FOR SETTLEMENT PURPOSES ONLY

FOR SETTLEMENT PURPOSES ONLY
The Government Should Decline All Proposed Charges Against Frank Parlato. Prosecution Team Briefing October 19, 2015 FOR SETTLEMENT PURPOSES ONLY

Introduction The Government shared several proposed charges with us. This presentation fully rebuts each charge. As previously agreed, we are not proffering, in this presentation, representations from our client. This information consists of exculpatory documentary evidence, including testimony, as well as a description of testimony the Government could readily elicit from other witnesses. This includes privileged information entirely within the four corners of the Fed. R. Evid. 502(d) order entered by Judge Arcara. We are making materials available to you; additional materials are available at your request. The Government should decline the proposed charges. FOR SETTLEMENT PURPOSES ONLY

THE PROPOSED REGER CHARGE
FOR SETTLEMENT PURPOSES ONLY

The Government’s Theories – As Stated at Reverse Proffer of Sept. 16th and by AUSA Bruce In 2008, Frank Parlato lied to Larry Reger to avoid paying a $200K mandatory distribution due from Tourist Services. When Larry Reger demanded $200K, Frank Parlato showed Larry Reger fraudulent statements showing Tourist Services expenses equal to receipts in that period. Based on that misrepresentation, Larry Reger deferred his distribution. Frank Parlato diverted funds from Tourist Services, without the knowledge of Larry Reger. In the summer of 2010, when Frank Parlato begins negotiating the sale of his interest in the business, he established two One Niagara Center accounts (HSBC and M&T) to hold Tourist Services funds. He deposited Tourist Services funds, in the form of checks made out to One Niagara LLC, into accounts for One Niagara Center. In July 2010, Frank Parlato embezzled $425K from One Niagara Center accounts into his own personal accounts. FOR SETTLEMENT PURPOSES ONLY

The Government’s Key Evidence– As Stated at Various Times
In 2007 or 2008, Frank Parlato prevented Larry Reger’s accountant, Doug Szalasny, from accessing online accounts by changing a necessary password. Frank Parlato made this account available, but then quickly made it unavailable. He did so to prevent Larry Reger from seeing the books. Frank Parlato failed to share records with Larry Reger’s accountant, Doug Szalasny. Doug Szalasny repeatedly sought access to Tourist Services books, and he did not receive requested records. Despite his efforts, Doug Szalasny could never understand Tourist Services revenues or receipts and felt that Frank Parlato was not “fully forthcoming.” FOR SETTLEMENT PURPOSES ONLY

The Government’s Key Evidence– As Stated at Various Times
Frank Parlato’s co-conspirator Chitra Selvaraj lied to accountant Franca Romeo by stating that she never knew how to use Quickbooks. In fact, both Doug Szalasny and Paul Grenga had trained her on Quickbooks. Chitra Selvaraj refused to use Quickbooks – or lied about not using it – to hide or obscure Tourist Services’ bookkeeping from Larry Reger. Larry Reger believed that Frank Parlato misled him. Larry Reger testified he never understood that Tourist Services funds were deposited into Whitestar accounts Larry Reger further testified that he was not aware of how deposits were handled. Larry Reger believed that Frank Parlato “got one over on him.” FOR SETTLEMENT PURPOSES ONLY

