The Trial of Helio Castroneves Three Time Indianapolis 500 And Dancing With The Stars Winner
The United States held a press conference at the time that it filed an indictment in the income tax case against Helio Castroneves, his sister Kati, and their attorney Alan Miller. The newspapers have published in great detail the allegations made by the United States. The defense decided to wait to tell Helio’s side of the story at the trial. The strategy resulted in the acquittal of all of the defendants however, the facts brought out by the defense were never publicly published in the same detail that the original allegations were. The facts set forth below, including the cross examination of key government witnesses, are presented to inform the reader of the evidence presented to the jury in the defense of Helio, Kati, and Alan Miller.
Background Opening Statement
The accuracy of these facts have not been confirmed
should not be relied upon without independent verification
HELIO ALVES CASTRONEVES was born May 10, 1975 in Sao Paulo, Brazil to Helio P. Castro Neves and Sandra M. Alves de Castro Neves. Helio has one sibling, Katiucia Alves de Castro Neves who was born in July, 1973.
For as long as Helio can remember Helio’s father had a passion for auto racing. Mr. Castro Neves owned a stock car he used for racing on weekends. In fact, during 1980 through 1983 Mr. Castro Neves had his own racing team. Helio’s mother Sandra, never liked racing because it was too dangerous. Instead, she dedicated her full time to raising Kati and Helio. Kati was an aspiring ballerina and a good student. She was widely recognized as a pleasant girl who was nice to everyone and full of love for her family. She happily watched over her little brother, Helio.
Unlike Kati, Helio was not a very good student. He wanted to be a race car driver. At the age of 10 years, he spent all of his weekends with his father at the race track. Mr. Neves purchased a go cart for Helio and Helio drove the go cart every day. In 1986, Helio spent his weekends driving his go cart at the race track and competing with the other kids.
In 1987, Mr. Castro Neves sold his stock car and racing equipment and used the funds to finance a go cart racing team for Helio. The cost of fielding a cart and team was in excess of $100,000. Helio competed in organized cart racing and finished in fourth place for the season. The following year, Helio continued to race go carts throughout the State of Sao Paulo and finished the season in first place. Helio was already receiving notoriety. He had unusual focus and he was flat out fast. He had the nerve and skill to go faster than everyone else. In 1989, Helio won the Brazilian go cart national championship title. Kati was Helio’s biggest fan and attended most of his races. By 1991, Helio was racing in the Go Cart Class A division through out Sao Paulo. Helio dominated many races. He was ready to make the move to full size racing cars.
In 1992, Helio interviewed with several racing teams in Brazil that were participating in the Formula Chevrolet series. This series was viewed as a third level racing series below Formula 3 and Formula 1. The cars were open wheeled Indy styled cars. Helio finished 2nd overall. In 1993, Helio competed for the South American championship. He came in second place overall. During the final race all of the drivers from the Argentine Team stopped their cars to permit their teammate to finish in second place behind Helio. The Argentine driver won the championship by one point as a result of his second place finish. Helio also finished second overall in 1994.
In 1995, it was decided that Helio had gone as far as he could in Brazil and that at 19 years old he needed to go to Europe to race in the Formula 3 series to promote his career. Helio received an offer to race for the Paul Stewart Team in England. Paul Stewart was the brother of the famous Formula 1 driver Jackie Stewart. Helio finished in 3rd place overall in 1995 in Formula 3 in England.
In 1996, Helio left England and went back to Brazil. Helio was hoping to move up from Formula 3 to Formula 3000, named for its 3000 cc engine race cars. However, no offers came and Helio injured himself racing go carts in Sao Paulo. Helio received a telephone call from Willy Herman who stated that there was going to be a test in Arizona for the U.S. Indy Lights Series. Steve Horne’s Tasman Racing Team was inviting 10 drivers to test for the two cars the team would field in the 1997 season. Helio went and on day one he was the fastest driver but, he could not continue due to the pain from the broken ribs that he sustained in the go cart injury. However, the team owner was so impressed with Helio’s skill and grit that he decided to invite Helio to be his driver. Throughout Helio’s career Mr. Castro Neves had sponsored him and paid all of his expenses to race. But, Mr. Castro Neves had exhausted all of his assets and could no longer finance Helio’s career.
In 1997, Helio went to race for the Tasman Team. Willy Herman had obtained sponsorship commitments for Helio from Hudson Oil and Phillip Morris of Brazil. Unfortunately, Hudson Oil did not provide the amount of money it promised. Willy Herman got Brahma Beer of Brazil to commit to approximately $20,000 but, he did not succeed in raising the full $400,000 promised to the Tasman Team. Helio paid the balance of the debt to the team by donating all of his prize money from his races.
In June 1997 the famous race car driver, Emerson Fittipaldi called Helio and told Helio that he wanted to be Helio’s manager. He told Helio that he would raise Helio’s sponsor money and he would get Helio back on track to get to Formula 1 . All Helio had to do was concentrate on driving. Helio agreed.
In 1998 Fittipaldi contacted a third level Indy Car race team owned by Gary Bettenhausen. Bettenhausen agreed to have Helio as the driver in the team’s second car if Fittipaldi agreed to bring the team at least $1,000,000 in sponsors. Fittipaldi succeeded in getting Ericsson the cell phone company to provide $1,000,000. Kati Castro Neves and Mr. Castro Neves succeeded in locating another sponsor called Consul. Consul was a company in Brazil that was similar to Whirlpool here in the United States. Consul also contributed $1,000,000 in 1998. Kati or Mr. Castro Neves were not paid for their work.
The main sponsor for the Bettenhausen Team was a company called Alumax. Alumax had paid approximately $6,000,000 to have its name on the side of the Bettenhausen race cars as the main sponsor. Alumax was bought out during 1998 and ended its sponsor relationship. As a result, in January 1999 Bettenhausen terminated its relationship with Helio. This was terrible timing because most, if not all, of the Indy Car Teams sign their drivers in the summer for the following season. This permits the team to tell the sponsors the identity of the drivers they have under contract. The racing season starts in February and there are no openings left by January.
In January 1999, one of the drivers for Team Hogan, a second level Indy Car Team, drove a car in a race sponsored by BMW. This violated his contract since at the timeTeam Hogan was committed to race only for Mercedes Benz. As a result, the driver was fired. This created an opening for Helio to drive for Hogan. Hogan agreed to use Helio as the team’s driver if Fittipaldi promised to raise at least $3,000,000 and personally guaranteed $1,000,000 of the commitment. Fittipaldi agreed. Fittipaldi required an extension of his contract with Helio which Helio signed without any independent review. The extension provided that Helio had to pay Fittipaldi 20% of all of his future earnings. Fittipaldi was supposed to find the necessary sponsors and Helio was supposed to focus on driving.
Fittipaldi called Ericcson to be a sponsor but, they were not interested. Fittipaldi told Kati to call Consul. Consul told Kati that they would have given the $1,000,000 sponsorship if Fittipaldi had contacted them in the summer but, they never heard from him so they gave the sponsorship to someone else. As a result, Fittipaldi did not pay Hogan. Hogan in turn refused to pay Helio his salary for driving.
In or about March 1999, Helio began calling his father and Kati for help. He was out of money and needed a sponsor. Mr Castro Neves and Kati started calling everyone they knew. However, Mr. Castro Neves had no intention of giving his work to Fittipaldi who was not doing his job. Mr. Castro Neves called Brazilian attorney Osiris Correa to help him form a new company to raise sponsorship money. Mr. Castro Neves did not want his money to be claimed by his creditors. He was also worried about Kati’s safety who had been kidnapped in Brazil but thankfully was released without being harmed.
Attorney Correa formed the company SEVEN PROMOTIONS. Attorney Correa recommended a Panama Corporation because Panama still permitted bearer stock companies. He also formed a company called Brickdale Financial to act as the president and managing director of Seven Promotions. At all times, attorney Correa held the stock certificate of Seven Promotions at his law office. The holder of the certificate is the legal owner. This protected the assets of Seven Promotions from the creditors of Mr. Castro Neves and protected the family from kidnappers.
Seven Promotions entered an agreement with Helio to handle his licensing rights and locate sponsors for him. The agreement was executed on March 9, 1999. Shortly thereafter, Mr. Castro Neves was contacted by Mr. Assad who was an agent that stated that he represented a company that was interested in sponsoring Brazilian race car drivers because the company imported cars as part of its business. The company was called Coimex.
Mr. Castro Neves invited the people from Coimex to have a tent at the Brazil 200 race were they could meet Helio and make a final decision concerning a sponsorship for Helio’s car. Mr. Castro Neves stated that the company Seven Promotions would handle the sponsorship. Seven Promotions received sponsorship money from Coimex. Seven Promotions paid $50,000 to Helio to pay for expenses.
At the last race of the year Carl Hogan announced that he would not have a race team the following year. Helio was without a team. Fittipaldi was not at the race and Helio could not reach him by phone. Fittipaldi never raised any of the sponsor money for the Hogan Team during 1999. Helio had enough and terminated his agreement with Fittipaldi for failure to perform.
On race day Greg Moore had a fatal crash. Moore had been represented by attorney Alan Miller. Miller had successfully negotiated a contract for Moore to drive for Team Penske the following year. Suddenly, Team Penske had no driver. Helio met with members of Team Penske and expressed an interest to race for the team the next season. Team Penske agreed. Helio hired Alan Miller to represent him. Mr. Miller directed his office to prepare a proposed contract for Helio and Team Penske by using the Greg Moore contract as a guide. Alan Miller flew to Vancouver to attend the funeral of Greg Moore.
When Miller returned to his office several days later he learned that Team Penske wanted to sign the documents the following day. Helio accompanied by his personal friend and attorney Mark Seiden and Helio’s sister Kati flew from Miami to Detroit to sign the agreements with Team Penske.
The documents were signed and Helio returned to Miami, Florida. No one noticed that the contract of Greg Moore had stated that Moore owned the company Greg Moore Enterprises that held his licensing rights. However, since the secretary at Alan Miller’s office simply copied this document to make Helio’s contract, Helio’s agreement incorrectly stated that Helio owned Seven Promotions that had Helio’s licensing rights.
Approximately a month later, in December 1999, Alan Miller and Helio finally had a calm meeting. At the meeting Miller learned that Helio did not own and did not control Seven Promotions. Mr. Miller’s calls to Panama concerning Seven went unanswered. Mr. Miller became concerned about the licensing agreement that stated Team Penske was to pay Seven for Helio’s licensing rights. Mr. Miller wrote to Team Penske and told the team not to make any payments to Seven. These instructions occurred in December before Team Penske had an obligation to make any payment in January the following year.
Alan Miller located another licensing company name Fintage. Fintage was located in the Netherlands and had an excellent reputation for handling licensing rights. Ultimately, in 2002 Fintage acquired all of Helio’s licensing rights from Seven Promotions. Team Penske made the licensing payment to Fintage in January 2003. The amount that had accrued was $5,000,000.
Mr. Fittipaldi filed a lawsuit claiming that he was entitled to 20% of all of Helio’s earnings including the licensing payments made to Fintage. The case went to trial in a civil court in Miami, Florida and the jury denied Fittipaldi’s claim. After the trial someone dissatisfied with the jury’s decision told the IRS that Helio, Kati, and Alan Miller had caused $5,000,000 to be paid to Fintage in an effort to avoid taxes.
In September 2008, the United States brought a criminal case against Helio, Kati and attorney Alan Miller for alleged income tax evasion. The case related to the $5,000,000 paid to Fintage, sponsor money paid by Coimex to Seven Promotions, and payments made to Mr. Castroneves for his work. There was also a minor issue concerning some free airline tickets and Hugo Boss clothing.
During the 2 year IRS investigation Helio was represented by Mark Seiden and David M. Garvin. However, when the case was filed in September 2008 the government requested Mark Seiden to withdraw because he was a potential witness. The trial was scheduled to commence on March 2, 2009. Howard Srebnick and Scott Srebnick represented Kati Castroneves. Robert Bennett and Lilly Ann Sanchez together with David Leland represented Alan Miller . Ultimately, Mark Seiden withdrew from the case. In or about December 2008, Roy Black entered his appearance to represent Helio with David M. Garvin. All of the attorneys worked together as a team during the trial.
The trial commenced on March 2, 2009. On April 19, 2009 the jury rendered its verdict. Helio was found not guilty on all 6 charges of income tax evasion, Kati was found not guilty on all 6 tax charges and Alan Miller was found not guilty on all 4 of the counts he was named in. There were 16 not guilty verdicts in all. The jury was unable to reach a decision on the one count of conspiracy as to Helio and Kati.
The attorneys for Helio and Kati urged the Untied States Attorney’s office to drop the lone remaining count because the conspiracy charged in the indictment was a conspiracy to commit tax evasion. These were the very acts the jury had found that the defendants were not guilty of committing. On Friday, May 22, 2009 the United States Attorney’s Office moved to dismiss the last count and the Court granted the motion the same day.
TRIAL TESTIMONY
Below are excerpts of the testimony of some of the key witnesses that testified at the trial. They are as follows:
A. Fred Feingold, Esq.
B. Kevin Savoree,CPA
C. Jill Coombes, CPA
D. Fernando Berguido, Esq.
E. Patrick Bell, CPA
F. Mark Berg, Esq.
G. Guido Chipy
H. Margaret Houston
A. WITNESS FRED FEINGOLD, ESQ
CROSS EXAMINATION
7 Q. Good morning, Mr. Feingold.
8 A. Good morning.
9 Q. How are you today?
10 A. Fine.
11 Q. As you know, I’m David Garvin. I represent Helio
12 Castroneves in this matter.
13 A. Yes, I do.
14 Q. Mr. Feingold, I want to go back and ask you some questions
15 on the very documents that we just discussed, okay?
16 A. Sure.
17 Q. Let’s start with one of the easier ones to talk about, and
18 that is — which is Exhibit 183, sir.
19 MR. GARVIN: May I use the ELMO, please? Thank you.
20 BY MR. GARVIN:
21 Q. And this is the Assignment Agreement that is dated
22 July 31st of 2002. Do you see that, sir?
23 A. Yes, I do.
12identified as Defendant’s Exhibit 78 to see if it might refresh
13 your recollection, sir. I’ve also put a yellow sticky on the
14 signatures.
15 Do you recognize that document, sir?
16 A. Yes, I do.
17 Q. Okay. And was that a document that was prepared as part
18 of this transaction?
19 A. Yes, it was.
9 A. That’s correct.
10 Q. Okay. And was it then kept in the ordinary course of
11 business by your firm as part of the transaction records?
12 A. In the normal course it would have been, yes.
13 MR. GARVIN: Okay. Your Honor, at this time we would
14 move Defendant’s Exhibit I believe 78 into evidence.
19 THE COURT: Received.
20 BY MR. GARVIN:
21 Q. I’m publishing what is Exhibit 78, sir, and I wanted to
22 draw your attention to the fact that it’s entitled licensing
23 agreement. Is that correct?
24 A. The one on the screen?
25 Q. Yes, sir.
1 A. It says “License Agreement.”
2 Q. Okay. And just so the ladies and gentlemen understand,
3 the Fintage transaction in which you rendered a tax
4 opinion about was a licensing agreement between, as you said,
5 the licensor, Helio Castroneves, and the licensee would become
6 Fintage, correct?
7 A. That’s correct.
8 Q. And this is the licensing agreement, correct?
9 A. That is the license agreement.
10 Q. And it bears the date of July 31st, 2002,
11 correct?
12 A. It bears that date, but it wasn’t executed on that date.
13 Q. Okay. Now, you do see that the
14 document was, in fact, executed by both parties, right?
15 A. It’s signed by two parties, that’s correct.
16 Q. Okay. Now, isn’t it true that this document, as well as
17Government’s Exhibit 183 that also bears the date of July 31st,
18 2002, were signed in advance of the tax opinion dated
19 November 15th, 2002?
20 A. I don’t believe that that’s correct.
21 Q. Okay. Do you know if the documents were held in escrow?
22 Does that refresh your memory at all?
23 A. It is certainly conceivable it was held in escrow. Our
24 opinion makes it clear that the documents would be executed.
25 They had not yet been executed when we rendered the opinion.
1 Q. Okay.
2 A. Or would not have been executed and delivered when we
3 rendered the opinion.
4 Q. Sir, I’m showing you what was discussed during direct
5 examination as Government’s Exhibit 181 and, of course, we’ll
6 start by showing the sticker that it’s 181. It’s on your
7 screen.
8 A. Yes.
9 Q. You see that?
10 A. Yes.
11 Q. And we’re going to turn to the schedule.
12 A. Yes.
13 Q. We spent some time this morning on the schedule, right?
14 A. Uh-huh.
15 Q. And there are a couple of things that I’d like to talk
16 about for a second. One of the things that this schedule
17 assumes, as shown by the two asterisks that counsel makes
18 reference to, “Assumes in the case of nonresidence that the
19 individual is not a U.S. citizen, and that the deferred income
20 is not U.S. source income.”
21 Is that correct?
22 A. That’s correct.
23 Q. Now, those two assumptions have a substantial impact on
24 the tax savings, correct?
25 A. That’s correct.
1 Q. And if Helio Castroneves remains in the United States as a
2 resident, then that assumption would no longer be valid if he
3 was physically residing in the United States at the time the
4 licensing agreement expired and the payment was due; is that
5 correct?
6 A. That’s absolutely correct.
7 Q. And to the best of your knowledge, all times continuous,
8 Helio Castroneves has, in fact, resided in the United States to
9 this very day, correct?
10 A. He was — we were told he was — would be considered a
11 resident at the time we were doing the transaction. I don’t
12 know about anything after that.
13 Q. Okay.
14 A. I have no reason to believe he’s not, but I just don’t
15 know.
16 Q. All right. But it is accurate to say that if he is, then
17 all of this is no longer applicable, right?
18 A. Absolutely.
19 Q. And then there’s the second portion of this statement, and
20 that is an assumption that the deferred income is not U.S.
21 source income. And that one is also very important for any tax
22 calculation, correct?
23 A. Absolutely.
24 Q. And what we’re talking about here is the deferred royalty
25 that this license relates to, where are the source generated
1 for the funds of this licensing agreement, correct? So let me
2 try to be a little bit clearer.
3 If the license was granted, a sublicense to Penske Racing
4 that’s in the United States for advertising in the United
5 States, for races that take place in the United States, then
6 payments made for that may well be determined by the Internal
7 Revenue Service to be from a source within the United States,
8 correct?
9 MR. AXELROD: Objection, Your Honor.
10 THE COURT: Overruled.
11 A. I’m sorry, could you repeat the question?
12 BY MR. GARVIN:
13 Q. Yes, sir. In a licensing arrangement, you can either have
14 U.S. source or non-U.S. source payments, right?
15 A. Correct.
16 Q. The non-U.S. source payments may be funds generated from
17 the license in other countries, correct?
18 A. Yes.
19 Q. And the U.S. source payments would be those payments that
20 are generated from use of the licensing within the United
21 States, right?
22 A. Yes and no. Certainly, if we’re talking about the source
23 of the income to the recipient, Fintage, that would be correct.
24If we’re talking about the source of the income from Fintage to
25 the licensor, Mr. Helio Castroneves, that may not be correct.
1 There is some — perhaps some disagreement on that. There is a
2 case that says it would not be U.S. source income. The
3 Internal Revenue Code says it would be U.S. source income.
4 Q. We’ll break that down because it is complicated, as you
5 said on direct examination. Let’s take the first piece.
6 Generally speaking, and we’re going to use Penske Racing team
7 because it applies to this case, all right? Penske Racing team
8 writes a check for the licensing and all the races occur within
9 the United States. And in this case, if the check goes to,
10 let’s say Fintage, that piece of the transaction the IRS would
11 take the position is from sources within the United States,
12 correct?
13 MR. AXELROD: Objection, Your Honor.
14 THE COURT: Overruled.
15 A. I believe the license related to the uses of image, not
16 necessarily to racing.
17 BY MR. GARVIN:
18 Q. All right. For these — for these circumstances, let’s
19 assume that it’s only used in the United States by Penske
20 Racing team, okay? We’ll try to keep it simple so we can move
21 forward. That portion would be viewed as from sources within
22 the United States, correct?
23 A. It would be treated — the payment from Penske under those
24 circumstances to Fintage would be treated as U.S. source
25 royalties.
1 Q. All right. And as a result of that, unless Fintage has a
2 treaty, they would have to have payments because it’s U.S.
3 source income, correct?
4 A. Do you mean — do you mean withholding tax payments; is
5 that your question?
6 Q. Well, yes.
7 A. That’s correct.
8 Q. All right. Now, if Helio Castroneves held the license
9 instead of Fintage, pretend he never granted it to them, he
10 held it in his individual name and he resided here in Miami,
11 there would not be a 30 percent withholding; instead, he would
12 simply have to put it on his 1040 income tax return, correct?
13 MR. AXELROD: Objection, Your Honor.
14 THE COURT: Overruled.
15 A. That’s correct.
16 BY MR. GARVIN:
17 Q. Now, the complication comes that when Fintage receives
18 money from Penske that the IRS believes is U.S. source income,
19Fintage holds onto it for a number of years and it does not set
20 aside those specific dollars, it does not pay those specific
21 dollars back to Helio Castroneves. Sometime at a date certain
22 agreed in the Licensing Agreement, it pays back what, as a
23 general creditor, Helio Castroneves, whatever the funds were
24 that were agreed upon in the Licensing Agreement. You
25 understand the facts, right?
1 A. Yes, I understand, yes.
2 Q. Now, the big issue becomes, when they pay Helio
3 Castroneves approximately five or ten years down the road, are
4 those funds that they’re paying Helio Castroneves still
5 considered U.S. source income or have they lost their identity
6 because they went into Fintage and Fintage just treated him as
7 a general creditor and paid him? Isn’t that the issue?
8 A. That’s the issue, and it would depend on the facts and
9 circumstances and what else Fintage was doing.
10 Q. And now, one of the things that we know is that there is
11 at least one case out there, you have referred to that case
12 several times but we’re not going to get into it now, but the
13 tax court has said, well, in some specific instances it has
14 lost its identity and the subsequent payment is no longer
15 treated as from U.S. source income, correct?
16 A. That’s correct.
17 Q. Now, that is important because if that happens, then if a
18 person like Helio Castroneves is residing at the time of
19 payment in another country, then he’s going to be subject to
20 that country’s income tax laws instead of the United States,
21 right?
22 A. So long as he’s not considered a U.S. resident, he’s not
23 subject to U.S. tax. He would then — he may or may not be
24 subject to tax elsewhere.
25 Q. So let’s pretend, because it’s been referred to several
1 times in these documents, that Helio Castroneves has decided to
2 uproot from Miami, sell his house and move to Monaco, and when
3 Fintage finally pays him, he’s standing in Monaco. If that
4 case that you’re referring to applies, and if these assumptions
5 apply, then it will not be viewed as U.S. source income and
6 therefore, the United States cannot tax him because he doesn’t
7 live in the United States, he lives in Monaco, right?
8 A. Under those assumptions, that’s correct.
9 Q. But the problem is, that’s not the position the Internal
10 Revenue Service has taken, because their position is that they
11 don’t acquiesce to the one case that we’re talking about,
12 right?
13 MR. AXELROD: Objection, Your Honor.
14 THE COURT: You’re getting a little far afield, sir.
15 MR. GARVIN: Yes, sir. I’ll try to come home with
16 this quickly.
17 THE COURT: You have to relate your questions to the
18 chart, et cetera, that’s in evidence.
19 MR. GARVIN: Yes.
20 BY MR. GARVIN:
21 Q. The one case that led to the assumption that’s in this
22 chart, the Internal Revenue Service has not acquiesced to,
23 correct?
24 A. The Service has not filed a non-acquiescence. I don’t
25 believe the Service has appealed the case and it has not filed
1 an acquiescence.
2 Q. But the Service has issued revenue rulings saying the
3 opposite, that they feel that the — that when the person
4 receives it, the U.S. source income, they’ll have to pay taxes,
5 correct?
6 MR. AXELROD: Objection, Your Honor.
7 THE COURT: Overruled.
8 However, ladies and gentlemen, during the instruction
9 phase of this trial, I will be giving you the law and so you’ll
10have to follow the instructions with respect to the law in this
11 case.
12 Yes, sir.
13 MR. GARVIN: Thank you, sir.
14 A. May I answer the question?
15 BY MR. GARVIN:
16 Q. Yes.
17 A. The case to which you are referring expressly overruled
18 the published ruling to which you’re referring.
19 Q. And the Internal Revenue Service has continued to take the
20position that the code, Internal Revenue Code, would treat that
21 as U.S. source income, correct?
22 A. I don’t know that to be the case.
23 Q. Okay. Now, at the end of the day, if Mr. Castroneves is
24 residing in Miami, Florida, there would — this chart would be
25 a nullity, correct?
1 A. No. The portion of the chart that says he’d be — you
2 look to the portion of the chart that says that he is taxable
3 as a resident. So it wouldn’t be a nullity, you just look to
4 that column.
5 Q. Well, the portion that was — only portion that was
6 discussed during direct, the portion that’s been circled, it
7 says nonresident would become a nullity.
8 MR. AXELROD: Objection, Your Honor.
9 THE COURT: Overruled. Sir, you have
10 cross-examination.
11 A. It wouldn’t apply.
12 BY MR. GARVIN:
13 Q. Thank you, sir.
14 Now, it would be accurate to say that that particular
15 chart was not prepared at the June meeting that you had with
16 Helio Castroneves, right?
17 A. That’s correct.
18 Q. And it would also be accurate to say, Mr. Feingold, that
19 the first time that you ever met Helio Castroneves was at that
20 June meeting.
21 A. That’s correct.
22 Q. And that was the only time that you had a person-to-person
23 meeting with Helio Castroneves.
24 A. That’s correct.
25 Q. And that before that meeting, your telephone conversations
1 were with Alan, not with Helio.
2 A. That’s correct.
3 Q. And after that meeting, your telephone conversations were
4 with Alan, and not with Helio.
5 A. That’s correct.
6 Q. So sitting here today, you don’t know if anybody ever
7 tried to explain that chart to Helio anyway, right?
8 A. That’s correct.
9 Q. In fact, not only do we not know if anybody ever tried to
10 explain it to Helio, we don’t even know if Helio ever saw it,
11 right?
12 MR. AXELROD: Objection to what we know, Your Honor.
13 MR. GARVIN: I will rephrase, Your Honor.
14 BY MR. GARVIN:
15 Q. You don’t know if Helio ever saw it, right?
16 A. That’s correct.
17 Q. Now, I’d like to move on to the exhibit that is the
18 opinion dated November 15th.
19 A. Which exhibit number is that?
20 Q. Yes, sir. It is 182. And this was discussed during
21 direct examination as the tax opinion.
22 A. Yes.
23 Q. And I’ve highlighted the paragraph that was discussed
24 during direct, and we’re only going to focus on what was
25 discussed during direct, okay?
1 A. Uh-huh.
2 Q. All right. Now, the first thing we want to talk about is
3 that the — this particular language that’s highlighted here,
4 it was not in the original drafts of the document that you
5 prepared; isn’t that true?
6 A. Various — excuse me, various versions of that language
7 appeared — there were a number of drafts we prepared and
8 various versions of this language appeared in a series of
9 drafts and this was the final version of that language.
10 Q. Okay. I’m showing you what is in evidence as Defendant’s
11 Exhibit 200. It is the August 26th, 2002 draft. You see that
12 it has your name and initials on it, right?
13 A. That’s correct.
14 Q. And I’m going to try to put them as close to side by side
15with the November 15th opinion that is Government’s Exhibit 182
16 for this particular paragraph. You see the top of the page
17 says page 2, and the paragraph starts with the word “Prior to
18 entering into,” and that is the November 15th document. I’m
19 now showing you the August document, which is Defendant’s
20Exhibit 200, and show that it says, “Prior to entering into the
21 License.”
22 And as we read down the page on this particular draft, it
23 does not make any reference to the ownership of Seven; isn’t
24 that true?
25 A. Could you give me a chance to read it?
1 Q. Absolutely. If you want me to try to enlarge it, I will,
2 sir.
3 A. No, I can read it.
4 (Pause.)
5 A. Your statement is correct.
6 Q. And isn’t it also a fact that the September 11th draft had
7 the same language as the August draft that is on the screen?
8 A. I don’t have the September 11th draft in front of me.
9 Q. Let me show you what — it is not in evidence, but it was
10 marked yesterday as Defendant’s Exhibit 202, and see if this
11 refreshes your memory.
12 Without reading the document out loud, sir, because it’s
13not in evidence, just tell us if that would refresh your memory
14 if it had the same language as the August draft as to this
15 particular paragraph.
16 A. It appears to have the same language, that’s correct.
17 Q. Thank you.
18 Sir, is it also true that you had previously done a
19 transaction similar to the one that you were doing for Helio
20 Castroneves in the year 2000 or 2001 with Fintage?
21 MR. AXELROD: Objection, Your Honor. Beyond the scope
22 of the direct.
23 THE COURT: Yes, sir. That’s correct. Sustained.
10 Q. Well, let’s go back to the highlighted language. It’s a
11 fact that the highlighted language that we are now looking at
12 was inserted in or about November 6th of 2002; isn’t that
13 correct?
14 A. I don’t — I can’t tell you the date that it was inserted.
15 I know it was inserted during the course of our working on the
16 matter.
17 Q. I’m going to show you a document that is marked for
18identification as Defendant’s 82 simply to refresh your memory,
19 sir. It is not in evidence. Please do not read it out loud.
20 See if this refreshes your memory.
* * *
9 Q. Okay. Now, sir, does that refresh your memory that the
10 language that was finally placed in the November 15th, 2002
11 opinion that has been highlighted was proposed on or about
12 November 6, 2002?
13 A. It appears so, that’s correct.
14 Q. Between November 6th and November 15th, you have no
15 communications with Helio Castroneves at all of any form, is
16 that correct, directly with Helio Castroneves?
17 A. We’ve had no direct communications, that’s correct.
18 Q. Okay. All right. Now, isn’t it fair to say that the
19 language that was placed into the final opinion could have an
20 effect on the taxability of the transaction, but it’s not
21 100 percent necessarily so? Isn’t that correct?
22 A. I wouldn’t — I wouldn’t state it quite that way. It’s
23 not the language that would have the effect, it’s the facts.
24 Q. All right. Let’s go through those, if we may, please, all
25 right? There was a discussion that this language affected or
1 could affect what you described during direct examination as a
2 complicated set of rules for controlled foreign corporations;
3 is that right?
4 A. Yes.
5 Q. And there is a mention here that says, “None of the stock
6 of Seven is or was at any relevant time owned, directly or
7 indirectly, legally or beneficially, by the Licensor” — which
8 we said at the time was Helio, correct?
9 A. That’s correct.
10 Q. — “or any member of the Licensor’s family.” Right?
11 A. Yes.
12 Q. All right. Now, you were asked on direct examination
13 whether you knew if Kati, that is, Katiucia, Helio’s sister,
14 had a power of attorney. Do you remember that question?
15 A. Yes, I do.
16 Q. All right. Now, I want to talk about the way that this
17 was worded. First of all, is it true that Alan Miller is the
18one who suggested that this additional language be put into the
19 opinion?
20 A. We had suggested other language. We had sent it to
21 Mr. Alan Miller, and I believe Alan Miller gave us some common
22 language comments and we incorporated those comments. So it
23 was sort of a joint product.
24 Q. All right. Now, controlled foreign corporation. The
25 reason why this has some importance is that if Helio
1 Castroneves owns Seven, a company that’s not a U.S. company,
2 then the income from Seven, if it is a controlled foreign
3 corporation, would have to be reported on Helio’s individual
4 tax return, right?
5 A. If he is a resident, that’s correct, yes.
6 Q. And at these times, we know he was a resident, right?
7 A. That’s correct, yes.
8 Q. Now, in this particular case, you also knew that Penske
9 Racing had not paid Seven, correct?
10 A. That’s correct.
11 Q. So a determination would have to be made as to whether
12 Seven had constructive receipt of those funds, right?
13 A. Yes.
14 Q. Which is another complicated set of rules for most people,
15 right?
16 A. Yes.
17 Q. And then we’re going to do a second constructive receipt,
18 because if Helio Castroneves owns all of the stock of Seven,
19 then whatever Seven would have received as income, then Helio
20 would be viewed as having received the income and would have
21 had to report it, right?
22 A. The second one wouldn’t be constructive receipt, it would
23 be income attribution, but yes, same result.
24 Q. Same result. And when we say attribution, because these
25 are rules tax attorneys use, but the rest of us don’t use that
1 word every day.
2 MR. AXELROD: Objection, Your Honor.
3 Q. It means –
4 THE COURT: One moment. Just ask a question, not a
5 comment.
6 BY MR. GARVIN:
7 Q. It means income attributed to somebody, even though they
8 didn’t receive it, right?
9 A. That’s correct.
10 Q. And sometimes when we use — when it’s used in the
11 Internal Revenue Code, the word attribution, they might be
12 attributing income, but they might be attributing stock
13 ownership, too, right?
14 A. That’s correct.
15 Q. So when we get into that stock ownership thing, that’s
16when it becomes necessary to add a part of the sentence saying,
17 or any member of the Licensor’s family. Because now what we’re
18 talking about is stock ownership, right?
19 A. That’s one of the reasons, that’s correct.
20 Q. And so we all understand, that under the controlled
21 foreign corporation rules, if you own more than 50 percent of
22 the stock — you may qualify as a controlled foreign
23 corporation if you own more than 50 percent of the stock of a
24 foreign company, right?
25 A. That’s correct.
1 Q. And not only if you personally own it, but if certain
2 family members own it, their stock ownership can be attributed
3 to you, right?
4 A. For purposes of determining whether it’s a controlled
5 foreign corporation.
6 Q. Right. For determining whether you’re over that
7 50 percent number, right?
8 A. That’s correct.
9 Q. And if it’s not a controlled foreign corporation, all of
10 this is superfluous for that issue.
11 A. For the controlled foreign corporation issue, that’s
12 correct.
13 Q. Right. So we asked a question about family members, but
14 in reality, not all family members have anything to do with
15 controlled foreign corporations, right?
