Gary and I were attempting what Machiavelli called the most difficult of all endeavors -- “to change the established order of things.” Changing the established order is almost impossible, because those most able to change it are comfortable with the existing system and have no incentive to seek change. This is why Gary’s efforts to enlist pornographers to overthrow Cohen always came to naught. They were used to living with Cohen as the god of Sex.Com, and had no desire to destabilize an arrangement that worked for them.
Wagstaffe and I filed Gary’s motions for summary judgment and preliminary injunction in August 2000, hoping for a swift adjudication, but Judge Ware didn’t cooperate. As the days of autumn blew by, Judge Ware delayed the hearing several times, and Gary, his funds dwindling rapidly, suffered like one sentenced to hang at dawn. The same messenger -- time itself -- could bring good or bad news. It was only a question of which came first. The cock’s crow would sound when his money ran out. The reprieve would come when Judge Ware said, “the domain is yours.”
Only Gary knew when he would run out of money, but for me the date had effectively arrived in August 2000, when Gary refused to pay any more fees, and fell behind on reimbursing me for litigation costs. Seeking to assure my future security apart from Sex.Com, I took on a drug case for the Federal Public Defender, and did a one-week trial in Eugene with Peter Carini as co-counsel. It was a big case, involving twenty pounds of meth, three delivery charges and two conspiracy counts, and it sucked up a lot of my time. Gary was furious, but contained his anger, since he knew that Wagstaffe’s loyalty would not survive any suspension of fee-payments, and therefore even my divided loyalty was valuable. Fortunately, the outcome of the Wells Fargo document subpoena brought good news that watered all of our hopes.
One day in late September, I was down in the Bay Area with Gary when Tara called me on my cell phone. She sounded happy, which always makes me happy, but it was more than mere domestic pleasantry. She was calling with really good news. She and Ana had deciphered the money flow from Sex.Com, and there was a lot, like really a lot. I asked her if she meant a whole lot, and she said yes, a whole lot. She was proud and happy that for once I was right about a case being worth something. Tara said that she had emailed me the flowchart she and Ana created, showing multiple money streams flowing into Cohen’s bank accounts. Every month, one Jordan Levinson would transfer at least $400,000 from his account at Union Bank in Fort Lauderdale to Omnitec’s Anaheim Hills Wells Fargo account. Gary and I read the memo and perused the charts later at his Montgomery Street office. We were very impressed with the clarity of the eleven-page memo, but the raw numbers commanded our special attention. Some months, Levinson wired as much as a million dollars to Cohen’s Omnitec account.
When I realized Sex.Com produced $400,000 per month, my mind flared into white heat, like a mound of coals injected by a bellows with a flood of fresh oxygen. I was exultant -- I would get paid! Memo to all legal staff: We have to win. The discovery of the huge cash flow, while nothing like the astronomical numbers totted off in Sex.Com’s press releases, was still big money for lawyers. It was a tremendous relief to know that there was a large flow of cash coming from Sex.Com, because my bet was on the continuing value of the name as a source of endless profits. This was the fall of 2000, and bad news about the deflating “New Economy” was beginning to roll in, so I was glad that the optimism of my early days on the case had been justified.
The good news from the Wells Fargo documents came just in time to replenish our motivation to write persuasive reply briefs that would compel Judge Ware to grant our motions for summary judgment and preliminary injunction. Judge Ware had given us more time than we had wanted, but the Wells Fargo documents made us grateful for the delay. When you added in the Kinko’s document theft, which highlighted the importance of the Wells Fargo records, we had a lot of new ammunition. By forcing us to store up energy to attack with accumulated momentum, Judge Ware had given us an opportunity.
Sun Tzu compares a force attacking with momentum to a raging flood tossing boulders like pebbles. A good way to generate a raging flood is to build a dam, then break it. Judge Ware’s slow docket dammed up our forces. The Wells Fargo documents were the waters rising behind the dam. The videotape of Cohen stealing the Wells Fargo documents would serve as our dynamite, to break the dam most dramatically. When momentum is with them, says Sun Tzu, even cowards fight bravely, and when it is against them, even brave men run.
The Wells Fargo documents recharged my personal momentum and drew it into a single focus. Before seeing the money memo, my obsession had been naïve, based on conjecture and faith, like Moses before he reached the river Jordan. But when I glimpsed the vast river of cash actually flowing from Sex.Com, I turned from a mere believer in vague future riches to the possessor of actual, objective knowledge of just how rich I might become.