The Government’s Allegations
The Government cannot prove any of those allegations. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. Point A – As an initial matter, this purported fraud in 2008 is well outside the limitations Period (Before mid-2010). The statute of limitations for wire fraud prosecutions is just five years. See 18 U.S.C To fall within the wire fraud limitations period, the Government must specify a fraudulent wire communication that took place after mid See, e.g., United States v. Crossley, 224 F.3d 847, 859 (6th Cir. 2000) (“the offense of mail fraud is completed and the statute of limitations begins to run on the date on which the defendant [makes a mail communication] as part of the execution of a scheme to defraud”). Earlier fraudulent wires cannot be charged on the theory that the fraudulent scheme extended into the limitations period. United States v. Barger, 178 F.3d 844, 847 (7th Cir. 1999) (“Mail fraud is not an offense whose statute of limitations begins to run at the end of a continuous course of criminal conduct [Rather,] the crime of mail fraud is completed at the time of the mailing. The actual duration of the scheme is of no import.”) FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. Point B – The Government Has never identified a Relevant wire. This alleged fraud was an in-person meeting with a written agreement. The purported misrepresentations were in person and purportedly in a false piece of paper, and the deal was written on a cocktail napkin. No obvious wire exists. And the Government has never identified a chargeable wire. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. Point C – In any event, the Government cannot prove that Tourist Services had sufficient cash, after all expenses, to pay the mandatory distribution. The Government claims that Larry Reger was deceived into believing that Tourist Services did not have income to cover the distribution in 2008. The Government has specifically claimed that, when Larry Reger was shown a record purportedly indicating that expenses were equal to receipts, that record was “a crock of sh*t” Yet the Government has not described any evidence that Tourist Services made a profit in 2008. Nor has the Government shown that Tourist Services had sufficient cash in late summer of 2008 to pay down all expenses through the start of the next tourist season in the summer of 2009 (i.e., the next time cash would flow in). FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. Larry Reger, after having all of the relevant records, testified that he concluded that Tourist Services did not have enough money for his distribution. In March 2015, Larry Reger testified that, around 2008, he gave up a $200K mandatory payment “because there wasn’t enough cash to pay for all the expenses.” See Testimony of L. Reger, Trans. of Mar. 11, 2015, Shmueli v. Whitestar, Index No (Erie County Supreme), at (Reger Trans.), Ex. 22. By that time, Larry Reger had received copies of all of the relevant financial records as part of the various Shmueli proceedings. This included all of the bank statements relating to Tourist Services and related accounts in It also included the “Master Transfer List,” and all tax returns. After a full opportunity (and every reason) to review those records, Reger concluded in sworn trial testimony there Tourist Services simply did not have not enough cash for the 2008 distribution. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. The Government’s portrayal of Larry Reger as a silent victim, who was reluctant to assert his rights, is beyond credibility. Reger was a savvy investor, who generally took every advantage available to him in transactions. He kept accurate financial records of money owed to him, ran transactions through legal counsel, and did not hesitate to protect his interests. He was personally active in monitoring the business of Tourist Services. By 2011, Larry Reger would have received relevant financial records as part of the various Shmueli proceedings. Greg Photiadis, counsel for Reger and his successors, has confirmed that Reger never complained or claimed to have been cheated by Parlato. Photiadis participated in proceedings focused on these transactions, on behalf of Larry Reger. Not only did Reger not make a claim, Photiadis has explained that neither he nor his successors view themselves as victims. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. Point D – The Government is Also Wrong in Claiming (Presumably for Loss Calculation Purposes) that Reger Deferred, Rather than Waived, the Distribution. This is the “cocktail napkin agreement.” In the agreement, Larry Reger waives his remedy for non-payment of the 2008 distribution (i.e., removal of Frank Parlato as manager), in consideration for a substantial increase in an interest payment on his bridge loan. See Ex. 30. Paul Grenga was present and would testify that Larry Reger agreed to a waive – not simply defer – his 2008 distribution. That is also how Reger testified in March 2015. “By 2008, the expenses of the building were exceeding the 25 percent that was due to it And I forego some of the $200,000 payments.” Reger Trans. at 316 (Ex. 22). FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. In summary – The 2008 distribution is well beyond the limitations period. The limitations period does not extend beyond mid-2010. The Government has never identified a fraudulent wire. This was an in- person meeting, with an alleged fraudulent piece of paper shown to Larry Reger, and an agreement written by pen on paper. There is no evidence that Tourist Services had profits in 2008 to cover the mandatory distribution. Larry Reger had access by 2015, and well before, to all relevant records. Yet Reger swore under oath in 2015 that Tourist Services did not have sufficient cash in 2008. Contrary to the Government’s characterization, there is no evidence the agreement was a deferral, rather than a waiver; in fact, Reger admitted it was a waiver. Paul Grenga, who was there, will testify that it was a waiver. The language of the agreement supports that. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show That Frank Parlato Lied to Larry Reger to Avoid Paying the $200K Distribution. For these reasons, the Government cannot sustain a charge against Frank Parlato for allegedly lying to Larry Reger to avoid paying him the $200K distribution. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A – The Government Cannot Show That Any of the Identified Transfers Were Fraudulent. As an initial matter, they are all outside the statute of limitations. The 2009 transactions are outside the limitations period, even with tolling agreements. This theory is time barred. In any event, none were fraudulent. Indeed, all of the 2009 transfers were disclosed to the tax preparer and reflected in her work papers. Incoming deposits into the operating accounts were reported as income, and outgoing transfers were recorded as distributions, loan repayments, expense payments, etc. The Agents have all of this information in the Romeo work papers. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. The first 2009 transfer: 8/06/09 - $200,000 from M&T #0702 Whitestar to Citizens Bank Dayton Ingersoll account This transaction was immediately after Parlato learned of Altissima’s Notice of Pendency for 360 Rainbow Blvd. The purpose of the transfer was to safeguard funds from Shmueli’s aggressive tactics and to protect the mandatory distribution due to Reger at the end of the year. Shmueli had information subpoenas going out to M&T Bank at that time. Reger and his companies were defendants in many of the lawsuits, and were well aware of the efforts to attach assets, appoint a receiver, and enjoin the operations of One Niagara and Tourist Services. The transfer was reflected on M&T bank statement provided to Franca Romeo and also disclosed to Parlato’s attorney, Paul Grenga. This transfer was not hidden from anyone other than Shmueli. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) Reger was in fact paid his mandatory distribution (by check dated 12/23/09 drawn on Whitestar account). Reger was well aware of Whitestar and other accounts, because he was paid out of same and s confirm knowledge as early as August of 2007. The tax preparer appropriately booked this as a management fee from One Niagara, which he indisputably had a right to receive. Tourist Services P & L for 2009 conformed to tax returns and showed profit for year of approximately $200,000. Parlato and Reger would meet in Florida each year-end and discuss P & L for year FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) Second 2009 transfer: 08/24/09 - $400,000 from Whitestar to Parlato Dev. Transfer was disclosed to accountant and to attorney This transfer was to pay Parlato earned and deferred management fees for his operation of One Niagara; and it was booked as such by the tax preparer The decision to book this as a management fee was pursuant to advice of counsel as reflected in Paul Grenga’s letter dated 8/27/09 Grenga noted that that Parlato was the sole managing member of One Niagara with broad powers to set his management fee FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) Grenga noted that Under New York law, “Unless otherwise provided in the operating agreement, the managers shall have authority to fix the compensation of managers for services in any capacity.” NYS Limited Liability Law 411(e). Rider #1, paragraph E(vi), of the Operating Agreement allows the Manager to hire Whitestar or an affiliate to manage the property so long as the terms are not materially more favorable than those on which the company could hire another company providing similar services. Grenga also advised him on an appropriate amount and will testify that the rate of $225,000-$250,000 per year was not unreasonable or outside market rates given the size of the project. This advice completely negates fraudulent intent by Parlato. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) Over the 5 and ½ years that Parlato owned One Niagara, he took an average of $240,000 per year, which was a reasonable fee. Since cash flow was an issue in the early years of the project, Parlato caught up on his fees in 2009 and There is nothing illegal or questionable about this, which Grenga’s advice supported. All management fees were recorded on the returns of One Niagara, Whitestar and Parlato; and there can be no dispute on these facts: all of this is clearly reflected in Romeo’s work papers, which have been in the Government’s possession for months. Although Reger was aware of the fees, he had no standing to object because he had no ownership interest in One Niagara or any power to set Parlato’s compensation for One Niagara FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) The other 2009 transfers: On August 31, 2009, Parlato, Grenga and Roscetti learned of Shmueli’s unsuccessful trumped up ex parte attempt to attach funds through two federal court actions; they were shocked that lengthy hearings could have been held without their knowledge; the allegation was that Parlato was about to flee the country, which was based on a statement that Grenga had made about Grenga leaving the country Grenga and Parlato discussed options to safeguard the companies’ funds from further efforts by Shmueli to tie them up. Grenga advised him that there was nothing illegal in moving the funds into other accounts so that Shmueli could not attach them. Grenga assisted Parlato in setting up the accounts. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) Third through Sixth Transfers: 09/01/09 – $150,000 from M&T Whitestar to M&T Parlato 09/02/09 - $50,000 from M&T Whitestar to Citizens Bank Parlato Development 09/18/09 - $60,000 from M&T Whitestar to M&T Parlato Development 11/02/09 - $50,000 from M&T Whitestar to Select Development These transfers were all part of the effort to safeguard money from Shmueli’s aggressive attempts to restrain, enjoin and attach Parlato’s funds. The purpose of these transfers was clearly recorded on the “Master Transfer List,” created long before the Government investigation. And the items were all recorded as income to Tourist Services when received. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) As with the other amounts set forth above, all transfers to Parlato entities were fully disclosed to Paul Grenga and to Franca Romeo, who accounted for all of them in her work papers and on the returns As already noted, Reger was advised of the use of alternate bank accounts Reger may not have recalled the names of all of the accounts, but he knew that all transactions were reconciled and accounted for FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part A (2009 transfers, continued) These facts negate any inference of fraudulent intent: Parlato fully disclosed these transactions to his accountant and to his attorney. Nothing was “hidden.” Parlato was advised by his attorneys to use alternate bank accounts to safeguard funds from Shmueli’s aggressive tactics. None of these accounts were outside the U.S., and all of them had Parlato’s name and social security number associated with them. Parlato was advised by his attorneys to take management fees from One Niagara Reger was aware of Parlato’s interest in One Niagara, his entitlement to management fees, and the fact that he took them. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part B – The Government Misunderstands the Purposes and Use of the One Niagara Center Accounts One Niagara Center Inc. was formed in May 2010. As discussed later (in the Klein section), around this time, Shmueli was commencing yet another lawsuit seeking a receivership Although One Niagara Center was formed in May 2010, the bank accounts were not opened until mid-June (HSBC) and July 10 (M&T) The entity was formed to transition the business. As of that time, 07/09/10, Grenga already knew he was buying Whitestar. He and Parlato agreed to use the One Niagara Center accounts to transition the Whitestar business from Parlato to Grenga, during the first month. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part B (Niagara Center) The accounts were transitioned with the sale of Whitestar. Paul Grenga took over the account after the late July sale. In August 2010, Grenga transferred funds from the account into the newly formed Whitestar at 360 Operations LLC M&T account. Larry Reger knew about all of these accounts years ago. Among other things, these accounts were litigated in the Incredible Investments case in W.D.N.Y. Shmueli subpoenaed records from M&T for the accounts involved in this transition: (i) One Niagara Center; and (ii) TS at 360 Operations LLC. That subpoena was served on September 2, 2011. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part C – The Government Cannot Show That Any of the Identified Transfers Were Fraudulent. The transfers: 07/09/10 - $400,000 to Parlato from One Niagara Center HSBC to One Niagara Center M&T. This was an intra-company transfer. Because the income was booked when it came into Tourist Services account, there was no need for an additional entry when it was transferred to the same company’s account at another bank. Franca Romeo’s work papers support this. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. (Part C cont.) 07/20/10 – Cataract Tours checks for $57,223 were deposited into One Niagara center M&T. These deposits were properly recorded as income to Tourist Services. See Romeo work papers. 07/23/10 - $25,000 cash into One Niagara Center M&T. This also was properly recorded as income to Tourist Services. See id. $425,000 from One Niagara center M&T to Parlato Development. This reflected Parlato’s catch-up management fee for operating One Niagara LLC. It was fully disclosed to Paul Grenga and to Franca Romeo, who properly accounted for it as management fees for One Niagara. 07/28/10 - $80,000 – Niagara Frontier – allegedly personal use. This was also properly booked as One Niagara management fees. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. (Part C cont.) As with the 2009 transfers, each payment appears on “Master Transfer List,” was disclosed to Parlato’s attorney, and the tax preparer accounted for them on the tax returns. ALL DISTRIBUTIONS TO PARLATO WERE BOOKED AS MANAGEMENT FEES OF ONE NIAGARA ON ADVICE OF COUNSEL: THAT ADVICE DATED BACK TO AUGUST OF 2009, WHEN FIRST DISTRIBUTIONS WERE PAID. PARLATO HAD THE RIGHT TO FEES IN THE RANGE OF $225,000- $250,000 FOR THE 5-1/2 YEARS HE OPERATED THE COMPANY Both the IRS and Reger had ample opportunity to challenge the tax treatment of the management fees in a civil context but failed to do so. See 26 CFR (b)(3) (“It is, in general, just to assume that reasonable and true compensation is such amount as would ordinarily be paid for like services by like enterprises under like circumstances.”) FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. (Part C cont.) To the extent that the Government alleges that the management fees were excessive, such matter has already been litigated. In the Shmueli v. Whitestar, Sup. Ct. Erie County, Index No , Shmueli made a claim for deductions of improper expenses – including management fees. Shmueli could not offer any testimony or proof to establish that management fees were excessive or that they were not commercially reasonable. By order dated June 10, 2015, Judge Walker dismissed the claim on a motion for a directed verdict at the close of plaintiff’s case. This issue of excessive management fees was thus litigated and decided in favor of Frank Parlato. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. (Part C cont.) Moreover, Paul Grenga and Larry Reger himself testified that the David Ho had taken much higher management fees. As Paul Grenga testified: “[T]hat’s an extremely conservative number compared to the million dollars a year David Ho paid for management fees.” (Grenga Trans. at 147.) As Larry Reger testified: “Your owner, Mr. Ho, was spending half a million dollars just on keeping a person there.” (Reger Trans. at 289 (Ex. 22)) FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. (Part C cont.) Meanwhile, Mr. Ho’s manager had managed a nearly vacant building; while Mr. Parlato’s management transformed the enterprise into bustling and successful development. To the left is the nearly vacant property under and through Mr. Ho’s higher-paid management. To the right is the property under Parlato. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. In summary as to these transfers: As to its assertion that Parlato and/or Whitestar took money from Reger “out the back door,” the Government cannot prove that the transfers were improper. To the contrary, Parlato was entitled to a management fee for his management of One Niagara, as per the Shmueli litigation, and as agreed to by Reger himself in testimony. Reger was never entitled to 50% of these funds, as only Whitestar and Parlato, not Reger, had an ownership interest in One Niagara Moreover, documentary evidence shows that Reger was aware of (and often named in) the Shmueli lawsuits, that he agreed that moneys should be safeguarded from Shmueli, and that he was aware of the use of other accounts. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Part D – The Government Cannot Show Criminal Intent. The Government cannot show a specific intent to defraud and a lack of good faith, beyond a reasonable doubt, for any identified transfer. The burden is on the Government to show fraudulent intent and a lack of good faith beyond a reasonable doubt. Good faith reliance on the advice of counsel completely negates fraudulent intent. See United States v. Quinones, 417 Fed. Appx. 65, 67 (2d Cir. 2011) (If “a man honestly and in good faith seeks advice of a lawyer as to what he may lawfully do , and fully and honestly lays all the facts before his counsel, and in good faith and honestly follows such advice, relying upon it and believing it to be correct, and only intends that his acts shall be lawful, he could not be convicted of crime [sic] which involves willful and lawful intent to [defraud]”). FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Prove That Frank Parlato Embezzled Any Tourist Services Funds. Frank Parlato relied on the advice of counsel. Contemporaneously with the relevant events and not after the fact, Paul Grenga, as counsel, advised Parlato (1) to move the funds to safeguard them from Shmueli, and (2) that he was entitled to take an earned and deferred management fee for each of the years in which he managed One Niagara. Paul Grenga would testify to these points. Counsel also helped him prepare and report the transactions on the business returns. FOR SETTLEMENT PURPOSES ONLY