16 A. Well, yes, that’s true.
17 Q. So let’s give an example. Counsel asked about Helio’s
18 sister. Helio’s sister is not one of those types of family
19 member that a controlled foreign corporation takes into
20 consideration for its stock attribution rules, right?
21 A. I’m not sure that that’s correct.
22 Q. Well, let’s say that we have lineal descendants; is that
23 right?
24 A. Certainly lineal descendants are taken into account.
25 Q. And in that particular provision, it does not refer to
1 brothers and sisters, does it?
2 A. I’m thinking you may be correct, that’s right.
3 Q. So when we put that there, really we weren’t — not we. I
4 apologize for saying we.
5 When the words were placed there, a sister was not one of
6 the family members that would have an impact on the attribution
7 rules of controlled foreign corporation, right?
8 A. We didn’t know about the existence of the sister.
9 Q. Okay. But regardless, that’s the point I’m trying to
10 make –
11 A. Yes.
12 Q. — she doesn’t count as part of the stock attribution
13 rules.
14 A. Okay, yes.
15 Q. In addition, you definitely knew Helio was from Brazil,
16 right?
17 A. We were told he was from Brazil.
18 Q. Okay. And you knew he was single.
19 A. We were told he was single.
20 Q. And he had no wife because he was single, right?
21 A. Fair statement.
22 (Laughter.)
23 Q. So no wife — touché. No wife could be in this
24 language — incorporated in this language because he was
25 single, right?
1 A. Fair statement.
2 Q. And you also knew he had no children, so no children could
3 be included in that. Stay with me, the punch line’s coming.
4 A. I didn’t know that — whether or not he had children. I
5 just assumed he did not.
6 Q. All right. Now, that only leaves parents, right? We’ve
7 covered everybody else except parents.
8 A. That’s –
9 Q. Now, parents are even more complicated because parents are
10 included in the attribution for stock rule for controlled
11 foreign corporations generally, correct?
12 A. Yes.
13 Q. Unless the parents are not a U.S. citizen, resident, or
14 taxpayer, because no person who is not a U.S. citizen,
15 resident, or taxpayer is considered in the attribution rules
16 for controlled foreign corporations, right?
17 A. That’s absolutely correct.
18 Q. So at the end of the day, it didn’t matter whether or not
19 dad had stock or not for the controlled foreign corporation
20 attribution rules if dad was a citizen of Brazil and not a
21 resident for tax purposes of the United States, right?
22 A. Under those assumptions, that’s correct.
23 Q. Now let’s talk about this second paragraph. The second
24 paragraph basically says that counsel for Helio Castroneves –
25 and we know that counsel meant Alan Miller, right?
1 A. Yes.
2 Q. And basically what we’re saying here is that Alan Miller,
3 looking out for Helio’s interest, was uncomfortable with the
4 contract with Seven, right?
5 MR. AXELROD: Objection to the “we,” Your Honor.
6 THE COURT: To the “we”?
7 MR. AXELROD: To the “we.”
8 MR. GARVIN: I will rephrase, Your Honor.
9 THE COURT: Let’s take a break at this time, ladies
10 and gentlemen. We’ll have our morning recess.
12 wrap it up with Exhibit 182. I’ve got it on the ELMO so that
13 you can see the exhibit number. And it is the tax opinion that
14 has been discussed. And the second portion of page 2 that was
15 highlighted for these purposes only, but a different type of
16 highlighting, refers to that part that you were read to,
17 talking about that Seven informed the Licensee that it no
18 longer wished to be a party to the Seven-Penske Agreement,
19 because counsel for the Licensor — that would be Alan Miller
20 for Helio Castroneves, correct?
21 A. Yes.
22 Q. That he had stopped or demanded that Penske stop and not
23 pay Seven, correct?
24 A. That’s correct.
25 Q. And during this period of time, you were advised that that
1 demand to stop occurred on or about December 15th of 1999,
2 correct?
3 A. It was in December of 1999, that’s right.
4 Q. And that was important from a tax standpoint because the
5 licensing rights did not begin to accrue until the following
6 year in 2000, correct?
7 A. Under that agreement, that’s correct.
8 Q. And so just so the ladies and gentlemen understand, you
9 talked on direct about this concept of constructive receipt,
10 but there is, from the tax point of view, a big difference
11between stopping something before the rights accrue, as opposed
12 to trying to stop something after they accrue; isn’t that true?
13 MR. AXELROD: Objection, Your Honor.
14 THE COURT: Overruled.
15 BY MR. GARVIN:
16 Q. Isn’t that true?
17 A. There is a difference, yes.
18 Q. For example, in a situation like Helio Castroneves’, if
19 the work has already been done and the employer is ready,
20 willing, and able to pay in 1999 and the person, Helio
21Castroneves, says, don’t pay me until 2000 because I don’t want
22 to pay taxes this year, that would be a clear case of
23 constructive receipt, right?
24 MR. AXELROD: Objection to the hypotheticals, Your
25 Honor.
1 THE COURT: Overruled.
2 A. Yes, it would.
3 BY MR. GARVIN:
4 Q. On the other hand, so we make it clear, in this case
5 before any licensing rights had accrued, before any payment was
6 due, the attorney, Alan Miller, said — demanded stop because
7 there are some concerns, some problems, right?
8 A. That was my understanding, yes.
9 Q. And when you stop something before the work is done,
10before the rights have accrued, before the payment is due, that
11 makes a big difference because it’s no longer constructive
12 receipt.
13 A. It can make a difference, yes.
14 Q. Okay. Now, on direct examination you were asked –
15 THE COURT: Excuse me. I think in a moment, ladies
16 and gentlemen, we’re going to have several students coming in
17 to observe, so don’t be alarmed.
18 BY MR. GARVIN:
19 Q. During direct examination, sir, you were asked a few
20questions about — I think you were asked a few questions about
21 the contract; is that right? You were asked if Alan Miller
22 supplied you a copy of the contract?
23 A. Which contract are you referring to?
24 Q. That would be the March 9th, 1999 agreement between Seven
25 Promotions and Helio Castroneves.
1 A. That’s correct.
2 Q. All right. And so that our record is clear, that would be
3 Government’s Exhibit 177. And you did have an occasion to read
4 over this document prior to issuing the tax opinion, correct?
5 A. That’s correct.
6 Q. And it would be fair to say that this document, you
7 noticed, really didn’t apply directly to Team Penske; it
8 actually applied to another race team, the Hogan race team,
9 correct?
10 A. That’s correct.
11 Q. And in this particular document, the way that it was
12 structured, it talked a lot about Seven raising money for
13 Hogan, correct?
14 A. I’m sorry, did you say Seven raising money?
15 Q. Raising, like getting sponsorship money for the Hogan
16 Team, correct?
17 A. I believe — I believe it referred to the rights during
18 that racing season, yes.
19 Q. Okay. Now, one of the concerns that Alan Miller expressed
20 to you was that it did not directly address what you called
21 during direct examination the entitlement to receive money by
22 Helio Castroneves sometime in the future; isn’t that true?
23 A. That is correct.
24 Q. And that is a big concern on one of these types of
25 agreements.
1 A. It would be to me.
2 Q. In fact, it could be argued that it would be tantamount to
3 malpractice to allow your client to put into a company the kind
4 of money we’re talking about here without knowing the date the
5 entitlement would be paid back or the arrangement to pay it
6 back; isn’t that true?
7 MR. AXELROD: Objection.
8 THE COURT: Sustained.
9 BY MR. GARVIN:
10 Q. Well, you found that Alan Miller’s concerns were
11 justified, right?
12 A. Under these facts, yes.
13 Q. And isn’t it also true, sir, that at no time did the
14 attorney for Seven provide you with any additional
15 documentation to resolve these facts? Isn’t that true?
16 MR. AXELROD: Objection, Your Honor.
17 THE COURT: Overruled.
18 A. I don’t even know who the attorney for Seven was, never
19 met him, and certainly was not provided anything by the
20 attorney for Seven.
21 BY MR. GARVIN:
22 Q. Okay. So at the time that you rendered the tax opinion,
23 this issue remained unresolved; isn’t that true?
24 A. That’s correct.
25 Q. I’d like to direct your attention to a document that –
1 oh, you were asked during direct examination about the articles
2 of incorporation of Seven, and that would be Government’s
3 Exhibit 176. I wrote 176 here because the sticker is so dark.
4 A. Yes.
5 Q. Do you recall that, sir?
6 A. Yes.
7 Q. Some very simple questions on this. This shows that this
8 company was incorporated on March 2nd of 1999; isn’t that true?
9 A. That’s what it says, yes.
10 Q. And that means that this corporation was formed months
11 before the contracts with Penske were signed in November of
12 1999; isn’t that right?
13 A. That’s correct.
14 Q. And during the course of your involvement here, at no time
15did anyone suggest to you that Seven was formed for the purpose
16 of holding the Penske contracts; isn’t that true?
17 A. No one suggested that to me.
18 Q. Okay. Now, you were asked if Helio Castroneves appeared
19 in the articles of incorporation. Do you remember that
20 question?
21 A. I remember being asked, yes.
22 Q. And the truth is that Helio Castroneves is nowhere in the
23 articles of incorporation, right?
24 A. I could not find a reference to him, that’s correct.
25 Q. In addition, at no time have you ever seen a stock
1 certificate that purported to say that Helio Castroneves owned
2 one share of Seven Promotions Corporation; isn’t that true?
3 A. I’ve never seen any stock certificate.
4 Q. And in fact, at no time have you ever seen any document,
5 whether it was a stock ledger, a transfer ledger, or minutes,
6 board minutes, any document that purported to suggest that
7 Helio Castroneves owned even a single share of Seven
8 Promotions; isn’t that true?
9 A. That’s correct.
10 Q. And no one has ever told you that Helio Castroneves owned
11 a single share of Seven Promotions.
12 A. That’s correct.
13 Q. You were shown on direct examination the Promotion
14 Representation Agreement dated November 5th, 1999, which is
15 Government’s Exhibit 179.
16 A. Yes, I was.
17 Q. And you were asked — and I’ve highlighted it to make it a
18 little bit easier for all of us. You were asked if you’d ever
19 seen this document and you stated that you had never seen this
20 document; isn’t that right?
21 A. No. I said I never saw this document during the course of
22 this transaction.
23 Q. I stand corrected. Thank you, sir. But the bottom line
24 is that during the course of this transaction you never saw
25 this particular document, right?
1 A. That is correct.
2 Q. And no one ever told you that Castroneves owns, legally or
3 beneficially, all of the share capital of Seven, right?
4 A. That is correct.
5 Q. Now, when you say that you didn’t see this particular
6 document, that doesn’t mean that you are unfamiliar with a
7 document like this entitled a Promotional Representation
8 Agreement. You are familiar with a document like that, are you
9 not?
* * *
8 Q. Thank you. Now, you’re familiar with the race car driver
9 Greg Moore, right?
10 A. I’m sorry, could you ask the question again, please? I
11 couldn’t hear it.
12 Q. You’re familiar with the race car driver Greg Moore,
13 correct?
14 A. I’m familiar with the name Greg Moore, yes.
15 Q. And you worked with Alan Miller on Greg Moore’s
16 Promotional Representation Agreement, right?
17 MR. AXELROD: Objection, Your Honor, beyond the scope.
18 THE COURT: Overruled at this time.
19 A. I worked on — the document you just showed me was the
20 Greg Moore representation agreement, yes.
21 BY MR. GARVIN:
22 Q. All right. And isn’t it a fact, sir, that the language
23 that is in Helio Castroneves’ agreement is word for word taken
24 out of the Greg Moore agreement?
25 A. You’re referring to the highlighted language.
1 Q. Yes, sir.
2 A. Those words are exactly the same.
3 Q. Now, when — you stated that you were never shown this
4 document during the course of the transaction.
5 A. That’s correct.
6 Q. All right. Now, sir, sitting here today, do you have any
7 knowledge as to the circumstances in which this particular
8 document was created, Exhibit 179?
9 A. The one on the screen.
10 Q. Yes, sir.
11 A. No, I do not.
12 Q. Do you have any knowledge under what circumstances that it
13 got signed by Helio Castroneves?
14 A. No, I do not.
15 Q. And do you know or have you ever been told by anyone
16 whether or not Helio Castroneves read this document before he
17 signed it?
18 MR. AXELROD: Objection, Your Honor.
19 THE COURT: Sustained.
20 BY MR. GARVIN:
21 Q. Did Alan Miller ever discuss this document with you at any
22 time?
23 A. No, he did not.
24 Q. Is it accurate to say that sitting here today, you don’t
25 know if the statement in that document is true or false?
1 A. That’s correct.
* * *
14 A. This was — this is a summary of the time we spent and it
15 was attached to an invoice, addressed to Helio Castroneves,
16 supporting our time charges.
17 Q. All right. And it was delivered not to Helio Castroneves’
18 address in Miami, but to Alan Miller’s in Michigan, correct?
19 A. That’s correct.
20 Q. All right.
21 MR. GARVIN: At this time we would move Defendant’s
22 Exhibit 201 into evidence.
23 MR. AXELROD: No objection, Your Honor.
24 THE COURT: Received as marked.
1 BY MR. GARVIN:
2 Q. Sir, this document actually is a time record to show work
3 that was being done on the Helio Castroneves matter; is that
4 correct?
5 A. That’s correct.
6 Q. And we see that it starts with a discussion with Alan
7 Miller for approximately an hour in February of 2002.
8 A. That’s right.
9 Q. And the time charged back in — at least back in 2002 was
10 $640 an hour; is that right?
11 A. That’s correct.
12 Q. Okay. Now, it shows a number of entries, including some
13 research that was done on a treaty application; is that right?
14 A. That’s correct.
15 Q. And there were some entries regarding a guarantee and
16 licensing; is that also correct?
17 A. That’s correct.
18 Q. And the date of this is June 3rd, 2002. Now, my question
19is, would it be accurate to say that all of the entries on here
20 occurred before the meeting that you told us about during
21 direct examination?
22 A. If you can — I can’t see the full thing. If you can flip
23 it over so I can see it.
24 Q. I will flip it over. Thank you, sir. It seems that
25 the –
1 A. It seems — just bring it down a little bit — no, the
2 other way.
3 Q. All right.
4 A. Yes, all of the time — this was time through the end of
5 May 2002.
6 Q. All right. And so before Helio Castroneves ever met you,
7 there was an outstanding bill of $28,000 and change for all of
8 the work that had already been done, right?
9 A. That’s correct.
10 Q. All right. Now, in addition to the hourly billings that
11 Helio Castroneves was going to pay the law firm for helping in
12 this particular transaction, this was a little bit unique
13 because Feingold & Alpert also was going to represent Fintage
14 in the transaction, correct?
15 A. We were going to represent Fintage with respect to certain
16 aspects of the transaction and Helio with respect to the U.S.
17 tax — his U.S. tax consequences, but we were not going to
18 represent either Helio or Fintage in connection — we were not
19 going to represent Helio in be connection with his negotiation
20 with Fintage.
21 Q. Now, Fintage’s side of the transaction, though, they were
22 not paying by the hour, they were more of what we call a
23 contingency fee; isn’t that true?
24 A. We — I believe that that was the arrangement, yes.
25 Q. So the ladies and gentlemen of the jury understand what we
1 mean by contingency fee is, Fintage doesn’t pay the law firm
2 unless the transaction goes through, right?
3 A. I believe that’s correct, yes.
4 Q. And in this particular case, the Fintage — there was some
5 formula, but it was approximately 20 percent of what Fintage
6 thought that they were going to get out of the transaction for
7 a limited period of time, but they were willing to pay for
8 attorney’s fees; is that right?
9 A. Fintage was going to pay for the work we were doing for
10 Fintage, which was quite extensive.
11 Q. All right. And to the best of your recollection, would it
12 be accurate to say that that 20 percent was somewhere in the
13 neighborhood of $70,000 that was paid by Fintage in or about
14 2003 as part of this transaction?
15 A. I don’t recall the sum, but that number — it’s
16 conceivable it could have been that number. I just don’t
17 recall the sum.
18 Q. All right. But I want to make it clear that if the
19 transaction doesn’t go through, that amount of money, Fintage
20 is not obligated to pay, right?
21 A. It was unclear to me whether Fintage would pay or would
22not pay, but the understanding is that we would not have pushed
23 the payment, that’s correct.
24 Q. All right. So therefore, the firm of Feingold & Alpert
25 did have a financial interest in this transaction going
1 forward; is that correct?
2 MR. AXELROD: Objection, Your Honor.
3 THE COURT: Overruled.
4 A. No. Actually, our major objective is to ensure that we
5 would be protecting Fintage and to maintain our relationship
6 with Fintage whether this transaction didn’t go forward or not
7 go forward. If it wasn’t going to go forward, it wasn’t going
8 to go forward. We would not have changed anything we did.
9 BY MR. GARVIN:
10 Q. All right. Now, I understand the answer, but my question
11 was that Feingold & Alpert had a financial interest in the
12 transaction because if it didn’t go forward, they wouldn’t get
13 paid the 20 percent from Fintage. That’s a true statement,
14 isn’t it?
15 A. Our financial interest was maintaining a relationship with
16 Fintage. That was most important.
17 Q. Okay.
18 A. Whether or not it went through.
19 Q. Well, was my question accurate, sir?
20 A. Was your question accurate?
21 Q. Yes. Fintage would not have to pay the 20 percent unless
22 the transaction went through. That’s a true statement, isn’t
23 it?
24 A. I think it’s a fair statement that we probably would have
25 not have gotten paid from Fintage. We may not have gotten paid
1 from Fintage if it didn’t go through.
2 Q. Okay. Now, during the meeting, the one meeting that you
3 and Mark Berg had with Helio Castroneves, isn’t it true that a
4 substantial amount of time during that meeting was spent
5 explaining to Helio Castroneves the benefits of doing business
6 with an established company like Fintage? Isn’t that true?
7 A. We spent a considerable amount of time explaining that we
8 had a conflict of interest, it was awkward to us, we wouldn’t
9 proceed without a conflict letter, and that we explained who
10 Fintage was, although I think Mr. Miller was aware of that
11 already.
12 Q. Right. And I agree with the conflict part, but that was
13 not my question.
14 MR. AXELROD: Objection, Your Honor.
15 BY MR. GARVIN:
16 Q. My question was –
17 THE COURT: What is the objection?
18 MR. AXELROD: Mr. Garvin saying what he agrees or
19 doesn’t agree with.
20 THE COURT: Rephrase your question, sir.
21 BY MR. GARVIN:
22 Q. My question was, sir, isn’t it accurate to say that a
23 considerable time of this approximate one hour to one and a
24 half hour meeting was spent informing Helio Castroneves, who
25 had — of the benefits of doing business with an established
1 company like Fintage?
2 A. Yes, because otherwise, he couldn’t enter into a license
3 agreement or a deferred license agreement, unless you’re
4 dealing with a valid and substantial company, that’s correct,
5 such as Fintage.
6 Q. And an additional period of time was also spent discussing
7 the benefits of having a guarantee by an established bank like
8 Fortis Bank, correct?
9 A. Anytime one deals with deferred compensation, one of the
10 issues is will you get paid at the end of the day, and that
11 goes to the creditworthiness of the person you’re dealing with.
12 And in this particular arrangement, one could obtain a
13 guarantee of a — what we thought would be a creditworthy bank,
14 Fortis.
15 Q. So when we go back to Seven, we have a company that we
16 didn’t know their history or their creditworthiness, correct?
17 MR. AXELROD: Objection to the “we,” Your Honor.
18 THE COURT: Yes, sir.
19 MR. GARVIN: I will rephrase, Your Honor.
20 BY MR. GARVIN:
21 Q. When you went back to Seven, referring back to Seven now,
22during the discussion with Helio Castroneves, there was part of
23 the discussion that Seven was an entity that no one knew the
24 creditworthiness and did not know their history, whether they
25 would pay back the money or not; isn’t that right?
1 A. There was concern, yes.
2 Q. And in addition to that, there was no guarantee from a
3 bank like Fortis, correct?
4 A. None of which we were aware of.
5 Q. And these were, as you just put it, really the essence of
6 any agreement is the creditworthiness of the company that’s
7 going to be holding and investing the money, right?
8 A. Well, that’s certainly part of it, but also the ability of
9 that company to exploit the rights, which Fintage had as well.
10 Q. Okay. Now, do you know what success, if any, Fintage has
11 had exploiting those rights?
12 A. Well, I can’t say for a fact. I don’t believe that — I
13 know they tried. I don’t believe they were able to exploit
14 those rights as much as they would have liked to.
15 Q. Okay.
16 MR. GARVIN: I have no further questions, Your Honor.
B. WITNESS KEVIN SAVOREE, CPA
(TRIAL TESTIMONY EXCERPT)
1 Q. Good morning, Mr. Savoree. My name is David Garvin. I
2 represent Helio Castroneves in this matter.
3 A. Good morning, Mr. Garvin.
4 Q. Sir, I’d like to start at the very beginning. And it
5 would be accurate to say that on or about December 14th, 1999,
6 you had a telephone conversation with Alan Miller concerning
7 Helio, correct?
8 A. Yes.
9 Q. And it would also be fair and accurate to say that during
10 that conversation, you took notes of what Mr. Miller and you
11 were talking about, right?
12 A. Yes.
13 Q. And this was not a stranger that you were talking to,
14 because you knew Alan Miller, right?
15 A. Yes.
16 Q. And Alan Miller was somebody who you respected.
17 A. Absolutely.
18 Q. And quite frankly, you were somebody that Alan Miller
19 respected and you knew that, right?
20 A. Yes, I think so.
21 Q. Well, he often asked you for your opinion when it came to
22 accounting and tax matters, right?
23 A. Yes.
24 Q. And in fact, Alan Miller had worked with you on other
25 race car drivers, so you had a history.
1 A. Yes.
2 Q. And you worked together on Greg Moore’s matters; isn’t
3 that right?
4 A. Yes.
5 Q. And so when counsel asked you during direct about this
6 issue of 30 percent withholding, this — when you told Alan
7 Miller that, this was nothing new to Alan Miller because it’s
8 something that you and he had addressed in other foreign
9 drivers’ contracts before, correct?
10 A. I’m not sure.
11 Q. And see if I can refresh your memory. For example, in the
12 Greg Moore contract, there was an effort to divide U.S. source
13 versus non-U.S. source, correct?
14 A. I wasn’t that involved in — in the Greg Moore contracts.
15 Alan handled those.
16 Q. Okay. When you do talk about U.S. source and non-U.S.
17 source, one of the reasons for that is because of the
18 30 percent withholding, correct?
19 A. Yes.
20 Q. And you do know that the — you have seen the Moore
21 contracts, correct?
22 A. No, I don’t think so.
23 Q. You don’t remember seeing them?
24 A. The Penske Racing contracts?
25 Q. No, Greg Moore’s contracts. You don’t recall?
1 A. I don’t recall.
2 Q. Okay. Now, I’d like to show you what we’ve marked as
3 Defendant’s Exhibit 39 and ask if you’d please tell us if you
4 recognize it.
5 MR. GARVIN: May I approach, Your Honor?
6 THE COURT: Yes, sir.
7 BY MR. GARVIN:
8 Q. Sir, do you recognize that?
9 A. Yes.
10 Q. And is that, in fact, your handwriting, sir?
11 A. Yes.
* * *
25 Q. Mr. Savoree, do you still have that exhibit in front of
1 you, sir? Do you still have that exhibit in front of you, sir?
2 A. Yes, sir.
3 Q. When we left, I had asked you if that was, in fact, the
4 notes that you took regarding the conversation or during your
5 conversation with Alan Miller; is that correct?
6 A. Yes.
7 Q. And those notes were taken as part of you being a CPA; is
8 that correct?
9 A. Yes.
10 Q. And those notes were kept in the ordinary course of
11 business at your CPA firm at the time, which was Larsson,
12 correct?
13 A. Yes.
14 MR. GARVIN: Your Honor, at this time we would move
15 into evidence Defendant’s Exhibit 39.
16 MR. DWYER: No objection, Your Honor.
17 MR. GARVIN: May we publish?
18 THE COURT: I’m having problems with the microphones.
19 Could you check, is yours on now?
20 MR. DWYER: It was off. No objection.
21 MR. GARVIN: Your Honor, may I publish?
22 THE COURT: Yes, sir. I have 39 as having been
23 previously received. Is that Government’s 39?
24 MR. GARVIN: No, Defendant’s, Your Honor.
25 THE COURT: Defendant’s 39.
1 MR. GARVIN: Yes, sir.
2 THE COURT: Yes, sir. Received.
3 BY MR. GARVIN:
4 Q. Now, sir, I’d like to start at the top. Where it says “PC
5 Alan Miller,” that stands for phone conversation with Alan
6 Miller; is that accurate?
7 A. Yes.
8 Q. And below it has “12/14/99.” That would be the date that
9 this conversation took place.
10 A. Yes.
11 Q. And you’ve even written down that it was a Tuesday,
12 correct?
13 A. Yes.
14 Q. Now, immediately below that, you have written some
15 information, one being “Miami, Florida, and 0-1 Visa.” Now,
16 that’s the type of visa that Helio Castroneves has here in the
17 United States, right?
18 A. Yes.
19 Q. And you also wrote in that “Miami, Florida, regular
20 corporation.” Now, I want to talk about regular corporation,
21 for a second. You stated on direct examination that Alan
22 Miller had recently formed a corporation in Delaware, correct?
23 A. Yes.
24 Q. And that corporation was Castro-Neves Racing, right?
25 A. Yes.
1 Q. And an entity like that can either be a regular
2 corporation or what we call a subchapter S corporation; is that
3 true?
4 A. Yes.
5 Q. And a subchapter S corporation is a provision in the
6 Internal Revenue Code for small corporations, correct?
7 A. Yes.
8 Q. And what the benefit of a subchapter S corporation is,
9 that at the end of the year, whatever is in the corporation
10 gets reported on the taxpayer’s 1040; is that right?
11 A. Yes.
12 Q. And that way, you can avoid potential double-taxation,
13 right?
14 A. Yes.
15 Q. And in this particular case, Alan Miller had just recently
16 set up the corporation, right?
17 A. Yes.
18 Q. And under the rules, there is a limited period of time
19 that you have to make the S election, right?
20 A. Yes.
21 Q. Okay. Now, at that time, the S election would have had to
22 have been made in the — is it the first 75 days of the year
23 2000?
24 A. I’m not sure.
25 Q. It would have been in the first part of 2000, correct?
42
1 A. Yes.
2 Q. However, for some reason, the S election was not made
3 timely in this case; is that correct?
4 A. I don’t — I don’t recall a discussion about the S
5 election at that time.
6 Q. Okay. Do you recall ever advising Mr. Miller that an S
7 election should be made?
8 A. I don’t recall.
9 Q. Do you know, sitting here today, sir, that the S election
10 on this company was not made for two years?
11 A. I don’t know.
12 Q. If the company had retained earnings, those retained
13 earnings would be subject to double taxation when the
14 corporation converts from C corp. to S corp.; isn’t that true?
15 A. I’m not sure.
16 Q. Okay. Well, let me move forward then. At the time you
17 wrote down “employment agreement,” but underneath you wrote
18 “number of days in the U.S.” Do you see that?
19 A. Yes.
20 Q. Now, if a person is a nonresident alien, they’re permitted
21to be in the United States for a number of days before they are
22 treated as a resident for tax purposes; is that correct?
23 A. Yes.
24 Q. And if you’re treated as a resident of the United States
25 for tax purposes, then you are taxed on your worldwide income,
1 right?
2 A. Yes.
3 Q. And therefore, if you write down “number of days in U.S.,”
4 one of the items that was discussed was whether or not Helio
5 Castroneves would qualify as a nonresident alien, right?
6 A. Yes.
7 Q. And the thing here is that if you’re a nonresident alien
8 and you are the owner of a corporation, you’re not allowed to
9 make the subchapter S election, correct?
10 A. I’m not sure.
11 Q. Now, at that time, meaning December 14th, ’99, wouldn’t it
12 be fair to say that you weren’t sure whether or not Helio
13 Castroneves would be a resident for tax purposes in the year
14 2000?
15 A. I don’t recall.
16 Q. Do you recall any other reason that you have written down
17 “number of days in U.S.” other than to make that determination
18 at a later date?
19 A. My notes were of the conversation, so it must have come up
20 during the conversation.
21 Q. And during this conversation, you tried to write down the
22 items that you thought that were important that came up during
23 the conversation so you would remember them, right?
24 A. Yes.
25 Q. The next thing that we see written here is “licensing
1 agreement, $5 million over three years, Seven Promotions,
2 Panama corporation.”
3 A. Yes.
4 Q. Now, Alan Miller told you from the inception that the
5 licensing agreement was held by Seven Promotions, right?
6 A. Yes.
7 Q. And at some point the ownership of Seven Promotions
8 becomes important when it’s holding something like a licensing
9 agreement; isn’t that true?
10 A. Yes.
11 Q. And the reason why that becomes important is because if
12 Helio Castroneves in this particular case owned Seven
13 Promotions, all the stock, then you, as an accountant, would
14 have to start worrying about controlled foreign corporation
15 provisions of the tax code, correct?
16 A. Yes.
17 Q. And so the ladies and gentlemen understand, when you worry
18 about controlled foreign corporations, what you’re worried
19 about is that if you have a foreign company that’s completely
20 owned by an individual who is a resident of the United States
21 for tax purposes, then money made by that foreign corporation
22 will be reported on the individual’s tax return, very similar
23 to the way a subchapter S income is reported, correct?
24 A. It’s either that or the corporation would file a U.S. tax
25 return. I’m not –
1 Q. Okay. So — so when you are preparing Helio Castroneves’
2 1999 tax return, one of the things that a CPA would want to
3 know is, does he own Seven, correct?
4 A. Yes.
5 Q. And so it is fair to say that in this case, when you
6 prepared the 1999 tax return and did not include any income
7 from Seven Promotions, at least in your mind, you believed at
8 the time that Helio Castroneves did not own Seven Promotions,
9 right?
10 A. Yes.
11 Q. And your source of information, when it came to the
12 ownership of Seven Promotions, would have been — well, one of
13 them would have been Alan Miller, right?
14 A. Yes.
15 Q. And we saw that the tax return that you signed was not
16 signed until October of 2000, right?
17 A. Yes.
18 Q. So by then, you would have also talked to Helio’s father,
19 correct?
20 A. Yes.
21 Q. And Helio’s father’s attorney, Mr. Correa, who flew up
22 from Brazil to meet with you, correct?
23 A. As I said earlier, I don’t recall meeting Mr. Correa, so
24 if I met him, I met him.
25 Q. Well, either you met him or you spoke with him, right?
1 A. Yes, sir.
2 Q. Okay. And you do recall that Mr. Correa speaks English.
3 A. I’m — yes, sir.
4 Q. Okay. So by the time that that was taken, there were
5 several parties that you had spoken with about Seven
6 Promotions, right?
7 A. Yes.
8 Q. Okay. On the right-hand side of your notes, there are a
9 series of names. Would you be nice enough to tell us what
10 those names represent?
11 A. They were clients of Larsson, Woodyard & Henson.
12 Q. All right. Are they just general clients or are those
13 people race car drivers?
14 A. They’re race car drivers or a team.
15 Q. Okay. And are they simply race car drivers or are those
16 people race car drivers or team members that are not U.S.
17 citizens?
18 A. Some are non-U.S. Some are U.S.
19 Q. Okay. The reason why I asked you is, you see at the top
20 you wrote non-U.S. Do you see that?
21 A. Yes.
22 Q. Was the purpose of writing non-U.S. is because some of the
23 people in that list were non-U.S. or was there another reason
24 for writing that?
25 A. I don’t recall.
1 Q. I do see the year 2001. Do you see that next to the
2 non-U.S., sir?
3 A. Yes, sir.
4 Q. And would it be fair to say that the Seven Promotions
5 licensing agreement, did you know whether or not that went
6 through 2001? Does that have anything to do with you writing
7 2001 there?
8 A. I don’t know.
9 Q. Okay. Now, one of the names that is there on that list is
10 Mr. Moore, correct?
11 A. Yes, sir.
12 Q. And Mr. Moore was a client of your firm, right?
13 A. Yes, sir.
14 Q. And as part of him being a client with your firm, you’ve
15 had discussions with Mr. Miller, right?
16 A. Yes.
17 Q. Okay. And that brings us back to the conversation we had
18 a little bit earlier before the break, which was that in
19 Mr. Moore’s arrangement for tax purposes and tax structuring,
20 there was a division between non-U.S. source and U.S. source
21 when it came to his licensing rights; isn’t that true?
22 A. Could you repeat that, please?
23 Q. Yes. Mr. Moore’s licensing contract, a discussion was had
24 with you to decide how to divide the licensing agreement’s
25 source, that would be non-U.S. source and U.S. source; is that
1 correct?
2 A. I don’t recall that.
3 Q. Okay. In the middle of the page, we once again see
4 Castro-Neves Racing, C Corp., Delaware corporation, December.
5 Is that right?
6 A. Yes.
7 Q. And there are some other provisions in here with regards
8 to the salary, which was supposed to be $1 million divided over
9 three years, correct?
10 A. The retainer, yes.
11 Q. And the way that particular contract worked was that the
12 driving agreement was with Castro-Neves Racing, the Delaware
13 corporation, correct?
14 A. Yes.
15 Q. Then they paid all the expenses related to Helio
16 Castroneves’ racing business, right?
17 A. I don’t think so.
18 Q. Well, whatever he incurred that he was required to pay.
19 A. I’m not sure I understand.
20 Q. Well, let me rephrase it. I probably asked a bad
21 question. I apologize.
22 The million dollars was divided up in three years and
23 Penske would pay Castro-Neves Racing, the corporation, correct?
24 A. Yes, sir.
25 Q. And then Castro-Neves Racing, the corporation, would pay
1 Helio a salary.
2 A. Yes, sir.
3 Q. And then that salary you picked up on his tax return and
4 paid taxes on, right?
5 A. I was — I was gone by then.
6 Q. Okay.
7 A. Sorry.
8 Q. Well, the way it was intended to work is that when his
9 salary was paid by the corporation, whoever the CPA at Larsson
10 was working on his tax returns would pick up that salary and
11 report it on his tax return, correct?
