Testimony in tax evasion trial puts SC bank in awkward spot

Testimony by witnesses called by the defendant in the tax evasion trial of Greensboro businessman Greg Harrison on Thursday brought to light the role played by GrandSouth Bank in financing staffing agencies.

Based in Greenville, SC, GrandSouth Bank was incorporated in 1998 and operates three branches, all in South Carolina. The bank reports $377.4 million in assets.

Doug Corriher, vice president in charge of the bank’s factoring division, looked visibly nervous on the witness stand, pursing his lips and frowning, even before the prosecution got the opportunity to cross-examine him.

The defense introduced two factoring agreements, essentially commercial lending arrangements that allow staffing companies to maintain cash flow to make payroll while waiting for clients to make billing payments. An agreement with US Staffing of South Carolina was signed by Mark E. Gleason, while another agreement with US Staffing of North Carolina was signed by Michael Brooks. Both are longtime business associates of Harrison. At the time, the companies operated under the umbrella of Hobbs Staffing Services, owned by Harrison.

Public defender Tom Cochran asked Corriher who made weekly requests for funding from Hobbs.

“The majority of the time it would be Mike Brooks,” Corriher testified. “Other times it would be Mr. Harrison.”

That testimony supports the defense’s efforts to minimize Harrison’s role in running the companies as a way to create doubt on the jury about the government's allegation that the defendant has serially and willfully failed to pay federal payroll taxes.

Gleason testified earlier this month that he did not serve as president, control payroll, direct the activities of employees or receive payment from the proceeds of the of US Staffing of South Carolina’s sale, but signed the factoring agreement because he was asked to do so by Harrison.

The defense also introduced as evidence a 2009 factoring agreement between GrandSouth Bank and staffing agency IHT of SC. Corriher signed for the bank and Elizabeth Byrd signed as president of the staffing agency. At a certain point, Corriher testified that he learned Byrd had resigned and had been replaced as president by Gleason.

Corriher said the bank president wrote a letter to Gleason reflecting an understanding that Gleason had purchased the company. Corriher testified that he signed the letter, and that the bank needed to be apprised of who served as officers of the companies.

Cochran asked Corriher if he received any correspondence after that indicating that the documents were not accurate, a fraud or a sham. Corriher said he had not.

Under prodding from Assistant US Attorney Frank Chut during the prosecution’s cross-examination, Corriher acknowledged that GrandSouth Bank ran into difficulties in its relationship with Harrison because it could not loan out as much money as the staffing companies needed to operate. To do so would have drawn scrutiny from government regulators and jeopardized the deposits of the bank’s other customers, Corriher confirmed.

Chut asked Corriher if it was true that at one time Harrison or his companies accounted for 50 percent of GrandSouth Bank’s portfolio. Corriher allowed that Harrison licensed staffing companies that comprised a significant portion of the bank’s business.

Written comments by Corriher in a 2008 factoring agreement with one of the Global Labor licensees, Brooks Labor, gives some sense of the risk and reward proposition the staffing business has held for GrandSouth Bank:

“The factoring facilities related to the licensees of Mr. Harrison operated as expected with the exception of the failure of the licensor to obtain a renewal of the workman’s compensation insurance in a timely manner…. Additional work will be performed by the factoring division to verify documentation submitted by the client accounts including a higher number of field visits to licensees and branch offices. Also, the factoring division will become more active in the collection of delinquent accounts than in the past to ensure that credit issues do not become a higher risk than is acceptable. Overall, the relationship we had in the past was very profitable and worked as expected with the exception of the insurance issue.”

Corriher testified that Harrison approached him with a proposal that the staffing companies be reorganized through a licensor-licensee arrangement to overcome the difficulty posed by the bank’s lending limits.

Harrison serves as president of a company called Global Labor that is described as a licensor of staffing companies. As recently as August, Global Labor acknowledged in a civil lawsuit that it holds licensing agreements with Strategic Insource Solutions, a Greensboro company operated by Trevor Jefferson; Hire Alternatives, operated by Pete Pappas and also located in Greensboro; Integrated Staffing Solutions, a Gastonia company owned by William C. Ray; and Temporary Personnel Solutions, operated by Gleason in Jacksonville, Fla.

