaction with the individual,
or 2) identifiable private information. The
term research means a systematic
investigation, including research
development, testing and evaluation,
designed to develop or contribute to
generalizable knowledge. The Common
Rule also sets forth the categories of
research that may be considered exempt
from this policy.
In the event it becomes evident that a
human subject may be involved in this
project, the Recipient shall submit
appropriate documentation to the ATP
Project Manager for NIST institutional review
and approval. Additional information and
documentation requirements are set forth in
the April 2007 booklet entitled, Guidelines
and Documentation Requirements for
Research Involving Human and Animal
Subjects, available on the ATP website at
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http://www.atp.nist.gov/atp/2007has.pdf.
This documentation may include:
A. Documentation establishing review
and approval of the project by a qualified
Institutional Review Board (IRB). [NOTE:
Recipients must provide documentation of
continuing IRB approval by the cognizant
IRB at appropriate intervals as designated
by the IRB, but not less than annually];
B. Documentation to support an
exemption for the project from The Common
Rule;
C. Documentation to support a request
for a deferral of review for research involving
human subjects beginning after award of
the project, but sufficiently in advance of the
activity for NIST institutional review and
approval.
D. Documentation of IRB approval of any
modification to an IRB-approved existing
protocol or informed consent form must be
submitted to the ATP Project Manager for
NIST Institutional review and approval.
No work involving human subjects may
be undertaken, conducted, or costs
incurred and/or charged to the project for
this work, until the NIST Grants Officer
approves the required appropriate
documentation in writing.
20. CARE AND USE OF VERTEBRATE
ANIMALS
Research involving live vertebrate animals is
not permitted under an ATP award unless
expressly authorized by a Special Award
Condition or otherwise in writing by the NIST
Grants Officer.
The DoC Financial Assistance Standard
Terms Conditions, M.12, requires Recipients
of financial assistance awards to comply
with the Laboratory Animal Welfare Act
(Public Law 89-544); as amended (7 U.S.C.
2131 et seq.), and implementing
regulations found at 9 C.F.R. Parts 1, 2, and
3; and other applicable statutes pertaining to
the care, handling, or other activities
supported by Federal financial assistance.
In the event it becomes evident that live
vertebrate animals may be involved in this
project, the Recipient shall submit
appropriate documentation to the ATP
Project Manager for NIST institutional review
and approval. Additional information and
requirements are set forth in the April 2007
booklet entitled, Guidelines and
Documentation Requirements for Research
Involving Human and Animal Subjects,
available on the ATP website at
http://www.atp.nist.gov/atp/2007has.pdf
ATP accepts documentation identifying the
institutions required credentials for
performing animal studies (e.g. OLAW
animal welfare assurance number, USDA
certificate number, or AAALAC
accreditation) in lieu of an actual copy of
applicable institutional credentials ((e.g.,
OLAW animal welfare assurance, USDA
certificate, or AAALAC letter of
accreditation). Since verification that
assurances are valid and current can be
made through official websites, generally
only documentation of the applicable
credentials identifier linked to the institution
performing the animal studies is needed.
NIST reserves the right to request a copy of
the applicable institutional credentials (e.g.,
OLAW animal welfare assurance
designation, USDA certificate, or AAALAC
letter of accreditation), as warranted.
No work involving live vertebrate animals
may be undertaken, conducted, and/or
costs incurred and/or charged to the
project for this work, until the NIST
Grants Officer approves the required
appropriate documentation in writing.
21. BUREAU OF INDUSTRY AND
SECURITY (BIS) CLEARANCE
A. The Recipient agrees to adhere to
U.S. export laws, as administered by U.S.
BIS, and shall not export or re-export,
directly or indirectly, any technical data
created with Federal Government funding
under this award to any country for which
the United States Government or any
agency thereof, at the time of such export or
re-export, requires an export license or other
Federal Governmental approval without first
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obtaining such licenses or approval and the
written clearance of the NIST Grants Officer.
B. The BIS shall conduct an annual review
for any relevant information about the
Recipient's compliance with U.S. export
laws. NIST reserves the right to take
appropriate action in accordance with 15
C.F.R. Part 14.62 and Term M.01 of the
Department of Commerce Financial
Assistance Standard Terms and Conditions
(May 2007), if the BIS reports significant
adverse information about the Recipient to
the NIST Grants Officer.
22. LIABILITY
A. Property
The Federal Government shall not be
responsible for damage to or resulting from
any property provided to the Recipient,
and/or its Subrecipients and/or
subcontractors, and/or acquired by the
Recipient, and/or its Subrecipients and/or
subcontractors, pursuant to this award.
B. No Warranty
NIST makes no express or implied warranty
as to any matter whatsoever, including the
conditions of the research or any invention
or product, whether tangible or intangible,
made, or developed under this award, or the
ownership, merchantability, or fitness for a
particular purpose of the research or any
invention or product made or developed
under this award.
C. Disclaimer
(1) The United States expressly disclaims
any and all responsibility to the Recipients or
third persons for the actions of the Recipient
or third persons resulting in death, bodily
injury, property damage, or any other losses
resulting in any way from the performance of
this award or any subaward or subcontract
under this award.
(2) The acceptance of this award by the
Recipient does not in any way constitute an
agency relationship between the United
States and the Recipient.
D. Indemnification
(1) The Recipient, and/or its Subrecipients
and/or subcontractors, agree to indemnify
and hold harmless the U.S. Government for
all liabilities, demands, damages, expenses
and losses arising out of the use by the
Recipient, its Subrecipients, subcontractors,
and/or any party acting on their behalf or
under their authorization, of products made
by the use of technical developments arising
under this agreement. This provision shall
survive termination of this award.
(2) The Recipient, and/or its Subrecipients
and/or subcontractors, agree to indemnify
and hold harmless the U.S. Government for
any loss, claim, damage, or liability of any
kind involving the Recipients,
Subrecipients, and/or subcontractors
employees arising in connection with this
award.
E. Force Majeure
Neither party shall be liable for any
unforeseeable event beyond its reasonable
control not caused by the fault or negligence