12 A. Yes.
13 Q. And that’s the way it’s supposed to be done, right?
14 A. Yes.
15 Q. Now, you had some discussions a little bit earlier about
16 the licensing agreement and whether or not to use Fintage. You
17 remember that discussion, right?
18 A. Yes, sir.
19 Q. Now, I want to make it clear for the ladies and gentlemen
20 of the jury, there’s nothing wrong with having a licensing
21 agreement; isn’t that true?
22 A. Absolutely not.
23 Q. And there is nothing wrong with having your accountant and
24 your attorney decide what jurisdiction it should be in so that
25 it receives the most favorable tax breaks under the law, right?
1 A. Yes, sir.
2 Q. So when you said that you went to the Netherlands, for
3 example, which we’ll get to in a minute, there’s nothing wrong
4 with that.
5 A. Absolutely not.
6 Q. And in addition, there’s nothing wrong — as long as you
7 do it in advance, there is nothing wrong with structuring your
8 agreements so that the party who is structuring it feels that
9 it’s in his best advantage; isn’t that true?
10 A. Yes.
11 Q. And one of those things is the person is completely free,
12 before he starts to work, to say, you know, I want my deferred
13 compensation to go to Fintage in the Netherlands, right?
14 A. Well, again, we were considering that contract, at least
15 my recollection initially was that it was a licensing contract
16 so, I mean, you used the word deferred comp. To me it was a
17 licensing agreement that was for the rights for Helio’s
18 likeness, his — his signature, his records and so on.
19 And at that time, Helio was participating in a series that
20raced substantially outside the U.S., so many of the races that
21 he participated in were not even in the U.S; they were in
22 Canada, Mexico, Australia, Japan, Brazil, Germany, England.
23 And then further, those licensing rights were limited in the
24 U.S. because the sponsor of Penske was a tobacco company, and
25 that tobacco company, by law, from the 50 attorney generals,
1 couldn’t use those rights. So it was a logical step that he
2 could — you know, to look at countries outside the U.S. It
3 seemed like a logical thing at the time.
4 Q. And there was nothing improper in doing that, right?
5 A. No.
6 Q. Okay. And in fact, many athletes, movie stars, and other
7 people who are foreigners who do some work in the United
8 States, they do the same thing, right?
9 A. I only know about the drivers that I dealt with.
10 Q. Okay. Well, many of the drivers you dealt with have done
11 the same thing, right?
12 A. Yes.
13 Q. Now, sir, the only thing that I wanted to ask you is, I
14 don’t see –
15 A. Excuse me.
16 Q. I see — we’ve gone through a lot of details that you’ve
17 put in your notes on that conversation, but I don’t see any
18 reference to 30 percent withholding. Would it be fair to say,
19 sir, that the 30 percent withholding does not appear to have
20 come up on that first conversation?
21 A. Again, it was my recollection that it was discussed and
22 that I wasn’t comfortable with Panama, and in a way, I guess
23 these are more, like, maybe my notes that I’m taking of the
24 conversation and then, you know, perhaps as I’m speaking, I’m
25 not making notes of what I’m saying, so obviously ten years
1 removed, maybe I wish I would have taken better notes.
2 Q. All right. Well, I just wanted to see. Ten years ago
3 these were made contemporaneously at the time the conversation
4 was going on, correct?
5 A. Yes, sir.
6 Q. And it is possible — I mean, ten years is a long time, it
7 is possible that the 30 percent came up, but maybe not on that
8 particular conversation, correct?
9 A. Again, my recollection was that it did, but that’s my
10 recollection.
11 Q. Okay. Sir, I’d like to — as an accounting firm, when you
12 perform services for someone, you keep track of the time,
13 correct?
14 A. Yes, sir.
15 Q. And I mean, that’s the way accountants get paid, they send
16 out a bill based upon their time, right?
17 A. Yes, sir.
18 Q. And things like research will be reflected in an
19 accountant’s billable hours, right?
20 A. Yes, sir.
21 Q. In addition to research, telephone conversations, and
22 meetings are also included in those billable hours, right?
23 A. Yes, sir.
24 Q. And an effort is made, both for the accounting firm’s
25 benefit and the client’s benefit, to make those entries as
1 accurate as possible; is that right?
2 A. Yes, sir.
3 Q. I’d like to show you what has been marked for
4 identification as Defendant’s Exhibit 49.
5 MR. GARVIN: May I approach the witness, Your Honor?
6 THE COURT: Yes, sir.
7 BY MR. GARVIN:
8 Q. Do you recognize the document in front of you, sir?
9 A. Yes.
10 Q. And is that document a document that’s kept in the
11 ordinary course of business at the accounting firm of Larsson?
12 A. Yes.
13 Q. And is that document a document that reflects the time
14 charges of the accountants at Larsson on this particular
15 client, meaning Castroneves?
16 A. Yes.
17 MR. GARVIN: Your Honor, at this time we’d move
18 Defendant’s Exhibit 49 into evidence.
19 MR. DWYER: No objection.
20 THE COURT: Received as marked.
21 MR. GARVIN: May I retrieve the exhibit and publish
22 it, Your Honor?
23 THE COURT: Yes, sir.
24 BY MR. GARVIN:
25 Q. Now, sir, I’d like to go back on a discussion that was
1 held a little bit earlier that you said that, to the best of
2 your recollection, you remembered Helio being — having a
3 discussion with you concerning your trip to the Netherlands.
4 Do you recall that?
5 A. Yes.
6 Q. Sir, when the decision was made to go to the Netherlands,
7 isn’t it a fact that the person that you had primary contact
8 with was Alan Miller?
9 A. That’s fair to say, yes.
10 Q. And would it also be fair to say that this was during the
11 very middle of the racing season, right?
12 A. Yes.
13 Q. And during the middle of the racing season, a driver like
14 Helio Castroneves, he’s quite busy; is that right?
15 A. Yes.
16 Q. And traveling, as you said earlier, not only from city to
17 city, but literally from country to country, right?
18 A. Yes.
19 Q. And in Helio’s case, his — it would be accurate to say
20his attention span for accounting matters was not very long; is
21 that true?
22 A. That’s probably fair to say.
23 Q. And that often a conversation with Helio Castroneves would
24 result in him saying, Kevin, you and Alan — talk to Alan, you
25 guys take care of it, right?
1 A. That’s fair to say.
2 Q. And so it got to the point where there was no need to call
3 Helio anymore because everybody kind of knew what he was going
4 to say was, Talk to Kevin, talk to Alan, because they know what
5 they’re doing. Right?
6 A. I mean, I still think we talked but, I mean, it’s…
7 Q. Right. I’m saying there was no conversations of
8 accounting substance, right?
9 A. I mean, I guess that’s fair to say.
10 Q. Okay. Now, I’m going to show you the Larsson, Woodyard &
11 Henson work in progress for the year 2000 and it says at the
12 top, for the “Period Ending October 25, 2000.” Do you see
13 that, sir?
14 A. Yes.
15 Q. And that was just about the time you took a leave of
16 absence from the firm, right?
17 A. Yes, sir.
18 Q. So from January 1st through the middle of October, you
19 were the person who was working the most on the Castroneves
20 file, correct?
21 A. Yes.
22 Q. And when we look at the detailed explanation, a code is
23 used to identify the particular accountant that worked on the
24 file, right?
25 A. Yes.
1 Q. And in this particular case, the two most important codes
2 would be your code and Pat Bell’s code, right?
3 A. Yes.
4 Q. And your code was No. 10, right?
5 A. Yes.
6 Q. And Pat Bell’s code was No. 7, right?
7 A. Yes.
8 Q. Okay. Now, on the first page we see that there is — or
9 there are several entries with the code number 010, which is
10 No. 10, right?
11 A. Yes. I’m sorry, whether it’s me or not, but this is
12 blurry.
13 Q. Okay. Let me see if I can bring it into focus a little
14 bit better. Okay? Is that better?
15 A. Yes. Thank you.
16 Q. All right. So I’m going to try to get to the earliest
17 entry, and our earliest entry appears to be January 19th of
18 2000, a half-hour discussion, and the phone conversation
19 participants are Helio and Alan, correct?
20 A. Yes.
21 Q. And it looks like the abbreviation for contract
22 allocation; is that right?
23 A. Yes.
24 Q. Okay. Could you please explain to the ladies and
25 gentlemen of the jury, what is contract allocation?
1 A. It would have to do with the allocation of the $6 million
2 of payments from Penske Racing.
3 Q. Okay. Would it have to also deal with the allocation
4 between — in the licensing agreement between non-U.S. source
5 and U.S. source?
6 A. It may.
7 Q. Okay. Now, going down the list, we see the next phone
8 conversation is with Alan, but not with Helio; is that correct?
9 A. On January 20th?
10 Q. Yes, sir.
11 A. Yes.
12 Q. All right. Someplace within the pages there’s going to be
13 a total of the hours spent on this file; is that right?
14 A. I believe so.
15 Q. All right. And we see that the total amount of time spent
16 on the file by you was 71 hours; is that right?
17 A. Yes, sir.
18 Q. Now, of that 71 hours, that includes all the trips that
19 you took in this case, right?
20 A. Yes.
21 Q. Which means it includes a trip that you took to the
22 Netherlands.
23 A. Yes.
24 Q. And to make it clear with the ladies and gentlemen, Helio
25 Castroneves was — did not go on that trip, right?
1 A. No, he did not.
2 Q. And that also included a trip that you took to Miami,
3 Florida, in May that you discussed on direct.
4 A. Yes.
5 Q. And Helio Castroneves was not at that meeting either,
6 right?
7 A. No.
8 Q. In fact, there were no meetings that took place that Helio
9 Castroneves was present at; is that correct?
10 A. No.
11 Q. Let me try to back up a little bit. Did Helio Castroneves
12 ever go to your offices?
13 A. No.
14 Q. Okay. So any meeting that was held in your office he was
15 not present at either, right?
16 A. No.
17 Q. Okay. Sir, I would like you very much to look at this
18 document and please show us or tell me, please, the last entry
19 that you have for a phone conversation with Helio Castroneves.
20 (Pause.)
21 Q. Sir, would it be fair to say that the last conversation in
22 that record reflected between you and Helio Castroneves would
23 have been on March 13th of 2000?
24 A. Yes.
25 Q. And would it be fair to say, looking at that particular
1 page, there were a total of six telephone conversations that
2 reflect you speaking with either Helio or Helio and Alan; is
3 that correct? And I’ll give you the dates so that they’re easy
4 to find.
5 A. Okay. Thank you.
6 Q. January 19th, the one we just looked at; January 21st –
7 A. I’m sorry. Okay.
8 Q. Could you please speak in your microphone, sir?
9 A. Yes.
10 Q. January 24th, it says — the reference says “Helio’s
11 schedule.”
12 A. Did you say the 24th or 21st?
13 Q. There’s one on the 19th, one on the 21st –
14 A. Okay, yes.
15 Q. — and I believe one on the 24th that says “Helio’s
16 schedule.” I’m not sure if you spoke with him or not, but if
17 it says Helio’s schedule…
18 A. Oh, I see. It’s on the top of the next page. I’m sorry.
19 Q. And then there were three more, February 3rd, a telephone
20 call with Helio and his former accountant Bakhai about his 1999
21 return, correct?
22 A. Yes.
23 Q. And then the last two are February 14th, a conversation
24 with Helio regarding his 1999 1040.
25 A. Yes.
1 Q. And finally, March 13th, a conversation with Helio
2 concerning his 1999 1040, correct?
3 A. Yes.
4 Q. And that would be the 1040 tax return that you were shown
5 during direct examination, right?
6 A. Yes.
7 Q. So of the 71 hours that was spent on this file, it would
8 be fair to say that the total conversations with Helio
9 Castroneves was approximately three hours, right?
10 A. Yes.
11 Q. During this period of time covering from January 1st
12 through October of 2000, right?
13 A. Yes.
14 Q. None of those conversations, however, are recorded as
15 having taken place in April, right? There’s none in April?
16 A. No.
17 Q. May, correct?
18 A. No.
19 Q. June?
20 A. No.
21 Q. July?
22 A. No.
23 Q. All the way through October, there are no further
24 conversations recorded with Helio, right?
25 A. Right.
1 Q. And as we said earlier, Helio was busy racing; isn’t that
2 true?
3 A. Yes.
4 Q. So the truth is that based on these records, there is no
5 record of the conversations that we’re discussing approximately
6 nine years ago of any conversation with Helio before you went
7 to Miami to meet with his father and perhaps the Brazilian
8 attorney, correct?
9 A. Yes.
10 Q. And there is no record of conversations that allegedly
11 took place nine years ago between you and Helio before you and
12Alan Miller went to the Netherlands to do your due diligence on
13 Fintage, right?
14 A. Yes.
15 Q. And there were no conversations with Helio regarding any
16 of the exhibits that the government showed you on direct
17 examination, there is no record of any conversation with Helio
18 regarding any of those exhibits; isn’t that correct?
19 A. No.
20 Q. Sir, it would be fair to say that based upon the records
21of your CPA firm, Helio had virtually no participation in a lot
22 of these matters; isn’t that true?
23 A. Could you — could you repeat that question?
24 Q. Yes, sir. Based upon the records of your CPA firm or your
25 former CPA firm, Helio had virtually no participation in the
1 substantive matters that we’re talking about here today; is
2 that correct?
3 A. Yes.
4 Q. It would also be accurate to say that at all times, you
5 got the impression from Helio Castroneves he simply wanted this
6 done the proper way; isn’t that true?
7 A. Yes.
8 Q. And Helio Castroneves never suggested to you that you
9 should do something improper; isn’t that true?
10 A. Absolutely not.
11 Q. And you wouldn’t have done it if he had suggested it,
12 right?
13 A. Absolutely not.
14 Q. And Alan Miller never suggested to you that you should do
15 something improper, right?
16 A. Absolutely not.
17 Q. In fact, the reason why you had Pat Bell doing all this
18 research was because you guys wanted to get it done properly,
19 correct?
20 A. Yes.
21 Q. And you guys took it one step further. You even had
22 conversations with a top tax attorney in New York City; isn’t
23 that true?
24 A. Yes.
25 Q. And that person was Mr. Fred Feingold, right?
1 A. Yes.
2 Q. And the purpose of talking to Fred Feingold was because
3 you wanted to make sure that you were complying with the law,
4 right?
5 A. Yes.
6 Q. And Helio never got involved and said, Hey, you’re
7 spending too much money, you’re spending too much time, I don’t
8 care what the law is. He never interfered with you doing your
9 job; isn’t that true?
10 A. That’s true.
11 Q. Now, on the tax return that you were shown during direct
12 examination, that tax return contains what we refer to as a
13 Schedule C; is that correct?
14 A. Yes, sir.
15 Q. Sir, would you happen to have a copy of the tax return
16 still up there?
17 A. Yes, sir.
18 Q. Okay, great.
19 MR. GARVIN: May I approach the witness, Your Honor?
20 THE COURT: Yes, sir.
21 MR. GARVIN: Thank you, sir.
22 BY MR. GARVIN:
23 Q. Mr. Savoree, I’m showing you the first page of
24 Government’s Exhibit 17 — or excuse me, 117. Exhibit 117.
25 And you see that this is the 1999 individual income tax return
1 prepared or signed off by you for Helio Castroneves, correct,
2 sir?
3 A. Yes.
4 Q. All right. And on line 12 it says, “Business income…
5 Attach Schedule C.” Are you able to see that, sir?
6 A. Yes.
7 Q. And you probably know this in your sleep, right? Line 12,
8 Schedule C?
9 A. Not so much anymore.
10 Q. Okay. Now, a Schedule C is used for individuals who are
11 running a business that’s not incorporated; it’s a sole
12 proprietorship, correct?
13 A. Yes.
14 Q. And in 1999, Helio had income on his Schedule C, right?
15 A. Yes.
16 Q. And he had related expenses reflected on his Schedule C,
17 correct?
18 A. Yes.
19 Q. Okay. And this is a part of his tax return, right?
20 A. Yes.
21 Q. Now, obviously, we’re showing you here the Schedule C
22 entitled Profit or Loss From Business (Sole Proprietorship).
23 Do you see that?
24 A. Yes.
25 Q. And even though on the front page of Helio’s tax return,
1 it only reflects $90,000, that doesn’t mean that’s the total
2 amount of income that Helio reported on his Schedule C; isn’t
3 that true?
4 A. That’s true.
5 Q. We see that Helio reported $437,000 on his Schedule C,
6 right?
7 A. Yes.
8 Q. Now, you were asked some questions about $2 million. Do
9 you remember those questions on direct examination?
10 A. Yes, sir.
11 Q. And there was a discussion about, well, did Helio
12 Castroneves tell you that he put $2 million in Seven
13 Promotions? Do you remember those questions?
14 Let me rephrase the question because I’m not sure that
15 that is exactly what was asked. But there were some questions
16 about $2 million that was asked during direct examination,
17 right?
18 A. Yes.
19 Q. And there were some questions about Seven Promotions asked
20 during direct examination, correct?
21 A. Yes.
22 Q. Okay. Line 2 says “Returns and allowances”; is that
23 correct?
24 A. Yes.
25 Q. Now, in a situation in which a person receives money
1 that’s not theirs and has to give it immediately to either a
2 corporation or another person, do you understand that?
3 A. Yes.
4 Q. If they have to return the funds, would that situation be
5 what is referred to as a wash?
6 MR. DWYER: Objection, Your Honor.
7 THE COURT: Overruled.
8 BY MR. GARVIN:
9 Q. If you know, sir.
10 A. Could you — could you repeat that, please?
11 Q. Yes. If a taxpayer such as Helio Castroneves receives a
12 certain amount of money, but it’s not his money and he has to
13 immediately pay it over to somebody else or to some other
14corporation, would that constitute what is referred to in taxes
15 as a wash?
16 A. A wash, an offset, an expense, yes.
17 Q. Okay. Now, in dealing with that type of situation, isn’t
18it accurate to say, if you know, that there’s two types of ways
19 that you can handle that on a tax return? The first is simply
20 not include it, because it wasn’t his money to begin with,
21 right?
22 A. I’m sorry, I’m too many years removed from that.
23 Q. Okay. Then I’ll move on. Okay. Very good.
24 But if something does have a wash or an offset, then the
25 net result is it has no effect on the taxes, correct?
1 A. That sounds correct, yes.
2 Q. Sir, did you understand that part of the funds that were
3 in the $437,000 was money that Helio received from Seven
4 Promotions?
5 A. I don’t recall.
6 Q. Okay. Let me see if I can refresh your memory.
7 A. Thank you.
* * *
20 Q. Sir, in the process of preparing a tax return, is a
21 general ledger something that is often kept on behalf of the
22 taxpayer to assist in the preparation of the tax return at the
23 end of the year?
24 A. The general ledger is the accounting records.
25 Q. Okay. Now, with regards to Exhibit 41 that I have handed
1 to you, does that purport to be a general ledger for Helio
2 Castroneves?
3 A. Yes.
4 Q. During 1999, Mr. Castroneves had another accounting firm;
5 is that correct?
6 A. Yes.
7 Q. And the general ledger, as we saw from the time records –
8 strike that.
9 As we saw from the time records, you spoke with a
10 Mr. Bakhai concerning Helio Castroneves, right?
11 A. Yes.
12 Q. And Mr. Bakhai, who you spoke to, was Helio Castroneves’
13 former accountant, right?
14 A. Yes.
15 Q. And he was an accountant with a CPA firm here in Miami,
16 Kaplan, Morrison, Brown & Argiz, correct?
17 A. Yes.
18 Q. And when you spoke to Mr. Bakhai, one of the things that
19 you spoke about was obtaining their records so that you could
20 use them in preparing the tax return, correct?
21 A. Yes.
22 Q. And do you recognize Exhibit 41 as being the general
23ledger that was sent to your office so that you could use it to
24 prepare the tax return for 1999?
25 A. Yes.
1 Q. And isn’t it customary that a document like that, when
2 you’re taking over for a prior accountant, that you ask the
3 prior accountant, please send me last year’s tax return and any
4 relevant documents that you have that will assist me in going
5 forward, correct?
6 A. Yes.
7 Q. And that was done in this case, correct?
8 A. Yes.
9 Q. Okay. Sir, I direct your attention to page 20 of the
10 document, the general ledger identified as Defendant’s Exhibit
11 41,and ask you if that would refresh your memory as to whether
12 funds from Seven Promotions were included in the Schedule C.
13 A. Yes.
14 Q. So it is a true statement to say that on
the Exhibit 117,
15 which is the 1999 tax return, your CPA firm included in Helio
16 Castroneves’ Schedule C gross income, payments received from
17 Seven Promotions, correct?
18 A. Yes.
19 Q. Okay. Now, I’d also like to talk to you about payments
20 that were made to Helio Castroneves’ father. That would be
21 Helio — well, abbreviated, P.Z. Castroneves. From the
22 Schedule C, Helio Castroneves paid his father for services
23 rendered; isn’t that true?
24 A. I don’t recall.
25 Q. Okay. I should have left this there. I apologize. Would
1 you be nice enough to look at page 1 of the general ledger, the
2 highlighted portion, sir, and see if that would refresh your
3 memory if Mr. Castroneves was paying his father for services
4 out of his Schedule C. Does that refresh your memory, sir?
5 A. Those are checks going out. I don’t know where they’re
6 posted.
7 Q. Okay. Does it say Helio P.Z. Castroneves?
8 A. Yes.
9 Q. Okay. Now, also as part of preparation of the tax return,
10 did you receive a Excel summary of what the Schedule C would
11 look like? And I’m going back again to Exhibit 159.
12 Isn’t it a fact, sir, that your accounting firm received
13 Exhibit 159?
14 A. I told you earlier, I don’t recall this exhibit, so –
15 Q. All right. Do you recognize the Bates stamp at the
16 bottom, the letters on it says LWH?
17 A. Yes, that’s stamped there.
18 Q. And do you recognize that as a Bates stamp for something
19that was placed on records that came from your accounting firm?
20 Do you know?
21 A. I don’t know.
22 Q. Okay. So you have no recollection of that particular
23 document at this time?
24 A. No.
25 Q. All right. Now, it would be accurate to say that if a
1 racecar driver such as Helio Castroneves, his father was
2 performing services on his behalf to further his career, that
3 he could compensate his father by paying him, correct?
4 A. Yes.
5 Q. And Helio Castroneves is not the only person in the racing
6 community that has family ties that are also helping promote
7 their career, correct?
8 A. Yes.
9 Q. I mean, for instance, the very team that you are now a
10 part of has a very famous name, the Andretti name; is that
11 correct?
12 A. Yes, sir.
13 Q. And I believe the Andretti that is associated with your
14 team is Michael Andretti, correct?
15 A. He’s my partner.
16 Q. But he has very famous relatives, Mario Andretti, Marco
17 Andretti; isn’t that correct?
18 A. Yes, sir.
19 Q. And there are numerous people in the racing community
20 where father, son, uncles, grandfathers all work together in
21 this business; is that correct?
22 A. Absolutely.
23 Q. And this is not a social gift type of arrangement, but
24 these are people who are working in a legitimate business with
25 a profit motive, correct?
1 A. Yes.
2 Q. And therefore, if a son makes a payment to a father who is
3 performing services on his behalf, those payments are fully
4 deductible from his tax return, correct?
5 A. Yes.
6 Q. And there’s nothing wrong with that, right?
7 A. No.
8 Q. So if Helio Castroneves paid his father for services
9 rendered, then he is entitled to place those expenses on his
10 Schedule C, right?
11 A. Yes.
12 Q. Now, I’m showing — during the course of representing
13 Mr. Castroneves, is it fair to say that one of the things that
14 he did, or that Kati did really, was supplied your firm with
15 the bank statements; is that correct?
16 A. What time period are you talking about?
17 Q. For, let’s say, 1999, 2000, because that’s — you left, I
18 realize, in 2000. Isn’t it true that to prepare the tax
19 return, a request was made for the bank statements?
20 A. For 1999, we requested that information from the prior
21 accountants.
22 Q. Okay. And is it also true that you did receive that
23 information?
24 A. Yes.
25 Q. And part of that information showed that Helio Castroneves
1 maintained a personal bank account at PineBank, right, if you
2 recall?
3 A. I don’t recall.
23 Miami. It would be fair to say that that meeting occurred on
24 or about May 25th of 2000; is that right?
25 A. Yes.
1 Q. And it would also be fair to say that during that meeting,
2 you made notes of what was discussed; is that correct?
3 A. Yes.
4 Q. I’d like to show you now what has been marked as
5 Defendant’s 154 for identification and ask, are those your
6 notes, sir?
7 A. Yes.
8 Q. And these — you were at this meeting as part of your
9 accounting services for Mr. Castroneves, correct?
10 A. Yes.
11 Q. And you were at this meeting in the ordinary course of
12 business for your accounting firm, Larsson, Woodyard,
13 et cetera, correct?
14 A. Yes.
15 Q. And these notes were kept with the records of the
16 accounting firm; isn’t that true?
17 A. Yes.
18 MR. GARVIN: Your Honor, at this time we’d move into
19 evidence Defendant’s 154, the notes from the May 25th meeting.
20 MR. DWYER: No objection.
21 THE COURT: Received.
22 MR. GARVIN: May I publish, Your Honor?
23 THE COURT: Yes, sir.
24 BY MR. GARVIN:
25 Q. Sir, at the top of the page, in your handwriting, it says
1 “Conference in Miami, May 25th, 2000, Thursday, attorney
2 Brazil, Kati, and Dad.” Do you see that?
3 A. Yes.
4 Q. Does that refresh your memory now, sir, that the attorney
5 from Brazil was, in fact, present; he was there?
6 A. As I said earlier, I don’t recall meeting him, but –
7 Q. All right. Now, during — during this discussion it says,
8 “Send info to attorney re: U.S. tax treaty.” Do you see that?
9 A. Yes, sir.
10 Q. Now, did you understand at this point that the reason why
11 you were meeting with the father and the father’s attorney is
12 because they had an interest in Seven?
13 A. No.
14 Q. You understood that — at least no one had told you up to
15 this time that Helio was the owner of Seven, right?
16 A. No.
17 Q. In fact, no one has ever told you that Helio was the owner
18 of Seven, right?
19 A. That’s correct.
20 Q. And for the tax planning that you did while you were
21 there, one of the important factors is that the company that
22 held the licensing rights could not be owned by Helio
23 Castroneves; isn’t that true?
24 A. Yes.
25 Q. So you operated at all times under the assumption that
1 everybody knew that Helio Castroneves could not be the owner of
2 Seven, right?
3 A. Yes.
4 Q. And the only people that you met with to talk about Seven,
5 other than Alan Miller and Fred Feingold, was Helio’s father
6 and Helio’s father’s attorney, Mr. Correa, correct?
7 A. That’s correct, except that I never met Feingold.
8 Q. Okay. So you traveled down to Miami and a discussion
9 ensued concerning Seven and you were advised at that time that
10 it was formed in late 1998, right?
11 A. Yes.
12 Q. Now, that was significant because that meant that this was
13 not formed for the Penske agreements that were prepared in
14 November of ’99, right?
15 A. Yes.
16 Q. You also wrote down that the shares were issued in bearer
17 form, correct?
18 A. Yes.
19 Q. So during that meeting, the attorney and Helio’s father
20 communicated to you that Seven Promotions was formed in 1998
21 and was issued — the stock was issued in bearer shares,
22 right?
23 A. Yes.
24 Q. Now, did they also tell you at that time that those bearer
25shares were delivered, by the attorney in Panama who formed the
1 company, to Mr. Correa, the father’s attorney from Brazil?
2 A. No.
3 Q. So at that point, even though they told you that there
4 were bearer shares issued, you didn’t ask them, well, are you
5 holding the bearer shares?
6 A. No.
7 Q. A discussion ensued that Helio granted the license for his
8 image and the endorsement and it appears to say the word
9 “promotional,” right?
10 A. Yes.
11 Q. So during this period of time that you had this
12 discussion, did you understand that Helio’s father was trying
13 to promote Helio’s image?
14 A. No.
15 Q. So you didn’t understand that Helio had granted this
16 license to Seven to promote his image?
17 A. Yes.
18 Q. Okay. Did you ask — did you ask them who was carrying
19 out that function during 1999?
20 A. No.
21 Q. Would it be fair to say that you went forward as –
22because it was just understood that the attorney and the father
23 were conducting the affairs of Seven?
24 A. I’m not — I’m not sure on that. I mean, I think — as I
25 said earlier, I think I met with Mr. Correa just to talk about
1 the licensing.
2 Q. All right. Now, remember earlier we had talked about this
3 50/50 split. Remember, contract allocation? Was the Penske
4 contract allocation discussed at this time also?
5 A. Yes.
6 Q. And you wrote in here, “Can this be renegotiated?” Do you
7 see that?
8 A. Yes.
9 Q. Whose idea was it, sir, to renegotiate the 50/50 ratio?
10 A. I’m not sure.
11 Q. Was it your idea?
12 A. I’m not sure.
13 Q. Well, you knew, did you not, that if — the more that you
14 put on the non-U.S. source, the less problems there are with
15 the 30 percent withholding, right?
16 A. Yes.
17 Q. So the ladies and gentlemen of the jury understand this,
18 the part of the royalty from the licensing agreement that is
19 subjected to the 30 percent withholding is only that portion
20 that is derived from U.S. source income, right?
21 A. Yes.
22 Q. So the more money that’s being generated on behalf of
23non-U.S. source licensing rights, for example, if somebody paid
24 for the licensing rights to advertise the race in Japan, those
25 monies would not be subject to the 30 percent withholding,
1 correct?
2 A. Yes.
3 Q. And so one of the ways that a good CPA will make sure that
4 you’re not overpaying your taxes is they will look and say, how
5 much can we get over here in the non-U.S. source side, right?
6 A. Yes.
7 Q. As long as you’ve got a good faith basis for putting it
8 there, that’s perfectly acceptable, isn’t it?
9 A. Yes.
10 Q. And that is one of the questions that came up during this
11 conversation, right?
12 A. Yes.
13 Q. There was also a question that you wrote down about, well,
14 we should consider what can U.S. royalty company provide to
15 Helio. Do you see that?
16 A. Yes.
17 Q. Now, isn’t it true, sir, that if a U.S. royalty company is
18 used, then there’s absolutely no discussion left. Whether it’s
19 non-U.S. source or U.S. source, it’s all taxable; isn’t that
20 right?
21 A. Yes.
22 Q. So at that time, the people at that meeting were even
23 considering just using a U.S. company, correct?
24 A. I don’t recall.
25 Q. Sir, isn’t it true that when you reviewed the case, you
1 suggested to Mr. Correa and to Helio’s father that perhaps an
2 80/20 split would be more appropriate?
3 A. Yes.
4 Q. And on page 2 of this exhibit, this is your handwriting,
5 correct?
6 A. Yes.
7 Q. And we see that what is reflected on this document is –
8 the driving agreement is to the far left, right?
9 A. Yes.
10 Q. And that $1 million, it’s going to be subject to U.S. tax
11 no matter what, right?
12 A. Yes.
13 Q. But then, instead of 50/50 split, now the suggestion is,
14 well, what about 20 percent for U.S. source and 80 percent for
15 non-U.S. source, right?
16 A. Yes.
17 Q. And you advised Mr. Correa and Helio’s father that if that
18 was done, there would be no tax paid on $4 million, right?
19 A. Yes.
20 Q. Now, the truth is, there’s nothing wrong with that; isn’t
21 that correct?
22 A. Yes.
23 Q. So this is completely legitimate tax planning being done
24 by a tax professional and advising people that may be affected
25 by the decision, right?
1 A. Yes.
2 Q. Now, it would be also true that you suggested that 80/20
3 split to Alan Miller at a later time, right?
4 A. I’m not sure.
5 Q. But at no time did Helio, the son, ever participate in
6 this discussion, correct?
7 A. In this discussion?
8 Q. That is right.
9 A. No.
10 Q. Finally, sir, the last page of the meeting, you made a
11 to-do list based upon the meeting that was held on May 25th,
12 correct?
13 A. Yes.
14 Q. And one of the things that you were going to do was you
15 were going to look into treaty countries and you were going to
16 list them out, right?
17 A. Yes.
18 Q. Now, let’s make it clear. The United States government
19 prefers that you deal with a treaty country over a nontreaty
20 country; isn’t that true?
21 A. I’m not — I’m not sure that –
22 Q. Well, let me say it a different way. Under the Internal
23 Revenue Code, you have substantial benefits that are afforded
24 to the taxpayer if they’re dealing with a treaty country that
25 are not afforded to a taxpayer that’s dealing with a nontreaty
1 country; isn’t that true?
2 A. Yes.
3 Q. So in an effort to comply with the tax code, you were
4 going to list all of the treaty countries, right?
5 A. I don’t know about list all the treaty countries, but…
6 Q. You were going to list some suggested countries.
7 A. Yes.
8 Q. And one of the three that you wrote down was the
9 Netherlands.
10 A. Yes.
11 Q. And Helio Castroneves, sitting over there, had nothing to
12 do with this discussion, right?
13 A. That’s right.
14 Q. The next thing that you put on the list was determine the
15 rates of withholding that are applicable, right?
16 A. Yes.
17 Q. So the way this works is, you’ve got two choices: You can
18 divide it up and say part of the licensing is from non-U.S.
19source and part of it is from U.S. source, that’s one way to do
20 it, right?
21 A. Yes.
22 Q. Tax planning? Or you can just say, I don’t want to play
23 with this, I want to go find a company in a country that has a
24 tax treaty with the United States that they can handle the
25 thing and I don’t have to worry about whether it’s U.S. source
1 or not U.S. source; isn’t that true?
2 A. Yes.
3 Q. And what ultimately happened here is that a decision was
4 made to investigate Fintage in the Netherlands, right?
5 A. Yes.
6 Q. Now, this is not the first time that you’ve ever heard of
7 investigating Fintage in the Netherlands because you were
8involved, to some extent, in other race car drivers looking into
9 that, right?
