Larry Maxwell Mortgage Fraud Trial: Defense And Prosecution Talk About Their Feelings, And Much More!

Photo By John Hoff 

Today, Tuesday, April 21, starting about 9 a.m. a whole lot of factual rubber meets a great deal of legal road: the jury will hear final arguments in the Larry Maxwell mortgage fraud trial in the court of Judge Chu, 10th Floor, Hennepin County Government Building.

In a casual conversation with Judge Chu, during a break in proceedings, Prosecutor Brad Johnson talked about being on "diaper duty" all weekend with his new baby.

"Don't worry," Judge Chu said. "You'll have the next 18 years to get to know her."

Brad responded by relating something his wife told him: Congratulations, you've officially missed one quarter of your child's life.

Brad's fellow prosecutor, Liz Johnston, managed to sneak in a little vacation recently, but even...

...when supposedly taking a break, Johnston's dutiful nature was apparent: she attended a wedding.

Larry Maxwell himself was nowhere to be seen near the courtroom today. Maxwell's attorney, Larry Reed, was there and looking his usual GQ self: his loafers were shined so bright they appeared to be made of brown bottle glass. Sitting down to wrangle over jury instructions, Brad Johnson took off his coat and put it on the back of his chair, like you would at a poker game. Judge Chu sat down without her robe, wearing a striped shirt. Her hair is very black, very straight and long. She looks like she might weigh 95 pounds, if that much. Such a small judge for such a big case, but Chu seems up to the task.

Discussion over the instructions went long. Really long. At one point, Judge Chu said, "I hate our Spreigel instructions, the federal instructions are so much better."

Defense attorney Reed insisted--and pressed repeatedly--for an instruction stating the jury can't even DISCUSS the fact Larry Maxwell didn't (won't) testify. Johnson tried to keep such an instruction out, preferring an instruction along the lines of "no inference should be drawn from" the fact Larry Reed didn't (won't) testify.

Sitting there, I could see Johnson's point: what if one of the jurors (most likely "The Dude Who Loves Sports") is discussing some point of evidence, and in the course of this discussion he blurts out something like "while Reed was just SITTING there, listening..."

Oops. What is that? Instant mistrial, because one of the jurors almost-sort-of-kinda mentioned the fact Reed didn't open his mouth up and offer a defense?

Whether the jurors would get an instruction like that seemed to go back and forth. Ultimately, it wasn't clear to me which way the matter was resolved but, the last I heard, Chu was saying "I'm going to give that to Mr. Reed." Johnson turned to Johnston with a look like, "Can you believe what just happened?"

But Johnson kept his mouth shut. Unlike Reed, Johnson seems to know when Chu has definitely made up her (honorable) mind, and further pushing will only tick her off. Johnson managed to get in one strong point, however: why would the state instructions leave that off, if it's supposedly so FUNDAMENTAL?

Because--I thought, sitting there with my laptop, silent except for the sound of keys clicking--jurors can't avoid blurting out some half-formed forbidden thought--even for just an instant-- before the other jurors will say, well, we're not supposed to GO THERE, we're not supposed to discuss the fact Larry Reed won't take the stand and tell his side of the--

OOPS! Did it again!

One can't help but be reminded of the "stoning scene" in Monty Python's "Life of Brian," click here.

Amid this oh-so-dry tinderbox of instructions, suddenly there was an emotional spark, a quick flare up, and then the prosecutor and defense attorney were GOING AT IT, absolute FIREWORKS over whether "conspiracy" is an integral element to "racketeering," and is whether the defense was "entitled to a conspiracy instruction." Johnson said Reed was "trying to get an instruction for a COMPLETELY DIFFERENT CRIME." The crux of the argument was one of those little "distinctions" lawyers care so much about, trying to parse a zebra into two different colored animals: Maxwell is charged with RACKETEERING, not CONSPIRACY.

Is conspiracy PART of racketeering? You bet. But Maxwell still isn't being charged with racketeering, so Chu said she wasn't going to give the special instruction. Reed could put his objections on the record. In the morning, after sleeping on a pillow of legal briefs, Reed might wake up and discover the "objection fairy" had left something valuable.

Or not.