of such party, which causes such party to be
unable to perform its obligations under this
award (and which it has been unable to
overcome by the exercise of due diligence),
including, but not limited to: flood, drought,
earthquake, storm, fire, pestilence, lightning
and other natural catastrophes, epidemic,
war, riot, civil disturbance or disobedience,
strikes, labor dispute, or failure, threat of
failure, or sabotage of the Recipient or
subcontractor facilities, or any order or
injunction made by a court or public agency.
In the event of the occurrence of such a
force majeure event, any party unable to
perform shall promptly notify the other
party(ies). It shall further use its best efforts
to resume performance as quickly as
possible and shall suspend performance
only for such period of time as is necessary
as a result of the force majeure event.
23. INFORMAL COLLABORATORS
All informal collaborators in ATP awards are
subject to ATP intellectual property
regulations as specified in 15 C.F.R 295.8.
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Informal collaborator means any individual
or organization which consults, cooperates
with, or participates in the performance of
this award, and is not included in the
approved award budget.
24. INTELLECTUAL PROPERTY
A. Patent Notification Procedures
This General Term implements Department
of Commerce Financial Assistance Standard
Term and Condition M.04.b., which states
that, pursuant to Executive Order 12889, the
DoC is required to notify the owner of any
valid patent covering technology whenever
the DoC or its financial assistance Recipient,
without making a patent search, knows (or
has demonstrable reasonable grounds to
know) that technology covered by a valid
United States patent has been or will be
used without a license from the owner. To
ensure proper notification, if the Recipient
uses or has used patented technology under
this award without a license or permission
from the owner, the Recipient must notify
the NIST Grants Officer:
National Institute of Standards and
Technology
Grants and Agreements Management
Division
100 Bureau Drive, Mail Stop 1650
Gaithersburg, MD 20899-1650
The notification shall include the following
information:
A. The award number
B. The name of the DoC awarding
agency
C. A copy of the patent
D. A description of how the patented
technology was used
E. The name of the Recipient contact,
including an address and telephone
number
B. Rights in Data
(1) The Federal Government shall have
certain rights to use data first
produced in the performance of the
award, whether or not the data are
copyrighted. The Recipient may
establish claim to copyright subsisting
in any data first produced in the
performance of the award. When
claim is made to copyright, the
Recipient shall affix the applicable
copyright notice of 17 U.S.C. 401 or
402 and acknowledgment of Federal
Government sponsorship to the data
when and if the data are delivered to
the Federal Government, are
published, or are deposited for
registration as a published work in the
U.S. Copyright Office. The Recipient
shall grant to the Federal
Government, and others acting on its
behalf, a paid up, nonexclusive,
irrevocable, worldwide license for all
such data to reproduce, prepare
derivative works, perform and display
publicly, and for data other than
computer software to distribute to the
public by or on behalf of the Federal
Government.
(2) The licenses granted to the Federal
Government under this Term shall not
be considered as a waiver of the
nondisclosure requirements of 15
U.S.C. 278n(d)6: "Intellectual
property owned or developed by any
business receiving funding may not be
disclosed by any officer or employee
of the Federal Government except in
accordance with a written agreement
between the owner or developer and
the Program."
C. Patent Rights
(1) Definitions
(a) Company" means a for-profit
organization, including sole proprietors,
partnerships or corporations.
(b) "Invention" means any invention or
discovery which is or may be patentable or
otherwise protectable under Title 35 of the
United States Code.
(c) Made means, when used in relation to
any Invention, the conception or first actual
reduction to practice of such invention.
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(d) "Practical Application" means to
manufacture in the case of a composition or
product, to practice in the case of a process
or method, or to operate in the case of a
machine or system; and, in each case,
under such conditions as to establish that
the invention is being utilized and that its
benefits are, to the extent permitted by law
or Federal Government regulations,
available to the public on reasonable terms.
(e) "Subject Invention" means any invention
of the Recipient conceived or first actually
reduced to practice in the performance of
work under this award.
(2) Ownership of Inventions
Pursuant to the statute that establishes the
ATP (15 U.S.C. 278n(d)(11)), this
paragraph takes precedence over 15 C.F.R.
14.36 and DoC Financial Assistance
Standard Terms and Conditions, dated May
2007, article M.04. The Recipient or, if
appropriate, its Subrecipients, contractor(s)
and/or subcontractor(s), shall have the
entire right, title, and interest throughout the
world to each Subject Invention according to
the provisions of this clause, provided that
this party is a company or companies
organized in the United States. J oint
ventures shall provide to NIST a copy of
their written agreement, which defines the
disposition of ownership rights among the
members of the joint venture, and their
contractor and/or subcontractors as
appropriate, in accordance with the second
sentence of this paragraph. However, the
United States hereby reserves a
nonexclusive, nontransferable, irrevocable
paid-up license, to have practiced for or on
behalf of the United States, any such
invention. Title to any such invention shall
not be transferred or passed, except to a
company organized in the United States,
until the expiration of the first patent
obtained in connection with such invention.
(3) Invention Disclosure, United States
License and Filing of Patent Application by
Recipient
(a) The Recipient shall disclose each
subject invention to NIST within two
months after the inventor discloses it in
writing to Recipient personnel responsible
for patent matters. The disclosure to NIST
shall be in the form of Recipients electronic
disclosure submission through the
Interagency Edison extramural invention
reporting system (iEdison) at
www.iedison.gov and the disclosure shall
identify the award under which the invention
was made and the inventor(s) and at a
minimum, also contain the following
information:
i. the title of the invention;
ii. the names of all inventors;
iii. the name and address of the
assignee (if any);
iv. an acknowledgement that the
United States has rights in the
subject invention (i.e., the
Governmental Use License);
v. the filing date of the present
invention;
vi. an abstract of the disclosure;
vii. a description or summary of the
present invention;
viii. the background of the present
invention or the prior art;
ix. a description of the preferred
embodiments
x. what matter is claimed