10 A. Not with Fintage.
11 Q. Okay. What about just looking into it in general?
12 A. Looking into what? Can you –
13 Q. A company with a treaty with the United States to place
14 their licensing agreement.
15 A. Yes.
16 Q. And when you went to Fintage, was it sort of a dual
17 purpose trip, because not only did you have an interest for
18 Helio Castroneves, but you also had an interest for another
19 driver; is that right?
20 A. I don’t recall.
21 Q. Do you recall Adrian Fernandez?
22 A. Adrian wasn’t a client of mine.
23 Q. Okay. Was he a client of Mr. Miller’s?
24 A. I believe so.
25 Q. Did you learn that Mr. Fernandez was also considering
1 Fintage?
2 A. Yes.
3 Q. And when you flew over to the Netherlands, it was a long
4 trip and you had an opportunity to talk to Mr. Miller, right?
5 A. Yes.
6 Q. So you knew going into this that this was not solely a due
7 diligence for Helio Castroneves’ behalf, but it also might
8 affect other racecar drivers, right?
9 A. Yes.
10 Q. Now, you also marked, “Check easiest jurisdiction.” Sir,
11 would you be kind enough to tell us, what did you mean by that?
12 A. I don’t know, I’m sorry.
13 Q. “Send parts of U.S. treaty to Brazil.” Did you agree to
14 send Attorney Correa parts of the U.S. treaty to Brazil?
15 A. It appears so from the notes, yes.
16 Q. And last, it said, “Close out any interest Helio has
17 outside the United States.” To your knowledge, did Helio have
18 any interests outside the United States?
19 A. I’m not sure.
20 Q. Following that meeting, did there come a time in June that
21 you did have a conversation with the tax attorney, Fred
22 Feingold?
23 A. I don’t think I did.
24 Q. Sir, I’d like to show you what has been marked for
25 identification purposes as Defendant’s Exhibit 155 and ask if
1 you recognize it.
2 A. Yes.
3 Q. And is that your handwriting, sir?
4 A. Yes, it is.
5 Q. And are those notes that you made of your conversation
6 with the tax attorney, Fred Feingold?
7 A. They’re notes of a meeting. As I said earlier, I don’t
8 remember speaking to Feingold, and then afterwards it says
9 Feingold recommended attorney. Again, I just don’t remember
10 speaking to him.
11 Q. Okay. Well, at least we know that those are your notes,
12 correct?
13 A. Yes.
14 Q. And those are notes that you kept in the ordinary course
15 of business, right?
16 A. Yes.
17 Q. And they were part of the notes that you were taking
18 regarding Helio Castroneves’ tax matters, right?
19 A. Yes.
20 Q. And you wrote those notes in an effort to accurately
21 reflect what happened during the meeting and your thoughts,
22 right?
23 A. Yes.
24 Q. Okay.
25 MR. GARVIN: Your Honor, at this time we would move
1 the exhibit into evidence as Defendant’s Exhibit 155.
2 MR. DWYER: No objection.
3 THE COURT: Received as marked.
4 BY MR. GARVIN:
5 Q. Now, prior to leaving for Fintage and doing the due
6 diligence in Fintage, it would be fair to say that there was
7 some discussions regarding Fred Feingold, right?
8 A. Yes.
9 Q. And in this particular document, Defendant’s Exhibit 155,
10 in your handwriting it says, “Conference Tuesday, 6/13/2000,”
11 right?
12 A. Yes.
13 Q. And below it, it has the name “Fred Feingold, attorney,”
14 right?
15 A. Yes.
16 Q. To the left, it appears to say “Castro-Neves.” So this
17 was regarding Helio Castroneves, correct?
18 A. Yes.
19 Q. And Helio Castroneves was not there; isn’t that true?
20 A. No.
21 Q. No, he wasn’t there?
22 A. That’s correct, no, he was not there. I’m sorry, my notes
23 just aren’t good enough about who the conference was with or -24 Q. All right. Well, there’s only a couple of little points
25 we want to get into. In the middle, you wrote, “Fintage House
1 to race team.” Now, when we’re talking about Fintage, we’re
2 talking about the Fintage House, right? That’s the same
3 entity.
4 A. The company.
5 Q. And this is an established company, right?
6 A. Yes.
7 Q. And that’s important because if there’s any type of
8 deferred licensing agreement out into the future, you want to
9 make sure that when the future comes, that company is still in
10 business, right?
11 A. Yes.
12 Q. And that they still have the money for the retirement of
13 whoever’s retirement you’re trying to set up, right?
14 A. Yes.
* * *
15 Q. And is it fair to say that one of the things that was
16 important in a contract like this was to get a big company to
17 guarantee that the money would be there five or ten years down
18 the road?
19 A. Absolutely.
* * *
12 Q. Now, sir, on this particular document, there are some
13 handwritten notes that have been made; is that correct?
14 A. Yes.
15 Q. And one of the handwritten notes says, “Helio does not own
16 the other company.” Isn’t that correct?
17 A. Yes.
18 Q. And isn’t it a fact that that is consistent with your
19 understanding throughout the entire time you’ve been dealing
20 with this, that Helio does not own Seven Promotions? Isn’t
21 that true?
22 A. Yes.
23 Q. And this document was made back in June of 2000, actually
24 June 20th of 2000, right?
25 A. Yes.
1 Q. Now, there is also some notes concerning deferred
2 compensation, right?
3 A. Yes.
4 Q. And deferred comp is probably a general term because in
5 this case, it would be really a deferred royalty arrangement
6 when you’re talking about the interests of licensing; isn’t
7 that right?
8 A. Yes.
9 Q. But the point is that discussions were being made that
10 what the accountants and the attorneys were trying to do here
11 was set up a deferred comp-like arrangement, right?
12 A. Yes.
* * *
2 Q. And one of the things that was discussed is, when Helio
3 Castroneves retires someday, he may not be able to stay in the
4 United States; is that correct?
5 A. Yes.
6 Q. Because he had an 0-1 visa, right? Do you remember you
7 wrote that down on your very first day, “0-1 Visa” on
8 December 14th, 1999?
9 A. Yes.
10 Q. And an 0-1 visa means as long as he’s racing, he can stay,
11 but when he’s no longer racing, there’s no guarantees, right?
12 A. That’s right.
13 Q. So what happens in a deferred comp is that because Helio
14 Castroneves is a cash basis taxpayer, right?
15 A. Yes.
16 Q. Now, that doesn’t mean he carries around dollar bills.
17 That means that for accounting and tax purposes, when you pay
18 something, that’s when you get to deduct it. You can’t deduct
19 it just when the liability accrues. Right?
20 A. Yes.
21 Q. So in this case, because he’s a tax base — or a cash
22basis taxpayer, he would not report his retirement income until
23 he received it, right?
24 A. That’s correct.
25 Q. And that’s correct for all cash basis taxpayers who have
1 deferred comp or deferred royalty arrangements, right?
2 A. Again, I’m sorry, I’m too many years removed from that,
3 so…
4 Q. Okay. Well, the bottom line is that there was a
5 discussion that, well, if he’s not going to be in the United
6 States, then he might as well be in a country with a tax treaty
7 that doesn’t have an oppressive tax rate; isn’t that right?
8 A. Yes.
9 Q. So one of the things that you looked at is, well, just
10 suppose he retires to Monaco. Monaco has a treaty and they
11have a very low tax rate, so if he lived there, when he got the
12 money from Fintage ultimately, he would pay very low taxes,
13 right?
14 A. Yes.
15 Q. But that is 100 percent in compliance with the Internal
16 Revenue Code, isn’t it?
17 A. Yes.
18 Q. And you wouldn’t have been involved in this if there was
19 something wrong, right?
20 A. That’s right.
21 Q. And again, Helio Castroneves, he was out racing cars; he
22 was not participating in these conversations, right?
23 A. That’s right.
24 Q. And the truth is, Helio, with his short attention span on
25 these matters, would have said the same thing anyway, Go talk
1 to Kevin, go talk to Alan, they’ve got the matter under
2 control, right?
3 A. Right.
* * *
2 Q. Sir, I’m showing you what is in evidence as Defendant’s 48
3 and it is dated July 11th, 2000, and this is the agree — or
4 excuse me, this is the memo that you wrote to the attorney from
5 Brazil, correct?
6 A. Yes.
7 Q. And this is following the May meeting, right?
8 A. Yes.
9 Q. And you had agreed to do some research when you left that
10 meeting, right?
11 A. Yes.
12 Q. And now you are memorializing the results of your work,
13 correct?
14 A. Yes.
15 Q. And you did, in fact, send this to the attorney in Brazil,
16 right?
17 A. Yes.
18 Q. And this document was not sent to Helio Castroneves, the
19 driver; isn’t that true?
20 A. I don’t recall sending it there, no.
21 Q. And you never sat down with Helio Castroneves, the driver,
22 and went over this document, right?
23 A. I don’t recall doing that, no.
24 Q. Okay. Now, the first paragraph of the exhibit states,
25 “The payment of royalties to a foreign corporation may be
1 subject to withholding at the source, depending upon whether
2 the corporation is organized in a treaty or nontreaty country.
3 If the corporation were organized in a tax-haven state, such as
4 Panama, the withholding rate would be 30 percent.”
5 Okay? You wrote that, right?
6 A. It was prepared under my direction.
7 Q. Okay. And Pat Bell is someone in your office that is a
8 partner in the firm also, correct?
9 A. Yes.
10 Q. And he was someone who you asked to research these matters
11 to help you prepare this particular document; is that correct?
12 A. Yes.
13 Q. And so Pat Bell and you had some substantial discussions
14 about the research that Pat Bell actually performed, right?
15 A. Yes.
16 Q. And when we look at your time sheets, we see that Pat Bell
17was really the one that did the lion’s share of the research on
18 this issue; isn’t that correct?
19 A. Yes.
20 Q. Now, Pat Bell then communicated with the tax attorney from
21 New York City named Fred Feingold, right?
22 A. I don’t know.
23 Q. Well, you do know that Pat Bell drew an arrow to this
24 provision and wrote, “not necessarily so, per Feingold.”
25 Right?
1 A. Yes.
2 Q. So even as of that period of time, there was not complete
3 agreement amongst the tax professionals, right?
4 A. I don’t know what his note means.
5 Q. We have said that when you’re doing a deferred
6 compensation or deferred royalty agreement, one of the basic
7 things that you have to make sure is that the person who is
8 going to retire does not own the company that’s holding the
9 money; isn’t that
right?
10 A. Yes.
11 Q. Okay. And you advised that and repeated that in this
12 document; isn’t that true?
13 A. Yes.
14 Q. In fact, you wrote, “Ownership of the foreign corporation
15 has been discussed. Apparently, if the Netherlands deferred
16compensation arrangement is the desired vehicle, then ownership
17 by parties other than Helio is necessary.” Right?
18 A. Yes.
19 Q. And that was the premise that you worked on in this file
20 from the beginning to the end; isn’t that true?
21 A. Yes.
22 Q. Sir, do you have Government’s Exhibit 100 in front of you?
23 A. Yes, sir.
24 Q. Sir, I’m showing you what is in evidence as Government’s
25 Exhibit 100. Mine is marked up differently, but it’s the same
1 document. Now, this is the document during direct examination
2 that you stated the Brazilian attorney, Mr. Correa, responded
3 to you, correct?
4 A. Yes.
5 Q. And he responded to your July 11th memo that we just had
6 on the ELMO a few seconds ago.
7 A. Yes.
8 Q. One of the things that this referred to — and when you’re
9 writing to — when he’s writing to you, he’s talking about
10 Seven Promotions Corporation, correct?
11 A. Yes.
12 Q. Now, his reference is not Helio Castroneves, the racecar
13 driver, but his reference is the entity; isn’t that true?
14 A. Yes.
15 Q. And at no time did Mr. Correa tell you that he was
16 representing the racecar driver; isn’t that true?
17 A. No.
18 Q. In fact, the only reference that he told you was he
19 referred to Seven Promotions, right?
20 A. Yes.
21 Q. Okay. Now, you advised us earlier that you were not clear
22 whether he was in Miami or not, and in this particular exhibit
23 he says, “In the meeting held last May in Miami, we started
24 working.”
25 So from this document, it appears that Mr. Correa was in
1 Miami, right?
2 A. Again, I just don’t recall meeting him.
3 Q. Well, from this document, he says he was in Miami, right?
4 A. I’m not sure. I mean, it could have been a phone — I
5 just — again, I just am not sure.
6 Q. It says, “In the meeting held last May in Miami, we
7 started working with the feasibility of having said royalties
8 paid to a foreign entity established in a favorable
9 jurisdiction protected by a Treaty to Avoid Double Taxation
10 with the USA.”
11 Now, sir, avoiding double taxation is definitely different
12 than avoiding taxation altogether, isn’t it?
13 A. I’m not sure I recall that term.
14 Q. Well, sir, when you’re talking about double taxation, a
15 classic example of that would be the corporation pays the tax,
16 if it’s a C corp. of course, and then on the income, if they
17 distribute a dividend to the stockholder, the stockholder pays
18 the tax again. Isn’t that a classic double taxation?
19 A. Yes.
20 Q. And isn’t it really one of the goals of all accountants
21 who do tax work to avoid double taxation situations, right?
22 A. Yes.
23 Q. In fact, you’d like to avoid all taxes, but double
24 taxation is really a no-no, right?
25 A. I’m not sure the word avoid is proper, but –
1 Q. Well, you don’t want your clients to pay any more taxes
2 than the law requires them.
3 A. That’s fair to say.
* * *
21 Q. Isn’t it a fact that what the attorney is telling you
22 there is if you have any doubts about this, just pay the tax.
23 A. Yes.
24 Q. And isn’t it also a fact that Attorney Correa, when he had
25 the discussions with you and got to the point where he said,
1 Look, just pay the tax and pay Seven the money, right? It says
2 right here, “having the payment made to Seven.” Right?
3 A. Yes.
9 Q. Sir, when you went to Fintage, is it fair that you had a
10 favorable opinion as to what you saw there?
11 A. Yes.
12 Q. And that the people that you met there, you felt that
13 these were serious people conducting a real business; is that
14 correct?
15 A. Yes.
16 Q. And when you were there, you didn’t go there just on a
17sightseeing tour, but you asked them questions that you thought
18 were important before you could make a decision to let these
19 people have this kind of money, right?
20 A. Yes.
21 Q. And one of the things that occurred over there is that
22 they presented you with some written materials about their
23 company, right?
24 A. Yes.
25 Q. And you took those materials home with you and looked them
107
1 over, right?
2 A. Yes.
3 Q. And in those materials, you realized that they had been in
4 business for quite a while, correct?
5 A. Yes.
6 Q. And that they had represented some of the biggest names in
7 the entertainment industry and sports industry in the world;
8 isn’t that true?
9 A. Yes.
10 Q. And so these were things that factored into your decision
11 as to whether or not you could recommend doing business with
12 Fintage; is that right?
13 A. Yes.
14 Q. I’m showing you what has been marked for identification
15 purposes as Defendant’s Exhibit 178 and I ask you, sir, do you
16 recognize that as being a copy of some of the materials that
17 you obtained while you were in the Netherlands?
18 A. Yes, it appears so.
19 MR. GARVIN: Your Honor, we would move the document
20 into evidence at this time.
21 MR. DWYER: No objection.
22 THE COURT: Received.
23 BY MR. GARVIN:
24 Q. Sir, we’re going to be brief on this particular document.
25 I just want to show one page and then we’ll move on.
1 On the third page of the document, the title is a quote
2 that says, “Fintage House provides simple but tailor-made and
3 reliable solutions to our client’s special and complex needs.”
4 And they listed out industries that they’re involved in,
5 including film and television, other types of talent, licensing
6 endorsement contracts, and the music industry also.
7 Were you aware of all of these things that they were
8 involved in?
9 A. No.
22 Q. And that based upon your personal observation, that Alan
23 Miller was working as quickly and diligently as he could?
24 A. Yes.
25 Q. In fact, at no time did Helio Castroneves, the driver,
1 interfere with your work or hinder you in any way; isn’t that
2 correct?
3 A. That’s correct.
5 Q. Lastly, sir, during the process that all this was going
6 on, isn’t it accurate to say that the licensing payments that
7 were supposed to be paid by Penske were never paid by Penske;
8 isn’t that true?
9 A. That’s true.
10 Q. And that means that Seven never received — during the
11 entire time that you were there, Seven never received a penny
12 from Penske, correct?
13 A. That’s correct.
14 Q. And the truth is no one did because Penske held onto the
15 money, right?
16 A. I can only speak to the time period I was there.
17 Q. Okay. And as you said, to the best of your understanding,
18 Alan Miller is the one who told Penske in December, don’t make
19 any payments regarding the licensing agreement; isn’t that
20 true?
21 A. Yes.
22 Q. And so that actually occurred before the first payment of
23 the licensing agreement was due on January 1st, right?
24 A. Yes.
25 Q. And for tax purposes, that is important because the
1 taxpayer is free to renegotiate or redraft his agreements as
2 long as the payment is not yet due under the licensing
3 agreement.
22 MR. GARVIN: Yes, sir. I have no further questions
23 then, Your Honor.
24 Thank you, sir.
25 THE WITNESS: Thank you.
C. WITNESS FERNANDO BERGUIDO, ESQ.
(TRIAL TESTIMONY EXCERPT)
17 BY MR. GARVIN:
18 Q. Good afternoon, Mr. Berguido.
19 A. How are you?
20 Q. My name is David Garvin. I represent Helio Castroneves in
21 this matter. That would be Helio Alves Castroneves.
22 A. Okay.
23 Q. Sir, I’d like to follow up with a few things we talked
24 about a little earlier. Let’s start out with the corporation.
25 You had advised during direct examination that there were two
1 types of corporation as far as stock ownership is concerned; is
2 that correct?
3 A. Well, there’s one type of corporation that allows for two
4 type of stock, yes.
5 Q. Okay. And one type of stock is the registered stock?
6 A. Correct.
7 Q. And one type of stock is the bearer share type of stock;
8 is that correct?
9 A. Correct.
10 Q. And both of those are equally legal and used commonly
11 throughout Panama; is that correct?
12 A. Yes, sir.
13 Q. And in fact, bearer shares stocks are still viable in the
14 United States in some jurisdictions; isn’t that correct?
15 A. Correct.
16 Q. And one of the benefits of bearer share stocks is that the
17 person who literally holds the certificate is presumed to be
18 the owner; is that correct?
19 A. Correct.
20 Q. Now, in this particular case, you told us that you had a
21 relationship with Osiris Correa, the attorney from Brazil; is
22 that correct?
23 A. Yes, we have a professional relationship of several years
24 with the law firm.
25 Q. And would it also be fair to say that Mr. Correa has used
1 the services of your law firm to form corporations in the past?
2 A. Correct.
3 Q. And he has used those services to form corporations for a
4 number of different clients, to the best of your knowledge?
5 A. Correct.
6 Q. And it’s also fair to say that a number of those
7 corporations were formed with bearer shares, right?
8 A. Yes, correct.
9 Q. And it would be accurate to say that Mr. Correa’s law firm
10 is located in Brazil; is that right?
11 A. Yes.
12 Q. And that in Brazil there are — I don’t know. Let me ask
13 it. Do you know if during the period of time whether there was
14 anything going on in Brazil that people were leaning towards
15 bearer share stock companies?
16 A. Well, not specifically in that period, but over the years
17 there have been reasons why people use bearer shares, yes.
18 Q. Okay. And, for example, was at a certain point of time in
19 Brazil, during 1999 through 2004, a particular time where they
20 are having high incidence of crime such as kidnapping?
21 A. Yeah, uh-huh.
22 Q. And is one of the benefits of having a bearer share is
23 that there is not a public knowledge as to who owns the
24 corporation? Is that correct?
25 A. Yes, that’s correct.
1 Q. Now, I want to talk about Mr. Correa a little bit. It
2 would be fair to say that Mr. Correa is the one who ordered
3 Seven Promotions to be incorporated.
4 A. That’s correct.
5 Q. And it is also fair to say that Mr. Correa is the one that
6 gave you all of your instructions.
7 A. That’s correct.
8 Q. And Mr. Correa is the one who received the stock
9 certificate.
10 A. Correct.
11 Q. Now, you don’t have any personal knowledge as to how long
12 Mr. Correa held that stock certificate, do you?
13 A. No, I have no way of…
14 Q. So as far as we know sitting here today, Mr. Correa could
15 have held it for as little as one day, but he could have held
16 it for years.
17 MR. AXELROD: Objection, Your Honor, he just said he
18 didn’t know.
19 THE COURT: Overruled.
20 BY MR. GARVIN:
21 Q. You can answer the question, sir.
22 A. Yes, I have no way of knowing.
23 Q. Now, during the period of time — and let me go a little
24 further. In this particular occasion, Mr. Correa never advised
25you as to what his intention was with regard to this particular
1 stock certificate, did he?
2 A. No, no.
3 Q. So sitting here today, we don’t know if Mr. Correa
4 actually intended to exercise dominion and control over this
5 stock certificate or not; is that true? I mean, other than
6 speculation.
7 A. Yeah, I have no way of knowing what he did with the stock,
8 correct.
* * *
14 Q. The person who you delivered the stock certificate to as
15 well as the powers of attorney was Mr. Correa, correct?
16 A. Yes, all — the corporate package, the regional corporate
17 package was sent to his firm.
* * *
6 Q. Isn’t it true that Mr. Correa would have the ability to
7 control the company?
8 A. He could have the ability, yes. He — he is the one who
9 gave me instructions, yes, correct.
10 Q. All right. Now, let’s take this out of the abstract and
11 bring it home. With respect to Seven Promotions, Brickdale
12 Financial is listed as a director, correct?
13 A. Correct.
14 Q. And we know the other two directors were nominees,
15 correct?
16 A. Correct.
17 Q. And we also know that Brickdale Financial is an entity
18 that is used by Leite Correa, correct?
19 A. Correct.
20 Q. And Brickdale Financial’s bank account, Mr. Correa has
21 authority to open the bank accounts for that company, correct.
22 A. For Brickdale.
23 Q. Yes.
24 A. Correct.
25 Q. And that the bearer share was delivered — for Seven was
1 delivered to Mr. Correa, correct?
2 A. Correct. We sent it to his office, yes.
3 Q. And when you put that all together, Mr. Correa had the
4 power to control Seven; isn’t that correct?
5 MR. AXELROD: Objection, Your Honor.
6 THE COURT: Overruled.
7 BY MR. GARVIN:
8 Q. He had the power to control Seven, correct?
9 A. He could have the power, yeah.
10 Q. And in fact, he had more than just the power, because
11 under law, when the owner — or excuse me, the person in
12 possession of the bearer share is presumed the owner, correct?
13 A. The person in possession of the share is presumed the
14 owner, yes.
15 Q. Okay. And in fact, under those circumstances the person
16 in possession of the bearer shares is presumed both the legal
17 and beneficial owner, correct?
18 A. Yes.
19 MR. GARVIN: Thank you very much, sir. I have no
20 further questions.
D. WITNESS PATRICK BELL, CPA
(TRIAL TESTIMONY EXCERPT)
10 Q. Good morning, Mr. Bell.
11 A. Good morning.
12 Q. My name is David Garvin. I represent Helio Castroneves,
13 the son, in this matter.
14 A. Good morning.
15 MR. GARVIN: Good morning, ladies and gentlemen.
16 JURORS: Good morning.
17 BY MR. GARVIN:
18 Q. Sir, I’d like to ask you a few questions just right where
19 we left off. Counsel was just asking you about the document
20 that was Government’s Exhibit 179, the promotional agreement.
21 Do you recall that, sir?
22 A. Yes.
23 Q. And you advised counsel that you had never seen that
24 document, correct?
25 A. Correct.
1 Q. You’ve also advised counsel that that particular phrase
2 that was in that document was not what Alan Miller had told
3 you, correct?
4 A. Correct.
5 Q. And to make it clear for the record, Mr. Miller advised
6 you that Helio Castroneves did not own Seven Promotions?
7 A. Yes, that’s correct.
8 Q. And also, Alan Miller was somebody that you were familiar
9 with, correct?
10 A. Yes. If I could state that on that first exchange, that
11 June 2000 exchange, that was the first contact I had had with
12 Alan Miller.
13 Q. Okay. And was it in June of 2000 that Alan Miller advised
14 you that?
15 A. Yes.
16 Q. Now, Alan Miller also had a reputation with people in your
17 firm; is that correct?
18 A. Yes.
19 Q. And you were aware of Alan Miller’s reputation being a
20 good reputation in your firm; isn’t that correct?
21 A. Yes.
22 Q. And in dealing with Alan Miller through the course of the
23 years that followed from 2000, 2001, 2002, and on through, you
24 personally found that Alan Miller was a person who gave you no
25 reason to doubt his credibility; isn’t that true?
1 A. Correct.
2 Q. And just — the bottom line here was, Alan Miller was
3 somebody that you trusted.
4 A. Yes.
5 Q. Now, counsel asked you about that document, but is it a
6 fact, sir, that — have you ever been asked or shown the Greg
7 Moore contract?
8 A. No.
9 Q. Has anybody — has the United States discussed this case
10 with you before you coming here today?
11 A. Yes.
12 Q. And how many times have you discussed this case with the
13 United States before coming here today?
14 A. Three times, I think.
15 Q. And each time, how long was the discussion for?
16 A. First time, three some hours, I think anyway. A couple of
17 shorter ones.
18 Q. The first one was three hours approximately?
19 A. Something like that, yeah.
20 Q. And two more meetings that were shorter, correct?
21 A. Yeah. The first one may have been longer. It may have
22 been most of the day. I just don’t recall.
23 Q. Most of the day?
24 A. Probably.
25 Q. And during that period of time, they discussed with you
1 your testimony here today, correct?
2 A. Yes.
3 Q. And during that period of time, at some point you were
4 shown that document that we just discussed, right?
5 A. Not that I recall.
6 Q. Do you remember being — any discussion about the
7 ownership of Seven during those conversations?
8 A. Yes.
9 Q. At any time during those meetings, did the United
10 States – anyone from the United States show you the Greg Moore
11 agreement?
12 A. No.
13 Q. Did anybody ever tell you that Alan Miller has repeatedly
14 stated that –
15 MR. DWYER: Objection, Your Honor.
16 THE COURT: Sustained.
17 BY MR. GARVIN:
18 Q. Did the United States tell you during these meetings –
19 MR. DWYER: Objection, Your Honor.
20 THE COURT: Well, let me hear the question. What’s
21 the question?
22 BY MR. GARVIN:
23 Q. — that they had possession of Greg Moore’s documents?
24 A. No.
25 Q. Did — during these discussions, did anybody say to you
1 that the Greg Moore contract was identical to the Castroneves
2 contract?
3 MR. DWYER: Objection, Your Honor.
4 THE COURT: Sustained.
5 BY MR. GARVIN:
6 Q. Sir, sitting here today, do you know one way or the other
7 how that document was prepared that you were just shown?
8 A. No.
9 Q. Sitting here today, do you have any idea of whether that
10 document, with regard to that paragraph, was accurate or a
11 mistake?
12 A. No.
13 Q. Now, I’d like to show you, please — (pause). Sir, I’d
14 like to show you what has been marked for identification
15 purposes as Defendant’s Exhibit 180.
16 Kevin Savoree is someone who was a partner in your firm;
17 is that correct?
18 A. Yes.
19 Q. And he worked on the Castroneves matter, right?
20 A. Yes.
21 Q. And in the year 2000, he was the primary contact at your
22 firm for this matter, correct?
23 A. In the early year 2000, correct.
24 Q. And the primary contact for the Castroneves matter in 2000
25 was Mr. Miller’s office; isn’t that correct?
1 A. Yes.
2 Q. And in particular, the person at Mr. Miller’s office who
3 corresponded with your office was a lady by the name of
4 Shirley, correct?
5 A. Yes.
6 Q. I’m showing you a fax cover sheet there. Do you recognize
7 that document as a document that was faxed to your office?
8 A. I’ve seen that cover sheet, yes.
9 MR. GARVIN: Your Honor, at this time we would move
10 Defendant’s Exhibit 180 into evidence.
11 MR. DWYER: Your Honor, we have no objection to the
12 foundation. This exhibit, however, that’s been marked has
13 highlights on it. We would ask that anything that go into the
14 record not have highlights on it.
15 THE COURT: You want to substitute a copy?
16 MR. GARVIN: Certainly, Your Honor.
17 THE COURT: Received as marked.
18 MR. GARVIN: May I publish, Your Honor?
19 THE COURT: Yes, sir.
20 BY MR. GARVIN:
21 Q. Sir, I’m showing you Defendant’s Exhibit 180 and it is
22 dated February 15, 2000. Do you see that?
23 A. Yes.
24 Q. And it is from Alan Miller and Shirley regarding Helio
25 Castro-Neves, attaching 13 pages, and it is made out to Kevin
1 Savoree, correct?
2 A. Yes.
3 Q. Now, I’d like to direct your attention to the documents
4 that were sent to Kevin Savoree, according to this. It says,
5 “Kevin: Attached is: 1, Employment Agreement (Between
6 Castro-Neves Racing and Helio Castroneves); 2, Employment
7 Agreement (Between Castro-Neves Racing and Katiucia
8 Castro-Neves).” Do you see those two entries, sir?
9 A. Yes.
10 Q. And the third and final one is the “Promotional
11 Representation Agreement (Between Helio and Seven Promotions
12 Corporation).” Do you see that, sir?
13 A. Yes.
14 Q. That is the name of the document that the United States
15 showed you just a few seconds ago, correct?
16 A. Yes.
17 Q. And therefore, it appears that that document was sent to
18 Kevin Savoree early on in this representation, correct?
19 MR. DWYER: Objection, calls for speculation.
20 THE COURT: Ask him if he knows when.
21 BY MR. GARVIN:
22 Q. I’d direct your attention to the date at the top where it
23 shows the fax date, sir
?
24 A. Yes.
25 Q. Does it reflect the date of February 15th of 2000?
1 A. Yes.
2 Q. So that would be the date that this document would have
3 been faxed to Kevin Savoree at your office, correct?
4 A. Yes.
5 Q. And isn’t it a fact that February 15th, 2000 is before any
6 tax return was filed on behalf of Helio Castroneves, correct?
7 A. Yes.
8 Q. And pursuant to this document, the promotional agreements
9 that we were just discussing was faxed to Kevin Savoree before
10 any tax returns were prepared; isn’t that true?
11 MR. DWYER: Objection.
12 THE COURT: If he knows, he may respond.
13 A. If you would repeat the question, please.
14 BY MR. GARVIN:
15 Q. Yes, sir. Based upon the date of this document, the
16Promotional Representation Agreement was faxed to Kevin Savoree
17 before any tax return for Castroneves was prepared.
18 A. Well, it’s stated on the cover sheet that it was
19 transmitted.
20 Q. Okay. And sir, I wanted to show you up in the upper
21 corner. When a fax is sent, it shows the page number and the
22 total pages, correct?
23 A. Yes.
24 Q. Okay. And that — the mechanical fax calculation is the
25 same number of pages as what is signified on this transmittal
1 sheet, correct?
2 A. Yes.
3 Q. Sir, earlier you had said that you had seen this document,
4 and isn’t it a fact that at the bottom there are the initials
5 LWH and the number, and this Bates number was placed on this
6 document when your firm produced these documents as part of
7 this lawsuit, correct?
8 A. Right.
9 Q. Okay. So these — this document was in the records kept
10 in the ordinary course of business of the accounting firm of
11 Larsson, Woodyard & Henson.
12 A. Yes.
16 Q. Mr. Bell, we had left off with the promotion agreement and
17 I’d like to now move to another matter that relates to Seven.
18 I’d like to show you, sir, what’s been marked for
19 identification purposes as Defendant’s Exhibit 159 and 165.
20Now, sir, I’d like to start by saying that when your accounting
21 firm took on the representation of Helio Castroneves and Kati
22 Castroneves, as well as Castroneves Racing, that was to
23 commence for the tax return that was going to be filed in 2000,
24 but it was the 1999 tax return, correct?
25 A. Yes, I think so.
1 Q. Okay. And in preparing a tax return, it would be accurate
2 to say that the taxpayer provides various documentation and the
3 accountant looks it over to determine what is applicable to the
4 tax return, and if there are items that are not applicable, the
5 accountant just doesn’t use them, correct?
6 A. Yes.
7 Q. And when you have a situation in that case of what’s
8 commonly referred to as a Schedule C, that means that the
9 individual has a business as a sole proprietorship, correct?
10 A. Yes.
11 Q. And in Helio Castroneves’ case, in 1999 he had a
12 Schedule C, correct?
13 A. Yes.
14 Q. Now, in the process of preparing a Schedule C, the
15 accountant will ask for the documentation that the taxpayer
16 believes reflects the income for that tax period; isn’t that
17 true?
18 A. Yes.
19 Q. And often what that is is the 12 bank statements so that
20 the accountant can see what were the deposits that were placed
21 into the bank, right?
22 A. Yes.
23 Q. In addition to that, the accountant — and in this case
24 I’d make it more directly relevant,your accounting firm, would
25 ask for a list of the expenses incurred during the year that
1 relate to the Schedule C, correct?
2 A. Yes.
3 Q. And one of two things happens: Either the taxpayer
4 prepares the list, which we commonly refer to as a ledger; is
5 that correct?
6 A. Yes.
7 Q. Or the accountant has one of those taxpayers that sends
8 them a box of receipts and then the accountant has to do it,
9 right?
10 A. Yes, that happens too.
11 Q. And we don’t like those box clients, right?
12 A. Right.
13 Q. So in this particular case, the Castroneveses had a prior
14 accounting firm, correct?
15 A. Yes.
16 Q. And so some of the work of tabulating what was done
17 already through 1999 had already been done by the prior
18 accounting firm, correct?
19 A. I’m not sure at that point. I didn’t deal with it then.
20 Q. All right. But at some point in the beginning of 19 — or
21 excuse me, 2000, in preparation of the job of preparing the
22 1999 tax return, information was tabulated so that the
23 Schedule C could be prepared, correct?
24 A. Yes.
25 Q. And so the tax returns in general could be prepared.
1 A. Yes.
2 Q. One of the people that worked on that was Jill Coombes
3 from your office, right?
