By Danny Wicentowski
By Lindsay Toler
By RFT Staff
By Lindsay Toler
By Allison Babka
By Lindsay Toler
By Lindsay Toler
By Ray Downs
Elbring's attorney objected that Smith was badgering his witness.
"It's not badgering because he doesn't want to answer tough questions," Smith retorted.
But if the legal back-and-forth was petty, the heart of the matter was not. Where was the source code both partners had invested so much in? Kalishman couldn't find it. Elbring surely didn't have it but suggested it might be in a third place: in the hands of subcontractors in Russia who'd been tasked with refining it.
And it was Elbring's answers to questions about Russia that would soon have federal investigators paying very close attention.
The friends realized that American software companies could save tons of money by outsourcing code-writing to Russian programmers. Why not position themselves as middlemen?
In 1999, they set up a tiny outfit for just that purpose. They called it "Crebss" — an amalgam of their initials.
When they began talks in 2005, Elbring presented Crebss to Kalishman as a great way to reduce costs for their new enterprise. By using it, Elbring wrote, SecureAxis will save "10x on development!!!"
It would work like this: SecureAxis would wire money to Crebss, and Crebss would wire money to Russian subcontractors in exchange for the hunks of code. Elbring says he planned all along to take a cut in these transactions.
And so he did, over four years. According to court documents, he made $65,000 in profit.
That money became the heart of the partners' legal dispute: Kalishman insists he knew nothing about Elbring's cut.
In court pleadings, Kalishman claims that his partner made verbal promises that he would not benefit, that all payments to Crebss would "flow through" directly to the Russians. Elbring testified he could recall no such conversation.
It would've been a case of one man's word versus the other — except that the two had a written contract. And nowhere did the contract prohibit Elbring from taking a cut. Nor did it allow for verbal alterations.
What's more, Kalishman crafted the contract himself.
"I am finishing negotiating and writing the agreement," Kalishman wrote in March 2005 to an attorney, asking him to "make sure there are no glaring mistakes or missing verbiage."
Michael Quinlan, Elbring's lawyer, sums it up this way: "If the provision that Elbring not profit was so important, it would've been memorialized in the contract."
Kalishman certainly behaved as if he were blind-sided by Elbring's markup. With the company in a tailspin in late 2008, Kalishman arrived at a board meeting armed with a Crebss file. He refused to say how he'd obtained it. (Elbring thinks he stole it.)
"He pulls it out, acting like he's got this incredible news," Elbring remembers. "He was like, 'You took $1,000 to make money!' And I was like, 'Yeah. And to cover expenses. It's a business. That's what businesses do.'"
Elbring's profit from Crebss became a central claim in Kalishman's lawsuit. That's why Smith lingered on the subject when questioning Elbring in deposition.
Smith pointed out, for example, that SecureAxis had recently paid $6,000 for the Russians to stitch together some software. But the finished product hadn't come back yet. When Smith asked why not, Elbring admitted that he'd been "lax" on forwarding them the money. (The Russians returned the software shortly thereafter.)
Then Smith asked whether Elbring filed proper tax returns for Crebss. No, the defendant replied, and hadn't for several years running.
In a recording of their exchange, Smith betrays no emotion after this response. But the admission was damning — and useful.
In late 2009, after ten months of civil litigation, the Kalishman camp decided to take the matter to federal prosecutors. They had a powerful emissary: A partner in the firm, Barry Short, was the former U.S. Attorney. Short joined Kalishman's lawyer, Smith, in a bid to convince First Assistant U.S. Attorney Mike Reap to take the case.
Reap tells the RFT there was "nothing unique or odd or out of the ordinary" about civil attorneys presenting a prosecutor with evidence of a possible crime. Elbring's testimony under oath swayed him, he adds.
"That tax stuff was a real big clue that this was a fraud," says Reap, a 38-year veteran of the justice department. "I'm not saying there wasn't an explanation. But quite often, when someone is alleged to have committed criminal fraud — surprise, surprise! — they don't file tax returns. I've seen that so many times I can't even tell you." Reap referred the case to a grand jury, which found probable cause.
On February 11, 2010, Kalishman got what he wanted. Christopher Elbring was indicted on three felony counts of wire fraud. The invoices that Crebss sent to SecureAxis, the government alleged, were "either falsely and fraudulently inflated or entirely fictitious."
Once Elbring surrendered all company property for the civil lawsuit, Kalishman at last discovered the "fucking Jew" e-mails. One in particular offered a golden opportunity for Kalishman to stick it to Elbring in an unusual way.
Elbring had typed up a missive on November 9, 2008, when operations drastically shrunk. "Keeps getting worse," Elbring lamented to Boris Sharov. "We are down to two employees, me and a half-time support person. Fired the investor/yevrei and booted him out of the office."