Paul Manafort trial blog: Accountant Cindy Laporta testifies she submitted false documents

Cindy Laporta testified that she sent false documents and misrepresented a home so that Manafort could get a mortgage on one of his New York City properties.

The situation started in 2016 when Paul Manafort started applying for mortgage loans for his house on Howard Street. Laporta testified that Rick Gates told her that it was used as a second home, rather than a rental. "The rate for a second home is better than a rate on a rental property," she said. Tax documents showed that the house on Howard Street had brought in more than $115,000 in 2015, when it was available for rent 365 days a year.

Laporta said that she relied on Gates' representation of how the home was used rather than checking Manafort's general ledger, which would have shown it to be a rental property.

Later in the year, the loan application was denied when the bank questioned a $1.5 million loan from Peranova Holdings, LLC, a company that we now know to be controlled by Manafort. Citizens Bank wanted to see the loan documents. Laporta testified that she was directed by Gates to tell the bank that the loan had been forgiven even though she did not believe that to be true. Laporta did and cc'ed Paul Manafort on the email.

The jury was then shown an email chain where Gates told Laporta that he would "chase down the signatures" he needed for a loan forgiveness letter that was then backdated to June 2015. Laporta then sent the document to the bank. "I believed the bank would have to vet the document themselves," she said, and she believed that she would be protected by the fact that she didn't edit the document herself.

Cindy Laporta, Manafort's accountant on his 2014 and 2015 tax returns, is the first witness to take the stand who had been granted immunity. 

She said she was in on discussions to falsify a loan document at the direction of Rick Gates so that Manafort could afford to his pay his 2014 income taxes.

She acknowledged that she knew it wasn't appropriate to change these documents. "You can't pick and choose what's a loan and what's income," she said.

Laporta also testified that DMP had four season Yankees tickets that were classified as 80 percent business expense and 20 percent personal expense.

She was given a list of over a dozen foreign entities and said she didn't know what they were. She assumed some were DMP's clients. The prosecution asked her if she would want to know for tax purposes if Manafort owned these entities.

Manafort lawyer Kevin Downing led Ayliff's cross examination.

He asked Ayliff a few "big picture" questions — asking what it was like working with Manafort and Gates. Ayliff said he found it difficult to get the information he often needed. He said when he did get the information he needed, it was often delayed or not until the last minute. This made it harder for him to do his job, Ayliff said.

Downing asked if it was Gates or Manafort that he worked with primarily. Ayliff responded "Both, but towards the end it was mostly Gates."

In one exhibit the government showed the court, there was a question about whether or not an Foreign Bankand Financial Accounts report (FBAR) had to be filed concerning a Manafort company in Cyprus. Someone on Ayliff's team consulted other tax experts at KWC, and the decision was made that an FBAR did not have to be filed, according to Ayliff.

Ayliff said he never learned of any entity that Paul Manafort had in Cyprus.

He said there were a number of things Manafort did not tell his bookkeepers or CPAs that would have been good for them to know. Here's one such interaction in follow up questioning from the prosecution:

PROSECUTION: Did Manafort ever tell you Peranova Holdings Limited was an affiliate of DMP International?

AYLIFF: No.

PROSECUTION: Would that have been good to know?

AYLIFF: Yes.

Defense attorney Kevin Downing said would ask Ayliff if he kept documentation for auditing purposes.

His argument, he said, will be that the prosecution is alleging that Manafort knowingly concealed his overseas accounts. If he wanted to do that, why would he leave evidence of that on his bookkeeping ledgers? "Only a fool" would knowingly do so, Downing said.

Cross examination will begin after lunch.

The prosecution asked Ayliff about a 2012 loan to Paranova Holdings. Ayliff testified that he asked Manafort for any documentation for this loan but was not given any. Manafort did not pay any interest on this loan in 2013 or 2014, he said.

Ayliff testified that Manafort's reported income dropped in 2014, at which point he started applying for mortgage loans. This lines up with the prosecution's argument that Manafort's cash flow dried up when Viktor Yanukovych was ousted.

The jury was shown an email from Manafort to Ayliff where Manafort instructed Ayliff that a property on 5th Avenue in New York City was never rented out, despite contrary documentation. Manafort told Ayliff to tell the bank that it was a personal residence.

Ayliff said that it was his understanding that it was always a rental property. "I told the bank that it was rental, not a personal residence," Ayliff said.