4 A. Yes.
5 Q. And you’re familiar with Jill’s work, right?
6 A. Yes.
7 Q. And in fact, to a large extent you supervised — or at
8 least in 2000, you supervised Jill’s work, correct?
9 A. Yes, and I would say for ’99. I’m not completely sure
10 whether she worked on that one, though.
11 Q. Okay. Now, I’ve asked you to please look at two exhibits
12 in front of you. Have you had a chance to review those, sir?
2 A. Yes.
3 Q. Now, at the top of the document it says the “1999 CNR Inc.
4 Excel,” correct?
5 A. Yes.
6 Q. But in reality, in 1999, CNR was not formed actually until
7 the end of the year, right?
8 A. Right.
9 Q. So if the corporation had not been formed yet, that means
10 that a Schedule C would have to be prepared for these items,
11 right?
12 A. Yes.
13 Q. Okay. Now, there is a category of income items listed and
14 that is on the top portion of the schedule; is that right?
15 A. Yes.
16 Q. And we see in the middle of the schedule, it says “Seven
17 Promotions, $50,000.” Do you see that, sir?
18 A. Yes.
19 Q. Now, assuming that Seven Promotions is not owned by Helio
20 Castroneves, which was your understanding, right?
21 A. Yes.
22 Q. And assuming that Helio Castroneves is a cash basis
23 taxpayer, which he was, right?
24 A. Yes.
25 Q. If Helio Castroneves received $50,000 from Seven
1 Promotions and it was intended that it was his, that is, it
2 wasn’t for somebody else, it was for him, then he was required
3 to report that $50,000, right?
4 A. Yes.
5 MR. DWYER: Object to form.
6 THE COURT: Overruled.
7 BY MR. GARVIN:
8 Q. Now, at the time that the tax return was prepared and the
9 entries were being made concerning Seven Promotions, did you
10 have any input in this at all?
11 A. No.
12 Q. So when counsel asked you the question of, well, would it
13 have been important to you to know who owned Seven — do you
14 remember those questions?
15 A. Yes.
16 Q. And you said yes. Do you remember that?
17 A. Yes.
18 Q. Okay. But then he said, well, what if the family
19 controlled Seven? Do you remember that question?
20 A. Yes.
21 Q. All right. Now, isn’t it fair to say, sir, because you
22 were not the one handling this, there were no discussions with
23 you about that at all, right?
24 A. Right.
25 Q. The other point is that there were no discussions between
1 you and Helio Castroneves, the son, concerning his tax return
2 for 1999 at all, right?
3 A. Between me, you say?
4 Q. Yes.
5 A. That would be correct.
6 Q. And really, throughout this period of time, isn’t it
7 accurate to say that in the beginning stages, the principal
8 contact that the accounting firm had and that you had was with
9 Alan Miller’s office and, in particular, Shirley?
10 A. Yes.
11 Q. Isn’t it fair to say that all of the documents were being
12 sent to Alan Miller’s office, right?
13 A. I don’t know.
14 Q. Well, do you recall at the beginning, for example, the
15 contracts were being mailed to Alan Miller’s office? Do you
16 recall that?
17 A. I don’t think I was involved at that point. I don’t
18 recall what you’re saying.
19 Q. Okay. At the time that you did get involved, did you
20 notice,for example, that the statements from Paine Webber were
21 being sent to Alan Miller’s office?
22 A. Yes.
23 Q. Did you notice that the bank statements were being
24 forwarded to Alan Miller’s office?
25 A. I’m not sure about that.
1 Q. Okay. Well, there were many documents that were actually
2 being handled by Shirley, right?
3 A. Yes, I think so.
4 Q. And when the accounting firm had a question, they weren’t
5 calling Helio Castroneves, were they? They were calling
6 Shirley, at least in the initial stages, right?
7 A. I don’t know.
8 Q. Now, under the category of expenses, there is a line item
9 that says “Helio PZ.” Do you see that, sir?
10 A. Yes.
11 Q. And did you understand that to be Helio’s father?
12 MR. DWYER: Objection, lack of personal knowledge.
13 THE COURT: Are you familiar with this document, sir?
14 A. I’ve seen it in the file. I didn’t work on it or prepare
15 it.
16 THE COURT: Overruled.
17 A. Could you repeat, please?
18 BY MR. GARVIN:
19 Q. Yes, sir. When it comes to Helio PZ, you understood that
20 to be the father, not the son, right?
21 A. I understand that now. I wasn’t involved at the time. I
22 don’t know if I would have known that at that particular point
23 in time.
24 Q. All right. Would you be kind enough to look at the other
25 document that I’ve placed in front of you for identification,
1 Defendant’s 165.
2 A. Yes.
3 Q. And would you — that is a document that has the Larsson
4 Bates numbers at the bottom, right?
5 A. Yes, it does.
6 Q. And this document is a document that relates to the
7 Castroneves file.
8 A. Yes.
9 Q. And this document was produced in this litigation from
10 your accounting firm, right?
11 A. Yes.
12 Q. And the document was kept in the ordinary course of
13 performing accounting services by your accounting firm,
14 correct?
15 A. Yes.
16 Q. And would you be kind enough to turn the pages. Is it a
17 fact, sir, that there are also some handwritten notes and
18 computations contained within the exhibit?
19 A. Yes.
20 Q. And isn’t it a fact that those are accounting in nature,
21 those entries?
22 A. Yes.
23 Q. And they’re the type of entries that the accounting firm
24 would utilize to prepare a tax return?
25 A. Yes.
1 MR. GARVIN: Your Honor, at this time I would move
2 Defendant’s 165 into evidence.
3 MR. DWYER: No objection, Your Honor. If I could just
4 see the whole again.
5 MR. GARVIN: I will retrieve it.
6 MR. DWYER: No objection, Your Honor.
7 THE COURT: Received.
8 BY MR. GARVIN:
9 Q. Okay. I am now showing you what is in evidence as
10 Defendant’s Exhibit 165 and this particular document is on
11 Larsson, Woodyard & Henson stationery, correct?
12 A. Yes.
13 Q. At least the cover sheet is. And it relates to Helio
14 Castro-Neves, right?
15 A. Yes, it does.
16 Q. And would it be fair to say that at your firm, the way
17 that it’s situated, when it comes to tax preparation, is you
18 have one junior or staff accountant work on the file; is that
19 right?
20 A. Yes.
21 Q. And they do more of the — what we would call the hard
22 labor when it comes to the tax preparation, right?
23 A. Yes.
24 Q. And then you have another CPA, more experienced, more
25 senior, that will look over the work to make sure that there
1 are no obvious errors in the tax return, right?
2 A. Yes.
3 Q. Now, at no time are we suggesting that — in tax
4 preparation, that there are no mistakes in a tax return; isn’t
5 that true? I mean, you are aware — let me rephrase that.
6 That the statistics that the IRS has that when they audit
7 tax returns is that –
8 MR. DWYER: Objection, Your Honor.
9 THE COURT: Basis?
10 MR. DWYER: Lack of personal knowledge as to IRS
11 statistics.
12 THE COURT: Well, but I think he’s asking him. So ask
13 him if he knows about this.
14 MR. GARVIN: Yes, sir.
15 BY MR. GARVIN:
16 Q. Are you aware that the published statistics by the IRS,
17 that approximately 85 percent of all tax returns that are
18 audited result in some change?
19 MR. DWYER: Objection, Your Honor.
20 THE COURT: Overruled.
21 A. I don’t know that statistic.
22 THE COURT: All right.
23 BY MR. GARVIN:
24 Q. Well, do you know that it’s a very high percentage?
25 A. I don’t know that.
1 Q. All right. In the middle of the page, we have the
2 preparer’s comments and we have the reviewer’s comments with
3 regard to this particular tax return, correct?
4 A. Yes.
5 Q. And it’s not uncommon that the preparer will know facts
6 concerning the taxpayer that the reviewer is not aware of;
7 isn’t that true?
8 A. It’s possible.
9 Q. And so what happens is that when the reviewer reviews the
10 tax return, the reviewer will ask the preparer certain
11 questions and expects an answer, right?
12 A. Yes.
13 Q. In this particular case, the reviewer asked, “The Helio
14 commissions deducted as expense – different than taxpayer,
15 correct?” And then put in parentheses, “(doesn’t look like
16 it),” because it has the same name, Helio Castro-Neves, right?
17 A. Yes.
18 Q. Now, that means that the reviewer was unaware that the
19 item that we’re talking about here, commissions to Helio, they
20 were unaware of whether or not that was the race car driver or
21 someone else, right?
22 MR. DWYER: Objection, Your Honor.
23 THE COURT: Well, I’m not sure that he has knowledge
24 of that, sir, so you have to lay your foundation.
25 MR. GARVIN: All right.
1 THE COURT: Are you familiar with this document? Did
2 you review it previously?
3 A. I’ve seen it in the file, yes, and in preparation.
4 THE COURT: All right.
5 BY MR. GARVIN:
6 Q. Okay, sir. Well, the word “correct” has a question mark
7 after it, right?
8 A. Yes, it does.
9 Q. And now someone has written, “Yes, it is his father.” Do
10 you see that, sir?
11 A. Yes.
12 Q. And is that also consistent with your understanding that
13 it was his father?
14 A. Yes.
15 Q. So as early as March of 2000, in the preparation of the
16 1999 tax returns,the accountants at Larsson, Woodyard & Henson
17 knew that Helio PZ, Phydias Zieglitz, was receiving payments
18 for commissions, correct?
19 A. Yes.
20 Q. And there is nothing wrong with paying your father for
21 services that he has rendered; isn’t that true?
22 A. That would be true.
23 Q. In the work papers, remember that we had said earlier that
24 this – even though the 159 had stated “CNR Inc.,” but that was
25 a mistake because it would have to go onto a Schedule C; is
1 that correct?
2 A. Yes.
3 Q. And we see that the accountant who prepared this knew to
4 put that on a Schedule C, because it says the word “Schedule C”
5 there, right?
6 A. Correct.
7 Q. It also says, “Commissions paid to Helio PZ not Helio DE.”
8 Helio PZ is his father. Right?
9 A. Yes.
10 Q. And finally, on the last page of the Schedule C, the
11 preparation by the accountant shows that they have input Seven
12 Promotions of 50,000 as income, right?
13 A. Yes.
14 Q. And they showed expenses to Helio’s father of $53,000 and
15 change, right?
16 A. Yes.
17 Q. Sir, I am now going to show you through the ELMO what is
18 already in evidence as Defendant’s 156, and the United States
19 had asked you about this document during direct examination. I
20 have just a few quick questions, okay?
21 A. Yes.
22 Q. All right. Now, you stated that this handwriting here is
23 actually your handwriting, correct?
24 A. Yes.
25 Q. And we saw from the other document’s notations that Helio
1 did not own Seven, correct?
2 A. Right.
3 Q. And now you have a conversation with Alan Miller and you
4 made some notes and this note here says, “Helio does not own
5 the other company.” That is what’s written there, right?
6 A. Yes.
7 Q. And the other company that we’re talking about here is the
8 company holding the licensing rights.
9 A. Yes.
10 Q. And we know that the company that’s holding the licensing
11 rights is Seven Promotions, right?
12 A. Yes.
13 Q. So it was represented to you on this date, which is
14 apparently June 20th, 2000, again that Helio did not own Seven.
15 A. Right.
16 Q. From the time that you got involved in this through
17 June 20th, 2007 – excuse me, 2000, it would be accurate to say
18 that you did not have any conversations with Helio Castroneves
19 concerning these topics; isn’t that true?
20 A. And when you say from the time, this was my first contact,
21 I think, at all, and it was with Alan.
14 Q. Okay. Well, you — it would be fair to say you certainly
15 didn’t want to give advice that was not proper?
16 A. True.
17 Q. And no one asked you to give advice that was not proper.
18 A. No.
19 Q. Alan Miller never, ever, throughout all these years,
20suggested to you that you do something that you thought was not
21 correct and proper; isn’t that true?
22 A. Right.
16 Q. Now, you were asked earlier with regards to a — the
17 letter from July and then you were shown the response, which
18 was from the Brazilian attorney in August. Do you recall that?
19 A. Yes.
20 Q. Sir, I’m going to show you Defendant’s Exhibit 51, which I
21 believe is already in evidence.
22 MR. GARVIN: To make the record clear, we’re going to
23 move Defendant’s Exhibit 51 into evidence at this time, and
24 that is the August 15th, 2000 letter by Mr. Correa.
25 THE COURT: Any objection?
1 MR. DWYER: No objection, Your Honor, subject to the
2 same redaction. This contains highlighting.
3 THE COURT: Received.
4 BY MR. GARVIN:
5 Q. Sir, I direct your attention to Defendant’s Exhibit 51 and
6 this particular letter relates to or has the reference of Seven
7 Promotions Corp. Do you see that?
8 A. Yes.
9 Q. And it also says “cc: Seven,” which means carbon copy too,
10 right?
11 A. I would assume so, yes.
12 Q. All right. During direct examination you were asked about
13 the paragraph that says, “However, the interested party is
14pushing us to help him to reach a feasible solution not only in
15 the international scenario, but mainly in the U.S., where the
16 source of payment is domiciled.”
17 Do you remember that line of questioning?
18 A. Yes.
19 Q. But I want to also direct your attention to two other
20 lines. The last line of that paragraph states, “Then, we
21 believe that your expertise on the USA internal rules and
22 interpretation of the USA Double Treaties may help the
23 interested party to take a final decision on the subject.”
24 During this period of time, was it your understanding that
25 you were — your firm was assisting in the decision-making
1 process to follow the U.S. internal rules?
2 A. Repeat the question, please. I’m sorry.
3 Q. Yes. During the time that your accounting firm, Larsson,
4 and in particular, yourself and Kevin Savoree, were dealing
5 with the issue of treaties and withholding, that your expertise
6 was being sought to help comply with the USA internal rules.
7 A. Well, but that’s not what this says. And I was looking at
8 withholding percentages or withholding states only, not an
9 overall final decision. Not myself anyway.
10 Q. Okay. Well, in conjunction with the lawyers that were
11 involved; is that correct?
12 A. Yes.
13 Q. You were also aware that there came a point in time where
14 the Brazilian attorney Correa said if you were of the opinion
15 that there was no other alternative, to please withhold the
16 30 percent and remit the balance to Seven; is that correct?
17 A. Yes, I think so.
18 Q. And in fact, that is contained in the letter, right?
19 A. Yes.
20 Q. So it would be accurate to say that the attorney for Seven
21 did not direct you or anyone else to do something that was
22 inconsistent with the United States tax laws.
23 MR. DWYER: Objection.
24 THE COURT: Overruled.
25 A. Correct.
1 BY MR. GARVIN:
2 Q. And in fact, the truth is, if they had even attempted to
3 do that, you would have had no part of it.
4 A. Right.
5 Q. And throughout the course of working on this, you never
6 got the impression that this was anything other than a
7 legitimate effort to research the tax laws of various treaty
8 nations, correct?
9 A. That would be right.
10 Q. Now, one of the things that you were asked about on
11 direct, sir, was, did you know that Coimex placed $2 million
12 into Helio Castroneves’ account in Brazil and that the money
13 went to Seven. And you said you didn’t know about that, right?
14 A. Well, the only thing that was stated was did I know about
15 a $2 million check and I said no. And I have no knowledge of
16 it at all.
4 Sir, I am showing you what is in evidence as the agreement
5 dated March 9th, 1999, between Seven Promotions and Helio
6 Castro-Neves. This is a representation agreement. And I
7 wanted to ask you a question about this paragraph. Paragraph 5
8 states, Any amount received by the Driver from any corporate
9 sponsor or deriving from merchandising, licensing or
10 endorsement agreements negotiated directly by the Driver shall
11 be transferred to Seven in order to enable it to properly
12 manage the resources to cover the costs mentioned in clause 3.
13 Were you aware of that provision in this contract, sir?
14 A. No, and I’m not sure I’m aware of the contract.
15 Q. Generally speaking, were you aware that in the racing
16 field, that except for the highest levels of racing, that the
17 race car teams needed sponsors to pay for their expenses?
18 A. Yes.
19 Q. And were you also aware that often they would — the team
20 would ask the driver, before they would put him in the car to
21 drive, to go out and try to find sponsors to help pay the
22 expenses of the team.
23 A. Yes.
24 Q. And isn’t it accurate to say, sir, that from an accounting
25 standpoint, that if a driver is obligated to go find sponsors
1 for the team, when the sponsor agrees to provide the money, the
2 driver, under such an arrangement, would be obligated to give
3 the money to the team, right?
4 MR. DWYER: Objection. Beyond the scope and calls
5 for –
6 THE COURT: Overruled.
7 A. Well, the sponsorship money in that case I would assume
8 would go directly to the team.
9 BY MR. GARVIN:
10 Q. All right. So — and the team sometimes covered
11 themselves, as we saw on this contract provision, by saying in
12 the event that the money goes to you, the driver, you are
13 contractually obligated to pay it to– pay it over; isn’t that
14 true?
15 A. I don’t think I’ve seen that before.
16 Q. When it does go to the team and is used by a third party
17 other than the driver, then it is up to that third party to
18 report it on their income taxes, isn’t it?
19 A. Yes.
20 Q. It would be fair to say from that specific type of fact
21 pattern, it’s not the driver’s income tax problem, it’s the
22 team or third party that received the money that has to deal
23 with that on their taxes; isn’t that true?
24 A. Ultimately, yes. I would say directly to the team would
25 be best.
1 Q. Okay. Sir, I’m now going to show you what has been marked
2 for identification as Defendant’s 160.
3 Now, in the initial stages of the representation of
4 Larsson of Helio Castroneves, isn’t it true that Helio
5 Castroneves would send the bank statements to Larsson to
6 review?
7 A. I think so.
8 Q. And isn’t it also true that bank statements are useful by
9 the accounting in preparing tax returns because they show the
10 deposits and they show the checks that are written; isn’t that
11 true?
12 A. Yes.
13 Q. And isn’t it also true that the checks that are written
14 will reflect the identity of who the checks were written to?
15 A. Yes.
16 Q. Now, during 2000, and in particular Exhibit 160, do you
17 recognize the handwriting, the little notations on this
18 document, sir?
19 A. No.
20 Q. Do you know if that was placed by anyone at your firm?
21 A. I can’t tell right now.
22 Q. Okay. Were you aware of payments in the amount of, I
23 believe,$40,000 and $35,000, respectively, being made to Seven
24 Promotions?
25 A. It looks — well, it looks like 45 and 30, and I don’t
1 recall them, no.
2 Q. Sir, it would be fair to say that during this period of
3 time, you had very few conversations with Helio Castroneves
4 concerning Seven Promotions; isn’t that true?
5 A. Probably none. Well, very few, you’re right.
6 Q. Possibly none of substance, right?
7 A. Uh-huh.
8 Q. And that’s what I wanted to get to, was really your
9 contacts in this case were very limited when it came to Helio,
10 right?
11 A. Right. With respect to Seven, do you mean?
12 Q. Yes, with respect to Seven.
13 A. Correct.
14 Q. And in all honesty, when it came to the day-to-day affairs
15 of the company, the person who became the main contact for the
16 company became Kati, right?
17 A. Right.
18 Q. And there were — I mean, you could count them on one
19 hand, the number of conversations that Helio actually
20 participated in that came to detailed bookkeeping type of
21 things that were necessary for tax preparation at the end of
22 the year, right?
23 A. Probably so.
24 Q. And really, he had, in all honesty, a very limited
25 attention span for this type of thing; isn’t that true?
1 A. I don’t know that I would say that. He was good.
2 Q. He was pleasant, but it usually ended up with Helio saying
3 something like, Well, Alan’s taking care of that, or talk to
4 Kati, or talk to Kevin, whatever they say is okay with me;
5 isn’t that the gist of how it went?
6 MR. DWYER: Objection, calls for hearsay.
7 A. I don’t recall that for sure.
8 THE COURT: Overruled.
9 BY MR. GARVIN:
10 Q. And in going through the file, we see that virtually none
11 of these documents are faxed or mailed to Helio, right?
12 A. True.
13 Q. Because somebody else was handling it; isn’t that the
14 truth?
15 A. Yes.
16 Q. You were aware that Kevin Savoree, in the summer of 2000,
17 went with Alan Miller to the Netherlands to meet with the
18 people from Fintage, right?
19 A. Yes.
20 Q. And you were also aware that a problem developed because
21 Fintage House was very slow on agreeing to execute a guaranty;
22 isn’t that true?
23 A. In general, I know that.
5 Castroneves Racing was formed in November of ’99, but for some
6 reason, there was no subchapter S election that you could find
7 in the file.
8 A. Correct.
9 Q. And that meant that Castroneves Racing’s profits would be
10 taxed at the corporate level.
11 A. Yes.
12 Q. So you put Alan on notice that in order to perfect that
13 tax status, it would have been necessary to file a Form 2553 to
14 elect the S corporation, correct?
15 A. Yes.
* * *
24 Q. Now, I want to make sure that we understand. On direct
25 examination, you were shown the S corporation tax return and
1 went down the list on that tax return; isn’t that true?
2 A. Yes.
3 Q. And this relates to the S election for Castroneves Racing;
4 isn’t that true?
5 A. Well, it would, except that the S wasn’t elected at that
6 time.
7 Q. At this time. And the point is, sir, that that means if
8 you’re going to take advantage of every opportunity to lower
9 your taxes, in a situation like this, an S corporation should
10 have been insisted on from the very beginning, right?
11 A. I don’t know that it — that that’s the case. I think
12 each situation stands on its own, so I don’t know in this case.
13 Q. Well, how about in this particular case where the
14 corporation reported net profits in its first and second year?
15 You knew that, right?
16 A. Yes.
17 Q. And you knew that they paid taxes on approximately
18 $146,000 of net profits, right?
19 A. Yes.
20 Q. And to avoid paying those taxes at the corporate level, if
21 you wanted to avoid that, you would have — not you personally,
22 but a person would have filed the subchapter S from the
23 beginning, right?
24 A. Right.
25 Q. So what this shows us here is that there was not an
1 aggressive tax strategy, at least as to the S corp. election,
2 by the taxpayer when it was first set up, right?
3 A. Correct.
4 Q. And in fact, when you wrote this letter, Alan Miller
5 responded that it was too late for that year to do the S corp.
6 election, right?
7 A. I don’t remember the response.
8 Q. Well, no S corp. election was made even at that late date,
9 right?
10 A. Correct.
11 Q. And in fact, in the records, it wasn’t made for the next
12 year.
13 A. Correct.
14 Q. And by that time, the taxpayer certainly was on notice
15 that if you wanted to avoid that corporate tax, you had placed
16 them on notice that you need to file the subchapter S, right?
17 A. Well, I had communicated there with Alan.
18 Q. Did you feel at certain times that there was a disconnect
19 between Alan and Helio?
20 MR. DWYER: Objection, Your Honor.
21 BY MR. GARVIN:
22 Q. Do you understand what I’m asking?
23 THE COURT: Sustained.
24 BY MR. GARVIN:
25 Q. You said, well, I communicated with Alan. You have no
1 knowledge as to whether or not that was transferred to anyone
2 at the Castroneveses, do you?
3 A. No.
4 Q. Sir, when you began to deal with Kati, it would be a fair
5 statement to say that eight years ago, Kati spoke English, but
6 it was definitely not her first language, correct?
7 A. Correct.
8 Q. And it would also be accurate to say that sometimes the
9 most simple accounting terms she did not understand; is that
10 right?
11 A. Correct.
12 Q. And it would be fair to say that sometimes you were
13 frustrated because anybody else would understand it, but she
14 would shake her head up and down yes, and still not understand
15 what was going on, right?
16 A. No. She would always ask.
17 Q. She would — after you had explained something, she would
18 ask a question that would show that she still didn’t quite
19 understand it, right?
20 A. Yes, but she would always say she wanted to understand.
21 Q. Oh, right. The point is that Kati wanted to understand,
22 but there were basic terms that if she had grown up here in the
23 United States she would have understood, that you found that
24 she simply didn’t grasp, right?
25 A. Correct.
1 Q. And isn’t it fair to say, sir, that that worried you or at
2 least troubled you because you were concerned that she was
3 making decisions that — on things that maybe she didn’t quite
4 understand.
* * *
10 Q. Did you — did there come a time when you wrote to Alan
11 Miller, telling him that we need to assist Kati with regard to
12 her understanding as to how personal items have tax
13 consequences?
14 A. Oh, I probably did, yes.
15 Q. Sir, I’m going to show you two exhibits. The first one is
16 167.
17 MR. GARVIN: Which I am now moving into evidence.
18 There is no objection, Your Honor.
19 THE COURT: Received as marked.
20 BY MR. GARVIN:
21 Q. I’m going to show you now what has been marked for
22 identification as Defendant’s Exhibit 151.
* * *
14 Q. Sir, I’m showing you now Exhibit 167 and this is a letter
15 dated March 7, 2001, from you to Alan Miller. Do you see that,
16 sir?
17 A. Yes.
18 Q. And go to the last paragraph. It says, “We are going to
19 explore with Kati those items that were classified as
20 compensation, and if we missed some business items, we will be
21 happy to reclassify them or deduct on her personal return, but
22 we need to assist in her understanding that personal items are
23 includable in taxable compensation.”
24 And that is one of the things that she was not
25 comprehending very well at the time, correct?
1 A. Correct.
2 Q. Now, it would also be fair to say that — or accurate that
3 at one point, you literally purchased a dictionary of financial
4 terms and gave it to her to try to assist her, right?
5 A. Yes.
6 Q. And the only thing was, this particular dictionary was
7 English to English. It was not English to Portuguese, correct?
8 A. Correct.
9 Q. So when we say that, to make the record clear, if you
10 wanted to look up the term asset, it would tell you in English
11 a number of terms that asset meant. It would not tell you in
12 Portuguese what asset meant, correct?
13 A. True.
13 Q. All right. But in the third paragraph, one of the
14 representations your firm made was, “We have earned our
15 reputation by being creative and having our clients pay the
16 least possible tax while complying with the law. We anticipate
17 serving you in the same way.” Do you see that?
18 A. Yes.
19 Q. So that was a representation that was made by your
20 accounting firm.
21 A. Yes.
22 Q. And Helio Castroneves never asked you to make that
23 representation; isn’t that true?
24 A. True.
25 Q. It is something that accountants just accept that all
1 taxpayers would like to have, right, pay the least amount of
2 taxes legally required.
3 A. Yes.
4 Q. But Helio Castroneves was not one of those clients that
5 was always pushing on you, no, we gotta lower the taxes, we
6 gotta lower the taxes; he was not one of those types of
7 clients, was he?
8 A. No.
9 Q. I’m going to show you, sir, the subchapter S tax return
10 that you were shown on direct examination and ask you one
11 question on that, if I could.
12 Before we go there, I want to show you a document that’s
13 already in evidence as the 1120 U.S. corporate income tax
14 return for 2000.
15 MR. GARVIN: This document has been marked for
16 identification as Defendant’s Exhibit 61, but it has already
17 been placed into evidence as a government’s exhibit, Your
18 Honor.
19 THE COURT: One moment. Are you introducing it or are
20 you using the government’s exhibit?
21 MR. GARVIN: At this time I’ll move that it be put
22 into evidence as Defendant’s Exhibit 61.
23 THE COURT: 61?
24 MR. DWYER: No objection to that document going in.
25 THE COURT: Received.
124
1 (Off-the-record discussion.)
2 BY MR. GARVIN:
3 Q. Okay. I am showing you now what is in evidence as
4 Defendant’s Exhibit 61 and Government’s Exhibit 112. And this
5 is the U.S. corporate tax return for 2000 for Castroneves
6 Racing. Do you recognize that document, sir?
7 A. Yes.
8 Q. And you recall that we had discussed only a few moments
9 ago that the corporation would have to pay taxes, and the total
10 tax that this particular corporation, which is Castroneves
11 Racing, paid was $46,493, correct?
12 A. Yes.
13 Q. And that’s the issue with regard to subchapter S, is that
14 there’s a possibility that that will be subjected to double
15 taxation, right?
16 A. Yes.
17 Q. Okay. Now, you were asked about this tax return. This is
18 in evidence as Government’s Exhibit 114. Do you recall
19 discussing this particular tax return, sir?
20 A. Yes.
21 Q. And in particular, you were asked about the loss, right?
22 A. Yes.
23 Q. Now, sir, isn’t it a fact that the subchapter S loss in
24 this period of time did not affect Helio Castroneves’ personal
25 1040? Isn’t that true?
1 A. I’m not — I’m not sure on this return.
2 Q. Okay. Let me see if I can refresh your memory. You were
3 asked if that would flow through to the taxpayer. Do you
4 recall that line of questioning?
5 A. Yes.
6 Q. And you know that we are here today on — regarding Helio
7 Castroneves’ personal 1040 tax return, right?
8 A. Uh-huh, okay.
9 Q. And I’m now showing you what is called the K-1.
10 A. Yes.
11 Q. And for the ladies and gentlemen of the jury, a K-1 is the
12 form that is filled out for the shareholder of the corporation,
13 right?
14 A. Yes.
15 Q. And what happens is, on a subchapter S, a K-1 is issued,
16 telling the shareholder, you need to put this on your
17 individual 1040 tax return, right?
18 A. Yes.
19 Q. And therefore, any loss that is generated by a subchapter
20 S, you’re going to find a K-1 related to that.
21 A. Yes.
22 Q. And in this case, counsel asked you about the loss passing
23 through, but the K-1 reflects it did not go to Helio
24 Castroneves; isn’t that true?
25 A. True.
1 Q. In fact, it went to Kati Castroneves’ tax return, right?
2 A. Correct.
3 Q. And we know that this is the only K-1, because it is
4 required for the CPA to put how much stock that particular
5 person owned, right?
6 A. Yes.
7 Q. And we see that your firm prepared this and put down
8 100 percent for Kati, right?
9 A. Right.
10 Q. So when you were asked about this tax return, this tax
11 return at the end of the day has nothing to do with Helio
12 Castroneves’ 2002 individual form 1040.
13 A. True.
14 Q. And we also talked about that subchapter S election, but
15 there was one other issue that you notified Alan Miller on, and
16 that was that if you had elected the subchapter S, that several
17 thousands of dollars of Medicare tax would have also been
18 avoided; isn’t that true?
19 A. Yes, depending — well, yes.
20 Q. Okay. Now, moving on to the next subject. Sir, I’m going
21 to show you what has been marked for identification as
22 Defendant’s Exhibit 169 and Defendant’s Exhibit 170. Exhibit
23 169 is a document that was prepared by you, correct?
24 A. Yes.
25 Q. And I believe that you discussed this very document during
1 direct examination; isn’t that true?
2 A. Yes.
3 MR. GARVIN: Your Honor, we would move into evidence
4 Exhibit 169 at this time as defendant’s exhibit.
5 MR. DWYER: No objection.
6 THE COURT: Received.
7 BY MR. GARVIN:
8 Q. Now, this document is dated in 2003 and continues to be
9 the subject matter, “Payments to your father”; is that correct?
10 A. Yes.
11 Q. Sir, isn’t it fair to say that throughout this entire
12 period of time, the accounting firm was aware and had records
13 that showed that Helio Castroneves and Kati Castroneves were
14 making payments to their father?
15 A. I’m not sure I had realized it at the time.
16 Q. Well, there were records there, right?
17 A. Yes, I do understand that.
18 Q. And of course, you may not have realized it, but you were
19 not the one primarily responsible for the file, right?
20 A. Right.
21 Q. You were not the one physically going through the
22 documentation and making the spreadsheets to make the tax
23 returns, right?
24 A. Correct.
25 Q. And in fact, as we saw on earlier exhibits, such as 165,
1 you were not the reviewing accountant in some cases. Other
2 accountants were, right?
3 A. Correct.
4 Q. So — but it is accurate to say that the accounting firm
5 did receive records that reflected from the inception that
6 Helio’s father was being paid for services, correct?
7 MR. DWYER: Asked and answered.
8 THE COURT: Overruled.
9 BY MR. GARVIN:
10 Q. That is correct?
11 A. Yes.
12 Q. Now, at some point it came to your attention and the
13 discussion continued, right?
14 A. Yes.
15 Q. And on February 20th, 2003, you advised Kati of three
16 options that she had concerning payments to her father, right?
17 A. Yes.
18 Q. One of those options was payment for services, but in that
19 option, you told her that you had looked at some research
20 materials; is that true?
21 A. Yes.
22 Q. And according to you, the research materials stated that
23 since her father was performing services out of the country,
24 there was no U.S. tax ramification, correct?
25 A. Yes.
1 Q. Now, I direct your attention to Exhibit 170. Is Exhibit
2 170 the research that you had referred to in that document we
3 just went over, 169? Is that research the research you
4 referred to in the document we just discussed, Exhibit 169,
5 dated February 20th, 2003?
6 A. Yes.
7 Q. And in fact, up in the right-hand corner are your initials
8 with the date, February 20th, 2003, correct?
9 A. Correct.
10 Q. And this is the research that you did in the ordinary
11 course of business before you wrote that letter to Kati,
12 correct?
13 A. Yes.
14 Q. And this documentation that you researched was from CCH,
15 which is a reference source that accountants normally use,
16 correct?
17 A. Yes, that’s right.
18 Q. And within this document, you came to the conclusion of
19 those opinions that you expressed in 169; is that right?
20 A. Yes.
* * *
19 Q. Mr. Bell, did you advise Kati Castroneves that she could
20 make payments for services to her father?
21 A. Yes.
22 Q. And you advised her that if her father performed the
23 services in Brazil, that they were not subject to U.S.
24 withholding?
25 A. Yes.
1 Q. And they were not subject to U.S. withholding because the
2 services were not performed inside of the United States,
3 correct?
4 A. Yes.
* * *
11 Q. Finally, you did advise that these payments could be
12 deducted as an expense.
