Man to stand trial for decades of alleged embezzling
ST. PAUL — The saga has betrayal, blackmail and even a longtime mistress. And then there’s the millions of dollars allegedly embezzled from one of St. Paul’s best-known businessmen.
In a court document filed Friday, federal prosecutors laid out the case they plan to present to a jury next week when John Joseph Waters Jr. goes on trial, accused of stealing from his longtime boss and friend, the late Gerard Leon Cafesjian, the retired West Publishing executive whose name is on St. Paul’s famous carousel.
Assistant U.S. Attorney William Otteson wrote in a pretrial brief that Waters engineered a scheme to embezzle millions from Cafesjian and that the scam lasted for years.
“Waters used the stolen money to satisfy the expensive personal spending habits of himself, his family, and a mistress whom he was secretly supporting for years,” Otteson wrote.
The alleged embezzlement totaled more than $6.3 million, the government claims, and he gave more than $700,000 of it “to his mistress, Cheri Kuhn (now Cheri Waters), whom he met at the Déjà Vu nightclub in the late 1990s and with whom he was having a long-term affair,” Otteson wrote.
Waters, 57, of Eden Prairie, has pleaded not guilty to the charges. In August, he was named in a 26-count federal indictment accusing him of mail and wire fraud, income tax evasion and filing a false income tax return.
His trial is scheduled to begin Monday in U.S. District Court in Minneapolis.
One of his attorneys, assistant federal public defender Reynaldo Aligada Jr., declined comment on the government’s trial brief Sunday.
Cafesjian, who died in September, spent years at West Publishing and retired in 1996 as an executive vice president. He retired a wealthy man and had become known for his philanthropy. He led the effort to save the Minnesota State Fairgrounds’ historic merry-go-round, later renamed the Cafesjian Carousel. It is now housed in a special pavilion at St. Paul’s Como Park.
Waters had gone to work for Cafesjian at West in 1994. When Cafesjian retired, he hired Waters to manage his personal business matters, and Waters spent 13 years in the job.
In the 22-page brief, Otteson said he and colleague Sarah Hudleston will prove that during those years, Waters “engaged in daily acts of deception” to embezzle money and cover his tracks.
“This is a case that involves betrayal, lies, stealing, tax-cheating, blackmail, and finally a fraud on the court,” Otteson began. He claimed that when Cafesjian began suspecting Waters was stealing from him, Waters “resorted to blackmail. When that did not work, he committed a fraud on this court by filing a baseless civil lawsuit … calculated to do nothing more than deflect, embarrass and cause additional pain to his victim in what would be the final years of his life.”
Waters had filed a breach-of-contract suit against Cafesjian in March 2012. A judge threw it out, but a counterclaim filed by the Cafesjian Family Foundation Inc. is pending.
At the heart of Waters’ civil lawsuit is his claim that he and Cafesjian had a “modified employment agreement” that allowed him to make withdrawals for various purposes. But prosecutors claim that the only agreement between boss and employee was a 1996 written employment contract that was never modified.
The government said it will present at least 20 witnesses and years worth of business, bank and tax records. They will paint a scheme in which Waters allegedly cashed checks from Cafesjian’s U.S. Bank account for more than $2.3 million.
Hundreds of checks
There were other bank accounts as well, Otteson wrote. “From 1999 and continuing until March 2009, the defendant siphoned more than $4 million out of Cafesjian’s personal checking account at Northern Trust Bank in Naples, Fla.,” the prosecutor wrote. “He wrote hundreds of checks to cash or to other facilitating accounts, all less than $10,000, and endorsed them himself.”
Banks are required to notify federal officials of any transaction of $10,000 or more, and the government claims Waters cashed checks below that amount to avoid government scrutiny.
When Cafesjian’s accountants wanted to see the accounts, Waters wouldn’t let them, Otteson wrote. “The defendant told them that the accounts were ‘private’ and ‘secret’ and that they ‘didn’t need to know’ about what was going on in them. The defendant made certain that the account statements were seen by no one in the office but him,” the trial brief said.
Waters left Cafesjian’s employ in March 2009. Cafesjian’s in-house accountant, Gary Jones, soon discovered the pattern of Waters’ bank withdrawals, Otteson wrote.
When Cafesjian learned what Waters allegedly was doing, he told the accountant to go ask Waters what the money had been taken for.
“The defendant told Jones: the money was used to buy art, make political contributions, and ‘other stuff you don’t want to know about,’” the brief claims.
Cafesjian hired a retired FBI agent and a former federal prosecutor, Andrew Luger, to investigate the matter. (Luger has since been named by President Barack Obama to serve as U.S. attorney for the District of Minnesota, and is to be sworn in Friday.) Their investigation allegedly disclosed the embezzlement, and the case was turned over to the FBI.
No taxes paid
Waters responded by filing a civil suit against Cafesjian, alleging breach of contract and demanding $5 million. In the suit, he claimed Cafesjian had orally modified the employment agreement, giving Waters a percentage of all his employer’s holdings as compensation beyond his salary. He also claimed that Cafesjian agreed to give him periodic and “as-needed” advances — and that he was owed even more.
“Thus, according to the defendant, not only had he not stolen from Cafesjian, but in fact, Cafesjian owed him millions more under their ‘Modified Employment Agreement,’” Otteson wrote.
Waters also is charged with tax evasion, and the prosecutor said that even if the suspect is cleared of embezzlement, he still has to explain why he didn’t claim the money on his taxes.
“Whether stolen, earned, or a loan he has never paid back, the money he received is reportable income that he willfully failed to report,” the trial brief said.
Otteson and Hudleston want Judge Ann Montgomery to allow some of Cafesjian’s “non-testimonial statements to various witnesses” allowed into evidence. Last month, the judge ruled that the government could not use a sworn deposition Cafesjian gave before his death.
St. Paul Pioneer Press