3 – There Is No Evidence That Frank Parlato Changed Any Online Passwords. The Government has not identified what account login and password Frank Parlato or a conspirator allegedly changed. At times, the Government has said it was an accounting software password. It could not be online accounting software, as there is no evidence Frank Parlato or any relevant companies had cloud-based software in 2008. At other times, the Government has claimed it was a bank account password that was changed. The Government appears to be examining the login and password for online M&T bank accounts. For a period of time, updates were periodically provided to Doug Szalasny by Chitra Selvaraj. See, e.g., dated Aug. 19, 2007 (Ex. 25); dated Feb. 12, 2007 (Ex. 52). FOR SETTLEMENT PURPOSES ONLY

3 – There Is No Evidence That Frank Parlato Changed Any Online Passwords. There is no evidence that Frank Parlato or anyone else changed bank account passwords or logins. Rather, the bank periodically prompted password changes. That is likely why any password became stale. Early on, Chitra provided Szalasny with the updated password. See, e.g., dated Feb. 12, 2007 (Ex. 52) (“New password for Tourist Services Online Banking”) (explaining “bank requires the password of the online account to be changed every 6 months or so”). But there is no evidence that Larry Reger or Doug ever asked for the login and password to the new accounts. We have not seen any such evidence. FOR SETTLEMENT PURPOSES ONLY

3 – There Is No Evidence That Frank Parlato Changed Any Online Passwords. There was no reason for Doug Szalasny to receive any update. Szalasny discontinued work with Tourist Services by In his testimony, Reger states, “[w]e were going to try to help out; but we had too many other things to do, so we did not follow through.” He says Szalasny just “did a little work there” in See Reger Trans. at (Ex. 22). It seems most likely that the Government is viewing an obsolete password as a changed password. That is error. FOR SETTLEMENT PURPOSES ONLY

4 – The Claim That Frank Parlato Failed to Share Records With Larry Reger’s Accountant is Meaningless. This allegation relates to a very short time period in 2006, when Doug Szalasny had extremely limited interactions with Tourist Services. According to Chitra Selvaraj: Szalasny was on site, in aggregate, three to four times; He came on board to assist in the very first season (2006); He was involved only for a month or two, in the summer of 2006 According to the testimony of Larry Reger: “He did a little work there, but he got sidetracked with many other things we were doing.” Reger Trans. at 310 (Ex. 22). “We were going to try and help out; but we had too many things to do, so we did not follow through.” Id. at 311. FOR SETTLEMENT PURPOSES ONLY

4 – The Claim That Frank Parlato Failed to Share Records With Larry Reger’s Accountant is Meaningless. Doug Szalasny’s limited interaction with the books of Tourist Services – in its very first season – sheds no light on the charged conduct years later. There is no evidence that Tourist Services maintained the books in the same manner four years later, in This testimony would therefore be irrelevant. The inability of Szalasny to figure out the books is immaterial. He was pulled off the project quickly, so it is it would be speculative to claim he could not have figured out the books with time. In any event, he was not an accountant, but simply a bookkeeper who was quickly removed from the project by Reger. See, e.g., Reger Trans. at 311(Ex. 22) . His opinion testimony is inadmissible. FOR SETTLEMENT PURPOSES ONLY

4 – The Claim That Frank Parlato Failed to Share Records With Larry Reger’s Accountant is Meaningless. When Larry Reger and his lawyer, Greg Photiadis, later obtained all of the relevant books and records, they concluded otherwise. Photiadis made this clear in his October 2015 letter. He had access to these records in the various cases and was “knowledgeable about [Reger’s] Niagara Falls interests in Tourist Services LLC and its relationship with One Niagara LLC.” His position, and that of the Reger successors, is that “Larry was neither cheated nor defrauded by Parlato.” (Ex. 47) Larry Reger acted accordingly. As Photiadis explains, Reger “was not shy in protecting his interest, when necessary, through civil litigation.” Yet, despite access to all the relevant records (the same ones the Government has), “Larry never claimed that he was defrauded or cheated by Parlato nor did he initiate any civil action in that regard.” FOR SETTLEMENT PURPOSES ONLY

4 – The Claim That Frank Parlato Failed to Share Records With Larry Reger’s Accountant is Meaningless. There is no way to extrapolate from a bookkeeper’s abbreviated, unfinished 2006 review of a new operation’s books to Larry Reger’s understanding at least four years later. This testimony is unlikely to be admissible. In any event, it is of marginal value, at best. This is especially so where Reger and his counsel ultimately accessed all of the transactional records through litigation and concluded that Reger had not been defrauded. FOR SETTLEMENT PURPOSES ONLY

5 – The Government is Simply Wrong About Quickbooks.
The Government is confusing Quickbooks and Quicken. Both programs are made by Intuit. Quicken is the simple program; Quickbooks is the more complex program with double-entry accounting features. Chitra Selvaraj first learned Quickbooks from Franca Romeo in September 2010. This was not a lie to deceive Franca Romeo. Prior to the meeting, Chitra Selvaraj had used Quicken, not Quickbooks. Following the meeting, for the first time, Chitra purchased Quickbooks. See Receipt, dated Sept. 2, 2010 (Intuit Quickbooks Pro 2010) (Ex. 54). FOR SETTLEMENT PURPOSES ONLY

There is a slew of evidence showing that Chitra Selvaraj used Quicken – not Quickbooks – prior to September 2010. In April 2008, Tourist Services forwarded Quicken – not Quickbooks – data to its accountant. See dated Apr. 17, 2008 (“Please find attached the quicken data set.”). Also in 2008, Tourist Services’ accounting firm input the company’s Quicken data into Quickbooks. The only reason to have an outside company input this data is because Tourist Services did not have or know how to use the software. Likewise in 2008, Paul Grenga sought Quicken reports from Tourist Services. See dated June 5, 2008 (“Chitra, Can you run a Quicken report”). We can identify more evidence along these lines. FOR SETTLEMENT PURPOSES ONLY