13 A. Yes.
* * *
8 BY MR. GARVIN:
9 Q. Sir, could you please tell us, in this document which is
10 Defendant’s Exhibit 174, the reference to Joliet.
11 A. It’s Joliet Speedway in Joliet, Illinois.
12 Q. Okay. So would it be accurate to say that Kati
13 Castroneves never went to your office in Paris?
14 A. I think that’s correct, yes.
15 Q. And it would be also accurate to say that Helio
16 Castroneves never set foot in your offices in Paris; is that
17 right?
18 A. Correct.
19 Q. In fact, you have four offices, right?
20 A. Yes.
21 Q. And Helio never set foot in any of them, correct?
22 A. Correct.
23 Q. Now, you did attend some of the races that Helio was
24 competing in.
25 A. Yes, I did.
1 Q. And it would also be accurate to say that when Helio is
2 competing in a race, his attention really is focused on racing,
3 right?
4 A. True.
5 Q. And it’s really not the appropriate time or place to be
6 addressing income tax or bookkeeping discussions, right?
7 A. For the most part, true.
8 Q. But on the other hand, Kati had more free time than Helio,
9 obviously, right?
10 A. Right.
11 Q. And so on this particular occasion, you did have a chance
12 to chat with Kati, right?
13 A. Yes.
14 Q. Now, earlier, during direct examination, there was a
15 question posed to you concerning whether the payments to the
16 father should be — or the Brazil payments, I stand corrected,
17 the Brazil payments should be capitalized or expensed. Do you
18 recall that line of questioning?
19 A. Yes.
20 Q. And the point here is, if something is capitalized, then
21 you would list it on the balance sheet as an asset, right?
22 A. Yes.
23 Q. And since it is not expensed, then the income from
24 operations would be higher for that period, right?
25 A. Yes.
1 Q. So there was a discussion between you and Alan Miller
2 about whether the Brazil payments during the course of the
3 year, or at least some of them, should be capitalized, right?
4 A. Yes.
5 Q. And that came up because you had a concern that with the
6 Brazil payments being quite large, that it might cause any
7 prospective lender some trouble, looking at the financial
8 statement, right?
9 A. Well, my intent was to get it right. I don’t know that my
10 focus was the level of income. It was the proper
11 characterization of the payments.
12 Q. All right. And would it be accurate to say that when you
13 had the opportunity to discuss it with Kati directly, she
14 clearly told you, no, I’m sorry, Pat, but that’s not an
15 investment. I’m not sending that money for an asset.
16 A. Correct.
17 Q. And she clearly told you that that stuff is going to pay
18 expenses, right?
19 A. Yes.
20 Q. And you conducted yourself accordingly, right?
21 A. Yes.
22 Q. And as you said, the purpose of this was to get it right.
23 A. Yes.
* * *
5 Q. Okay. Sir, one last little area before we conclude, and
6 thank you for your patience.
7 One of the questions that was asked was with regard to the
8 ownership of Seven and the control of family members over
9 Seven. Do you understand that?
10 A. Yes.
11 Q. And you said that this is an issue that might be of
12 importance to an accountant, right?
13 A. Yes.
14 Q. And I’d like to go over that just a little bit because
15 it’s so important in this case. First we start with, it was
16 basic in this type of royalty licensing agreement that Helio
17 Castroneves could not own all of the stock of Seven; otherwise,
18 it would be a controlled foreign corporation and would have to
19 go on his tax return, correct?
20 A. Yes.
21 Q. That’s basic, right?
22 A. I think so.
23 Q. And so from the very beginning, everybody worked under the
24 understanding that Helio wasn’t going to own Seven, right?
25 A. Right.
1 MR. DWYER: Objection, Your Honor.
2 THE COURT: Sustained.
3 BY MR. GARVIN:
4 Q. Or at least you worked under that understanding, correct?
5 A. Correct.
6 Q. Now, when you set up this type of licensing agreement, as
7 you said earlier, the idea was simply to get it right, at least
8 in your mind, correct?
9 A. Yes.
10 Q. Now, that gets us to the next question. You were asked
11 about family control, right?
12 A. Yes.
13 Q. And you were asked by counsel, well, isn’t that important?
14 Do you remember that?
15 A. Yes.
16 Q. Now, let’s talk about family control for a second. The
17 reason why families get involved in this is because in the
18 Internal Revenue Code, they have something called attribution
19 rules, right?
20 A. Yes.
21 MR. DWYER: Objection, Your Honor.
22 THE COURT: Overruled.
23 BY MR. GARVIN:
24 Q. And what that says is that if lineal descendents own
25 stock, then the IRS can treat any stock owned by a family
1 member, such as a father, as being owned by you, correct?
2 A. Yes.
3 Q. And that leads us then to the next step, which is, if it’s
4 owned by you, then maybe you have to report it, correct?
5 A. Yes.
6 Q. However, attribution rules do not apply if the taxpayer,
7 in this case Helio Castroneves, does not own any of the stock;
8 isn’t that true?
18 Q. If you know, sir.
19 A. I am not sure I know without looking.
* * *
23 Q. Sir, during this entire time that you were working on the
24 file and the letters that you wrote, it would be accurate to
25 say that you did not write any letters concerning the issue of
1 constructive receipt; is that true?
2 A. True.
3 Q. And that you had absolutely no conversations with Helio
4 Castroneves about the subject of constructive receipt.
5 A. No.
6 MR. GARVIN: Thank you, sir. I have no further
7 questions.
E. WITNESS JILL COOMBES, CPA
(Trial Testimony Excerpt)
23 BY MR. GARVIN:
24 Q. Good morning, Ms. Coombes. My name is David Garvin. I
25 represent Helio Castroneves.
1 A. Good morning.
2 Q. Ma’am, I’d like to start out by — on your direct
3 examination, you were asked who provided you the information,
4 who you relied upon to provide you the information. Do you
5 recall those questions?
6 A. Yes.
7 Q. And I want to start with something basic. First of all,
8 prior to coming here today, it would be an accurate statement
9 to say that Helio Castroneves never set foot in the offices of
10 Larsson, et cetera, the accounting firm; isn’t that correct?
11 A. Not while I was there.
12 Q. And while you were working on these documents, you started
13 working on them in the early spring of 2000, right?
14 A. Yes.
15 Q. And the first job that you undertook was the preparation
16 of the 1999 tax returns because they would have been due in
17 about April of 2000, correct?
18 A. Yes.
19 Q. And so one of the things that you did then was that you
20 attempted to gather the information to enable you to prepare
21 the return, right?
22 A. Yes.
23 Q. Now, with regard to that 1999 tax return, it is also an
24 accurate statement to say that Helio Castroneves never spoke to
25 you on the telephone, right?
1 A. Yes.
2 Q. And as we just said, he never came to the office to speak
3 to you, correct?
4 A. Correct.
5 Q. And Helio Castroneves never sent you any type of e-mail or
6 text message, right?
7 A. Correct.
8 Q. And you never sent Helio an e-mail or text message
9 concerning the preparation of his 1999 tax return, right?
10 A. Correct.
11 Q. And you never called Helio, requesting him to call you
12 back, because I want to make it clear it wasn’t that your calls
13 were going unanswered, you just never called Helio, right?
14 A. Correct.
15 Q. And when counsel was talking about Helio’s 1999 tax
16 returns or any of the tax returns that we’ve talked about here
17 today, you did not sit down with Helio and go over the tax
18 return and explain to him the tax return.
19 A. No, I did not.
20 Q. You were asked about numerous documents here, but let’s
21 start with the 1999 stuff. The 1999 check register was not
22 prepared by Helio Castroneves; isn’t that true?
23 A. I don’t know.
24 Q. And the general ledger that you made, Helio had no input
25 on that general ledger. That’s a fact, isn’t it?
1 A. What do you mean by no input?
2 Q. He did not participate in preparing it, right?
3 A. I don’t know.
4 Q. Okay. And with regard to the Castroneves Racing tax
5 returns for 1999, it would have — your answers would be the
6 same, right, that Helio did not talk to you about that tax
7 return, correct?
8 A. For 1999?
9 Q. Yes.
10 A. That’s correct.
11 Q. Now, in 2000, you also did work to prepare the
12 documentation so that a tax return could be filed for Helio
13 Castroneves.
14 A. Yes.
15 Q. And again, in 2000, Helio Castroneves did not speak to
16 you, not one single time; isn’t that true?
17 A. I don’t recall.
18 Q. And he did not send you any e-mails or communications
19 concerning his tax returns.
20 A. I don’t recall.
21 Q. The truth is that the tax returns for 1999, 2000, 2001,
22 2002, those tax returns were prepared without Helio’s
23 participation; isn’t that right?
24 A. I don’t know if he participated.
25 Q. Well, you were the accountant preparing the tax return.
1 A. I was a staff accountant.
2 Q. Okay. And isn’t it a fact that when you’re preparing
3 somebody’s tax return, the normal course of business for you,
4 as an accountant doing that work, is to communicate with the
5 person whose tax return you’re preparing, right?
6 A. As a staff accountant, not always. It was the partner’s
7 responsibility.
8 Q. Well, were there times when you communicated with the
9 person whose tax return you were preparing?
10 A. On this account or any?
11 Q. On any account.
12 A. In my early years, no.
13 Q. And in your later years?
14 A. Yes.
15 Q. And in fact, you communicated, you stated on direct, with
16 Kati, right?
17 A. Yes.
18 Q. In fact, you stated on direct you communicated with her, I
19 think you said as often as once a week, right?
20 A. Yes.
21 Q. But the point here is that for whatever the reason, you
22 chose not to communicate with Helio Castroneves, right?
23 A. That was not my decision.
24 Q. Now, you were asked about Government’s Exhibit 128, 129,
25 and 130 on direct. And you testified that Government’s
1 Exhibit 128 was the Castroneves Racing, LLC tax return for
2 2002, correct?
3 A. I believe so.
4 Q. Okay. Now, just so the ladies and gentlemen of the jury
5 understand, at one point in time it was Castroneves Racing,
6 Inc., correct?
7 A. Yes.
8 Q. And that would have been a separate taxpayer, right?
9 A. Yes.
10 Q. In this case it’s Castroneves Racing, LLC, and the LLC
11 means that whatever is on this will flow through to the people
12 who own the LLC, right?
13 A. Yes.
14 Q. Which means that this tax return itself, the entity
15 doesn’t pay taxes on this return, right?
16 A. Correct.
17 Q. But it will have an impact on the individual’s returns.
18 A. Yes.
19 Q. On 128, we see that Helio Castroneves did not sign this
20 return; isn’t that true?
21 A. Yes.
22 Q. And if we turn to 129, he did not sign that one either; is
23 that right? I’ll be happy to show it to you. Right?
24 A. Yes.
25 Q. And that is the 2003 Castroneves Racing, LLC, correct?
1 A. Yes.
2 Q. And Government’s Exhibit 130, which was the last
3 Castroneves Racing tax return that we saw for 2004, Helio did
4 not sign that either, correct?
5 A. Correct.
6 Q. And the truth is we talked a couple of minutes ago about
7 his personal tax returns, but you didn’t communicate directly
8 with him about this tax return either.
9 A. I did not.
10 Q. You did not communicate him direct — with him directly
11 about Government’s Exhibit 130 or 129 or 128, correct?
12 A. Correct, I did not.
13 Q. And the truth is, to the best of your knowledge, Helio
14 Castroneves never even saw these returns.
15 A. I don’t know that.
16 Q. But you do know that the information that’s on those
17 returns would pass over onto his 1040 for each year, right?
18 A. Yes.
19 Q. And so we all know what we’re talking about, a 1040 is the
20 individual income tax return, right?
21 A. Yes.
22 Q. I’m showing you now what is in evidence as Defendant’s
23 Exhibit 159 that was previously introduced into evidence. You
24 had stated on direct examination that you were not told that
25 Helio’s father was being paid; is that correct?
1 A. No, I was not told.
2 Q. I want to show you what’s in evidence as Defendant’s
3 Exhibit 159, and you see where the document reflects
4 “Commissions Helio PZ” in the amount of $53,749.74?
5 A. Yes.
6 Q. Ma’am, isn’t it your understanding that Helio PZ was
7 Helio’s father?
8 A. Later on it was my understanding.
9 Q. Okay. So when you told the ladies and gentlemen of the
10 jury that nobody told you that Helio’s father was being paid,
11 that wasn’t exactly correct, was it?
12 MR. DWYER: Objection, Your Honor.
13 THE COURT: Overruled. You may respond, ma’am.
14 A. Can you repeat the question?
15 BY MR. GARVIN:
16 Q. Yes. When you stated earlier that no one told you that
17 Helio’s father was being paid, was being compensated, that
18 wasn’t exactly right, because you were told.
19 A. I don’t recall being told that.
20 Q. Well, this document was used as part of the preparation of
21 the tax return by you for 1999, was it not?
22 A. Could I see the whole document?
23 Q. Sure. Does that help? As I said before, it’s in evidence
24 and it has the Larsson, Woodyard & Henson Bates stamp on it.
25 A. It looks like it was.
1 Q. Okay. And we see that that document says commissions paid
2 to Helio PZ in the amount just discussed.
3 I show you now what has been marked for identification
4 purposes as Defendant’s Exhibit 45, and ask if you recognize
5 this. Do you recognize that as a Larsson, Woodyard & Henson
6 record?
7 A. Yes.
8 Q. And this is a record that was prepared in the ordinary
9 course of business at Larsson, Woodyard & Henson; isn’t that
10 true?
11 A. Yes.
12 Q. And this is the type of record that would have been kept
13 in the files of Larsson, Woodyard & Henson as part of their
14 business practices; isn’t that true?
15 A. Yes.
16 Q. And –
17 MR. GARVIN: Your Honor, at this time we would move
18 Defendant’s 45 into evidence.
19 MR. DWYER: No objection.
20 THE COURT: Received as marked.
21 MR. GARVIN: May I publish?
22 THE COURT: Yes, sir.
23 BY MR. GARVIN:
24 Q. There’s some initials at the top of this document, ma’am.
25 Would you be kind enough to tell the ladies and gentlemen of
1 the jury whose initials those are?
2 A. Those are mine.
3 Q. Those are your initials?
4 A. Yes.
5 Q. And it says that this document was prepared by you; is
6 that correct?
7 A. Yes.
8 Q. And this document was prepared on or about March 30th of
9 2000, right?
10 A. Yes.
11 Q. Now, on the side, there is a statement in Defendant’s
12 Exhibit 45, in handwriting, that says, “The Helio commissions
13 deducted as expense – different than taxpayer, correct?
14 (Doesn’t look like it).” And then someone has written, “Yes it
15 is his father.” Do you see that, ma’am?
16 A. Yes.
17 Q. Is part of that handwriting your handwriting?
18 A. No.
19 Q. And when this document was prepared by you, did you
20 discuss this issue that the father or that the Helio
21 commissions deducted as expense, was there a question that was
22 being discussed amongst the accountants working on the file as
23 to whether it was different than the taxpayer?
24 A. Not with me.
25 Q. When you work on a file as an accountant and more than one
1 accountant is working on the file, isn’t it your responsibility
2 to know what — the information the other accountants have been
3 provided?
4 A. I don’t understand.
5 Q. Well, isn’t the purpose for preparing documents like this,
6 so that the next accountant that opens the file can look and
7 see what information has been gathered so that mistakes aren’t
8 made?
9 A. Yes.
10 Q. So isn’t it a fact that it was your responsibility, if you
11 were going to be preparing tax returns for these people, to
12 have the facts correct?
13 A. Once I did my initial work, it was never brought back to
14 me.
15 Q. Ma’am, did you or did you not identify tax returns that we
16 just went over today and that were dated from 2002, 2003, and
17 2004?
18 A. Yes.
19 Q. Okay. And isn’t it a fact that you sat here during direct
20 examination and identified general ledgers that you helped
21 prepare during those years?
22 A. Yes.
23 Q. And isn’t it also true that you told us only 15 minutes
24 ago that those general ledgers were used to make tax returns?
25 A. Yes.
1 Q. Now, isn’t it a fact that your accounting firm, the people
2 that you were working with to prepare tax returns, knew, based
3 upon the Defendant’s Exhibit 159, that Helio’s father was being
4 paid in 1999? Isn’t that true?
5 A. That’s what the document says.
6 Q. And isn’t it also true that in the year 2000, they even
7 wrote it into their file.
8 A. Yes, somebody did.
9 Q. So it would be wholly misleading to sit here and say that
10 you did not know because no one told you that the father was
11 being paid compensation.
12 MR. DWYER: Objection, Your Honor.
13 THE COURT: Sustained.
14 BY MR. GARVIN:
15 Q. You testified during direct examination that Kati would
16 put the letters CNR, K, I think it was — I don’t even
17 remember, KCN or HCN next to the entries on the check ledger,
18 right?
19 A. Yes.
20 Q. Now, the truth is that Kati Castroneves nine years ago had
21 only been residing in the United States for a short period of
22 time; isn’t that correct?
23 A. I have no idea.
24 Q. Well, you knew when you communicated with her that her
25 English was not that good; isn’t that right?
1 A. It was good enough for me to be able to communicate with
2 her.
3 Q. Okay. And isn’t it a fact that the — one of the
4 accountants, Mr. Bell, even purchased a dictionary for her
5 because he was having trouble communicating with her?
6 A. I have no idea.
7 Q. Now, isn’t it also true that when it came to the system of
8 placing things into a category by putting initials next to it,
9 that was your idea.
10 A. I don’t remember whose idea it was.
11 Q. Let me show you Defendant’s Exhibit 171 and ask if you
12 recognize this exhibit.
13 (Pause.)
14 Q. Did you have an opportunity to look at it, ma’am?
15 A. Yes.
16 Q. And do you recognize that document?
17 A. Yes.
18 Q. And in fact, isn’t that a document that was prepared by
19 you?
20 A. The initial e-mail was from me.
21 Q. And wasn’t it a document that was prepared while you were
22 working as an accountant at the accounting firm of Larsson?
23 A. Yes.
24 Q. And wasn’t this document prepared in the ordinary course
25 of business there?
1 A. Yes.
2 Q. And this is a document that would have been maintained in
3 the records of the accounting firm as part of their customary
4 and ordinary recordkeeping, correct?
5 A. Yes.
6 Q. And this document relates to the Castroneves Racing
7 expense issue, does it not?
8 A. Yes.
9 MR. GARVIN: Your Honor, at this time we would move
10 into evidence Defendant’s Exhibit 171.
11 MR. DWYER: No objection, Your Honor.
12 THE COURT: Received as marked.
13 BY MR. GARVIN:
14 Q. And this is a two-part e-mail and the first part of the
15 e-mail says from Jill Richey, and that would be you?
16 A. Yes.
17 Q. Dated April 23rd, 2003, right?
18 A. April 29th.
19 Q. I’m sorry, April 29th, 2003.
20 A. Yes.
21 Q. And you are directing this to Patrick Bell concerning
22 CNR’s bookkeeping methods; is that right?
23 A. Yes.
24 Q. You stated, “I got to thinking about the different classes
25 that we have set up. Kati is only telling me if it is HCN,
1 KCN, or CNR on things, so I’ve basically left everything with
2 these three classes.”
3 Now, isn’t it a fact that at the time that you wrote this,
4 you acknowledged to Mr. Bell “that we have set up,” meaning the
5 accounting firm; isn’t that right?
6 A. Yes.
7 Q. And Kati is telling you what you told her to do. She’s
8 putting initials next to things; isn’t that right?
9 A. Say that again.
10 Q. You say Kati is only telling me if it’s HCN, KCN, or CNR.
11 That’s because that’s what was set up, that is what she was
12 told to do, right?
13 A. No. I don’t get that from that e-mail.
14 Q. Well, when you say that — let’s go on then. “So I’ve
15 basically left everything with these three classes. What about
16 the Brazil expenses? I’m not putting them in a separate
17 account or anything. Should I set up a class for Brazil?”
18 So at that point you’re not asking Kati what to do, you
19 are asking the senior accountant, Pat Bell; isn’t that true?
20 A. Yes.
21 Q. You went on to say, “What do you think? I think it will
22 make things easier to pull out than if I just put something in
23 the memo. And if the Brazil activity is for a subsidiary or
24 something, shouldn’t we kind of keep that separate anyway?”
25 He responded to you, “I don’t think the Brazil sub
1 materialized. As far as I know, it should just be CNR
2 expense.”
3 Isn’t that true?
4 A. That’s what the document says.
5 Q. So Patrick Bell told you that the Brazil payments should
6 just be CNR expense, isn’t that right, on that date?
7 A. Can I clarify something?
8 Q. I’d be happy to let you clarify it, but could you answer
9 the question and then you can clarify? He told you that on
10 that date?
11 A. That’s what the e-mail says.
12 Q. If you want to clarify.
13 A. The classes were not expense categories. They were
14 classes to track HCN, KCN, CNR separately, so you could do
15 reports based on the classes to see how much money had been
16 spent for those specific classes. It was kind of a different
17 categorization than expense or so forth.
18 Q. Okay. So let’s go to that, because on direct examination
19 you were asked, and I thought you said that just because it
20 said CNR after it, that meant that it was automatically
21 expensed, but that’s not true, is it?
22 For example, if CNR wrote a check to buy office furniture
23 and they wrote CNR at the end of it, you would know that the
24 office furniture was bought for CNR, but that doesn’t mean you
25 would expense it, does it?
1 A. For office furniture? No, probably not.
2 Q. Okay. So the statement that you said on direct, that if
3 it said CNR, that was the end of it, it’s an expense, that’s
4 not true.
5 A. Yes, that was true.
6 Q. Well, let’s go a little further. Let’s say we go to a
7 restaurant, because there’s lots of them in there, and you know
8 that if she puts CNR at the end, only 50 percent of that is
9 deductible; isn’t that true?
10 A. Yes.
11 Q. So you just don’t write off the whole thing; the
12 accountant still has to apply his or her knowledge about
13 accounting and taxes, right?
14 A. Yes.
15 Q. And you knew when it came to Kati, that you were dealing
16 with somebody who grew up in Brazil, right?
17 A. I assume she did. I don’t know that for a fact.
18 Q. Well, let me say it a different way. Did you ever ask her
19 if she had any American training or education in accounting or
20 American taxes?
21 A. I did not.
22 Q. Don’t you think that was important to know?
23 A. That would have been something that the partner in charge
24 would have asked.
25 Q. Okay. Assume that he did ask then. Why didn’t he tell
1 you?
2 MR. DWYER: Your Honor, objection.
3 THE COURT: Sustained.
4 BY MR. GARVIN:
5 Q. I’m showing you now what has been marked for
6 identification purposes as Defendant’s Exhibit 198 and ask if
7 you’d be kind enough to look at that.
8 (Pause.)
9 Q. Have you looked at it, ma’am?
10 A. Yes.
11 Q. Do you recognize this document?
12 A. Yes.
13 Q. And was this document a record in which you sent some
14 e-mails or communicated by e-mail?
15 A. Yes.
16 Q. And was it prepared by you at the time that you were
17 employed at the Larsson accounting firm?
18 A. Yes.
19 Q. And did you prepare this in the ordinary course of
20 business, doing your job as an accountant?
21 A. Yes.
22 Q. And was this the type of document that Larsson would keep
23 in the ordinary course of business?
24 A. Yes.
25 MR. GARVIN: Your Honor, at this time I’d move
1 Defendant’s Exhibit 198 into evidence.
* * *
6 Q. During the period of time that you prepared those tax
7 returns, did you answer questions concerning the tax returns?
8 A. Yes.
9 Q. Did you answer — did you answer questions by telling Kati
10 Castroneves what the term income tax meant?
* * *
2 Q. Now, after the tax returns were received, what additional
3 things did you tell Kati Castroneves?
4 A. I don’t know.
* * *
10 Q. I’m showing you Defendant’s Exhibit 87. You were asked
11 concerning this amount on direct, “HCN-Brazil,” and then the
12 words “(Vacation And Expense DEC)” and the amount. Do you see
13 that, ma’am?
14 A. Yes.
15 Q. Now, is it true that you were provided this document,
16 amongst other documents, to prepare the tax return?
17 A. Yes.
18 Q. It appears to be Government’s Exhibit 190, not 193.
19 Now, it clearly says the word “vacation” on there; isn’t
20 that true?
21 A. Yes.
22 Q. When you were told that part of this expense included a
23 vacation, isn’t it a fact that vacations may or may not be
24 deductible for tax purposes? Isn’t that true?
25 A. Yes.
1 Q. So when that was provided to you by Kati Castroneves, she
2 was telling you what she thought the expense was for; isn’t
3 that correct?
4 A. Yes.
5 Q. Now, I’m showing you the second page of Defendant’s
6 Exhibit 193 and this is another record that says “Brazil
7 expense, HPZ’s (Father Account).” Isn’t that true?
8 A. Yes.
9 Q. And you also saw this document when you were preparing the
10 general ledger; isn’t that true?
11 A. Yes.
12 Q. In fact, you were provided the bank statements, were you
13 not?
14 A. Not always.
15 Q. Well, this is a bank statement, isn’t it?
16 A. Yes.
17 Q. And isn’t it a fact that Kati regularly sent bank
18 statements to you?
19 A. Not always.
20 Q. Is it also true, ma’am, that Kati never refused to give
21 you any information you requested? Isn’t that a fact?
22 A. I don’t remember.
23 Q. Well, you cannot sit here today and tell us that you ever
24 asked for a bank statement and she said no, I’m not giving it
25 to you. That never happened.
1 A. No, I don’t remember that it did.
2 Q. Sitting here today, you don’t know whether or not the
3 expenses that were marked as Brazil expenses were deductible or
4 not; isn’t that true?
5 A. We were directed that they were to be taken as expenses.
6 Q. No, my question was, sitting here today, you don’t know
7 whether they’re deductible or not, right?
8 A. I do not know what they were exactly for.
9 Q. And one thing that we do know is that you never picked up
10 the phone and called Helio Castroneves and asked him.
11 A. No, I did not.
12 Q. Also, it is true that you were never present when anyone
13 else asked him, were you?
14 A. No, I was not.
15 Q. So to the best of your knowledge, sitting here today, you
16 don’t know one way or the other if anyone ever asked him. You
17 weren’t there; isn’t that true?
18 A. That would be true.
19 Q. Now, on those several documents that we saw in evidence
20 where payments were made and it’s marked to either the name
21 Helio PZ or to father, it would be accurate to say, if father
22 had performed services, that there’s nothing wrong with paying
23 someone, even if he’s a family member, for performing services;
24 isn’t that true?
25 A. That’s true.
1 Q. So just because the payments were being paid to father
2 does not mean that they were — well, I’ll strike that.
3 Did you ever ask — you were asked about Government’s
4 Exhibit 203 and there was a payment which, during direct,
5 counsel asked you, what does “PAI Brazil” mean? Do you
6 remember that question?
7 A. Yes.
8 Q. Today do you know what “PAI” stands for?
9 A. No.
10 Q. Do you know if it stood for father?
11 A. No.
12 Q. At the time that you prepared the tax returns, it would be
13 a fair statement to say that you believed the tax returns were
14 correct; isn’t that true?
15 A. Yes.
* * *
20 MR. GARVIN: Your Honor, I have no further questions.
21 Thank you very much, ma’am.
F. WITNESS MARK BERG, ESQ.
(Trial Tesimony Excerpt)
MR. GARVIN: Good morning, ladies and gentlemen.
20 CROSS-EXAMINATION
21 BY MR. GARVIN:
22 Q. Good morning, Mr. Berg. I’m David Garvin. I believe
23 we’ve met before.
24 A. Yes, we have.
25 Q. How are you today?
1 A. Fine, thank you. How are you?
2 Q. As you know, I represent Helio Castroneves in this matter.
* * *
1 Q. And you, sitting here today, have no knowledge whether or
2 not this document is accurate or inaccurate, correct?
3 A. That’s correct.
24 Q. You were asked about the agreement between HC and Seven,
25 correct, during direct examination?
1 A. Yes.
2 Q. And you were also asked, and you’ve testified during
3 direct examination, that one of the issues was constructive
4 receipt, correct?
5 A. Correct.
6 Q. And the constructive receipt issue was an issue that
7 related to payments that Roger — or Penske Racing team was
8 holding, right?
9 A. Yes, that were due to Seven under the agreement they had
10 with Seven, that’s correct.
11 Q. And that was what I was trying to get to a little bit too
12 quickly. Is that you recognized that there was an agreement
13 between Penske Racing and Seven.
14 A. We were told that there was an agreement between them,
15 yes.
16 Q. So it was not Helio Castroneves that was paying Seven, it
17 was a third party that was paying Seven or supposed to be
18 paying Seven these royalty payments, right?
19 A. That’s correct.
20 Q. Okay. Now, during the course of your representation in
21 this issue, it did come to your attention, as you’ve pointed
22 out, that Helio Castroneves did, in fact, execute an agreement
23 conveying his licensing rights to Seven.
24 A. That’s correct.
25 Q. And that that agreement was discussed during direct
1 examination as Exhibit 177.
2 A. That’s correct.
3 Q. And you reviewed that agreement.
4 A. Yes, we did.
5 Q. And when you reviewed the agreement, you found that there
6 were a lack of provisions on how to properly pay back any
7 deferred payment; isn’t that correct?
8 A. Yes, we did. Among the problems we found with the
9 agreement was that it didn’t specify when, if ever, a payment
10 was required to be made by Seven to Mr. Castroneves.
11 Q. And when you realized that, you realized that what Alan
12 Miller had told you, that there appeared to be a problem with
13 this agreement, was in fact accurate.
14 A. Well, my testimony was, and my recollection is, I wasn’t
15 exactly sure who pointed out the problems in the agreement.
16 He — he had told us that he had problems with the whole
17 relationship with Seven and that Seven, the Panamanian company,
18 was involved in the transactions. When we reviewed the
19 agreement, we could understand why there were concerns, because
20 we had concerns reading the agreement.
21 Q. All right. So in the analysis, when we go back to
22 Exhibit 172 that you were asked about during direct
23 examination, counsel asked you about this sentence, “Dispute
24 between HC and Seven as to terms, so Penske waited.” Do you
25 see that question?
1-as Exhibit 177.
6 A. Whether there was, in fact, a dispute wouldn’t be verified
7 by the agreement, but reading the agreement, we could see how
8 there — we could certainly see how there could be.
9 Q. Okay. Thank you, sir.
10 One of the things that you talked about on direct
11 examination is the issue of ownership and control of Seven, and
12 you wrote down “No ownership,” right?
13 A. Right.
14 Q. And you have told the ladies and gentlemen of the jury
15 that both Helio Castroneves and Alan Miller told you that Helio
16 did not own Seven, correct?
17 A. Correct. That’s correct.
18 Q. Now, you have advised us, and you made reference to some
19 provisions during direct examination, controlled foreign
20 corporation provisions. Do you recall that?
21 A. Yes, I do.
* * *
8 Q. When you attempted to explain — well, let me back up a
9 little bit. You met Helio Castroneves on one occasion.
10 A. That’s correct.
11 Q. And that one occasion, as you’ve advised us, was in June
12 of 2002, correct?
13 A. Correct.
14 Q. And you knew full well that the years of the Penske
15 Licensing Agreement commenced on — on or about January 1st of
16 2000, correct?
17 A. Yes.
18 Q. And that that was a three-year agreement, right?
19 A. Correct.
20 Q. And therefore, you knew that by the time Helio Castroneves
21 had come to you, that the 1999 1040 had already been filed,
22 right?
23 A. Well, we didn’t know. I guess one would assume it would
24 have been.
25 Q. All right. And you also were operating under the opinion
1 that the 2000 and 2001 1040s had been filed, correct?
2 A. I’m not sure we thought about it. 2001 could have been –
3 still been on extension until October of 2002, so I don’t think
4 we were assuming one way or the other on that.
5 Q. Well, did you ask to see the 1040 during your discussions
6 on — in June of 2000?
7 A. No, we did not.
8 Q. And when it comes to filing a tax return, as you’ve
9 pointed out, the tax return could be timely filed or could be
10 on extension, correct?
11 A. Correct.
12 Q. But assuming that — I want to show you Government’s
13 Exhibit 119 to take some of the mystery out of this, sir. This
14 is already in evidence as Helio Castroneves’ 1040 for 2001.
15 You recognize that as a 1040 return?
16 MR. AXELROD: Objection, Your Honor, beyond the scope
17 of the direct.
18 THE COURT: Well, let me — the first question is does
19 he recognize it as a 1040.
20 Now, you may answer that question. I assume you do.
21 A. I recognize that as a 1040, yes.
22 THE COURT: All right. What is the next question,
23 sir?
24 BY MR. AXELROD:
25 Q. And during direct examination, you were talking about
1 issues of constructive receipt, right?
2 A. Correct.
3 Q. And counsel stated during direct examination that the
4 years for constructive receipt would have been 2000, 2001, and
5 2002, right?
6 A. Under the Penske agreement, yes.
7 Q. And this is a 2001 tax return that the issue of
8 constructive receipt would have affected, correct?
9 A. Correct.
10 Q. And we see that that tax return –
11 A. Excuse me, the issue of constructive receipt combined with
12 the controlled foreign corporation issue, just to be clear.
13 Q. Okay. Thank you.
14 That that particular tax return has the date next to the
15 Patrick Bell, the preparer, of 4 — it looks like 4-5 or
16 4-15-02. Do you that, sir?
17 A. I see that.
18 Q. So assuming that the tax return was filed in or about
19 April of 2002, the tax return would have already been filed
20 before Helio Castroneves ever met you, right?
21 A. If it were filed in April, that’s before June, yes.
22 Q. Okay. So I believe you said that that was the first time
23 that you met Helio Castroneves, but you had never talked to him
24 on the telephone prior to physically meeting him; is that
25 correct?
1 A. That is correct.
2 Q. So you never had a discussion with Helio Castroneves prior
3 him filing his 2000 and 2001 tax returns about the issue of
4 constructive receipt, right?
5 A. Assuming the tax return was filed in April, that’s
6 correct. If the tax return was filed after that, then…
7 Q. Okay. Now, let’s go back to that discussion that you
8 tried — during direct examination you stated that you tried to
9 explain the best that you could to both Alan Miller and to
10 Helio Castroneves what the issue was. Right?
11 A. Correct.
12 Q. And the issue here is that, as we’ve stated, one of
13 ownership and control; is that correct?
