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May 3rd, 2005 Trial Analysis: David Saunders, Jeff Klapakis, Craig Bonner, Paul Zelis, Steve Robel, John O’Bryan, John Duross, Rudy Provencio, Part 3 of 4

July 13, 2014

Under cross examination, Duross testified that –surprise, surprise – there were many financial documents that he requested from the prosecution that were not made available to him. What a shock, huh? I wonder why they weren’t made available to Duross? Could it be because they would make Jackson’s financial condition look better than what they were asserting to the jury?

Much to the chagrin of the prosecution and media, Duross stated that the documents he received from the prosecution put the Sony/ATV catalog’s worth at over one billion dollars!

 

1 CROSS-EXAMINATION

2 BY MR. MESEREAU:

3 Q. Good afternoon.

4 A. That it is. Good afternoon.

5 Q. My name is Thomas Mesereau and I speak for

6 Mr. Jackson.

7 When you began your examination by the

8 prosecutor for the government, you indicated there

9 was some documents that you had wanted to see if you

10 could, but they were not available to you, right?

11 A. That is correct.

12 Q. And what documents were they?

13 A. Those would be — well, we’d like to see

14 financial statements for 2000 — for 1999, 2000,

15 2001, 2002, and all the way through February of

16 2003. In addition to that, general ledgers, which

17 are the summation of transactions, which become

18 financial statements. We asked for bank statements.

19 Those types of detailed supporting documentation

20 would be things that we would typically ask for, and

21 we did. They were just simply not made available to

22 us.

23 Q. Okay. They were not made available to you

24 by the prosecutor who hired you, correct?

25 MR. AUCHINCLOSS: Objection; misstates the

26 evidence.

27 THE COURT: Overruled.

28 You may answer. 8601

1 THE WITNESS: I was simply told that that

2 information was not available to me.

3 Q. BY MR. MESEREAU: Well, you’ve never spoken

4 to anyone on the defense side, correct?

5 A. I have not, no.

6 Q. The only people you spoke to about your

7 opinions today are the prosecutors for the

8 government, correct?

9 A. That’s correct.

10 Q. And when did you first talk to any

11 prosecutor for the government?

12 A. Oh, I think the first call came to me

13 probably back in October-November.

14 Q. Okay. And who called you?

15 A. Oh, it was Mr. Auchincloss.

16 Q. Okay. And have you worked with Prosecutor

17 Auchincloss ever since?

18 A. I have not, no.

19 Q. Okay. Who have you worked with to — in the

20 process of preparing to testify in this trial?

21 A. We’ve met with Mr. Auchincloss, and also a

22 Ms. Linz, as I recall her name, Chris Linz. I met

23 Mr. Sneddon, but we really didn’t talk about my

24 testimony, per se.

25 Q. Okay. Now, you’ve indicated you wished you

26 could have looked at financial statements for 1999,

27 2000, 2001 and 2002; is that correct?

28 A. All the way up through February of 2003, 8602

1 actually.

2 Q. Okay. So in the process of forming your

3 opinions, and I’m speaking about the opinions you’ve

4 testified to today, you haven’t looked at one

5 certified financial statement of Mr. Jackson, true?

6 A. Well, we saw the June 30 — there’s a 1999

7 financial statement, and there’s a June 30, 2002,

8 financial statement.

9 Q. Okay. And who prepared those?

10 A. Prepared by Holthouse, as I recall.

11 Q. Okay. And are they certified, to your

12 knowledge?

13 A. Yes, they are.

14 Q. Okay. And did you talk to anyone at

15 Holthouse about what they used to prepare those

16 statements?

17 A. No. You can see what they used to prepare

18 the statements.

19 Q. Well, let me just — you can see what they

20 used to prepare those statements?

21 A. Yes.

22 Q. You can see every document they reviewed?

23 A. No, but you know, based on the opinion that

24 they gave and the types of financial statements that

25 they are.

26 Q. Okay. Okay. You didn’t look at general

27 ledgers, because they were not available, correct?

28 A. That’s correct. 8603

1 Q. And please tell the jury what general

 

2 ledgers would have — well, first of all, before I

 

3 get into that. The financial statements you did not

 

4 look at, why would you like to have looked at those

 

5 financial statements?

 

6 A. Because, as I mentioned in my direct, in

 

7 doing a forensic accounting investigation, you want

 

8 to see as much information as you possibly can. So

 

9 that may lend additional information, it may not,

 

10 but you certainly want to see as much as you

 

11 possible can.

 

12 Q. And you said you would like to have looked

 

13 at general ledgers, but could not, right?

 

14 A. That’s correct.

 

15 Q. And why would you have preferred to have

 

16 looked at general ledgers?

 

17 A. It’s just more information. Understand that

 

18 the general ledgers are nothing more than a process

 

19 of accumulating a bunch of different transactions

 

20 that then come to an end number that then become

 

21 part of the balance sheet. So it just tells you the

 

22 detail that makes up the final number. It’s just

 

23 more information.

 

24 Q. You didn’t look at bank statements, correct?

 

25 A. We did not see any bank statements, no.

 

26 Q. And had you had any bank statements

 

27 available, what benefit would you have had?

 

28 A. Well, it would tell you cash balances. It 8604

 

1 would tell you the expenditures, at least on a cash

 

2 basis. You wouldn’t know the detail. It would just

 

3 be like looking at your normal bank statement, just

 

4 shows the check and the account. So it would show

 

5 you cash balances on an ongoing basis.

6 Q. And are you saying the documents you looked

7 at did not identify for you exactly what the nature

8 of the expenditures were?

9 A. No, there are documents within some of the

10 Holthouse memos and some of the financial

11 consultants that talk about individual expenditures

12 and individual expenditure levels.

13 Q. Okay. You didn’t look at any tax returns,

14 correct?

15 A. No, we actually did, I think, see tax

16 returns.

17 Q. Which ones; do you know?

18 A. I don’t recall the years. Seems to me they

19 were later years.

20 Q. Okay. You didn’t see any during the period

21 you’re giving an opinion on, did you?

22 A. I think we may have seen ‘02, maybe ‘03.

23 Q. Okay. And are you sure about that?

24 A. I don’t recall. There’s not a lot of

25 information that’s pertinent to this analysis in a

26 tax return.

27 Q. Okay. Were they corporate returns or

28 personal; do you know? 8605

1 A. I believe they were personal.

2 Q. Okay. Now, you’ve indicated that you are

3 with a financial consulting firm, correct?

4 A. That is correct.

5 Q. And would one of the areas of expertise in

6 your firm be looking at someone’s bare financial

7 condition and giving them advice how to change their

8 condition and improve it?

9 A. I’m not sure what you mean by “bare.”

10 Q. Well, you’ve given the jury your opinions

11 about Mr. Jackson’s expenditures, liabilities and

12 liquidity, correct?

13 A. That’s correct.

14 Q. You were not here to tell the jury what all

15 of his assets were worth during that particular time

16 period, correct?

17 A. And we don’t know exactly what they were

18 worth during that particular time frame.

19 Q. Have you looked at any information in

20 response to the prosecutor’s questions that would

21 have given you any indication what any of Mr.

22 Jackson’s assets were worth?

23 A. There were a number of different documents

24 in those which we saw that talked about value over

25 periods of time. For example, I think there was a

26 value given for Neverland Ranch at some point in

27 time. There was also an appraisal done on the MIJAC

28 catalog at some point in time. And there was an 8606

1 appraisal done on the entire Sony/ATV catalog at

2 some point in time. Those would be the major

3 assets. And we did see valuation — two valuations

4 done by an appraiser, and then one I think was just

5 a representation maybe made by IBM, as I recall.

6 Q. Now, the prosecutor talked to you about a

7 letter from a company called International Business

8 Management. Do you remember that?

9 A. I do, yes.

10 Q. That was in February of 2003, correct?

11 A. That’s correct.

12 Q. And do you recall that in that letter from

 

13 that firm the Sony/ATV catalog was estimated to be

 

14 worth approximately one billion dollars?

