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United States v. Pomrenke

United States District Court, W.D. Virginia, Abingdon Division

August 1, 2016


          Zachary T. Lee, Assistant United States Attorney and Kevin L. Jayne, Special Assistant United States Attorney, Abingdon, Virginia, for United States

          R. Wayne Austin and David L. Scyphers, Scyphers & Austin, P.C., Abingdon, Virginia, and Joel B. Miller, Joel B. Miller, PLC, Roanoke, Virginia, for Defendant.


          James P. Jones, United States District Judge

         A jury has convicted the defendant, a top official of a public utility, of corruption and tax fraud charges. She has moved for acquittal notwithstanding the jury’s verdict and alternatively for a new trial before a different jury. For the reasons hereafter explained, I will deny her motions.

         In summary, I hold that the government presented sufficient evidence at trial to support the charges of which she was convicted by the jury. The Supreme Court’s recent decision in McDonnell v. United States does not affect the validity of these convictions. As to the request for a new trial, I find that the defendant’s motions seeking a new trial were filed late and without adequate excuse for being filed out of time. In any event, even considering the grounds asserted for a new trial, they are without merit. I believe that the defendant received a fair trial by a jury of her peers and I will not set aside its verdict.



         Defendant Stacey Pomrenke was the Chief Financial Officer (“CFO”) and Executive Vice President of Bristol Virginia Utilities Authority (“BVU”), formerly known as Bristol Virginia Utilities Board. BVU is a political subdivision of the Commonwealth of Virginia. Va. Code Ann. § 15.2-7201. BVU provides water, sewer, and electric power services, as well as internet, cable television, and telephone services, to residential and commercial customers in the City of Bristol, Virginia, and in other localities. BVU employs approximately 260 to 280 full-time and part-time employees and generates more than $100, 000, 000 in annual gross revenues. Beginning in November of 2013, the FBI and the IRS began an investigation of allegations of misconduct at BVU. As a result of this investigation, nine persons to date connected with BVU have been convicted of public corruption or related charges, including the President and Chief Executive Officer, two vice-presidents, the General Counsel, and two former chairs of the Board of Directors. All except Pomrenke pleaded guilty.

         Pomrenke was indicted on October 26, 2015. After an eight-day trial that began on February 16, 2016, the jury returned its verdict convicting her of all but one of the charges.[1] Those charges were as follows:

         Count One: Conspiracy to (a) commit tax fraud, (b) make a materially false statement in a matter within the jurisdiction of the executive branch of the federal government, and (c) solicit or accept items of value intending to be influenced or rewarded in connection with a transaction involving $5, 000 or more while being an officer of a local governmental agency that receives at least $10, 000 in federal funds in a one year period, all in violation of 18 U.S.C. §§ 371, 666(a)(1)(B), and 1001(a)(1)-(2).

         Count Two: Making materially false statements to the Social Security Administration by directing the filing of W-2 forms for the 2010 tax year that she knew did not accurately reflect all compensation and benefits provided to BVU employees, in violation of 18 U.S.C. §§ 2 and 1001(a)(1)-(2).

         Count Three: Making materially false statements to the Social Security Administration by directing the filing of W-2 forms for the 2011 tax year that she knew did not accurately reflect all compensation and benefits provided to BVU employees, in violation of 18 U.S.C. §§ 2 and 1001(a)(1)-(2).

         Count Four: Making materially false statements to the Social Security Administration by directing the filing of W-2 forms for the 2012 tax year that she knew did not accurately reflect all compensation and benefits provided to BVU employees, in violation of 18 U.S.C. §§ 2 and 1001(a)(1)-(2).

         Count Five: Conspiracy to affect commerce by extortion by obtaining the property of victims through the wrongful use of fear of economic loss and under color of official right, in violation of 18 U.S.C. § 1951.

         Count Seven: Between November 2012 and January 2013, affecting commerce by extortion by obtaining property from ETI by the wrongful use of fear of economic loss and under color of official right, in violation of 18 U.S.C. §§ 2 and 1951.

         Count Eight: Between November 2012 and January 2013, committing program bribery, in violation of 18 U.S.C. §§ 2 and 666(a)(1)(B).

         Count Nine: Conspiracy to commit honest services wire fraud by accepting bribes and kickbacks, in violation of 18 U.S.C. §§ 1343, 1346, and 1349.

         Count Ten: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting a $250 spa services gift card on December 13, 2010, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Count Eleven: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting NASCAR tickets on August 22, 2011, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Count Twelve: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting University of Kentucky basketball tickets on November 16, 2011, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Count Thirteen: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting Carolina Panthers tickets on November 23, 2012, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Count Fourteen: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting a $200 spa services gift card on December 10, 2012, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Count Fifteen: Devising and participating in a scheme to deprive BVU customers and others of the right of honest services by accepting Cincinnati Reds tickets on April 4, 2012, in exchange for Pomrenke’s influence over BVU’s awarding of a contract, and using wire communications in interstate commerce to execute the scheme, in violation of 18 U.S.C. §§ 2, 1343, and 1346.

         Following the verdict of the jury on February 26, 2016, the defendant filed a motion on March 2, 2016, entitled, “Motion for Extension of Time to Renew Rule 29 Motion for Judgment of Acquittal.” (ECF No. 149.) In that motion, the defendant noted that the Federal Rules of Criminal Procedure required a motion for judgment of acquittal to be filed within 14 days after verdict. See Fed. R. Crim. P. 29(c)(1). Counsel represented that they were in the process of drafting such a motion and needed additional time to have the trial transcript prepared. The motion requested an extension of time to April 29, 2016. The motion was granted by the court the same day, expressly extending the time to file a renewed motion for judgment of acquittal to April 29. (Min. Order, Mar. 3, 2016, ECF No. 150.)