Chitra Selvaraj’s 2009 deposition testimony does not state that she used Quickbooks. Chitra testified that she entered data “into either Quick Books or Quicken.” She explained that she could not remember which. See Trans. of Dep. of Chitra Selvaraj, dated July 16, 2009, at 169 (Ex. 53) (“I don’t remember”). That deposition also reflects that the financial records were actually in Quicken, not Quickbooks. See, e.g., Trans. at (Ex. 53) (“Quite frankly, I think the stuff we gave you is Quicken stuff.”) FOR SETTLEMENT PURPOSES ONLY

Paul Grenga erred in telling the grand jury that he had trained Chitra Selvaraj on Quickbooks. Instead, he had trained her on Quicken. He, like the prosecution team, misunderstood the difference between Quicken and Quickbooks. We learned from his counsel that, following his testimony, he realized his mistake. We understand that he has, or will, correct his testimony. FOR SETTLEMENT PURPOSES ONLY

This Quickbooks theory is yet another misunderstanding. It is difficult to understand, even if true, what this would show. In any event, the Government has its facts wrong. The evidence shows that: Tourist Services used (and Chitra knew) Quicken, not Quickbooks. Paul Grenga had trained Chitra on Quicken, not Quickbooks. When Chitra told Franca that she did not know Quickbooks, that was true. After learning Quickbooks, Chitra purchased it for the company. FOR SETTLEMENT PURPOSES ONLY

6 – Larry Reger Did Not Believe That Frank Parlato Misled Him.
As an initial matter, Larry Reger is dead and cannot testify. He will not be a witness. His prior testimony cannot be used against Frank Parlato. It is inadmissible hearsay. It is barred by the Confrontation Clause. FOR SETTLEMENT PURPOSES ONLY

In Any Event, Larry Reger Did Not Believe That Frank Parlato Misled Him. His lawyer has expressed this to the Government. See Oct Ltr. (Ex. 47) (“Larry was neither cheated nor defrauded by Parlato.”) Larry Reger’s actions also reveal that he did not believe he was misled. He never sued Frank Parlato. This was true, even after he saw the underlying transactional documents in litigation. He swore, in court, that Frank Parlato did not cheat him. In particular, he testified that, in 2008, Tourist Services did not have the cash to pay his $200K distribution. See Reger Trans. at 316 (Ex. 22). FOR SETTLEMENT PURPOSES ONLY

The Government Simply Appears to Misunderstand Reger’s Grand Jury Testimony. Larry Reger probably forgot about Whitestar. Reger apparently testified in the GJ that he was not aware of financial details, including whether Tourist Services funds were deposited in Whitestar accounts. But Larry Reger had drawn Tourist Services funds from Whitestar. See, e.g., Checks to Larry Reger from Whitestar for Tourist Services distributions. In 2009, Judge Skretny noted, in a decision in which Larry Reger was a party, that Whitestar and Tourist Services shared an account. See Decision and Order dated Aug. 31, 2009, at 12 (Ex. 33) (noting “Tourist Services’ revenues” are “deposited and intermingled in Whitestar’ account”). FOR SETTLEMENT PURPOSES ONLY

Moreover, Larry Reger had access to all transactional records showing the role of Whitestar. By the time of his grand jury testimony, he had these for years. And it is quite likely Larry Reger could not recall – because he never cared about – the details he was asked about in the grand jury because he knew Frank Parlato was treating fairly. He had been apprised of bank accounts shifting from the outset. See, e.g., dated Aug. 19, 2007 (re initial account change to Johnston & Peach account) (Ex. 25). But he did not care about which entities or accounts held funds. He testified: “The only business dealings I had was with people, I did it with Parlato and Grenga. People. If there was – if they had companies behind them, I didn’t address that. I only dealt with people.” See Reger Trans. at (Ex. 22); see also Ex. 57 at 32. FOR SETTLEMENT PURPOSES ONLY

Conclusion – No Valid Reger Charges
The Government should decline to prosecute charges related to Larry Reger. FOR SETTLEMENT PURPOSES ONLY

THE PROPOSED KLEIN (18 USC 371) & TAX OBSTRUCTION (26 USC 7212) CHARGES FOR SETTLEMENT PURPOSES ONLY

The Government’s Allegations – As Stated at Reverse Proffer of Sept. 16th and by AUSA Bruce The Government contends the following allegations establish these charges: Frank Parlato “establish[ed] 17 corporations, 13 of which had no purpose other than to open a bank account through which money was washed,” and opened “50+ bank accounts, again with no legitimate purpose.” His lawyer did not know about these companies. His accountant did not know about these companies. Frank Parlato’s use of IOLA accounts “def[ies] explanation.” Frank Parlato wrongfully failed to file returns for these entities. This all shows that Frank Parlato intended to defraud/obstruct the IRS. FOR SETTLEMENT PURPOSES ONLY