 

15 A. I do, yes. That’s the catalog in total,

 

16 yes.

17 Q. And clearly if you were going to try and

 

18 advise someone like Mr. Jackson, based on the

 

19 information you’ve given the jury today, about how

 

20 to restructure his affairs to not have the debt he

 

21 had or to be more liquid, you would consider the

 

22 possibility of selling assets, true?

 

23 A. I think that’s a real possibility here, yes.

 

24 Q. And if, in fact, the value of one billion

 

25 dollars that is found in the letter you refer to is

 

26 true, clearly if you were advising Mr. Jackson how

 

27 to solve any cash crisis, you would consider the

 

28 possibility of liquidating that asset, true? 8607

 

 


 

1 A. No, because the value of the catalog is one

 

2 billion dollars. Mr. Jackson’s interest is not half

 

3 of that billion dollars.

 

4 Q. Well, sir, he has an interest in that

 

5 catalog, correct?

 

6 A. Yes. But it is not worth half of one

 

7 billion dollars.

 

8 Q. He purchased the catalog in approximately

 

9 1986 for about $47 million, right?

 

10 A. I think that’s right.

 

11 Q. He sold half of that interest in the catalog

 

12 in approximately 1995 for 90 million, true?

 

13 A. I believe that’s correct.

 

14 Q. And in 1999 — excuse me, in 2003, you see

 

15 an estimated value in this particular letter of one

 

16 billion dollars, right?

 

17 A. That’s correct.

18 Q. And that catalog contains ownership

19 interests in all of The Beatles’ music, true?

20 A. I don’t know that it’s all of The Beatles’

21 music. I think it’s some of The Beatles’ music.

22 Q. Do you know whether or not it’s all of it or

23 not?

24 A. I don’t know.

25 Q. Do you know any other recording artists

26 whose copyrighted music is contained within that

27 catalog?

28 A. Yeah, I saw a memo on that. I don’t recall 8608

1 the specifics, but I saw there were others involved.

2 I think there were — Sony’s copyrighted music was

3 in there, which I think it initially was

4 country-western. But I think there were other

5 artists in there as well as The Beatles.

6 Q. Okay. Now, that catalog today has been

7 estimated to be worth a couple of billion dollars by

8 some, and even four to five by others. Are you

9 aware of that?

10 MR. AUCHINCLOSS: Objection; assumes facts.

11 THE WITNESS: I’m not aware of that, but

12 again —

13 THE COURT: That’s overruled. The answer is

14 he’s not aware of it. Next question.

15 Q. BY MR. MESEREAU: Your job was not to

16 appraise the value of the Sony/ATV catalog, correct?

17 A. No. We certainly considered the value in

18 coming to our opinions.

19 Q. Did you hire an appraiser to give you an

20 appraisal of the value of that catalog in the year

21 2003?

22 A. No.

23 Q. You never hired any appraiser to put a value

24 on that catalog at any time while you were working

25 for the government, correct?

26 A. No. I don’t see the need to.

27 MR. AUCHINCLOSS: I’m going to object as

28 relevancy as to the entire catalog. What’s relevant 8609

1 is only the defendant’s portion of it.

2 BAILIFF CORTEZ: Your microphone, sir, is

3 off.

4 THE COURT: The objection is overruled. The

5 answer is in. Next question.

6 Q. BY MR. MESEREAU: Did you look at the

7 transactional documents that were drafted in the

8 mid-’90s, approximately 1995, whereby Mr. Jackson

9 sold a half interest in that catalog to Sony?

10 A. I see the Sony/ATV agreement. Is that the

11 document you’re referring to?

12 Q. That and other documents that refer to that

13 transaction.

14 A. I see — the Sony/ATV agreement is what I

15 saw.

16 Q. Okay. Your job was not to obtain all of the

17 documentation that pertained to Mr. Jackson’s sale

18 of a half of his catalog to Sony, right?

19 A. Well, again, I would ask for any document

20 that’s available. And I got the documents I got,

21 which was the Sony/ATV catalog document.

22 Q. Okay. And you’re not aware of efforts,

23 through the last four or five years, by anybody to

24 try and purchase his interest, correct?

25 A. In the Sony/ATV?

26 Q. Yes.

27 A. Well, Mr. Jackson, I don’t believe, is

28 allowed to sell any interest until 2005. 8610

1 Q. But there are efforts to purchase it. If

2 you can get all parties to agree, you can sell your

3 interest, can’t you?

4 A. That’s true. If he gets Sony’s approval, he

5 could sell his interest, based on the agreement.

6 Q. So are you aware of any efforts during the

 

7 last four or five years by third parties to try and

 

8 get Sony and Mr. Jackson together and purchase that

 

9 catalog?

 

10 MR. AUCHINCLOSS: I’ll object as to

 

11 relevancy beyond 2003.

 

12 THE COURT: Sustained.

13 MR. AUCHINCLOSS: March.

 

14 Q. BY MR. MESEREAU: Let me rephrase.

 

15 Are you aware of any efforts by third

 

16 parties, between 1999 and the end of 2003, to get

 

17 Sony and Mr. Jackson together and work out an

 

18 arrangement where Mr. Jackson’s interest is sold?

 

19 MR. AUCHINCLOSS: Same objection. End of

 

20 2003.

 

21 THE COURT: Sustained.

 

22 MR. MESEREAU: I’ll rephrase it again.

 

23 Q. Are you aware of any efforts between the

 

24 years 1999 and March of 2003 by any third party to

 

25 get Mr. Jackson and Sony together so they could

 

26 purchase Mr. Jackson’s interest in that catalog?

 

27 A. No, I have not seen any document like that.

28 Q. Okay. Now, among the documents that you 8611

1 were handed by Prosecutor Auchincloss, was the only

2 reference to a value of the Sony/ATV catalog the one

3 billion dollars you just referred to?

4 A. No, there was two. The IBM memo said, I

5 think, one billion dollars, and it’s June — excuse

6 me, a February 13th, ‘03 memo. But again, that’s

7 the value of the catalog, not Mr. Jackson’s

8 interest.

9 And there was a second document that was

10 actually an appraisal done by an appraisal firm in,

11 I think it was 1999, for $991 million, I believe.

12 Q. Okay.

13 A. So there’s two documents that I saw.

In this excerpt, Mesereau questioned Duross about financial advice that Jackson was given by his attorney David LeGrand that if he sold his share of the catalog, he could end up with $200 million dollars after taxes and his liquidity problems would be solved. Duross wasn’t aware of the particular document that stated LeGrand’s advice to Jackson, and the prosecution certainly didn’t offer it to Duross. Mesereau used this evidence to indicate to the jury that Jackson’s financial situation was not as dire as the prosecution asserted, and with the stroke of a pen Jackson could have alleviated his liquidity problems by selling his share of the catalog.

Duross also admitted that he didn’t consider various entertainment opportunities that Jackson could have engaged in to earn income during the time period of 1999 through 2003. He and Mesereau got into a little tiff about why Jackson didn’t alleviate his financial problems, and Mesereau was scolded by Judge Melville for an inappropriate remark:

14 Q. Now, Prosecutor Auchincloss showed you

15 documents from March of 2003 that were written to

16 Mr. Jackson by an attorney named David LeGrand,

17 correct?

18 MR. AUCHINCLOSS: Objection; misstates the

19 evidence as to the date of the documents.

20 THE WITNESS: You’d have to refer me to that

21 document. I’m sorry.

22 THE COURT: Just a moment.

23 THE WITNESS: I’m sorry.

24 THE COURT: Well, I guess the District

25 Attorney is saying that’s not the correct date. Do

26 you have a document that’s dated March of 2003?

27 MR. MESEREAU: Yes, I do.

28 Q. Did the prosecutor in the course of your 8612

1 work for him show you a document dated March 18th,

2 2003, to Mr. Jackson from a lawyer named David

3 LeGrand?

4 A. I don’t recall seeing that document.

5 Q. Okay. Might it refresh your recollection if

6 I just show you the one I have?

7 A. Please.

8 MR. MESEREAU: May I approach, Your Honor?

9 THE COURT: Yes.

10 MR. AUCHINCLOSS: May I see what you’ve got?

11 THE WITNESS: I don’t recall seeing this memo

12 before.