Manafort's accountant James Philip Ayliff returned to the stand Friday morning. He testified that he asked Manafort if he owned any foreign bank accounts and was told no. 

He was walked through a list of 15 Cyprus entities and Ayliff said that he thought they were Manfort's clients or wasn't aware of them altogether.

At this point, Manafort's wife, Kathleen, left the courtroom looking visibly upset. She later returned.

The jury saw that Manafort represented in each of his personal tax returns that he didn't own any foreign accounts. The prosecution asked Ayliff about Manfort's relationship with Gates, who said that he was Manafort's "right hand."

Ayliff also testified that he emailed Gates about a suspicious property purchase in New York City, asking about the source of the funds. Gates had responded that Manfort told him that the money came from his wife's savings account, Ayliff said.

Testimony will turn to how Manafort classified his personal and business expenses.

After the jury was dismissed, U.S. District Judge T.S. Ellis decided to talk about the responsibilities of the press after his grilling of prosecutors made waves yesterday.

Ellis said he had come across misleading news reports that suggested less-than-complete understanding of the legal arguments being made in the trial. And he said, "I've contributed to that by comments I've made."

Ellis dressed down prosecutors in pretrial hearings yesterday, implying that they put Manafort on trial only "to get Trump," focusing intently on their frequent use of the word "oligarch" in referring to business figures financing Viktor Yanukovych's campaign for president of Ukraine. Manafort spent most of a decade as a consultant to Yanukovych and his Party of Regions.

Ellis yesterday stressed the traditional definition of "oligarchy," meaning a state in which power resides in a select few. Prosecutors' use of the word was meant to imply that Manafort was consorting with criminals, when "the only thing we know is that they have a lot of money," he said, ordering prosecutors to "find another term to use."

Ellis said today that he's "not much for the press" and was speaking out because "the public should understand these proceedings."

The final witness today was James Philip Ayliff, a certified public accountant for Kositzka, Wicks and Co., or KWC, of Richmond.

The prosecution started questioning by asking a lot of background questions — Who is he, how did he get into accounting, what does a CPA do and so forth.

Ayliff said all dealings with a CPA start with an "engagement letter" that lays out what is expected of the client and the accountant. In an engagement letter signed by Paul Manafort, it is written, "You are responsible for management decisions and functions."

Tax returns from 2011 to 2015 shown to the jury were all signed by Manafort. One of the questions on the return was "Did you have signatory authority in an account in a foreign country?" The response on the tax form signed by Manafort was "No."

Ayliff said KWC also separately asks clients whether they have any foreign accounts, which would affect how tax return documents are prepared. They got through less than an hour today, so Ayliff is expected to return to the stand at 9:30 tomorrow morning when court resumes.

During cross-examination, the defense posited a few explanations for the discrepancies in the 2015 and 2016 bank statements.

One: A forgiven loan from Paranova, an overseas company that sometimes wired money to Manafort. When a loan is forgiven, it is usually credited as income — which in this case would have counted for an additional $1.5 million in income. Another: a simple miscalculation. The numbers did not add up in the 2016 bank statement given to Citizens Bank for a mortgage loan.

The defense also clarified to the jury that Heather Washkuhn, Manafort's bookkeeper, was not a CPA and only had some accounting background. They asked her if Gates sometimes approved payments.

"There wasn't a wall between personal and business expenses, correct?" Washkuhn said that Gates helped out with personal expenses at the direction of Manafort. "Mainly Manafort was the source" of approving payments and financial adjustments, she said.

Upon redirect from prosecutor Greg Andres, Washkuhn testified that Manafort did not disclose to Citizens Bank that he was renting out one of his properties on AirBnb. She also reiterated that she was not aware of any Manafort-controlled foreign bank accounts.

In total, Washkuhn spent more than three hours on the stand.

Next up: personal accountant Philip Ayliff.

The prosecution just finished directly questioning Heather Washkuhn, Manafort's bookkeeper, after more than two hours. 

Washkuhn testified that she kept track of Manafort's accounts and supplied his tax preparers with financial information. She walked the jury through DMP International's financial statements from 2013 to 2016. DMP recorded a profit until 2015, when they registered a loss of more than $638,000. In 2016, they recorded a loss of almost $1.2 million.

Prosecution also entered into evidence email chains between Washkuhn and Rick Gates. On one instance, in January of 2016, Gates said that Manafort wanted to add $1.6 million to their financial statements and asked her to do it. Since her company, MKSFB, kept records on a cash basis, she could not simply add more accrual revenue.

