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Case 1:20-cv-00658-LMB-IDD Document 158-4 Filed 05/27/21 Page 1 of 19 PageID#
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UNITED STATES DISTRICT COURT
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FOR THE EASTERN DISTRICT OF VIRGINIA
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(ALEXANDRIA DIVISION)
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_____________________________
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BLUE FLAME MEDICAL LLC )Civil Action No.
Plaintiff )1:20-cv-00658(LMB/IDD)
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)
vs. )
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)
CHAIN BRIDGE BANK, N.A., )
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JOHN J. BROUGH and )
DAVID M. EVINGER )
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Defendants )
_____________________________
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CHAIN BRIDGE BANK, N.A. )
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Third-Party Plaintiffs )
)
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vs. )
)
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JPMORGAN CHASE BANK, N.A. )
Third-Party Defendant )
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______________________________
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- CONFIDENTIAL PURSUANT TO PROTECTIVE ORDER -
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Remote Videotaped Deposition of John Brough
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February 2, 2021
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9:35 a.m.
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Reported by: Bonnie L. Russo
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Job No. 4398587
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Remote Videotaped Deposition of John Brough
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held through:
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Veritext Legal Solutions
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1250 I Street, N.W.
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Washington, D.C.
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Pursuant to Notice, when were present on behalf
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of the respective parties:
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APPEARANCES:
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On behalf of the Plaintiff:
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PETER WHITE, ESQ.
JASON T. MITCHELL, ESQ.
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EKENEDILICHUKWU E. UKABIALA, ESQ.
GREGORY KETCHAM-COLWILL, ESQ.
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SCHULTE ROTH & ZABEL, LLP
901 Fifteenth Street, N.W.
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Washington, D.C. 20005
pete.white@srz.com
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jason.mitchell@srz.com
ekenedilichukwu.ukabiala@srz.com
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gregory.ketchum-colwill@srz.com
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On behalf of the Defendants/Third-Party
Plaintiffs:
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GARY ORSECK, ESQ.
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LESLIE ESBROOK, ESQ.
CAROLYN FORSTEIN, ESQ.
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ROBBINS RUSSELL ENGLERT ORSECK & UNTEREINER
2000 K Street, N.W., Fourth Floor
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Washington, D.C. 20006
gorseck@robbinsrussell.com
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lesbrook@robbinsrussell.com
cforstein@robbinsrussell.com
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A P P E A R A N C E S ( C O N T I N U E D ) :
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O n b e h a l f o f T h i r d - P a r t y D e f e n d a n t :
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A L A N S C H O E N F E L D , E S Q .
W I L M E R H A L E , L L P
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7 W o r l d T r a d e C e n t e r
2 5 0 G r e e n w i c h S t r e e t
5
N e w Y o r k , N e w Y o r k 1 0 0 0 7
a l a n . s c h o e n f e l d @ w i l m e r h a l e . c o m
6
- a n d -
A L B I N A S P R I Z G I N T A S , E S Q .
7
W I L M E R H A L E , L L P
1 8 7 5 P e n n s y l v a n i a A v e n u e , N . W .
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W a s h i n g t o n , D . C . 2 0 0 0 6
a l b i n a s . p r i z g i n t a s @ w i l m e r h a l e . c o m
9
- a n d -
M A R G A R I T A B O T E R O , E S Q .
1 0
W I L M E R H A L E , L L P
1 2 2 5 1 7 t h S t r e e t , S u i t e 1 6 6 0
1 1
D e n v e r , C o l o r a d o 8 0 2 0 2
m a r g a r i t a . b o t e r o @ w i l m e r h a l e . c o m
1 2
1 3
A l s o P r e s e n t :
1 4
B e t h S h a r o n , C h a i n B r i d g e B a n k
D a v i d E v i n g e r
1 5
E t h a n B e a r m a n , B l u e F l a m e M e d i c a l , L L C
B i l l G u s s m a n
1 6
G e o f f B a s s e t t , V i d e o g r a p h e r
1 7
1 8
1 9
2 0
2 1
2 2
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MR. ORSECK: Object to form.
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THE WITNESS: There certainly is no
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regulation that exempts the bank's obligations
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under the Bank Secrecy Act.
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BY MR. WHITE:
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Q. Is there anything that exempts their
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obligations under Regulation J?
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MR. ORSECK: Object to form.
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THE WITNESS: I'm not -- that's more
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of a legal question. I -- I -- I can't answer
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that question.
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BY MR. WHITE:
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Q. Can you answer -- well, were you
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aware of any such exemption in March of 2020?
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MR. ORSECK: Object to form.
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THE WITNESS: Bank Secrecy Act is
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very broad. It's very clear. It -- it --
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it -- it doesn't have any carve-outs that say
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that -- that this applies to everything except
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this or except that. I mean it applies to
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every single transaction that runs through the
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bank.