13 Q. BY MR. MESEREAU: So you’re saying the

14 prosecutor didn’t give you this document when he was

15 preparing you?

16 A. No, I’m not suggesting that. It’s just I

17 have not seen that document.

18 Q. Okay. Well, how many documents did you look

19 at in preparing to testify?

20 A. As I mentioned earlier, there was about six

21 boxes, something like that, of documents.

22 Q. Okay. Do you recall seeing the name David

23 LeGrand in the documents?

24 A. I do, yes. There’s documents from IBM to

25 David LeGrand.

26 Q. Do you recall that he was giving Mr. Jackson

27 advice about how to handle his financial situation?

28 A. I do recall that, yes. 8613

1 Q. Do you recall him suggesting that if Mr.

2 Jackson —

3 MR. AUCHINCLOSS: I’m going to object to

4 counsel reading —

5 Q. BY MR. MESEREAU: — sold his —

6 Your Honor, can I —

7 MR. AUCHINCLOSS: — reading from the

8 letter —

9 MR. MESEREAU: — complete the question?

10 MR. AUCHINCLOSS: — that he says he doesn’t

11 know about.

12 THE COURT: Sustained.

13 Q. BY MR. MESEREAU: If Mr. Jackson sold his

 

14 interest in March of 1993 — excuse me, March of

 

15 2003 in the Sony/ATV joint venture, okay?

 

16 A. Yes, I gotcha.

 

17 Q. That’s assuming the parties got together and

 

18 all agreed Mr. Jackson can sell his interest, all

 

19 right?

 

20 A. That’s what I believe would have to happen,

 

21 yes.

22 Q. Yes. He could have paid off the Bank of

 

23 America loan, he could have ended up worth $200

 

24 million after taxes, excluding royalty income, true?

 

25 A. I’ve never seen that document, so I can’t

 

26 tell you that’s true or not.

27 Q. Okay. But you were given some documents by

28 the prosecutor that Mr. Jackson had gotten from his 8614

1 lawyer, Mr. LeGrand, true?

2 A. Yes, we were.

3 Q. And you saw some documents that said “Hale

4 Lane” on them, correct, the law firm the lawyer

5 belonged to, right?

6 A. We’ve seen those documents, yes.

7 Q. Okay. And you don’t recall a document dated

8 March 18th where Mr. LeGrand told him how to solve

9 his liquidity problem and be worth $200 million

10 before he got a royalty?

11 MR. AUCHINCLOSS: Objection. Assumes facts;

12 argumentative.

13 THE COURT: The objection is sustained.

14 Q. BY MR. MESEREAU: Did you ever ask

15 Prosecutor Auchincloss if he had any documents

16 available to him where any of Mr. Jackson’s advisors

17 gave him advice on how to solve his liquidity

18 problem?

19 A. Well, we asked for any and all documents

20 relevant, so if I didn’t know that document exists,

21 whatever that document is, I wouldn’t have known to

22 ask for it. So we simply asked for any and all

23 documents relevant to financial condition issues

24 through February of 2003.

25 Q. Okay. Did you ask for documents through

26 March of 2003 from Prosecutor Auchincloss?

27 A. We asked for documents all the way through

28 today — 8615

1 Q. Okay.

2 A. — with respect to bank statements and the

3 like.

4 Q. But you have never seen any document that

 

5 suggested Mr. Jackson sell that asset and analyzes

 

6 what he’ll be worth if he sells his interest, right?

 

7 A. No. I’ve never seen that document, no.

 

8 Q. Okay. Now, none of your calculations

 

9 consider any opportunities Mr. Jackson had in the

 

10 entertainment industry during those years, correct?

 

11 A. That’s — well, I mean, it doesn’t consider

 

12 from an income perspective.

 

13 Actually, that’s not true. It does

 

14 consider, because the financial consultants — the

 

15 letters that the financial consultants wrote that I

 

16 have looked at and relied on would assumingly take

 

17 that into account. They’re his business advisors

 

18 and they’re talking about the excess expenditures.

 

19 So my guess is — not a guess. I would assume they

 

20 would include all items of revenue with respect to a

 

21 calculation.

 

22 Q. Mr. O’Bryan, an entertainer like Mr. Jackson

 

23 doesn’t just go to his CPA every time someone offers

 

24 him an opportunity around the world, right?

 

25 A. I don’t know what his relationship with his

 

26 business manager was.

 

27 Q. Well, did you know that he was offered $100

 

28 million to do a national tour in 2002? 8616

 

1 MR. AUCHINCLOSS: Objection; assumes facts.

 

2 THE COURT: Sustained.

3 Q. BY MR. MESEREAU: Are you an expert on the

4 music industry?

5 A. No, I’m not.

6 Q. Have you done any kind of an analysis on

7 what opportunities in the entertainment industry Mr.

8 Jackson had between the years 1999 and March of

9 2003?

10 A. I did not, no. I relied on the financial

11 consultants’ information.

12 Q. Now, based on what you have seen to date,

 

13 Mr. Jackson has never gone bankrupt ever, has he?

 

14 A. Not to my knowledge.

15 Q. Do you have any knowledge of what Mr.

16 Jackson was offered to do either national or

17 international music tours between the years 1999 and

18 March of 2003?

19 A. No.

20 Q. Did the prosecutor give you any documents

21 about licensing opportunities for various

22 Michael-Jackson-related products that he was offered

23 between the years 1999 and March of 2003?

24 A. I don’t recall seeing any of those. There

25 could be some in there, but I don’t know that would

26 be relevant to my calculations.

27 Q. If you were trying to solve a liquidity

28 crisis like you’ve identified here, wouldn’t it be 8617

1 relevant if you knew that Mr. Jackson could accept

2 one opportunity and solve it in a day?

3 A. Well, it could be relevant, but it isn’t in

4 this calculation, because that liquidity crisis was

5 real. There were documents — there are documents

6 throughout that we reviewed that there was a serious

7 cash crisis. And if it could have been solved, why

8 wasn’t it? I mean, there were documents that

9 there’s $10 million being unpaid. There’s documents

10 where vendors are threatening lawsuits. If it’s

11 that easy to fix, why don’t you fix it?

12 Q. If it was as bad as you said it was, why

 

13 didn’t he go bankrupt?

 

14 A. Because I think he’s been able to continue

 

15 to borrow.

16 Q. Do you know that for a fact?

 

17 A. Yes. The debt’s gone up.

 

18 Q. Do you know what opportunities he had to

 

19 market Michael Jackson video games, market Michael

 

20 Jackson fragrances, Michael Jackson music, Michael

 

21 Jackson concerts, Michael Jackson tours during that

 

22 period? Do you know what cash opportunities were

 

23 available to him if he wanted them?

 

24 A. I have no doubt that there were substantial

 

25 opportunities. The issue becomes why weren’t they

 

26 availed themselves? Why didn’t they do that? There

 

27 was a serious cash crisis. There’s no doubt about

 

28 that, based on the documents I’ve seen. And in 8618

 

1 fact, if it was so easy to do, why wasn’t it done?

 

2 Q. Maybe it wasn’t as serious as you’ve

 

3 identified.

 

4 MR. AUCHINCLOSS: Objection; argumentative.

 

5 THE COURT: Sustained.

 

6 The jury’s admonished to disregard Mr.

 

7 Mesereau’s remark.

Next, Mesereau went through various scenarios where Jackson could have sold his interest in the catalog to any interested buyer, if he had so desired, and the rate of appreciation in the catalog’s value:

8 Q. BY MR. MESEREAU: Did your firm ever do any

9 independent due diligence investigation of Mr.

10 Jackson’s finances during that period?

11 A. No. No. Like, for example, searching the

12 Internet or something like that? I mean, we asked

13 for documents.

14 Q. Yes.

15 A. And we got the documents we got. I’m not

16 sure — independent investigation. Do you mean by

17 going to the Internet or something like that?