14 A. That’s correct.
15 Q. And is it also true that you explained to Mr. Castroneves
16 that one of the things that you look for is whether he
17 personally owned the company, right?
18 A. Correct.
19 Q. And that is because it would affect your advice with
20 regard to controlled foreign corporations?
21 A. Correct.
22 Q. And would affect your advice ultimately with effect to
23 constructive receipt, right?
24 A. Both issues, that’s correct.
25 Q. All right. Now, during this conversation, is it a fact
1 that you learned that Helio’s mother and father lived in
2 Brazil?
3 A. I don’t recall.
4 Q. Is it a fact that that would affect your judgment on
5 controlled foreign corporations because parents that are not
6 U.S. tax residents, the attribution doesn’t apply to?
7 MR. AXELROD: Objection, Your Honor.
8 THE COURT: Sustained.
9 BY MR. GARVIN:
10 Q. Would it have affected your decision making in this area?
11 THE COURT: Sir, he didn’t know anything about the
12 parents, so let’s move along, please.
13 MR. GARVIN: Yes, sir.
14 BY MR. GARVIN:
15 Q. On direct examination you were asked about Government’s
16 Exhibit 4. I’m just showing you the exhibit number,
17 Mr. Berg –
18 A. Yes.
19 Q. — but I’ll try to pan out a little bit so you can
20 recognize it a little bit better. This is the general power of
21 attorney to Helio Castroneves?
22 A. Yes.
23 Q. Now, remember that you had talked about the Bates stamp
24 numbers on the bottom of the documents reflecting where those
25 documents were recovered from. Do you recall that?
1 A. Yes. The Bates stamp number — our Bates stamp number is
2 the only one I can speak to.
3 Q. And on this particular document, it does not have your
4 Bates stamp numbers, right?
5 A. That’s correct.
6 Q. Now, did anyone ever tell you whether or not Alan Miller
7 ever saw this document?
8 A. No one ever told — no. The answer is no, no one ever
9 told me whether or not –
10 Q. Did anyone ever tell you whether or not Helio Castroneves
11 ever saw this document?
12 A. No.
13 Q. Has anyone ever told you whether Seven Promotions ever
14 actually delivered the document so that it could be used?
15 A. No.
* * *
2 Q. I’m now showing you what is in evidence as — I think it’s
3 Government’s Exhibit — strike that — 5-TR, and bringing it
4 down, this is the power of attorney you were asked on direct
5 examination regarding Kati.
6 A. Yes.
7 Q. And father, right?
8 A. Correct.
9 Q. And you did advise the ladies and gentlemen of the jury
10 that initially, as reflected in Government’s Exhibit 172, that
11 there was a discussion that Helio’s father has a vote — is a
12 voting trustee. Do you recall that?
13 A. Yes.
14 Q. And then you said later we found out that it wasn’t a
15 voting trustee, but it was a power of attorney.
16 A. That’s correct.
17 Q. Now, that gets back to my question with regard to the
18 father. When you found out that the father had a power of
19 attorney, was there any discussion about where the father
20 resided?
21 A. I don’t believe there — I don’t recall whether there was
22 or there wasn’t.
23 Q. And is that something that is a factor in determining a
24 controlled foreign corporation, as well as constructive
25 receipt?
1 MR. AXELROD: Objection, Your Honor, calls for a legal
2 conclusion.
3 THE COURT: Sustained.
4 BY MR. GARVIN:
5 Q. Okay. So you were asked during direct examination if
6 anyone told you that Kati had a power of attorney. Do you
7 recall that?
8 A. Kati is the sister?
9 Q. Katiucia. I’m sorry, it’s not picking up. Katiucia.
10 A. Yes, I recall that.
11 Q. Now, sir, the — in regards to formulating an opinion for
12 controlled foreign corporation, are sisters included in any
13 way?
14 MR. AXELROD: Same objection, Your Honor.
15 THE COURT: Well, I’m going to overrule that
16 objection.
* * *
2 In formulating your opinion which you prepared in this
3 case, the tax opinion, with regard to controlled foreign
4 corporation and the rules of attribution that go to that, are
5 sisters a factor?
6 A. No, there’s no attribution from sisters under the
7 controlled foreign corporation rules.
8 Q. Thank you.
9 And just so the ladies and gentlemen of the jury
10 understand what we’re talking about, that means that what the
11 sister has or doesn’t is not imputed upon Helio, correct?
12 A. When you say has or does –
13 Q. Let me rephrase that with better words. I guess if the
14 sister owned a share of stock — we’ll keep it simple — that
15 under the attribution, Helio would not be viewed as owning his
16 sister’s share of stock.
17 A. That’s correct.
18 Q. Okay. With regard to the opinion that was issued in this
19 case, it would be accurate to state that there were several
20 draft opinions that were prepared.
21 A. Yes, that’s correct.
22 Q. And there was actually a draft opinion prepared prior to
23 ever discussing this with Alan Miller or Helio Castroneves; is
24 that right?
25 A. I don’t recall that being the case.
1 Q. Do you recall if you had done — meaning the tax firm of
2 Feingold & Alpert — other transactions with Fintage?
3 A. Yes, we had.
4 Q. And do you recall that when you did all that work, that a
5 tax opinion was prepared in blank with no one’s name in it?
6 A. In connection with the earlier transaction?
7 Q. Yes.
8 A. I don’t recall. It’s possible, but I don’t recall that.
17 Q. Mr. Berg, I’m going to show you what has been marked for
18 identification only as Defendant’s Exhibit 191.
19 (Pause.)
20 Q. Have you had a chance to glance at that, sir?
21 A. Yes.
22 Q. And do you recognize that document?
23 A. Yes.
24 Q. And in general terms, would it be fair to say that this is
25 a similar type of tax opinion as the one that we’ve been
1 discussing here today during direct examination?
2 A. Similar, yes.
3 Q. Okay. And this particular one was prepared in the year
4 2000; is that correct?
5 A. That is correct.
1 A. You’re welcome. Yes, this is the fax that we — yes, I do
2 recognize this document.
3 Q. And in fact, that has a cover letter that you signed off
4 on; is that correct?
5 A. Yes, those are my initials.
6 Q. And that is a tax opinion that relates to this case that
7 was prepared in or about August of 2002; is that right?
8 A. A draft of the tax opinion, yes.
9 Q. And those records were kept in the ordinary course of
10 business of Feingold & Alpert; is that correct?
11 A. Yes, that’s correct.
12 MR. GARVIN: Your Honor, at this time we would move
13 the exhibit into evidence.
14 MR. AXELROD: Objection, Your Honor.
15 THE COURT: Is this some tax year other than that
16 involved in the direct examination?
17 MR. GARVIN: No, this is the tax year involved in the
18 direct examination. It’s from August of 2002. He stated he
19 met Helio Castroneves June of 2002. And the years in issue
20 are –
* * *
22 THE COURT: Received as marked.
23 BY MR. GARVIN:
24 Q. Sir, I’m showing you what is now in evidence as
25 Exhibit 200 and ask you, did there come a time in August,
109
1 August 26th of 2002, that you sent a draft of your opinion to
2 both Suzanne Plesman and to Alan Miller?
3 A. Yes. That’s what this is.
4 Q. And the draft of the opinion is the opinion that was
5 ultimately issued in November of 2002, correct?
6 A. Yes, this is a draft of that opinion.
7 Q. Okay. Showing you a portion of that document which is on
8 page 2 of the opinion, and it says that “Prior to entering into
9 the License, the Licensee entered into the Assignment Agreement
10 referred to in Exhibit A (the ‘Assignment’), pursuant to which
11 Seven Promotions Corporation, a Panama company (‘Seven’),
12 assigned to the Licensee all of its rights under the certain
13 Licensing Agreement dated November 9th, 1999 between Penske
14 Racing, Inc. (‘Penske’) and Seven (the ‘Seven-Penske
15 Agreement’).”
16 Now, would it be fair to say that this obviously took
17 place after the June 2002 meeting, correct?
18 A. Yes. August is after June, right.
19 Q. And this particular document does not make reference to
20 the language that we see in the final agreement referring to
21 that neither Helio nor any member of his family owns any stock
22 of Seven; is that correct, sir?
23 A. That’s correct, from this paragraph. I haven’t reviewed
24 the rest of the document, but it doesn’t appear in what you’re
25 showing me, that’s right.
1 Q. All right. Now, would it be fair to say that as of August
2 of 2002, that was simply not an issue?
3 A. What was simply not an issue?
4 Q. The language that was asserted after that date, but before
5 November.
6 A. When you say not an issue, I’m sorry, I’m not sure I know
7 what you mean. The ownership would have been as relevant
8 before that date as it was after that date.
9 Q. Okay. The question then is, was there a reason why the
10 ownership was not included in this particular draft?
11 A. I don’t recall. Drafts tend to improve as they go on and
12 we decided at some point in the process to include the
13 language. I don’t recall exactly why.
14 Q. Okay. Well, do you recall that sometime after August of
15 2002, Alan Miller actually suggested to both you and your
16 partner, Fred Feingold, that perhaps language should be
17 included?
18 A. What I remember — that’s very possible, but what I do
19 remember is that he had — he had given us comments on a later
20 draft than this, but still prior to the final draft, that we
21 flesh out and describe in more detail the facts regarding the
22 ownership or nonownership of Seven. I remember seeing — I
23 remember seeing that document. I remember that document.
24 There was a short description and he suggested that we flesh it
25 out.
1 Q. So when you say flesh it out, can you please tell the
2 ladies and gentlemen of the jury what you mean by that?
3 A. I’m sorry, that wasn’t very clear. I meant just describe
4 in more detail what it is — what it is that we were saying.
5 Q. Now, you said the later agreement. I am going to show you
6 now what has been marked for identification purposes as
7 Defendant’s Exhibit 189 and ask you if you recognize this.
8 A. Yes, I do.
9 Q. And does it have your initials on it, sir?
10 A. Yes, it does.
11 Q. And was this document also kept in the ordinary course of
12 business by Feingold & Alpert?
13 A. Yes, it was.
14 Q. And was this document the later — one of the later drafts
15 of the opinion that you were just referring to?
16 A. Yes, it was. It’s a cover memo attaching a later draft,
17 yes.
18 MR. GARVIN: Your Honor, at this time we would move
19 into evidence Defendant’s Exhibit 189.
22 Q. Let’s go back. On Exhibit 202, on the front page, I asked
23 you if those were your initials on the cover letter, correct?
24 A. When you say 202, this is the one that used to be 189 that
25 I’m holding in my hand?
1 Q. Yes.
2 A. Yes, those are my initials.
3 Q. And I asked you if that was sent to Suzanne Plesman and
4 Alan Miller, and you indicated it was, correct?
5 A. Yes.
6 Q. And I also asked you if this was kept in the ordinary
7 course of business with Feingold & Alpert, and you said it was,
8 right?
9 A. Yes.
10 Q. And this is a business record of your law firm, right?
11 A. I’m not sure I know what business record means, but it is
12 a record that we keep in the course of our business, yes.
13 Q. Okay. Now, this document was in the process of coming to
14 a final tax opinion for Mr. Castroneves, right?
15 A. That’s correct.
16 Q. And that is the same tax opinion that we — that you were
17 asked about during direct examination, correct?
18 A. Yes, that’s correct.
19 Q. And in September, the September draft did not have any
20 language in it concerning the ownership of Seven; is that
21 right?
22 A. I need to look at it.
23 That’s correct.
24 Q. So, sir, we know that your only meeting with Helio was in
25 June of 2002, right?
1 A. Correct.
2 Q. And that the August draft of the tax opinion did not
3 mention anything about the ownership of Seven, correct?
4 A. Correct.
5 Q. And that the September draft of the tax opinion did not
6 mention anything regarding the ownership of Seven, correct?
7 A. Correct.
8 Q. And that at some point between that September draft and
9 the final opinion in November, there was a discussion with Alan
10 Miller concerning the ownership of Seven, right?
11 A. Correct.
12 Q. And that Alan Miller said to you and your partner Fred
13 Feingold, we should, using your words, flesh out the ownership
14 issue, right?
15 A. Correct.
16 Q. And you had no problem with fleshing out the ownership
17 issue because, quite frankly, it was a good thing to do.
18 A. We thought it was a good idea, yes.
19 Q. And so just to make the record clear, at the time that
20 Alan Miller was proposing this, it appeared to you that this is
21 something that he was bringing to the table so that the facts
22 would be known to everybody, right?
23 MR. AXELROD: Objection, Your Honor.
24 THE COURT: Rephrase the question, please. You can
25 ask him what he said to him.
1 MR. GARVIN: Yes.
2 BY MR. GARVIN:
3 Q. And can you, please, to the best of your recollection — I
4 know it was several years ago, but can you tell the ladies and
5 gentlemen of the jury, what did Alan Miller say?
6 A. My recollection — and again, I don’t remember if this was
7 a comment to a draft that said nothing or a draft that said
8 only a little about the ownership of Seven, ’cause there were
9 several drafts after this September draft, but in one of those
10 two contexts, or perhaps both, Mr. Miller suggested that we say
11 more about the ownership of Seven because it would be a good
12 idea to lay out that fact that we were assuming in rendering
13 our opinion. We agreed that that would be a good idea.
14 Q. Okay. And it would be accurate to state that Helio
15 Castroneves did not participate in any of these discussions
16 between you and Alan Miller after June of 2002, right?
17 A. That’s correct.
18 Q. Now, when Alan Miller brought up this issue, isn’t it also
19 true that it was being brought up because of the issue of
20 controlled foreign corporation and constructive receipt?
21 A. That would be the relevance of the ownership of Seven, so
22 that would be the only reason I can think of that he would be
23 bringing it up.
24 Q. Okay. Now, is it also true, sir, that on the one occasion
25 that Helio Castroneves was there, did you explain to Helio
1 Castroneves what impact, if any, ownership by his father who
2 resided in Brazil would have on controlled foreign corporation
3 determinations?
4 A. Well, actually, the way it went was we asked whether he or
5 any member of his family owned or controlled the company, and
6 the answer was no, which obviated the need for us to talk about
7 what the consequences would have been had the answer to any of
8 those questions been yes.
9 Q. Okay. Now, the question that you are referring to, was
10 there any discussion about whether or not the — a father
11 would — residing in the United States would be treated
12 differently than a father residing in Brazil?
13 MR. AXELROD: Objection, Your Honor, asked and
14 answered.
15 THE COURT: I think it was.
16 You may respond one last time, please.
17 A. I’ve lost — I’m sorry, I’ve lost — would you repeat the
18 question, please?
19 BY MR. GARVIN:
20 Q. Yes. During the meeting, did you advise Mr. Castroneves
21 that if his father resided outside the United States, he would
22 be treated differently than inside the United States?
23 A. No, we did not discuss that.
24 Q. Okay. I’d like to direct your attention, please, to
25 Exhibit 407. And there was some discussion about this and
1 we’re going to talk about it a little bit now.
2 A. Yes.
3 Q. The first sentence — during direct examination, you were
4 asked about the first sentence in paragraph 1, and in
5 particular, there is a — the first sentence states, “Fortis
6 has agreed to leave the Fintage licensing structure in place,
7 with Fortis the 51 percent shareholder, indefinitely, and has
8 also agreed to do new deals using this company.”
9 When you stated that in your letter that is in evidence as
10 Exhibit 407, can you explain to us what you meant by that
11 sentence?
12 A. Yes. Well, again, I was relaying something that
13 Mr. Miller had said to me. What that meant was there had been
14 a prior transaction, as we discussed a minute ago, a deferred
15 royalty arrangement, with Fintage. The structure was that
16 there was a company called Fintage Licensing that was actually
17 the licensee under that transaction and they had as its
18 51 percent shareholder Fortis, which is — was at the time a
19 very large European bank. It has since fallen on hard times
20 like a lot of banks have, but at the time it was a very
21 substantial European bank. And in the prior transaction,
22 Fortis had issued a guarantee of the payment obligation of
23 Fintage Licensing to pay the deferred royalty.
24 Q. All right. And the ramification that that had was that
25 until Fortis made up their mind whether or not they were going
1 to keep Fintage Licensing in place, any deal with Fintage
2 Licensing had to be placed on hold; is that correct?
3 A. Well, because normally somebody entering into such a deal
4 would insist on there being a creditworthy guarantee of the
5 deferred payment obligation, and if the guarantor was unwilling
6 to issue those guarantees, it was unlikely that there were
7 going to be any further transactions.
8 Q. And so as of January 2002, Alan Miller was advising you
9 that he had learned that they were now willing to start doing
10 these transactions again.
11 A. Correct.
12 Q. And would it be fair to say that any delay in waiting for
13 Fintage — or excuse me, Fortis to make up their mind would
14 have nothing to do with Helio Castroneves.
15 A. Would have –
16 Q. What I’m saying, sir, if this transaction was delayed in
17 part because of Fortis Bank’s indecisiveness, that had nothing
18 to do with Helio Castroneves.
19 A. I can’t really –
20 MR. AXELROD: Objection, Your Honor.
21 A. I’m sorry?
22 MR. AXELROD: Objection.
23 THE COURT: Overruled.
24 A. I can’t really speak to that because this is the first
25 time we’d ever heard Mr. Castroneves’ name, so I wouldn’t have
1 known whether there was any delay in a transaction for him or
2 not prior to this time.
3 BY MR. GARVIN:
4 Q. Okay. When you spoke with Helio Castroneves in June of
5 2002, did he indicate to you that he would like this to move
6 quickly?
7 A. Quickly. I don’t remember there being a reference to
8 quickly.
9 Q. Was there anything that Helio Castroneves — or let me
10 rephrase that. To the best of your knowledge, Helio
11 Castroneves did not take any steps to hinder or delay the
12 transaction; isn’t that true?
13 A. I don’t know of any.
14 Q. Now, I’d like to refer your attention to the very last
15 sentence.
16 A. Yes.
17 Q. And it says that “Alan knew enough to say, I don’t want to
18 hear words like constructive receipt right now.” Do you recall
19 that?
20 A. Yes.
21 Q. So at the time that you spoke with Alan, there was a
22 discussion that included the concept of constructive receipt;
23 is that right?
24 A. Well, this conversation included the words constructive
25 receipt, as I wrote down there, but it’s a subject we had
1 discussed, he and I, on several occasions before that in
2 other — in other contexts with other matters.
3 Q. And with other — other clients.
4 A. Yes.
5 Q. Okay. So it was — it was clear that Alan Miller knew
6 what constructive receipt was, right?
7 A. I would think so. We had talked about it enough that I’m
8 sure that’s right.
9 Q. And isn’t it a fact that Alan Miller, during this
10 conversation, was conveying to you that you, as the tax expert,
11 he was hoping that you could review the case and figure out how
12 to structure the transaction so that it would not result in a
13 constructive receipt.
14 MR. AXELROD: Objection, Your Honor.
15 BY MR. GARVIN:
16 Q. Isn’t that true?
17 THE COURT: Overruled.
18 A. That it would not result in constructive receipt, yes, he
19 was bringing a new matter to us to — right, to work out a
20 deferred royalty arrangement that would not cause there to be
21 constructive receipt at a time before the amount was paid.
22 BY MR. GARVIN:
23 Q. Okay. And there’s nothing wrong with Alan Miller raising
24 the issue to you so that you are well aware of the issue going
25 into the deal, right?
1 A. Nothing wrong?
2 Q. I mean, him saying to you, you know, there’s this
3 constructive receipt issue, there’s nothing wrong with that,
4 right?
5 A. We’re discussing a legal issue. I don’t consider there
6 being anything wrong with that, no.
7 Q. Okay. I’m showing you, sir — the stamp is actually on
8 the back of the document, but it is Exhibit 175 that you were
9 asked about during direct examination. And you’ll recall that
10 Alan Miller showed you Exhibit 174 and you marked it up; is
11 that correct?
12 A. Yes.
13 Q. And then after it was marked up, the idea was that Alan
14 Miller would forward it to Helio Castroneves, correct?
15 A. Yes.
16 Q. And this document related to the discussions that you and
17 Alan had about — using that word — fleshing out the facts of
18 ownership, right?
19 A. Yes, about who owned the company, uh-huh.
20 Q. And the second page you were asked about during direct
21 examination, and that is a page that says, “Please review
22 specifically the highlighted second paragraph of page 2, as
23 well as the rest of the factual statements regarding your
24 relationship to Seven and the aspects of the Penske-Seven
25 Agreement.” Right?
1 A. Right, uh-huh.
2 Q. And that particular paragraph is in the November agreement
3 which is, as we see, this is dated November 14th, 2002, was the
4 final version, correct?
5 A. You said the November agreement. I assume you meant the
6 November opinion?
7 Q. Opinion, yes.
8 A. Yes.
9 Q. And that was the final version, right?
10 A. Yes. It says so in the letter.
11 Q. And by the final — because it says the final draft, but
12 it ended up being the final version, right?
13 A. I believe so. I don’t have all the drafts at my
14 fingertips, but I believe at this point, that was the final
15 draft, yes, the final version.
16 Q. Now, isn’t it true that Helio Castroneves actually signed
17 the documents for Fintage back in July 31st of 2002.
18 A. Signed the documents for Fintage?
19 Q. Relating to the Licensing Agreement for Fintage. Is that
20 right?
21 A. I don’t know when he signed the documents.
22 Q. Okay. I’m showing you what has been marked as Defendant’s
23 Exhibit 78.
24 A. Sir?
25 Q. Do you recognize the document, sir?
1 A. Yes.
2 Q. And is that not — well, let me not have double negatives.
3 Isn’t that a document that was part of this transaction?
4 A. Yes. This is the License Agreement between Helio
5 Castroneves and Fintage Licensing.
6 Q. And that document you assisted in preparing; is that
7 correct?
8 A. Yes.
9 Q. And that document was prepared by you in the ordinary
10 course of business of Feingold & Alpert, right?
11 A. Our assistance in the corporation was certainly in the
12 ordinary course of our business, yes.
13 Q. And a copy of that was maintained by your law firm, right?
14 A. Correct.
15 Q. And in fact, that document was, in fact, executed by
16 Fintage, who you were also representing at the time, right?
17 A. Correct.
18 Q. So basically Feingold & Alpert was representing or giving
19 tax advice to Fintage, correct?
20 A. Correct.
21 Q. And to Helio Castroneves, only for the purpose of this
22 particular transaction, right?
23 A. That’s correct. And we were also rep — well, can I
24 explain that or –
25 Q. Sure.
1 A. We were also representing Fintage in the commercial
2 aspects of the transaction and Mr. Miller was representing
3 Mr. Castroneves. And at the beginning of the engagement, we
4 noted in writing to both parties that we were going to be
5 representing Mr. Castroneves in respect to the tax aspects for
6 him and Fintage in respect to the agreements, and got the
7 necessary waiver letters of any conflict.
8 Q. And everybody was all right with that.
9 A. That’s our understanding, yes.
10 Q. Okay. Now, my question to you — may I have that back,
11 sir?
12 A. Sure.
13 Q. My question to you before was, isn’t it a fact that the
14 actual Licensing Agreement was signed by Helio Castroneves and
15 Fintage back in July 31st, 2002?
16 A. As I said, I don’t know when they signed the document.
17 The document is dated as of July 31st, 2002. They may have
18 signed it back in July and it was being held in escrow pending
19 delivery of the final documents. I don’t remember.
5 Q. Now, we were talking about this document and a little bit
6 earlier you were asked when you received this document, meaning
7 the second page of this letter that has an acknowledgment and a
8 signature of Helio on it. Do you recall that?
9 A. Yes.
10 Q. Now, you were also asked earlier about the Bates stamps of
11 a particular document, right?
12 A. Yes.
13 Q. Now, sir, isn’t it true that there came a time in or about
14 March of 2007 when your firm was asked to produce its records
15 in this case.
16 A. I don’t remember the date, but I remember the subpoena
17 well. “Asked” is a –
18 Q Not a good feeling.
19 A “Asked” doesn’t describe it.
20 Q. Okay.
21 A. Commanded, I think is the word.
22 Q. Now, would it be fair to say that at that time you made a
23 diligent effort to go through your files to make sure that
24 everything was turned over.
25 A. Yes.
1 Q. And your partner, Mr. Feingold, also assisted, correct?
2 A. Yes, he did.
3 Q. And isn’t it a fact, sir, that at that time it was
4 discovered that this document was not in your files? Isn’t
5 that true?
6 A. I think that is true. I think I do remember that, yes.
7 Q. And that a telephone request was made over to Alan’s
8 office and that Alan at that time forwarded this particular
9 page over to you; isn’t that true?
10 A. I had forgotten about that, but yes, that’s right.
11 Q. So the fact then is that the actual — this actual
12 document with this little note on the bottom was not in
13 Feingold & Alpert’s possession until that date, right?
14 A. It was not in the files when we went to review them. I do
15 remember seeing it at the time the transaction was done and I
16 can’t explain why it wasn’t in our files when we went through
17 them.
18 Q. Now, you said that you recall seeing it, but you’re not
19 100 percent certain, sitting here today, whether or not the
20 copy that you saw had that little bit of writing on the bottom;
21 isn’t that true?
22 A. No, I remember seeing a copy of it that was signed by
23 Mr. Castroneves. And again, I have no idea why it wasn’t in
24 our file.
25 Q. If that had been received at that time, you would have
1 expected it to be in your files, correct?
2 A. Yes, I would.
3 Q. And you make a concentrated effort to have your files
4 accurate, right?
5 A. Correct.
6 Q. Okay. I’m showing you what’s now in evidence as
7 Government’s Exhibit 173. I just always show you the tag
8 first. And you were asked about this document during direct
9 examination.
10 A. Right.
11 Q. And you recall there was a discussion about the $25,000.
12 Do you recall that?
13 A. Yes.
14 Q. And you were asked about, how much money was Seven owed at
15 the time that this $25,000 was being paid.
16 A. Yes.
17 Q. Okay. Now, isn’t it fair to say that at the time that the
18 $25,000 was being offered, that you and your partner, Fred
19 Feingold, believed that to be a reasonable and fair offer?
20 A. Yes. We had no idea whether it would be accepted, but
21 given the dispute that we were told existed, it seemed like at
22 least a good starting point.
23 Q. And you were asked about the number being several millions
24 of dollars, but isn’t it true that Seven had not received one
25 penny from Penske as of that date?
1 A. That’s what we were told, yes.
2 Q. And isn’t it also true that Penske was told not to make
3 any payments before the first day that payment was due?
4 A. That’s what we were told and we were actually shown a
5 letter where that request was made.
6 Q. And that was the December 15th, 1999 letter from Alan
7 Miller to Larry Bluth, correct?
you testified to that during direct examination,
17 correct?
18 A. I did, I did.
* * *
23 Q. Let’s go back to the $25,000. Now, under a deferred
24 royalty agreement, such as with Fintage, Fintage doesn’t get to
25 keep the $5 million, correct?
1 A. Well, it’s their money, subject to their obligation to
2 make the deferred royalty payment, so…
3 Q. So ultimately, if they live up to their obligation,
4 they’re going to pay back a certain portion of the money,
5 right?
6 A. It’s not a question of paying back. They have an
7 obligation under the license to make a payment on a date and
8 they’re required — and they will make — they will make that
9 payment.
10 Q. On that date.
11 A. On that date.
12 Q. And until that time, the taxpayer is just a general
13 creditor; is that right?
14 MR. AXELROD: Objection, Your Honor.
15 THE COURT: Sustained.
16 BY MR. GARVIN:
17 Q. So, sir, when discussing — when you took into
18 consideration the amount of $25,000, was there also the
19 consideration of the fact that while not one penny had been
20 paid Seven, if this ultimately became a deferred royalty
21 obligation, Seven would have an obligation to make some payment
22 in the future; isn’t that true?
23 MR. AXELROD: Objection, Your Honor.
24 THE COURT: Sustained.
25
1 BY MR. GARVIN:
2 Q. What factors did you use in coming up with the $25,000?
3 A. As I think I said, we were told there was a dispute
4 between Mr. Castroneves and Seven as to the terms of his
5 relationship with Seven, and as a result of that dispute,
6 Mr. Miller, presumably on behalf of Mr. Castroneves, had
7 requested in writing that Penske not make any payments. Given
8 that there was a stalemate and no payments having been made to
9 Seven, we thought that it might be appropriate to try to come
10 up with a number that would be acceptable to Seven so that
11 Seven could rid itself of this situation and transfer its
12 rights under the Penske agreement to someone else. $25,000
13 ended up being an acceptable number.
14 Q. Did you also take into consideration that if a transaction
15 had occurred, Seven Promotions would have had an obligation
16 sometime down the road to pay back a portion of this — of the
17 money that was accrued?
18 MR. AXELROD: Objection, Your Honor.
19 THE COURT: Sustained.
20 BY MR. GARVIN:
21 Q. Did you take any other factors into consideration?
22 A. In coming up with a number?
23 Q. Yes.
24 A. Okay. The value of the rights of someone in the position
25 that Seven was in or Fintage is in, if someone were valuing
1 what the rights were under that agreement, they would have to
2 take into account a number of things, including — well, first
3 of all, if there’s a dispute, there’s a question as to whether
4 there’s any value at all. Even if there isn’t a dispute, you
5 would have to look at both sides of the transaction. In other
6 words, you’d have to look at not only what the company was
7 receiving, but what the company’s obligations were.
8 So that if somebody were to purchase a company, let’s say,
9 that had some sort of an arrangement, the purchaser would want
10 to see what the profit position of the company was and not just
11 what the gross receipts position of the company was to
12 determine what purchase price to offer.
13 Q. Thank you, sir.
14 MR. GARVIN: Your Honor, may I have one moment,
15 please?
16 THE COURT: Yes, sir.
17 (Off-the-record discussion.)
18 BY MR. GARVIN:
19 Q. Finally, sir, I wanted to ask, with regards to the signed
20 tax opinion, did there come a time when that tax opinion was
21 delivered?
22 A. Yes, there did.
23 Q. And do you recall who it was delivered to, sir?
24 A. My recollection is that it was delivered both to Fintage
25 and to Mr. Castroneves in care of Mr. Miller.
1 Q. Okay. Is it accurate to say that when you delivered
2 documents in this particular case, they were not mailed to
3 Helio Castroneves?
4 A. That’s my recollection.
5 Q. They were — all the documents relating to this
6 transaction were mailed to Detroit — or excuse me, Michigan,
7 where Mr. Miller’s office was at; is that correct?
8 A. When you say “all the documents,” I believe the only
9 document that we delivered to anyone — we personally delivered
10 to anyone was our tax opinion.
11 Q. Okay. Well, when I say the documents, for example,
12 Exhibit 174 that you marked up, that was faxed to Alan Miller.
13 A. Correct.
14 Q. Even though this says Helio Castroneves up here, your
15 communications were with Alan Miller, attorney to attorney,
16 right?
17 A. Yes, that’s correct.
18 Q. So I had asked you if you had met Mr. Castroneves more
19 than once and you said no, it was only once, right?
20 A. That’s correct.
21 Q. And I had asked if you spoke to him on the telephone and
22 you told me no.
23 A. I think you asked me if I had spoken to him on the
24 telephone before then.
25 Q. Right.
1 A. And the answer was no.
2 Q. And that — I just want to make sure that I covered now
3 the written correspondence. It would be accurate to say that
4 the written correspondence, to the extent that you were
5 communicating, you communicated with Alan Miller.
6 A. That’s correct.
7 Q. And Mr. Miller’s office was located in Michigan.
8 A. That’s correct.
9 Q. And you realized that Mr. Castroneves resided in Miami.
10 A. I’m not sure what — well, that’s the address that
11 appeared on the letters. I’m not sure I had any personal
12 knowledge of where he resided.
13 MR. GARVIN: Okay. I have no further questions.
14 Thank you, sir.
G. WITNESS GUIDO CHIPY.
(TRIAL TESTIMONY EXCERPT)
6 Q. Good morning, sir.
7 A. Good morning.
8 Q. Mr. Chipy, my name is David Garvin. I represent Helio
9 Castroneves in this case.
10 Sir, I’d like to ask you a few questions. I’d like to
11 start with the exhibit the government first started with, which
12 is the July 9th, 2001 exhibit, Exhibit No. 151. I’m going to
13 put it on the ELMO so you can see it together, please.
14 Do you see that this is Exhibit 151 that the United States
15 asked you about when they started in conversation with you this
16 morning? Is that correct, sir?
17 A. Yes, sir.
18 Q. And one of the things I wanted to talk to you about, sir,
19 was that when you were talking about Alan Miller, Mr. Axelrod
20 asked you, well, did you meet Alan Miller and you said you
21 really don’t remember, but you do know that you communicated
22 with him, correct?
23 A. That’s correct.
24 Q. And the point here is that you were located in Miami,
25 Florida, right?
1 A. I’m sorry?
2 Q. You were located in Miami, Florida, during this period of
3 time?
4 A. Yes, sir.
5 Q. And Mr. Miller actually was — his office was located in
6 Birmingham, Michigan, correct?
7 A. Yes, sir, that’s what the letterhead says.
8 Q. So sitting here today, was it the first time that you
9 realized that you were dealing with somebody who was out of
10 state throughout this entire course?
11 A. It’s not abnormal to meet somebody from out of state so,
12 you know, it was possible that I had met Mr. Miller. I don’t
13 recall.
14 Q. Okay. But this refreshes your recollection that
15 Mr. Miller’s office was located in Michigan, correct?
16 A. Yes, sir.
17 Q. And in addition to that, the document also reflects that
18 Mr. Miller may have been involved in some of these
19 correspondence, but this particular document also reflects a
20 third party, and that is the lady from Mr. Miller’s office
21 named Shirley, correct?
22 A. Correct.
23 Q. And during the course of these proceedings, did you
24 realize that Shirley was actually carrying out the physical
25 acts of mailing things to you and faxing things to you?
1 A. It’s possible, but I do recall conversations with Alan
2 Miller.
3 Q. Okay. The conversations, the telephone conversations with
4 Alan Miller, but the actual carrying out of the acts as far as
5 FedExing you packages or faxing you things, you did realize at
6 some point that Shirley was participating in that, correct?
7 A. That’s what the fact cover sheet — fax cover sheet
8 indicates, yes.
