Shaky Gates Admits Stealing to Pay for Love Nest: Trial Update

(Bloomberg) -- Paul Manafort’s former right-hand man, Rick Gates, testified Tuesday about how he helped his boss conceal millions of dollars and defraud banks to get loans. Under cross examination he admitted to stealing from his boss to pay for an extra-marital affair. Manafort’s lawyers blame Gates for any crimes that occurred.

Gates Says He Had Secret Relationship (5:22 p.m.)

Gates admitted under cross-examination that he stole from Manafort to cover expenses related to a secret relationship. In response to a question from Manafort’s lawyer Kevin Downing whether he stole from his boss to pay for “the secret life of Rick Gates,” Manafort’s former deputy responded: “There was a time 10 years ago when I had a relationship.” The married father of four said the relationship lasted two months and involved an apartment in London.

Gates denied Downing’s suggestion that he used money stolen from Manafort’s Cypriot accounts to pay for a trip to Las Vegas, audio equipment and groceries from a Whole Foods in Virginia. But Gates conceded that he took business trips to Las Vegas with an accused fraudster, Steven Brown, using money from Manafort’s accounts in the U.S. Downing asked if Gates had submitted personal expenses to the Trump inaugural committee. “I don’t recall,’’ Gates replied. “It’s possible.’’

Gates appeared shaky at times in answering questions, contrasting sharply with his firm and clear answers to questions by prosecutors.

He was questioned repeatedly about his trustworthiness.

"After all the lies you’ve told and fraud you’ve committed, you expect this jury to believe you?" Downing asked.

"I’m here to tell the truth," Gates said. "I’m taking responsibility for my actions. Mr. Manafort had the same path. I’m here. I’ve accepted the responsibility and I’m trying to change."

Manafort Lawyer Chips Away at Gates’s Credibility (4:21 p.m.)

Downing, the Manafort attorney, began his cross-examination of Gates by questioning him about unauthorized bonuses he paid himself through his boss’s offshore accounts, part of an effort by the defense to paint Gates as a liar whose credibility is damaged.

Downing, a former tax prosecutor, also cited a false statement Gates made to the special counsel’s office earlier this year before pleading guilty to one count of conspiracy against the U.S. and one count of making a false statement to the government.

These incidents are being used to reinforce the defense’s position that this case is about “taxes and trust,” as Manafort attorney Thomas Zehnle said in his opening statement last week. The defense contends that Gates repeatedly violated Manafort’s trust and can’t be trusted by the jury.

Downing suggested that Gates paid himself as much as $3 million in bonuses and unauthorized expenses from bank accounts allegedly controlled by Manafort in Cyprus, much more than the hundreds of thousands that Gates admitted to in earlier testimony.

“When did you first start giving false and misleading information to the special counsel’s office,” Downing asked.

Gates said that he provided false information because he couldn’t remember specific events. He then pleaded guilty and began cooperating with prosecutors, meeting with them numerous times in preparation for the trial.

Downing questioned several expenses Gates paid with money from the Cypriot accounts, alleging that a “substantial amount” of them represented personal expenses and not charges associated with Gates’s role as an employee of Manafort’s political consulting firm.

Pressed by Downing and Judge Ellis, Gates admitted that many of the expenses weren’t approved by Manafort.

“I submitted expense reports over several years that were not authorized,” Gates said.

Manafort Pressed Gates on Army Pick (3:04 p.m.)

Gates closed his direct testimony with a flourish, answering questions from Andres, the prosecutor, about the Trump campaign, the New York Yankees and Calk, a founder of Federal Savings Bank in Chicago.

Prosecutors asked for the first time about Manafort’s role on the Trump campaign. Gates said Manafort joined as convention manager in March 2016, and he followed his boss. Manafort became campaign chairman in May 2016 and left in August 2016. Gates stayed on and then joined the inauguration committee.

At the time, Manafort had applied for loans from Federal Savings Bank, which lent him $16 million. Calk was nominated to the transition team’s economic advisory council, and then Manafort made a request.