18 Q. If your firm had been theoretically retained

19 by Mr. Jackson to do an analysis of his assets and

20 liabilities, to analyze any cash liquidity problem

21 and to make recommendations how to solve it, what

22 would you have wanted to look at?

23 A. We would have wanted to look at the

24 documents we requested, which were all the bank

25 statements, all the general ledgers, all of the

26 income statements and balance sheets and financial

27 statements for the individual years, plus the

28 documents that we’ve seen, which is the opinions 8619

1 and/or the correspondence from all of his advisors

2 as they progressed through serving him and helping

3 him with his cash crisis.

4 Q. Okay. And I think it goes without saying,

5 you didn’t get all those documents to look at,

6 correct?

7 A. As I mentioned, we didn’t get all the

8 financial statements and all the documents that we

9 talked about, no.

10 Q. Now, you asked for documents up to the

11 present; is that correct?

12 A. As I recall, we did, yes.

13 Q. Did Prosecutor Auchincloss give you

14 documents that concerned March of 2003?

15 A. We — we didn’t — apparently we didn’t see

16 some documents. In fact, I’m sure we didn’t see all

17 the documents, but we got what we got and those

18 documents appeared to go through mostly 2003.

19 Q. Okay. Now, did you see current appraisals

20 of all assets you believe Mr. Jackson owned when you

21 did your analysis?

22 A. No. No, the — as I said, the only two

23 appraisal documents we saw was an official one in

24 1999, and then the IBM document, which was again a

25 valuation of the venture, not just Mr. Jackson’s

26 interest.

27 Q. Now, based on what documents you saw,

 

28 clearly the Sony/ATV music catalog was an 8620

 

1 appreciating asset, right?

 

2 A. It was an appreciating asset for the

 

3 catalog. I’m not sure it was an appreciating asset

 

4 for Mr. Jackson’s interest because of the way it was

 

5 structured.

 

6 Q. Okay. But, sir, again, if three parties,

 

7 Sony, Mr. Jackson and a potential purchaser, get

 

8 together, and there is an effort to buy that catalog

 

9 from Sony and Mr. Jackson, terms are negotiated, and

 

10 almost anything can be liquid at that point, true?

 

11 A. I’m sorry, “anything can be liquid.” Do you

 

12 mean —

 

13 Q. Sony and Mr. Jackson were certainly, based

 

14 on what you know, capable of getting together and

 

15 jointly selling their interests in that catalog to a

 

16 third party, right?

 

17 A. That’s my understanding; that either party

 

18 could sell with the approval of the other.

19 Q. Okay.

20 A. Up until December 2005.

21 Q. And you knew that that catalog had

22 originally been completely owned by Mr. Jackson,

23 right?

24 A. That’s correct. Well, he owned a portion of

25 it. The catalog became total once Sony put their

26 interests in as well.

27 Q. Well, when Mr. Jackson initially obtained an

28 interest in the catalog, he had a complete interest, 8621

1 did he not?

2 A. He had the interest in his copyrighted

3 assets. Sony had their interest in their

4 copyrighted assets.

5 Q. I’m talking about in 1986 when he purchased

6 it.

7 A. He had apparently 100 percent interest.

8 Q. Okay. And you knew he had paid

9 approximately 47 million for his interest, right?

10 A. I think that’s right.

11 Q. He had sold half of that interest

12 approximately ten years later for 90 million, right?

13 MR. AUCHINCLOSS: Objection; asked and

14 answered.

15 THE COURT: Sustained.

16 Q. BY MR. MESEREAU: And in 2003, it was your

17 understanding that the entire catalog was worth —

18 at least the only estimate you saw was a billion,

19 right?

20 MR. AUCHINCLOSS: Objection; asked and

21 answered.

22 THE COURT: Sustained.

23 Q. BY MR. MESEREAU: Now, let me ask you this,

24 because you do advise businesses on how to

25 restructure —

26 A. I do.

27 Q. — and improve liquidity, correct?

28 A. We do, yes. 8622

1 Q. Okay. Given the rate of appreciation of

 

2 that asset, based on what you know, between 1986 and

 

3 2003, can you envision a situation where Mr. Jackson

 

4 says to himself, “I’ll deal with the liquidity

 

5 crisis each year, because it’s a price worth paying

 

6 to hang on to this asset the way it’s increasing in

 

7 value”?

 

8 A. I don’t know what Mr. Jackson may have said

 

9 to himself. But from a financial perspective, I

 

10 would simply disagree with you that his interest is

 

11 necessarily increasing each year given the financial

 

12 structure of the arrangement.

 

13 Q. But the asset could be appreciating in terms

 

14 of inherent value, true?

 

15 A. Depends on what royalties, in fact, it’s

 

16 generating.

 

17 Q. Do you know?

 

18 A. Actually, yes, the royalties were

 

19 increasing. But again, that’s the catalog in total.

 

20 That’s not necessarily Mr. Jackson’s interest in

 

21 that catalog.

 

22 Q. Well, let me ask you this: Had you seen the

 

23 letter of March 18th — excuse me, March 19th that I

 

24 just showed you from Mr. LeGrand – okay? – where his

 

25 lawyer advises him, “You can sell your interest, and

 

26 you can end up worth $200 million after taxes” —

27 MR. AUCHINCLOSS: Objection. This was —

28 this was — the objection was sustained previously. 8623

1 Hearsay.

2 MR. MESEREAU: I haven’t finished the

3 question, Your Honor.

4 THE COURT: I’ll sustain the objection,

5 though. I know it is the same question.

6 MR. AUCHINCLOSS: Motion to strike.

7 Q. BY MR. MESEREAU: If you’d known that asset

 

8 could be sold in March of 2003 – okay? – if you knew

 

9 that Mr. Jackson could have been worth 200 million

 

10 after taxes by doing it, excluding royalty income,

 

11 let’s assume those facts just for the sake of

 

12 argument, all right?

 

13 A. Okay.

 

14 Q. If you knew that, you wouldn’t consider this

 

15 liquidity crisis to be as serious as you’ve made it,

 

16 true?

 

17 A. Well, the liquidity crisis was ongoing.

 

18 There’s — in my mind, there’s no doubt about it, in

 

19 1999, 2000, 2001, 2002, and as of February 13th,

 

20 2003. In my mind there’s no question about that.

 

21 If, hypothetically, Mr. Jackson could have

 

22 sold his interest, Sony would have agreed, and it

 

23 would have created a net cash to him of $200

 

24 million, of course liquidity issues would change

 

25 subsequent to February 13th, 2003.

 

26 Q. Okay. I’m not talking about net cash. I’m

 

27 talking about when all the dust settles and all the

 

28 loans are paid, and Bank of America is out of the 8624


 

1 equation, he ends up worth $200 million free of all

 

2 debt. If you knew he could have achieved that in

 

3 March of 2003, would that change your opinion about

 

4 the seriousness of this liquidity crisis?

5 A. As I was saying —

6 MR. AUCHINCLOSS: I’ll object as to assumes

7 facts. Argumentative. And requires speculation.

8 MR. MESEREAU: It’s just using a

9 hypothetical, Your Honor.

10 THE COURT: I’ll allow the question as a

11 hypothetical.

12 (To the jury) I’ve already given you some

13 instruction on hypothetical questions. Do you

14 remember that instruction? Vaguely. Okay. I’ll

15 give it to you after a while.

16 Go ahead. You may answer.

17 THE WITNESS: As I mentioned, it would not

18 change my opinion about his liquidity of the cash

19 crisis up through 2-13-03. However, if that was

20 known at that point in time, and at the end of the

21 day there would be $200 million of net worth in your

22 hypothetical, clearly that would change a liquidity

23 issue at that point in time.

24 Q. BY MR. MESEREAU: And certainly if Mr.

25 Jackson had received a letter from his attorney in

26 March of 2003 stating an assumption like that, that

27 would likely have changed Mr. Jackson’s view of his

28 financial situation, right? 8625

1 MR. AUCHINCLOSS: Objection. Improper

2 hypothetical; argumentative.

