No Verdict Yet – A Brief History of the Federal Case: USA v. Koerber

SALT LAKE CITY – After seven weeks of trial, seven days of testimony from the defendant Rick Koerber, and more than 37 hours of jury deliberations (which began Friday, Oct. 6, 2017) there is still no verdict in the case of USA v. Koerber.  The jury is scheduled to resume deliberations Saturday morning.

The federal criminal trial started August 21, 2017, and is the latest chapter in a long saga beginning back in 2005, when a joint state-federal task force was assigned to investigate Rick Koerber and his business Franklin Squires. Utah Department of Commerce director Francine Giani confirmed back in 2009 that her efforts in initiating and maintaining the case against Koerber were politically guided by some of Utah’s top political influencers. Koerber was not only a prominent Utah business man at the time, but he was also a visible political force across the United States, particularly in the Rocky Mountain West.  On his then-daily talk radio show (Free Capitalist Radio) Koerber had openly criticized both Republicans and Democrats, and had rallied his radio show listeners and Free Capitalist Forums and Producer Revolution study groups (a combined organization of approximately 20,000 and a listening audience of approximately 1,000,000) around several national and local political topics ranging from poignant criticisms of then-Presidential candidate John McCain, to boots-on-the-ground support for Utah’s “Parent Choice in Education” Act – a sweeping school voucher law, later over-turned by a state-wide voter referendum sponsored by another political powerhouse, the Utah Education Association. From 2005 through to the present trial, politics and prosecution have been interminably intermingled.

Background and Politics

By August 2007, one of Koerber’s targets for public criticism was the Utah Division of Securities, arguing that Utah residents should be making phone calls protesting incompetence in the division, particularly its leader who Koerber stated had “the IQ of a rat” on his radio program (formerly on KTKK (K-Talk) 630 AM). The political battle only heated up after that.

Round 1: In December 2007 state regulators attempted to bring civil and administrative charges against Koerber, but the Utah Attorney General refused to bring charges after the lead investigator for Ms. Giani admitted that there was “no evidence” to support the charges, and that Giani’s efforts were “long on conclusions but short on facts.”  The blowback from the 2007 fiasco led to the “resignation” of securities director Wayne Klein, and and increased scrutiny of Giani following a scathing state audit that criticized her handling of the Utah Department of Commerce, and the political bent of her agenda. However, with the support of then-Governor Jon Huntsman, Giani referred the matter to federal prosecutors who took up the case beginning in 2008.  A sitting federal judge would later observe that from that point – until May 2009, federal prosecutors deliberately planned and schemed to violate Mr. Koerber’s constitutional rights, just to bring an indictment in the first instance.

Round 2: Mr. Koerber was charged by a federal grand jury in May 2009 with a three-count indictment.

Round 3: When Koerber declined an offer to plea bargain, federal prosecutors brought a 22- count superseding indictment.  Both of these indictments centered upon the allegation that Koerber had run his businesses as a “Ponzi-scheme.”  Koerber strenuously denied these allegations, initially holding a press conference of his own where he publicly attacked the charges as “absurd” and played recordings of several government regulators admitting that the allegations were bogus. Koerber was vindicated in 2011 when the federal court ruled that prosecutors had violated ethics rules and rules of evidence when they had secretly relied upon stolen attorney-client privilege documents when presenting information to the two initial grand juries.

Round 4: Undeterred, prosecutors brought a third federal indictment in September 2011, but Koerber was again vindicated in 2013 when a federal judge described conduct by local prosecutors as that of a “recalcitrant school boy” challenging public confidence in the United States Attorney’s Office for the District of Utah.  The federal judge ultimately concluded that the entire prosecution had been based upon a “pattern of widespread” prosecutorial misconduct. The case against Koerber was dismissed with prejudice in 2014, and prosecutors had been ordered by the court to cease attempts to prosecute Mr. Koerber. In reaching this decision the federal court commented on the extremely few acquittals in criminal cases and the importance of ensuring “honesty” and “morality” from federal prosecutors.

Round 5: The government appealed the court’s ruling that it had to cease prosecuting Koerber, and in January 2016, while acknowledging that the federal judge had been “mostly correct”, the Tenth Circuit Court of Appeals remanded the matter for correction of two errors.  Surprisingly, the United States Attorney’s Office informed Koerber and the Court that it did not intend to advocate the issue with any further legal filings.  However, shortly after it became public knowledge that Mr. Koerber and his attorneys Marcus R. Mumford and J. Morgan Philpot were together involved as the lead defense team for Ammon Bundy in another high-profile criminal case, the federal judge who had presided over Koerber’s case from 2009 until 2016 was unexplainably removed from the case.  A new judge was assigned, and this new judge ordered the government to litigate, despite its prior repeated statements that it was declining to do so.  The new judge reversed the conclusion that the prior dismissal be “with prejudice” – meaning no further prosecution was allowed – and ordered that Koerber could again be prosecuted.