To the extent not inconsistent with any ATP
requirements, Recipient shall comply with all
disclosure, election, and/or other reporting
requirements of iEdison, and shall update all
such information as necessary.
Each report shall also include the use of the
invention and whether a manuscript
describing the invention has been submitted
for publication and, if so, whether it has
been accepted for publication at the time of
disclosure. In addition, after disclosure to
NIST via iEdison, the Recipient will promptly
notify NIST via iEdison of acceptance of any
manuscript describing the invention for
publication or of any sale or public use
planned by the Recipient by specifying the
date of such publication, or sale, or public
use of the invention in the proper iEdison
field(s).
(b) The Recipient shall notify NIST via
iEdison within two years of the date the
invention required to be disclosed to NIST
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via iEdison whether or not the Recipient
intends to file a patent application on any
subject invention.
If a patent is issued, or applied for, the
Recipient(s) must submit the following
information to NIST via iEdison:
1. The award number under which the
invention was made;
2. The serial number of the patent
issued or applied for;
3. The date of issuance or application;
4. A copy of the disclosure as issued
(including the drawings) and;
5. The name(s), address, and
telephone number(s) of an
assignee.
In a J V award, the J V Administrator must
submit the patent information to NIST via
iEdison for all J V Partners. In order to
prevent disclosure of information to the
general public under the Freedom of
Information Act (FOIA) or any other statute,
each page of each patent report should be
marked, CONFIDENTIAL/PROPRIETARY.
(c) Requests for extension of the time
for disclosure, election, and filing under
paragraphs 24.C.(3)(a) and (b) of this Term
may be permitted at the discretion of NIST.
(4) Recipient Action to Protect the
Government's Interest
(a) The Recipient will, via iEdison,
execute, or have executed, all instruments
necessary to establish or confirm the rights
the United States Government has
throughout the world in those subject
inventions to which the Recipient has filed a
patent application in which the United States
has reserved a non-exclusive license.
(b) The Recipient shall require, by
written agreement, its employees, other than
clerical and nontechnical employees, to
disclose promptly in writing to personnel
identified as responsible for the
administration of patent matters and in a
format suggested by the Recipient, each
subject invention made under the award in
order that the Recipient can comply with the
disclosure provisions of paragraph C.(3) of
this Term, and to execute all papers
necessary to file patent applications on
subject inventions and to establish the
Government's rights in the subject
inventions. This disclosure format should
require, as a minimum, the information
required by C.(3)(a) of this Term. The
Recipient shall instruct such employees
through employee agreements or other
suitable education programs on the
importance and requirements of reporting
inventions in sufficient time to permit the
filing of patent applications prior to United
States or foreign statutory bars.
(c) The Recipient shall promptly notify
NIST via iEdison of any decisions not to
continue the prosecution of a patent
application, the payment of maintenance
fees, or the defense in a reexamination or
opposition proceeding on a patent in any
country.
(d) The Recipient agrees to include,
within the specification of any United States
patent application and any patent issuing
thereon covering a subject invention, the
following statements:
This invention was made with United
States Government support under
(identify the cooperative agreement
number) awarded by the National
Institute of Standards and Technology
(NIST).
The United States Government has
certain rights in the invention.
(5) Subawards and Subcontracts
The Recipient shall include in all subawards
and subcontracts, regardless of tier, for
experimental, developmental, or research
work, a patent rights clause, as
appropriately modified, comparable to this
term. However, pursuant to the statute
establishing the ATP (15 U.S.C.
278n(d)(11)), the patent rights clause shall
also provide that title to each subject
invention made by the Subrecipient or
subcontractor shall vest with a company or
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ATP General Terms and Conditions, September 2007