         On April 15, 2016, the defendant filed a motion entitled, “Second Motion for Extension of Time to Renew Rule 29 Motion for Judgment of Acquittal.” (ECF No. 168.) That motion requested the court to extend the deadline for filing a Rule 29 motion for judgment of acquittal to May 20, 2016. The motion was granted in part by the court, extending the time to file a renewed motion for judgment of acquittal to May 10, 2016. (Order, Apr. 19, 2016, ECF No. 180.)

         On the deadline, May 10, an attorney for the defendant file a motion entitled “Motion for Judgment of Acquittal Pursuant to Rule 29 of the Federal Rules of Criminal Procedure.” (ECF No. 188.) That motion stated that it was directed at Counts Five and Seven through Fifteen, and that a different defense attorney would address Counts One through Four by separate motion.[2] The motion was supported by a brief in which it was argued that the defendant was entitled to acquittal on the charges relating to program fraud, honest services fraud, and extortion, because the government had failed to prove the necessary criminal intent.

         On the same day, counsel filed a Motion for a New Trial, asserting errors by the court in jury selection, instructions, and exclusion of certain evidence proffered by the defendant. (ECF No. 190.) The defendant requested the court to grant a new trial on these grounds.

         On May 11, separate defense counsel filed a motion entitled, “Motion for Judgment of Acquittal Pursuant to Rule 29 of the Federal Rules of Criminal Procedure-Tax Counts.” (ECF No. 192.) The motion and its accompanying brief sought acquittal as to Counts One through Four on the grounds that the government had failed to prove criminal intent. In addition, the motion asserted that the court had erred in admitting two of the government’s exhibits relating to the tax charges.

         Also on May 11, separate counsel filed a motion entitled, “Motion for New Trial Pursuant to Rule 33 of the Federal Rules of Criminal Procedure-Tax Counts.” (ECF No. 193.) In that motion, the defendant sought a new trial on the grounds that the court had erred in admitting the same government exhibits as referenced in the May 11 motion for acquittal, as well in excluding certain testimony by the defendant’s tax expert, John Merrell.

         The court directed the government to respond to these motions, and in its order, pointed out that the motions seeking a new trial appeared to be untimely since Federal Rule of Criminal Procedure 33(b)(2) requires such a motion to be filed within 14 days of the verdict. (Order, May 11, 2016, ECF No. 194.) The defendant then filed a motion seeking extensions of time to file the two motions for a new trial. (Mot., May 12, 2016, ECF No. 195.) A separate motion for extension of time was filed as to the motion seeking judgment of acquittal as to the tax counts filed on May 11, the day after the deadline, on the ground that computer problems prevented the electronic filing of the motion until shortly after midnight on May 10. (Mot., May 12, 2016, ECF No. 196.)

         The government has responded to the motions and the defendant has filed a reply. In addition, at the request of the court, the parties have filed memoranda as to the affect, if any, of the Supreme Court’s decision on June 27, 2016, in the case of McDonnell v. United States. The motions are thus ripe for decision. I will dispense with oral argument because the facts and legal contentions are adequately presented in the materials before the court and argument would not significantly aid the decisional process.


         Trial Evidence.

         The following summarizes the evidence presented at trial.

         Michael Bundy, a former Chief Operating Officer (“COO”) and former interim President and Chief Executive Officer (“CEO”) of BVU, began working for BVU in 2012. As COO, Bundy was one of the top three executives, along with Pomrenke and CEO Wes Rosenbalm. Both Pomrenke and Bundy reported directly to Rosenbalm, and Rosenbalm reported to the BVU Board of Directors. Bundy oversaw BVU’s operational departments, and Pomrenke oversaw the finance, accounting, and marketing departments.

         BVU was awarded a federal grant of $22, 698, 010 (“NTIA Grant”) to expand fiber optic connectivity throughout Southwest Virginia. BVU received the funds and then used them to pay for internal expenses related to the project or to pay contractors for work done on the project. The government funds paid for the cost of expanding BVU’s fiber optic network for the delivery of internet, phone, and cable television services. These services are marketed by BVU under the trade name “OptiNet.” Bundy had prepared and explained to the jury a spreadsheet showing the amounts of NTIA Grant money used by BVU from August 2010 through October 2013, which accounted for the full amount of the grant.

         Bundy testified that BVU employees had been given cash longevity bonuses as well as $25 pre-paid debit cards as birthday gifts. Some employees in sales roles also received sales commissions in the form of pre-paid debit cards, and some employees received bonuses upon for recovering BVU equipment from former customers.[3] Bundy received $25 pre-paid debit cards for his birthday, and he was not taxed on those amounts.

         Around October 2013, Bundy talked to Pomrenke about giving employees payments in the form of cash or pre-paid debit cards. In December 2011, before he began working for BVU, Bundy was invited to the BVU Christmas party and witnessed employees being given cash bonuses. He said to Pomrenke, “Stacey, we can’t be doing this, paying people in cash without running it through payroll.” (Trial Tr. 15, Feb. 17, 2016, ECF No. 157.) Pomrenke responded, “This is what we do at BVU, and this is how Wes wants it done.” (Id.)

         Bundy was provided a company vehicle during his employment at BVU, beginning in February or March of 2012. He was permitted to drive the vehicle for personal use, but if he took the vehicle outside of the BVU service area, he was required to pay for fuel. When Bundy began working at BVU, Pomrenke also drove a BVU company vehicle. Bundy only had a company vehicle for about six months. His brother, who is the COO of a West Virginia political subdivision, explained to Bundy the rules regarding use of government vehicles, and Bundy then returned his vehicle to BVU. Rosenbalm, Pomrenke, and Bundy reviewed vehicle usage throughout BVU and assessed who should have company vehicles and who should not.

         Bundy testified that BVU paid for Country Club of Bristol (“Country Club”) memberships for certain employees. He believed that Rosenbalm, Pomrenke, and Walter Bressler, BVU’s general counsel, had BVU-paid Country Club memberships.