The Government’s Allegations
The Government cannot prove any of those allegations. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Point A – The Government Overstates the Numbers. Some of the companies were operating entities; others are old entities. In claiming 13 non-operating companies, out of a purported 17, the Government excludes only operating entities One Niagara LLC, Whitestar Inc, Tourist Services LLC, and One Niagara Plaza Inc. Three more entities should be excluded because they were created well before the alleged hiding of assets or income. Those are: (1) Buffalo Niagara Development; (2) Johnston & Peach; and (3) Parlato Development. 1 - Buffalo Niagara Development: Formed in 2001, as per NY filings. Inactive since 2006 and irrelevant to the case FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. 2- Johnston & Peach Formed in 2005, as per NY filings Formed to operate businesses on the first floor of One Niagara Discontinued when Tourist Services leased the first floor; largely inactive since 2008. 3 - Parlato Development Formed in 2003, as per NY filings The records and testimony show that Grenga was aware of this account and that transfers into this account were reported to the IRS. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Point B – The Remaining Companies Were Created and Used Legitimately, Mainly to Protect Assets From Illegitimate, Vexatious Litigation Tactics by Shmueli. The August 2014 subpoena lists eleven other companies. Dayton Ingersoll & Associates Selvaraj LLC Andrew Thomas Inc. Niagara Frontier Development Corp Niagara Frontier Lending Corp Robert Francis Development One Niagara Center JL Frost Williamstown Development Gold Field Consulting JF Anderson Consulting FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. One Niagara Center was used to transition the business, as part of the sale. Formed in May 2010 to transition business from Parlato to Grenga (see prior slides) Around this time, Shmueli started yet another lawsuit before Judge Boniello in Niagara County, seeking a receivership and again accusing Parlato of mismanagement. There was extensive coverage of the allegations in the Niagara Gazette and Buffalo News, day after day. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. The Shmueli litigation timeline tracks the creation of the other companies. Shmueli was a relentless, unpredictable, and unprincipled litigator. Jim Roscetti would describe him as “a total hustler, a Lex Luther.” He has lost numerous lawyers, who have withdrawn from representation and/or sued him, including: Damon & Morey; Anderson & Anderson; Kloss, Stenger & Lotempio; Zdarski, Sawicki & Agostinelli (represented by Larry Villardo); Steven Cohen; Jaeckle, Fleischmann & Mugel; Andre Lavoot Bluestone; Kazlow & Kazlow; Michael Paskowitz; Newhouse & Yacoob; Robert Coryl Shmueli sought repeatedly – often through ex parte motions – to freeze known assets of Frank Parlato or his companies. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Dayton Ingersoll & Associates is an early response to the Shmueli threat: On Sept. 6, 2007, Shmueli applied for a TRO to freeze assets in Parlato v. Incredible Investments, Index (Niagara Sup. Ct.). To protect assets, Paul Grenga recommended that Frank Parlato use “disregarded entities” to protect the assets of One Niagara, Tourist Services and Whitestar from Shmueli. On Mar. 14, 2008, Shmueli re-applied for the TRO to freeze assets and to obtain financial records. On Mar. 17, 2008, Shmueli was assigned a purported “proxy” in One Niagara by David Ho, which would lead to additional litigation. The next day, on Mar. 18, 2008, Paul Grenga formed Dayton Ingersoll. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Selvaraj; Andrew Thomas; Robert Francis; Niagara Frontier Lending Corp; and Niagara Frontier Development all came into existence following another Shmueli threat: On Aug. 31, 2009, Judge Skretny denied two ex parte motions filed by Shmueli for an order of attachment in Incredible Investments Ltd. and in Altissima Ltd. (Ex. 33) Shmueli sought an attachment against Parlato’s property. On Sept. 11, 2009, as per Judge Skretny’s order, Shmueli filed his underlying papers to reveal the motion to Parlato. (Ex. 33 at 13.) Within 12 days, on Sept. 23, 2009, these entities were all formed. Paul Grenga advised on options to protect company assets. These companies were formed in accordance with that advice. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. JL Frost; Williamstown Development; Gold Field Consulting; JF Anderson Consulting were created immediately after yet another Shmueli threat: In the Incredible Investments case before Judge Skretny, Shmueli served an expansive subpoena on M&T bank for financial records. In May 2010, Shmueli moved to compel M&T’s compliance. But, a pending motion to dismiss the entire case was pending, which, if granted, would moot the subpoena. The Court decided the motion, leaving some parts of the case alive, on Aug. 17, 2010. On Aug. 25, 2010, the Court ordered M&T to respond to the motion. The next day, on Aug. 26, 2010, and the following week, Sept. 1, 2010, these companies were formed. 64 FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. There is not one of these eleven listed entities that cannot be readily explained by the need to protect assets from Shmueli’s threats. 65 FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Point C – Contrary to the Government’s Contentions, Paul Grenga and Franca Romeo Were Aware of These Companies and Accounts. The Government is wrong; Grenga knew about these companies. Paul Grenga will testify that he counseled Frank Parlato on the creation of these companies, and advised that it was a means of protecting assets from the improper actions of Shmueli. Documentary evidence ties Grenga to all but one or two of the accounts. Paul Grenga will testify that he helped created a number of the companies. (See, e.g., Ex. 5 (Dayton Ingersoll)). Paul Grenga co-signed for numerous bank accounts at issue. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. The Government is also wrong about Franca Romeo; she too knew about these companies and transactions. Franca Romeo will testify that she received, from Chitra Selvaraj, the Master Transfer List, as well as other bank statements and records. She will testify that she could not remember certain companies, including Niagara Frontier Development and Dayton Ingersoll, when asked at the grand jury, in part because the Government did not show her a page of the Master Transfer List that refreshed her recollection. And she knew about each transaction cited by the Government. Franca Romeo will testify that she was aware of each transaction. She will also testify that the Government is misguided in questioning the management fees, which were properly taken and booked. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Point D – The Creation of These Companies and Accounts Cannot Sustain the Government’s Burden in a Klein Conspiracy. A Klein conspiracy requires the use of illegal or fraudulent means: “[I]t is critical for you to recognize that not all conduct that impedes the lawful functions of a Government agency is illegal. To be unlawful, the conduct must entail fraud, deceit, or other dishonest means. It is not illegal simply to make the IRS’s job harder. Only an agreement to engage in conduct that tends to impede the IRS and that also involves fraudulent, deceitful, or dishonest means, constitutes an illegal agreement to defraud the United States.” Jury Instruction, United States v. Daugerdas, 09 Cr. 581 (S.D.N.Y. May 6, 2011). FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. There can be no Klein conspiracy absent such fraudulent means: “[T]he Government argues [that] people have a duty not to conduct their business affairs in such a manner that the IRS would be impeded or impaired in its collection of revenue [whether] what you’re doing [is] legal or illegal, [so long as it] is intended to impede and impair the [IRS] We think not.” “[W]hat the Government actually did prove – that Caldwell conspired to make the IRS’s job harder [by making and keeping financial transactions secret] – just isn’t illegal.” United States v. Caldwell, 989 F.2d 1056, 1059 (9th Cir. 1993) (Kozinski, J.), cited by United States v. Shellef, 507 F.3d 82, 104 (2d Cir. 2007). FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. The law does not prevent citizens from creating complex corporate and banking structures, or using Byzantine transactions to conduct business: “There are places where, until recently, everything which was not permitted was forbidden. Whatever was permitted was mandatory. Citizens were shackled in their actions by universal passion for banning things. Fortunately, the United States is not such a place, and we plan to keep it that way. If the Government wants to forbid certain conduct, it may forbid it. If it wants to mandate, it may mandate it. But we won’t lightly infer that in enacting 18 USC 371 Congress meant to forbid all things that obstruct the Government, or require citizens to do all those things that could make the Government’s job easier. So long as they don’t act dishonesty or deceitfully, and so long as they don’t violate some specific law, people living in our society are still free to conduct their affairs any which way they please.” Caldwell, 989 F.2d at 1061. FOR SETTLEMENT PURPOSES ONLY

1 – Frank Parlato Did Not Establish 13 Companies and 50 Bank Accounts For Illegitimate Purposes. Here, the Government cannot rely on the complexity of Mr. Parlato’s organization of his business – which he was free to structure in any way he chose – to establish a Klein conspiracy. These entities, accounts, and transactions were not illegal or fraudulent. The evidence reflects that they were created in response to the improper and meritless actions (as every judge considering them has agreed) of Shmuel Shmueli. The Government’s evidence simply does not establish any fraudulent means sufficient to prove a Klein conspiracy. FOR SETTLEMENT PURPOSES ONLY

2 – The Government Cannot Rely on the IOLA Accounts.
Point A – Lay Persons Are Not Prohibited From Opening IOLA Accounts. The Government cites the opening of three IOLA accounts as its smoking gun. It repeatedly claims, without citation, that non-lawyers are prohibited by law from opening IOLA accounts. The prosecution seizes upon this as evidence of an illegal action. Yet, we are unaware of any law prohibiting banks from offering IOLA accounts to non-lawyers, or any law prohibiting non-lawyers from opening IOLA accounts. The Government cites none. Here, the accounts were opened with a lawyer, in any event. FOR SETTLEMENT PURPOSES ONLY

New York law specifically states that IOLA accounts may accept funds from “any source.” The fund is administered by a board. See NY State Fin. L. 97-v. “The board shall have the power to receive, hold and manage any moneys and property received from any source.” Id. That broad and open invitation is repeated in the Board’s regulations. “The fund is authorized to receive funds from any source for disbursement to nonprofit legal services providers for charitable purposes.” 21 NYCRR Any source means any source. There is no restriction to law firms, licensed lawyers, etc. FOR SETTLEMENT PURPOSES ONLY

The Government may be confused based on rules that apply to how lawyers may use IOLA accounts for client funds. There are certainly rules regulating attorneys in ensuring that client funds are properly handled when entrusted to an IOLA account. See, e.g., NY Judiciary Law 497. And there are obvious risks for attorneys who would use their IOLA accounts, bearing client funds, to transact business. See, e.g., In re Gelzinis, 77 A.D. 3d 160 (2d Dep’t 2010) (sanctioning attorney who “treated escrow money as his personal bank account,” and who misappropriated client money) (noting referee’s finding that attorney had violated a “sacrosanct rule” by misappropriating IOLA funds). But, again, we are unaware of any prohibition on non-lawyers opening NY IOLA accounts, which is ultimately a contribution of personal interest or dividends to the IOLA mission. FOR SETTLEMENT PURPOSES ONLY

Point B – Frank Parlato Did Not Use Dishonesty or Deception in Opening the IOLA Accounts. All three banks involved (Bank of America, Key and First Niagara) offered the accounts, knowing the circumstances. We believe the banks would testify that: The accounts were opened at the request of attorney Frank Parlato, Sr., who was present at the banks when the accounts were opened. The banks titled the accounts in Parlato Sr.’s name. Frank Parlato, Jr. and Chitra Selvaraj were approved signers. (Exs ) The banks knew that the latter signers were not attorneys. (Ex. 16) Social security numbers of all three signers – including Frank Parlato, Jr. – are on the bank signature cards. (Ex. 16) FOR SETTLEMENT PURPOSES ONLY

The circumstances surrounding these accounts do not show any attempt to hide funds from the IRS. Three IOLA accounts were used rather than one in accordance with standard FDIC insurance protection practices. The accounts were all US accounts. The accounts included Frank Parlato’s SSN and address. See, e.g., Letter from KeyBank, dated July 24, 2015 (Ex. 16) (“Frank R. Parlato Jr [is a] signer[] and not [an] attorney[]. It should also be noted that the social security number of all signers are on the Key Bank signature card.”). FOR SETTLEMENT PURPOSES ONLY

Point C – In Any Event, Paul Grenga Advised Frank Parlato That He Could Open the IOLA Accounts. Paul Grenga would testify that he advised Frank Parlato about opening the bank accounts. Paul Grenga would testify that he saw nothing wrong with Frank Parlato securing business funds in an IOLA account. FOR SETTLEMENT PURPOSES ONLY

