Manafort Accountant Recalls Backdated Documents: Trial Update

(Bloomberg) -- Special Counsel Robert Mueller’s prosecutors are walking the jury in the trial of Paul Manafort through records to back their claim that the former Trump campaign chairman deceived his own financial advisers to hide his foreign accounts and income from U.S. tax authorities.

Tax Pro Says She Was Troubled by Phony Returns (5:55 p.m.)

Cindy Laporta, a Manafort accountant, recalled how she felt conflicted after Manafort’s right-hand man, Rick Gates, sent her phony, backdated loan documents that would lower his taxes and help him get a bank loan as his income plunged.

Laporta, who testified with a grant of immunity because she feared prosecution, recounted the creation of a $900,000 loan booked to a Cyprus company that had the effect of disguising income in that amount on Manafort’s 2014 tax return. Laporta said that Gates sent her a backdated document purporting to memorialize the loan and that Manafort saved $400,000 to $500,000 in taxes.

“I had a couple of choices at that point. One, I could have refused to file,” potentially exposing the firm to the risk of litigation. “I could have called Mr. Manafort and Mr. Gates liars, and Mr. Manafort was a longtime client of the firm and I didn’t think I should do that either.”

Laporta said she felt regret as soon as the return was filed. A day later, Laporta said, she emailed Gates to ask if the loan money had been wired in 2014 to reflect the transaction listed on the return. Asked why she sent the email if she knew the loan wasn’t real, she said: “I was still feeling pretty disturbed about the tax return filed as it was.”

Laporta also testified about two additional loans for a combined $1 million that she said had no supporting documentation. They were booked to the same Cyprus entity, bringing the total to $1.9 million. She said Gates told her he was handling the documentation even though he knew the loans were phony. Manafort was aware of the reported loan, which served to reduce his income, she said.

Laporta also told jurors about another $1.5 million loan on the books of Manafort’s company that caused Citizens Bank to balk at issuing a new loan on property Manafort owned in Manhattan. After the bank expressed reservations about the size of Manafort’s debt, Gates sent her documentation showing the $1.5 million loan had been forgiven. Asked by Asonye if she believed it was forgiven, she said: “Uh, no.”

U.S. District Judge T.S. Ellis III asked Laporta about her understanding of the forgiven loan.

“You believed it was false?” Ellis said. She said she knew it was false “because of the date.”

The judge said: “But you still went ahead and used it?” She said yes.

The proceedings ended before Manafort attorney Kevin Downing could cross-examine her.

Firm Knowingly Filed Phony Returns, Accountant Says (3:50 p.m.)

Manafort’s accounting firm agreed to falsify his tax returns because he couldn’t afford his tax bill, Laporta testified.

Laporta told jurors that Gates, Manafort’s right-hand man, proposed altering the amount of a loan listed on their company’s books in September 2015 so that Manafort would pay less in taxes. Gates said that Manafort needed the change because he couldn’t afford to pay the amount he owed, Laporta said.

“He was trying to reduce income and therefore taxes,” Laporta told jurors in federal court in Alexandria, Virginia. “It was inappropriate.”

Laporta, who works at Kositzka Wicks & Co. in Alexandria, said she and another employee at the firm agreed to make the change.

“It resulted in a tax amount that Rick said could be paid,’’ Laporta testified.

Ellis, the judge, granted Laporta immunity at the request of the special counsel. The judge asked if she was concerned about being prosecuted without immunity, and she said yes. Asked what crime she feared being prosecuted for, she said perjury.

Laporta discussed one loan for $1.5 million and another for $900,000, which prosecutors say were income disguised as loans from offshore companies that Manafort controlled. Laporta was asked if she believed what Manafort and Gates said about the loans, and she said no. But she approved the tax returns anyway, she said.

Accountant Tells of Pressure to Mislead Bank (1:18 p.m.)

Manafort pressed his tax accountant to mislead UBS Group AG about whether Manafort occupied or rented out his Trump Tower apartment in New York, the accountant testified.

The retired accountant, Philip Ayliff, told jurors that Manafort had emailed him in January 2015 as he was seeking a mortgage on the unit from UBS. In that email, Manafort said that while UBS believed it was a rental unit, he had never rented it out and he used it with his wife as a residence.

But Ayliff said Manafort’s tax returns showed it as a rental unit because his political consulting firm was renting it from another entity he owned, John Hannah LLC. He recounted how he described the property when he spoke with UBS.

“I told them exactly the way it was presented -- that it was a rental,” Ayliff said.

As a rental unit, Manafort was able to deduct its costs as a business expense. If it was his residence, he couldn’t do that. Ayliff’s suggested that Manafort wanted the accountant to help mislead the bank.

In April 2015, Manafort’s wife took a $3 million mortgage from UBS against the Trump Tower unit.

Accountant Describes Manafort as In Charge (11:55 a.m.)

Jurors heard testimony that appeared to contradict defense suggestions that Gates, Manafort’s right-hand man, went behind his boss’s back to deceive his tax accountants.

Ayliff, the retired accountant, told jurors that he handled Manafort’s business and personal taxes for two decades and that his client always had a command of his complex returns. Manafort claims that Gates embezzled millions of dollars from his political consulting business.

Ayliff said that although he dealt with both Manafort and Gates, the man in charge was always Manafort. He said he would talk to Gates about Manafort’s tax returns because Manafort had authorized it. But Ayliff was unaware of any deception by Gates, he said.

“Did Rick Gates ever tell you to hide any information from Paul Manafort?” Assistant U.S. Attorney Uzo Asonye asked. Ayliff said no.

In his opening statement, Manafort attorney Thomas Zehnle said: “Rick was handling the financial operations, and he was communicating directly with the company’s bookkeepers and the company’s tax accountants.”

Gates, who pleaded guilty and is cooperating with the special counsel, is expected to be the star prosecution witness.

Asonye walked jurors through Manafort’s tax returns on Friday to back the prosecution’s claim that he hid his foreign accounts and income from U.S. tax authorities. Prosecutors say that Manafort, a political consultant who made more than $60 million working in Ukraine over that period, failed to report much of that income. They also say he falsely reported that he had no financial interest in foreign bank accounts.

Jurors also saw on each tax return that Manafort answered “None” to the question of whether he had foreign accounts. Prosecutors said that Manafort used tax-free income stashed in Cyprus accounts to support a lavish lifestyle.

Ayliff began his testimony on Thursday, when he said the his clients attest to the accuracy of the tax returns he prepares and that his firm wasn’t responsible for checking the accuracy of information provided by clients.

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