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companies incorporated in the United
States.
(6) Reporting on Utilization of Subject
Inventions
The Recipient agrees to submit on request,
no more frequently than annually, periodic
reports on the utilization of a subject
invention or on efforts at obtaining such
utilization that are being made by the
Recipient or its licensees or assignees.
Such reports shall include information
regarding the status of development, date of
first commercial sale or use, gross royalties
received by the Recipient, and such other
data and information as NIST may
reasonably specify. The Recipient also
agrees to provide additional reports as may
be requested by NIST in connection with
any march-in proceeding undertaken by
NIST in accordance with paragraph C.(8) of
this Term. Such information shall be treated
by NIST as commercial and financial
information and thus as privileged and
confidential and not subject to disclosure
under 552 of Title 5 of the United States
Code.
(7) Preference for United States Industry
Notwithstanding any other provision of this
Term, the Recipient agrees that neither it
nor any assignee will grant to any person
the exclusive right to use or sell any subject
inventions in the United States unless such
person agrees that any products embodying
the inventions will be manufactured
substantially in the United States. However,
in individual cases, the requirement for such
an agreement may be waived by NIST upon
a showing by the Recipient or its assignee
that reasonable but unsuccessful efforts
have been made to grant licenses on similar
terms to potential licensees that would be
likely to manufacture substantially in the
United States or that, under the
circumstances, domestic manufacture is not
commercially feasible.
(8) March-in Rights
The Recipient agrees that, with respect to
any subject invention in which it has
acquired title, NIST has the right, in
accordance with procedures in 37 C.F.R.
401.6 and any supplemental regulations of
NIST, to require the Recipient, an assignee,
or an exclusive licensee of a subject
invention to grant a nonexclusive, partially
exclusive, or exclusive license in any field of
use to a responsible applicant or applicants,
upon terms that are reasonable under the
circumstances. If the Recipient, assignee,
or exclusive licensee refuses such a
request, NIST has the right to grant such a
license itself if NIST determines that:
(a) Such action is necessary because
the Recipient or assignee has not
taken, or is not expected to take
within a reasonable time, effective
steps to achieve practical
application of the subject invention
in such field of use;
(b) Such action is necessary to alleviate
health or safety needs which are not
reasonably satisfied by the
Recipient, assignee, or licensees;
(c) Such action is necessary to meet
requirements for public use
specified by Federal regulations and
such requirements are not
reasonably satisfied by the
Recipient, assignee, or licensees; or
(d) Such action is necessary because
the agreement required by
paragraph C.(7) of this Term has not
been obtained or waived or because
a licensee of the exclusive right to
use or sell any subject invention in
the United States is in breach of the
agreement required by paragraph
C.(7) of this Term.
(9) Conflicts Between ATP Intellectual
Property Provisions and Non-U.S. Country
Intellectual Property Provisions
The intellectual property provisions in the
ATP statute, rule, and General Terms and
Conditions require that any intellectual
property arising from an ATP-funded project
shall vest with a for-profit company
organized in the United States. If the
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ATP General Terms and Conditions, September 2007