“Rick, we need to discuss Steve Calk for Secretary of Army,” Manafort, after he had left the campaign, wrote to Gates by email on Nov. 24, 2016. “I hear it’s being considered this weekend.”

A month later, Manafort sent an email to Gates with the subject line: “Urgent: Inaugural Invitation Lists.” Among those on the list were Stephen Calk and Stephen Calk Jr.

Andres asked if Manafort was seeking inaugural tickets for Calk. Gates said yes. The prosecutor asked Gates where Manafort was working the time. Gates said he didn’t know.

Gates also testified about problems that Manafort had in 2016 paying for New York Yankees season tickets he held since 2006. The tickets cost between $210,000 and $225,000, Gates said.

“I was still on the campaign at the time,” Gates said. “It was very work intensive. He asked me to sign a letter to attribute the cost to me and not to him.”

Andres finished his examination of Gates, and the judge took a break before Downing, the Manafort attorney, began his cross-examination.

A Loss Becomes a Profit After Edit (2:43 p.m.)

Gates testified that in the fall of 2016 he helped Manafort doctor a statement to show enough assets for Manafort to secure a loan from the Bank of California.

Guided by Andres, the prosecutor, Gates reviewed a series of email exchanges with his boss that showed them discussing how to convert a PDF profit-and-loss statement prepared by their bookkeeping firm to a Word document that could be edited.

On Oct. 10, Manafort emailed Gates asking him, “How do I convert into non PDF Word document?”

Gates, who was in Richmond, Virginia, told Manafort, “I can do it and send it to you.”

Manafort replied a few minutes later, “When are you sending.”

Gates then said, “About 15 minutes. Almost home.”

The document prepared by the bookkeeping firm showed a loss of approximately $638,000 for the year. When Gates received the edited document, he said, “I saw that he had changed the income number.” Now, the firm showed net income of more than $3 million.

Email: ‘How Could I Be Blindsided Like This?’ (1:30 p.m.)

Gates lived up to his billing as Special Counsel Robert Mueller’s star witness, offering a gripping narration on how he helped his boss hide millions of dollars in Cyprus accounts from U.S. tax authorities and cheat U.S. banks once his money started drying up.

Gates, 46, detailed how Manafort set up a labyrinth of Cypriot shell companies to take in payments from wealthy benefactors of Ukrainian President Viktor Yanukovych until 2014, when he lost power. After that, Manafort began to run out of cash to support his lavish lifestyle, and Gates began to help him create false documents to apply for bank loans secured by properties, Gates said.

In April 2015, Manafort sent Gates an email expressing dismay at the U.S. tax bill he faced and his disappointment in his deputy for not managing the problem more effectively. It read: “Rick, I just saw this. WTF? How could I be blindsided like this? You told me you were on top of this. We need to discuss options. This is a disaster.”

Gates, who pleaded guilty and is cooperating with the special counsel, corroborated testimony by other witnesses that Manafort had directed him to falsify documents used to lower his tax bill and obtain bank loans, while also making payments from his boss’s offshore accounts.

He described how vendors contacted him and Heather Washkuhn, Manafort’s bookkeeper, to try to find out when his boss would pay his bills. He also said he worked to deceive lenders with phony documents that allowed Manafort to draw cash out of several properties in New York.

“In large respect, I was the point person for collecting all the documents,” Gates said.

Jurors saw a January 2016 email from Manafort about a property he owned on Howard Street in New York as he tried to get a loan. Gates said Manafort wanted a more favorable tax treatment for the property.

“In order to have the maximum benefit, I am claiming Howard Street as a second home. Not an investment property,” Manafort wrote.

Andres, the prosecutor, said before the lunch break that he had another hour of questioning before cross-examination begins. He said prosecutors hope to complete their case by the end of the week.

Cyprus Accounts ‘Were Not Reported’ (11:49 a.m.)

Gates testified that Manafort never wanted his name to appear on Cyprus accounts that he used to receive payments from wealthy Ukrainian businessmen who paid him for political consulting work there for Yanukovych and his Party of Regions.