         On November 6, 2012, Pomrenke sent an email to Bundy and BVU employees Mark Lane, Adam Martin, Stacy Evans, and Brad Griswold. The subject of the email was “Underwriting - Holiday employee events, ” and the email read:

         Here is what I would like to have:

Thanksgiving lunch underwritten by ETI Software - $2, 850 Christmas Dinner underwritten by ETI Construction - $15, 000 Children’s Christmas Party to be underwritten by Alcatel - $5, 500
Mark Lane, can you reach out to ETI and Alcatel? Mike / Dave Copeland to contact ETI Construction.

(Gov’t. Ex. 77, ECF No. 106-5.) Lane was the Chief Technology Officer, Martin was the manager of the network operations center, Evans was the manager of the engineering department, and Griswold was the manager of the environmental, safety, and grounds departments and BVU’s garage. ETI Software, ETI Construction, and Alcatel Lucent (“Alcatel”) were all vendors to BVU. Prior to the requests discussed in the email, these vendors had not agreed to pay for employee parties as part of their business relationships with BVU. Despite Pomrenke’s request, Bundy did not contact ETI Construction about underwriting the Christmas dinner because Vice President David Copeland had a stronger relationship with ETI Construction. Bundy attended the 2012 Christmas dinner, which was attended by BVU employees and their spouses and guests. The dinner included food, entertainment, and awards. He did not attend the children’s Christmas party that year, but it was customary for employees who had children under the age of twelve to attend the party with their children.

         Pomrenke entered into an employment agreement with BVU on August 19, 2010. In the employment agreement, Pomrenke agreed not to compete with BVU. The employment agreement had a rolling ten-year term as long as Pomrenke continued to receive positive annual evaluations. If in any year Pomrenke did not receive a positive evaluation from the President of BVU, the term would cease to renew and would instead convert to a ten-year fixed term. The ten-year rolling term would automatically be reinstated the following year, unless the President notified Pomrenke in writing each June that the contract term would not renew. Regarding her company vehicle, the employment agreement provided that BVU would pay all operating and maintenance expenses except for fuel used to operate the vehicle outside of the BVU service territory. After 150, 000 miles or seven years, or earlier with BVU’s approval, Pomrenke could trade in the vehicle for another one or instead elect to receive a monthly car allowance of $589.10, adjusted annually. Bundy testified that in his training and experience, ten years was a long term for an employment contract.

         Pomrenke’s employment agreement provided that if Pomrenke were terminated without cause, she would be entitled to severance benefits totaling her full compensation, including benefits and vehicle allowance, through the end of the contract term. However, if she were terminated for a major cause, she would not receive any compensation beyond the last day preceding her termination. The employment agreement defined a “major cause” as:

(i) Gross neglect of her duties that she does not correct within 120 days after written warning;
(ii) Willful refusal to obey a lawful written directive of BVU;
(iii) Fraud or embezzlement;
(iv) Confession to or conviction of a felony.

(Gov’t Ex. 2 § 9, ECF No. 106-6.)

         Bundy testified that BVU eventually issued amended W-2 forms for its employees to account for their unreported income, but not until after law enforcement began its investigation of BVU. The amended W-2 forms were issued in April 2014, on the advice of a tax attorney. Bundy ultimately made the decision not to purchase and give any more pre-paid debit cards to employees. On October 17, 2014, when Bundy was Interim President and CEO, he sent an email to Pomrenke with the subject “Employee Incentive.” The email stated, “When you pay out the employee incentive payment, the last week of October, make sure that it is taxed as normal payroll. I understand this is a slight change from previous years, but in my opinion, it is the cleanest methodology.” (Gov’t Ex. 145, ECF No. 106-7.) Bundy sent this email after the law enforcement investigation of BVU had begun. He believed that taxing incentive payments was in compliance with state and federal law.

         BVU employee Brad Griswold testified that he had also received payments outside of the official payroll system. He received set top box recovery bonuses in the form of cash as well as two pre-paid debit cards in the amount of $25 as birthday gifts. For every $26, 000 worth of set top boxes recovered, Griswold and his team received a $500 bonus, which was divided proportionally among the team based on the total value of the equipment each employee recovered. Pomrenke determined the bonus amount and how it would be paid. Griswold reported to Pomrenke, who oversaw all of the finances of BVU. When an employee reached the $26, 000 equipment recovery milestone, Griswold would go to Pomrenke’s office and pick up $500 cash in an envelope. Around 2007 to 2008, Griswold did this about four or five times. At least five other employees assisted Griswold with equipment recovery, and they also received cash bonuses. Equipment recovery was performed on Saturdays, outside of normal working hours, and was in excess of the employees’ normal working duties. However, the employees performing equipment recovery were paid for their time in addition to any bonuses they received.

         Griswold stopped participating in the equipment recovery bonus program in 2008 or 2009, when he began working on another project that made him unavailable to make equipment recovery visits. After that point, Griswold would tell Pomrenke by phone or email that the team had reached the $26, 000 milestone, and Pomrenke would usually obtain the bonus money and give it to another employee for distribution.

         The government introduced petty cash receipts for some of the equipment recovery bonuses. The receipts were signed by Pomrenke. Griswold testified that he did not always see or sign the receipts. When Griswold received a cash bonus, he did not believe the amount was reported on his W-2 form for federal income tax purposes. Griswold did not personally report the cash bonuses on his income tax returns.

         The government introduced an email from Pomrenke to Griswold, dated Sunday, December 14, 2008, in which Pomrenke described damage to her company vehicle. In the email, Pomrenke wrote that the damage had occurred the previous morning at about 10:20 a.m. while she was taking her daughter to a performance at the Barter Theatre in Abingdon, Virginia. Griswold worked as Pomrenke’s subordinate for approximately eight years, and his office was located near hers. He is generally aware of the business purposes for which BVU vehicles are used, and those purposes typically would not include Pomrenke taking her daughter to the theatre. BVU was a sponsor of the Barter Theatre, and BVU employees did attend productions there with tickets obtained in exchange for the BVU sponsorship. If Pomrenke had been attending the play as a representative of BVU, that may have fallen within her job description.