15
Recipient's proposal includes work approved
by the Grants Officer to be performed in a
non-U.S. country, by accepting this award,
the Recipient certifies that no legal
requirement exists in that country those
conflicts with the ATP intellectual property
requirements, including the U.S.
Government license provisions.



25. STATUTORY REFERENCE
All references to the ATP statute (15 U.S.C.
278n) contained in this award, including the
September 2007 ATP Special Award Conditions
and these ATP General Terms and Conditions,
mean the ATP statute as it existed prior to the
enactment of the America COMPETES Act (Pub.
L. 110-69) on August 9, 2007.
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12-2207 Karron v USA Certificate of Appealability Brief Appendix
87
First-time Grantee Workshop U.S. DoC
Inspector General

First time
Grantee
Workshop
US DoC
Inspector General
KA-3423 KA-3423 KA-3423
Main Commerce Learning Center
The Commerce Learning Center (CLC) is a Learning Management System (LMS) which
provides one location where you can come to for training and professional development. The site
provides access to all training including web-based training (WBT) and instructor- led training
(ILT). The CLC also contains over 3,000 SkillSoft online courses on a wide range of topics:
Desktop applications, IT, Leadership and Management, EEO, Diversity and Project
Management.
The CLC is available to all Federal career employees and approved associates and contractors.
I f you need help getting an account you can go to your bureau home page and
contact the appropriate party:
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Bureau of Industry and Security (BIS) https://doc.learn.com/other
Bureau of the Census
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Minority Business Development Agency https://doc.learn.com/other
National Institute of Standards and
Technology

https://doc.learn.com/NIST
National Oceanic and Atmospheric
Administration
https://doc.learn.com/NOAA
NOAA National Weather Service https://doc.learn.com/NOAA/NWS
Office of Inspector General https://doc.learn.com/other
Office of the Secretary https://doc.learn.com/other
US Patent and Trademark Office https://doc.learn.com/PTO

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***Ircuarsay
% r+ }
First-time Grantee Workshop
U.S. Department of Commerce
Office of Inspector General
KA-3425 KA-3425 KA-3425
* * * .g . .0 ,

OIG Audit History With


%el
First-time Recipients
NIST Advanced Technolog y Prog ram
Many start-up companies
Awards to single companies and joint ventures
Pre-award accounting system surveys and cost audits
NIST Manufacturing Extension Partnership (MEP)
NTIA Public Safety Interoperable Communications
(PSIC) Prog ram
State agencies without cost sharing experience
Ag ency requests for preaward audit
Metropolitan Television Alliance (NTIA)
Mid-America Research Institute (NOAA)
Issues With First-Time Grant Recipients
KA-3426 KA-3426 KA-3426
) , Iltri A Grant Is a Co
1:r
st-Reimbursement
Ag reement
An allowable cost must meet all of the following
Allowable
Laws, cost principles, other regulations, terms and conditions
of grant
Allocable
Did it benefit the project?
Reasonable
Would a reasonable person have spent this much?
In conformance with generally accepted accounting principles
(GAAP)
Must be a real cost reflected in the accounting records
Issues With First-Time Grant Recipients
KA-3427 KA-3427 KA-3427
* )
Sources to Determine Allowability
Wir
Federal cost principles
Colleges and universities
OMB Circular A-21 (2 CFR Part 220)
State, local, and tribal governments
OMB Circular A-87 (2 CFR Part 225)
Nonprofit organizations
OMB Circular A-122 (2 CFR Part 230)
Commercial organizations
FAR cost principles (48 CFR Part 31)
Commerce Learning Center course on cost principles
https://doc.learn.comilearncenter.asp ?sessionid=3-EB587215-
FEE3-4F1E-81AD-578D895C2A4O&DCT=l&id=178409&page=64
Issues With First-Time Grant Recipients
KA-3428 KA-3428 KA-3428
* * * mummy Sources to Determine Allowability
Federal administrative requirements
State, local, and tribal governments
OMB Circular A-102 (15 CFR Part 24)
Nonprofits, colleges and universities, commercial entities
(Commerce policy)
OMB Circular A-110 (15 CFR Part 14)
Sources of audit findings
Minimum standards for accounting and procurement systems
Disbursement policies (advances)
Valuation of contributions
Program income
Issues With First-Time Grant Recipients
KA-3429 KA-3429 KA-3429
Sources to Determine Allowability
Commerce Standard Terms and Conditions
10% limitation on transfers among direct cost categories
No transfers among direct and indirect cost budgets
No indirect costs unless specifically included in budget
Federal share of indirect costs limited to lesser of budget
line item or "actual"
Issues With First-Time Grant Recipients
KA-3430 KA-3430 KA-3430
* '\
to Determine Allowability
General terms and conditions
Implement program rules
Limitations on noncash contributions
Limitations on categories of costs
(e.g., travel, supplies, indirect)
Special award conditions
Specific to this recipient
Often to correct deficiencies in recipient performance
or compliance
Issues With First-Time Grant Recipients
KA-3431 KA-3431 KA-3431
1:1ri

