Court of Appeals upholds conviction of Greensboro businessman

Greg Harrison

A three-judge panel of the US Court of Appeals for the Fourth Circuit upheld the conviction of Greg Harrison, a Greensboro resident who operated a national chain of temporary labor agencies in the 2000s while financing movies and nightclubs in a decision on Oct. 3.

US District Court Judge James A. Beaty sentenced Harrison to 12 years in prison and ordered him to pay $43.2 million in restitution in 2012 following his conviction for payroll tax fraud.

The ruling summarized the case:

Harrison owned and operated several temporary staffing agencies and offices in Greensboro, North Carolina. Although Harrison employed a large workforce, he failed to file required Internal Revenue Service (IRS) forms and failed to collect and withhold, inter alia, payroll taxes. Harrison also failed to file personal tax returns for 2004, 2005 and 2006. In late 2006, Harrison sold the staffing companies to two employees. While those employees operated the companies, the payroll taxes were paid and employment tax returns were filed. In 2008, Harrison reacquired the companies and again stopped paying payroll taxes. Harrison used these withheld payments to fund his lifestyle, including the purchase of a luxury beach house and the production of two motion pictures, National Lampoon's Pucked, featuring Jon Bon Jovi, and Home of the Giants. 

The court found that the case was adequately presented in written materials and determined that oral arguments were not necessary to render a decision.

Greensboro staffing exec sentenced to 12 years for tax fraud

UPDATE: US Attorney Ripley Rand says in a prepared statement: "Greg Harrison used a foundation of fraud and deceit to build his reputation as a successful businessman and prominent local citizen, but appearances, no matter how polished, cannot overwhelm the truth. The substantial sentence handed down today shatters the Harrison myth and represents justice appropriate to his shameless thievery."

ORIGINAL STORY: Greg Harrison, a Greensboro businessman who operated a series of staffing companies over the past two decades and went on to finance two feature-length films, was sentenced today to 12 years in federal prison and ordered to repay $43.3 million as restitution to the US government related to his conviction last December for tax fraud.

Harrison, who maintains his innocence, publicly apologized to his family, including a daughter born two weeks earlier, describing personal tragedy and hardship at the time of his arrest, and defending his record as a businessman in remarks to US District Court Judge James A. Beaty Jr.

“I’ve put them in a terrible position; they’ve depended on me,” Harrison said in a halting voice. “I’m extremely hurt by what’s happened to my family and also to those employees.  

“I hope that my legacy is not defined by these incidents,” he concluded. 

The judge said he would recommend that Harrison be housed at the facility closest to his family, likely FCI Butner, a low-medium-security federal prison. 

Assistant US Attorney Frank Chut asked the judge to sentence Harrison at the high end of the sentencing guidelines. 

“This is an enormously serious offense involving $43 million that belonged to the people of the United States that was converted to this man’s personal use for his lifestyle,” Chut said. 

The prosecutor said Harrison hurt permanent employees who worked for him and were shocked to discover many years later that no Social Security taxes had been reported for their years of employment, and that he placed three controllers in legal jeopardy by tryng to get them to collude with him in perpetrating fraud. 

Even more egregious, Chut said, was the impact of Harrison’s actions on “the folks that worked for him as temporary employees and got no benefits because of his failure to pay that Social Security. These are people that clean cars at Greensboro Auto Auction. They’re working people that work low-wage jobs. Their ability to know about and fix that problem is extremely limited.” 

Harrison responded to Chut’s assertion that he had victimized permanent employees by noting that two of the former controllers currently work for companies that hold licenses with his staffing licensing company and one is employed in a commercial finance company he co-founded. 

“These are companies I established that employ people,” he said. 

Harrison’s fiancée, mother, ex-wife, sister, business associates and other family and friends, roughly 30 in all, crowded into the gallery in a show of support. Solomon Wisenberg, one of two defense lawyers, said the judge had received numerous letters attesting to Harrison’s generosity to friends and associates, and to his devotion to family. 

“It’s not just that he’s a churchgoing man, which is important,” Wisenberg said. “It’s not just never speaking a bad word against others, which is important. It’s not just the charitable contributions, which are important. It’s the kind of life he has led since he was a little boy. When he was young he befriended a little kid who was unpopular who had been injured. On his first day at UNCG he literally gave the shirt off his back to someone who needed it.” 

Chut argued that Harrison had displayed utter contempt for the law and even for the court. 

“Mr. Harrison ran an extensive series of staffing companies over the years,” Chut said. “He was a prominent citizen of his community. There may be other people who are tempted by the trust fund that is payroll taxes. This sentence needs to show the other people what the consequences are and give them a good deterrent. 

“Mr. Harrison’s continued conduct and concealment indicates he is a continued danger to society because he may try to defraud the government by not paying his taxes again,” the prosecutor continued. “This conduct was not just a fringe part of his life; this was central to who he is.” 

The judge expressed skepticism about Harrison’s supposed generosity. 

“A large part of his good works may be derived from criminal activities,” he said. 

Wisenberg responded, “Mr. Harrison didn’t grow up in opulence. He inherited money when he was a young man, and he has had money for a long time. Since he was a very young man, Mr. Harrison has taken the time — he’s always taken the time, he’s been consistent with that — to talk to people, to deal with people, giving people a place to stay. People he barely knows he’s giving business advice to.” 

The 47-year-old staffing executive came into a significant inheritance when he turned 18 from a settlement of a plane crash that took the life of his father in the early 1970s. He bought a staffing company in Greensboro from his mother in the late 1980s. A decade later his staffing operations underwent a rapid expansion, eventually operating in about a dozen states. By the mid-2000s, Harrison was investing in a company that staged boxing matches, nightclubs such as Much in downtown Greensboro, and two feature movies: The National Lampoon’s Pucked and Home of the Giants. 

He also had set up a company to refine and export gold from West Africa. An account sheet provided to two women with investments in Home of the Giants estimated Harrison’s net worth at $33.7 million in 2006. 

Harrison’s fortunes turned the following year when the IRS opened a criminal investigation on him. The light brown color of Harrison’s hair has given way to a solid gray in the nine months he has sat in federal detention awaiting sentencing after a jury convicted him last December of corrupt endeavor to obstruct the IRS. Last week, he told the judge about how one of his daughters had been born with a heart defect in June 2010 and was hospitalized at Brenner Children’s Hospital. Harrison and his fiancée brought their daughter home in November but had to confine her to a room of her own for her safety. Harrison said he asked his lawyer at the time to explain the situation to the government. But when agents with the IRS raided his house, Harrison said they ignored his pleas and went into the room anyway. 

The next day, he said, his daughter contracted a high fever and her heart rate accelerated. She later died from “a severe infection of her entire body.” 

“The doctor was very surprised and wanted to know what caused this, but I could not tell him that there was a raid because my attorney told me it might negatively affect the trial,” Harrison said with evident distress in his voice. “We did everything right. We did everything we were supposed to…. I know the government had a pre-trial motion not to let this information come into the trial, but I believe there was an abuse of power by the government just to make an example out of me.” 

Judge Beaty said he found it “out of the ordinary” that a defendant would use his speaking time to focus on what someone else had done to him and even go so far as to attribute the loss of the child to the government’s investigation of the case. 

The judge said the 12-year sentence reflected the need to promote respect for the law, adding that the court took into consideration Harrison’s charitable giving, both before and during the period of his crimes, and the challenging time the defendant experienced in 2010. 

“He absolutely maintains his innocence for the same reason he said today,” Wisenberg said after the hearing. “He had no intention to defraud the government, and he had turned over the companies to other individuals who had the responsibility to file and pay payroll tax.” 

Many friends have steadfastly declared Harrison’s innocence, and a woman in the gallery expressed anger to this reporter about YES! Weekly’s coverage of the case. 

Asked if she wanted to comment on the sentencing, Billie Baggett, the defendant’s mother, grasped this reporter by the arm and said, “Can you be nice? Is it possible for you to be nice? You need to take into consideration that he has children. He has a 15- and a 16-year-old.” 