         Griswold also drove a BVU vehicle for a period of time. The value of that company vehicle use was not reported on his W-2 form.

         Griswold and other employees received an annual Christmas bonus that was calculated based on the employee’s salary. The Christmas bonuses were reported on IRS 1099 forms, and the amounts were direct deposited into the employees’ checking accounts.

         Donna Biggs, Administrative Services Manager and Secretary of the Board of Directors, had worked at BVU since 2002. She oversaw human resources and performed general administrative duties. She performed administrative tasks for Pomrenke, including some personal tasks, and handled petty cash withdrawals. On September 6, 2011, Pomrenke emailed Biggs and Amanda Mast to request $500 in cash to pay an equipment recovery bonus. On September 18, 2012, Pomrenke emailed Leslie Heckford and copied Biggs to request $500 in cash for another bonus. Heckford replied that she did not have that much cash in her possession. Pomrenke responded, “I will get him a gift card this time… Thank you!” (Gov’t Ex. 37, ECF No. 110-3.) The gift cards BVU generally used for such purposes were pre-paid debit cards that could be used like a credit or debit card. Biggs handed out similar gift cards in $25 increments for employees’ birthdays.

         On November 20, 2009, Pomrenke sent an email to Rosenbalm that stated:

Wes, each year I have given $50 - $100 to my accounting staff after the completed audit.
I would like to do that again this year - I did budget for this. It will be a total of 9 gift cards.

(Gov’t Ex. 38, ECF No. 110-4.) Rosenbalm responded, “Up to you but it will send the wrong signal if it gets out because of the Christmas bonus.” (Id.)

         The government introduced a series of petty cash receipts documenting additional cash bonus amounts, including $500 retirement gifts for five employees and two equipment recovery bonuses of $500 each. Pomrenke signed most of these receipts, indicating that she had approved the requests. Biggs testified that a payroll change form would have been submitted to the accounting department indicating that each employee was receiving a $500 bonus. Similar cash bonuses had been paid by Pomrenke’s predecessors before Pomrenke worked for BVU.

         In her resume that was contained in her BVU personnel file, Pomrenke described herself as an “[a]ccomplished finance and accounting executive with fifteen years experience in the energy and utility industry.” (Gov’t Ex. 143, ECF No. 110-1.) Regarding her work at BVU, Pomrenke wrote that she:

Serves as company’s second in command, reporting to chief executive officer. Guides overall company policies and goals in addition to oversight of all accounting, finance, budgeting, regulatory and warehouse functions for the utilities four operating divisions, consisting of electric, water, waste water and fiber optic service operations. Also directs all day-to-day accounting, finance, functions and regulatory relations, including reporting, monitoring and communicating with the VSCC and the Federal Communications Commission.

(Id.) She also:

Managed all accounting, finance, budgeting, regulatory and warehouse functions for the utilities four operating divisions consisting of electric water, waste water and fiber optic service operations with a staff of nine persons. Directed all day-to-day accounting and finance functions, to include daily cash receipts, customer billings, inventories, plant additions/disposals, cash management, payroll, revenue and tax reporting.


         By email sent on January 26, 2011, Pomrenke asked Biggs to add Pomrenke’s husband to Pomrenke’s BVU-paid membership at the Country Club. Pomrenke’s husband was not an employee of BVU, and while he had previously served as a BVU board member, he had no affiliation with BVU at the time. At the top of Pomrenke’s Country Club membership agreement, the word “fitness” was written. Biggs was not aware of Pomrenke ever using the membership for business purposes. The addition of Pomrenke’s husband would not necessarily have increased the cost of the membership.

         Gail Childress, Director of Community Outreach for BVU, worked under Pomrenke for a number of years, though she did not report directly to Pomrenke. Childress was involved in planning parties for BVU beginning around 2002. At one point, Lane, the Chief Technology Officer, directed Childress to send an invoice to a BVU vendor for a party. Childress recalled that the amount of the invoice was $1, 000.

         On October 14, 2010, Childress sent an email to Rosenbalm, copying Pomrenke and Kyle Hollifield, asking how much she could spend on Bingo prizes for the BVU adult Christmas party. Hollifield, BVU’s Director of Marketing, replied, “Can Sandra squeeze the networks some more for some help here? How about Alcatel, etc.?” (Gov’t Ex. 13, ECF No. 110-14.) Sandra referred to Sandra Munsey, who was part of BVU’s marketing team. Childress thought Hollifield’s statements about the networks referred to the TV cable networks, which gave BVU points that could be redeemed for goods, similar to credit card points. Childress testified that Hollifield had “wanted us to touch base with anyone that might furnish us with gifts, or any way we could get gifts to give the employees for this event without actually having to pay dollars for them.” (Trial Tr. 59-60, Feb. 18, 2016, ECF No. 158.)

         Like other BVU employees, Childress had received cash and pre-paid debit cards. She had received service awards in cash every five years, including a $500 award for her 30-year anniversary with BVU in 2012. That money was presented to her in an envelope at the BVU Christmas party and was not reported on her W-2. Typically, longevity awards were presented either at the Thanksgiving lunch or at the Christmas party, in front of all employees. After the investigation of BVU began, Childress received amended W-2 forms for 2012 and 2013 that included the $500 cash award and $25 each year in pre-paid debit cards for her birthday.

         If Childress wanted to obtain pre-paid debit cards, she would go to Pomrenke to get it. Childress sometimes obtained the cards from Pomrenke to use as prizes for chili cook-offs or door prizes at BVU events. In most instances, when BVU gave employees pre-paid debit cards as birthday gifts, door prizes, or prizes for cook-offs or games at company events, there was no connection between an employee’s work performance and receipt of a gift card.