Round 6: January 18, 2017, the United States Attorneys Office issued a press release that it had obtained yet another federal indictment based upon the same decade-old allegations.  By this time, the Salt Lake Tribune had established as pattern of publishing stories on the case that merely repeated the allegations against Koerber, without any in-depth treatment of the “sordid history” of the case. For example, no reporting was done on the 10th Circuit Court of Appeals comment that prosecutors in this case, aside from their misconduct, were also plagued with “baffling incompetence.” Nevertheless, Koerber was arraigned again in February 2017, this time the Court prohibited Koerber’s attorney, Marcus R. Mumford from continuing as Koerber’s appointed defense counsel.  From February 2017 to August 2017, Koerber alternated between acting as his own attorney, and for a short time being represented by newly appointed defense attorneys, Greg and Rebecca Skordas.  During this time, the government re-discovered evidence it had previously insisted for more than five years was “lost” inadvertently, and permanently unavailable. Prosecutors also repeatedly refused to identify, as per federal rules, essential evidence the government intended to use at the newly scheduled trial set to begin in August 2017.  The case cycled through several additional federal judges (all total more than a dozen federal judges have presided over proceedings involving Koerber at one point or another) and several new prosecutors were brought on to assist in the case.  The new judge refused to be bound by any of the prior rulings regarding misconduct, or the courts prior finding that prosecutors had undermined even the “possibility” that Koerber could receive a “fair trial” going forward.  In the process the court also issued a novel ruling on statute of limitations grounds, re-interpreting decades of federal law on the point to allow prosecutors to continue, even though the statute of limitations period had long since expired.  The case proceeded to trial beginning on August 21, 2017. Mr. Mumford rejoined the case, pro-bono just before trial.

Trial and Opening Statements

Round 7: In opening arguments prosecutors alleged that Koerber had run his enterprise as a “Ponzi-scheme” but focused only on five of 30+ companies, and only about 5 of 60+ bank accounts. Prosecutors alleged that “investors” in Koerber’s business were left being owed “about $47 million” and that Koerber had inappropriately used investor funds.  During trial however, the government’s summary witness was forced to admit on cross-examination that she had only examined the companies Mr. Koerber operated which had been unprofitable, and that the government considered other business activities and other profits and assets, “irrelevant.”  Also, while prosecutors continued to allege that Koerber had not repaid victims and that his enterprise had “crashed”, prosecutors repeatedly objected to any evidence that showed Koerber’s repayment of debts after 2007, or any continuing business operations and assets remaining after 2008. These continuing  operations continue to hold out promise for repayment of some investors in the future.  Multiple government witness expressed surprise at the idea that Koerber’s companies had been able to hold on to any assets for over a decade – following the worst economic crisis in modern times.

It was un-rebutted during trial that Koerber’s companies had acquired at least $128M in assets, including real estate equity as collateral for $30M of the remaining $28M owed to investors as of 2007.  Instead prosecutors argued that the assets were “not relevant” to the allegations of a Ponzi-scheme, and that whether or not Koerber’s businesses actually collapsed, whether or not Koerber continued to repay investors, and whether or not assets continued to exist – these were also also irrelevant.  The government’s first trial witness openly admitted that he had received back more money than he invested, and still trusted Koerber to the present day. Its second trial witness admitted that he had no “ill feelings” towards Koerber and upon leaving the witness stand walked directly to the defense table and shook Mr. Koerber’s hand.  And so the government’s case continued.  Several witnesses admitted that they had no relationship with Koerber whatsoever, or his companies, and had only invested with third parties who promised some kind of relationship.  Several other witness admitted that there had been “no restrictions” on the use of funds invested, and Koerber’s defense attorney repeatedly brought up that the government had systematically avoided requesting actual documents or records from witnesses during its 10 year investigation, and repeatedly neglected to show the jury the actual contract documents involved in the charged activity. When those documents were provided at trial, most often by the defense, they showed uniformly that there had been no restrictions on the use of proceeds from invested money, as used by Mr. Koerber’s companies. Perhaps most surprising at trial, one government witness, CPA Clark Wilkinson, testified that the reports that formed almost the entire basis of the government’s limited financial analysis of Koerber’s companies were entirely unreliable. The defense also called CPA David Hardman who testified that the government’s financial analysis was incomplete, that its presentation to the jury had overstated losses in Koerber’s core companies by tens of millions of dollars, and had unjustifiably omitted or deleted tens of millions of dollars in revenue from the financial statements for Founders Capital, one of Koerber’s companies at issue in the trial.

