United States v. Pieron
| Decision Date | 09 June 2020 |
| Docket Number | Case No. 18-20489 |
| Citation | 465 F.Supp.3d 749 |
| Parties | UNITED STATES of America, Plaintiff, v. James D. PIERON, Jr., Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
465 F.Supp.3d 749
UNITED STATES of America, Plaintiff,
v.
James D. PIERON, Jr., Defendant.
Case No. 18-20489
United States District Court, E.D. Michigan, Northern Division.
Signed June 9, 2020
Jules M. DePorre, United States Attorney's Office, Flint, MI, Janet L. Parker, U.S. Attorney's Office, Bay City, MI, for Plaintiff.
Mark S. Pendery, Honigman LLP, Grand Rapids, MI, Patrick J. Hurford, Honigman LLP, Detroit, MI, for Defendant.
ORDER ADOPTING THE GOVERNMENT'S TAX LOSS ASSESSMENT
THOMAS L. LUDINGTON, United States District Judge
On July 18, 2018, an indictment was returned against Defendant James D. Pieron for tax evasion. ECF No. 1. Additionally, the Government furnished a seven-page Bill of Particulars containing 19 allegations supporting its claims that Defendant "willfully attempted to evade paying the federal income taxes he owed for 2008 and 2009, and that he committed affirmative acts of evasion in furtherance of his attempt to evade his tax obligations." ECF No. 5.
On March 7, 2019, a jury found Defendant guilty of the offense. During trial, the Defendant was represented by attorneys Michael Minns, Ashley Arnett, and Kenneth Sasse. After the verdict was returned, Minns, Arnett, and Sasse withdrew as Defendant's attorneys and attorneys Mark S. Pendery and Patrick Hurford filed appearances to represent the Defendant. ECF Nos. 50, 58, 71.
Defendant subsequently filed a motion for judgment of acquittal, arguing that the "government did not meet its burden to prove Pieron evaded or attempted to evade the payment of income tax within the statute of limitations period."1 ECF No. 66 at PageID.1267. He also filed a motion for new trial. ECF No. 68. He argued that the Court improperly excluded a jury instruction, that his trial counsel was ineffective, and that the jury's verdict was against the weight of the evidence. The two motions remain pending.
Before addressing these motions, the tax loss assessment that has been the subject
of a number of sentencing hearings will be addressed. It is accurate to observe that the sentencing hearings produced a great deal more information about the Defendant and his business, though hardly all of the information. Section 2T1.1 and § 2T4.1 of the Federal Sentencing Guidelines outline the rules for crimes of tax evasion and are addressed in Section IV of the opinion.
This opinion is intentionally structured to introduce the facts more or less in the order that they were introduced to the Court first during trial and then later during the evidentiary hearings that followed.
I.
Defendant is an American citizen who is a technology specialist that became engaged in foreign currency trading in Switzerland during the period in question. The Government has furnished Defendant's undated resume which provides:
Mr. Pieron serves as the Chief Executive Officer of JDFX. In 2003 he wrote, tested and prototyped the stochastic based algorithms of the APBs (Automated Prime Brokerage System). In early 2004, these algorithms were patented by Swiss Authority (Eidgenoessisches Patentamt) and the project was launched.
Mr. Pieron started writing code at age 12, and at age 17 was quickly recruited by the United States Department of Defense to build a secure transmission of classified data (U.C.A.S.). After the completion of the UCAS assignment he was sent to Central Michigan University to complete his studies. Immediately after graduation, he was recruited by the F.B.I. for the A.F.I.S. Project (Automated Fingerprint Identification System).
In 1997, Mr. Pieron started moving from Communications and Security into Financial Enterprise Syems [sic ]. In 1998, he was the Technical Lead for CaTs (UBS, Trading System). In 2000, he returned to United States [sic ] and founded Pieron Technologies Inc., which was an IT (Financial Systems) supplier of the Daimler Chrysler/Mercedes merger.
In 2001, Mr. Pieron returned to Zuerich where he designed and sold the 64-Bit Lifecycle project to UBS. After the completion of the UBS Project, Mr. Pieron started a partnership with Swissforex, to build a forex pooli system (Forex Fund) to trade foreign currencies. In 2003, he left Swissforex and joined JDFX Technologies AG, a Software Development company and IT Provider of Automated Trading Systems.
ECF No. 36-2.
A.
In 2006, Defendant met an individual by the name of Trevor Cook. A subsequent SEC interview of the Defendant during the investigation of Mr. Cook provides:
Pieron met Cook thru Nolan S. from PFG, Inc. of Chicago. Pieron got a telephone call from Nolan telling him Cook was in town (in Switzerland) and wanted to meet with him. Cook showed up in Zurich around Sept or Oct 2006. Pieron later met Beckman thru Cook in his office in St. Paul around 2007. Cook wanted to meet with Pieron because he was making a tour of several FX companies. There was no purpose for the meeting; Cook was looking at FX companies. They talked about technology and Pieron gave Cook a demonstration of the ITP which was 90% developed and Kontrol's prototype. Cook did not say why he was interested in Pieron's products. Pieron was trying to do business with PFG and met Cook as a favor. The meeting was around 10 PM, and it was very inconvenient for Pieron.