         BVU had given between $7, 500 and $30, 000 per year to the Barter Theatre as a sponsorship. This was part of BVU’s marketing efforts in the Abingdon area, where the theatre is located. In exchange for the sponsorship, BVU received advertising, community good will, and free tickets to theatre performances. Pomrenke sometimes used the tickets to take her family members to the theatre and sometimes requested extra free tickets in addition to those that were given to BVU for the sponsorship. Lower-level BVU employees did not have access to the tickets.

         On August 18, 2009, Lane sent an email to Rosenbalm, Childress, Jamey Rector, Munsey, and Pomrenke. Rector was a marketing specialist. The subject line read, “RE: ICF & 10, 000 Cusotmer [sic] Funds, ” and the body of the email stated:

         FYI, an updated list of contributors:

$1, 500 from Infinera Networks coming as a check Dan Delisle is the contact, and his info is attached
$1, 000 from Calix coming as a check Ken Grelck is the contact, and his info is attached
$500 from Martin Group as a check Reid Jenkins is the contact, and his e-mail address is
$1, 000 credit applied to our bill from Level3 John Reid is the contact, and his info is attached

(Gov’t Ex. 85, ECF No. 110-15.) The companies referenced in the email are BVU vendors, and the listed amounts represent payments made by the vendors to BVU in support of an event celebrating BVU reaching 10, 000 OptiNet customers. BVU employees, board members, and council members were invited. The event was held on BVU grounds, and food was provided. The vendors who contributed money to the event were listed on a banner that was displayed during the event. The vendors contributed funds because they were asked to make a contribution.

         On June 4, 2010, Jim Clifton, a board member, emailed Pomrenke to request Barter Theatre tickets for himself, his girlfriend, Pomrenke, and her present husband. Pomrenke forwarded the request to Childress, who asked how many tickets Pomrenke needed and stated that she had already given all of BVU’s Barter Theatre tickets for the year to Pomrenke and Rosenbalm. Pomrenke replied, “I think if we could get Jim one of the [two-person] passes he would be OK???” (Gov’t Ex. 146, ECF No. 110-16.) Childress testified that the additional tickets were provided at no extra cost to BVU.

         Pomrenke was hired by BVU approximately two years after the OptiNet business was created. OptiNet grew significantly during Pomrenke’s tenure. At the time of the trial, BVU was in the process of attempting to sell OptiNet for a price of $50, 000, 000.

         Lisa Dobrovok, a BVU accounting clerk, began handling payroll in early 2009. Dobrovok was responsible for preparing and filing W-2s, with oversight by Matthew Boothe, BVU’s Controller.

         When she was authorized to do so, Dobrovok entered bonus and commission amounts into the payroll system. When those amounts were entered into the payroll system, they were calculated into the employees’ gross income on the employees’ W-2 forms. Bonuses have not always been input into the payroll system. At the end of each year, each employee received a bonus equal to two percent of the employee’s salary. Those year-end bonuses were always processed through the payroll system. For a period of time, federal and state income taxes were not withheld from the year-end bonus amounts, but BVU did withhold Federal Insurance Contributions Act (“FICA”) taxes for Medicare and Social Security. Cash bonuses were not run through the payroll system until 2014, but amended W-2 forms were issued to reflect cash bonuses paid in 2012 and 2013.

         On March 14, 2007, Linda Davis emailed all BVU employees at Dobrovok’s direction to explain BVU’s protocol for submitting meal reimbursement requests.

         The email stated:

Due to Federal regulations, all meal receipts turned in for reimbursement by employees or purchased with BVU Company credit card must include the following information:
1. The purpose and description (a business lunch must include the topic of discussion or an agenda, travel must include name of seminar or class)
2. If it is a meeting, please list the names of all in attendance.
Reimbursement for meals when traveling locally (such as attending a class or seminar), is considered a fringe benefit and is taxable for the employee if not staying overnight.

(Gov’t Ex. 147, ECF No. 110-17.) The email was prompted by a visit from a local IRS agent. The IRS agent discussed what would be required if BVU were ever audited, and BVU was not in compliance with some of the recommended practices. Prior to this email, there were no policies or practices in place at BVU to ensure that meals purchased locally by BVU employees with BVU funds were included on the employees’ W-2 forms. Pomrenke received this email. The email did not specifically address meals that were consumed on BVU premises for the convenience of BVU.

         Prior to 2008, Dobrovok filed 1099 forms for some BVU employees. Typically, if a person receives less than $600 per year from a company, the company does not have to file a 1099 form. A 1099 form is usually used to report payments to independent contractors. However, 1099 forms were used to report vehicle allowances for some BVU employees.

         Dobrovok testified that she had never submitted W-2s that she knew were false. However, she acknowledged that she filed W-2s that were incorrect in that they did not include all taxable income. Dobrovok herself received pre-paid debit cards for her birthday and as accounting audit bonuses, and those were not included on her W-2 forms. She knew when she filed the W-2s that those amounts had not been included in her taxable income, but she did not know that the gift cards were required to be included.

         Between 2010 and 2015, certain contributions to the Virginia Retirement System that should have been taxed were not taxed. For 2015, the amount of tax that should have been paid on those contributions was approximately $45, 000. BVU later paid the amount that was owed.

         Richard Linnen, a certified public accountant with the firm Brown, Edwards & Company, L.L.P. (“Brown Edwards”), was in charge of the BVU audit for several years. The last audit that Brown Edwards prepared for BVU was for the fiscal year ending June 30, 2013. In layman’s terms, when performing an audit, Brown Edwards would look at BVU’s financial statements and then look through BVU’s files to verify that the documentation supports the statements. Linnen and his team would not go through every transaction, but would concentrate on larger items when looking through BVU’s records. If Linnen and his team found no material misstatements, they would issue an unmodified opinion. An unmodified opinion is not intended to certify that nothing illegal occurred.

         On November 2, 2009, Rosenbalm and Pomrenke signed a letter in which they made a number of representations to Brown Edwards, including the following:

         We have no knowledge of any fraud or suspected fraud affecting the entity involving:

a. Management,
b. Employees who have significant roles in internal control, or
c. Others where the fraud could have a material effect on the financial statements.