As to Harrison’s professed innocence, the defendant introduced an Interim Management Agreement into evidence during the final stretch of the trial indicating that he had transferred control of the staffing companies to business partners Mark Griffin and Ray McDaniel. But McDaniel testified that the signature was not his, calling the agreement a “false document.” After several hours of deliberation the jury asked for clarification on the document, suggesting their final judgment on the case rested on its validity. Eventually they returned a verdict of guilty on all counts. 

Today Wisenberg said he planned to file an affidavit providing evidence that the document is not false, even as he made it clear that he was not attempting to retry the case. 

In a filing last month the government said Harrison had falsified his income to pre-trial services, accusing the defendant of “rather extraordinary and persistent attempts to mislead and defraud this court.” 

“The defendant necessarily proffered falsehoods so that the court would appoint counsel,” McLellan argued today. 

Wisenberg responded that Harrison “did not believe he was making false representation about his ability to retain counsel.” 

The public defender’s withdrawal from the case and Harrison’s subsequent decision to replace him with two of the best lawyers in Washington, DC and Winston-Salem raised eyebrows. Wisenberg is a former prosecutor in the Whitewater/Lewinsky investigation of President Clinton and an expert on white-collar crime, while David Freedman has represented high-profile North Carolina clients such as NC Rep. Larry Womble and former Durham County District Attorney Mike Nifong. 

“He’s not funding his own defense,” Wisenburg said in an interview. “Beyond that, I’m not going to say.” 

The government also persuaded the judge to find that Harrison had “failed to report criminally derived proceeds,” had used “sophisticated means” in his criminal offenses and had been an “organizer or leader” of an endeavor involving criminal activity, in addition to presenting false testimony. It was not clear whether the findings — known as “enhancements” and used to score points to help determine a sentencing range for a defendant — actually affected Harrison’s sentence. 

McLellan argued that the court saw evidence of fraud by Harrison, noting that an officer with a commercial financing company testified that he asked Harrison for proof that payroll taxes were being paid, and that Harrison in turn provided a document forged by a friend named Michael Brooks. A former seventh-grade math teacher from England, Brooks met Harrison while playing soccer and joined the staffing companies as a financial analyst. He left the staffing companies in 2006 to become a full-time professional poker player and has since returned to England. 

The prosecutor argued that Harrison’s creation of fictitious business entities made the crime one of sophisticated means. 

Harrison also lied to an IRS revenue officer and gave her a tax ID number “to convince her that he did not own the company anymore, and that, in fact, his mother owned the company,” McLellan said. “The court heard the testimony of his mother that she did not purchase a North Carolina company owned by her son. This was an elaborate ruse on the part of the defendant to put the revenue officer off the scent. And it succeeded because she actually closed the case.” 

Wisenberg protested, “Virtually any tax fraud includes a cover-up or a lie, but that doesn’t make it sophisticated means.” 

As to whether Harrison led or organized criminal activity involving other participants, McLellan cited Brooks’ role in forging the document to allow Harrison access to funds, some of which were diverted to personal uses instead of being used to pay taxes. He also argued that Doug Corriher, an officer with GrandSouth Bank, provided funds to Harrison’s companies “knowing that the payroll obligations were not being met.” He added that Mark Gleason and brothers Joey and Matthew Medaloni were “straw owners” of companies that were organized by Harrison. Gleason is a longtime associate of Harrison’s in the staffing business. The Medalonis have operated a string of nightclubs in Greensboro over the past decade. 

“They didn’t try this case as a conspiracy,” Wisenberg objected. 

Beaty ruled that there was sufficient evidence to establish that Harrison led an organized criminal activity with Brooks, but not with the other four individuals. 

Brooks testified that he agreed to forge the document because Greg had been “a very good friend for a long time,” and was someone he trusted. Brooks added that he believed Harrison was behind on payments and needed to buy more time before payments came in from staffing clients.

Greg Harrison's sentencing delayed until September

Former staffing executive Greg Harrison's sentencing has been continued to Sept. 5, based on an order today by US District Court Judge James Beaty Jr.

Background here.

The defense's motion for continuance states that defense attorney David B. Freedman learned that he is set for trial in a different case at a time when the sentencing was previously scheduled. The motion also states that Solomon L. Wisenberg, a second lawyer, "is still in the process of examining the voluminous materials in this case...."

Joey Medaloni sentenced to four years probation

UPDATE: Judge Carlton Tilley agreed to break Medaloni's $50,000 fine up into four equal installments to be paid over the next 12 months.

Medaloni did not speak to reporters after the sentencing.

Davis North, one of Medaloni's lawyers, said his client is ready to move on.

"Joey's been a great asset to Greensboro," North said. "He made an error in judgment and is going on with his life. Most people would say Greensboro is a much better place because of the things that Joey did to develop downtown. It's worse now when he's out of it. It was better off when he was running things."

During the hearing Clifton told the judge that Medaloni could lose his boat captain and piloting licenses as a result of the conviction. Afterward the lawyer told reporters that Medaloni has been living in Greensboro and working for family members since he was indicted. Medaloni operates a wine bar on Chapman Street called the Tasting Room that is owned by his brother, Matthew. He has also leant his name to a line of wines, and is trying to establish a winery.

Clifton called his client a "serial entrepreneur."

ORIGINAL POST: A federal judge has sentenced former Greensboro nightclub owner Joey Medaloni to four years of probation and imposed a $50,000 fine for falsifying income reports to obtain loans.

US District Court Judge Carlton Tilley credited Medaloni's contributions to the community, alluding to his role in revitalizing downtown Greensboro, and assistance to the federal government in the prosecution of staffing agency executive Greg Harrison in his remarks before handing down the sentence in federal court today in Greensboro.

Tilley said he received several character letters from Medaloni's supporters, but the defendant withdrew one of them after the judge complained that it contained conclusions that were not supported by facts in the pre-sentencing report and factual basis report that accompanied Medaloni's guilty plea. The judge did not reveal the identity of the author of the letter, explaining that he did not want to embarass the person.

Former Mayor Keith Holliday and Milton Kern, a prominent downtown developer, attended the sentencing. Holliday declined to comment after the court session.

Medaloni has worked as a boat captain and pilot since selling his Greensboro nightclubs the N Club and Much/Heaven in 2006 and 2007, respectively. His lawyer, Christopher Clifton, told Tilley that Medaloni is a talented pilot, adding that his client's relationship with Harrison came about because Medaloni piloted planes for Harrison.

Harrison is awaiting sentencing following conviction for 63 counts of impeding the Internal Revenue Service and failing to pay payroll taxes. Assistant US Attorney Frank Chut, who prosecuted Medaloni, is also the lead prosecutor in Harrison's case.

Tilley said he was torn by two conflicting sentiments.

"What you did was very wrong," the judge said. "You took positive steps to produce fraudulent documents in order to obtain loans for significant amounts. And at least three lending institutions did advance you substantial amounts of money."

Medaloni pleaded guilty to federal loan fraud.

The government said Medaloni “suffered substantial business losses” in his operation of the N Club, the Red Room, Much and Heaven in 2003 and 2004, but by submitting falsified IRS tax returns he obtained a loan in August 2005 for $996,000 from Truliant Federal Credit Union, which he used to retire $782,230 in debt to another lending institution and keep $206,233.

"You do seem to be sincere when you say you are sorry," the judge said. "The loans were repaid timely. You made contributions to the community as well as to yourself,
and to the government. For those reasons I think probation is appropriate in this case."

Medaloni expressed contrition before receiving his sentence.

"I'd like to tell you I'm absolutely embarrassed and I take full responsibility," he told the judge. "I'm truly sorry. If I could go back I would never do it again, and I'll never do it again."

The judge asked Medaloni to consider what conequences his action might have had were he unable to repay the loans.

"You did pay those loans in a timely fashion," Tilley said. "But that's because your businesses were successful. What position do you think the court would be in if the economy had bottomed out, as it did, leaving you unable to pay back those loans."