For the first time, the prosecution showed that Manafort submitted false financial statements to obtain a home loan. An email between Gates and Bank of California attached a false financial statement that showed that DMP International made $4 million more in 2015 than the official statement from MKFSB. An additional fake financial statement was attached to an email from Manafort to the Bank of California showing that DMP made more than $3 million through September 2016 — the actual statement from MKSFB showed a loss of $1.1 million.

Washkuhn testified that she knew these financial statements were fake because words were misspelled ("Septembe" instead of September; "revmw" instead of review) and the necessary disclaimer was missing from the bottom of the page.

Other financial documents from DMP showed that Manafort was receiving income from various overseas companies.

Barbara McQuade, former U.S. attorney and NBC News analyst, on testimony from Gates:

"Today, Greg Andres said that the prosecution “fully intends to call” Rick Gates as a witness after Uzo Asonye yesterday said that they may or may not call him.

"A defense theory has appeared to emerge that Gates was responsible for fake invoices from vendors to Manafort for items such as custom suits, landscaping and home entertainment. The government has offered these fake invoices (four so far), possibly to suggest that Manafort created them to extract even more cash from his shell companies, though the government’s theory about these fake invoices is not yet clear.

"The defense has asked questions on cross-examination tying these fake invoices to Gates. And of course, in opening statement, the defense argued that Gates embezzled from Manafort. It may be necessary for Gates to testify to refute this theory.

"It also may be necessary for Gates to testify for a more technical reason to establish the existence of a conspiracy, so that certain documents will be admissible under the co-conspirator exception to the hearsay rule. The judge said the government would likely use Gates’ testimony to attempt to establish the conspiracy for this purpose. Andres said yes, but that’s not the only way they could prove a conspiracy, so the prosecution is still hedging a little."

CORRECTION (Aug. 3, 2018 3:48 p.m. ET): An earlier version of this post misspelled the first name of an assistant U.S. attorney. He is Uzo Asonye, not Uzi.

Manafort's bookkeeper is up.

Heather Washkuhn has been Manafort's bookkeeper since 2011 and kept track of all of his income, as well as personal and business expenses. She told prosecutors that she did not know about any of Manafort's foreign bank accounts.

Washkuhn said she communicated with Rick Gates on business expenses from time to time but Manafort alone handled his personal expenses. She described Gates as Manafort's "right-hand man." Manafort "approved every penny" when it came to personal expenses, she said.

The jury was shown a general ledger from 2011 that detailed Manafort's income and expenses. She was asked to describe in detail income from foreign accounts that totaled more than $4 million in 2011. She said she didn't know the source of the accounts, only that they were coming in from overseas.

Washkuhn testified that she had signatory access to most of Manafort's accounts but didn't always get the access and documents that she requested.

Prosecutor Greg Andres asked Washkuhn about more than a dozen foreign companies that deposited or were billed through the ledger. Washkuhn said she was not aware of any of them.

More from Chuck Rosenberg, former U.S. attorney and NBC News analyst, on Judge Ellis' decision to prevent the prosecution showing more photos of Manafort's expensive suits and luxury goods:

"Some judges recognize when the government has a strong case and dial it back a bit (i.e., limit the government’s presentation in some way) ensuring that there is a clean record on appeal, if the government should obtain a conviction.

"It’s a bit of a risky game for a judge to play. He should just call balls and strikes, and apply the rules of evidence as written.

"Here, I believe that means the photographs would be admissible under Rule 403 as more probative than prejudicial. But, I’ve had judges say to me, in trial, you don’t need it (i.e., you will thank me when the record goes up to the appellate court and it is clean).

"The government cannot appeal an acquittal, so the judge’s calculation carries much more risk for the government than for the defendant."

"You never know how a jury is processing this, but the evidence from where I sit looks overwhelming ... it's in black and white, it's in the documents," Dilanian tells MSNBC's Ali Velshi.

The prosecution's 12th witness will be Heather Washkuhn, Manafort's bookkeeper. This suggests the prosecutors are finished with vendor testimony and now they are moving on to explaining how they claim Manafort hid his overseas accounts.

Michael Regolizio, the owner of New Leaf Landscaping and Maintenance, discussed the work he did for Manafort's home in Bridgehampton, New York.

He provided tree services from 2010-2012, and then took over full responsibility of all lawn care and maintenance from that point on. In government questioning, Regolizio said he only dealt with Manafort over phone and email, and Manafort always told him when to expect the wire transfers. Regolizio never spoke or had any dealings with Rick Gates or Konstantin Kilimnik.