Pieron doesn't recall when he spoke with Cook after than [sic ] - sometime between Sept to December 2006. Cook was very impressed with the technology and was interested in trading in his platform
and in investing in the company. At that time, Pieron was negotiating with FXOQ for an investment in the JDFX entities and they had done an evaluation. When Cook said he wanted to buy part of the company, Pieron had two deals on the table (Cook and FXOQ). The difference between the deals is that Cook wanted a bigger piece of the company and sent up a deposit immediately to show he was serious. The evaluation made for JDFX was for $50 million. [Per Fedders - the evaluation may be less; they don't know the value of JDFX as of today.]
Cook's said he wanted to invest in JDFX because he wanted to personally diversify himself. Cook wanted to invest twice as much as FXOQ. There were no representation made by Cook, he was interested in trading in JDFX's platform because he will be savings millions per year. Cook's offer was $10 million for 20% ownership. Cook didn't say where the money was coming from - he sent half million deposit. [Per Fedders - the deposit came from UBS Diversified Growth ("UBS Diversified") account on 12/4/06.] There were several transfers after the initial deposit - it ended up being $10 million for 20% of company. From December 2006 (deposit) through the end of 2008 or early 2009 Cook invested $15.2 million to buy stock from Pieron in the name of Market Shot for its current ownership of 35%. [Per Fedders - most checks came from UBS Diversified, 2 from Cook and 2 from Market Shot.]
ECF No. 112-10 (sic throughout).
From 2006 to 2009, Cook and Market Shot transferred $15.25 million to JDFX as follows:
| 2006 | ||
| December 1, 2006 | $500,000 | |
| 2007 | ||
| January 18, 2007 | $500,000 | |
| February 22, 2007 | $500,000 | |
| March 19, 2007 | $1,000,000 | |
| March 20, 2007 | $1,150,000 | |
| March 20, 2007 | $350,000 | |
| March 30, 2007 | $5,000,000 | |
| April 12, 2007 | $1,000,000 | |
| TOTAL | $9,500,000 | |
| 2008 | ||
| December 17, 2008 | $2,100,000 | |
| 2009 | ||
| January 23, 2009 | $2,125,000 | |
| May 26, 2009 | $1,025,000 | |
| TOTAL | $3,150,000 | |
| 2006-2009 TOTAL: | $15,250,000 | |
ECF No. 114-85.
On November 23, 2009, the SEC filed a complaint against Cook and an individual by the name of Patrick Kiley for operating a Ponzi scheme. The complaint provides:
From at least July 2006 through July 2009, Cook and Kiley, directly and indirectly through the Defendant Shell Companies, raised at least $190 million from at least 1,000 investors by selling investments in a purported foreign currency trading venture.
Cook and Kiley represented that they would deposit each investor's funds into a segregated account in the investor's name; that they would use each investor's funds to trade foreign currencies; and that the foreign currency trading would generate annual returns of 10% to 12%.
Cook and Kiley also represented that their foreign currency trading venture involved little or no risk and that the investors’ principal would be safe and could be withdrawn at any time.
Cook and Kiley's representations were false.
Cook and Kiley did not place each investor's money in a segregated account in the name of the investor.
Instead, Cook and Kiley pooled the investors’ funds in bank and trading accounts in the names of entities that they controlled.
SEC v. Cook , District of Minnesota, Case No. 09-cv-03333, ECF No. 1 at 2-3.
Among other allegations, the complaint further provides:
Cook used $15 million of investor funds to purchase a 35% interest in JDFX Holdings.
Cook used the remaining $23 million of investor funds at the JDFX Holdings entities to trade foreign currencies. But contrary to his representations to investors, Cook engaged in risky trades involving highly volatile currencies of countries which are not members of the G-5 group of countries.
Cook lost $9.6 million through his trading in the accounts with the JDFX Holdings entities. Eventually, only about $13 million was returned from the JDFX entities to UBS Diversified, Oxford FX Growth, L.P., and Cook's personal account.
Id. at 23-24.
On March 30, 2010, the Government filed a criminal complaint against Cook for one count of mail fraud and one count of tax fraud. U.S. v. Cook , District of Minnesota, Case No. 10-cr-00075, ECF No. 1. The factual allegations resembled those included by the SEC in its complaint against Cook. Cook pleaded guilty to both counts. On October 7, 2010, the court sentenced him to 25 years imprisonment to be followed by 3 years of supervised release. Id. at ECF No. 21.
B.
In 2008 prior to Defendant moving back to the United States, Defendant had a conversation with his stepfather, Chris Werwega, about his unpaid taxes.2 ECF No. 53 at PageID.691. Werwega described the conversation as follows:
Discussion came about, and I don't know how it...
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