Medaloni said he wished he could give an answer, but he could not. The judge said that was probably the best response the defendant could have given.

Clifton asked the judge if Medaloni's fine could be broken up into two payment installments. The judge said he wants to discuss that further when the court reconvenes at 2 p.m. today.

Harrison upgrades legal counsel

Pleading poverty and availing himself of the public defender at government expense didn't turn out to be a great strategy for Greensboro staffing executive Greg Harrison considering that a jury last December convicted him of 63 counts of obstructing the IRS and failing to pay payroll taxes.

A federal judge expressed skepticism about the notion that Harrison had run out of money during a hearing that resulted in his decision to reject the defendant's motion for release on bail. Denial of pre-sentencing release was a preluded to the judge's order granting the public defender's request to withdraw from the case and order to the defendant to pay $1,000 to a new lawyer.

Now, it appears the defendant is taking the exact opposite tack, having retained the counsel of Solomon Wisenberg, a high-powered white-collar crime defense attorney with the Washington, DC law firm Barnes & Thornburg. Wisenburg is perhaps most renowned as deputy independent counsel in the investigation of the Whitewater and Monica Lewinsky investigations of President Clinton.

According to a notice filed in federal court on Friday, Wisenberg will serve as Harrison's counsel, along with Winston-Salem lawyer David B. Freedman. Wisenberg's co-counsel is no slouch either, having defended Durham County District Attorney Michael Nifong on ethics charges before the NC Bar.

Greg Harrison update

Court documents filed last week indicate that a federal magistrate has appointed Winston-Salem lawyer Benjamin David Porter to represent Greg Harrison, the Greensboro staffing awaiting sentencing for 63 counts of willful failure to pay over payroll taxes. A federal judge recently allowed the public defender appointed to represent Harrison to withdraw from the case because of an unspecified conflict of interest.

The magistrate is ordering Harrison to pay Porter $1,000 in partial payment for his services by March 23. Harrison’s sentencing is scheduled for April 6.

The magistrate writes that, based on a financial affidavit filed under seal by Harrison, the defendant appears to be no longer employed and without income of any kind, but has $5,000 in cash on hand.

Meanwhile, a hearing to determine whether the assets of Global Labor and a group of licensee staffing companies should be placed in receivership is scheduled for March 29 in NC Business Court in Greensboro. Harrison has been, at least until recently, the president of Global Labor. The New York investment firm BHC Interim Funding is seeking to collect $7.5 million debt from Global Labor and its licensees.

Staffing companies respond to receivership request

As Greensboro staffing executive Greg Harrison awaits sentencing for a multi-count conviction for obstructing the Internal Revenue Service and failing to pay over payroll taxes, a creditor is seeking control over Harrison’s staffing licensing company and several licensees operated by associates.

A lawyer for the defendants, including Harrison, licensor Global Labor and the licensee companies, warned in a response memorandum filed in NC Business Court earlier this month that the appointment of a receiver could result “in a breakdown in the business relationship between the licensee companies and Global.”

BHC Interim Funding II LP contends in a complaint that Harrison assumed responsibility for a debt of $7.5 million when he acquired the assets of a group of staffing companies in 2008, and then incorporated a new company structured through a licensing arrangement and transferred the assets to defraud the creditor. Harrison, Global Labor and the various licensee companies have denied the charges.

William Ray, the secretary and director of Global Labor, said in an affidavit: “If the receiver is given authority to control the business of Global Labor, I will view that development as inimical to my current role as day-to-day manager of the business operations of Global Labor, including its relationship with its licensees, and I will consider a resignation from all management and directorial functions with the company appropriate and in the best financial interest of the company.”

The licensee companies include Integrated Hiring and Temporary Personnel Solutions, both owned by Mark Gleason, a longtime friend and business associate of Harrison’s. Integrated Hiring serves markets in Philadelphia, Baltimore and Richmond, Va., while Temporary Personnel Solutions does business in northern Florida. Other companies with licensing agreements with Global Labor, include Integrated Staffing Solutions, a company owned by Lou Ann Shaw in Gastonia; Hire Alternatives, owned by Peter G. Pappas in Marietta, Ga.; and Strategic Insource Solutions, owned by Trevor Jefferson in Greensboro.

Pappas said in an affidavit that Harrison had no involvement in marketing Hire Alternatives or obtaining its clients. That response was echoed by Gleason and Shaw. The three said Global Labor “in no way controls” their respective companies “or has any authority to make or affect decisions about the management and operations” of the companies.

Gleason warns in an affidavit that if a receiver is granted control of Global Labor and “seeks to inject himself into the business” of Innovative Hiring and Temporary Personnel Solutions, “I will view that as a material breach and default of the license agreements and take appropriate actions.”

Gleason, Shaw, Pappas and Jefferson acknowledged that their companies serve some of the same clients that were served by Compensation Management, the staffing conglomerate saddled with debt to BHC, but said they also cultivated new clients. The four warned that if a receiver is granted control of Global Labor and “seeks to inject himself into the business” of their companies, they “will view that as a breach and default of the license agreement and take appropriate actions.”

The motion to appoint a receiver is scheduled to be heard by Judge James M. Gale in NC Business Court in Greensboro on Feb. 21.

Meanwhile, Harrison’s criminal case has taken a strange, new twist with his public defender’s request to withdraw as counsel because of an unspecified conflict of interest.

Greg Harrison update: Public defender wants out

The public defender who represented Greensboro staffing executive Greg Harrison in his federal tax fraud and evasion trial, has asked a judge to allow him to withdraw as counsel, citing an unspecified conflict of interest. The motion, which was filed on Monday, states the lawyer Tom Cochran discovered a conflict of interest "that would prohibit him from continuing to represent" the defendant. A separate motion that was sealed was filed on Valentine’s Day.

Harrison was found guilty by a jury of 63 counts of obstructing the Internal Revenue Service, failing to pay payroll taxes and failing to file individual income tax in December. Prosecutors have said he could face up to 10 years in prison when he is sentenced in April.

Medaloni sentencing postponed to March

The sentencing of one-time Greensboro nightlife king Joey Medaloni has been postponed to March 22.

Medaloni pleaded guilty to federal loan fraud in December 2010. The defendant admitted to falsifying income statements to qualify for a bank loan. The government acknowledged that Medaloni repaid the loan in its entirety.

The defendant could face up to 30 years in prison and a maximum fine of $1 million, according to the plea agreement. The maximum fine is greater than the amount of fraudulent loan.

The sentencing had been scheduled for today in federal court in Greensboro. This is the fifth time the sentencing has been postponed. The last two postponements have come on the heels of sealed orders filed by the court in response to sealed motions. It’s not clear whether the sealed motions were filed by the defendant or the government.

Back story on Medaloni.

Medaloni is a friend and business associate of Greg Harrison, a staffing executive convicted in December of 63 counts of obstructing the Internal Revenue Service, failing to pay payroll taxes and failing to pay individual income taxes. Harrison awaits sentencing in April.

Prosecutor Frank Chut is handling both Medaloni and Harrison's cases.

Judge rejects bail for convicted staffing executive

A federal judge turned down a bail request by a staffing executive convicted of obstructing the Internal Revenue Service and failing to pay over payroll taxes, reasoning that the defendant had not established that he is not a flight risk especially considering the potential prison time he faces.

Greg Harrison is being held in Piedmont Regional Jail in central Virginia as he awaits sentencing in April.

The US government submitted evidence that Harrison withdrew a total of $79,426 from a business account last year as he awaited trial. Assistant US Attorney Frank Chut argued that the transfers undercut the credibility of a statement reportedly given by Harrison to pre-trial services that he had access to 0 to $500 per month.

“The point is that this calls into question the notion that Mr. Harrison had no other source of income and should be eligible for your services,” Judge James A. Beaty Jr. told public defender Tom Cochran.

