After listening to nearly a full day of closing arguments, jurors began deliberating late Tuesday afternoon as to the innocence or guilt of three people accused of being involved in a gas and oil drilling scam in which hundreds of investors lost more than $33 million.
Lexington lawyer Bryan S. Coffman and his wife, Megan Coffman, and Gary Milby of the Campbellsville area, have been on trial for three weeks in federal court in Lexington on numerous charges, including mail, wire and securities fraud and money laundering.
According to authorities, the alleged fraud raked in money from investors in several states and countries by promising big returns from wells in Green and Adair counties that were actually dry holes or wells that didn't produce as long as promised. The defendants are alleged to have fraudulently used investors' money for things such as cars, jewelry, a yacht, real estate, a lavish birthday party and retirement accounts.
None of the defendants took the witness stand during the trial. Two of the 34 charges against the defendants, mail fraud counts against Bryan Coffman and Milby, have been dismissed. A fourth defendant in the case, Vadim "Victor" Tsatskin of Canada, who was indicted with the other three in December 2009, testified for the prosecution and has been promised that he will not be prosecuted in exchange for his testimony, U.S. District Judge Karen Caldwell said. Assistant U.S. Attorney Kenneth Taylor said that Tsatskin pleaded guilty in a related case in Canada.
"The defendants were selling a pipe dream that had no possibility of coming true," Taylor told jurors in his closing argument. He said the defendants were selling guaranteed income and guaranteed production over a 30- to 40-year span.
"They knew that was false, and they sold it anyway," Taylor said. He said their intention was not to make money striking oil, but to make money through the wallets of the investors.
"This was a Ponzi scheme," he said, adding that a free-market economy can't exist if the businesspeople consumers deal with can't be trusted.
Taylor said Bryan and Megan Coffman made several million dollars on the scam, more than anyone else.
Taylor said Bryan Coffman, as a lawyer, gave the scheme the appearance of legitimacy. But he said Coffman quickly found out that drilling programs being sold by Milby, Coffman's client, were part of an elaborate scam. Instead of pulling out, Coffman embraced the scheme, he said.
A videotape, shown to jurors, of Milby talking to a bankers club in Cincinnati clearly showed Milby lying about guarantees of well production and hitting producing wells, Taylor said.
Taylor said it's rare to get a crime on videotape.
Attorney Steve Romines, who represents Bryan Coffman, said the investors were accredited, meaning that they met certain financial criteria before they could invest, and they don't want to acknowledge that what Milby did was legal.
Romines said prosecutors have ignored mountains of proof, including letters and other documents, that indicate Coffman was simply a lawyer giving legal advice to a client. He said the prosecution hadn't produced a single witness who said Coffman was anything more than a lawyer.
Bryan Coffman ran unsuccessfully for 6th District U.S. representative in the Republican primary in 2004 and for an Urban County Council seat in Lexington in 2006.
Defense attorney Michael Murphy, who represents Milby, said his client exaggerates and brags.
"He's told a lot of whoppers," Murphy said, adding that that doesn't make Milby guilty of crimes.
Murphy, a former longtime assistant U.S. attorney, asked jurors to consider carefully each witness's testimony and to grade the witnesses.
"This was an investment that was too good to be true," Murphy said. "The oil and gas exploration industry is one of the riskiest investments you can ever make in a lifetime."
Murphy said Milby maintains he is not guilty.
"Gary Milby was out there every day trying to find oil," he said.
Megan Coffman's attorney, Patrick Renn, said that his client couldn't know and didn't know anything about the oil and gas well drilling programs, and that she shouldn't be a defendant in the case at all.
Megan Coffman, who is accused of money laundering, had no knowledge of any "dirty" money in a bank account in her name, which was used to buy a $1.5 million yacht, he said.
Bryan Coffman gave his wife a $160,000 check to give to an attorney to buy a condominium for Megan Coffman's sister, he said. The money was a loan, and the purchase was "straight up," he said.
Megan Coffman formed two limited liability companies in her name because such entities help protect personal assets, not for handling tainted money, according to Renn. The several accounts she had in Lexington banks might be explained by the fact that the Federal Deposit Insurance Corp. insures only up to $250,000 in an account, he said.
Deliberations will resume Wednesday.