In short, contrary the Government’s contention: It was not illegal for Frank Parlato, as a lay person, to open or use an IOLA account (especially with an attorney’s consent); Frank Parlato did not use dishonesty or deception in opening the accounts; and Paul Grenga provided, in good faith, legal advice to Frank Parlato that opening these IOLA accounts was a legitimate way to protect assets. The Government has no case based on these IOLA accounts. FOR SETTLEMENT PURPOSES ONLY

3 – Paul Grenga Advised That No Separate Returns Were Needed.
The Government argues that Frank Parlato’s failure to file tax returns for the various entities shows he was avoiding tax obligations. Yet, Frank Parlato paid taxes for those entities. That does not appear to be contested. And he was specifically advised by Paul Grenga that he did not need to file separate returns for the entities used to secure assets from Shmueli. Paul Grenga advised the companies were “disregarded entities.” He further told Frank Parlato he would treat them as “pass throughs” for tax purposes, and that the income would simply be reportable on Frank Parlato’s income taxes, as it was. Franca Romeo then prepared tax returns with the information from those “disregarded entities,” as Frank Parlato had been advised. FOR SETTLEMENT PURPOSES ONLY

4 – There is No Evidence of Specific Intent.
Point A – The Evidence Shows That The Accounts Were Created and Used to Protect Assets from Shmueli. As discussed, the subject companies, accounts, and transactions correspond to the Shmueli litigation. There is a close temporal nexus. Both Paul Grenga and Jim Roscetti could testify to Frank Parlato’s state of mind in focusing on protecting assets against Shmueli’s threats. FOR SETTLEMENT PURPOSES ONLY

The Government cannot obtain a verdict by arguing that Frank Parlato’s actions vis-à-vis Shmueli would have obstructed the IRS, as well. “[T]he general precept [is] that mere collateral effects of jointly agreed-to-activity, even if it is generally foreseeable, are not mechanically to be treated as an object of [a] conspiracy.” United States v. Goldberg, 105 F.3d 770, 774 (1st Cir. 1997). The Government needs, and lacks, evidence proving that Frank Parlato intended to defraud or obstruct the IRS. FOR SETTLEMENT PURPOSES ONLY

Absent evidence regarding the IRS, the evidence regarding efforts that are all explainable by Shmueli’s threats are insufficient, as a matter of law, to sustain any charge. Jurors would be asked to speculate. The Second Circuit has stated in reversing other 371 Klein and convictions: “If the evidence viewed in the light most favorable to the prosecution gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence, then a reasonable jury must necessarily entertain a reasonable doubt.” United States v. Coplan, 703 F.3d 46, 69 (2d Cir. 2012) (““It would not satisfy the Constitution to have a jury determine that the defendant is probably guilty.’”) (quoting Sullivan v. Louisiana, 508 U.S. 275, (1993)). FOR SETTLEMENT PURPOSES ONLY

Quite simply, the Government cannot prove that Frank Parlato intended to defraud the IRS, rather than secure assets from a vexatious Shmuel Shmueli. The evidence, as a matter of law, would be insufficient to obtain or sustain charges against Frank Parlato. FOR SETTLEMENT PURPOSES ONLY

Point B – Moreover, Frank Parlato Acted in Accordance with the Advice of His Counsel. The Government must show a specific intent to defraud and a lack of good faith, beyond a reasonable doubt: “Since an essential element of the crime charged is intent to defraud, it follows that good faith on the part of the defendant is a complete defense.” “A defendant, however, has no burden to establish a defense of good faith.” “The burden is on the Government to prove fraudulent intent and the consequent lack of good faith beyond a reasonable doubt.” Government’s Proposed Jury Instructions, United States v. Tony Leon Smith, 10-CR (CJS) (W.D.N.Y.) (filed Jan. 23, 2012) [Dkt. 45] FOR SETTLEMENT PURPOSES ONLY

Good faith reliance upon the advice of counsel thus completely negates specific intent. It is a complete defense. Moreover, the Government bears the burden of disproving the defense. Here, Paul Grenga advised Frank Parlato on setting up companies and accounts, including IOLA accounts, to protect assets from Shmueli. Paul Grenga also provided tax advice to Frank Parlato, which Frank Parlato followed. He advised the companies were “disregarded entities.” He told Frank Parlato he would treat them as “pass throughs” for tax purposes. FOR SETTLEMENT PURPOSES ONLY

Frank Parlato disclosed all relevant financial information to his lawyer and to his accountant. These disclosures long pre-dated this investigation. s between Frank Parlato, Grenga, and Romeo show Parlato’s instructions that all funds be properly accounted for and that returns be accurate. This full disclosure supports an advice-of-counsel defense counsel and is inconsistent with the Government’s theory of an intent to deceive the IRS. As a result, it will be impossible for the Government to meet its burden of proving fraudulent intent and consequent lack of good faith beyond a reasonable doubt. FOR SETTLEMENT PURPOSES ONLY

Conclusion – No Valid Klein Charges
The Government contends that Parlato established numerous entities and accounts, unknown to his lawyer and accountant, with no legitimate purpose; but the entities were created and used in the wake of threats by Shmueli to freeze known assets, the financial information was known both by counsel (Paul Grenga) and the tax preparer (Franca Romeo), and no illegal or fraudulent means were employed. The Government contends that Frank Parlato wrongfully opened IOLA accounts; but there appear to have been no legal or banking barriers for him to do so; he was upfront with the banks and disclosed his involvement; and he relied on the advice of counsel in doing so. The Government contends that Parlato neglected to file tax returns for the entities; but the Government cannot overcome the good faith reliance on advice of counsel that separate returns were not required. FOR SETTLEMENT PURPOSES ONLY

The Government contends that Parlato intended to defraud or obstruct the IRS; but they cite no evidence, besides evidence regarding efforts to protect assets from Shmueli, which, as a matter of law, the Government cannot rely on to prove an intent to defraud the IRS; and, in any event, Frank Parlato consistently consulted with professionals and relied in good faith on their advice. FOR SETTLEMENT PURPOSES ONLY

The Government should decline to prosecute the Klein charges. FOR SETTLEMENT PURPOSES ONLY

THE PROPOSED BRONFMAN CHARGE
FOR SETTLEMENT PURPOSES ONLY

The Government’s Allegations – As Stated at Reverse Proffer of Sept. 16th Frank Parlato entered into a Letter of Intent (LOI), dated Jan. 8, 2008, with the Bronfmans. In the LOI, the Bronfmans wired $1M to Parlato, to “be deducted and repaid” to the Bronfmans against Parlato’s ultimate compensation. In the LOI, Parlato agreed to a “lien on [his] interest in One Niagara,” and further agreed “not to dilute or dissipate said interest in One Niagara while same stands as security for the repayment of Draw.” Frank Parlato owes the Bronfmans $1M. Frank Parlato wrongfully sold his interest in One Niagara. Parlato sold his interest in One Niagara in July 2010. This “alienation” is “final” in September 2011, when a note relating to the sale is paid off. Frank Parlato alienated One Niagara to defraud the Bronfmans. These actions constitute a scheme to defraud. FOR SETTLEMENT PURPOSES ONLY

The Government cannot prove any of those allegations.
The Government’s Allegations – As Stated at Reverse Proffer of Sept. 16th The Government cannot prove any of those allegations. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show the Parties Entered into the Letter of Intent. The Government cannot prove that Frank Parlato ever entered into the Letter of Intent, dated January 8, 2008. The LOI is the basis for the cited promise “not to dilute or dissipate said interest in One Niagara while same stands as security for the repayment of Draw.” The Government has no executed Letter of Intent. At the reverse proffer, the prosecution team stated that it had such a record. The FBI agreed to provide any such copy. The U.S. Attorney’s Office has confirmed that the FBI has been unable to locate any executed LOI. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show the Parties Entered into the Letter of Intent. The Bronfmans affirm that they never entered into the LOI. They filed a complaint against Frank Parlato, dated Apr. 2, 2012. The complaint nowhere states that the Bronfmans entered into the LOI. Nor does the complaint state that Frank Parlato agreed not to sell any interest in One Niagara. Rather, the complaint states that “the Bronfmans loaned Parlato $1.0 million as a demand loan,” “without a written agreement.” That flatly contradicts the existence of the LOI as a binding contract. The Bronfmans have verified these allegations are true. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show the Parties Entered into the Letter of Intent. The Bronfmans also denied, in courtroom testimony, that the Letter of Intent governed their loan to Parlato. Clare Bronfman testified in Precision Development v. Plyam in LA, on, among other days, March 28, 2011. Clare Bronfman was presented with a copy of the Letter of Intent. Q: And does that have Mr. Parlato’s signature on it to your knowledge? A: Yes, it does. I believe that’s his signature. Trans. at 36:12-21. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show the Parties Entered into the Letter of Intent. She testified that it did not reflect the agreement on the $1M. Q: Well, let’s go to the language on the million dollars. Is that the language that you agreed to for the million dollars? A: I don’t believe it was. Trans. at 37:1-4. FOR SETTLEMENT PURPOSES ONLY