Cochran affirmed that Harrison was the president of Global Labor, a staffing licensing company, and that he did make the withdrawals, but argued that the government failed to establish that the money was used for any purpose other than business. Cochran prompted Special Agent J. Todd Purgason, an IRS criminal investigator, to testify that one $10,000 withdrawal was paid over to Puryear & Lingle, a Greensboro law firm. Puryear & Lingle is representing Global Labor as a defendant in a lawsuit brought by a creditor.

The government also introduced high-resolution color surveillance photographs of Harrison making the withdrawals into evidence.

“Maybe Mr. Harrison takes out withdrawals wearing shirt sleeves and does all his business in cash,” Chut told the court. “It’s not the government’s burden to prove he’s not at risk to flee.”

The government also submitted a record of a June 2010 transfer from Global Labor to Harrison in the amount of $131,786 bearing the memo inscription, “Purchase of furniture and equipment by Global Investment Properties." Five days later, the government’s evidence indicates a transfer from Global Labor to Brooks Pierce law firm in the amount of $181,941 with the notation, “Retainer — BGH.” The defendant, whose full name is Bruce Gregory Harrison III, was indicted in November 2010 and had been under investigation for at least a year prior to that.

“Mr. Harrison was represented by Brooks Pierce,” Chut said. “We don’t know what happened to that money. This shows that he had access to significant funds at a point when he said he had access to zero to $500 per month.”

Purgason also testified that Harrison made point-of-sale purchases at restaurants and cash withdrawals drawn from a Global Labor account on a company-issued debit card prior to the indictment. The transactions were recorded in Greensboro; Jamestown; Myrtle Beach, SC; and Vail, Colo., including a ski lift ticket and restaurant tabs.

Cochran addressed concerns about a series of trips Harrison took to South Carolina to visit Global Labor’s lender, GrandSouth Bank, while awaiting trial. The government had previously questioned whether the trips violated the conditions of Harrison’s pre-trial release. Cochran said his client had obtained permission before leaving the Middle District of North Carolina, and Chut did not indicate any difference of viewpoint on the matter.

“If he were considering fleeing, I suggest he would have done that long before he was convicted, maybe before he was charged,” Cochran argued.

Judge Beaty countered that the prospect of a significant prison sentence changed the circumstances, adding that Harrison might have believed he would be acquitted.

Cochran also offered that Harrison’s sister was willing to put up $50,000 in cash and that the defendant would consent to the appointment of two third-party custodians, one of whom would be in his presence at all times. Cochran acknowledged that one of the custodians was an employee of Global Labor.

“Put the fox in the henhouse,” Judge Beaty remarked, “if you want to be a little more specific about what that may represent.”

William Ray and Juraj Slovak, respectively the director and manager of Global Labor, attended the hearing, along with Harrison’s fiancée, Melissa Cullen; his ex-wife, Diona Slaughter; and Jessica Cox, a lawyer close to the family who has observed many of the court proceedings.

Chut argued that Harrison’s word has no credibility because he introduced a false document into evidence at the end of the trial and attempted to perpetrate a fraud on the court when he submitted a document purporting to show that he had transferred operations of the staffing companies to two partners before the period in which the payroll taxes were not paid. Chut told the court that the jury’s conviction after considering the document essentially amounted to a finding of perjury.

The hearing was held up for three hours when federal officials accidentally delivered Harrison to Alamance County instead of to the federal building in Winston-Salem.

Harrison entered the courtroom with a chain around his waist and with his hands cuffed in front of him. He wore a blue dress shirt, but not the jacket-and-tie ensemble that was a fixture of his appearance during the trial. Streaks of gray have appeared in his brown hair since the government took him into custody more than a month ago. He looked quietly hopeful throughout the hearing, even when he turned to look at his fiancée before walking back out.

Government asks judge to deny bail to Greg Harrison

The US government has asked a federal judge to deny former staffing executive Greg Harrison’s request for release on bail as he awaits sentencing in April, arguing that the defendant has not presented clear and convincing evidence that he is not a flight risk.

Laying out a case the government is likely to make during Harrison’s bail hearing in federal court tomorrow, a legal motion filed today highlights about 10 questionable trips to South Carolina while awaiting trial, evidence that surfaced in trial indicating the defendant earns $8,000 to $10,000 per month as president of a staffing licensing company and a contention that the defendant presented “false testimony and a false document” during trial.

The bail hearing is scheduled for 11 a.m. tomorrow in the Hiram H. Ward federal building in Winston-Salem. Harrison was convicted by a jury in December of 63 counts of obstructing the IRS, failing to pay payroll taxes and failing to pay individual income tax. The jury found that Harrison failed to pay almost $16 million, but prosecutors allege the true amount is closer to $40 million.

The government’s motion reports, “The court detained defendant Harrison and instructed the probation office to reevaluate his risk of non-appearance in light of the evidence at trial which indicated that the defendant had left the Middle District of North Carolina in ten separate trips.”

Doug Corriher, a loan officer and vice president at GrandSouth Bank, testified that Joey Medaloni, a friend, flew Harrison down to the bank headquarters in Greenville, SC several times last year in a corporate jet. Medaloni, formerly a high-profile nightclub owner in Greensboro, was facing sentencing for federal loan fraud at the time. His sentencing is scheduled for next month.

The government’s motion also reports that the court instructed the probation office to investigate Harrison’s financial status in consideration of evidence presented in trial indicating that the defendant served as president of Global Labor and was earning income through licensing contracts.

“The probation memo simply reports statements of defendant Harrison as to his finances,” the government’s motion contends. “These statements are not worthy of trust and do not rebut the evidence at trial as to his contract with Global Labor.”

The government also discounted information in the probation memo concerning the South Carolina trips, contending that Harrison’s representation that he obtained permission from his probation officer beforehand was not credible.

“At the trial of this matter defendant Harrison presented false testimony and a false document by which he claimed to have transferred operation of his staffing companies to Ray McDaniel and Mark Griffin,” the government contends. “Therefore, his statements to the probation office are not worthy of belief and should not be credited by the court.”

Bail hearing set for convicted staffing executive

A bail hearing has been set for Jan. 26 at 11 a.m. for Greg Harrison, the Greensboro staffing company executive who was found guilty by a federal jury of multiple counts of failure to pay payroll taxes, in addition to corrupt endeavor to obstruct and impede internal revenue laws.

Harrison is awaiting sentencing in April, and has been detained since his conviction before Christmas. Harrison’s public defender said in a motion filed on Tuesday that pretrial services has completed an updated bail report that includes proposed conditions of release. The motion states that the defendant agrees to the conditions, but the government remains opposed to Harrison’s release.

A federal prosecutor argued after Harrison’s conviction that the defendant was a flight risk because he potentially faces a 10-year prison sentence, his frequent use of corporate jets indicates that he is highly mobile and his word is not to be trusted considering testimony and evidence that the government characterized as fraudulent and misleading.

Blog extra: Greensboro businessman guilty on all counts in tax evasion trial

Federal prosecutors made the case to a jury in Winston-Salem yesterday that Greg Harrison, a Greensboro businessman who controlled an extensive network of staffing agencies, stole upwards of $16 million from the people of the United States to pay for a lavish lifestyle that included luxury homes, yachts and movie productions.

Story here.

The US Justice Department brags about the conviction here.

Coverage of the trial on Monday, including testimony from Harrison, that didn't make our print edition follows:

Greg Harrison took the witness stand in his federal trial on multiple counts of tax evasion in Winston-Salem on Monday.

The Greensboro businessman, who spun out movie production companies, a real estate enterprise and a gym from revenues generated by an extensive network of staffing companies over the past decade, looked mildly nervous under questioning by his lawyer and the prosecution, but remained poised and gracious throughout.

The defendant attempted to deflect blame onto a former business partner, Mark Griffin. He testified that when IRS Revenue Officer Crystal Peoples confronted him in 2006 about a series of payroll tax deposits that were not accompanied by returns, he told her that the company had been sold. Peoples asked Harrison for the tax identification number for the business.