3 THE COURT: Sustained.

4 Q. BY MR. MESEREAU: Now, typically, if you

5 were going to advise Mr. Jackson on how to handle a

6 liquidity crisis, once you identified a liquidity

7 crisis like you have today, logically wouldn’t you

8 sit down with the client and say, “What

9 opportunities are available to you, sir, to raise

10 millions of dollars and help solve your short-term

11 needs?” That would be one of the questions you’d

12 ask, right?

13 A. Certainly.

14 Q. And given what you know about Mr. Jackson

15 and the success he’s had in the music business and

16 his reputation he’s had around the world, logically

17 wouldn’t one of the first questions be, “Mr.

18 Jackson, what are the opportunities available for

19 you around the world right now to raise millions of

20 dollars and help solve the crisis?”

21 A. Would that be a question an advisor would

22 ask? Is that your —

23 Q. Wouldn’t that be a logical question if you

24 were consulting — or someone like Mr. Jackson was

25 consulting you?

26 A. Certainly. Clearly cash needed to be

27 raised, and that would be a question one would ask.

Pay attention to what Mesereau says in this excerpt: Mesereau asked Duross if he was aware that many celebrities have cash problems because they have a hard time getting work, and so they don’t have a steady stream of income. This was obviously not a problem for Jackson, who could have toured anywhere in the world at any time if he wanted to, and this further erodes the prosecution’s assertion that Jackson had a financial motivation to hold the Arvizos hostage at Neverland and fly them to Brazil:

28 Q. Okay. Now, have you, in your work, advised 8626

1 people in the entertainment industry —

2 A. No.

3 Q. — of how to restructure their affairs?

4 A. No, I have not.

5 Q. You’ve never done it once?

6 A. Never once.

7 Q. Well, certainly in the course of your

8 career, you’ve heard from time to time about various

9 celebrities in the entertainment industry who, for

10 whatever reason, end up with a cash crisis, true?

11 A. Yes.

12 Q. One of the reasons is sometimes work is

13 sporadic depending on what work you do, correct?

14 MR. AUCHINCLOSS: Objection. Argumentative;

15 irrelevant.

16 THE COURT: Sustained.

Next, Duross is questioned about the appraisal values of Jackson’s assets, and once again admitted that he didn’t take into account any possible entertainment opportunities that were available to Jackson when analyzing Jackson’s financial condition:

17 Q. BY MR. MESEREAU: Do you recall generally

18 what documents you looked at when you were preparing

19 your conclusions in this case?

20 A. Yes. As I mentioned, we saw — it was five

21 to six boxes. There was a couple of boxes of UCC

22 filing statements. There was also a couple of boxes

23 of Warner-Schappel royalty statements. And I think

24 the remaining two boxes were miscellaneous financial

25 documents, including correspondence from Mr.

26 Jackson’s financial advisors. And the balance sheet

27 that I mentioned to you, as well, for 1999 and 2002.

28 Q. With respect to the expenditures that you’ve 8627

1 identified as exceeding income during those years –

2 okay? —

3 A. Yes.

4 Q. — am I correct in assuming that you saw

5 some general information about how much was being

6 spent?

7 A. Yes.

8 Q. As opposed to what the individual

9 expenditures were for; is that correct?

10 A. We saw some specifics.

11 Q. Okay.

12 A. And some summaries that the consultants

13 included.

14 Q. Okay. Okay. Did you see any year-by-year

15 breakdowns about what Mr. Jackson was supposedly

16 spending this money on?

17 A. Well, we showed you 1999, which summarized

18 it by four or five different categories. There was

19 some information in 2000. There was not — I don’t

20 recall any information in ‘01 or ‘02.

21 So we saw some details, but principally we

22 saw the summarized memos of his financial

23 consultants.

24 Q. Okay. Now, you mentioned the

25 one-billion-dollar figure you saw attributed to the

26 Sony/ATV catalog, correct?

27 A. That’s correct, in the IBM memo.

28 Q. And there was a second catalog as well that 8628

1 you became aware of, correct?

2 A. That’s correct, the MIJAC catalog.

3 Q. And that was a catalog devoted to Mr.

4 Jackson’s own music, right?

5 A. That is correct.

6 Q. Did you see any appraisals on what the value

7 of that catalog was?

8 A. Yes. There was one done in 1999.

9 Q. And what was the value placed on that

10 catalog based on the appraisal you looked at?

11 A. $128 million.

12 Q. And do you recall who did that appraisal?

13 A. It was the same firm that did the Sony/ATV

14 catalog appraisal. I don’t remember the name of the

15 firm. It was a Los-Angeles-based firm.

16 Q. And I believe you testified that as part of

17 your analysis, you considered what the Michael

18 Jackson catalog was generating each year in terms of

19 revenue, right?

20 A. Absolutely, yes.

21 Q. Just like you took into consideration what

22 the Sony/ATV catalog was generating in terms of

23 revenue, right?

24 A. Right.

25 Q. You didn’t do any analysis of whether or

26 not, between the years 1999 and March of 2003, the

27 Michael Jackson catalog could have been sold,

28 correct? 8629

1 A. Well, I think that the Michael Jackson

2 catalog could have been sold at any point in time.

3 I’m not aware of any restrictions similar to the

4 ones on the Sony/ATV catalogs. My assumption is

5 that could be sold at any time.

6 Q. Okay. And if it had been sold in 1999,

7 based upon the document you looked at, the best

8 value you could ever come up with would be 128

9 million right?

10 A. 128 million would be the value of the

11 catalog, less, of course, any debt, taxes, et

12 cetera.

13 Q. Right. Now, in 1999 — actually, excuse me.

14 Let me just rephrase that.

15 You’re not aware of any efforts to sell the

16 Michael Jackson catalog, correct?

17 A. I’ve never seen any documentation like that,

18 no.

19 Q. Okay. And I believe you testified that,

20 from what you could see, the three main hard assets

21 were the two catalogs and Neverland, right?

22 A. Those are the three main assets, yes.

23 Q. Okay. And clearly, you didn’t consider any

24 analysis of what entertainment opportunities were

25 ever available for Mr. Jackson during 1999 to March

26 of 2003, right?

27 A. No, I did consider those, in that it doesn’t

28 matter if those opportunities were available. There 8630

1 was a serious cash crisis. That’s a fact. That’s

2 what the documents support. Also, whether or not

3 that could have happened, it didn’t, and therefore

4 there was a cash crisis. That’s what the documents

5 show.

6 Q. And if you knew you could solve your cash

7 crisis tomorrow by selling a portion of an asset and

8 accepting an opportunity to tour around the world,

9 that would make a difference in terms of the

10 severity of that crisis, correct?

11 MR. AUCHINCLOSS: Objection. Requires

12 speculation, assumes facts, and asked and answered.

13 THE COURT: Sustained. Assumes facts.

14 Q. BY MR. MESEREAU: As you sit here today, you

15 know that he’s never gone bankrupt and he’s

16 continued to live at Neverland, correct?

17 MR. AUCHINCLOSS: Objection; asked and

18 answered.

19 THE COURT: Sustained.

20 Q. BY MR. MESEREAU: Now, let me ask you the

 

21 following: Let’s assume that your conclusions are

 

22 correct. In February of 2003, let’s assume that

 

23 your conclusions about Mr. Jackson’s financial

 

24 crisis are true. Okay?

 

25 A. Okay.

 

26 Q. As of February of 2003, how much was he in

 

27 debt?

 

28 A. Well, the — the Sony B of A loan had a 8631

 

1 balance of $200 million. The MIJAC loan had a

 

2 balance of $24 million. There was apparently an

 

3 additional ten and a half million dollars owing to

 

4 vendors that had not been paid.

 

5 Q. Okay. Now —

 

6 A. Those are the large liabilities that I can

 

7 think of as I sit here right now.

 

8 Q. Let’s assume that’s all correct, all right?

 

9 And let’s assume he doesn’t want to sell his

 

10 interest in the Sony/ATV catalog. Let’s assume he

 

11 doesn’t want to sell his own catalog, which was

 

12 estimated to be worth $128 million in 1999, okay?