1 – The Government Cannot Show the Parties Entered into the Letter of Intent. Without an enforceable Letter of Intent, the Government’s theory fails on its own terms. None of the other agreements relating to Frank Parlato’s employment by Precision Development LLC, Castle Asset Management Inc., or the Bronfmans have any terms relating to the One Niagara. The Letter of Intent was the sole source of any purported duty by Frank Parlato to maintain his interest in One Niagara. Without the Letter of Intent, Frank Parlato had no obligation to maintain an interest in One Niagara. Thus, Frank Parlato was free to sell his interest in One Niagara in July There is thus no basis for the proposed charge. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Even if the LOI had been executed, the Government’s theory would fail. The Bronfmans wrongfully terminated the LOI. Frank Parlato is entitled to damages beyond the $1M, and could thus keep the $1M (and sue for more). In addition, the Bronfmans’ repudiation relieved Frank Parlato of any obligation to repay the $1M. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point A – The Bronfmans Wrongfully Terminated Frank Parlato’s Employment Under the LOI. Under the Letter of Intent, Frank Parlato had the right to continued employment. He was entitled to employment through the “completion of the Companies developments and the final distribution of Owner Compensation and CEO Compensation.” The only exception was termination “by written mutual agreement of the parties.” By law, Frank Parlato could be involuntarily terminated only if he materially breached the contract. See, e.g., Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 186 (2d Cir ) (“Under New York law, a party’s performance under a contract is excused only where that party has committed a material breach.”). FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Yet the Bronfmans involuntarily terminated Frank Parlato in a “pissing match” over an accounting of expenses. This was the Government’s own characterization at the reverse proffer. The termination was by letter dated March 14, 2008. The letter states that the Bronfmans “request, and [Parlato] agreed, [that Parlato] provide a full and exact accounting of all services provided for the Bronfmans, an itemization of the Bronfman’s varied business interests, and an accounting of any and all expenses paid.” The letter terminated Parlato subject to “reconsider[ing] [his] reinstatement in some or all capacities” upon receipt of the “requested accounting.” FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. There is no evidence that the Bronfmans ever made the demand for an accounting as claimed by the letter. The letter states that the Bronfmans “request, and [Parlato] agreed, [that Parlato] provide a full and exact accounting of all services provided for the Bronfmans, an itemization of the Bronfman’s varied business interests, and an accounting of any and all expenses paid.” Crockett, the Bronfmans’ attorney, suggested that this was, in fact, a recent claim (and fabrication). The termination letter qualifies the claims against Parlato with the caveat that counsel was “told in the past few hours about concerns the Bronfmans have had about [the] use of funds.” FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Frank Parlato immediately responded with a thorough accounting. He sent an on March 15, 2008, to Bob Crockett, with a full accounting. We have seen no evidence of any reply or rebuttal. Rather, the Bronfmans and their counsel simply ignored the response. They failed to reinstate Parlato. They appear to have manufactured this issue as a pretext for wrongful termination. NXIVM had a history of similar behavior. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. In New York, parties may terminate a contract only if there is a material breach defeating the object of the contract. In New York, a party may terminate a contract solely on the basis of a material breach. See Callanan v. Powers, 199 N.Y. 268, 284 (1910); see also Merrill Lynch & Co. Inc., 500 F.3d at 186; Mackinder v. Schawk, Inc., No. 00 Civ (S.D.N.Y. Aug. 2, 2005) (employment contract). “For a breach to be material, it must ‘go to the root of the agreement between the parties.’” New Windsor Volunteer Ambulance Corps v. Meyers, 442 F.3d 101, 117 (2d Cir. 2006). To justify termination, a breach must be “so substantial that it defeats the object of the parties in making a contract.” Felix Frank Assocs. Ltd. v. Austin Drugs Inc., 111 F.3d 284, 289 (2d Cir. 1997); Babylon Assocs. V. County of Suffolk, 101 A.D.2d 207 (2d Dep’t 1984) (“a breach must be so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.”). FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Partial breaches do not justify termination. “A slight breach will not end the other party’s further duty to perform the contract.” New Windsor Volunteer Ambulance Corps, 442 F.3d at 117 (quoting 23 Williston on Contracts 63:3, at (4th ed )); see id. (“If a breach is only partial, it does not entitle him simply to treat the contract as at an end.”). The failure to provide a timely accounting is a partial breach, which cannot justify terminating a contract. See, e.g., Donovan v. Ficus Invest., Inc., 2008 N.Y. Slip Op (N.Y. Sup. Ct. 2008) (holding that failure to provide access to records was not material breach); Weschler v. Hunt Health Sys., Ltd., 94 Civ (S.D.N.Y. Aug. 11, 2004) (accounting failures and breach of paperwork obligations did not constitute material breach). FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Moreover, termination is inappropriate for curable breaches. “An injured party’s right of termination is limited by the doctrine of cure.” Simco Inc. v. Metro-North Commuter R. Co., 133 F. Supp. 2d 308, 312 (S.D.N.Y. 2001). “Fairness ordinarily dictates that the party in breach be allowed a period of time – even if only a short one – to cure the breach if it can.” Farnsworth on Contracts, Total Breach and Termination 8:18; Restatement (Second) on Contracts 237. A party must “express[] dissatisfaction before abandoning [a] contract, and give [a] defendant an opportunity to mend its ways.” Brede v. Rosedale Terrace Co., 216 N.Y. 246, (1915)(Cardozo, J.) (“The contract was in the course of performance; and the plaintiff was not at liberty to put an end to the contract without notice to the defendant that the [work] must be hastened. Notice in such circumstances is the plain requirement of good faith.”) FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Here, the Bronfmans wrongfully terminated Frank Parlato for a delay in providing an accounting of expenses. This was, at most, a partial breach. This “pissing match” related to an insubstantial fraction of the tens of millions of dollars under management. Parlato quickly cured the breach. He provided an accounting one day after the termination letter. The Bronfmans could not treat this delayed accounting as a material breach defeating the entire object of the contract. It was marginal, minor, and quickly cured. It was an entirely improper basis for termination. The Bronfmans thus improperly terminated the LOI. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point B – Frank Parlato Is Entitled to Damages in Excess of $1M. In New York, the wrongful termination of a contract entitles a counterparty to expectation damages for breach. “A wrongful repudiation of the contract by one party before the time for performance entitles the nonrepudiating party to immediately claim damages for a total breach [T]he nonrepudiating party [may] recover the present damages.” Am. List Corp. v. U.S. News & World Report, Inc., 75 N.Y.2d 38, 44 (1989). “The general measure of damages is expectancy damages.” JR Loftus, Inc. v. White, 85 N.Y.2d 874 (1995). FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point B – (cont.) Expectation damages provides the aggrieved party with lost profits. “This doctrine gives force to the provisions of a contract by placing the aggrieved party in the same economic position it would have been in had both parties fully performed.” Bausch & Lomb Inc. v. Bressler, 977 F.2d 720, 729 (2d Cir. 1992) (applying New York law). These are measured from the time of the breach. See Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 185 (2d Cir ). FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point B – (cont.) Here, Frank Parlato was entitled to millions of dollars in expectation damages. Parlato was entitled to a third of net profits on a real estate venture, in which the Bronfmans had invested more than thirty million dollars. Even a modest return on investment of 120% (i.e., > $6M of net profit) would translate into millions of dollars of expected compensation damages due to Parlato (i.e., > $2M). Those damages were greater than the $1M that the Bronfmans had transferred to Frank Parlato. Thus, the Bronfmans owed Parlato damages fully offsetting any amount otherwise due to the Bronfmans. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point C – Moreover, Frank Parlato Was Relieved of Any Obligation to Pay the Bronfmans. As a general matter, a party’s wrongful termination of a contract relieves the aggrieved party of the duty to perform. “The doctrine relieves the nonrepudiating party of its obligation of future performance.” Am. List Corp. v. U.S. News & World Report, 75 N.Y.2d 38, 43 (1989); Weintraub v. Schwartz, 131 A.D. 663, 666 (2d Dep’t 1987) (“Assuming the plaintiffs have breached their own obligations under the contract, they would be precluded from seeking to enforce [the agreement] against the defendant.”) FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. Point C – (cont.) Wrongful termination excuses the party from repayment duties. An aggrieved party is “relieved of the obligation to repay proceeds already advanced.” 22A N.Y. Jur. Contracts 421; see, e.g., Binghamton Masonic Temple, Inc. v. City of Binghamton, 158 Misc. 2d 916 (N.Y. Sup. Ct. Aug. 25, 1993) (holding breach “excused [the] obligation to repay the proceeds previously advanced”). Thus, the Bronfman’s wrongful termination also relieved Parlato of any obligation to repay the $1M. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. In Summary – Assuming, arguendo, that the parties agreed to the LOI, the Bronfmans wrongfully terminated Parlato under the LOI. Their “pissing match” (in the Government’s terms) over an accounting and expenses was a wholly inadequate basis for termination under NY law, especially as Parlato immediately cured the purported breach. The wrongful termination allowed Parlato to keep the $1M because the Bronfmans owed him more than $1M. The Bronfman’s wrongful termination entitled Parlato to lost profits, which would have surpassed the $1M advance/loan. FOR SETTLEMENT PURPOSES ONLY

