Jailed Hedge-Fund Founder Admits He Didn’t Reveal All to Prosecutors

Updated on
  • Maiden is government’s star witness in trial over share fraud
  • Prosecutor pushes back at defense claim of improper DOJ help

A jailed hedge-fund founder and the government’s star witness in the fraud trial of two embattled technology entrepreneurs said he kept his cooperation deal with U.S. prosecutors even after lying to them for years about the extent of his manipulative stock trading.

Stephen Maiden confirmed during cross-examination on Friday that when he decided to cooperate with prosecutors in December 2014, he only admitted to manipulating shares in two companies, including the troubled video-software startup KIT Digital Inc. at the center of the case. In reality, he agreed that he’d been manipulating more than a dozen other stocks.

Finishing up his second week on the witness stand, Maiden has been testifying against his onetime business associates, former KIT Chief Executive Officer Kaleil Isaza Tuzman and Hollywood financier Omar Amanat. Prosecutors say the three men conspired to inflate KIT’s shares and hide other frauds. Maiden, who is serving a seven-year term for running an $8.9 million Ponzi scheme, said he was lured into the scam in 2008.

"Do you recall that you lied to the government and told them that before December 2008 you had been trading honestly?" Tuzman’s lawyer, Avi Weitzman, asked Maiden. 

Maiden agreed, but said later that he hadn’t meant to lie. He said prosecutors didn’t specifically ask him at the time whether he manipulated shares other than KIT through trading at his Charlotte-based fund, Maiden Capital LLC.

When they eventually asked him, he said he told the truth, though that may not have happened until just before trial. He said he had previously engaged in "wash trading," or simultaneously buying and selling the same shares from different accounts to inflate volume.

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He also said that when he told the government he traded honestly before 2008, he meant that he hadn’t engaged in a conspiracy with others to manipulate shares before then, not that he hadn’t done so on his own.

"Did you intentionally lie to the government during any of your meetings?" Assistant U.S. Attorney Andrea Michelle Griswold asked Maiden.

"No," Maiden said.

Amanat’s lawyer, Randall Jackson, has been trying to chip away at Maiden’s credibility. He also questioned him about evidence that he lied to the government about the extent of his cocaine use when he struck his cooperation agreement -- a deal that requires criminals to admit all their crimes.

Maiden testified he only used cocaine about twice a year during the life of his hedge fund. But Jackson showed him text messages in which he communicated with friends about the drug on a regular basis, including drug-fueled golf trips and using cocaine with prostitutes and strippers.

"White is simply right," Maiden said in one text, referring to cocaine.

Maiden said the text messages about drug use were jokes. 

Griswold sought to back up Maiden’s claim by showing a text message between Maiden and his best friend, Michael Yavelberg, in which the latter frets that he accidentally sent a message about "white powder" to his mother instead of to Maiden.

"I have no interest in the junk," Yavelberg said in the text.

"I know. Me neither. Just tell her it was a joke," Maiden replied.

Outside Help

The prosecutor also pushed back on Jackson’s suggestion last week that Maiden had received improper assistance in 2012 from Yavelberg’s sister, Jamie Yavelberg, a deputy director in the Justice Department’s civil fraud division in Washington, as the FBI began closing in on his failing hedge fund and its connections to KIT.

Jackson on Nov. 6 displayed text message in which Michael Yavelberg, who was Maiden’s fraternity brother at Duke University, told him that his sister had said to limit his text messages and emails to sports and the weather in case the FBI was watching, and that she had influence at the FBI.

"At any point did Ms. Yavelberg tell you she was going to influence the case?" Griswold asked Maiden on Friday.

"Absolutely not," Maiden said.

"Do you think you got a break because of Ms. Yavelberg?" she asked.

"No," Maiden said.

Michael Yavelberg, who lives in New Jersey, declined to comment when reached by email on Nov. 6. Lauren Ehrsam, a spokeswoman for the Justice Department, also declined to comment.

The case is U.S. v. Amanat, 15-cr-536, U.S. District Court, Southern District of New York (Manhattan).

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