 

13 Let’s assume he decides to sit there and

 

14 just keep living with this, these obligations that

 

15 you’ve identified, all right?

 

16 A. Okay.

 

17 Q. Now, let’s assume he has an opportunity to

 

18 make a documentary for television that can generate

 

19 about $7 million, all right?

 

20 A. Okay.

 

21 Q. Let’s assume FOX is doing what is called a

 

22 rebuttal documentary, okay? That $7 million isn’t

 

23 going to make much of a difference, is it?

 

24 A. No, it’s not.

 

25 Q. Wouldn’t be worth committing a crime over

 

26 $7 million in that situation, would it?

27 MR. AUCHINCLOSS: Objection; argumentative.

28 THE COURT: Sustained. 8632

1 Q. BY MR. MESEREAU: Now, I believe you

2 testified that on June 30th, 2002, he was not

3 bankrupt, right?

4 A. June 30th, 2002?

5 Q. Yes. I wrote down some notes, and if I

6 misstated that, let me know. But did you say that?

7 A. Oh, I’m sorry. Based on the financial

8 statements —

9 Q. Yes.

10 A. — I think Mr. Auchincloss asked, by

11 definition of a negative net worth, does that mean

12 he’s bankrupt, and I said no.

This should come as no surprise to anyone; the prosecution never asked Duross to perform a fair market value analysis of Jackson’s assets, or get an appraisal of those assets either!

13 Q. Okay. And could you please explain why you

14 felt a negative net worth did not mean you’re

15 bankrupt?

16 A. As I mentioned, that financial statement,

17 those assets were listed in what they call a tax

18 basis, or cash basis, which means it’s the cost. So

19 that’s the cost of acquiring those assets whenever

20 they were acquired. And liabilities are, in fact,

21 the stated amount of the liability.

22 We all know, for example, if you buy a house

23 for 100,000, two years later it might be worth

24 150,000. So if that’s, in fact, the case, the

25 100,000 asset is lower on the balance sheet than it

26 is the fair market value. And that’s the reason

27 that you cannot draw that inference from that

28 information, because that’s stated at cost, not 8633

1 necessarily fair market value.

2 Q. You were referring, in response to the

3 prosecutor’s questions, to a document dealing

4 with — I gather it was a financial statement from

5 June 30th, 2002; is that correct?

6 A. That is correct.

7 Q. Okay. Now, if you were trying to determine

8 fair market value of Mr. Jackson’s assets based on

9 that document, what would you have to do?

10 A. You’d have to go through each one of the

11 assets and figure out what the fair market value

12 was.

13 Q. And how would you do that?

14 A. You’d have to perform an appraisal on the

15 largest of the assets; namely, the catalogs, and

16 Neverland Ranch and all of the furnishings and

17 fixtures and artwork within Neverland Ranch. And

18 then you’d have to go through the liabilities’ side

19 and understand what the total liabilities were,

20 adjusted for taxes, because assuming you have to

21 sell all those assets, there’s going to be taxes

22 related to that. So that’s how you go about it.

23 Q. Did Prosecutor Auchincloss ever ask you to

 

24 get an appraisal done of anything?

 

25 A. No.

26 Q. Did Prosecutor Auchincloss ever ask you to

 

27 do a fair market value analysis of anything owned by

 

28 Mr. Jackson? 8634

 

1 A. No. But as part of the work that we were

 

2 performing, we did look at and consider the value of

 

3 the MIJAC catalog and the Sony/ATV, Mr. Jackson’s

 

4 interest in that.

 

5 Q. But you didn’t actually have it appraised by

 

6 someone capable of appraising its value, true?

 

7 A. There was no appraisal done, no.

8 Q. Okay. And you would agree that to put a

9 value on something like the Sony/ATV catalog would

10 require fairly unique expertise, would it not?

11 A. Not necessarily, no. I mean, it’s —

12 valuations — both these valuations are simply based

13 on cash flows. And the cash flows of that entity

14 are then projected out into the future, and then

15 they’re discounted back. That’s a common valuation

16 technique. I’ve done it dozens of times.

17 Q. But they’re also based on whether or not you

18 think the hard asset is appreciating, correct?

19 A. No, it’s not appreciating, because the

20 appraisal tells you whether or not it’s

21 appreciating. It’s simply based on assumptions with

22 respect to the cash flow stream.

23 The value of those copyrights are nothing

24 more than the cash flow going forward. That’s what

25 someone would pay for them. And so you have to make

26 an assumption about how they’ll grow, but then they

27 simply apply a multiplier and they discount it back

28 to today’s dollars using a discount rate. 8635

1 And so it’s a rather — I’m not going to say

2 it’s simple, but it’s a rather common valuation

3 technique that we use in our business.

4 Q. And if it’s so common to do, why wasn’t it

5 done in your analysis?

6 A. Well, as I said, I did consider the MIJAC

7 valuation as of 2003 and the Sony/ATV valuation of

8 2003. I did consider that.

9 Q. You did no analysis regarding what the

10 marketability of his interests were in either of

11 those assets during that point in time, and if he

12 were to market those assets, what his condition

13 would have been afterwards, correct?

14 A. No, that’s not true. No, I did. I

15 considered that.

16 Q. Well, I just showed you a letter from March

17 2003 where his lawyer actually does that, and you

18 said you didn’t do any analysis like that, right?

19 A. No, I said I didn’t see the letter, and I

20 didn’t do a formal appraisal.

21 Q. Okay.

22 A. But I certainly took a look at what I

23 believed the values to be of those assets. Not the

24 whole catalog, because you can’t value the whole

25 catalog. It’s just Mr. Jackson’s interest. But I

26 certainly considered the value of the MIJAC catalog

27 and the Sony/ATV catalog as of February of 2003.

28 Q. But correct me if I’m wrong, you said you 8636

1 don’t know how marketable that interest was, either

2 individually or jointly with Sony at that time,

3 right?

4 A. No, I think what I said was Sony would have

5 to approve any sale. How marketable it is, I don’t

6 know.

7 Q. Okay. Did you ever do any analysis as to

8 whether or not Mr. Jackson’s assets were

9 appreciating in value between 1999 and February of

10 2003?

11 A. I believe that the catalogs were actually —

12 that Mr. Jackson’s interest in both MIJAC and

13 Sony/ATV were depreciating. The Neverland Ranch

14 I’ve just always assumed at the value that was put

15 in, I think in 1999, by one of his advisors.

16 Q. Sir, if Mr. Jackson’s interest in the

17 Sony/ATV catalog went from 47 million in 1986 to

18 selling half of it for 90 million in 1995, and then

19 was estimated — the entire catalog was estimated at

20 a billion in 2003, based on the document you saw,

21 how can you say it’s diminishing in value?

22 A. Because when you look at the way the money

23 gets disbursed to the partners on the sale, and you

24 look at how much money has been advanced to Mr.

25 Jackson over the years, he gets six and a half

26 million dollars guaranteed every year on that.

27 While that’s going on, Sony should be getting six

28 and a half million, and they’re not. So that means 8637

1 that they are, in fact, accruing a liability on an

2 annual basis.

3 In addition to that, Sony is making

4 substantial investments in additional copyrights

5 expenses which Mr. Jackson is not contributing to,

6 so that liability increases.

7 So I literally cash-flowed a model out and

8 looked at when anybody could expect to get cash out

9 of the Sony/ATV catalog, and it’s like out into 2015

10 that someone would get that value, cash flows. When

11 you discount that back to today’s dollars, it’s not

12 as much as you think.

13 Q. Does anything happen in the year 2006

14 regarding liquidity of that catalog, to your

15 knowledge?

16 A. Well, there’s a “put” option that happens in

17 December of 2005, which Mr. Jackson could sell for

18 $200 million to Sony.

19 Q. What else is available?

20 A. I don’t recall. I think at some point in

21 time it can be sold. But again, the interest is —

22 what the cash flow values are, and when you look at

23 the actual cash flows that will result off that

24 interest, there’s been a substantial amount of

25 pre-drawing, if you will, of disbursements.

