Aequitas trial: Jesenik's defense hinges on 'substantial disclosures'

In U.S. District Court, Portland, attorneys for Robert Jesenik, former CEO of Aequitas capital management called witnesses to testify in his defence on Tuesday. The attorneys stayed with their main argument, that investors knew enough about the risks of investing in the firm.

Aequitas, a Lake Oswego investment firm that collapsed in 2016, was accused by the Securities and Exchange Commission of acting in a Ponzi-like manner. Aequitas had claimed at its peak to manage $1.7 billion, but testimony given in court suggests that the actual figure may be closer to $750 millions.

Jesenik is accused in criminal court, along with former executive vice president Brian Rice and chief compliance officer Andrew MacRitchie of conspiracy to commit wire fraud, conspiracy to commit fraud by mail, and conspiracy to launder money. Jesenik also faces charges of making a false claim on a loan form. If convicted, the three defendants could face decades of prison time and millions in fines.

The trial has now entered its fifth week. On Monday, federal prosecutors restated their case.

Jesenik’s lawyers called on witnesses to testify about the disclosures made in Aequitas’ audited financials, investment documents and other documents during the years leading up to the collapse of the finance company.

The testimony emphasized the defense's claim that investors and advisers have all the information needed to make an informed decision, including audited financials and so-called "private placement memoranda."

U.S. prosecutors pointed out marketing materials that they've deemed misleading. They've also tried to prove that executives, including Jesenik, didn't disclose the way Aequitas spent investor money, namely to cover operating costs and repay old investors.

Serena Morones is a certified public accountant from the area and a fraud examiner. She testified on behalf of the defense Tuesday. Her firm, Morones Analytics analyzed Aequitas Commercial Finance’s 2013-14 audited Financial Statements for Jesenik’s attorneys. Morones found "substantial" disclosures in the documents. Deloitte & Touche, a global firm, had audited Aequitas' 2013-14 financials while it was still operating.

Morones compared the financial statements with a medical report that is compiled following a yearly physical and allows a reader a chance to assess overall risk.

Morones stated that the footnotes in Aequitas financial statements showed the company had engaged in many transactions with affiliates who shared common ownership or control.

Morones commented, "It is a lot footnotes." She said it was the largest private company she had ever seen.

She also testified that Aequitas Commercial Finance relied heavily on unrealized profits to generate a positive net profit. Unrealized gains are money that is not immediately usable, Morones explained, and a sign of Aequitas actually losing money.

She noted that the audited financials contained substantial disclosures, in compliance with generally recognized accounting principles.

Jesenik rested his defense on Wednesday. The trial will continue next week.