Manafort Submitted Doctored Statements to Bank, Jury Is Told
(Bloomberg) -- U.S. prosecutors shifted away from showcasing Paul Manafort’s excesses and toward the core of their fraud accusations against him, offering evidence that he was deeply in debt as he submitted crudely altered financial statements to secure bank loans.
Manafort’s longtime bookkeeper testified Thursday that Manafort and his longtime deputy, Rick Gates, gave phony profit-and-loss statements to banks in 2016 that overstated their firm’s income in amounts ranging from $2.6 million to $4 million. Manafort’s financial distress appeared to begin just before he took over as President Donald Trump’s campaign chairman.
The testimony by the bookkeeper, Heather Washkuhn, bolstered claims by Special Counsel Robert Mueller that Manafort falsely inflated his income and reduced his debts in financial statements given to banks that lent him $20 million secured by several properties. Prosecutors say Manafort’s bank fraud began after political consulting work in Ukraine -- which had paid him more than $60 million from 2010 to 2014 -- dried up.
Washkuhn also testified that Manafort kept her in the dark about foreign accounts he used to pay personal expenses, which supported Mueller’s claims that he withheld information from financial advisers as he cheated the Internal Revenue Service. Washkuhn, who kept track of Manafort’s personal and business expenses, said all of his bills were mounting in early 2016.
“I asked multiple times for his bills to be paid, and there weren’t enough funds to pay them, including our bill,” said Washkuhn, who works at NKSFB LLC in Newport Beach, California. She appeared on the third day of Manafort’s trial in federal court in Alexandria, Virginia.
Washkuhn, the trial’s 12th witness, was the first to offer an inside look at how Manafort dealt with the people who kept his books. Prosecutors say that by hiding information from his bookkeepers, he made it easier to deceive the accountants who prepared his tax returns.
Justice Department attorney Greg Andres showed jurors an email chain between Gates and Washkuhn on March 16, 2016, as Manafort was seeking a bank loan. She testified that although Manafort’s firm had profit of $400,744 in 2015, Gates sent a profit-and-loss statement to a bank official showing the firm made $4,450,744. On the second statement, she said the font, headings and numbers were all different, and a disclaimer was missing on the bottom.
Gates sent several emails asking Washkuhn for a Microsoft Word document containing the firm’s income statement so that he could send it to the Banc of California, she said. Washkuhn said her bookkeeping system wouldn’t let her do that. Rather, she said, she could only print a PDF version and scan it before emailing it to Gates. That wasn’t good enough for Gates. The testimony suggested that Gates wanted a document he could alter.
“I am confused,” Gates said. “Why can’t you send me the email version generated by your system?”
He also demanded that she add $2.6 million in revenue recorded on an accrual basis, including bills that hadn’t been paid, rather than the cash accounting system that counted only money collected. Washkuhn testified that she couldn’t make the change. Jurors saw emails showing that Gates tried to go around Washkuhn and get an altered financial statement from a subordinate. Gates wasn’t successful.
Gates, who pleaded guilty and is cooperating with Mueller, is expected to testify as the prosecution’s star witness. Washkuhn’s testimony helped to undercut a Manafort lawyer’s assertion during opening statements that Gates was to blame for embezzling millions of dollars and that he was the point person on Manafort’s financial affairs.
Washkuhn also testified about false financial statements sent to Federal Savings Bank in Chicago, whose founder is Stephen Calk. Prosecutors say the bank provided Manafort with $16 million in loans after he submitted false data on loan applications. At that time, Calk was seeking a job in the Trump campaign and administration, prosecutors said.
On Oct. 21, 2016, Manafort emailed Dennis Raico, an official at Federal Savings, with a profit-and-loss statement that showed his firm had net income of $3,011,952 through the end of September, Washkuhn said. In fact, she said, the firm had a net loss of $1,116,497. The phony statement misspelled “September” and “review,” and the font and columns were all different from the original, she said.
Washkuhn told jurors she had no knowledge of more than a dozen accounts in Cyprus that prosecutors say Manafort used to pay for real estate and luxury items such as cars, clothes and home improvements.
Andres asked Washkuhn if it would have been important to know about any foreign accounts held by Manafort, who is accused of bank and tax fraud.
“We would want to provide a complete financial picture” to Manafort’s accountants, Washkuhn said.
Washkuhn began working on Manafort’s accounts in 2011, first at a bank and then at NKSFB, she said. The firm, which charged Manafort about $100,000 a year, was hired to track all of his income and expenses for his business and personal accounts. She communicated with Manafort weekly or biweekly.
“He was very knowledgeable,” Washkuhn said. “He was very detail-oriented. He approved every penny of anything we paid.”
She dealt less frequently with Gates, Manafort’s former right-hand man, and only on his business accounts, she said.
“We were to go to Rick with business questions if we couldn’t get a hold of Paul,” she said. “We only dealt with Mr. Gates on business affairs.”
On cross-examination by defense attorney Thomas Zehnle, Washkuhn conceded that she did recognize some names associated with Manafort’s foreign accounts.
Zehnle suggested that inaccuracies in financial statements were the result accountants always being in a rush. She said she didn’t recall that being the case with Manafort. Zehnle also pressed Washkuhn about what expenses Manafort approved.
“He approved every expenditure” relating to his personal and business accounts, she said.
In his opening statement, Zehnle said Gates was the “contact point for all the day-to-day operations and the financial matters of the company.”
“But little did Paul know that Rick Gates was lining his own pockets and the evidence will show he was claiming fake bonuses and business expenditures in order to pay himself,” Zehnle said.
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