9 Q. Now, you also knew during this period of time that Helio
10 Castroneves resided in Miami, Florida, right?
11 A. Yes, sir.
12 Q. And in fact, he had a banking relationship with your bank,
13 meaning PineBank, correct?
14 A. I don’t recall if there was an existing banking
15 relationship. I do recall that our private banking department
16 was assisting in the transaction.
17 Q. Okay. Fair enough.
18 Now, counsel pointed out a little bit earlier to you that
19 Exhibit 140 that came from Alan Miller’s office was dated on
20 July 17th. Do you recall that?
21 A. Yes, sir.
22 Q. And that that included the Uniform Residential Loan
23 Application; is that correct, sir?
24 A. Correct.
25 Q. And that the documents were actually delivered to you by
1 Federal Express, correct?
2 A. Yes, sir.
3 Q. Okay. Now, Government’s Exhibit 141 that you were shown
4 was the Uniform Residential Loan Application; is that true,
5 sir?
6 A. Yes, sir.
7 Q. And one of the things that we talked about during direct
8 was that there was a request made for you to send these items
9 to Alan Miller’s office; isn’t that true?
10 A. Yes, sir.
11 Q. And you complied and I think that you said that the normal
12 course of business at your office was either to send those
13 documents out the same day or the very next day, correct?
14 A. Correct.
15 Q. So these documents were not sent to Helio Castroneves in
16 Miami; they were sent to Alan Miller in Michigan, right?
17 A. I’m not sure where they were sent, but they would have
18 been sent to Mr. Miller.
19 Q. Okay. Well, let’s go back to Government’s Exhibit 151,
20 where the request was made, “Dear Guido: Pursuant to our
21 conversation, please FedEx me the information on Helio
22 Castroneves’ proposed home mortgage.” Do you see that, sir?
23 A. Yes, sir.
24 Q. And that is the same document that we saw earlier that has
25 both Alan’s and Shirley’s name on it and it’s coming from their
1 Birmingham, Michigan address, right?
2 A. Yes, sir.
3 Q. You would have had no other address to send him the
4 documents, correct?
5 A. It’s possible. I — unless we have in the documentation
6 that was submitted by the bank, there may have been fax
7 receipts or FedEx receipts indicating where the documentation
8 went. But I cannot be a hundred percent sure where they were
9 actually sent without those receipts.
10 Q. All right. Based on what you know sitting here today,
11 there is nothing in the documents that you have — any of those
12 documents that would show a different address for Alan Miller,
13 is there?
14 A. In these documents? I don’t believe so.
15 Q. Okay. So to the best of our knowledge sitting here today,
16 that’s where you responded to.
17 A. Yes, sir, based on what we see.
18 Q. Now, sir, when you send a Uniform Residential Loan
19 Application such as the one that is in evidence as Government’s
20 Exhibit 141, it is accurate to say that a majority of the items
21 in that loan application are left blank, right?
22 A. The majority of the items on the loan application? Yes,
23 sir.
24 Q. And the idea is that the person who is asking for the loan
25 is supposed to fill out the application; is that correct?
1 A. That’s correct.
2 Q. And in this particular case, there are a few things here
3 that are entered in handwriting — let’s try to do it piece by
4 piece. You see there’s a few things that are there by
5 handwriting. You see that, sir?
6 A. Yes, sir.
7 Q. Sir, isn’t it a fact that that was not Helio Castroneves
8 that put those few things in.
9 A. That’s correct.
10 Q. And isn’t it a fact, sir, that what happened in this case
11 is that Helio Castroneves received a blank form from — and the
12 only thing that he did was sign it in blank.
13 A. We received the application — I’m sorry, could you repeat
14 the question? I want to make sure I answer your question.
15 Q. To your knowledge, the only thing that Helio Castroneves
16 put on this blank application was his signature.
17 MR. AXELROD: Objection, Your Honor.
18 THE COURT: Let’s find out the basis of knowledge.
19 MR. GARVIN: Yes, sir.
20 BY MR. GARVIN:
21 Q. Let me back up a little bit. You sent out the
22 application, correct?
23 A. Correct.
24 Q. And as you said before, the handwriting on there is not
25 Helio Castroneves’, correct?
1 A. The handwriting on the boxes?
2 Q. Yes.
3 A. Correct. That was actually my handwriting. Can I expand
4 on that?
5 Q. Certainly, sir. You can expand if you like.
6 A. That was actually my handwriting to match the
7 documentation that was provided. The typed information on the
8 loan application was submitted to us with the signature.
9 Q. Okay. Very good. So what I’d like to do then is go back
10 and look at what was actually typed. And at the top we see
11 that there was an amount of the loan and an interest rate and
12 the number 30 for the number of months; is that right?
13 A. Correct.
14 Q. And we also see there was a partial address, 773
15 Woodcrest, right?
16 A. Correct.
17 Q. And the only other thing that we have here is Helio
18 Castroneves’ name and address typed, as well as information
19 stating that the borrower — name and address of employer was
20 Castroneves Racing. Is that correct?
21 A. Correct.
22 Q. All of the other information on the first page — and I’m
23 sorry it doesn’t entirely fit, but all of the other information
24 on the first page was left blank, correct? As far as typing,
25 sir.
1 A. Well, there is some additional personal information in
2 there, the Social Security number –
3 Q. Oh, that’s right here in the same — no, that’s the phone
4 number.
5 A. Right above.
6 Q. Right here.
7 A. Yeah, correct.
8 Q. When we turn to the second page, again, everything here,
9 all of these boxes are blank.
10 A. Correct.
11 Q. And we turn to the third and final page, we see that all
12 the boxes, none of them have any typewriting in them, correct?
13 A. Correct.
14 Q. And –
15 A. I’m sorry, with the exception of the Declarations section.
16 Q. I’m sorry, Declarations section, sir. I see an
17 Acknowledgment section?
18 A. Section 8, Declarations.
19 Q. Okay.
20 A. That’s personal information on the borrower that would
21 have been — had to have been provided by –
22 Q. Somebody else?
23 A. — somebody else, correct.
24 Q. Now, sitting here today, sir, do you know one way or the
25 other if this form — even those few little things that were
1 typewritten, if they were typed before Helio Castroneves signed
2 the document or after? Do you know?
3 A. No, I would not know.
4 Q. Now, the next thing I want to talk about is that you would
5 agree that generally speaking, you don’t want to add things to
6 a contract after somebody has signed because he could come back
7 and say, well, I’ve never agreed to that, you added things
8 after I signed my signature, correct?
9 MR. AXELROD: Objection, Your Honor.
10 THE COURT: Overruled.
11 A. There are — there should be a copy in the file of the
12 original loan application as it came in, without the filled-in
13 items, but in order to present the package to the board for
14 approval, certain material aspects of the application need to
15 be completed. There should be an application in the file
16 without the filled in amounts and this application, which has
17 filled in the material information based on the documentation
18 that we received in order to make an underwriting decision.
19 BY MR. GARVIN:
20 Q. All right. So — but I want to make sure to the ladies
21 and gentlemen of the jury that when Helio Castroneves signed
22 it, none of that handwritten information was on there, correct?
23 A. With the exception of the declarations, which would have
24 had to be provided, the other handwritten information, correct,
25 would have been completed by the bank.
1 Q. And now you said that you relied upon information provided
2 to you from — that you received from Mr. Miller’s office. Is
3 that an accurate statement?
4 A. That’s an accurate statement. For — as far as I can see,
5 the contract, the purchase contract, and other items which
6 match up with the application.
7 Q. We need to make it clear. Helio Castroneves never came to
8 your office to fill out this document.
9 A. That is correct, sir.
10 Q. And Helio never called you on the telephone to discuss
11 this either.
12 A. I don’t recall speaking with Mr. Castroneves.
13 Q. So one of the things that you’re referring to as being the
14 source of information is this document that the United States
15 has put into evidence as Exhibit 142 that you’ve discussed.
16 That would be a true statement, isn’t it?
17 A. I’m sorry, could you repeat the question?
18 Q. Yes. When you said that you filled in information to
19 complete this loan package, you relied upon information that
20 was provided to you, and one of the items that was provided to
21 you was Exhibit 142 dated July 17th.
22 A. That is correct.
23 Q. And really, when we look at this exhibit, this is an
24 unsigned document and it doesn’t even purport to be from Helio
25 Castroneves, right?
1 A. That’s correct.
2 Q. Now, you were asked questions about that on direct
3 examination and you said that when we do these types of
4 transactions, often we’ll get some information or documents
5 that are unsigned, right?
6 A. Correct.
7 Q. But before we do the closing, we ask the people who are
8 making the representations, you gotta sign, right?
9 A. That’s correct. It will either be handled by the bank –
10 there are times when — because they need to expedite a
11 closing, there’s a contract involved with a closing deadline,
12 that at times they actually go to closing and at the closing
13 table, they need to be signed and notarized and everything
14 else, as a condition of the closing.
15 Q. And the reason for that is because the bank wants to make
16 sure everything is — the information that they are relying
17 upon is accurate.
18 A. That is correct.
19 Q. And what happens, as you described, when you get a closing
20 involved, the paper starts to move pretty fast and everybody is
21 rushing to get it done, and sometimes inaccurate information is
22 provided, and the bank wants to make sure that what they are
23 going to lend and close the deal on was accurate information,
24 right?
25 A. That is correct.
1 Q. Now, for example, you were asked on this unsigned
2 document — and sir, it would be fair to say that when you have
3 an unsigned document, there is a chance, is it not, that you
4 were actually looking at a draft instead of the final version;
5 isn’t that true?
6 MR. AXELROD: Objection, Your Honor.
7 THE COURT: Ask the question more directly.
8 MR. GARVIN: Yes, sir.
9 BY MR. GARVIN:
10 Q. Until the document is signed and acknowledged by the
11 author, the document is viewed by the bank as simply a draft,
12 right?
13 MR. AXELROD: As to this document or documents in
14 general?
15 BY MR. GARVIN:
16 Q. This particular document would be viewed as a draft,
17 something the bank would not close on until it’s signed.
18 A. We would require the document to be signed prior to
19 closing, yes, sir.
20 Q. All right. Now, you were asked about Exhibit 143, were
21 you not? Do you remember that?
22 A. Yes, sir.
23 Q. And counsel asked you some questions, but one of the ones
24 that counsel didn’t ask about, so I’d like to at this time, is
25 No. 4, there was a request for personal –
1 MR. AXELROD: Objection to the editorializing.
2 THE COURT: Yes. Just ask your question.
3 BY MR. GARVIN:
4 Q. No. 4 requests “Personal financial statement” and it
5 states “No.” Do you see that, sir?
6 A. Yes, sir.
7 Q. So it would be fair to say that you were not provided with
8 a personal financial statement.
9 A. Yes, sir.
10 Q. And that means that in filling out the application, there
11 was not a personal financial statement to assist you.
12 A. That’s correct.
13 Q. So that meant that information that you relied upon, now
14 more than ever, was likely to have come from Exhibit 142; is
15 that correct?
16 A. Part of the information that we relied on, yes, sir.
17 Q. 143 also asked for the most recent personal tax returns.
18 Do you see that, sir?
19 A. Yes, sir.
20 Q. Now, there is a checkmark next to that, and that would
21 indicate that those tax returns were provided, right?
22 A. I would be assuming that. If they’re in the file, they
23 were provided. If not, they would not have been provided.
24 Those check marks are not mine.
25 Q. All righty. Well, this loan would not have closed without
1 you seeing the tax returns; isn’t that a fair statement?
2 A. It says “most recent personal tax returns.” It’s possible
3 that the loan could have been approved based on the letter and
4 the driver and Licensing Agreements.
5 Q. But that letter would have then been required to be
6 signed?
7 A. Yes, sir.
8 Q. Because we don’t have a financial statement.
9 A. Correct.
10 Q. Now, let’s go back on the tax returns. I show you now
11 what is in evidence as Government’s Exhibit 118, which would
12 have been Helio Castroneves’ personal tax return. I’ll put it
13 on the ELMO here so you can see it, sir.
14 MR. AXELROD: Objection, Your Honor. If Mr. Garvin
15 could just make clear where this document came from.
16 MR. GARVIN: I believe this document came from the
17 Internal Revenue Service.
18 MR. AXELROD: Not from the bank.
19 MR. GARVIN: Right.
20 THE COURT: Is there an objection on the floor or you
21 were just inquiring as to the source of the document?
22 MR. AXELROD: Inquiring as to the source of the
23 document, Your Honor.
24 THE COURT: All right. Please proceed.
25
1 BY MR. GARVIN:
2 Q. Sir, I’m showing you the 2000 income tax return for Helio
3 Castro-Neves that would have been filed after April 15th or
4 about — sometime in that time of 2001; is that right?
5 MR. AXELROD: Objection, Your Honor.
6 Q. I will show you the date. It actually says March 31st,
7 2001. Do you see that?
8 A. Yes, sir.
9 Q. All right. Now, your letter, which we just saw,
10 requesting the most recent personal tax returns, that is dated
11 also in 2001, it’s actually July 19th of 2001, right?
12 A. Yes, sir.
13 Q. This tax return reflects total compensation on Helio
14 Castroneves’ tax return to be $253,000.
* * *
2 THE COURT: Be seated.
3 Please continue, Mr. Garvin.
4 MR. GARVIN: Thank you, Your Honor. Your Honor, if it
5 please the Court, during the break, we were able to locate what
6 has now been marked as Defendant’s Exhibit 185, the 1040 for
7 Helio Castroneves from the PineBank files, and 186, which is
8 the 1120 for the year 2000 for Castroneves Racing from the
9 PineBank files. We move them into evidence. We’ve been
10 advised there is no objection.
11 MR. AXELROD: No objection, Your Honor.
12 THE COURT: Received as marked.
13 BY MR. GARVIN:
14 Q. Mr. Chipy, we were able to, on the break, look in the
15 PineBank files and we did, in fact, find those tax returns.
16 And, sir, as I asked you earlier, this is the Helio
17 Castro-Neves tax return for 2000 that you asked for and it did
18 reflect a total taxable income of $253,000; isn’t that so?
19 A. Yes, sir.
20 Q. The corporate tax return that was provided was Castroneves
21 Racing, Inc. and you had stated on direct examination that
22 until you got the actual real estate contract, which is
23 Government’s Exhibit 144, you were not aware that Castroneves
24 Racing — of Castroneves Racing, Inc.; is that true?
25 A. That’s from my recollection, yes, sir.
1 Q. All right. Now, we have — I want to go back because I
2 don’t want to make a mistake on this and refresh your
3 recollection that actually, in Government’s Exhibit 141, where
4 it says borrower’s employer, it does list Castroneves Racing,
5 Inc. Does that refresh your memory, sir?
6 A. Yes, sir.
7 Q. Okay. So in fact, Castroneves Racing, Inc. had been
8 disclosed to the bank prior to the bank receiving the actual
9 real estate contract, which is Government’s Exhibit 144, right?
10 A. Correct.
11 Q. Okay. And this reflects that Castroneves Racing, Inc. had
12 total taxable income for the year 2000 of $49,000, right?
13 A. Yes, sir.
14 Q. During direct examination you were asked about the
15 Licensing Agreement, which is Government’s Exhibit 403, and you
16 stated that that was the Licensing Agreement that was received
17 by you from Mr. Miller’s office, right?
18 A. Correct.
19 Q. Now, I want to focus on who are the parties to the
20 Licensing Agreement, and this Licensing Agreement says that it
21 is between Penske Racing and a company called Seven Promotions
22 from Panama, right?
23 A. Correct.
24 Q. And there is nothing in your file anywhere regarding a
25 financial statement on Seven Promotions, right?
1 A. That’s correct.
2 Q. There is nothing in your file anywhere regarding a tax
3 return from Seven Promotions, right?
4 A. Not that I’m aware of.
5 Q. Okay. So earlier you said that the bank might even
6 consider making a loan without a financial statement based upon
7 the licensing agreement, but before the bank would do that, the
8 bank would have to satisfy itself as to who Seven Promotions
9 is; isn’t that true?
10 A. Yes. We would have asked for additional information.
11 Could I expand a little bit on that as far as the bank’s
12 requirements?
13 Q. Yes, sir.
14 A. Generally in the banking industry, on foreign nationals,
15 we require either a CPA letter or an attorney’s letter
16 outlining what the borrower’s previous income has been for the
17 past couple of years and because tax returns or licensing
18 agreements sometimes are difficult to analyze and interpret
19 without getting massive amounts of documentation. In exchange
20 for that, what banks do is limit the loan amount, the loan to
21 value that they lend then, whereas a resident or a citizen
22 would be able to get 90, 95 percent, sometimes 97 percent loan
23 to value financing, because they have the tax returns and the
24 credit, the established history, and so on.
25 With foreign nationals, because of their limited history
1 that they may have in the U.S., the banks may just accept a CPA
2 letter from their CPA or from their attorney, outlining what
3 their history is. In the case of Mr. Castroneves, since he had
4 licensing agreements and so on and a letter from an attorney,
5 and he was known by our private banking division, it was felt
6 that the documentation was sufficient.
7 Q. Well — and actually, at some point in time, though, when
8 you say a letter from either the CPA or an attorney, those
9 letters would have to be signed.
10 A. Absolutely.
11 Q. And they would have to be established that the CPA or the
12 attorney stood behind the accuracy of that letter; isn’t that
13 true?
14 A. Yes, sir, that’s correct.
15 Q. Because the bank doesn’t want to end up with something
16 that the client has never seen and that is simply inaccurate,
17 right?
18 A. That is correct.
19 Q. And as we see — so getting back to the Licensing
20 Agreement, you will agree with me that there were no tax
21 returns on Seven Promotions, correct?
22 A. Not to my recollection.
23 Q. And that brings us back to the Government’s Exhibit 142.
24 During direct examination, the United States asked you about
25 the paragraph and read into the record the sentence, “As
1 compensation for the licensing services granted to Penske
2 Racing, they pay to the corporation wholly owned by
3 Mr. Castroneves the sum of $5 million in 36 equal consecutive
4 monthly installments of $138,888.88, commencing on January 1st,
5 2000 with the last payment due December 1st, 2002.”
6 Do you recall that being read into the record during your
7 direct examination?
8 A. Yes, sir.
9 Q. And it would be accurate to say that none of the records
10 that we have here that came from your file confirms the
11 accuracy of that statement; isn’t that true?
12 A. Yes, sir.
13 Q. In fact, there has been no evidence supplied that any
14 payments were made to any company; isn’t that true?
15 A. You mean proof of the actual payments?
16 Q. Right.
17 A. No. And that would not be our normal practice, to go that
18 deep into the process.
19 Q. All right. So the question is, sir, at some point in
20 time, did you learn that Seven Promotions never received a
21 penny from Penske?
22 A. Not that I’m — that I recollect.
23 Q. Sir, isn’t it a fact that there came a point in time where
24 this transaction was terminated?
25 A. Yes, sir. It did not close. The transaction did not
1 close.
2 Q. Okay. I want to make it perfectly clear, no money was
3 ever loaned on this transaction, right?
4 A. That is correct.
5 Q. No promissory notes were ever signed by anyone.
6 A. Not that I’m aware of, sir.
7 Q. I’d like to draw your attention back to Exhibit 141. That
8 was the residential loan application.
9 A. Yes, sir.
10 Q. And you had established earlier that this application was
11 mailed out to Alan Miller, right?
12 A. Correct.
13 Q. And in fact, there’s a place on the application that says,
14 was the application done face-to-face, by telephone, or by
15 mail, and you checked off by mail, right? That would be on
16 page 3 of 4, lower left-hand corner, if that’s helpful.
17 A. That is correct.
18 Q. And it only confirms what you told us earlier, is that you
19 mailed this out to Alan Miller’s office, right?
20 A. Yes, sir.
21 Q. Now, the point is that when you received this back, you
22 executed it and printed your name on it, right?
23 A. That is a requirement, that’s correct.
24 Q. And you signed it?
25 A. Yes, sir.
1 Q. I mean, excuse me, dated it.
2 A. Yes, sir.
3 Q. And you dated it July 19th, 2001; is that right?
4 A. Correct.
5 Q. Now, sir, is it also true that you proceeded to date
6 Helio’s signature?
7 A. That does look like my handwriting, sir, yes.
8 Q. And I want to make it clear. This was a loan application
9 and Helio Castroneves did not sign it on July 19th, 2001.
10 MR. AXELROD: Objection, Your Honor.
11 THE COURT: Basis?
12 MR. AXELROD: Personal knowledge.
13 THE COURT: Overruled.
14 BY MR. GARVIN:
15 Q. Right?
16 A. That is — that looks like my writing, so that would have
17 been a date that we would have processed the application,
18 having received the documentation.
19 Q. I want to just make sure that we have the facts set out
20 right.
21 A. Uh-huh.
22 Q. You mailed out the documents to Michigan, to Alan Miller,
23 right?
24 A. Correct.
25 Q. And it was basically blank because you expected someone to
1 fill it out.
2 A. Correct.
3 Q. Alan Miller somehow, some way, forwarded it to Helio
4 Castroneves for his signature, correct?
5 MR. AXELROD: Objection, Your Honor.
6 THE COURT: Yeah.
7 BY MR. GARVIN:
8 Q. Well, let me rephrase that then. At some point Helio
9 Castroneves affixed his signature, because we see it there,
10 right?
11 A. Correct.
12 Q. However, he did not date it, right?
13 A. That looks like my handwriting. I would — it does not
14 look like he dated it, that’s correct.
15 Q. And somewhere, somehow, the document got back to Alan
16 Miller, who — his office forwarded it to you through the mail,
17 correct?
18 A. Correct.
19 Q. You then checked off the box at the bottom, saying that
20 this was all done through the mail, right?
21 A. Correct.
22 Q. Which means there is no way that this could have been done
23 through the mail and Helio Castroneves to have July 19th, 2001
24 there, when yours also has in the same handwriting, July 19th,
25 2001; isn’t that true?
1 A. That’s correct.
2 Q. And it would also be true to say that you never talked to
3 Helio Castroneves about putting those things on the
4 application, right?
5 A. That is correct. Can I expand on that?
6 Q. Well, sir, I’d really like to focus on that question.
7 A. Sure.
8 Q. And to the best of your knowledge, Helio Castroneves did
9 not see that document after you put the information on it,
10 right?
11 A. To the best of my knowledge, that is correct.
12 MR. GARVIN: Your Honor, if I may have one moment.
13 (Off-the-record discussion.)
14 MR. GARVIN: Your Honor, I have no further questions
15 at this time.
16 THE COURT: Thank you.
H. WITNESS MARGARET HOUSTON
(TRIAL TESTIMONY EXCERPT)
9 BY MR. GARVIN:
10 Q. Good morning, Ms. Houston.
11 A. Good morning.
12 Q. My name is David Garvin. I represent Helio Castroneves.
13 A. Thank you.
14 Q. Ms. Houston, I only have a few questions on these matters.
15 The first is that you have advised us that with regard to the
16 insurance, the disability is willing to pay or insure up to
17 five times the income; is that correct?
18 A. That’s correct.
19 Q. And that is the total gross income of the person who is
20 seeking insurance, correct?
21 A. It’s the base salary.
22 Q. Okay. And when they say the base salary, that would be
23 the income that the person was under contract to receive that
24 year?
25 A. Yes. It doesn’t include prize winnings.
1 Q. Okay. Because prize winnings are a contingency, right?
2 A. Yes.
3 Q. You don’t know if you’re getting that, right?
4 A. No.
5 Q. Okay. But in this particular case, Mr. Miller sent you
6 the copies of both contracts that are in Exhibit 147, right?
7 A. Can I just check?
8 Q. Yes, certainly, ma’am.
9 MR. GARVIN: Your Honor, may I use the ELMO?
10 THE COURT: Yes, sir.
11 A. Yes.
12 BY MR. GARVIN:
13 Q. Okay. And now, when we talk about 147, we talk about the
14 two separate contracts, correct? There is the driver’s
15 agreement. That is right, is it, Ms. Houston?
16 A. Yes.
17 Q. And that driver’s agreement is between Castro-Neves
18 Racing, Inc. and Penske Racing?
19 A. That’s correct.
20 Q. And this particular driver’s agreement was for $1 million
21 spread over three years, so that would be approximately
22 $333,000 a year, right?
23 A. I have no recollection of that.
24 Q. You see, ma’am, it says $1 million, 36 equal monthly
25 installments?
1 A. Yes, I see that.
2 Q. Okay. And that that would come out roughly to $27,000 a
3 month.
4 A. Yes.
5 Q. And this is the gross income under this contract, right?
6 A. Yes.
7 Q. And that means this is before any income taxes are
8 withheld, right?
9 A. We have nothing to do with income taxes.
10 Q. And before any type of pension or retirement deductions,
11 correct?
12 A. Yes. We don’t do anything with that either.
13 Q. Okay. So from the insurance carrier’s point of view, they
14 aren’t concerned about the amount of taxes or the amount of any
15 retirement accounts.
16 A. Absolutely not.
17 Q. Okay. Now, the second contract which Mr. Miller provided
18 was the agreement between Penske Racing and Seven Promotions,
19 correct?
20 A. Yes.
21 Q. And this particular agreement was for the amount of
22 $5 million — $5 million over a period of three years, which
23 would be more than $1,600,000 a year.
24 But I’m looking at this particular document and it seems
25 to jump from page 1 to page 20. Do you see that, ma’am?
1 A. Yes.
2 Q. Did you ever have the other pages?
3 A. No. We never — we do not require the full contract
4 unless there is a claim. If there was a claim to be made, then
5 the full contract would then be required.
6 Q. Okay. The reason why I’m asking that is, the page that
7 we’re looking at does not reflect any payment whatsoever. Did
8 you notice that?
9 A. I can’t read it on –
10 Q. Okay. Does that –
11 A. That’s better.
12 Q. Is that better, ma’am?
13 A. Uh-huh. Yes.
14 Q. So earlier, counsel asked you if you relied upon this
15 contract with Seven to issue the insurance. Do you recall that
16 question?
17 A. Yes.
18 Q. And you said yes, I relied upon the contract that
19 Mr. Miller sent me to issue the insurance binder, right?
20 A. Yes.
21 Q. And the document that Mr. Miller provided you doesn’t have
22 any representation in it about payment.
23 A. Not in this part, no.
24 Q. And this is the other page, which is the only other page
25 relating to Seven. It has no representation with regard to a
1 payment there either, correct?
2 A. No.
3 Q. Now, the truth is that this contract with Seven just
4 wasn’t relied upon for this insurance because it had no mention
5 whatsoever about payment, right?
6 A. Yes.
7 Q. Now, you were also asked about Exhibit 148 and I would
8 like to show that to you so that we know what we’re talking
9 about. You will see that this is, in fact, Exhibit 148.
10 A. Yes.
11 Q. And this did come from Alan Miller, right?
12 A. Yes.
13 Q. And it reflected the amounts that we had talked earlier
14 about, which was $2 million and $2 million.
15 A. That’s correct.
16 Q. And as you said before, the column with winnings really is
17 irrelevant because they’re contingent in nature and the
18 insurance company just is not going to insure on winnings,
19 right?
20 A. That’s correct.
21 Q. Now, the thing that I wanted to look at is that this
22 document was not prepared by Helio Castroneves; isn’t that
23 true?
24 A. Yes.
25 Q. And in fact, it was prepared by Mr. Alan Miller on or
1 about January 24th of 2002, right?
2 A. Yes.
3 Q. Now, isn’t it an accurate statement to say that from the
4 very beginning in 2000 all the way through January of 2002, no
5 one ever asked Mr. Miller what portion of the $2 million was
6 going to be set aside for Helio’s retirement? Isn’t that true?
7 A. We would never have asked that.
8 Q. And that’s because it was irrelevant to you, right?
9 A. Yes.
10 Q. As long as there was a contract out there that Penske
11 promised to pay the money, that’s what you were concerned
12 about, right?
13 A. That’s what the underwriters are concerned about.
14 Q. Okay. And the underwriters are the ones that have to be
15 satisfied to issue a disability policy, right?
16 A. Yes.
17 Q. So it’s very important to satisfy the underwriters,
18 correct?
19 A. Of course.
20 Q. And the underwriters really don’t care whether or not part
21 of the money is being set aside for a deferred compensation for
22 retirement purposes; isn’t that true?
23 A. That’s never a question that’s been asked.
24 Q. Okay. Mr. Miller never refused to provide information in
25 this case; isn’t that true?
1 A. I’m sorry, I didn’t quite understand.
2 Q. Mr. Miller always answered the questions when asked.
3 A. Of course.
4 Q. Mr. Miller never refused to answer questions.
5 A. No.
6 Q. And you had dealt with Mr. Miller in the past, right?
7 A. Oh, yes.
8 Q. And you have found him to be an honest and straight
9 person, right?
10 A. Yes, indeed.
11 Q. Very forthright with dealings with you.
12 A. That’s correct.
13 Q. Someone you could rely upon.
14 A. One more time?
15 Q. Someone you could rely upon.
16 A. Yes, of course.
17 Q. I am now showing you Exhibit 149, ma’am, also a document
18 that was discussed during your direct –
19 MR. AXELROD: That’s not in evidence, Your Honor.
20 MR. GARVIN: Oh, I — I did not — okay. I won’t show
21 it. Thank you. Thank you.
22 BY MR. GARVIN:
23 Q. I apologize, ma’am, for my confusion.
24 A. That’s okay.
25 Q. 150, not 149. All right. And you were discussing
1 Exhibit 150. That is the 150 on the screen, right?
2 A. Yes.
3 Q. And you were asked whether the document was sent to the
4 clients; do you recall that?
5 A. Yes.
6 Q. And in this case, the document is signed by Kati
7 Castroneves, right?
8 A. Yes.
9 Q. And had you ever spoken with Kati?
10 A. Oh, yes, many times.
11 Q. And did you find her to be a pleasant person?
12 A. Oh, yes indeed.
13 Q. And somebody who was willing to answer your questions?
14 A. We had a very good relationship telephone-wise.
15 Q. And Kati — you found that Kati never refused to provide
16 information you requested, right?
17 A. No.
18 Q. But again, the same question for Kati as for Alan Miller.
19 The questions concerning Helio’s retirement and deferred
20 compensation for retirement purposes was never discussed,
21 right?
22 A. That has never been discussed.
23 Q. And the information that was placed there, you have no
24 idea whether part or any or all of the money that’s listed
25 there is being set aside for taxes or for retirement, right?
1 A. No.
2 Q. And finally, on the last page of the document, we notice
3 that the document was executed by Alan Miller under power of
4 attorney.
5 A. That’s correct.
6 Q. Again, this document is in 2002, only this one’s in
7 February, right?
8 A. Yes. It takes a few weeks to get things going.
9 Q. All right. Ma’am, in all of your dealings with Alan
10 Miller and Kati Castroneves, were you satisfied that you were
11 getting the information that the underwriter needed?
12 A. Absolutely.
13 Q. And in all of your dealings with Alan Miller and Kati
14 Castroneves, would it be accurate to say that there was never a
15 mention about income taxes one way or the other?
16 A. No.
17 Q. No, there was never a mention?
18 A. No, never a mention.
19 MR. GARVIN: May I have one moment, Your Honor?
20 THE COURT: Yes, sir.
21 (Off-the-record discussion.)
22 MR. GARVIN: Your Honor, I have no further questions.
23 Thank you very much, Ms. Houston.
24 THE WITNESS: You’re welcome.
CASE PRESENTED BY THE DEFENSE
The defense presented an extensive defense. Attorneys Roy Black and Howard Screbnick called numerous friends and business associates of Helio Castroneves, Senior from Brazil to establish that Helio’s father had invested his life’s savings in Helio’s career and earned the compensation that he received. It was decided that David M. Garvin would call Helio’s father to testify concerning the Seven Promotions transactions and the payments that were made on his behalf. Mr. Garvin called tax expert Robert Chaves, Esq. to testify after the testimony of Helio’s father. Mr. Garvin and Mr. Chaves went through each of the transactions in detailed and explained why they were proper. Mr. Chaves final opinion was that the tax returns of Helio Castroneves were correct with regard to the transactions involving Seven Promotions, Fintage, Penske Racing, and payments made to Helio’s father.
CLOSING ARGUMENT AND VERDICT
Closing argument consisted of argument presented by David M. Garvin, which focused on the tax law and the fact that Helio Castroneves’ tax returns were correct, and Roy Black who made a compelling argument that Helio’s father was responsible for Helio’s career and was entitled to the compensation he received. In addition, Helio’s father and his attorney owned and controlled the company Seven Promotions. Howard Screbnick followed with a strong argument that included an analysis of the jury instructions and an emotional argument on behalf of Kati Castroneves. Attorney Bob Bennett concluded for the defense by arguing the evidence that established the fine reputation and character of Alan Miller as well as Helio and Kati. The attorneys working as a team obtained 16 not guilty verdicts on behalf of the defendants. The jury found Helio not guilty of all six tax evasion charges. Kati was also found not guilty of aiding and abetting in all six tax evasion counts. Alan Miller was found not guilty in all four counts he was charged in. Alan Miller’s counts consisted of three counts of aiding and abetting tax evasion and one count of conspiracy. The jury was unable to reach a verdict on the one count of conspiracy to commit tax evasion as to Helio and Kati. The Court declared a mistrial on this one count. The defense argued that the government should dismiss the last count based upon collateral estoppel principles since the jury found no tax evasion and a conspiracy to legally save taxes was not a crime. On May 22, 2009 the United States moved to dismiss the last count and the Court ordered it dismissed.
Background Opening Statement HELIO CASTRONEVESTHREE TIME INDIANAPOLIS 500 WINNER
The United States held a press conference at the time that it filed an indictment in the income tax case against Helio Castroneves, his sister Kati, and their attorney Alan Miller. The newspapers have published in great detail the allegations made by the United States. The defense decided to wait to tell Helio’s side of the story at the trial. The strategy resulted in the acquittal of all of the defendants however, the facts brought out by the defense were never publicly published in the same detail that the original allegations were. The facts set forth below, including the cross examination of key government witnesses, are presented to inform the reader of the evidence presented to the jury in the defense of Helio, Kati, and Alan Miller.