Nonfederal Matching Share


"Cost sharing or matching means that portion of project
or program costs not borne by the Federal
Government" (15 CFR Section 14.2(j))
Not "What can we find to claim in order to receive
federal money?"
Must be real costs that meet allowability standards
As applied in Commerce, there is no distinction
between a "federal" and "nonfederal" cost
"If actual allowable costs are less than the total approved
budget, the Federal and non-Federal cost shares shall be
calculated by applying the approved Federal and non-Federal
cost share ratios to actual allowable costs" (Commerce
Standard Terms and Conditions, Section A.03a)
Issues With First-Time Grant Recipients
KA-3432 KA-3432 KA-3432
Effect of Disallowed Costs
Assume a grant with total budget of $1,000,000 and an
80% federal share. Auditor finds $25,000 of questioned
costs, which grants officer disallows.

Costs claimed

$1,000,000
$25,000
$975,000
x80%
$780,000
$800,000
$20,000


Costs disallowed


Costs allowed


Federal sharing ratio


Federal funds earned


Issues With First-Time Grant Recipients

9
KA-3433 KA-3433 KA-3433
ic. * * * Lm uramm Historical Matching Share Issues
Transfers among "partners"
Must be allocable
Nature of relationship?
Subrecipient?
Must be at cost
"Co-recipient?"
Must be at cost
Third-party in-kind contributor?
Generally based on fair market value, except for donated services
Benefit to project
Issues With First-Time Grant Recipients
KA-3434 KA-3434 KA-3434
ic. * * * Lm uramm Historical Matching Share Issues
Cash contributions are not matching share until
expended on allowable project costs
In-kind contributions are received from third parties,
not from the recipient
Allowable value for equipment contributed by recipient cannot
exceed book value unless special arrangements made with
grants officer
Intracompany transfers at cost or transfer price (48 CFR Section
31.205-26(e))
Allowable value for donated services is not fair market value
Recipient must record income for contributions received
Issues With First-Time Grant Recipients
KA-3435 KA-3435 KA-3435
Indirect Costs
A system for allocating shared costs among
"cost objectives"
Rates negotiated with a cognizant federal agency on
behalf of the federal government
Usually shown as a percentage
"Reasonable" differs by industry and by company
Must meet allowability standards
Issues With First-Time Grant Recipients
KA-3436 KA-3436 KA-3436
ici * * * Lie urumuff) Historical Indirect Cost Issues
'\4riire)'
No indirect costs in approved budget
Commerce Standard Terms and Conditions limit indirect
costs to lesser of budget or "actual"
Start-up company has no indirect until it gets
new business
No approved rate
Proposed amount not based on costs
Indirect costs hidden in direct line items
Transfers of budget between direct and indirect
Issues With First-Time Grant Recipients
KA-3437 KA-3437 KA-3437
wm * * * Lm Fmmuff Relationships Among "Partners"
3 types of relationships with recipients
Contractor
Provides ("sells") g oods or services to a recipient for use
under the g rant
Terms and conditions do not flow down
Not limited to cost reimbursement unless specified in contract
Examples: technical consultant, accountant, attorney
Subrecipient
Assists the recipient in achieving objectives of statement of work
Terms and conditions flow down
Direct federal recipient deleg ated most oversig ht responsibilities
Reimbursement for allowable costs
Examples: technical or g eog raphic allocation of work scope
Issues With First-Time Grant Recipients
KA-3438 KA-3438 KA-3438
wm * * * Lm Fmmuff Relationships Among "Partners"
3 types of relationships with recipients (continued)
Third-party in-kind contributor
Donates goods or services to a recipient for use under the grant
Imagine a contractor that does not charge the recipient
Terms and conditions do not flow down
Value of contribution based on OMB circulars
Examples: landlord donates space, large company provides staff
for smaller recipient, volunteer labor
Fourth relationship: Co-recipient
Not mentioned in OMB circulars
Each party individually responsible/liable for its budget
and performance
Terms and conditions automatically apply to all
Reimbursement for allowable costs
Example: NIST Advanced Technology Program (ATP)
joint venture
Issues With First-Time Grant Recipients
KA-3439 KA-3439 KA-3439
* * * =mow