Harrison told the court that he called Griffin and explained that there was potentially a large deposit that would be credited back.

“Mr. Griffin gave me the ID number,” Harrison testified.

The US government has accused Harrison of deliberately misleading Peoples by giving her a tax ID number that turned out to be associated with his mother’s staffing company in South Carolina, IHT Staffing/Grand Strand. Harrison testified that at the time he gave the tax ID number to Peoples, he believed it was associated with IHT, a company he formed with his grandfather in 1993.

In later years, a company called IHT of SC was formed that acted as a licensee to Global Labor, for which Harrison serves as president. Harrison said IHT of SC handled staffing for the Charleston ports.

Prosecutor Frank Chut appeared to relish calling Harrison on the striking similarities in the names of the businesses.

“That could be confusing,” he said.

“To whom?” Harrison parried.

“To the IRS, for one.”

“They got confused by quite a bit,” Harrison retorted. “That’s why I’ve had to hire an attorney to straighten this out before I was arrested on 63 counts.”

The government accuses Harrison’s staffing companies of failing to pay millions of dollars in federal payroll taxes from 2004 through 2006, when the assets were sold to Griffin and another partner, Ray McDaniel, and then in 2008 and 2009, when Harrison brought the businesses back under his control.

After June 2004, Griffin was responsible for ensuring that payroll taxes were paid as part of an “Interim Management Agreement,” Harrison testified on Monday.

The prosecution relentlessly poked holes in that representation, starting with a Hobbs Staffing Services memo introduced as evidence. Dated Oct. 31, 2004, the document declared, “At present, Greg pays all payroll taxes.”

The prosecution drew Harrison’s attention to a 941 Employer Quarterly Tax Return in which a box indicating that no future returns were required to be filed was checked off. Harrison testified that he received the form from Griffin, and gave it to Peoples, with the IRS. After 2002 he said that Hobbs, the company in question, was only used as an entity to handle financing and insurance.

Chut brandished a copy of a 2005 W2 form indicating Harrison earned $249,000 in wages from Hobbs that year.

“The document is in dispute,” Harrison said.

“Hobbs Staffing had a large payroll after 2004 and hundreds of temporary workers,” Chut suggested.

“That’s not my understanding,” Harrison responded.

The defense also attempted to blunt the government’s argument that Harrison has transferred millions of dollars from operating accounts of the staffing agencies to entities for his personal benefit. Public defender Tom Cochran introduced graphs showing millions of dollars in transfers from one of Harrison’s personal accounts to the staffing agencies.

IRS Revenue Officer Edward Coakley has previously testified, in contrast, that transfers from the personal accounts to the staffing businesses were “insignificant.”

Chut attempted to undermine Harrison’s evidence, charging, “Your exhibits don’t account for where the money came from that was in your personal account, do they?”

Then he proceeded to introduce a boredom-inducing series of bank statements from May 2005 through August 2006 showing that, with few exceptions, deposits to the personal account came from US Labor and Hobbs Staffing Services. Pointing to a deposit of $165,012 from Hobbs in August 2006, Chut said, “That’s a lot of money for a company that doesn’t have a payroll, isn’t it?”

“Yes,” Harrison replied. “That’s basically a company that handed financing and carried the insurance policy.”

Chut also questioned Harrison on transfers of millions of dollars documented by Coakley from the staffing agencies to companies set up to finance movies, a Jamestown gym called Extreme Fitness and a company called Shining Properties.

Harrison testified that money transferred from the staffing companies to business accounts for the two movies — National Lampoon’s Pucked and Home of the Giants — and for Extreme Fitness originated in loans from GrandSouth Bank. The funds were raised, he said, by borrowing against money the staffing companies expected to receive from clients.

“Mr. Griffin and I talked about a way we could generate additional billing,” Harrison said.

The testimony appeared to confuse Judge James A. Beaty, who interjected, “Sir, are you saying that the gym and movie companies were clients of the staffing companies?”

Harrison responded, “The staffing companies had always worked with the gym. To the movies, it was simple administrative services and payroll services.”

Chut attempted to goad Harrison into a confession.

“The $1,087,000 that went to Home of the Giants was not paid to the IRS, was it?”

“There were no wages associated with that transfer,” Harrison responded.

Also deflecting from the government’s argument that Harrison socked away funds that should have been paid over to the IRS, the defendant introduced a summary of transactions from US Labor to StaffCo Management Group, the company started by his former business partners, Griffin and McDaniel, totaling $2 million. “I took the government exhibits,” Harrison testified over the government’s objection, “… and noticed, frankly, that a lot of money had gone over to StaffCo Management.”

Harrison also introduced an exhibit representing that money had been wired from one of the staffing companies to Michael Brooks, a former employee from England who Harrison said he had befriended during a soccer game.

Cochran also asked Harrison about an ex-wife with whom Harrison has two children.

“Have you given her permission to use your bank account?” Cochran asked.

The judge sustained an objection from the prosecution, but not before Harrison could answer: “Completely.”

Harrison also addressed previous testimony by Julie Akers, a former controller, to the effect that Harrison had refused to provide money to cover payroll taxes even though he controlled finances for IHT of SC.

Harrison confirmed Akers testimony that she and company president Elizabeth Byrd had approached him in 2009 about funding to pay an overdue tax bill of $135,000.

“I said, ‘You should pay your taxes, one.’ I said, ‘I’ll see what I can do to pull together some money.’ I came up with $85,000. Unfortunately, it was not enough to cover the check that they had written.”

Harrison said Polo Ralph Lauren in High Point was IHT of SC’s biggest customer, and it was their neighbor because they were literally two or three doors apart.”

Harrison testified that he had no responsibility for paying taxes for IHT of SC, but acknowledged controlling funding. He said IHT of SC typically sent GrandSouth Bank its receivables — an itemized list of expected payments from clients — and the bank would determine how much money to advance based on a percentage of receivables and unpaid debts. The bank would forward the money to Global Labor, and Harrison in turn would send the money to IHT of SC. On a couple of occasions, the amount of funds provided by the bank was short of what the staffing company needed to operate, Harrison said.
Under cross-examination, Harrison testified, “Every penny was remitted to IHT of SC, in addition to $85,000 that we came up with.”

Chut referenced testimony by Akers that Harrison had at one time told her not to file tax returns for Consolidated Management, an earlier incarnation of IHT of SC.
“I never instructed anyone not to file tax returns,” Harrison testified. “That’s inaccurate.”

Last week, the defense put Doug Corriher, a vice president of GrandSouth Bank on the stand. Harrison said in trial that he has had a relationship with the bank since its founding in 1998 and that President Ron Earnest “is my main contact.”

Corriher testified on Dec. 15 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.

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 staffing companies licensed by Harrison licensed 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, give some sense of the risk-and-reward proposition represented by the staffing businesses from GrandSouth Bank’s perspective:

“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.

“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 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.

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.”

UPDATE: Trial in recess until Thursday

US District Court Judge James A. Beaty has declared that the tax evasion trial of Greensboro businessman Greg Harrison will be in recess until Thursday to allow a juror whose father died over the weekend to handle family business.

Government: Harrison took out company funds for personal benefit

The United States government rested its case against Greg Harrison on Thursday, following testimony from an IRS revenue officer that staffing companies owned by the Greensboro businessman failed to pay nearly $16 million in payroll taxes to the federal government over a five-year period, and that $6.2 million was transferred from staffing company accounts over the years to entities for Harrison’s benefit, including homes, movie productions, a yacht and other businesses.

What the testimony didn’t explicitly point out but what is deducible through basic math is that those transactions still leave almost $10 million unaccounted.

Evidence introduced by the government during Revenue Officer Edward Coakley’s testimony further eroded the defendant’s position, including a workers compensation audit performed by AIG for one of Harrison’s companies, Hobbs Staffing Services, for a period in 2004 and 2005. The court had previously heard testimony on Wednesday from Revenue Officer Crystal Peoples, who closed a collections case against Harrison in 2006 after he told her that Hobbs Staffing Services had sold its assets and ceased to employ workers in 2002.