Thus, toward the end of October, in a mood of resolve and quiet optimism, Tara, Ana, Sue and I packed boxes filled with three-ring binders of documents into the Camry, and headed south on I-5 to the Bay Area. Fiercer than we looked, our little foursome comprised the core contingent of Gary’s troops. Sue knew Cohen’s lies virtually by heart. Her copies of his depositions were feathered with yellow stickies, cross-referencing lies that often lay three and four levels deep. Tara had devised a total document management system that contained every piece of relevant paper in a growing library of three-ring binders. Ana could put a hand to any banking document or other business record that she had subpoenaed from anyplace in the world. I was a functional madman, as obsessed as any paranoiac with unraveling a complex plot that wasactually a fantastic reality. I could use my encyclopedic knowledge of Cohen’s lifetime of crime to prove that virtually every transaction in which he had ever engaged was a fraud.
We were scheduled to spend three days, from Saturday morning until Monday evening, in Wagstaffe’s office overlooking the San Francisco Bay Bridge. Modern lawyers get a lot of work done by locking themselves away in a silent skyscraper with a crew of colleagues. On the weekends, elevated offices lack food, co-workers, and excuses for distraction. Instead of halls filled with lawyers and staff, you have silent carpeting, empty doorways, ubiquitous office machinery, and the galley slave of the modern legal attack-ship -- an overtime secretary chained to her computer. The bright expanse of the world is sealed outside floor-to-ceiling windows that don’t admit a breath of air. The outside world is for ordinary people, and as we look down from our glass cellblocks, the child heart within us palpitates silently, held hostage by an omnipotent taskmaster. Entombed in such vast, silent warrens, the spirits of many lawyers drudge, wraithlike, attending to tasks that one law professor called alternately evil and inconsequential. When the game is afoot, however, the endless carpeted hallways, ringed with glass cages, become the staging bases for professional warriors who delight in conquest. Peering into each paper-cluttered office, amid the spill of open law books and the drafts of briefs in process, a warrior sees a forge, glowing with heat, gritty with dust ground from the sharpened blades of deadly intellectual weapons.
Jim Wagstaffe’s young associates, Pam Urueta and Michael Von Lowenstein, were two fine young liberal lawyers who liked to go home at reasonable hours. Fortunate in their careers, perhaps innately gifted, wise in their choice of schools and bosses, I liked them, but unencumbered by the burdens of hoarding cash to raise children, they had developed a different orientation on the law. Huddling in Michael’s office, assuring us that their legal work was nearly complete, it was evident that Pam and Michael were only there because Gary was Wagstaffe’s client, Wagstaffe was their boss, and Wagstaffe was joining us in the skyscraper over the weekend.
So it was with pleasure that the Oregon crew welcomed the arrival of Gary Kremen, the pivot of our personal history. He took one look at what Pam and Michael had thus far produced, and was immediately, silently seething. This is the danger of showing a demanding client an early draft -- they may tend to think that the work is inadequate, their case is foundering, and victory is in doubt. Much worse is the effect when one has been claiming that the work is nearly complete, as Pam and Michael had been. But Gary reacted efficiently. After blasting off a few rumbling voice mails to Wagstaffe, warning that things were looking a little sketchy on the Pam and Michael front, Gary crashed out on the conference room floor for a solid nap.
Soon Gary’s snores were resounding ominously down the hall. In the dim light of a San Francisco morning filtering through the floor-to-ceiling windows, the rise and fall of his capacious abdomen gave him the appearance of an unconscious leviathan beached on a foreign shore. Michael and Pam obsessed over this problem. Proclaiming earnestly that he needed to go home and sleep in his own bed, they tried to leverage Gary’s strange behavior into an excuse to escape the office, or at least to get rid of Gary, who had disturbed their procrastinations. Sue, Ana and I, however, might have been keeping guard over the tomb of King Tutankhamen, the way we protected Gary’s prostrate form. He would not be wakened or moved. Eventually, he would rise from oblivion and command us. That was the order of things.
The young associates upped the ante, calling their boss. When Wagstaffe called me to ask about the situation, I assured him there was nothing unusual going on with Gary. He needed his sleep. He was bothering no one. So with Wagstaffe’s blessing, Gary slept on. Michael fumed. I suggested to Michael and Pam that they dedicate themselves to producing a better brief before Gary woke up. I could feel the love.