Another of those fine elements to be parsed: when does "theft by swindle" occur? Legally, it occurs when the victim parts with his money. The victim doesn't need to know he or she (or "it," in the case of a bank) IS a victim to BE a victim. This distinction becomes very important in this case, because after giving loans to in some of these fraudulent transactions, Centennial Mortgage sold the loans.

Somebody else was left holding the paper which, while not exactly "bad" paper, wasn't exactly "good" paper either.

Brad Johnson didn't want Larry Reed to even be able to ARGUE a line of reasoning like "the victims aren't victims, because the loans were sold."

"Does the defense intend to argue there was no theft because somebody else purchased these loans down the road?" asked Johnson.

"Are you arguing that, Larry?" pressed Judge Chu.

Reed indicated he wanted to argue "the person who was out money was not Centennial." Is that the same thing, you might wonder? Well, it's arguable. Sitting there, I wasn't clear whether Reed intended to argue Centennial wasn't out money (because the loan was sold) or whether Reed intended to assert the facts presented by the prosecutors were wrong: Centennial was never "first in line" with this loan.

The highly complex world of mortgages meets the somewhat archaic "theft by swindle" statutes. Even the word "swindle" sounds archaic and antique.

"I never argued Centennial was put out of business for incompetence and shoddy practices," Reed said, and I thought, "DON'T think of an elephant." Reed did, however, want to argue "Centennial didn't lose a penny."

To try to understand this mess...well, I think this example I simply sat here and made up sort of works:

Suppose there is a liquor store which depends on rapid turnover of its inventory, constantly buying new inventory to push out the door in sales. Why is this the situation? Well, maybe their store space or the times they can sell liquor are severely limited. In any case, to make money they have to turn over inventory FAST. They can't even afford to wait several days for a check to clear the bank because they need that money NOW to buy more inventory.

So the liquor store takes all its checks at the end of the day and sells the checks to an intermediary at 96 percent of their face value, plenty enough to still make a good profit. The buyer of the checks agrees to assume the risk of bad or forged checks, because the buyer calculates the checks will be good 98 percent of the time.

Everybody is happy. Well, except when one day the check-buying company finds out there are A WHOLE LOT OF BAD CHECKS in that pile, all written by the same forger.

At what point did "theft by swindle" take place?

It took place when the liquor store accepted the check and parted with booze in exchange for the checks. The swindle DID NOT happen when the buyer of the checks discovered the fraud. Who was swindled? The liquor store. Which never lost a penny.

Yes, this is madness. But the alternatives are worse. Smart lawyers figured out this stuff CENTURIES ago. The swindle crime must take place "when the victim parts with his money" and not later. Otherwise you'll have five, six, nine different victims. By the time the matter gets to trial, you'll have even MORE victims as the swindle-tainted instrument gets passed along the swirling vortex of written-off losses.

Sure, Reed argues heatedly. But if Johnson charged the crime some other way--named a victim OTHER than Centennial in those particular transactions--Reed would argue and objection the OTHER way:

"What are you saying? Centennial is the victim, here, and nobody else."

In any case, Brad Johnson didn't want to have any of this "wrong victim" or "no victim" argument in the court, saying this would be a "misstatement of law." Once again, Larry Reed was allowed to put his objections "on the record," but Judge Chu said the instructions to the jury would indeed say something like "theft by swindle is completed when the victim parts with his money." 

Once again, verbal fireworks erupted between defense and prosecution, and Larry Reed--in a hurt tone--said, "I thought we were getting along, here, now every time I say something you're...you're..."

"We ARE getting along, here," Judge Chu ruled. 

"Sorry if I'm hurting your feelings," Brad Johnson told Larry Reed. 

"You're not hurting my feelings!" Reed snapped. "You CAN'T hurt my feelings." 

("I am a rock," thought the blogger, who sat and observed. "I am an eye-eye-land. And a rock feels no pain...")

MOVING ON TO UTTERING OR POSSESSING A WRITING OR OBJECT--! Chu said.

"And an island...never...cries."  

Soon it was time for Reed to bring up a topic which gets the defense lawyer all excited, but nobody else shares that excitement: COMMISSION REBATES. Prosecutor Brad Johnson made a face like, "Here we go again." Reed has been determined to get something in front of the jury about how kicking back money to somebody like a loan processor is ALLOWED, there's nothing ILLEGAL about it, and (therefore) wrongdoing should not be inferred from it. But Reed was unable to get anywhere with this argument. 