A Cypriot lawyer, referred to as “Dr. K,” worked with Manafort to set up these off-the-shelf corporations, which typically had two directors, Gates said.

The Gates testimony goes to the heart of the case by Mueller, the special counsel, who must show that Manafort controlled the offshore accounts they say he used to hide most of the $60 million he earned in Ukraine from 2010 to 2014. That money began to dry up after Yanukovych lost power in 2014 and fled to Moscow.

Gates said he gave instructions to the Cypriot law firm and to banks on wiring money to Manafort’s vendors in the U.S. to support his opulent lifestyle, paying for landscaping, audio visual equipment and luxury clothes. Manafort told Gates not to notify his bookkeeper about the use of Cypriot accounts to pay his personal expenses because he didn’t want to report that money as income, according to Gates.

“They were not reported on Mr. Manafort’s U.S. business records,” Gates said.

At some point, the accounts moved from Cyprus to the Grenadines, and the process of moving money for Manafort became more complex, Gates said.

Gates also recounted that he and Manafort were interviewed by FBI agents in July 2014 who were helping Ukrainian authorities on a forfeiture investigation, he said. Manafort asked Gates, who was interviewed first, to tell Ukrainian businessman Sergei Lyovochkin about the interview. Gates said he flew to France to notify Lyovochkin that investigations had questions about the status of one of his companies.

By then, most of Manafort’s Cypriot accounts were closed, and he wanted to consolidate them in one institution, according to Gates.

How to Use Shell Companies, by Rick Gates (11:01 a.m.)

Gates, the trial’s star witness, described to jurors how he and Manafort used shell companies and accounts in Cyprus to hide millions.

“The purpose of these entities was to accept payments and make payments,” Gates said in federal court in Alexandria, Virginia, on his second day of testimony.

Gates described Manafort as fully in charge of the consulting operation. It was Manafort who negotiated multimillion-dollar contracts with Yanukovych, the former Ukrainian president, and other politicians there, Gates said.

Through these shell companies, Manafort received payments from Ukrainian businessmen, including Lyovochkin, Rinat Akhmetov, Borys Kolesnikov and Sergei Tihipko.

Clients in Ukraine, Accounts in Cyprus (9:35 a.m.)

Gates, 46, began his testimony Monday with a detailed 75-minute account of how he spent a decade with Manafort in Ukraine, where he said they were paid by wealthy businessmen there. They wired money into Cyprus accounts, and Gates helped Manafort move it to the U.S., he said.

Prosecutors said they’ll question Gates for about three more hours, and then he’s expected to undergo a grueling cross examination by lawyers for Manafort, President Donald Trump’s former campaign chairman. Defense lawyers have told jurors that Gates, and not Manafort, was the mastermind behind the financial deceptions described by prosecutors.

Gates, who pleaded guilty and is cooperating with the special prosecutor, admitted Monday that he stole hundreds of thousands of dollars from his boss. Manafort’s lawyers said he stole millions.

Tensions have been high between Judge Ellis and Mueller’s prosecutors. At one point, the judge suggested that one of Mueller’s prosecutors was crying during a discussion out of the jury’s earshot, according to a transcript of the proceedings. They have clashed repeatedly over the relevance of details about Manafort’s work in Ukraine, where prosecutors said he made more than $60 million from 2010 to 2014.

“I understand how frustrated you are,” Ellis said during the discussion. “In fact, there’s tears in your eyes right now.’’

When Andres, the prosecutor, protested that he didn’t have tears in his eyes, the judge shot back: “Well, they’re watery.”

To contact the reporters on this story: David Voreacos in Alexandria, Virginia at dvoreacos@bloomberg.net;Andrew Harris in Alexandria, Virginia at aharris16@bloomberg.net;Daniel Flatley in Alexandria, Virginia at dflatley1@bloomberg.net

To contact the editors responsible for this story: Heather Smith at hsmith26@bloomberg.net, David S. Joachim, Joe Schneider

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