In addition to operating the Gastonia staffing agency, Ray serves as director of Global Labor, according to testimony by Gerald Pell, Harrison’s longtime corporate lawyer and sole trustee of the licensing company.

“It’s fair to say that Mr. Harrison did the vast bulk of negotiating on the terms of these agreements,” Chut prodded Corriher.

“Yes,” Corriher testified.

Corriher also testified that Harrison has visited GrandSouth Bank in Greenville “probably close” to once a month this year, flying down in a jet piloted by Joey Medaloni. Once celebrated as the king of downtown Greensboro nightlife, Medaloni developed the N Club, along with Much and Heaven, some of the strongest brands among the boom-boom dance clubs that throng South Elm Street. Medaloni has pleaded guilty to loan fraud and faces sentencing in February.

Corriher also testified that he visited Harrison’s home on Hoke Lane, which is located in the Sedgefield community near Greensboro.

Corriher told the court that upon receiving funding requests from the licensee staffing agencies, GrandSouth Bank would wire money to Global Labor. After that, he did not know what happened to the funds.

Julie Akers, a former controller for Harrison’s staffing companies, has testified that in 2009 Harrison controlled access to the funds, and that there were never sufficient funds to make federal payroll tax deposits.

Corriher testified that a standard part of factoring agreements is that the client pay payroll taxes. He also testified that when he received Form 941 Employer’s Quarterly Federal tax return documents from Akers, they recorded zero tax deposits.

Corriher testified that as licensor, Global Labor handles back-office functions, including payroll and payroll taxes for the licensee staffing agencies. The testimony of Pete Pappas portrayed the licensing arrangement as somewhat less significant. Pappas, who owns Hire Alternatives, testified that he pays a royalty fee to William Ray at Global Labor, and in return receives marketing materials, guidance and support. Ray is not among the potential witnesses listed by either the government or the defendant, but has sat in the courtroom as an observer almost every day of the trial.

Corriher blanched when the prosecution drew his attention to corporate annual reports filed with the NC Office of the Secretary of State listing Harrison as president of US Staffing of North Carolina and US Staffing of South Carolina, the companies on behalf of which Brooks and Gleason respectively signed as president in the factoring agreements with GrandSouth Bank.

The bank executive testified that he found out later that Harrison had sold the two companies as part of the transfer of assets to StaffCo Management Group, a company formed by two of Harrison’s former partners.

Chut asked Corriher if Harrison informed him that he, in fact, was the president of the companies.

“He couldn’t have,” Corriher testified, “because otherwise we wouldn’t have leant the money.”

The defense also put Gerald Pell, Harrison’s longtime corporate lawyer on the stand.

Pell testified that he has known Harrison “since he was a youngster, maybe 10 years old.

“I represented him and his mother in a wrongful death lawsuit when his father was killed in an airplane crash,” Pell explained.

The defense subjected Pell to a lengthy examination on the corporate history of the staffing agencies. None of the questions or testimony related to payroll taxes, the issue central to the government’s charges.

Pell testified that Global Labor is set up as an irrevocable trust with two assets: a life insurance policy on Harrison naming his children as beneficiaries and stock in the company. Pell is the trustee and sole shareholder. Although not disclosed during the trial, Pell also owns the property at 307 S. Swing Road in Greensboro, the longtime corporate headquarters of Harrison’s staffing operations.

The government used its cross-examination on Pell to call into question the authenticity of Global Labor’s representation on paper of its corporate leadership. The prosecution drew attention to a document dated Aug. 29, 2008 indicating that Pell appointed Harrison president of Global Labor, and then contrasted it with a later document that recorded Gleason as resigning as president.

Pell testified that he didn’t know what happened after he appointed Harrison president of the company in 2008.

“Have you ever un-appointed anyone?” Chut asked.

“I don’t un-appoint anyone,” Pell responded testily.

“Do you pay the taxes for Global Labor?”

“No.”

3 comments:

dany chandra said...
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