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BY MR. WHITE:
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Q. And Regulation J applies to every
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wire transfer that runs through the bank,
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correct?
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A. I would say, if you were going to
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layer the importance of the regulations, you
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would have Bank Secrecy Act as the paramount
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regulation that you are supposed to comply
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with.
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Q. And where is your understanding that
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the Bank Secrecy Act is more important than
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Regulation J?
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Where does that come from?
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MR. ORSECK: Objection. Foundation.
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THE WITNESS: I think that, if you
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were to read the Bank Secrecy Act cases against
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banks versus the -- any other type of -- of
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cases against banks, you would find that there
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are many more Bank Secrecy Act violations that
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are imposed on banks than any other type of --
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of regulatory penalties.
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BY MR. WHITE:
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Q. So the Bank Secrecy Act, to your
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mind, creates a better risk -- a -- a larger
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risk of liability to the bank than Regulation J
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because of these number of cases; is that
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right?
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MR. ORSECK: Objection. Foundation.
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THE WITNESS: I think that it
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demonstrates that it is a very important
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banking regulation.
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BY MR. WHITE:
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Q. What about Regulation J; is that
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very important?
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MR. ORSECK: Objection. Foundation.
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THE WITNESS: I would say that
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Regulation J is more a plumbing mechanism.
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BY MR. WHITE:
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Q. Well, certainly the bank's ability
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to take money out of customer accounts is more
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than a plumbing regulation for the bank's --
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beneficiaries of those accounts, correct?
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MR. ORSECK: Object to form.
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Pete, you've been arguing legal
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propositions with this fact witness now for the
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last 40 minutes. So I'll lodge my continuing
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objection.
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MR. WHITE: Understood.
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You can answer.
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THE WITNESS: Would you repeat the
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question, please.
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MR. WHITE: Could the court reporter
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read that one back, if you're still with us.
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THE COURT REPORTER: I'm here. I'm
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here. Hold on.
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THE WITNESS: Thank you.
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MR. WHITE: And we've been going for
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over an hour now, Mr. Brough. Any time you
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want a break is fine, but perhaps after this
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question if that works for you.
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THE WITNESS: Okay.
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MR. WHITE: If (audio skip) keep
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going, I'm happy to.
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(The record was read as requested.)
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THE WITNESS: I -- I guess I don't
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see the relevance of your question in regards
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BY MR. WHITE:
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Q. Mr. Brough, this is a very simple
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question: Did you consider the applicability
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of Regulation J?
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MR. ORSECK: Object to form.
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THE WITNESS: We considered the
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impact of the transaction in regards to the
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Bank Secrecy Act and our requirements under the
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Bank Secrecy Act along with all the other
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unanswered questions that we had.
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BY MR. WHITE:
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Q. Mr. Brough, if we have to call the
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court, we will. You're going to answer this
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question.
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Did you consider the applicability
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of Regulation J?
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MR. ORSECK: Object to form. Asked
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and answered. And the lecture is improper.
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You should answer the question as
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you deem appropriate and accurate.
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MR. WHITE: He should answer the
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question as he's required to by law.
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BY MR. WHITE:
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Q. Please answer the question.
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MR. ORSECK: Object to form.
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THE WITNESS: When we received the
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wire -- before we received the wire, we had
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many questions. When we received the wire, we
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had more questions.
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It was a red flag to us that the
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account had been opened just the day before.
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It was a red flag to us that Blue Flame was
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founded three days before. It was a red flag
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to us that we were called by JPMorgan. The
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fact that the wire was for $456 million was a
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red flag.
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So there was a preponderance of Bank
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Secrecy Act and customer due diligence
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questions that had not been answered. So when
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we received notice from the sender to return
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the wire, we honored that request.
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BY MR. WHITE:
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Q. You said previously that Reg J
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governs FedLine transactions, correct?
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the State of California?
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A. And JPMorgan.
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Q. And JPMorgan.
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And the State of California and
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JPMorgan confirmed for you that they did intend
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to send this wire to Blue Flame Medical,
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correct?
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MR. ORSECK: Object to form. Asked
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and answered many times.
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THE WITNESS: We were able to verify
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that the wire was originated by the State of
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California and that they knew that they
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originated it.
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What was unanswered was whether or
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not the transaction was fully vetted, let's
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say.
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BY MR. WHITE:
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Q. What do you mean by that?
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A. What I mean by that is one of our
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questions was does the State of California have
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the information that we have about the sellers
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of the product.
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Q. So what was unanswered for you was
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whether the State of California had done an
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adequate job of vetting their counterparty
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prior to wiring the money?
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Do I have that correct?
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A. That's correct.
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Q. Do you view it your job as Chain
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Bridge Bank to vet procurement contracts for
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the State of California?
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A. We have an obligation, under the
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Bank Secrecy Act, to vet all transactions that
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flow through the bank.
