A diminished Rob Kane — whose secret agent persona, physical presence and outsized personality have peppered testimony in U.S. District Court for a week — took the witness stand Tuesday afternoon as the fraud trial against his former boss, Mark Avery, entered its sixth day.
Jurors in the Anchorage trial have been hearing about Kane's role in the rapid rise and fall of Avery from other witnesses, with the defense trying to show Kane was a forceful manipulator and the prosecution laying out its case that Avery was in charge back in 2005.
Avery, a former city and state prosecutor, is charged with wire fraud, money laundering and bank fraud for, as prosecutors tell it, spending $52 million from an elderly widow's trust in less than six months starting in June 2005.
Before Kane took the witness stand, assistant U.S. Attorney Steve Skrocki read the jury a carefully worded statement that said Kane was paid for FBI undercover work dating back to 1993, but also described him as a "habitual fabricator with no credibility as a source" who was delusional, unreliable and possibly mentally ill.
The statement provides some answers to questions first raised in 2006 when Kane and Security Aviation — the company that Avery bought, expanded, then lost in a bankruptcy liquidation — were charged and found not guilty in a federal case over rocket launchers that could attach to the company's newly acquired Czech military jets. In that case, the defense convinced jurors the rocket pods were just harmless decorations. Both the prosecution and defense agreed to the new statement and Judge Ralph Beistline told jurors they should consider it as fact.
Among the revelations, according to the statement:
• Kane had "an improper business relationship" with an FBI agent that was connected to Security Aviation. The agent's name wasn't revealed.
• Kane, the son of an Anchorage police officer, was paid $2,000 for work he did in the early 1990s for the FBI office in Anchorage, where he provided information on the Hell's Angels, suspected drug dealers and people believed to be involved in financial fraud. From January 1999 to August 2005, he was managed by the FBI's Tampa division and paid $16,300 for work on suspected financial fraud.
• He was a source for the FBI in other countries, mainly on fugitive matters. He provided information on Abu Sayyaf, a militant Islamic group in the Philippines, where his wife is from, and other terrorist groups.
Agents were able to confirm some of what he told them but not the rest.
"He has been described as a high maintenance source and a name dropper with no real connection with those so named," according to the statement read by Skrocki. "Kane has overstated facts, fabricated stories and fabricated operations."
Then Kane, wearing a light gray jacket, bright yellow tie and dark dress shoes, took the stand.
Skrocki asked him about his undercover work and whether he sometimes lied.
Yes, said Kane, now 47 and living in Arizona. He was subdued and spoke so softly that a juror had to ask him to speak up. He told people he was a Navy Seal and an arms dealer when he wasn't. He lied about his qualifications and about having money, he said. He lied, he said, to infiltrate organizations and to get the information he needed.
His main FBI handler, he said, was a Clearwater agent named Bob Coffin but he also was friendly with Mark Pinto, an agent based in Las Vegas.
He met Avery in late 2004 through his mother. He was living in a rented home in Wasilla with his wife and three small children. He said he was in-between cases and waiting on a payment from the FBI, so started working as a consultant for Avery, trying to help him build up his electronic monitoring business for people in trouble with the law.
His role grew early in 2005 after he helped Avery move the elderly May Wong Smith, who had dementia, from her home on the island of Guernsey in the English Channel to the Bahamas. Avery was one of three trustees who were supposed to watch over the $100 million trust set up to provide for her as well as a separate $350 million charitable trust created in her name and the name of her late, rich husband.
Avery needed help with what witnesses have described as a complex international move with security, financial, legal and medical issues. Kane said he introduced Avery to Skip Brandon and Gene Smith, contacts he said he knew through the CIA whose Smith Brandon International consulting business soon would be a model for Avery. He also brought in J. Michael Farrell, a Washington, D.C., lawyer who worked in the Reagan White House.
How did he know Farrell? Skrocki asked.
"I knew him also from operations with the agency and a mutual friend who was the former deputy director of administration for the CIA," Kane said
Who was the friend?
"That would be Harry Fitzwater," Kane said.
A group flew Smith in a chartered executive jet. Avery then decided he wanted his own medevac business and convinced the other trustees to use the May Smith Trust as collateral for a loan.
At Security Aviation, Kane said he handled operations but all big decisions and purchases went through Avery. It was Avery who bought RVs, a yacht and a patrol-like Moose Boat, Avery who bought planes and expanded Security Aviation, Kane said.
Skrocki had Kane read a draft email to Farrell from Avery that had been sent to him. It describes a plan for Avery to use Farrell's Pennsylvania Avenue law office as a front for the two trusts where work could be done in confidence. Avery said he would pay $4,375 a month for the law office space "and the trusts would not be listed anywhere," according to the draft email.
As to Cmdr. Kane, Avery's draft memo said, using Kane's preferred but phony title, "he and I have an understanding. We have common interests and common goals."
In Washington, the memo said "it must be understood that Cmdr. Kane works for me. I say when he works, where he works, and with whom he works."
Also on Tuesday, jurors heard from Stephen Joe Kapper, whose stepfather Michael O'Neill founded Security Aviation in 1985. Kapper, wearing a Security Aviation lanyard for the company he is again running, became company president in 2002 after his stepfather's death.
In 2005, he agreed to sell the company to Avery because he needed to settle his stepfather's estate, he said. He said he had told an associate of Avery and Kane he would sell for $7 million. Avery then offered $1 million more to seal the deal with his sisters, Kapper said.
Avery and his team didn't check Security Aviation's financial documents, he said. They didn't check the fleet for upcoming major maintenance. They kept Kapper on as president but his role was never clear.
And they started buying planes — Czech fighters, two Gulfstreams and more. They increased the staff by about 100. And they had no business plan, Kapper said.
Longtime employees and clients were getting worried. Things were chaotic, Kapper said. Still, for a few months, the expansion made Security Aviation an exciting place to work. By the end of 2005, the money was running out. Avery sent Kapper to First National Bank of Alaska to get a line of credit from a family friend. Kapper reported back that he needed financial documents to support the deal.
"That wasn't going to happen," Kapper said.
The trial continues Wednesday with Kane still on the stand.
Alaska Dispatch Publishing