Some of the work Regolizio did included mowing Manafort's lawn twice a week, and working on hundreds of flowers and a waterfall feature. Regolizio also pointed out that there was a flower bed shaped in the form of an "M" at the beginning of the driveway.

Regolizio was paid more than $400,000 between 2010-2014. The court was shown there were a number of Cyprus wire transfers that were applied to Manafort's New Leaf Landscaping account. Manafort was the only customer of Regolizio's paying by international wire.

Regolizio testified that starting around 2014, he was instructed to "CC" another party on the invoices, but could not remember who it was.

Regolizio was shown the purportedly fake invoices, and confirmed he had never seen them before the government showed them to him a few weeks ago. This makes it the fourth "fake invoice" of the trial so far.

The defense for the first time called suspicious invoices "fake," and Regolizio agreed.

The prosecution's first witness of the day three was Joel Maxwell, COO of Big Picture Solutions.

Maxwell testified that Manafort was a "top five" client of his company, and spent over $2.2 million over on TVs, internet networks and home automation at five of his properties. He said that he dealt directly with Manafort until 2013, when he billed through Rick Gates.

Prosecutors entered into evidence bank statements that showed money coming to Big Picture Solutions from Cyprus and Maxwell testified that the money was applied to Manafort's accounts.

A potentially fake invoice was shown to Maxwell. "I've never seen this," he said. The invoice purported to be from Big Picture Solutions, LLC (Maxwell's company is Inc, not LLC) billing Global Endeavour, LLC for $163,000.

There was a payment stamp from a bank in St. Vincent and the Grenadines. This is the third potentially fake invoice to Global Endeavour that has been presented at trial. Bank records showed that Big Picture Solutions were paid on occasion from Global Endeavour's Cyprus accounts.

Upon cross-examination, Maxwell testified that in emails Gates explained that it was "hard to move money from his account to mine."

Next witness: Michael Regolizio, the head of a landscaping firm.

And Day Three is underway.

After the prosecution yesterday cast doubt on calling Rick Gates as a witness, they immediately clarified this morning that they intend to have him on the stand. Gates, Manafort’s former business partner, has already pleaded guilty in a deal with Mueller and is considered a key witness for the prosecution.

Prosecutor Uzo Asonye said they are constantly evaluating which witnesses will be called from the list of 35, in an effort to shorten the trial.

Meanwhile, we have an update on the dispute over whether photos of Manfort’s flashy suits and expenditures will be shown to the jury.

Judge Ellis told prosecutors that he isn't likely to allow it because doing so could unfairly "besmirch the defendant."

"It could engender bias against rich people," Ellis told prosecutors, saying he didn’t want them to “gild the lily.”

The jury has seen some photos, but despite a brief filed late Wednesday from prosecutors, urging the judge to let them show more evidence of Manafort's lavish spending, the judge indicated he's not likely to loosen the reins. Jurors have seen some photos, but not as many as prosecutors wanted them to see.

And in case you were wondering what a $15,000 ostrich jacket looks like, that is one on the left. These jackets were among the collection of high-end menswear submitted by the government as evidence on Wednesday.

And some thoughts from Chuck Rosenberg, former U.S attorney for eastern district of Virginia and NBC News analyst, on the trial brief filed by Mueller’s team overnight:

“The government believes that the judge has improperly prohibited them from introducing certain evidence at trial, to demonstrate that Manafort intentionally filed false tax returns. Remember, that burden is on the government and it must show specific intent. That’s a high burden. So, the government did some research and is presenting the judge with a bunch of cases that say it would not be error for him to permit the photographs of Manafort’s luxury items and large expenditures to be put before the jury.

 “Note that the cases the government references generally say it is not an ‘abuse of discretion’ for a judge to permit such evidence to be introduced.  This is where they think the judge is wrong in ruling that the evidence they want to use is essentially more prejudicial than probative — the heart of rule 403 of the federal rules of evidence. The judge is wrong to keep such evidence out, and well within his discretion — so these cases say — to permit the government to introduce it.

“The trial brief is an attempt by the government to get the judge to change his mind. I will say this about Ellis — I have seen him reconsider his own rulings during trial. The judge could change his mind, so this is worth a shot by the government. I have occasionally done this in the middle of trial where I think a judge is misinterpreting a rule of evidence or a rule of procedure.”