Historical Recipient
Relationship Issues
Poor or nonexistent oversight of subrecipients
Failure to obtain necessary approvals
Improper valuation of contributions
Recipients cannot make in-kind contributions to
themselves (cannot use fair market value)
Donated services limited to salary plus benefits
Discounts are not in-kind contributions
The nature of the relationship determines what it is,
not the words on top of the agreement
Issues With First-Time Grant Recipients
KA-3440 KA-3440 KA-3440
wp * * * Lm, Fmg mov Recipient Administrative Systems
OMB circulars provide minimum standards
15 CFR Part 24 for state, local, tribal governments
15 CFR Part 14 for everyone else
Must provide a transaction trail to document
allowability of costs
Must have procurement standards
Must have property standards
Must have written code of conduct
Must have written procedures
To distinguish between allowable and unallowable costs
To minimize time elapsing between receipt and disbursement
of federal funds
Issues With First-Time Grant Recipients
KA-3441 KA-3441 KA-3441
Historical Administrative
7 41r
Systems Issues
Lack of documentation
Failure to document direct labor
Missing or inadequate vendor invoices
Claims based on estimates rather than actual costs
Lack of CFO or accountant with federal grant
or contract experience
Lack of central accounting system and supporting
documentation for cost claimed
Excessive or unnecessary advances
Failure to establish standards and procedures
Conflicts of interest and related-party transactions
Issues With First-Time Grant Recipients
KA-3442 KA-3442 KA-3442
Audits
OMB circular A-133 establishes audit requirements for
governmental units, colleges and universities, and nonprofits
Must have a comprehensive single audit for any year it expends at least
$500,000 in cumulative federal award funds
Commerce Standard Terms and Conditions require periodic (at
least every 2 years) audits of other recipients "when the federal
share amount awarded is $500,000 or more over the duration of
the project period." (DOC Standard Terms and Conditions, Section
D.01.b)
Some programs establish program-specific audit guidelines
Some programs require accounting system certifications
Cost of audit and accounting system certification can be allowable
under the grant
If so, applicants should provide for these costs in their
proposed budgets
Issues With First-Time Grant Recipients
KA-3443 KA-3443 KA-3443
Historical Issues With
Outside Audits
Required audits not performed
Outside auditors lack experience with Commerce
programs and requirements
Accounting system certifications become
marketing engagements
Auditors engaged by recipient do not always act
in best interest of the government
Commerce grants often too small to be covered
by single audit
Issues With First-Time Grant Recipients
KA-3444 KA-3444 KA-3444
John S. Bunting
ibunting@oig.doc.gov
(202) 482-0639
(202) 527-0635 (mobile)
Daniel J. Buchtel
dbuchtel@oig.doc.gov
(303) 312-7660
(202) 302-1149 (mobile)
Issues With First-Time Grant Recipients
Questions?
KA-3451 KA-3451 KA-3451

12-2207 Karron v USA Certificate of Appealability Brief Appendix
88
Missing Audit Reports from NIST ATP Grant
Recipients Final Report ATL 19891 March 31.
2010