(Gov’t Ex. 100 at 111, ECF No. 110-18.) In response to a question asking them to “describe any unusual employee compensation arrangements, including any incentive compensation arrangements, ” Pomrenke and Rosenbalm responded, “No Incentive Compensation Plans in Effect; hourly & salary, bi-weekly.” (Id. at 14.)

         Incentive compensation arrangements would include service bonuses or performance bonuses, among other things. Linnen did not recall anyone at BVU mentioning equipment recovery bonuses, audit bonuses, or any other kind of incentive compensation or performance bonuses. The audit documents from 2010, 2011, 2012, and 2013 contain the same assertion, and Pomrenke signed those management representation letters as well. The auditors’ concern with incentive bonuses is that a high level manager who was promised a bonus based on profitability might be inclined to pressure employees to adjust the books incorrectly in order to achieve a high level of profitability. Performance bonuses given to lower level employees in relatively small amounts are less of a concern.

         For purposes of auditing BVU, misstatements become material if they total $300, 000 to $400, 000 in a year. An individual misstatement of $500 would not be considered material. BVU received an unmodified opinion from Brown Edwards for the years 2009, 2010, 2011, and 2012. In 2013, the opinion was made subject to the outcome of the ongoing investigation.

         While Brown Edwards was performing audits of BVU, Pomrenke and Boothe were the primary points of contact. Both had responsibility for managing the general ledger and making adjustments. There were some adjusting entries during that time period, but not many. Linnen testified that BVU’s accounting was fairly complex. Brown Edwards did not look at BVU’s petty cash vouchers as part of the audits.

         Kim Branson began working at BVU as a customer service representative in October 2007 and became an accounting clerk in January 2009. As an accounting clerk, Branson was responsible for paying amounts owed to OptiNet vendors.

         When Rosenbalm was CEO, BVU had no meal reimbursement policy of which Branson was aware. She did not know of any BVU policy specifying what kinds of meetings were business expenses and what kinds of meetings were not. Branson testified that employees would buy themselves lunch using BVU credit cards. Pomrenke had a company credit card and charged meals to BVU. Branson received the statements for BVU credit cards. She would distribute the statements to the cardholders, who would sign the statements indicating their approval of the charges and return them to Branson with receipts for the charges. There were no requirements pertaining to the format of the receipts; some were itemized and some were not. The cardholder would indicate which department was associated with each charge, and Branson would then code each charge to the department indicated so that the funds expended would be allocated to the associated department. Initially, Branson was not expected to investigate particular charges to determine their propriety or legitimacy. Individual cardholders were trusted to ensure that charges were proper. At some point in time, Rosenbalm asked for copies of the statements, and Branson began providing copies of all credit card statements to Rosenbalm and Pomrenke. Pomrenke was in charge of accounting and controls at BVU. The defense introduced an email dated October 19, 2010, in which Pomrenke asked Rosenbalm about certain credit card charges made by other employees, indicating that at least by that date, there was a practice in place for reviewing credit card charges.

         In the time period between 2009 and 2012, approximately 26 to 28 BVU employees had BVU credit cards. The total amount paid by BVU for charges made on employee credit cards was sometimes as high as $50, 000 per month.

         The government introduced a number of statements from Pomrenke’s BVU credit card showing numerous charges between December 2008 and April 2012 of small amounts at local fast food establishments and other restaurants. Many of the restaurant charges were coded to the Electric Department, which was one of BVU’s four major departments. The words “working lunch” or “working dinner” were written on many of the receipts in Pomrenke’s handwriting. Pomrenke regularly submitted receipts that were not itemized.

         The statements also showed charges for Comcast cable services at Pomrenke’s home. Pomrenke told Branson that she needed to compare the offerings of Comcast, a BVU competitor, to the services that BVU offered. During the same time period, Pomrenke also subscribed to BVU OptiNet services at her residence, and BVU did not pay for those services. The services she received from OptiNet were essentially the same services she received from Comcast.

         Pomrenke’s credit card statement from February 2, 2009, included rental car and hotel charges incurred in Hawaii. The rental car receipt noted a charge for a child seat. Pomrenke has two children. Branson did not recall Pomrenke offering any explanation for why she charged a child seat in Hawaii to BVU. The credit card statements also included gas station charges, although BVU has gas tanks at its facilities that can be used for company vehicles. However, BVU policy would not have precluded Pomrenke from refueling her vehicle off-site while traveling for business. There were also several charges billed to the administrative office supplies account. At the time, employees were permitted to purchase office supplies on their own without going through the BVU purchasing agent.

         Additionally, there were charges for satellite radio service in Pomrenke’s company vehicle. Branson was not aware of any other BVU employee for whom BVU paid for satellite radio service.

         In July 2006, BVU purchased Pomrenke’s personal vehicle, discontinued her vehicle allowance, and allowed her to use the same vehicle as her company vehicle. The vehicle had been financed in the name of Pomrenke’s ex-husband, Mr. Bright. In response to a government subpoena, Pomrenke drafted a memorandum that stated:

On 07/07/2006 Purchase order 12012-000 was issued to Stacey (Bright) Pomrenke (vendor # 946) for the approved purchase of a 2004 Chevy Tahoe in the amount of $31, 000.00. Stacey (Bright) Pomrenke’s vehicle allowance was discontinued after the purchase of the vehicle. On 06/17/2008, there was a debit and a credit entered to clear the outstanding purchase order, due to payment was never issued to Stacey (Bright) Pomrenke. Check #16001 dated 7/10/2006 was issued directly to Community Trust Bank for $31, 558.56.
Prepared by Kim Branson
Accounting Clerk

(Gov’t Ex. 149, ECF No. 113-27.) Branson testified that she did not prepare the memorandum. Rather, Pomrenke prepared it to accompany documents being produced to the government. Branson was present at Pomrenke’s desk when Pomrenke prepared the memorandum. Branson had no personal knowledge about the vehicle purchase; she did not work in the accounting department at the time of the referenced events. Pomrenke asked to sign Branson’s name to the document, which made Branson uncomfortable. Branson was able to verify the accuracy of the document by looking at the referenced purchase order and check.