Shortly thereafter, Gary woke up and started cracking his whip. When Wagstaffe arrived, Pam and Michael realized that their fate was sealed. Only an excellent brief would secure their exit from our intellectual prison. Gradually, they assumed an outwardly docile manner, funneling their aggression into their writing, as is appropriate, and the work product continued improving. With Gary demanding that Pam and Michael add more facts to their arguments, Sue was able to feed them relevant quotes, demonstrating her total mastery of Cohen’s testimony as she consulted her well-thumbed, cross-indexed transcripts of Cohen’s numerous depositions. Eventually, Michael even woke up to the need to cite the McCord case, where the California Supreme Court authorized judges to enjoin the theft of intellectual property. I was comforted to know that this controlling precedent, later cited by Judge Ware in his own opinion, would be included in our briefs.
While Pam and Michael nailed down the legal issues presented by forged titles and invalid trademarks, I dug into the financial documents. In their money memo, Tara and Ana had neatly summarized the recurring monthly transfers of hundreds of thousands of dollars from Levinson in Florida to Omnitec in Anaheim Hills. When I studied the memo closely for the first time, however, I suddenly realized something that was obvious, but had escaped my attention as a crucial fact. Cohen drained the Omnitec account every month. All the money flowed out via wire transfer to numbered accounts in Luxembourg and other offshore money havens.
The legal implications of this fact had escaped me until that very moment. Gary wanted to recover more than just Sex.Com; he wanted to freeze Cohen’s bank accounts, seize the Rancho Santa Fe mansion, and also grab a little house on the Mexican border that Cohen had stolen from an unfortunate man named Godinez. That was a tall order, and seemed unachievable until I realized that Cohen drained the Omnitec account every month. Until then, I hadn’t seen the single fact that would convince the judge to grant such a variety of unusual requests.
I grabbed the binder of bank documents and walked down the hall to talk to Wagstaffe. As I walked through his office door, he looked up from his computer and smiled with strong teeth, and his silvery-red beard bristled with energy. I sat down, showed Wagstaffe my summary of the Omnitec bank records, and asked him if he thought it would strengthen the argument for an asset freeze. He understood exactly what I was saying. The Omnitec account was simply an offshore pipeline. We could focus on the pipeline to provide the one thing that had been missing from our factual record -- convincing proof that Cohen was putting the stolen Sex.Com money offshore, out of reach of the U.S. courts. The bank records showed that Cohen had been putting his ill-gotten gains beyond the reach of U.S. law for years. At least thirteen million dollars, I calculated, had already disappeared from the country through the Omnitec Wells Fargo Account.
From the birth of a legal inspiration to the drafting of an admissible declaration can be a bit of a distance. As the hours of the last day of our three-day weekend ticked by, my declaration became compendious. I wanted to give Judge Ware and his clerks one place to find all of our financial evidence. I wanted to dramatically emphasize how Cohen had risen from rags to riches with only two tools -- Sex.Com and his criminal imagination. Because a judge can only order restitution of funds that can be traced to an unlawful source, I needed to establish that all of Cohen’s post-prison wealth was traceable to his theft of Sex.Com.
Most of the documents I planned to attach to the declaration were as familiar as old friends, and I was excited to introduce each one in the proper dramatic order. The divorce papers Cohen filed from prison “in forma pauperis” proved that he was broke in prison, and presumably was still broke when he left in 1995. Photographs of the Rancho Santa Fe property depicting Cohen’s mansion, pool, tennis court, and playhouse -- showed how rich he’d become in the last four years. The bank record of Omnitec’s $500,000 down payment on Cohen’s Rancho Santa Fe house showed Cohen using Sex.Com money for his personal benefit. An unsigned tax return subpoenaed from Cohen’s accountants showing less than $40,000 income for 1998 -- showed that Cohen lied to both the courts and the IRS about his wealth. Omnitec bank records referring to “Sex.Com DBA Omnitec,” and a bank officer’s handwritten notation that “Steve Cohen is Omnitec,” proved that Cohen, Omnitec and Sex.Com were an indivisible trinity. Statements from Cohen’s securities accounts and bank accounts subpoenaed from around the nation showed that, aside from a few hundred-thousand dollars, almost all of the Sex.Com money was offshore, having been funneled through Omnitec to foreign banks. To the pipeline argument, my last exhibit was Cohen’s check on the Omnitec account for seminar fees at “The Offshore Institute.”