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Q. Are you aware that, at some point
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during the day on March 26th, that bank
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employees were informed not to have any
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communication with Mr. Gula?
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A. Yes.
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Q. And were you involved in the
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decision to tell people not to have contact
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with Mr. Gula?
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A. Yes, I was.
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Q. If there was a concern about
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checking.
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BY MR. WHITE:
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Q. Business demand checking; that's
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your best recollection of what the report would
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be entitled?
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A. That's my best understanding, yes,
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based on the account type that -- that -- that
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was open for Blue Flame.
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Q. And would -- would all business
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demand checking accounts have their debits and
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credits in that same ledger?
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A. There would not be separate entries.
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They'd be done in a aggregate. So you'd see
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one big entry for all the different
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transactions.
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Q. Okay. Thank you.
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In your conversation with Mr. Gula
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at the bank, did you tell him to find a bank
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that could handle the wire when you spoke with
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him?
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A. When we spoke to him, we did inform
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him that we were going to be closing the
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account; and that, should he work things out
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with the State of California, that he should
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make sure that -- that he sends the funds to a
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new bank account at another bank.
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Q. Did you tell Mr. Gula that he should
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find a bank that could handle the wire?
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A. I don't know if I phrased it that
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way or not. I do know that I suggested that he
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approach JPMorgan. Because they were the
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county -- counterparty to the transaction. So
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they may be willing to open the account.
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Q. Did Chain Bridge Bank close the Blue
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Flame Medical account at that point?
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A. Yes, we did.
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Q. Why?
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A. We closed the account because of the
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unusual nature of the transaction and the --
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the numerous red flags that -- that had popped
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up on this transaction.
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Q. Did you mention to Mr. Gula when you
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met with him why the bank had refused to be in
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contact with him that day --
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size of the wire.
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Q. Why was the size of the wire itself
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a red flag?
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A. A wire of $456 million is multiple
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times larger than any other wire that the bank
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had received, I -- I think by a multiple of
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about 22 times. So in other words, the
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previous largest wires that we got were around
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$20 million. And so that's -- that's -- that's
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the biggest red flag right there.
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And the fact that it was -- it was
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sent into -- or I'm sorry -- it was sent to a
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company that had just opened their bank account
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the previous day and had -- had opened their
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business three days before. That's a -- that's
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a very standard red flag.
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There was the red flag that Mike
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Gula and John Thomas were not in the medical
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supply business. They were in the political
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influence business. And that's quite a
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different profession than medical supplies.
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The number of masks and the dollar
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amount of the transactions didn't match up with
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press releases from the State of California.
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So I think it was before we called
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Mike -- or that evening. I'm not sure when it
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was -- we looked up any press releases from the
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State of California. We did find one that had
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been issued a couple days before that mentioned
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that $30 million had been allocated for the
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purchase of a million masks and the hiring of
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nurses and the purchase of ventilators. And
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that was a press release issued by
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Governor Newsom.
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But there was nothing about this
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transaction, which would have been 20 times
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larger.
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Q. Mr. -- sorry.
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Mr. Brough, by the -- by the time
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that JPMorgan recalled the wire, you knew the
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transaction was larger than that, right, than
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one you'd read about?
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A. Oh, yes. Definitely. Oh, yeah.
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We -- we knew about that on the -- the 25th.
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Q. So far as you're aware, did
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Mr. Gula, at the time he opened the account on
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the 25th, let anybody at the bank know that he
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was expecting a wire of more than $450 million?
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A. No, he did not.
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Q. Was that a red flag, in your mind?
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A. Yes. That's --
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Q. Why?
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A. Well, he knew at the time that he
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was going to be receiving a wire of $456
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million. And when asked about -- when -- in
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order to open the account, we asked that
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question, you know: What are your anticipated
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wire volumes?
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And he gave us an answer. And it
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was nowhere near $450 million. As a matter of
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fact, I think the average wire size was going
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to be about 5 million.
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Q. Were you aware of this as of the
20
time that JPMorgan recalled the wire?
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In other words, did you know what
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Mr. Gula had said to Mariano Castagnello at the
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time of the account opening?
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A. We -- we knew that Heather didn't
3
find out about the dollar amount of the
4
transaction until after the account was open.
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Q. Why is that a red flag?
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A. Because it's inconsistent with the
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activity that's -- that's -- that's being --
8
being expected by the client.
9
We always ask that question when we
10
open an account. We put it into our platform.
11
And if the volumes are greater than that, then
12
that's always a red flag.
13
Q. Let me ask a more direct question.
14
If you are aware that a new customer
15
is not forthcoming with what you consider to be
16
important information that the bank is
17
requesting, does that, all else equal, give you
18
cause to question the customer's integrity?
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MR. WHITE: Object to leading.
20
THE WITNESS: I would -- I would
21
agree with that, yes. It has to go with
22
whether or not we can -- we can rely on what
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