         At Pomrenke’s instruction, in response to a government subpoena, Branson created lists showing the total amounts charged to BVU credit cards per employee cardholder from April 2 through December 31, 2012, and from January 1 through September 30, 2013. During the 2012 time period, BVU employees charged a total of $278, 873.09, and Pomrenke charged $4, 392.69. During the 2013 time period, BVU employees charged a total of $240, 704.20 to BVU credit cards, $2, 181.13 of which was charged by Pomrenke.

         JoAnne Nolte, an attorney who has represented BVU in regulatory matters, testified that she was initially retained by BVU in early 2000. Nolte has never responded to a request for proposals (“RFP”) or participated in any kind of competitive bidding process in order to do work for BVU. In 2010, Nolte billed BVU approximately $20, 000 for work she performed. In 2011, she billed BVU approximately $11, 000, and in 2012, she billed BVU approximately $15, 000.

         Nolte owned a beach house in Nags Head, North Carolina. She allowed Pomrenke, Rosenbalm, and Jim Kelly, a BVU board member, to stay at her beach house free of charge. Nolte testified that she had never charged anyone to use her beach house. She believes Rosenbalm once asked if his mother could use the beach house. Nolte testified that she did not think there was anything wrong with allowing high-ranking BVU officials to use her beach house while BVU, a governmental entity, was her client. She could name only one other governmental client and no representative of that client had ever requested to use her beach house.

         The government introduced an email exchange between Pomrenke and Nolte in August, 2011, in which Pomrenke asked whether Paul Hurley, a member of the BVU Board of Directors, could use Nolte’s beach house. Pomrenke also mentioned a business-related matter in the same email. Nolte responded that her beach house was unavailable during the requested week, but offered different dates during which Hurley could use the house. Pomrenke asked if Hurley could visit during one of the time periods offered. In a reply email discussing maid availability and cleaning cost for the house, Nolte wrote, “Wes had better be sending me a really nice gift for this as I know he is making you do this!” (Gov’t Ex. 150, ECF No. 113-28.) Nolte testified that this statement had been a joke. In another email sent a few minutes later, Nolte wrote, “Between you and me, I don’t want Wes offering my house to others, it is not appropriate.” (Id.) Pomrenke responded, “I agree and he put me in a bad place to ask - I WOULD NEVER ask for such a thing……:(Some people just do not care!” (Id.) Nolte replied, “It only proves that he simply views me as a servant; my problem is that it has been a long time since I was paid anything for this.” (Id.) Nolte did not have any relationship with Hurley and does not know what he looks like, but she did know that he was a BVU board member. Although Hurley’s request made her uncomfortable because she did not know Hurley and did not like the idea of a stranger using her beach house, she was still willing to let Hurley use the house because Pomrenke was making the request. Nolte testified that she had not received any work from BVU or heard from anyone at BVU in a long time, so the request seemed to be out of the blue. Nolte stated that she had known Pomrenke for many years, long before she began doing work for BVU, and had both a business and a personal relationship with Pomrenke. Nolte testified that she had never felt that her continued business relationship with BVU was conditioned upon allowing anyone to use her beach house.

         Benjamin Rush Powers, Jr., owner of the Burke Powers & Harty Insurance Agency (“BPH”), testified that his agency had insured BVU for decades. BVU ranked in the top five of BPH clients in terms of premium payments and in the middle of BPH’s clients in terms of profitability. BPH provided worker’s compensation, automobile liability, property, general liability, and umbrella insurance coverage for BVU. Powers inherited the BVU account in 2007 and was in contact with either Pomrenke or Griswold on a monthly basis. Cincinnati Insurance Company was the underwriter for BVU’s insurance policies. Powers sent premium invoices to Pomrenke and spoke with Pomrenke about acquiring additional coverage.

         On two occasions, Pomrenke asked Powers to provide her with tickets to Cincinnati Reds baseball games for Pomrenke and her family. BPH had to pay for the tickets. Pomrenke never offered to reimburse BPH for the cost of the tickets. Powers believed that the law allowed gifts from vendors to public officials as long as the gifts totaled less than $500 per year. This was because when BPH gave Rosenbalm a larger number of tickets whose value exceeded $500, Rosenbalm’s wife sent him a check for the amount in excess of $500, and Bundy sent a letter quoting a BVU policy that limited acceptance of gifts to no more than $500 per employee per year. The cost for four tickets to a Reds game was approximately $272. The government introduced an email from Pomrenke and Powers in which Pomrenke discussed the receipt of Reds tickets and also discussed the renewal of BVU’s insurance policies in the same message. Powers testified that he bought the tickets for Pomrenke because she was a personal friend and because he wanted to maintain good will and keep BVU’s business.

         To obtain business from BVU, BPH had to submit proposals in response to requests for proposals every three years. If Powers had a question about a proposal, he would contact Pomrenke. An independent third party acted as a consultant to BVU in requesting and reviewing the proposals.

         In January 2011, Cincinnati Insurance wanted to cancel Pomrenke’s personal automobile insurance policy because she had incurred a claim of approximately $11, 000. Powers sent the following email regarding Pomrenke to an employee of Cincinnati Insurance:

This is one you’re going to have to continue writing for us. Stacey is the CFO for the BVU Authority, which is with you . . . .
She’s also seen to it that we’re writing MI Connections in North Carolina. . . .
We have a very strong working relationship with CI’s adjusters, loss control, etc on this risk.
By the way Cincinnati has written her Personal Lines longer than we’ve had it. She was with an agency prior - see attached.
Stacey has remarried. Her husband is a close friend of mine and an attorney in town.
Please confirm you’ll continue with this for us.
Thank you, Rush Powers

(Gov’t Ex. 53, ECF No. 113-9.) MI Connections was an internet connectivity project in which BVU was involved. Pomrenke wanted consistency in coverage forms between BVU and MI Connections, so she put Powers in contact with MI Connections. She did not actually sign any contracts for BPH coverage of MI Connections. Following Powers’ email, Cincinnati Insurance changed Pomrenke’s rating and increased her rates, but did not cancel her insurance policy. In Powers’ view, it is part of his job to fight for a client in a situation where the underwriter is considering canceling the client’s coverage. Pomrenke did not ask Powers to send the email and did not know that her policy was in jeopardy.