2 – Frank Parlato Would Not Owe Any Money to the Bronfmans Under the LOI Anyhow. In Summary – (cont.) Moreover, the wrongful termination relieved Parlato of any obligation to repay the Bronfmans. This is separate and apart from Parlato’s entitlement to damages above and beyond the $1M. For these reasons, too, there is no basis to the Government’s proposed charge. FOR SETTLEMENT PURPOSES ONLY

3 – Frank Parlato Was Free to Sell One Niagara Without Violating the LOI Even if the LOI had been executed, Frank Parlato was free to sell One Niagara. When the Bronfmans wrongfully repudiated the LOI, they excused Frank Parlato of any obligation to repay the $1M and, therefore, any obligation to maintain One Niagara as a security. Moreover, by terminating the LOI, the Bronfmans elected to permit Parlato to sell his interest in One Niagara. FOR SETTLEMENT PURPOSES ONLY

3 – Frank Parlato Was Free to Sell One Niagara Without Violating the LOI Point A – By Repudiating the LOI, the Bronfmans Excused Frank Parlato of Any Obligation to Maintain One Niagara as Security. The LOI restricted alienation only to the extent Parlato had an obligation to repay monies to the Bronfmans. It states: “CEO will not dilute or dissipate said interest in One Niagara while same stands as security for the repayment of Draw.” The Bronfmans’ wrongful repudiation erased any such obligation. As noted, Parlato was damaged in excess of $1M, and the repudiation relieved future performance. The LOI thus imposed no further restriction on the sale of Parlato’s interest in One Niagara. FOR SETTLEMENT PURPOSES ONLY

3 – Frank Parlato Was Free to Sell One Niagara Without Violating the LOI Point B – Moreover, by Terminating the Contract, the Bronfmans Elected Not to Later Enforce the Restriction Against Alienating One Niagara. The Bronfmans terminated the contract in March 2008. The Bronfman’s elected to terminate the contract by letter dated March 14, 2008. That termination was an election not to later insist on performance. Under NY law, a party claiming material breach “must choose between two remedies: it can elect to terminate the contract or continue it.” Awards.com v. Kinko’s, Inc., 42 A.D.3d 178, 188 (1st Dep’t 2007), aff’d by memorandum opinion, 14 N.Y.3d 791 (2010). FOR SETTLEMENT PURPOSES ONLY

3 – Frank Parlato Was Free to Sell One Niagara Without Violating the LOI Point B – (cont.) The Bronfmans thus elected to permit Parlato to sell his interests in One Niagara. The Bronfmans could not, on the one hand, insist on the termination of the contract and, on the other hand, insist on Frank Parlato’s continued performance under the contract (i.e., maintaining his interest). FOR SETTLEMENT PURPOSES ONLY

3 – Frank Parlato Was Free to Sell One Niagara Without Violating the LOI In Summary – Frank Parlato was free to sell One Niagara for two separate and independent reasons. First, when the Bronfmans wrongfully terminated him, they excused him of any obligation to repay the $1M and, therefore, any obligation to keep One Niagara as security. Second, when the Bronfmans elected to terminate the contract, they elected to permit Parlato to sell One Niagara. This principle applies even if the Bronfmans’ termination was not wrongful. The termination discharged any duty not to sell One Niagara. For these reasons, too, the Government’s theory fails. FOR SETTLEMENT PURPOSES ONLY

4 – The Government Cannot Show Fraudulent Intent.
Nor could the Government ever prove fraudulent intent. The Government must show a specific intent to defraud and a lack of good faith, beyond a reasonable doubt: “Since an essential element of the crime charged is intent to defraud, it follows that good faith on the part of the defendant is a complete defense to a wire fraud.” “A defendant, however, has no burden to establish a defense of good faith.” “The burden is on the Government to prove fraudulent intent and the consequent lack of good faith beyond a reasonable doubt.” Government’s Proposed Jury Instructions, United States v. Tony Leon Smith, 10-CR (CJS) (W.D.N.Y.) (filed Jan. 23, 2012) [Dkt. 45] FOR SETTLEMENT PURPOSES ONLY

Paul Grenga, who had negotiated the LOI, purchased Frank Parlato’s interest in One Niagara. Paul Grenga was not acting as counsel for Frank Parlato when Grenga himself purchased WhiteStar. Paul Grenga told Frank Parlato, in this context, that the Bronfmans had no viable claims against him. Grenga concluded that the Bronfmans had no viable claims against Parlato, that the Bronfmans in fact owed Parlato, and that there was no restriction on Parlato’s ability to sell WhiteStar. Grenga agreed to Parlato’s request for indemnification of claims relating to the Bronfmans’ $1M in the purchase agreement. Grenga told Parlato, “I don’t care,” because any claim by the Bronfmans would be completely meritless. FOR SETTLEMENT PURPOSES ONLY

Jim Roscetti provided the same advice to Frank Parlato, as counsel. Jim Roscetti served as counsel to Frank Parlato on the deal. He concurred in Paul Grenga’s position – i.e., that the Bronfmans, not Frank Parlato, were in breach, and that they owed him damages, not the other way around. Jim Roscetti and Paul Grenga were right. As previously explained, the Bronfmans wrongfully repudiated the contract, damaged Parlato is excess of $1M, and elected not to seek performance. In any event, these opinions establish good faith. And the Government cannot prove fraudulent intent. FOR SETTLEMENT PURPOSES ONLY

5 – The Government Cannot Show A Scheme to Defraud.
Finally, a breach of contract is not a scheme to defraud. “A breach of contract does not amount to mail fraud.” United States v. D’Amato, 39 F.3d 1249, 1261 n.8 (2d Cir. 1994); see also United States v. Shellef, 732 F. Supp. 2d 42, 69 (E.D.N.Y. 2010) (“Defendant correctly states that he cannot be guilty of wire fraud merely for breaching a contract.”). Cf. Puckett v. United States, 556 U.S. 129, 137 (2009) (Scalia, J.) (“[T]here is nothing to support the proposition that a mere breach of contract retroactively causes the other party’s promise to have been coerced or induced by fraud.”). The sale of WhiteStar – even if in breach of the LOI, assuming, arguendo, that there was a LOI – could not amount to a scheme to defraud. For this reason, as well, this charge lacks any merit. FOR SETTLEMENT PURPOSES ONLY

Conclusion – No Valid Bronfman Charge
The Government thus cannot prove any of its allegations in support of its sole contemplated charge relating to the Bronfmans. FOR SETTLEMENT PURPOSES ONLY

The Government contends that Parlato was bound by the LOI; but the Government cannot show that the parties ever agreed to the LOI, and the Bronfmans swear they did not. The Government contends that Frank Parlato owes the Bronfmans $1M; but, under contract law, Parlato owes the Bronfmans nothing, and they owe him potentially millions. The Government contends that Frank Parlato wrongfully sold his interest in One Niagara; but, under contract law, Parlato was free to do so after the Bronfmans terminated the LOI. The Government contends that Frank Parlato alienated One Niagara to defraud the Bronfmans; but the lawyer who negotiated the LOI said the Bronfmans had no viable claim (and he was right). The Government asserts this purported breach of the LOI constitutes a scheme to defraud; but even a breach of contract does not amount to a scheme to defraud. FOR SETTLEMENT PURPOSES ONLY

The Government should decline to prosecute charges related to the Bronfmans. FOR SETTLEMENT PURPOSES ONLY

Conclusion – No Basis for Seizure
The Government should return any assets seized (presumably $1M) under these theories. FOR SETTLEMENT PURPOSES ONLY

FOR SETTLEMENT PURPOSES ONLY

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