Koerber also took another unusual step, in addition to testifying himself for seven days. After the government’s cross-examination of Koerber (which ended abruptly after about an hour when lead prosecutor AUSA Walz appeared frustrated and exasperated), the defense presented two of Koerber’s former attorneys (Max Wheeler, Snow Christensen and Martineau; and Russell Skousen, mentioned above) as witnesses, and each testified that Koerber had never asked them or others to hide or conceal any information, and that Koerber had been acting in good faith, on legal advice that they had provided.  Russell Skousen, was previously the Executive Director of the Utah Department of Commerce (prior to Giani) and he testified that he had been hired by Koerber to do “due diligence” in each key area of Koerber’s enterprise, and make sure that the businesses were operating in compliance with the law and regulations.  Skousen testified that Koerber was transparent, and went the extra-mile to ensure his businesses operated lawfully. In another courtroom surprise Skousen testified that a prominent Utah law firm, Ray Quinney and Nebeker had been hired to independently review the “Equity Milling” model at the heart of the indictment, and that there were no concerns with the legal legitimacy of the model. Skousen also referenced “regulatory animus” as contributing to Mr. Koerber’s actions and the difficulties he faced at the time, but prosecutors and the court were keen on ensuring that the jury did not hear about the “sordid history” of prosecutor and regulatory misconduct (e.g. state regulators disseminating inflammatory and false financial information about Koerber’s companies in 2007).

Other witnesses testified that Mr. Koerber had publicly offered key disclaimers, published key information alerts, and was open and transparent about how he had operated his companies. Defense witness Wayne Andreason explained that many of the problems surrounding Mr. Koerber’s enterprise following the economic collapse of 2007 and 2008, were caused by those who were misleading Koerber and who had themselves engaged in wrong-doing.  It was also pointed out during trial that a key government witness, St. George businessman Michael Isom had previously pled guilty to one charge of securities fraud, but that prosecutors had delayed for almost five-years in sentencing Mr. Isom, to wait and see how he testified in this case. Isom admitted on the stand that he had deceived both Koerber and his investors.

Closing Arguments

In his closing arguments, defense attorney Marcus Mumford accused federal prosecutors of deception, arguing that the case that had been offered against Koerber was based primarily upon short “snippets” of audio recordings that multiple witnesses identified as having been taken out of context, and a careful selection of incomplete financial records, rather than a full airing of the truth.  Finally, it was not refuted at trial that for every investment dollar Koerber took into his enterprise, that same dollar had been secured by real estate equity.  In fact, on several occasions the government objected when the defense attempted to introduce evidence that there was more than enough real estate – including more properties than what had been pledged as collateral – securing all of the money invested in Koerber’s enterprise.  Koerber and several other witnesses testified that the problem was that the real estate holdings had become illiquid due to the external economic realities associated with the sub-prime market crash in 2007, and the related real estate and economic downturn in 2008.  One government witness, movie director Richard Dutcher even testified that the government’s prosecution of Mr. Koerber was making it impossible to recover investment money used to produce a movie, and that prosecutors should have focused on stopping the pirating of that movie which had been taking place online without any effort on the part of the government to assist with that problem.  Prosecutor Clark remarked, “We’ll take a look at that, Mr. Dutcher.”

The presentation of evidence and argument formally ended on Friday, October 6, 2017 – and the jury has been deliberating since that time.  On Tuesday evening the jury sent a note explaining, among other things, that it appeared deadlocked.  On Wednesday morning, the jury received a written “Allen” instruction from the court encouraging them not to give up with a hung-jury, and to have each member reconsider his or her position.  The standard 10th Circuit “Allen” instruction includes the following:

You are reminded that the defendant is presumed innocent, and that the government, not the defendant, has the burden of proof and it must prove the defendant guilty beyond a reasonable doubt. Those of you who believe that the government has proved the defendant guilty beyond a reasonable doubt should stop and ask yourselves if the evidence is really convincing enough, given that other members of the jury are not convinced. And those of you who believe that the government has not proved the defendant guilty beyond a reasonable doubt should stop and ask yourselves if the doubt you have is a reasonable one, given that other members of the jury do not share your doubt. In short, every individual juror should reconsider his or her views.

Early in the afternoon on Thursday, after more than 37 hours of deliberation, the jury announced that it was leaving for the day, that it would not return tomorrow. Deliberations are scheduled to resume on Saturday morning, October 14, 2017, beginning at 9 AM.

— For regular video and text updates, and a history of these updates that started at the beginning of the case, readers can visit: https://www.facebook.com/JewelSkousen/