         Since Rosenbalm left BVU, BPH has not provided any tickets to the new CEO of BVU, and BPH is no longer BVU’s insurance agency. Powers testified that he did not provide the Cincinnati Reds tickets out of any fear that he would otherwise lose BVU’s business. Powers also gives his clients and friends University of Tennessee football tickets from time to time, and he does not do that out of any fear of economic loss.

         The government also called as a witness Jeff Ervin, who is employed by a company called ViaMedia that sells advertising for cable television providers.

         ViaMedia would sell advertising time to businesses, paying a portion of the proceeds to BVU and retaining a portion for itself. Ervin began working with BVU around 2010. ViaMedia previously had a contract with MI Connection to sell advertising, and MI Connection introduced ViaMedia to BVU. Pomrenke was Ervin’s main point of contact within BVU. Ervin dealt with Pomrenke when he was initially trying to get BVU to do business with ViaMedia. Prior to 2011, BVU had worked with a different company, Prime Media.

         On July 6, 2009, Pomrenke sent an email to Ervin in which she stated, “in the negotiations you had mentioned that you had very good seats for Keeneland. I know they race again in October - would you have room for some people from Bristol and MIC?” (Gov’t Ex. 61, ECF No. 113-14.) Keeneland is a horse racing track in Kentucky. At the time this email was written, ViaMedia was not yet in negotiations with BVU. The email was referring to negotiations with MI Connections.

         Pomrenke helped ViaMedia to win the business of Bristol Tennessee Essential Services (“BTES”), the Bristol, Tennessee, municipal utility, because it would be mutually beneficial for both BTES and BVU to use the same advertising service. On March 3, 2010, Ervin sent an email to Pomrenke in which he wrote, “Just wanted to follow up again to see about when we could get together with Bristol, TN and on a proposal for BVU?” (Gov’t Ex. 62, ECF No. 113-15.)

         Pomrenke replied, “I will work on getting that together this week.” (Id.) Ervin testified that he did not know whether Pomrenke ever got in touch with BTES, and that she had not arranged or attended any meeting with Ervin and BTES.

         Pomrenke told Ervin that she had made a phone call to BTES.

         On December 20, 2010, Ervin sent Pomrenke an email stating the following:

I wanted to thank you for taking the time to do the call last week. I appreciate you helping to push BTES to make a decision. Hopefully, we can get something done sometime early next year. Have a very Merry Christmas and a Happy New Year!! Thanks again for everything.

(Gov’t Ex. 63, ECF No. 113-16.) Pomrenke responded, “Thank you Jeff. Let’s hope they can find a way out before November!!!! Merry Christmas …. so what was ViaMedia’s Christmas gifts this year to its customers……??” (Id.) Ervin replied, “It is a surprise, you should get it in the next day or so!” (Id.) The Christmas gift was either a bottle of Woodford Reserve or a box of chocolates.

         The contract between BVU and ViaMedia was not signed until December 31, 2011, more than a year later.

         On September 28, 2011, Pomrenke emailed three of her BVU colleagues, Hollifield, Lane, and Munsey, and stated:

I am ready to pull the trigger on the ViaMedia contract. With that we would need to spend approx. $52k to get our headend ready - we will be inserting on more channels.
Kyle, Mark and Sandra --- are you ready to proceed with ViaMedia - any hesitations?

(Gov’t Ex. 60, ECF No. 113-13.) Pomrenke then forwarded that email to Ervin with the note, “Hopefully soon©.” (Id.) Several weeks later, on October 21, 2011, Ervin wrote to Pomrenke regarding the “BTES-IPTV Launch” and stated, “Thanks. By the way it looks like they may sign a contract with us in the next week. Go figure!” (Gov’t Ex. 64, ECF No. 113-17.) Pomrenke replied, “Glad I pressured them, huh? My RFP is going out on Monday. Are they not issuing a RFP????” (Id.) On October 26, 2011, Pomrenke emailed Ervin to ask whether he had received the RFP. Ervin responded, “Got it.” (Gov’t Ex. 65, ECF No. 113-18.)

         Ervin sent Pomrenke Christmas gifts three or four years in a row. On November 16, 2011, in response to an email from Pomrenke, Ervin replied, “By the way we got 5 tickets to a UK game, I think December 20th. Should I have them sent to you?” (Gov’t Ex. 66, ECF No. 113-19.) Ervin testified that Pomrenke had asked him for tickets. Pomrenke replied, “Yes, but let’s wait until we award the RFP - I do not want it construed as a gift during our process. Make sense?” (Id.) Ervin responded, “It does.” When asked at trial, “What is the problem of giving gifts during the RFP process?”, Ervin stated, “Well, I guess you wouldn’t want to give somebody a gift during the RFP process. . . . To try not to influence it.” (Trial Tr. 160, Feb. 19, 2016, ECF No. 161.)

         On December 22, 2011, Pomrenke sent Ervin the signed contract between BVU and ViaMedia in an email stating, “Merry Christmas !!! For the record - can we do something other than bourbon next year:)” (Gov’t Ex. 67, ECF No. 113-20.) Ervin responded, “For sure, thanks a ton and Merry Christmas to you, are they overnighting the hard copies?” (Id.) Ervin provided Pomrenke with another Christmas gift that year, before the contract went into effect on December 31. Over the years, Ervin has also given Pomrenke and Rosenbalm tickets to other sporting ...

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