"HE doesn't like it, so it doesn't come in?!" Reed asked, after this exchange, falling back on the sort of arguments made on a playground. 

Judge Chu said Reed was free to argue his point about the commission rebates, but was it going into the instructions? No, it wasn't. 

"Now we can talk about BLAKELY," Judge Chu said in a chipper tone, while the lawyers sat and smoldered...Reed smoldering so much more than Johnson, because Johnson kept WINNING and, well, you really can't lose your temper too much around Liz Johnston. She's a calming influence.

Reed wanted the Blakely forms submitted to the jury AFTER their determination (if they find Maxwell guilty, but sometimes the tone of the conference made it seem like a foregone conclusion) and the judge thought that was "appropriate." Score one for the defense: the jury will have to take its sweet time putting Maxwell away for, like, 20 years. Brad Johnson said he was "happy to split (the trial) up" and added "my argument will be all of two minutes."

Larry Reed took a break at this point, off to make calls in the hallway and find his witness, Jerry McAfee. The judge and prosecutor made small talk. Chu said recently she had high blood pressure for the first time in her life but, incredibly, right before surgery her blood pressure was down...like she was looking forward to surgery more than this trial.

At some point, Johnson told Reed and/or Chu, "You understand we may have to go through that whole Fifth Amendment drill" if McAfee is called to the stand. Reed took this in without saying much of anything. Huh. Fifth Amendment drill for the witness, Jerry McAfee. Interesting.

With Reed out of the room, Chu steered the topic--once more--to small top. Comcast. What is the deal with that awful outfit? Chu had rushed home to meet the cable guy and HE LEFT. It drove her crazy. The cable guy had come before 5 even though Judge Chu SPECIFICALLY TOLD THEM five o'clock.

"We even left off our redirect JUST so you could go home!" Brad Johnson said, incredulous at the nerve of Comcast.

Chu told Johnson she'd "gone bananas" on Comcast, yelling at the operator about how she'd just had surgery on her foot, and now she was stuck at home with no way to watch television. In response to this outburst, the telephone operator responded in a monotone--Chu imitated him, "Yes, ma'am. We're SORRY." The operator knocked twenty bucks off the cable bill. Big deal, Chu said, or words to that effect.

Reed came back in and announced Jerry McAfee could testify in the morning. Right now, the McAfees were "driving in the rain." So could they testify in the morning? So they could take their time and not have an accident in the rain?

YOU UNDERSTAND, Brad Johnson said, carefully, that "I intend to cross examine on creditability and there are indications of fraud on some of the transactions" and, furthermore, there were MULTIPLE transactions. Judge Chu spoke up and said she could bend a little, and start at 2:30.

Reed went back out in the hall. Judge Chu returned to the subject of Comcast:

"I've had the WORST problems with that company. People tell you things, and then they tell you something different. They deliver the wrong things."

Chu left the court room. Brad looked at Liz, and pondered aloud why would Reed call a witness to the stand just to say so little? Apparently, according to Reed, the point of having Jerry McAfee testify was just to say the interactions with Ms. Lohmeier at Worldlink had been different than described by Lohmeier.

For THAT McAfee was driving in the rain from Ohio? Taking the stand, risking cross examination? Just to get on the stand and say, in effect, "Not...not...NOT!"

I had been wondering about this, too, but what did I know? I figured it was a delay tactic by the defense. But it seemed like more than delay: Reed was interested in what Johnson had to say about McAfee: Fifth Amendment rights, multiple transactions, indications of fraud. When Reed came back, he announced Jerry McAfee wouldn't be taking the stand, after all, and he had no more witnesses. The defense--which had apparently played a shell game, placing 57 names on its witness ist--wasn't going to call McAfee, after all.

Johnson told Chu and Reed that a paralegal and "Liz, if she's willing--"

"Sure thing," Liz piped up, immediately.

--would be going through the voluminous documents, pulling out the ones which were actually admitted into evidence. Johnson said he'd like to send back the exhibit list to the jury, essentially as a table of contents or summary.

"I OBJECT TO THAT!" Reed said.

And, by that point, I'd heard enough for one day.