Missing Audit Reports
from
NIST ATP Grant
Recipients
Final Report ATL
19891
March 31. 2010
KA-3452 KA-3452 KA-3452
.001 OPco4,
4. P4 ,
I
U
6474res co P4
UNITED STATES DEPARTMENT OF COMMERCE
Office of Inspector General
Washington, D.C. 20230
March 31. 2010
MEMORANDUM FOR: Dr. Patrick Gallagher. Director
National Institute of Standards and Technology
4 1. 11.
4 01101.'
FROM: r. Brett M. Baker
Assistant Inspector General for Audit
SUBJECT: Missing Audit Reports from NIST ATP Grant Recipients
Final Report ATL 19891
We are providing the final report on our inspection to determine the extent to which NIST grant
files are missing audit reports that Advanced Technology Program (ATP) grant recipients are
required to submit. NIST's Grants and Agreement Management Division is responsible for
collecting and reviewing these reports and maintaining the grant files.
Our review found that NIST had not met its responsibilities to monitor the ATP awards by
collecting recipient audit reports and ensuring that recipients have the required audits conducted.
NIST identified 213 awards with project costs totaling $4 82 million that did not have audit
reports as part of their records, and it did not know whether these grant recipients had actually
conducted the audits.
We recommend that the director of NIST require that agency management collect the missing
audit reports and provide the Office of Inspector General (01G) with copies. suspend fundinu to
grantees that do not provide missing reports. and ensure that NIST meets its monitoring
responsibilities.
NIST management generally agreed with our assessment and informed us that they \\ ill pro\ ide
an action plan to address our finding and recommendation \\ ithin 30 days.
Background
ATP works through partnerships with private-sector grant recipients to develop innovative
technologies that promise significant commercial payoffs and widespread benefits for the nation.
ATP was set up as a cost reimbursement program that grants awards up to 5 years. Some awards
require that the grant recipients provide matching funds while others are fully funded by ATP.
KA-3453 KA-3453 KA-3453
The program started in 1990 and received its final funding in 2007: it is scheduled to close out in
2012. ATP has been replaced by the recently created Technology Innovation Program (TIP),
which provides cost-shared awards to industry. universities, and consortia for research on
potentially revolutionary technologies that address critical national and societal needs.
Under Department of Commerce and NIST regulations. grant recipients must submit to NIST
and OIG independent audits of project costs: the audits must be conducted at certain intervals
during the performance of the project and at its completion. The reports are among the tools used
by NIST project managers and grant officials to ensure federal funds are spent for their intended
purpose. OIG reviews the audit reports for completeness and reportable findings and maintains a
database of the audit reports. We publish the results of our review in our Semiannual Report to
Congress, where we identify the number of reports reviewed, the federal costs audited, and the
costs questioned.
Objective, Scope, and Methodology
The objectives of our review were
to determine if NIST, as part of the grant monitoring process, obtained audit reports to
ensure that grantees have obtained required project audits. and
to identify awards that are missing audit reports, and the total related project costs. Our
review covered audit reports that were due from the program's inception in 1990 through
awards that expired in May 2007.
We reviewed Deparonem of Commerce Financial Assistance Standard Terms and Conditions.
Advanced Technology Program General Terms and Conditions. and the ATP Proposal
Preparation Kit. We met with N1ST officials responsible for grant and project oversight. We
requested and obtained a list from NEST showing missing audit reports for awards that expired as
of May 2007. Given the extensive time it would have taken to analyze ATP grants from the
program's inception we did not verify the accuracy of the NEST information. Our work was
performed in accordance with the Quality Standards for Inspections (rev. January 2005) issued
by the President's Council on Integrity and Efficiency, and under authority of the IG Act of
1978, as amended. and Department Organization Order 10-13, dated August 31. 2006.
Finding
During our 2008 report review process, we noted a number of grant records that were missing
audit reports. In April 2008, we informed NIST officials of this situation and inquired as to the
total number of missing reports. In June 2009. NIST provided us with a list of 213 awards (with
a total of $482 million in project costs, including federal and recipient shares) that were missing
audit reports. NIST did not know whether these projects had been subject to independent audit.
KA-3454 KA-3454 KA-3454
The Advanced Technology Program General Terms and Conditions, September 2007, Section
15. B and D state:
B. All Recipients shall schedule audits as follows:
1. For awards less than 24 months. an audit is required within 90 das s from
the project expiration date.
2. For 2-, 3-, or 4 -year awards, an audit is required within 90 days after the
end of the first year and within 90 days from the project expiration date.
3. For 5-year awards, an audit is required within 90 days after the end of the
first year and third year. and \\ ithin 90 days from the project expiration
date.
D. The Recipient shall submit two (2) copies of each audit report. one to
. . . [01G] and one copy to the NIST Grants Officer.
During the exit conference with 01G, NIST officials stated that the inability to collect audit
reports was caused by (1) high staff turnover, (2) non-responsiveness of award recipients. and (3)
the grants office's lack of legal remedies for dealing with non-compliant award recipients.
By not diligently monitoring audit report submissions. NIST did not ensure that $4 82 million in
project costs have been properly audited. This increases the risk of misuse of federal funds. NIST
needs to improve its management oversight procedures. not only to correct ATP problems but
also to reduce the future risk of misuse of federal funds in ATP's successor program, TIP.
Recommendation
We recommend that the director or NIST require that agency management collect the missing
audit reports and provide OIG with copies, suspend funding to grantees that do not provide
missing reports, and ensure that NIST meets its monitoring responsibilities.
cc: Rachel Kinney, Audit Liaison. NIST
Melinda Chukran. Audit Resolution Officer. NIST
Dr. Lorel Wisniewski. Acting Director of TIP, NIST
Laura Cesario. GAMD Division Chief. NIST
David Robinson. CFO, NIST
Stephen Kunze. Deputy CFO, NIST
KA-3455 KA-3455 KA-3455

12-2207 Karron v USA Certificate of Appealability Brief Appendix
89
END OF APPENDIX

END OF APPENDIX

END
OF
DOCUMENT
KA-3456 KA-3456 KA-3456

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