Coakley testified that the external audit reported that the company paid about $60 million in wages during that period. That figure corresponded within 99.358 percent accuracy with the government’s own report on wages paid for the same period based on data extracted from the company’s Navision accounting software, which was seized by the federal government as part of its investigation.

To assist in his testimony, Coakley referred to two boxes of bank transfer documents for Harrison’s dozens of staffing companies, individual accounts and other businesses, as well as a thick binder of business articles of incorporation filed with various state governments.

Coakley said he had reviewed all of the documents, and presented aggregate transfer charts to show movement of funds from the staffing companies to entities that the government asserts as being to Harrison’s benefit: $1.6 million from for US Labor to a business account for the movie Home of the Giants; $1.1 million from US Labor to business accounts for the movie National Lampoon’s Pucked; $1.1 million from Compensation Management to Green Ideas N Motion, a company owned by Harrison; $820,046 from US Labor to Shining Properties, owned by Harrison; $743,350 from Hobbs Staffing Services and US Labor to two companies doing business as Extreme Fitness (not covered in the trial was the business failure of the fitness center, as reported in the Jamestown News in 2009); $437,500 from the staffing companies to cover a down payment on the yacht Columbo; $369,000 from the staffing companies to cover the down payment on a South Carolina beach house.

Coakley testified that transfers from Harrison’s personal accounts to the staffing companies were insignificant, in comparison.

The government introduced two loan documents that hinted at a deliberate attempt to throw off federal investigators and others. One of the government’s exhibits was a 2005 letter in the files of IndyMac Bank related to the purchase of the South Carolina beach house that was signed by a former financial analyst for the staffing companies indicating that Harrison had loaned the businesses $2 million. Coakley testified that he would have expected to find transactions from Harrison’s personal bank accounts to the business accounts totaling $2 million, but did not.

Similarly, the government introduced a 2006 loan statement by Patrick Henry National Bank indicating that US Staffing Services Holding Corp. owed Harrison $4.8 million. Considering that 14 months had elapsed between the time the purported $2 million debt was recorded and the $4.8 million loan was referenced, Coakley testified that he would have expected to see a $2.8 million transfer of funds from Harrison’s personal accounts to the business accounts during that period. He did not.

Following Coakley’s testimony, Judge James A. Beaty sent the jury out. Before the judge got around to recessing for lunch, counsel for the government and the defendant approached the bench, followed by an episode of courtroom confusion and controversy.

Public defender Tom Cochran frantically searched the gallery for Jessica Cox, a lawyer who represents one of the witnesses who has been observing the trial. Another audience member said she might be upstairs in the lounge. The judge sent out a marshal to find her, and she eventually returned.

Cochran told the judge that Cox had approached him during the break and told him that a juror had been seen speaking with a reporter. Cox said she had been told by Diona Slaughter, who is Harrison’s ex-wife, that this reporter had been seen speaking to a juror. Slaughter told the judge that as she had been driving away from the federal building on Wednesday evening she observed this reporter speaking to a juror on the street.

In fact, this reporter had been speaking to another courtroom observer who had been sitting in the gallery during the afternoon session of court. The judge instructed that if the allegation were true, this reporter could be held in contempt of court and informed him of his right to remain silent and right to seek representation of counsel. This reporter gave an explanation, which the judge said he accepted. During the break, the judge said he would have security review surveillance video to confirm the presence of the observer this reporter had spoken to and would interview jurors about the matter.

When the trial resumed in the afternoon, Judge Beaty said he had confirmed that the observer had been in court on Wednesday, and that the court found no credence to the allegation that a juror had been contacted by a reporter, and would make no further inquiry with the jury on the matter.

Beaty then turned his attention to Cox. He said a security officer had spoken to her about speaking too loudly in court and that she had been observed making a friendly gesture to the defendant. He cautioned her that as a member of the public she “should not have anything to do with this trial,” and ordered her to sit apart from Slaughter and others who appear to be supporting the defendant.

“Ms. Cox, I’m talking to you,” Beaty said.

The defense chose not to cross-examine Coakley, the revenue officer who presented the IRS’ master summary of its investigation of Harrison. The government rested its case.

The defense called its first three witnesses: Mo Caldwell, Lou Ann Shaw and Trevor Jefferson. The testimony of the three former employees of Harrison’s staffing companies reinforced a theme highlighted earlier by the defense — that they had little contact with Harrison, and most of their dealings were with former partners Ray McDaniel and Mark Griffin, who were running the day-to-day operations of the companies.

Caldwell, who was hired by Harrison in 1994 to develop new branches, testified that by 2002 McDaniel and Griffin were running the company as a committee. Caldwell said the committee terminated him against Harrison’s wishes when the company restructured as US Staff Holding Corp.

Shaw, who worked at a staffing company in Gastonia that was acquired by one of Harrison’s companies, said that she did not report directly to the defendant until his company, Compensation Management, took back the staffing company assets from McDaniel and Griffin in 2008.

Both Shaw and Jefferson, who worked as director of corporate sales for Harrison’s companies, gave testimony that spoke to the value they added to the enterprises. Shaw testified that the most important part of the staffing business is the relationship between the customer and the agency.

The prosecution seemed happy to build on that theme.

“You’re a customer person,” prosecutor Frank Chut said.

“Yes,” Shaw responded.

“That’s the heart of the business.”

“Yes.”

Jefferson testified that he was hired away from a competing staffing agency in the early 2000s after he swiped some accounts from Harrison’s staffing companies.

“They were small, home grown,” Jefferson said of Harrison's operatioin. “That was a good thing…. We created a strategy from which to grow the company, to capture additional markets and expand geography.

“We were tremendously successful in growing, expanding market share and geography, and capturing some pretty significant accounts,” he added.

Jefferson testified that he devised the expansion strategy with McDaniel and Griffin in 2003. Harrison was not directly involved.

“He was not around a lot,” Jefferson said. “Greg was the person Mark and Ray would go to when they needed business advice, funding or more money.”

Jefferson also testified that a plan to roll out state subsidiaries in 2004 was devised by Griffin, McDaniel and him. That testimony could help Harrison by lessening the impression that the almost constant mutation of corporate entities served a purpose of hiding assets from the IRS.

Oddly, Cochran asked both Jefferson and Shaw about the 2007 raid by Immigration and Customs Enforcement on a Fresh Del Monte Produce plant in Portland, Ore. whose workers were supplied by the staffing companies while they were under McDaniel and Griffin’s control.

“That was my account,” Jefferson said. “I sold it. That was a $40 million book of business. That was my largest and the company’s largest account.”

Shaw testified that losing the Del Monte account knocked out a significant chunk of the company’s sales, and hurt its reputation.

“In my territories, we didn’t lose any clients,” she said. “We had to do damage control…. We were doing the right thing. We did E-verify. We did I-9s.”

Shaw added that after the raid, the staffing company’s corporate offices started requiring branches to copy all I-9 forms, which verify the identity of all employees and eligibility to work, and send them by Federal Express to the federal government.

The trial resumes on Monday.

Mother and revenue officer's testimonies dovetail in Harrison trial

The United States government put its star witness on the stand yesterday to testify in the tax evasion trial of Greensboro businessman Greg Harrison.

Crystal Peoples, a 32-year career employee with the Internal Revenue Service with 26 years of experience as a revenue officer, testified that in June 2006 she was assigned to collect delinquent taxes and civil penalties from Hobbs Staffing Services, a company owned by Harrison.

Peoples said she presented a “final demand” letter to Harrison on June 27, 2006 threatening to seize and sell Hobbs Staffing Services’ assets if the company did not pay over to the government $756,988 – an amount that included unpaid payroll taxes from 2002 and civil penalties. She testified that before pursuing the delinquent taxes, she pulled quarterly reports on file with the NC Employment Security Commission and confirmed that the company paid millions of dollars in wages for a number of years.