26 Q. But you saw documents that indicated what

27 Sony’s making on the catalog.

28 A. Well, you see a financial statement that 8638

1 shows what the entire partnership is making.

2 Q. Okay. So what you’re saying is, based upon

3 the obligations Mr. Jackson’s assumed, you think

4 value has been lost with each year; is that correct?

5 A. I do, yes.

6 Q. Okay. But you’re not taking into account

7 the value of the music around the world and what

8 markets might be available for that music, true?

9 A. No, I am. I’m taking into account the cash

10 flows that the partnership’s generating.

11 Q. Okay. All right. Now, you indicated — by

12 the way, did you look to see whether Neverland has

13 increased in value?

14 A. I didn’t, no. I think at some point in time

15 there was a value, and I just assumed that value.

16 Q. And what year did the — excuse me, what

17 year was there a value that you assumed?

18 A. I thought there was a number in there. I

19 think it was sometime in the 2000 range. About $50

20 million.

21 MR. MESEREAU: Okay. If I may take just one

22 second, Your Honor.

23 THE COURT: You may.

24 MR. MESEREAU: Thank you.

25 Q. As far as his expenditures go, you don’t

26 know, generally speaking, who he’s spending money

27 on, do you?

28 A. No. There is some detail in the records, 8639

1 yes.

2 Q. How much detail would you say?

3 A. As I mentioned, in the 1999 memo it shows

4 the expenditures for the Neverland Ranch and

5 security, it shows for professional and legal, it

6 shows for personal, it shows for other, so there are

7 details in there. There’s a listing of all the

8 employees that work at Neverland Ranch. There is

9 detail at times.

10 Q. Do you think that detail accounts for all of

11 the expenditures you’ve identified today?

12 A. Well, I think — I think that the work done

13 by Mr. Jackson’s financial consultants would take

14 into account all the expenditures. I don’t know why

15 they would have a reason to misstate those

16 expenditures.

17 Q. No, I don’t mean the amount. I mean the

18 actual whatever — whatever the money was actually

19 spent on. Did you get detail to that effect?

20 A. As I mentioned, for 1999 we have detail.

21 Q. Okay.

22 A. And there are — there is other detail. But

23 Holthouse was the ones writing the checks. They

24 would know where all the money went.

25 Q. Excuse me?

26 A. Holthouse was writing the checks. They

27 would know where that money went.

28 Q. Did you see a detailed accounting of where 8640

1 every dollar was spent?

2 A. No.

3 MR. MESEREAU: Okay. No further questions.

4 THE COURT: Counsel?

Under redirect examination, Auchincloss had Duross further elaborate on his professional opinion of Jackson’s finances, and explain to the jury the tax ramifications of a possible sale of Jackson’s share of the catalog. This was done to prove that the defense’s assertion that Jackson could have alleviated his liquidity problems merely by selling his share of the catalog was absurd because Jackson couldn’t afford the taxes that he would owe, and he would still be indebted to other creditors:

6 REDIRECT EXAMINATION

7 BY MR. AUCHINCLOSS:

8 Q. Mr. O’Bryan, you mentioned that you did an

9 analysis of Mr. Jackson’s interest in the Sony/ATV

10 catalog, as well as an analysis of the value of the

11 MIJAC catalog in coming to the conclusions that

12 you’ve stated to the jury today; is that correct?

13 A. I did consider those values, yes.

14 Q. And you’ve also stated that you arrived at

15 those values based on a cash flow analysis?

16 A. That’s correct. That’s how you value that

17 investment.

18 Q. What do you mean by a cash flow analysis?

19 A. The cash that actually is paid to someone

20 over a period of time. That’s the cash flow.

21 Q. Okay.

22 A. How that cash flows to you and what you’re

23 willing to pay for that investment is how much cash

24 you will get in the cash flow that you get out of

25 it. That’s a common valuation methodology.

26 Q. So those catalogs are only worth their —

27 you arrive at your value based on what kind of

28 income streams they produce? 8641

1 A. Right.

2 Q. Okay. So tell us about your analysis of the

3 MIJAC catalog. What were your findings or what were

4 your conclusions about the value of the MIJAC

5 catalog based upon your cash flow analysis in this

6 case?

7 A. Well, the MIJAC catalog, I believe, has gone

8 down in value from 1999. The revenues, the

9 royalties stream has gone down by almost 30 percent

10 from the 1997, ‘98, ‘99 time frame, into ‘00, ‘01,

11 ‘02, ‘03. And by virtue of the fact that the cash

12 flow stream goes down, the value goes down. That’s

13 just the way — it’s the way the model works. You

14 simply multiply the revenue stream times the

15 multiplier. So if, in fact, the revenue stream goes

16 down, the value goes down, and that makes sense.

17 So that’s gone down.

18 Q. Okay.

19 A. And on the Sony/ATV, it was exactly as I

20 described, and that is that the amount of money

21 which Mr. Jackson and/or his entities have been

22 taking out on an annual basis and/or not paying into

23 the partnership on an annual basis has created a

24 growing liability.

25 And by the time you pay back that growing

26 liability, there is a substantial amount of time

27 that will pass before you see cash flows out of

28 that. There’s a guaranteed amount of six and a half 8642

1 million, I think, through 2005. And that goes down

2 to two million. And then after that, it’s just the

3 actual amounts. But when those actual amounts are

4 paid, you have to first repay the amounts that Sony

5 hasn’t been paid, and/or the investments that

6 they’ve made that in fact they have not been paid

7 back for, including interest.

8 And I looked at that and it’s a long while,

9 once you get through this guaranteed portion, before

10 you’ll see a cash flow on that investment.

11 Q. So based on everything that you’ve

12 considered, I believe you said that Sony is putting

13 more royalties — more copyrights into that catalog

14 as time goes on?

15 A. They continue to invest.

16 Q. Mr. Jackson is taking more than his share

17 out in terms of cash on an annualized basis?

18 MR. MESEREAU: Objection; misstates the

19 evidence.

20 THE WITNESS: I wouldn’t say he’s taking

21 more than his share, but —

22 THE COURT: Just a moment.

23 THE WITNESS: I’m sorry.

24 MR. AUCHINCLOSS: Okay.

25 THE COURT: Well, I’ll allow the answer.

26 You may —

27 THE WITNESS: I wouldn’t say he’s taking

28 more than his share. I would say that Sony isn’t 8643

1 getting their share.

2 Q. BY MR. AUCHINCLOSS: So is the catalog

3 producing what was anticipated when this agreement

4 was originally reached?

5 A. I don’t know when it was anticipated, or

6 when it was reached. I don’t know.

7 Q. So tell us about this — the structure of

8 Mr. Jackson’s interest in the ATV catalog.

9 MR. MESEREAU: Objection; foundation.

10 THE COURT: Overruled.

11 You may answer.

12 Q. BY MR. AUCHINCLOSS: You mentioned he

13 doesn’t own half of that catalog today on an asset

14 basis. In other words, if it’s worth a billion

15 dollars, he doesn’t own half a billion dollars,

16 doesn’t have a half-a-billion-dollar interest in

17 that catalog; is that correct?

18 A. Well, he owns half of the catalog.

19 Q. Yes.

20 A. But his interest in the catalog is not worth

21 half of the catalog value —

22 Q. All right. So —

23 A. — because of the front-end loading of the

24 cash flow stream that has gone to him and not gone

25 to Sony.

26 Q. So if the catalog gets sold, then Sony walks

27 away with more money than Mr. Jackson?

28 A. Yes, because he has to repay all of the 8644

1 advances on all of the investments that Sony has

2 made. Absolutely.

3 Q. And you stated that Mr. Jackson has a right

4 to sell his interest in that catalog for $200

5 million; is that correct?

6 A. There is a “put” option. That means I

7 can — it’s a technical term in financial — it

8 means I can put this opportunity to you, and that

9 “put” option is worth 200 million. Starting on

10 December 2005, Mr. Jackson can force Sony to pay him

11 $200 million for that investment for his share.