During several hours of our third day of all-out effort, Wagstaffe and Gary sat shoulder-to-shoulder, huddled over the form of the proposed order we would submit to Judge Ware for signature. I didn’t need to be involved, because Gary had taken my advice to make the order his “wish list,” and had written up one that would have made Santa Claus sweat. The way it turned out, if Judge Ware signed it, Gary would immediately assume total control over Sex.Com and virtually all of Cohen’s property subject to U.S. legal control. Cohen could fight all he wanted, but if that order got signed, it was equivalent to assassinating his entire case in a single blow. Based on Cohen’s own confessions about the Dimmick letter, and the damning evidence I was putting in my declaration, both Wagstaffe and I believed we had the evidence to justify such an order, but lawyers still like to proceed incrementally, and don’t like to look greedy in front of the judge, so we would both have asked the judge for less relief. Gary wouldn’t let us do it. The wish-list idea had stuck, and we were stuck with it.
So we had to convince Judge Ware to give us the asset freeze. From the legal doctrine viewpoint, the hard pull was that Gary was a private individual, and the main case on freezing bank accounts to prevent “a dissipation of assets” before judgment was a federal case that allowed the Republic of the Philippines to freeze deposed dictator Ferdinand Marcos’s bank accounts to recover millions he and Imelda stole from the government during his years as a U.S. puppet dictator. Getting Judge Ware to apply this precedent had initially struck me as a long shot, because in the Marcos case, the plaintiff was a nation impoverished by a fallen tyrant, seeking restitution of hundreds of millions in stolen tax dollars. Gary, on the other hand, had filed a registration form to establish his rights to six letters and a dot, waited three years to sue, allowing Cohen to build up a hoard of Sex.Com cash, and could be characterized as an opportunist seeking a windfall. Worst of all, since Sex.Com had been under Cohen’s control for five years at this point, without proof that he was doing something to hide his money from seizure after judgment, there was no reason to seize his assets. For example, no judge would freeze Ford’s assets on behalf of a plaintiff who sued them for incinerating his family in a defective vehicle, because all judges believe Ford will be around to pay the judgment, even if only from a bankrupt estate. Putting seizure of assets ahead of a finding of liability is, after all, a bit draconian -- a lot like making an accused wait in jail until their case comes up for tria -- and as you know, the rich rarely have to do that. Cohen, of course, would insist that he should enjoy the same legal presumption of reliability and honesty as Ford Motor Company. I could hear Dorband saying it now -- “Of course Mr. Cohen will pay any judgment rendered against him! He has millions!”
That argument wouldn’t hold much water in the face of evidence that Cohen was spiriting money offshore at the rate of $400,000 a month. We could get that asset freeze order, because the Omnitec account was nothing but a pipeline for pumping cash offshore, and in fact, the vast majority of the Sex.Com money was already gone, and would never be recovered. By tracing Cohen’s rise from a broke ex-convict to a supernova in the pornography firmament, we made a common-sense argument that effectively traced all the funds to Sex.Com, and placed the injunctive relief lever firmly in Judge Ware’s hand.
On Monday afternoon, we had to call the courthouse to ask for permission to submit the Kinko’s security video as evidence. When Sue called and asked the clerk, she was asked to wait, then the clerk returned to ask what type of video it was. Sue explained that it was a security video of Mr. Cohen stealing subpoenaed bank records from Kinko’s. The clerk seemed surprised, and after a further delay, presumably to talk with the judge, returned to the phone call with considerably more animation to say that, yes, we could definitely file that video. Sue’s declaration attached the video, which included a clip of Cohen’s deposition for the sake of comparison, along with the police report recording Det. King’s “90%” estimate of the thief’s identity.
The vibes were getting positive around Wagstaffe’s office. Pam and Michael were allowed to depart with the sun still in the sky, leaving Wagstaffe to polish their draft. The Bay Bridge was cloaked in the encroaching dusk as we pushed up against the seven o’clock Fedex deadline. We were making seven copies of every document, and Wagstaffe’s copy machine was in constant operation as each written work reached final, was proofed, signed, and copied. One by one they stacked up in the back hallway of Wagstaffe’s office, waiting for the Fedex guy to arrive. The copy machine racketed on, producing seven reply briefs, seven proposed orders, seven copies of Sue’s declaration, and at last, seven copies of my declaration, revealing the marvelous, amazing, $400,000-per-month pipeline. The explosive videotape was taped into a manila envelope that we stapled to the last page of Sue’s declaration, and placed on top of the whole stack. If it had been a shooting war, we would’ve sealed it with a kiss and a short inscription, scrawled in lipstick, “To Cohen, with Love.”