Reviewing a case history report, Peoples testified, “It looks like they were not making deposits with the federal government, but they were making payments with the state.”

Peoples’ testimony was sometimes difficult to follow, but suggested a number of contradictions in Harrison’s representations to the federal government. The ordeal of getting the matter sorted out through a total of four personal meetings and four telephone conversations gave the impression of a hall of mirrors, as Peoples described it.

Peoples testified that Harrison told her the company stopped maintaining payroll and sold its business to another company in 2002, and that she confronted him with the fact that state records indicated otherwise.
Contradicting Harrison’s assertion that the company was no longer handling payroll, Peoples said she located a record created by the employment security commission for a company bearing the same employer identification number, or EIN, as Hobbs Staffing Services that was checked off as “active.”

Peoples testified that Harrison told her by way of explanation that he allowed a new company use EIN. She researched the number in IRS records, and found that three payroll tax deposits totaling $475,826 had been made under the number. The discovery presented a new wrinkle.

“I was trying to let Mr. Harrison know that these deposits were made in this quarter, and we needed to know who made them if he didn’t make them.”

Peoples said she asked Harrison for the EIN number of the company that had purportedly bought out Hobbs Staffing. When she researched the number, 57-1024567 through IRS records, she found IHT Grand Strand Inc., a company established in South Carolina in 1995. She testified that through her research she concluded that the unclaimed deposits could not have been paid by the South Carolina company.

Reading from a Summary of Taxpayer Contact report dated Aug. 29, 2006, Peoples recited, “This case is getting stranger by the minute.”

Asked to explain the report, Peoples testified, “It was strange that all these deposits were made, and they didn’t belong to the taxpayer.”

Prior to Peoples’ testimony, the court heard from Billie Baggett, who is Harrison’s mother. Baggett testified that she owns IHT Grand Strand Inc. and recited the last four digits of her company’s EIN number from memory: 4567.

Asked by prosecutor Frank Chut if she ever purchased any of her son’s staffing companies, Baggett responded, “No, Sir.”

Baggett did not look at her son as she left the witness stand, but stopped briefly at the prosecution table, smiling at Chut and whispering something to him.

Ultimately, Harrison’s tax difficulties were resolved when he presented the revenue officer with a 2002 employer quarterly federal tax return for Hobbs Staffing Services with a box checked off indicating that the business did not have to file returns in the future. Peoples testified that the check-off closed out the business for the IRS’ purposes of attempting to collect payroll taxes and that it was consistent with a “final return,” which is typically filed when a business has been sold and no longer employs anyone.

The government’s trial brief alleges that “Harrison made a series of false statements and provided false documents” to Peoples that caused her to close the investigation.

A former chief executive officer and former controller who worked for Harrison have testified that the staffing companies operated under the aegis of Hobbs Staffing Services and US Labor until 2004, when US Staff Holding Corp. was formed as an umbrella, and state subsidiaries were gradually rolled out.

Tom Cochran, the public defender representing Harrison, gamely attempted to poke holes in Peoples’ testimony. He asked her to read from one of her contact reports filed shortly after visiting Harrison’s office on Swing Road in Greensboro.

“I have higher priority cases,” Peoples had written.

“The day that I wrote that I may have had another case that I needed to get right on,” Peoples explained on the stand.

Cochran also noted that Peoples’ testimony that she had hand-delivered letters to Harrison contradicted documentation indicating that they were sent through certified mail and confirmed for delivery.

Among the other witnesses called by the government yesterday was Mark Gleason, a high school friend of Harrison’s who later worked periodically for his ventures. He testified that he now owns two staffing businesses of his own.

Gleason’s testimony was mostly notable for providing a sense of how Harrison used friends as nominee officers with the result that public records for companies controlled by him often did not bear his name.

Chut asked Gleason if he served as president, controlled payroll, directed the activities of employees and received payment from the proceeds of the sale of a company called US Staffing of SC.

“No,” Gleason answered.

“Why did you sign documents as president?” Chut asked.

“Was asked,” Gleason replied.

“Who asked you?”

“As I recall, Greg Harrison.”

Chut showed Gleason a copy of a factoring, or funding agreement between US Staffing of SC and GrandSouth Bank containing Gleason’s signature, along with that of bank vice president Doug Corriher.

On cross-examination, Cochran asked, “Now, Mr. Gleason, did you have problems with taxes with regard to one of your companies?”

Judge James A. Beaty sustained an objection by the prosecution.

Gleason was not allowed to answer.

Anatomy of a shadowy national staffing conglomerate

Three days of testimony in the tax evasion trial of Greensboro businessman Greg Harrison have sketched a picture of a shadowy national staffing network operating at the height of what passed for a boom in the last decade. (Previous reporting: 1 and 2)

Involved in brokering the labor of people who often earned no more than minimum wage, Harrison’s staffing agencies provided a degree of removal for client companies seeking to minimize their commitment to their workforce. Through almost continual restructuring, the companies presented a kaleidoscopic front that threw off revenue officers with the Internal Revenue Service for years, while also lowering the business’ public profile to near invisibility while employing thousands of workers.

“In a grand business sense, you think of [temporary employees] as inventory,” testified Robert Patterson, who was formerly employed as a controller for Harrison.

The labor of temporary employees financed opulent lifestyles by those in control of the staffing companies, who — at least from the outside — appeared to have performed little work of their own.

At the top of the pyramid was Greg Harrison, who, former employees testified, was often not involved in day-to-day operations even while maintaining responsibility for payroll and controlling the movement of funds. Robert Patterson and Toni Johnson, who served as controllers for Harrison’s staffing network in the period of late 2004 through 2006, testified that McDaniel and Griffin ran the companies on a day-to-day basis. At the company headquarters in Greensboro, salaried permanent employees handled back-office functions and raked in profits from client companies.

Harrison's staffing enterprises were far from iconic, and branding was not part of his strategy. If anything, it was the opposite. From the late 1990s when Harrison took the small staffing company inherited from his mother and went on a national buying binge, the empire operated under two corporations, but did business under a completely different trade name, USA Staffing.

In 2004, the conglomerate restructured without interrupting operations. US Staff Holding Corp. was one of the new companies. Under its umbrella, state subsidiaries were incorporated in at least eight states. The names morphed again in 2005 and 2006, when ownership changed hands, and yet again in 2008 when Harrison bought back the assets. Despite having once employed thousands of employees across the country and billed clients millions of dollars, even acquaintances sometimes have difficulty naming the staffing companies. The dizzying proliferation and evolution of corporate names seems to promote confusion.

Ray McDaniel, who served as chief operating officer for Harrison’s staffing companies, testified on Monday that when staffing companies bill their clients, they typically mark up total wages paid to temporary workers by 28 to 38 percent.

“The markup is the profit and the payroll tax burden associated with it,” McDaniel said.

In the case of Harrison’s companies, the government alleges, the payroll taxes were often not paid and instead the proceeds were diverted into personal uses such as luxury homes, a yacht and movie production.

As early as December 2004, Harrison’s staffing companies provided workers to a Fresh Del Monte Produce packing plant in Portland, Ore., according to a weekly revenue report introduced into evidence by the government on Monday. The account was significant enough to receive its own line item under a list of branch offices. Fresh Del Monte Produce accounted for such a significant portion of the staffing company’s Portland business that it maintained an office on the premises of the packing plant. In the course of acquiring the assets of Harrison’s staffing businesses, McDaniel and Griffin would take over the Del Monte contract in 2006.

“In the case of Del Monte, we singled those out because they had such large volume,” McDaniel testified on Monday.

McDaniel and Griffin formed StaffCo Management Group in 2005. By November 2006, they had acquired the assets of Harrison’s staffing businesses. Harrison has confirmed to YES! Weekly that he served as a creditor to the company and as a member of its board.

“Mr. Harrison didn’t want to be in the staffing business anymore, didn’t want to have anything to do with it,” public defender Tom Cochran argued in his opening statement. “He wanted to be a lender.”