12 Q. And I think you previously testified that in

13 February of 2003, that asset, his Sony/ATV catalog,

14 was mortgaged to the tune of $200 million; is that

15 correct?

16 A. That’s right. But remember, you also have

17 to consider the taxes on that. If you sell that,

18 you’re going to pay taxes.

19 Q. Good point. Tell me what happens, from a

 

20 tax basis, if Mr. Jackson has to sell his Sony/ATV

 

21 interest for $200 million to pay off that $200

 

22 million loan.

23 A. His basis is somewhere around $40 million,

 

24 meaning his cost basis. So you’d subtract the 200

 

25 from the 40, and you get a gain of about 160

 

26 million, and you’d basically calculate it in what’s

 

27 called capital gains rates, which federal and state

 

28 would be about 25 percent, so you’d pay about $40 8645

 

1 million in taxes.

2 Q. Now, you said that he can exercise this

3 “put” option asking Sony to purchase that catalog in

4 December of 2005, correct?

5 A. That’s correct.

6 Q. When is that loan due, that $200 million

7 loan?

8 A. December 20th, 2005.

9 Q. Now, assuming, as Mr. Mesereau asked you to

10 do, assuming that he was just going to sell his

11 interest in the Sony/ATV catalog back in, let’s say,

12 2003 – okay? – February of 2003, and assuming Sony

13 agreed and said, “We’ll sell our interest. We’ll

14 sell it on the open market.”

15 Using your cash flow analysis, can you give

16 us — get us in a range, a reasonable range on a

17 cash flow basis what Mr. Jackson’s interest would be

18 in the sale of that Sony/ATV catalog, if it were to

19 occur?

20 A. My — it would be —

21 MR. MESEREAU: Objection; foundation.

22 MR. AUCHINCLOSS: He’s testified he did a

23 cash flow analysis. Counsel asked him this question

24 as part of his opinion.

25 THE COURT: All right. I’ll allow the

26 answer.

27 As I understand the question, he’s asking

28 you what interest he would have if it were sold. 8646

1 MR. AUCHINCLOSS: That is the question.

2 THE COURT: The catalog were sold.

3 THE WITNESS: In 2003, that interest was

4 probably worth a couple hundred million dollars.

5 Q. BY MR. AUCHINCLOSS: Okay. Now, moving on

6 to the MIJAC catalog, you said that you did a cash

7 flow analysis on that. What — give us the same

8 analysis in terms of what that catalog was worth to

9 Mr. Jackson back in 2003.

10 A. Well, as I mentioned, the royalties had

11 dropped about 25 percent — 33 percent, excuse me.

12 So if you take 33 percent off the value of 128

13 million, then it comes up to somewhere between $75

14 and $80 million.

15 Q. And he’s also asked you some questions about

16 Neverland. Do you know if Neverland has a mortgage

17 on it?

18 A. Neverland is cross-collateralized with one

19 of the Sony/ATV loans to the extent of $18 million.

20 Q. What do you mean by “cross-collateralized”?

21 A. The collateral on the MIJAC loan — excuse

22 me, the $24 million loan, which is now $70 million,

23 is collateralized by the MIJAC catalog. The bank

24 has asked for additional collateral, including an

25 $18 million lien on Neverland.

26 Q. Why would a bank ask for additional

27 collateral on a $70 million loan?

28 A. They want more collateral. 8647

1 Q. Would it have anything to do with the

2 perception of what that catalog was worth?

3 A. Certainly.

4 Q. And what would the tax ramifications be if

 

5 Mr. Jackson was to sell his Sony — or sell his

 

6 MIJAC catalog for, let’s say, 70 million?

 

7 A. It would be the same calculation. The

 

8 interest — the investment was about ten million.

 

9 So you’d have about a $60 million gain, I’m just

 

10 rounding it to 70. Less ten million, or 60 million,

 

11 at 25 percent would be about a $10 million tax, so

 

12 you’d have a net of $50, $60 million.

13 Q. Okay. So summarizing everything, is it your

14 testimony that Mr. Jackson’s ATV catalog is fully

15 mortgaged? In other words, if — well, let me back

16 up.

17 As of February of 2003, your testimony is

18 that the Sony/ATV catalog was worth $200 million,

19 approximately?

20 MR. MESEREAU: Objection. Misstates the

21 evidence; no foundation.

22 THE WITNESS: I think that’s a —

23 MR. AUCHINCLOSS: Just a minute.

24 THE WITNESS: Oh, I’m sorry.

25 MR. AUCHINCLOSS: And I should rephrase

26 that, Your Honor.

27 THE COURT: All right. Rephrase it.

28 Q. BY MR. AUCHINCLOSS: Your testimony is that 8648

1 that catalog, Mr. Jackson’s financial interest in

2 that catalog, the Sony/ATV catalog, in February of

3 2003 was worth approximately — I know we’re not

4 talking about a sharp pencil here, but approximately

5 $200 million?

6 MR. MESEREAU: Objection; foundation.

7 THE COURT: Overruled.

8 He’s asking you if that’s what you’ve

9 already testified to.

10 THE WITNESS: That’s correct.

11 Q. BY MR. AUCHINCLOSS: Okay. And there’s a

12 loan against it at that time for $200 million?

13 A. That’s correct.

14 Q. And if he sells that asset for $200 million,

 

15 he has to come up with another $40 million from

 

16 somewhere to pay taxes?

 

17 A. That’s correct.

18 Q. He also has another $10 million in unpaid

19 vendors that he has to come up with?

20 A. As of February 13th, that’s correct.

21 Q. Okay. And if he sells his MIJAC catalog for

22 $70 million, which is about your stated — you

23 stated that’s about what it’s worth?

24 A. Approximately.

25 Q. It is encumbered or there are loans against

26 that catalog to the tune of about 70 million?

27 A. $70 million, correct.

28 Q. And if he sells that catalog, then he — he 8649

1 incurs an additional ten million in taxes?

2 A. That’s correct.

3 Q. You previously testified that Mr. Jackson

4 was accruing debt at a rate of about, I believe it

5 was, $20 to $30 million a year?

6 A. That’s correct. To fund living expenses.

7 Q. So his living expenses were exceeding his

8 income for that amount per year?

9 A. Correct.

10 Q. And as a financial advisor, is that a

11 advisable course of action for somebody?

12 A. None that I would give.

13 Q. Okay. As far as providing you with

14 information, is it — is it true that I personally

15 have not provided your office with anything in terms

16 of me giving you documents?

17 A. Do you mean you personally?

18 Q. Yes.

19 A. I don’t know where the documents came from.

20 I assume they came from your office. But you didn’t

21 hand me any document, no.

22 Q. Very well. Did Chris Linz of our office,

23 who you’ve mentioned — do you know who she has?

24 A. Yes, I’ve met Chris Linz.

25 Q. Was she your contact point in the District

26 Attorney’s Office?

27 A. With respect to documents. I mean we spoke

28 to you about documents. 8650

1 Q. Yes.

2 A. We spoke to Miss Linz. And my understanding

3 was Miss Linz was the one that passed documents to

4 us.

5 Q. And were you given an opportunity, you or

6 your staff given an opportunity to go through all of

7 the D.A.’s records to review documents for purposes

8 of your analysis and opinions in this case?

9 A. Yeah, we were made available to all the

10 documents I believe you had.

11 Q. No restrictions whatsoever?

12 A. No. The only thing was that some just

13 wasn’t available.

14 MR. AUCHINCLOSS: Thank you. I have no

15 further questions.

16 THE COURT: It’s about time for the break,

17 Mr. Mesereau.

18 MR. MESEREAU: Oh.

19 THE COURT: Unless you were just going to ask

20 one question.

21 MR. MESEREAU: No, Your Honor.

22 THE COURT: All right.

23 (Recess taken.)

To be continued: https://michaeljacksonvindication2.wordpress.com/2014/07/19/may-3rd-2005-trial-analysis-david-saunders-jeff-klapakis-craig-bonner-paul-zelis-steve-robel-john-obryan-john-duross-rudy-provencio-part-4-of-4/

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