(Background on Harrison’s investments in nightclubs and movies)

Documents introduced into evidence on Tuesday establish that Harrison loaned McDaniel and Griffin $1.5 million over a six-month period that coincided with the launch of StaffCo. McDaniel testified that the two also obtained a $7.5 million loan from a New York company called BHC, adding that $3.7 million was handed over to Harrison to pay for the asset purchase of the staffing business.

A 2007 Triad Business Journal article by Michelle Cater Rash quotes staffing firm consultant Bruce Steinberg as saying that StaffCo was expected to be one of the largest privately held staffing companies in the country.

StaffCo operated under the trade name American Staffing Resources, which was the name of a Pennsylvania-based staffing company it had acquired.

Immigration and Customs Enforcement raided Fresh Del Monte Produce and American Staffing Resources in Portland, Ore. in June 2007. An affidavit filed by ICE Special Agent Maximillian L. Trimm citing an interview with Jose Ortega-Milian, a former maintenance manager and supervisor, sheds some light on labor conditions at Del Monte at the time the staffing companies controlled first by Harrison and then by McDaniel and Griffin handled payroll and hiring.

Ortega stated that there were between 25-30 juveniles employed at FDMP, and that anyone with common sense could tell they were minors. He also stated that the FDMP managers knew that they were minors by their appearance.

Ortega stated that during his time at FDMP, he heard various complaints from the other workers that were not being paid for the hours they worked. He stated that FDMP avoided paying overtime, and wouldn’t allow anyone to be paid for more than 40 hours in a work week, although they were required to work well over 40 hours in a given week. He further stated that they were reluctant to complain, because of their illegal immigration status.

Ortega stated that [there] were several factors that contributed to unsafe conditions at FDMP that included: forklift operators were not certified or trained properly; the electrical components were unsafe and exposed; unqualified people were running various dangerous machinery with no training and little instruction. Ortega also stated that during the course of a typical work shift, there was constant yelling by the supervisors to the production staff that included threats of being fired if they did not work as hard as expected….

Ortega stated that he estimated that between 80%-90% of the production workers were undocumented illegal aliens from countries other than the United States.

Ortega estimated that the staff was split between 50% Mexican nationals and 50% Guatemalan nationals, and of those workers, approximately 75% were female.

During several conversations with Zarazua, Freddy LNU and Sanchez during Ortega’s period of employment at FDMP, when the hypothetical scenario of immigration agents showing up at FDMP to execute an immigration raid was posed, everyone agreed that American Staffing Resources would “take the hit” due to the fact that they did the actual hiring, and that FDMP managers could just claim ignorance of their knowledge of the production workers’ illegal status. Ortega stated that he was present during these conversations and that they were sporadic and occurred several times while he was working at the FDMP facility. Ortega stated that all of the managers were aware that almost none of the employees spoke, and were reluctant to report pay discrepancy issues to management, because it was visually obvious, and often talked about.

Upwards of 100 of StaffCo’s employees were detained. Fresh Del Monte Produce withdrew its business, accounting for $30 million in annual revenue to the staffing company. National news about the raid had an adverse impact on the company’s reputation, McDaniel testified.

“That was the beginning of the end of StaffCo,” McDaniel testified. “We never recovered.”

Two of StaffCo’s lenders declared default, McDaniel said. Harrison ended up buying back 70 percent of the company’s assets. McDaniel and Griffin broke up the remaining 30 percent among themselves, creating smaller staffing companies in Tennessee and Georgia.

Harrison incorporated Compensation Management Inc. and Compensation Management Inc. of Iowa, and later, IHT of SC to operate the staffing businesses acquired in the wake of StaffCo’s dissolution. Julie Akers, who was promoted to controller at StaffCo in the fall of 2006, followed the transfer of assets, helping wind down StaffCo’s business and then working for Harrison at Compensation Management Inc. and the other companies.

Akers testified that IHT of SC was formed in the spring of 2009 because two prospective clients were considering bringing new accounts with significant volume to the staffing companies, but wanted to avoid association with American Staffing Resources and its successor because of the negative publicity surrounding the 2007 immigration raid in Oregon.

Prosecutor Frank Chut asked Akers about the similarity between the name IHT of SC and the company owned by Billie Baggett, Harrison’s mother. That company is called Innovative Hiring Technologies and is located in South Carolina.

“It was our understanding that eventually she was going to retire, and the two companies could be rolled together,” Akers testified.

Harrison is accused by the government of lying to an IRS revenue officer after being presented with a $756,988 tax bill by telling her that he had sold the business in August 2002 and had no payroll after that. Harrison allegedly provided Revenue Officer Crystal Peoples with the tax identification number for a company called IHT Inc.

The government’s trial brief details the alleged attempt to throw off the IRS:

RO Peoples examined electronic records for IHT Inc. and determined that it had filed payroll tax returns and paid taxes for the period at issue. After some further attempts to resolve the confused situation, the RO closed her case on defendant Harrison. In fact, the 57-1024567 tax identification number actually belonged to a staffing company called IHT Grand Strand operated in South Carolina by Billie Baggett, defendant Harrison’s mother.

Akers testified on Wednesday that Baggett had no involvement with Compensation Management Inc., Compensation Management Inc. of Iowa or IHT of SC, the three companies operated by Harrison in 2008 and 2009. Baggett is also expected to testify as a government witness.

Akers testified that the staffing companies after Harrison bought back the business operated first at an address on Muirs Chapel Road in Greensboro, then at an on South Swing Road, and finally at a third location in High Point. Akers said Harrison did not maintain an office at the High Point location and was not involved in the day-to-day operations of the business. Yet Harrison controlled funding to the companies, and Akers said she would have to call him to get him to release funds to make payroll.

Annual reports filed with the NC Secretary of State’s office for Compensation Management Inc. list Michael Brooks as the company’s president. Virginia Linke, who worked as payroll manager for StaffCo and then for Compensation Management Inc. testified on Wednesday that Brooks had no involvement with the company despite his title.

Describing Harrison’s role, Linke said, “He basically controlled the funds.”

The trial is expected to last two weeks. Among 34 potential witnesses the government has said it is considering calling to the stand is Joey Medaloni, a former Greensboro nightclub owner who has been convicted of loan fraud. Originally set for September, Medaloni’s sentence has been postponed to Feb. 12, 2012.

Another potential witness is Phil Smoot, a local filmmaker who served as unit production manager for National Lampoon’s Pucked, a 2006 movie financed in part by Harrison and that starred Jon Bon Jovi.

Harrison’s former business partner, Mark Griffin, might also testify, but US Attorney Ripley Rand has written in a letter that “Griffin suffers from stage four brain cancer and is undergoing debilitating treatment.”

Harrison has given notice that he might take the stand himself. Throughout the trial, the defendant has dressed impeccably, maintained good posture, taking notes, conferring frequently with his lawyer and listening closely to testimony. On Wednesday, after he passed through the gate from the gallery to the court, he clasped the two panels between his forefinger and thumb, taking care to align them perfectly, in contrast to prosecutors and other court personnel who left them ajar.

A motion filed by Rand attempting to limit the scope of the defendant’s questions to government witnesses provides a different picture of Greg Harrison:

During the Rule 15 deposition ordered by the court, the defendant conducted extensive improper cross-examination of the witness about irrelevant personal matters. Over the government’s repeated objections, the defendant tried to make the witness admit to supposedly improper relationships with various women, and questioned him at length about photographs of himself and others taken at nightclubs featuring nude female dancing.

By his determinedly salacious line of questioning, the defendant forced a witness, whose direct testimony dealt with his business dealings with the defendant, to confront irrelevant sexual innuendo in the form of cross-examination. Among other things, the defendant presented the witness with purported exhibits of e-mails between himself and various women and questioned the witness on the nature of his relationships with them. The defendant also presented the witness with photographs of the witness and others with “showgirls,” and demanded detail of the evenings the witness spent at various nightclubs. When pressed to justify such lines of questioning, the defendant claimed purpose of “impeachment.”